GST not levied on Services rendered by an employee to the employer- a discussion about employment, employer and employee for brain storming on important issues.
Scope of this article:
An attempt has been made to discuss provisions and general understanding about employment and applying the same in context of provisions relating to GST.
For easy understanding and brevity , relevant portions from related provisions are extracted and reproduced below with highlights added by author.
CENTRAL GOODS AND SERVICES TAX ACT, 2017
LEVY AND COLLECTION OF TAX
Scope of supply.
7. (1) For the purposes of this Act, the expression “supply” includes––
(2) Notwithstanding anything contained in sub-section (1),––
(a) activities or transactions specified in Schedule III; or
shall be treated neither as a supply of goods nor a supply of services.
SCHEDULE III [See Section 7]
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1. Services by an employee to the employer in the course of or in relation to his employment.
Discussions during course of introduction and implementation of GST.
On this subject we find discussion in
9. Taxable person
(3) The following persons shall not be considered as taxable persons
for the purposes of this Act –
(a) any person who provides services as an employee to his employer in the course of, or in relation to his employment, or by any other legal ties creating the relationship of employer and employee as regards working conditions, remunerations and employer’s liability;
FAQ on GST (2nd Edition) dated 31.3.2017
Q 23. Are there any activities which are treated as neither a supply of goods nor a supply of services?
Ans. Yes. Schedule-III of the model GST law lists certain activities such as (i) services by an employee to the employer in the course of or in relation to his employment, xxx
Draft legislation June,2016
The exception proposed in draft legislation, as reproduced earlier is elaborative of the nature of employment. The same is analyzed herein below:
The following persons shall not be considered as taxable persons for the purposes of this Act –
who provides services as an employee
to his employer
in the course of, or in relation to his employment,
or by any other legal ties
creating the relationship of employer and employee as regards:
Author could not find any specific definition of employer, employee, and employment, in the GST legislations. However, discussion during drafting stage by way of drat and FAQ as reproduced earlier we find that employment is considered in a wider sense and it includes contract for service in any manner including any other legal ties which provides for working conditions, remunerations and employer’s liability;
Therefore, we have to follow definition and meaning as per dictionaries and trade practices and commercial understanding.
An employer is a person, company, or organization that employs people-pays them for work. The people who are paid to work are called employees. Employers provide employment.
What do mean by employment?
Employment most generally means the state of having a paid job-of being employed. To employ someone is to pay them to work. An employer provides employment to employees. Employment can also refer to the act of employing people, as in We're working to increase our employment of women.
What is employment and example?
Employment is defined as what you do as a paying job. An example of employment is working for a coffee shop. noun.
an act or instance of employing someone or something.
the state of being employed; employ; service: to begin or terminate employment.
an occupation by which a person earns a living; work; business.
the total number of people gainfully employed or working.
an activity or the like that occupies a person's time:
She found knitting a comforting employment for her idle hours.
OTHER WORDS FOR employment
vocation, calling; job, trade, profession.
verb (used with object)
to hire or engage the services of (a person or persons);
provide employment for;
have or keep in one's service:
After reading of many articles on the subject, author summarize general understanding which are relevant for GST purposes:
A person ( means an individual only) is hired after an application / approach and interview process by another person who is employer and employ first person (employee) for a specific job, or task or a variety of tasks for certain period.
Employee works under the employer (or his representatives) either full time or part time and in return gets paid for their services.
Employee can and may be required to work at place of employer or at place of customers of employer and also from home of employee, as the work to be done required and for which necessary facilities are available.
Necessary aspects are that employer engages employee for doing work on behalf of employer , to keep time reserved for doing the work, employer rewards the employee for work done and time reserved both.
Both the employer and employee depend on each other to achieve a target. The employee work for the employer to get rewards financially and otherwise.
Employer employee relationship can be terminated as per agreement or as per general practices.
Authors point of view:
Point of view expressed by the author in discussion forum of this website are summarized below with further addition after more studies:
- there is no definition of employer and employee in provisions of GST.
- In Income-tax Act also there are different heads of income for computation purposes to determine taxable income after allowing some relief and deductions and also denying some deductions though expenses may be incurred.
- General aspects related to employer and employee are to be considered.
- Provisions relating to deductions of tax under particular provision or inclusion of income under any particular head under Income tax Act and other provisions like profession tax, ESI, PF etc. are not conclusive for GST/ services.
- Employment can be as per varied agreement – written , verbal, by way of appointment letter or by way of enrolment of employee under standard by-laws, or y way of simple conduct of employer and employee.
For employment, in context of service tax, essential aspects appears to be :
Responsibility and accountability to do some work and report progress to the employer.
The work can be specified or can be unspecified.
Accordingly there will be combination of work done and time reserved for doing such work. Some idle time is also paid for.
Reward will be for work and time reserved / spent both.
In some situation even if no work is done or less work is done yet some reward is payable because reward is for time also.
In some situations reward is fixed for work likely to be done and time reserved and incentive will depend on productivity, quality and efficiency etc.
Work is done and reported from time to time to employer/ principal or his representatives.
Ultimate decision of employer will prevail about the work to be done and how to be reported.
Ultimate responsibility will be of the employer and not of employee. Employee will not be liable to third parties even if worked at their premises on behalf of employer.
Work related relationship-
There must be relationship of principal / employer and agent / employee in such a manner and situation that the agent is responsible for doing some work and has to report to principal or his representative.
Employee is not responsible to any other party in relation to work done by him for his employer.
Ultimate responsibility in relation to such work is that of principal / employer and not of agent / employee or employed person.
In that case employee relationship exists in the context of service tax or GST.
Another important aspect can be that employee is to be an individual only. A group of persons or organizations of people when they undertake responsibility for doing any work on behalf of principal cannot be properly called employee and working as an employee.
Therefore, a partnership firm, a company, or any other organization though working for employer cannot be called employee.
When agent ( employed person) is having ultimate responsibility in relation to work done by him not only to employer but also to third parties, then employed person may not be regarded as employee of employer , for those limited purposes. In such situation a part can be as employee and a part as an independent service provider.
If agent is independent of employer, may be for all activities or some of activities, then activities for which he is independently responsible to parties other than employer/ principal he will be a service provider as independent person providing services and not services in course of employment.
Remuneration can be called by any name or nomenclature, it can be determined and discharged in any manner that will not be conclusive.
The accounting treatment, and disclosures in documents, incidental aspects which are specific to laws governing employment like PF, ESI, Gratuity, pension, profession tax etc. will be considered prima facie indicators of employment. However, even without these special terms and conditions there can be employer –employee relationship for the purposes of GST.
Employee cannot be employer of himself.
A person cannot be employer of himself.
A self-employed person himself is not employer and employee both. However he can employ others and can also be employed by others under agreement or legal ties or commercial practices.
He can be employed by others as per terms and conditions agreed for doing work for employer. For example, an engineer can be in full time employment of employer or can be employed for specific works or variety of works as and when required – in that case he is to be available when required or at reasonable notice and must spend time required for doing the work agreed.
Readers are requested to share their views and experience.