GST on recovery of higher education cost from employee

Hello All,

I have a question on applicability of GST on the below transaction:

Facts - i) Company is a SEZ unit

ii) Company provides an employee higher education programme to senior level employees wherein a specified cost (let's say 20 lakhs) of the course will be sponsored by the company.

Any cost over and above 20 lakhs will need to be borne by employee

iii) A employee opts for a course of value 30 lakhs

iv) The institute normally charges GST on such course, however, considering that the invoice for course will be billed directly to company, being a SEZ unit, it is ready to provide GST exemption on 30 lakhs after executing a LUT (Letter of undertaking)

v) The Company will pay 30 lakhs to institute and recover 10 lakhs from employee (employee to pay that amount through bank transfer)

Questions:

i) Is GST chargeable on 10 lakhs recovered from employee

ii) If yes, what is the value on which GST to be charged - 10 lakhs or 30 lakhs

iii) Any possible model wherein we recover the cost of 10 lakhs without triggering GST implication.

Any leads to above questions will be highly appreciated

Thankyou

Hey Anoop! Here's a detailed take on your GST query related to recovering higher education costs from employees by an SEZ unit:

Facts Recap:

SEZ company sponsors education course cost up to ₹20 lakhs.
Employee opts for a ₹30 lakh course.
Institute bills ₹30 lakh to company (LUT executed, so GST exempt on entire ₹30 lakh).
Company recovers ₹10 lakh (excess) from employee.
Employee pays ₹10 lakh by bank transfer to company.

Your Questions & Answers:

1. Is GST chargeable on ₹10 lakh recovered from employee?

Yes, GST is applicable on the ₹10 lakh recovered from the employee.

Reason:

The company is making a supply to the employee when it recovers ₹10 lakh.
Although company’s original purchase from institute is GST exempt (under SEZ/LUT), the recovery from employee is a separate supply.
Recovering ₹10 lakh from employee is essentially a reimbursement or supply of service (cost-sharing).
Under GST law, recovery from employees for services rendered is taxable unless exempted.

2. What is the value on which GST is to be charged — ₹10 lakh or ₹30 lakh?

GST is to be charged only on ₹10 lakh (the amount recovered from employee).

Reason:

The company is charging the employee only for the excess amount paid over and above the sponsored amount.
The supply to employee is limited to ₹10 lakh.
Therefore, the taxable value for GST on employee supply = ₹10 lakh.

3. Any possible model to recover ₹10 lakh without triggering GST implication?

A few options to consider, but each has nuances:

Option	Explanation
Reimbursement with no markup	If employee pays company exact cost paid by company without markup or profit, then may treat as reimbursement (non-taxable) if conditions met. But GST department may still treat it as supply if no proper documentation.
Separate contract with employee	Draft a separate agreement with employee where recovery is a pure reimbursement (no additional service) with documentary proof. Still risky under GST.
Cost sharing model	Company charges employee only the actual cost without any markup or profit, and shows it as reimbursement, not supply. Detailed documentation needed.
Consideration under salary	Alternatively, treat the ₹10 lakh recovery as part of salary benefits, and account for tax accordingly. GST may not apply on salary components.

Important: The safest way is to treat ₹10 lakh as supply and charge GST on it to avoid non-compliance risks.

Summary Table:

Query	Answer
GST applicable on employee recovery?	Yes, GST is applicable on ₹10 lakh
GST value basis	₹10 lakh (amount recovered)
Possible exemption	Only if pure reimbursement with no markup & proper documentation (risky)