To avail Input Tax Credit with respect to a large number of transactions is an all-time concern for taxpayers. Even the government has strictly enlightened the suppliers of goods and services to represent all figures and transactions in a fair manner, as any mismatch or misreporting of taxes can cost them a restriction over their input of 80% of the total ITC they have applied for.
For those running industries and ventures, several transactions of office purchases and hospitality of employees are still in doubt of whether ITC on such expenses to be claimed or not. In day to day routine of business several purchases are done some for the benefit of business, some for the employees and some for maintenance of the workplace. All these purchases are then bifurcated to know which transaction owe business claims over ITC.
Because rules of GST are different for different occupations and organizations, claim over ITC for expenses made by the employer for the employee being in the workspace or outside like for accommodation charges, insurance, medical charges, food, canteen, transportation, purchase of protective equipment, etc is still in a list of doubts.
In this post, we have tried to clear some doubts related to ITC claim on employee expenses.
Blocked ITC on Employee Expenses
Section 17(5) of the GST act prescribes for the list of all expenses which are not permissible to be availed for the Input tax credit under GST except in few circumstances.
- For expenses made for providing food and beverages, outdoor catering, beauty treatment, cosmetics or plastic surgery, health services.
- For allowance of motor vehicles, if granted for personal use/transportation of employees and not for the business purposes as specified in clause (A) or clause (AA) of Section 17(5).
- For allowance for obtaining membership in any club, health or fitness center.
- Travel benefits provided for vacation leaves, special leaves or as home travel concessions other than, transportation allowance granted to an employee as an operational expense.
- When goods distributed as gifts – goods and or services used for personal purposes.
Eligible ITC on Employee Expenses
Employers with effected amendments on 1st February 2019 in Section 17(5) are eligible to claim for ITC on all expenses incurred by them towards their employees where it is obligatory for them to make such expenses or provide services to them under any law.
Input Tax Credit on the Transportation facility
ITC in terms of transport facility provided by the employer where it is obligatory/ required for the operation of business / can be claimed under GST. It can be related to:
- Transportation cost of women employees to the workplace (cab services etc).
- Employee travel for business work.
- Travel and hotel stay of the employee for any business purpose.
Input Tax Credit on Insurance Allowances
ITC in terms of Insurance allowances shall be provided in case the employer is obligatory to provide such insurance under any legislation or as per the terms of Central or State government rules. ITC can be availed for:
- Employee accident insurance.
- Employee workplace hazard insurance.
- Employee insurance under the EPF Act, 1952.
- Employee Insurance working in construction sites etc.
Input Tax Credit on Food services
Other than the basic canteen services to be provided under the Industrial labor laws, no ITC can be availed for outdoor catering of employees. For food-related expenses if prescribed by any labor legislation, ITC can be availed for:
- Payment to the contractor for hiring food services for employees.
- Payment for food preparation and resources used in premises etc.
Input Tax Credit on Security of Employees
For payments made for health services, medical facilities and protective’s bought for the safety and well being of employees as obligatory under any labor/employer legislation ITC can be claimed in GST. Also, ITC is eligible for:
- Purchase of helmets, first aid kits and other medicinal/protective equipment for the safety of employees.
- Protective’s bought for the safety of employees against extreme heat /cold conditions etc.
Input Tax Credit on Accommodation
For accommodation services provided to employees other than those required for business purposes shall not eligible for ITC under GST. But ITC for the following accommodation expenses can be claimed:
- For hotel expenses paid for employee gone to attend an urgent meeting.
- For PG/Room hired for rent by an employee for business purposes.
Input Tax Credit on Sanitary Services
An employer providing sanitary services to employees as guided obligatory under any labor legislation is eligible to be claimed for ITC. ITC for such expenses can also be claimed for :
- Purchase/Hire of Drinking water equipment
- Gloves and other protective equipment required.
- Expenses made for sanitation of the workplace.
Input Tax Credit on Other Services:
|1) Employee Uniform
|2) Goods distributed as gifts or samples for trial usage.
|3) Payment for driving license, motor vehicle insurance of employee
|4) Repair maintenance of personal vehicle of employee
|5) Personal telephone and Mobile Expenses
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