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Section 17(5) of CGST Act GST Circular on perks to employees

Updated on :  

08 min read.

Transactions between related parties are subject to GST even if they are made without any consideration. Further, employer and employee are considered to be related under GST.

On the other hand, any consideration payable by an employer to the employee in the course of employment is outside the scope of GST. This has led to a lot of confusion regarding the applicability of GST on perks/ benefits to employees.

ITC availability or Section 17(5) for food, passenger transport, and other goods and services in general and to employees 

Section 17(5) of the CGST Act talks about blocked credit. It has prescribed certain services on which ITC is restricted to be availed unless it is a part of the composite or mixed supply. Goods and services which are used for personal purposes are also covered under blocked credit. It states that a registered person is not eligible to take the input tax credit (ITC) on foods and beverages, outdoor catering, health services, renting, leasing or hiring of motor vehicles or aircraft, life insurance and health insurance. 

However, ITC is available on such goods or services wherein the category of inward and outward supply of goods and services is the same.

Relaxation under section 17(5): ITC on such a category of services is available to a company where it is obligatory as per any Law time being in force.

Applicability of GST on supply of food, passenger transport and other perks to employees

The definition of supply under GST is inclusive. It is inclusive of all sale, transfer, exchange, barter, rental, lease and license or disposal made for consideration and in due course of furtherance of business. This includes supply made by the employee to the employer or vice versa. Thus, any supply made by the employer to the employee is taxable under GST. 


  1. Gift: 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. Perquisites: 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. Use of common facilities: 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.

Matters under litigation or Advance Rulings on the subject

1.Outdoor Catering for employees: As per section 17(5), ITC is not available on outdoor catering services provided. But, if the employer is providing outdoor catering service to its staff as per the statutory obligation imposed by the Factories Act, 1948, then ITC on such service shall be made available to the employer. 

Gujarat AAR concluded that if the applicant provides the canteen facility to its employee as per the relevant Law time being in force, then ITC can be claimed on such service.

2.Transport service to employees: Section 17(5) excludes ITC on the hiring of motor vehicles for the transport of persons with a seating capacity of more than 13 persons.

However, Maharashtra AAR concluded that the applicant is eligible to claim ITC on GST paid on reverse charge on such service as the service is provided in the course of furtherance of business.

Clarification given by the Circular 172 in July 2022

The CBIC has clarified vide Circular 172 that GST is not applicable on perks provided to employees, which form part of the contractual agreement. It also clarifies that the same is in line with Schedule III of the CGST Act, which clearly states that any service by an employee to the employer during employment is outside the scope of GST. 

Any free foods and beverages, canteen facilities, medical insurance cover, etc., provided in line with the contract does not attract GST.

Circular No. 172/4/2022 has provided clarification on the employer-to-employee service, which is outside the purview of the contractual agreement. It states that any service provided by the employer to the employee outside the scope of the contractual agreement but in compliance with any Law or Rules time being in force is eligible to claim ITC.