Activities or Transaction Excluded from Supply - Para 1 of Schedule III [Read with Section 7(2)] - GST Ready Reckoner - GST

Activities or Transaction which shall be treated neither as supply of goods nor as supply of services - Schedule III As per Section 7(2) , There are exception of supply, Schedule III to the CGST Act, 2017 provides the Activities or transaction which shall be treated as neither supply of goods nor supply of services. (In other words, exclude from the supply for the purposes of GST) Para 1. Services by an employee to the employer in the course of or in relation to his employment. Meaning of Employer and Employee These term have not been defined in the GST Act in the common parlance, these term may be defined as under: - (1) Employer a person who has engaged or hired the services of another. he is entitled to rights and bound to perform duties. (2) Employee is a person who is hired for a wages, salary, fee, or payment to perform work for an employer. As per Education Guide issued by CBIC 2012 ( Services Tax Regime ) Only services that are provided by an employee to the employer in the course of employment outside the ambit of services. Services provided on contract basis i.e. principal to principal basis are not services provided in the course of employment. Amount paid by the employer to employee for premature termination of a contract of employment are treatable as amount in relation to services provided by the employee to the employer in the course of employment. Services provided by casual worker to employer who gives wages on daily basis to the worker then these are services provided by the worker in the course of employment. Casual worker is employed by a contractor like a building contractor or a security services agency, who deploys them for execution of a contract of contract or for provision of security services to a client. then services provided by the worker to the contractor are services in the course of employment and hence not taxable. Important Notifications Clarification Clarification in respect of levy of GST on Director s remuneration - [ Circular no. 140/2020-GST Dated 10th June 2020 ] Where in the salaries paid to directors are subject to tax deducted at Source under section 192 under Income Tax Act 1961 not a treated a supply , In case where the remuneration is in the nature of professional fee and not a salary the same is liable for tax deduction at source in other section of Income Tax Act 1961, then it is treated as supply under GST and GST payable the recipient of services under RCM . Stipend paid to interns will be employer-employee transactions. Hence, not liable for GST. Salary received as a partner from firm and share of profit received from partnership is not supply and hence out of GST. Clarification in respect of levy of GST Perquisites provided by employer to the employees as per contractual agreement [ Circular No. 172/04/2022-GST Dated 06/07/2022 ] Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that perquisites provided by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee. Clarification in respect of taxability of Employee Stock Option (ESOP)/Employee Stock Purchase Plan (ESPP)/ Restricted Stock Unit (RSU) provided by a company to its employees under GST. Issue - whether the transfer of shares/ securities by the foreign holding company directly to the employees of the Indian subsidiary company and subsequent re-imbursement of the cost of such shares/ securities by the Indian subsidiary company to the foreign holding company can be considered as import of financial services by the Indian subsidiary company from the foreign holding company and whether the same can be considered as liable to GST in the hands of Indian subsidiary company on reverse charge basis. [ Circular No. 213/07/2024-GST dated 26.06.2024 ] Clarification The foreign holding company issues securities/shares as ESOP/SPP/RSU to the employees of the domestic subsidiary company on the request of the said domestic subsidiary company. Purchase or sale of securities/shares, in itself, is neither a supply of goods nor a supply of services. The ESOP/ESPP/RSU is a part of remuneration of the employee by the employer as per terms of employment. Therefore, GST is not leviable on the compensation paid to the employee by the employer as per the terms of employment contract which involve transfer of securities/shares of the foreign holding company to the employees of domestic subsidiary company. The reimbursement by the domestic subsidiary company to the foreign holding company is for transfer of securities/shares, which is neither in nature of goods nor services, the same cannot be treated as import of services by the domestic subsidiary company from the foreign holding company and hence, is not liable to GST under CGST Act . Important Notifications Clarification 1) Issue :- Whether the activity of holding shares by a holding company of the subsidiary company will be treated as a supply of service or not and whether the same will attract GST or not. [ Circular No. 196/08/2023-GST dated 17th July, 2023 ] Clarification Definition of Goods or Services under CGST exclude the securities Securities does not considered as a goods or service under the definition of Goods (clause 52 ) or Services (Clause 102) of Section 2 of CGST, Act 2017 Further, securities include shares as per definition of securities under clause (h) of section 2 of Securities Contracts (Regulation) Act, 1956 . Analysis :- This implies that the securities held by the holding company in the subsidiary company are neither goods nor services. Further, purchase or sale of shares or securities, in itself is neither a supply of goods nor a supply of services. For a transaction/activity to be treated as supply of services, there must be a supply as defined under section 7 of CGST Act . It cannot be said that a service is being provided by the holding company to the subsidiary company, solely on the basis that there is a SAC entry 997171 in the scheme of classification of services mentioning; the services provided by holding companies, i.e. holding securities of (or other equity interests in) companies and enterprises for the purpose of owning a controlling interest. , unless there is a supply of services by the holding company to the subsidiary company in accordance with section 7 of CGST Act. Conclusion The activity of holding of shares of subsidiary company by the holding company per se cannot be treated as a supply of services by a holding company to the said subsidiary company and cannot be taxed under GST.