GST AAR: No Need to Deduct Tax on Meal Cost Paid by Employees

As per the recent ruling from the Authority of Advance Ruling (AAR) the employers are now relieved from the process of deduction of GST on the subsidy-based meal amount received from the employees.

Zydus life sciences approached the AAR’s Gujarat bench to get clarification on the GST deduction on the food amount bought from the corporate office and factory levied from the salaries of the employees.

The company Zydus Lifesciences has established a contract with the outside food company which serves the employees with the food and in return, Zydus pays the amount to the food contractor for the services provided as per the period. Zydus takes some percentage from the employees of the food service and the remaining is paid by the Zydus company itself.

The AAR in its ruling had cleared the air by mentioning that Zydus is not at all responsible to deduct the GST on the payment received from the employees on the food services provided to them.

The company currently pays the gross amount and then receives a partial amount from the employees working within its vicinity while the gross amount is included with the GST to the services of the canteen and then further additional pending amount is asked by the employees as part of the payment which is then directed to pay the gross payment of the amount generated by the canteen service provider including the GST.

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The Zydus further mentioned that it does not save any profit margin in this process and this fact had a further mad way on the company as the AAR held that the GST will not be applicable on the meal cost which is taken from the salary of the employees.

The AAR in its statement said that “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.”

There are multiple issues within the GST process and this issue mentioned the same ambiguity of the GST laws and further proves that the GST council needs to work hard on some of the pending resolving issues for the sake of the companies.

A tax expert mentioned that “Some GST registrants have been paying GST on the open market value of the meal in case part recoveries are made from the employees to avoid unwanted litigation which is ultimately becoming a cost to the business. A clarification from CBIC on this issue would help in bringing certainty of tax position for the industry.”