2024 (7) TMI 520 - AAR - GST

Levy of GST - recovery of joining bonus and retention bonus on account of employee's inability to serve the organization (or a particular department, in case of retention bonus) for a pre-agreed period - recovery of work from home one-time setup allowance paid to employees in case where the employees exit before serving the pre-defined period from the payout date - recovery of amount paid as financial assistance to employees under Tuition Assistance Program (TAP) policy in case where the employee exit before serving the pre-agreed period in the organization. HELD THAT - The Applicant is recovering retention bonus, joining bonus, work from home allowance and expenses under TAP, only when the employee wishes to voluntarily exit the organization within the stipulated time period as mentioned in the terms and conditions laid out with respect to each bonus/allowance. The intention behind such bonus/allowance is to incentivize and motivate the employee to remain in the organization - the recovery of bonus/allowance by the applicant is in same lines with that of the forfeiture of salary or recovery of bond amount in the event of the employee leaving the employment before the minimum agreed period which is not taxable under GST as per para 7.5 of Circular No. 178/10/2022-GST dated 03.08.2022. Retention bonus, joining bonus, work from home allowance and expenses under TAP are also in the nature of perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and employee and hence not taxable under GST. The recovery of joining bonus, retention bonus, work from home allowance and expenses under TAP are not taxable under GST.

Issues Involved:
1. Applicability of GST on recovery of joining bonus and retention bonus.
2. Applicability of GST on recovery of work from home one-time setup allowance.
3. Applicability of GST on recovery of financial assistance under Tuition Assistance Program (TAP).

Detailed Analysis:

1. Applicability of GST on Recovery of Joining Bonus and Retention Bonus:
The applicant offers retention and joining bonuses to incentivize employees to join and stay with the organization for a pre-defined period. If an employee exits the organization before the stipulated time, the bonus is recovered. The applicant contends that the recovery of such bonuses is compensatory and not a consideration for any service rendered by the employer to the employee. The applicant argues that there is no "activity for a consideration" and thus, the recovery should not be subject to GST. The applicant cites Circular No. 178/10/2022-GST, which clarifies that amounts recovered for premature quitting of employment are not taxable as they are penalties meant to discourage non-serious candidates.

2. Applicability of GST on Recovery of Work from Home One-Time Setup Allowance:
Due to the COVID-19 pandemic, the applicant provided a one-time work-from-home setup allowance of INR 22,000 to employees, subject to the condition that they serve a pre-defined period. If an employee exits before this period, the allowance is recovered. The applicant argues that this recovery is compensatory and not a consideration for any service. The applicant relies on the same circular, which states that such recoveries are not taxable under GST as they are penalties for early exit and not payments for tolerating an act.

3. Applicability of GST on Recovery of Financial Assistance under Tuition Assistance Program (TAP):
The applicant provides financial assistance to employees for further education under TAP, with the condition that they serve a pre-defined period. If an employee exits before this period, the assistance amount is recovered. The applicant argues that this recovery is not a consideration for any service but a compensatory measure. The applicant again refers to Circular No. 178/10/2022-GST, which clarifies that such recoveries are not taxable as they are penalties for early exit and not payments for tolerating an act.

Findings & Discussion:
The authority examined the submissions and found that the recoveries of retention bonus, joining bonus, work-from-home allowance, and TAP expenses are similar to the forfeiture of salary or recovery of bond amounts, which are not taxable under GST as per Circular No. 178/10/2022-GST. The authority also referred to Circular No. 172/04/2022-GST, which states that perquisites provided by the employer to employees under a contractual agreement are not subject to GST.

Ruling:
i. GST is not applicable on recovery of joining bonus and retention bonus on account of employee's inability to serve the organization (or a particular department, in case of retention bonus) for a pre-agreed period.
ii. GST is not applicable on recovery of work-from-home one-time setup allowance paid to employees in case where the employees exit before serving the pre-defined period from the payout date.
iii. GST is not applicable on recovery of amount paid as financial assistance to employees under Tuition Assistance Program (TAP) policy in case where the employee exits before serving the pre-agreed period in the organization.

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