Any commodity or a service which is provided to an employee for free as part of his or her total remuneration package is termed as a fringe benefit. With this article, let’s see how fringe benefits are treated in relation to GST.
You (as an employer) can make a claim for the GST you’ve incurred on a fringe benefit provided the benefit is incurred due to a reason related to your business. This is because every fringe benefit comprises components of personal usage on which GST needs to be imposed. A fringe benefit is incurred for the sake of your business only when it has a close connection to your business activity. Also, the benefit should not be:
Example 1: Let’s assume you purchased a motor car to reward your employee because he has performed outstandingly well and achieved his sales target. The input GST you’ve incurred via the motor car purchase cannot be claimed as it is not allowed as per Regulation 27.
Example 2: Let’s assume you decided to pay your staff member’s club membership subscription charges as a fringe benefit. Here, the input tax you’ve incurred while making the subscription fee payment cannot be claimed since it is not allowed according to Regulation 26.
You might have to account for the output tax in relation to fringe benefits in the event you have claimed input tax on acquiring the fringe benefits.
When an employer provides free services, it will not be subjected to GST. Assume, as an employer you allowed your employee to utilise the office phone for making his or her personal calls, it is not necessary for you to account for output GST.
You will have to account for output tax on commodities that are provided to your staff members. This will not be applicable under the following circumstances:
A classic example for this would be when you (as an employer) buy gifts from a non-GST registered supplier. It is not required for you to account for output tax since an input tax was not incurred.
Note: In case GST was suspended on goods you purchased or imported initially (example: the commodities that were imported under the Major Exporter Scheme), the suspended GST will be considered as an input tax that was approved to you.
When you allow your employees to utilise office goods on a temporary basis you will need to account for output tax. This is not applicable to a few scenarios such as:
Example: Let’s consider you brought a motorcycle with an intention to use it for your business deliveries and you claimed input tax that you’ve incurred on the motorcycle purchase. You allow your employees to utilise the motorcycle (for free) during weekends for their personal chores. You’ll have to account for output tax on the specific portion of personal usage.
As an employer, it is important that you review fringe benefits that were provided to your employees on a timely basis and make necessary changes while preparing respective GST returns.