Case scenario:
The company purchases laptops for the use by its employees paying GST on it. The input of GST on the same is also claimed by the company. The company capitalizes the laptops as fixed assets and charges depreciation every year under WDV method at the rate of 40% p.a.
After three years from the date of purchase, the laptops are sold to the employees at a fixed price of Rs.10000 (inclusive of GST).
The same is treated as sale of assets in the books of accounts and the profit on such sale is transferred to P&L account.
GST Provisions:
GST is applicable on “Supplies” of goods and services. The scope of the term “supplies” has been elaborately defined at Section 7 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) which primarily includes transactions made for a consideration.
However, in cases referred at Schedule I to the CGST Act, transactions are treated as supplies even if the consideration is absent which includes supplies between related persons when such supplies are made in the course or furtherance of business.
In this context, it would be relevant to note that the explanation appended to Section 15 of the CGST Act provides that employer and employee will be deemed to be “related persons”. Accordingly, supplies by employer to employees would be liable to GST even though these supplies are made without consideration since they are considered as related persons (except gifts up to Rs 50,000 which has been detailed at a later point in time in this document).
However, Schedule III to the CGST Act provides that “services by employee to the employer in the course of or in relation to his employment” will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment.
Hence, transactions which are excluded from the levy of tax for transactions between employee and employer are
1. Supply of services by employee to employer in the course of employment
2. Gifts by Employer to employee not exceeding Rs 50,000 in a Financial Year
Disposal or Sale at concessional rate:
Companies might allow employees to retain asset like laptop when he quits the organization or allow the employee to use a company asset for personal purposes. In such cases, the employer will have to pay taxes on the value of such assets irrespective of whether the credit is availed on such assets or not since this transaction will get covered under Sl No 2 of Schedule I and not Sl No 1 of Schedule I (Sl No 1 of Schedule I gets attracted only when the assets on which credit is claimed are disposed off. However, since the transaction in the instant case is with the employee, GST will apply even if input tax credit has not been claimed by the employer on these assets). Thus, pre-GST procured assets provided to the employees free of charge will also be liable to GST.
Income Tax Provisions:
In the hands of employee, this could be treated as a perquisite.
As per Income Tax Act, 1961, “Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages. In essence, these are usually non-cash benefits given by an employer to employees in addition to cash salary or wages. However, they may include cases where the employer reimburses expenses or pays for obligations incurred by the employee. Perquisites are also referred to as fringe benefits.
Broadly, “perquisite” is defined in the section 17(2) of the Income-tax Act as including:
1) Value of rent-free or concessional rent accommodation provided by the employer.
2) Value of any benefit/amenity granted free or at concessional rate to specified employees etc.
3) Any sum paid by employer in respect of an obligation, which was actually payable by the assessee.
4) Any sum paid by the employer for assurance on life of the
employee or to effect a contract for an annuity.
5) Value of any other fringe benefit as may be prescribed
Valuation of the perquisite:
Rule 3(viii)
The value of benefit to the employee arising from the transfer of any movable asset belonging to the employer directly or indirectly to the employee or any member of his household shall be determined to be the amount representing the actual cost of such assets to the employer as reduced by the cost of normal wear and tear calculated at the rate of 10 per cent of such cost for each completed year during which such asset was put to use by the employer and as further reduced by the amount, if any, paid or recovered from the employee being the consideration for such transfer :
Provided that in the case of computers and electronic items, the normal wear and tear would be calculated at the rate of 50 per cent and in the case of motor cars at the rate of 20 per cent by the reducing balance method.
Rule 3(7)(viii): Any movable asset sold at a concessional price
Computer or Electronic item
Taxable Value =
Actual cost to employer
Less: Depreciation @ 50% for every completed year under WDV Method
Less: Consideration recovered from the employee for such sale
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