Employers need not deduct GST on subsidised meal cost recovered from employees, rules AAR

New Delhi: Employers will not be required to deduct GST on the subsidised meal cost recovered from employees, the Authority of Advance Ruling has said.

Zydus Lifesciences had approached the Gujarat bench of the AAR on whether GST would be levied on the amount deducted from the salaries of its employees who avail food in the factory/corporate office.

The company has entered into an agreement with the canteen service provider as per which it pays full amount to the service provider for the food served during a prescribed period on behalf of the employees. A pre-determined percentage of the amount paid by Zydus Lifesciences is recovered from the employees and the balance amount is borne by the company.

In its ruling the AAR said the applicant or Zydus Lifesciences is not liable to pay GST on the amount deducted/recovered from the employees.

The applicant collects/recovers the partial amount from the employees and is required to pay the gross amount inclusive of GST to the canteen service by adding residual amount in the employees' portion and is required to pay gross amount of bill inclusive GST to the canteen service provider.

Zydus Lifesciences has submitted that it does not retain with itself any profit margin in this activity of collecting employees' portion of canteen charges, the AAR said, while ruling that GST would not be levied on the meal cost recovered from employees' salary.

"Subsidised deduction made by the applicant from the employees who are availing food in the factory/corporate office would not be considered a supply under the provisions of .... Goods and Service Tax Act, 2017...," the AAR said.

EY Tax Partner Saurabh Agarwal said the AAR has ruled that portion of meal cost recovered from the salary of employees would not be considered as 'supply' in terms of GST law as the applicant only acts as mediator for completing the payment transaction and no supply actually happened between employer and employee.

This particular issue has ambiguity since inception of GST legislation, certain ambiguities were removed by circulars issued in relation thereto though different pronouncements by advance ruling authorities has again created snags.