GST on Reimbursement of Expenses to employees
First of all we should know which type of Expenses to be reimbursed by employer to employees.
1. Reimbursement of expenses for supplies received by employees as per the terms of employment*
In this case reimbursement is made by employer for expenses such as fooding, lodging, Conveyance and other perks as per the terms of employment which is booked by employer in his PL as Employment Cost, reimbursement of such exps. to employees will be treated as cost of employment and GST will not be applicable on employer under RCM even if such goods or services received by employees from unregistered Supplier.
2. Reimbursement of business expenditure incurred by employee on behalf of employer
Reimbursement of such expenses which are incurred by employee on behalf of employer as his agent in the course of furtherance of business liable to GST under RCM if such goods or services are taken from unregistered suppliers and booked in PL as expenditure in respective head of expenses.
For example If payment of repairing charges of Office Computer is made by employee to unregistered supplier which is reimbursed by employer and will be booked in PL as repairing and maintenance of computer exps Such expenses will be liable to GST under RCM.
However, if employee has taken the service from registered supplier RCM would not be applicable but availability of ITC will depend on fact whether billing was done in the name and GSTIN of employer.
3. Reimbursement of Expenses for which employer is not under any obligation to reimburse but reimbursed as his choice.
In such case it would be covered under the Schedule I of GST act and treated as gift made by employer to employee. However, gift not exceeding Rs. 50,000 in a year for an employee will be exempt from tax.
For example: Expenses for holiday trip of employee or Expenses for birthday celebration of employee is reimbursed by employer which he was not under obligation to reimburse as per the terms of employment.
CA Himanshu Singh
Author Can be reached @ firstname.lastname@example.org