Gst impact on accommodation to employee by employer
This query is : Resolved
08 September 2017
Hi Expert,
Company has paying rent to landlord (landlord is not registered under GST) on behalf of employee and the same amount deducting from their salary.
My question is that :-
Should we consider it as a reimbursement or should be book under reverse charge under GST.
Regards
Hemant
Company has paying rent to landlord (landlord is not registered under GST) on behalf of employee and the same amount deducting from their salary.
My question is that :-
Should we consider it as a reimbursement or should be book under reverse charge under GST.
Regards
Hemant
08 September 2017
you may treat rent paid on behalf of employee as an advance paid that employee, as you are deducting from his salary. I think it also not come under reimbursement employee has not paid rent. so nature of payment look like advance only. as company paid on behalf of employee.
08 September 2017
Thank You Sanjay.
Even We are deducting the tds from landlord rent amount.
Thats why just want to know, should we book the invoice under reverse charge (as Vendor is not registered under GST) or if we consider employer employee relationship then GST wont be applicable.
Please advise.
Even We are deducting the tds from landlord rent amount.
Thats why just want to know, should we book the invoice under reverse charge (as Vendor is not registered under GST) or if we consider employer employee relationship then GST wont be applicable.
Please advise.
26 July 2024
When dealing with GST on accommodation provided to employees by an employer, there are specific considerations and guidelines to follow. Here’s a detailed look at how GST applies in this situation:
### **1. **Understanding the Scenario**
- **Employer Payments**: Your company pays rent to a landlord on behalf of an employee.
- **Reimbursement**: The company deducts the rent amount from the employee’s salary.
- **Landlord**: The landlord is not registered under GST.
- **TDS**: Tax Deducted at Source (TDS) is being deducted from the landlord’s rent amount.
### **2. **GST Implications**
#### **A. **Reverse Charge Mechanism (RCM) Applicability**
- **RCM and GST**: Reverse Charge Mechanism (RCM) applies when the recipient of goods or services is required to pay the GST instead of the supplier.
- **Vendor Status**: Since the landlord is not registered under GST, the RCM would typically apply if the rent payment was a taxable service.
**However, in this case, there are key factors to consider**:
1. **Accommodation Provided to Employees**: This is an employee benefit, not a business service. According to GST regulations, certain employee benefits provided by an employer to employees are generally not subject to GST.
2. **Landlord Not Registered**: Since the landlord is not registered under GST, and if you were to consider it as a business expense, the reverse charge would apply to ensure that GST is paid. But since the landlord is not registered, there is no GST applicable to this transaction from their side.
3. **Employer-Employee Relationship**: GST does not apply to transactions between an employer and employees for employee benefits, provided these are not considered a supply of goods or services under GST law.
#### **B. **Treatment of the Transaction**
- **Reimbursement vs. Supply**: Since the accommodation provided is an employee benefit and you’re merely deducting the amount from the employee’s salary, it is treated as a reimbursement and not as a supply of service. Therefore, it is not subject to GST.
- **RCM**: In this specific scenario, RCM is not applicable since the accommodation is considered a benefit to the employee rather than a business expense.
### **3. **Accounting and Reporting**
#### **A. **Accounting Treatment**
- **Expense Entry**: Record the rent payment as an expense (Employee Benefits or Accommodation Expenses) in your accounting records.
- **Salary Deduction**: Record the deduction from the employee’s salary as a recovery.
#### **B. **GST Reporting**
- **No GST**: Since the landlord is not registered and the payment is for employee accommodation, GST is not applicable. Therefore, you should not book it under reverse charge or include it in GST returns.
#### **C. **TDS Considerations**
- **TDS**: Continue to deduct TDS as per the applicable Income Tax provisions. TDS on rent is a separate compliance and is not related to GST.
