GST on Employee Perks: Gifts, Canteen Recovery and Notice Pay
Gifts to an employee up to ₹50,000 a year are not a GST supply, perquisites under the employment contract are outside GST, and CBIC has clarified that notice pay recovery is not taxable. Input tax credit on food, health insurance, club memberships and gifts is blocked unless providing them is required by law.
Accounts teams often wonder whether GST applies to what flows between a company and its employees: festive gifts, canteen recoveries, a notice-pay deduction. Most of it is outside GST, but credit on many employee benefits is blocked.
The basic principle
Services by an employee to the employer in the course of employment are not a supply under GST. And under CBIC Circular 172/04/2022, perquisites the employer provides under the employment contract are not a supply either.
A quick reference
| Transaction | GST position |
|---|---|
| Salary and wages | Outside GST |
| Gifts to an employee up to ₹50,000 a year | Not a supply, so no GST |
| Gifts above ₹50,000 a year | A supply; GST applies on the value |
| Perquisites under the employment contract (housing, transport) | Not a supply |
| Notice pay recovered from an employee who leaves early | Not taxable, per CBIC Circular 178/10/2022 |
| Canteen charges recovered from employees, where the employer only passes on the cost | Generally not a supply; check your arrangement |
Input tax credit on employee benefits
Section 17(5) of the CGST Act blocks credit on many items, unless providing them is obligatory under a law:
- ✓food and beverages, and outdoor catering;
- ✓health services, cosmetic and plastic surgery, beauty treatment;
- ✓life and health insurance;
- ✓club memberships and health and fitness centres;
- ✓travel benefits for employees on vacation, such as leave travel;
- ✓goods given as gifts.
For example, if the law requires a canteen in your factory, credit on the canteen service may be available. Advance rulings have generally limited that credit to the part of the cost the employer bears.
A worked example
A Vapi chemical unit with 300 workers runs a canteen through a caterer, as the law requires for its size. The caterer charges ₹6 lakh a month plus GST. The unit recovers ₹2 lakh a month from employees.
- ✓Credit is available on the GST relating to the ₹4 lakh the employer bears.
- ✓The ₹2 lakh recovered from employees: no output GST, as the unit is passing on cost under the employment arrangement. Confirm your facts with your CA.
Frequently asked questions
Does a team dinner count as a gift?
No, it is food and beverages. GST credit on it is blocked.
Is a ₹60,000 laptop given to an employee to keep a gift?
If it is a gift and exceeds ₹50,000 in the year, GST applies on its value. If it is a work tool returned on exit, it is not a gift.
Is GST payable on a bond amount recovered from a trainee who leaves early?
Treat it like notice pay. Check the circular and your agreement with your CA.
Sources
- ✓GST on gifts by employers up to ₹50,000, TaxHeal
- ✓GST on employee benefits, Clever Coins
- ✓GST Council clarification on employee gifts
This is a summary, not legal advice. Confirm with your chartered accountant.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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