Gifts are a great way to appreciate your employees. Under the GST regime, there are specific rules about how and when gifts are taxed. Moreover, the rules regarding gifts to employees under GST also let you know when you need to pay such a tax. Therefore, before you plan your employee thank-you presents, it’s helpful for you to know when GST applies.
What Counts as a Gift?
Though GST law doesn’t define the term gift specifically, government published a press release to give some clarification. Accordingly, gifts are generally anything you give employees without expecting something in return. They’re given voluntarily and on an occasional basis. Employees can’t demand gifts or force you to give gifts in a court in order to fall under the GST law.
Perquisites, or perks, are also considered gifts. These include a variety of things you give employees while they work for you. Concert tickets and occasional spa gift certificates are few of the examples.
What Doesn’t Count as a Gift?
Under GST, there are a few items that are not considered as gifts. Such items are not covered under the same rules. For instance, providing employees with membership to a health club free of charge is not subject to GST. Same goes for offering any other service free of charge to all of your employees. In this case, the government assumes that you’ve already paid GST to buy these services.
In case your company offers perquisites to employees in their contracts, such offers are not considered gifts. Hence, they are not subject to GST. This means that if you provide free housing to your workers, and the arrangement is laid out in the employment contract, you don’t need to pay GST. Again, this is assuming that you pay GST when you obtain the product or service.
The GST law specifically calls out the services that your employees provide your company. In terms of the law, this work is not considered to be goods or services, so it falls outside of the GST regime.
What Gifts Are Subject to GST?
You do not need to pay GST on gifts that are worth ₹50,000 or less. This total applies to each employee. So, you could give 11 employees gifts worth ₹10,000 each without paying tax. When your gifts total more than ₹50,000 in value per year per employee, you need to start paying GST. This rule holds true for gifts that you give while the employee is working for your company.
As you plan your gifts and perks, it’s important to keep detailed records for each of the goods and services that go to individual employees. It’s a good idea to hold on to your receipts and track the running total for each worker. This way, you don’t have to worry about accidental non-compliance. Instead, you can pay GST when necessary, or simply cut back on gift-giving when you’re close to the ₹50,000 limit.
As a small business owner, gifts are one way to build a positive company culture. By staying on top of your spending, you can keep your employees happy without racking up an unexpected GST bill.