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Schedule III of CGST Act 2017: Related to Employee Services

Geetanjali Pandey , Last updated: 26 May 2023  

General Overview

As we are aware that any transactions/activities which fall within the scope of "Supply" as per Sec 7 of the CGST Act, 2017 will be chargeable to GST. Further, while analyzing the nature of transactions/activities for the purpose of chargeability of GST, there are instances-

(i) Where there is no Consideration involved, but still it would be considered as "Supply" as per Schedule I of CGST Act, 2017.
(ii) There are certain transactions/activities which are either treated as supply of goods or supply of services as per Schedule II of CGST Act, 2017.

Schedule III of CGST Act 2017: Related to Employee Services

Under this Article, I am going to describe the activities/transactions, which although are falling within the scope of Supply i.e.

  • There is a supply of goods or services
  • Made or agreed to be made for a consideration
  • In the course or furtherance of business.

Still such activities/transactions shall neither be treated as supply of goods nor Supply of services as per Schedule III of CGST Act, 2017.



Schedule III of the CGST Act, 2017 enlist such transactions/activities which shall not be considered as supply of goods or supply of services depending upon its nature which are elaborated here. Let’s discuss all these one by one.


Under this, emphasis is place on any service provided where there is

  • Relation of employer and employee are existing.
  • Services are provided during the course of employment/ in relation to the employment.

If these two conditions are met, then it is outside the ambit of GST i.e. tax shall not be leviable on such activity/transactions.

Employer & Employee

There is no such definition of employer and employee under the CGST Act, but in terms of the Section 213 of the Labour Relations Act, an employee is defined as follows:


a) Any person, excluding and independent contractor, who works for another person or for the state and who receives, or is entitled to receive, any remuneration; and
b) Any other person who in any manner assists in carrying on or conducting the business of an employer.


An employer is an organization, institution, government entity, agency, company, professional services firm, non-profit association, small business, store, or individual who employs or puts to work, an employee or a staff member.


  • It should be noted that services that are not in the course of or in relation to employment shall, however, be covered. For example, it needs to be investigated whether the referral bonus earned by an employee is in the course of employment or not. If it is not part of his/her employment duties then such services will be subject to GST. It’s another matter whether the quantum of these services would be less than the threshold of Rs.20 lakhs.
  • Employer and employee are also treated as related person as per Explanation to section 15 (5) of the CGST Act. Hence, supply of goods or services between related person when made in the course of furtherance of business even if made without consideration shall be treated as supply as per Schedule I of CGST Act, 2017.

Provided that gifts not exceeding Rs. 50,000/- in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.


(Non-taxability of some services provided by employer to employee)

These services are not taxable

1. Gifts up to Rs.50,000 a year from the employer to the employee are exempt under GST. But, gifts amounting to more than Rs.50,000 are subject to GST.

2. A perquisite is a non-cash benefit given by an employer to an employee. Any supply made by the employer to the employee within the terms of the contractual agreement entered between the two is not subject to GST.

3. Free common facilities provided to employees as per the contractual agreement, such as transport facilities, membership of health club, uniform, training facility, canteen facility, subscription to journals etc., are not subject to GST. But, if a certain service does not form part of the contractual agreement between the employer and the employee, then it is subject to GST.

4. Any perquisite provided by the employer to its employee in terms of contractual agreement entered into between the employer and employee are in lieu of services provided by employee to the employer in relation to his employment. It follows therefrom that perquisite provided by the employer to the employee in terms of contractual agreement entered into between the employer and employee will not be subject to GST. (Circular No. 172/04/2022- GST).

The liability for payment of tax on provision of facilities to employees may arise when perquisites are outside the scope of employment agreement. The terms of contract or employment therefore plays a crucial role in determining the taxability of perquisites in the hands of the employer.


  • Sale/Transfer/disposal of Business assets by employer to employee with /without consideration.
  • Food provided to employees at concessional rate and the amount is recovered from their salary.
  • Notice pay recovery from the employee for "tolerating the act" of the employee to not serve the notice period which was the employee’s contractual obligation. This transaction is liable to GST.
  • Companies might allow employees to retain asset like laptop when he quits the organization or allow the employee to use a company asset
  • for personal purposes for consideration/ or no consideration.
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Published by

Geetanjali Pandey
(Chartered accountant)
Category GST   Report

1 Likes   7416 Views


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