Salary, full & final settlemet - is gst & tds applicable ?
This query is : Resolved
14 June 2018
Dear Experts,
We have hiring a employees on contract basis ( 1 year Contract ). The contractor raised invoice of reimbursement of salary ( RS 26000 ), reimbursement of full & final settlement ( rs 246500 ) with inclusive of management charges as per the contract . we don't have any employer and employee relationship between hired employees and contractor. In this case i have some doubts.
1. Is GST applicable on salary , Full & Final settlement.?
2. Vendor charged amount with GST, Is this Right.?
3. Is TDS applicable ? if yes, tel me the % of TDS.
We have hiring a employees on contract basis ( 1 year Contract ). The contractor raised invoice of reimbursement of salary ( RS 26000 ), reimbursement of full & final settlement ( rs 246500 ) with inclusive of management charges as per the contract . we don't have any employer and employee relationship between hired employees and contractor. In this case i have some doubts.
1. Is GST applicable on salary , Full & Final settlement.?
2. Vendor charged amount with GST, Is this Right.?
3. Is TDS applicable ? if yes, tel me the % of TDS.
11 July 2024
In the scenario you've described, where you are hiring employees on a contract basis through a contractor, there are several considerations regarding GST and TDS (Tax Deducted at Source). Here are the answers to your queries:
1. **GST Applicability**:
- **Salary Reimbursement**: Generally, reimbursement of salary paid to employees is not considered as a supply of goods or services and hence not liable to GST. Therefore, GST should not be applicable on the reimbursement of salary.
- **Full & Final Settlement**: Full & Final Settlement typically includes payments related to the termination of employment, such as gratuity, leave encashment, etc. GST is not applicable on such payments either as they are not considered a supply for GST purposes.
2. **Vendor Charging GST**:
- Since GST should not be applicable on salary reimbursement and full & final settlement as described above, the vendor (contractor) should not charge GST on these items. If the contractor has included GST erroneously, you should discuss with them to correct the invoice.
3. **TDS Applicability**:
- **TDS (Tax Deducted at Source)** is applicable if the payment made to the contractor exceeds certain specified thresholds under the Income Tax Act, 1961. For payments made to contractors for services, including management charges, TDS is applicable.
- The current TDS rate applicable on payments made to contractors for services under Section 194C of the Income Tax Act is 1% if the contractor is an individual or a Hindu Undivided Family (HUF), and 2% if the contractor is a company or a firm.
- Therefore, you need to deduct TDS at the applicable rate on the management charges included in the invoice.
**Practical Steps**:
- Verify the invoice raised by the contractor to ensure GST is not charged on salary reimbursement and full & final settlement.
- Deduct TDS at the appropriate rate (1% or 2%) on the management charges component of the invoice.
- Ensure compliance with GST and TDS regulations by maintaining proper documentation and records of the deductions made.
If there are any doubts or specific details in the contract that may affect the applicability of GST or TDS, it is advisable to consult with a qualified tax professional or accountant who can provide guidance tailored to your specific situation and ensure compliance with tax laws.
1. **GST Applicability**:
- **Salary Reimbursement**: Generally, reimbursement of salary paid to employees is not considered as a supply of goods or services and hence not liable to GST. Therefore, GST should not be applicable on the reimbursement of salary.
- **Full & Final Settlement**: Full & Final Settlement typically includes payments related to the termination of employment, such as gratuity, leave encashment, etc. GST is not applicable on such payments either as they are not considered a supply for GST purposes.
2. **Vendor Charging GST**:
- Since GST should not be applicable on salary reimbursement and full & final settlement as described above, the vendor (contractor) should not charge GST on these items. If the contractor has included GST erroneously, you should discuss with them to correct the invoice.
3. **TDS Applicability**:
- **TDS (Tax Deducted at Source)** is applicable if the payment made to the contractor exceeds certain specified thresholds under the Income Tax Act, 1961. For payments made to contractors for services, including management charges, TDS is applicable.
- The current TDS rate applicable on payments made to contractors for services under Section 194C of the Income Tax Act is 1% if the contractor is an individual or a Hindu Undivided Family (HUF), and 2% if the contractor is a company or a firm.
- Therefore, you need to deduct TDS at the applicable rate on the management charges included in the invoice.
**Practical Steps**:
- Verify the invoice raised by the contractor to ensure GST is not charged on salary reimbursement and full & final settlement.
- Deduct TDS at the appropriate rate (1% or 2%) on the management charges component of the invoice.
- Ensure compliance with GST and TDS regulations by maintaining proper documentation and records of the deductions made.
If there are any doubts or specific details in the contract that may affect the applicability of GST or TDS, it is advisable to consult with a qualified tax professional or accountant who can provide guidance tailored to your specific situation and ensure compliance with tax laws.
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