Valuation of Perquisites, Income Tax

[Ethirajan Parthasarathy]

A company purchases an item for 11800 (incl. GST of 1800/-) and gives the same to an employee in recognition of his good work. As per Income Tax Law, any item whose value exceeds 5000/- is to be treated as perquisites. As per GST Law, the company is not entitled to get credit of ITC. My question is in the above circumstances, the perq. Value to be considered is 11,800/- or 10,000/-

In another case, the item given to employee is costing Rs.1,18,000/- including GST of Rs.18,000/-. As per GST Law, anything valued above 50000/- will be treated as “supply” & hence the employer has raised an tax invoice for 100000/- plus 18000/- GST. The majority view is that 18000/- on this deemed supply has to be discharged separately since no ITC will be available for 18000/- paid at the time of purchase

My query is whether the perq. value is 118000/- or 136000/- or Rs.100000/- only. It must be noted the company is actually incurring expenditure towards GST both on purchase & on deemed sale.

Posts / Replies

[Amit Agrawal]

W.r.t. second para of your query, I am in respectful disagreement with the majority view. For my views & reasoning, you may refer to discussion we had under Issue ID: 118636 bearing subject line as 'GST Applicability - Gifts'.

Please note that my views are in the context of deemed supply from employer to employee for ''gifts exceeding fifty thousand rupees in value in a financial year by an employer to an employee".

So, value of perquisite cannot be Rs. 1,36,000/- in example taken by you in the query.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[GUNASEKARAN K]

1. In first case the value of perquisite is Rs.11800/-

2. For second scenario, the value of perquisite is Rs.118000/- as per the below circular

Circular no 92/11/2019 F NO 20/16/04/2018 GST date 7/3/2019

Refer S.No.2 It has been noticed that there are several promotional schemes which are offered by taxable persons to increase sales volume and to attract new customers for their products. Some of these schemes have been examined and clarification on the aspects of taxability, valuation, availability or otherwise of Input Tax Credit in the hands of the supplier (hereinafter referred to as the “ITC”) in relation to the said schemes are detailed hereunder:

A. Free samples and gifts:

i. It is a common practice among certain sections of trade and industry, such as, pharmaceutical companies which often provide drug samples to their stockists, dealers, medical practitioners, etc. without charging any consideration. As per sub-clause (a) of sub-section (1) of section 7 of the said Act, the expression “supply” includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. Therefore, the goods or services or both which are supplied free of cost (without any consideration) shall not be treated as 'supply' under GST (except in case of activities mentioned in Schedule I of the said Act). Accordingly, it is clarified that samples which are supplied free of cost, without any consideration, do not qualify as 'supply' under GST, except where the activity falls within the ambit of Schedule I of the said Act.

ii. Further, clause (h) of sub-section (5) of section 17 of the said Act provides that ITC shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Thus, it is clarified that input tax credit shall not be available to the supplier on the inputs, input services and capital goods to the extent they are used in relation to the gifts or free samples distributed without any consideration. However, where the activity of distribution of gifts or free samples falls within the scope of 'supply' on account of the provisions contained in Schedule I of the said Act, the supplier would be eligible to avail of the ITC.

[Padmanathan Kollengode]

In case 1,

The value of perquisite will be 11800/- as ITC is not available.

In case 2,

As mentioned by Learned Experts, it seems ITC is available where the gift to employee above Rs.50,000 is deemed to be a supply under Sch I. The said matter has also been covered by a circular also. Hence, the value of perquisite should be 1,18,000/- (including GST) and not 1,36,000/-.

[ANONYmous TAXAtion]

• According to the Income Tax Law, any item whose value exceeds 5000 rupees is considered a perquisite, which means it is a benefit given to an employee in addition to their salary.
• In this case, since the value of the item is 11800 rupees, it exceeds the threshold of 5000 rupees and hence is considered a perquisite.
• The question raised is whether the perquisite value to be considered is 11800 rupees or 10000 rupees.
• This confusion arises because as per the GST Law, the company is not entitled to get credit of Input Tax Credit (ITC) on the GST paid for this item.
• Therefore, the question is whether the GST amount of 1800 rupees should be excluded from the perquisite value calculation, as the company cannot claim ITC for it.
• However, it is important to note that the perquisite value calculation is based on the actual cost incurred by the company, which in this case is 11800 rupees.
• Therefore, the perquisite value to be considered for tax purposes would be 11800 rupees, even though the company cannot claim ITC for the GST paid on the item.