### **4. **Example**
**Scenario**:
- **Rent Paid**: ₹20,000
- **Employee’s Salary Deduction**: ₹20,000
- **Landlord’s GST Status**: Not registered
**Accounting Treatment**:
- **Expense**: ₹20,000 (Accommodation Expense)
- **Recovery**: ₹20,000 (Deducted from Employee’s Salary)
**GST Implications**:
- **No GST**: Since this is an employee benefit and not a business supply, GST does not apply.
### **Summary**
- **GST**: Not applicable to accommodation provided to employees by the employer, even if the landlord is not registered.
- **Reverse Charge**: Not applicable in this case since the transaction is between an employer and employee and not considered a supply of service under GST.
- **Accounting**: Record the rent payment as an expense and the salary deduction as a recovery. TDS should be deducted as per income tax provisions.
By following these guidelines, you can ensure proper handling of accommodation expenses and compliance with GST and other applicable regulations.
### **1. **Understanding the Scenario**
- **Employer Payments**: Your company pays rent to a landlord on behalf of an employee.
- **Reimbursement**: The company deducts the rent amount from the employee’s salary.
- **Landlord**: The landlord is not registered under GST.
- **TDS**: Tax Deducted at Source (TDS) is being deducted from the landlord’s rent amount.
### **2. **GST Implications**
#### **A. **Reverse Charge Mechanism (RCM) Applicability**
- **RCM and GST**: Reverse Charge Mechanism (RCM) applies when the recipient of goods or services is required to pay the GST instead of the supplier.
- **Vendor Status**: Since the landlord is not registered under GST, the RCM would typically apply if the rent payment was a taxable service.
**However, in this case, there are key factors to consider**:
1. **Accommodation Provided to Employees**: This is an employee benefit, not a business service. According to GST regulations, certain employee benefits provided by an employer to employees are generally not subject to GST.
2. **Landlord Not Registered**: Since the landlord is not registered under GST, and if you were to consider it as a business expense, the reverse charge would apply to ensure that GST is paid. But since the landlord is not registered, there is no GST applicable to this transaction from their side.
3. **Employer-Employee Relationship**: GST does not apply to transactions between an employer and employees for employee benefits, provided these are not considered a supply of goods or services under GST law.
#### **B. **Treatment of the Transaction**
- **Reimbursement vs. Supply**: Since the accommodation provided is an employee benefit and you’re merely deducting the amount from the employee’s salary, it is treated as a reimbursement and not as a supply of service. Therefore, it is not subject to GST.
- **RCM**: In this specific scenario, RCM is not applicable since the accommodation is considered a benefit to the employee rather than a business expense.
### **3. **Accounting and Reporting**
#### **A. **Accounting Treatment**
- **Expense Entry**: Record the rent payment as an expense (Employee Benefits or Accommodation Expenses) in your accounting records.
- **Salary Deduction**: Record the deduction from the employee’s salary as a recovery.
#### **B. **GST Reporting**
- **No GST**: Since the landlord is not registered and the payment is for employee accommodation, GST is not applicable. Therefore, you should not book it under reverse charge or include it in GST returns.
#### **C. **TDS Considerations**
- **TDS**: Continue to deduct TDS as per the applicable Income Tax provisions. TDS on rent is a separate compliance and is not related to GST.
### **4. **Example**
**Scenario**:
- **Rent Paid**: ₹20,000
- **Employee’s Salary Deduction**: ₹20,000
- **Landlord’s GST Status**: Not registered
**Accounting Treatment**:
- **Expense**: ₹20,000 (Accommodation Expense)
- **Recovery**: ₹20,000 (Deducted from Employee’s Salary)
**GST Implications**:
- **No GST**: Since this is an employee benefit and not a business supply, GST does not apply.
### **Summary**
- **GST**: Not applicable to accommodation provided to employees by the employer, even if the landlord is not registered.
- **Reverse Charge**: Not applicable in this case since the transaction is between an employer and employee and not considered a supply of service under GST.
- **Accounting**: Record the rent payment as an expense and the salary deduction as a recovery. TDS should be deducted as per income tax provisions.
By following these guidelines, you can ensure proper handling of accommodation expenses and compliance with GST and other applicable regulations.
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