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Bonus, Leave Encashment & Reimbursement Query

29 May 2017

Whether GST is leviable on Bonus and Leave Encashment paid to employees ? And also suggest on reimbursement paid to employees.

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5 Replies

CA PRATIK DHRUVE (CHARTERED ACCOUNTANT) (634 Points)
Replied 29 May 2017

GST is not leviable on bonus and leave encashment, since both the payments are made for services rendered by employee to employer in course of employment. Also, any other reimbursements would not be taxable under GST, if specified in the appointment letter or contract. Any payments outside the terms of contract, might attract GST, which again depends on case to case basis.

suchi mehta (3 Points)
Replied 29 May 2017

Thankyou Sir for your valuable advice.

In regards to bonus and leave encashment, the same is not included in CTC of the employee. Also the reimbursement of expenses of the employees on contract basis are not included in CTC. So kindly advice whether the same is taxable under GST RCM.

CA PRATIK DHRUVE (CHARTERED ACCOUNTANT) (634 Points)
Replied 29 May 2017

Please understand the concept of supply... For the monthly salary paid by company to its employee, the supply involved is the supply of services i.e. work done by employee during the month. Hence, services provided by employee is a supply of services. However, this service has been specifically specified in Schedule III of GST Act, stating that any service rendered by employee to employee in the course of employment is not considered as supply at all.

Now, as far as bonus and leave encashment are cocerned, the company pays these all not for any service provided by employee, but these things are paid out of respect or gratitude or so. And there is no supply at all in this case. So, no question of GST. (For instance, no one asks whether GST shall be applicable on donations paid by a company to un-registered entities??)

Regarding reimbursement of expenses, it cannot be ad-hoc said that reimbursement shall be taxable or not taxable under GST, as it needs to be analysed on case-to-case basis.

Karan (Article) (40 Points)
Replied 29 May 2017

Any payment made under the contract of employment, GST is not applicable

Nishant Gupta (Assistant Manager) (22 Points)
Replied 11 April 2018

What will be treatment of GST on leave encashment paid by subsidiary company to employees of holding company who are posted to subsidiary company on deputation?