The Telangana State Authority for Advance Ruling (TSAAR) has held that the reimbursement of bonus by the recipient to the service provider shall be included in the value of supply and hence the same rate of Goods and Services Tax (GST) applies to both the main service and the bonus reimbursement as per Section 15(2)(b) of the Central Goods and Servies Tax (CGST) Act, 2017 and State Goods and Servies Tax (SGST) Act, 2017.
The order was passed by the Authority for Advance Ruling (AAR) under Section 98(4)of the Central/State Goods and Servies Tax (CGST/SGST) Act, 2017 clarifying the rate of GST applicable for the reimbursement of bonus in response to an application filed by M/s. Foodsutra Art Of Spices Private Limited.
The applicant was engaged in providing canteen services to ITC Limited and has been issuing invoices for the canteen services at a 5% GST rate. Additionally, they received a lump sum amount as a bonus for paying their employees, for which they charged an 18% GST rate.
The service recipient, ITC Limited was not willing to accept the invoice for the bonus reimbursement at the 18% GST rate. They insist on the same 5% rate applicable to the canteen service.
The applicant argues that the bonus reimbursement should be considered a separate service and should be charged at the 18% GST rate, as they are acting as an intermediary for paying their employees.
The AAR observed that all payments made in respect of a supply constitute the value of the supply on which tax is levied.
The authority thus found that the amounts received by the applicant, including the bonus reimbursement, are considered part of the value of the canteen service and are taxable at the same rate.
The authority held that the rate for reimbursement of the bonus should be 5% (2.5% CGST and 2.5% SGST), the same rate applicable to the canteen service.
The authority consisting of Sri S.V. Kasi Visweswara Rao, Additional Commissioner (State Tax) and Sri Sahil Inamdar, Additional Commissioner (Central Tax) clarified that the basis for charging GST at the rate of 5% instead of 18% is the fact that the bonus reimbursement is considered part of the canteen service and not a separate service and hence the same shall be taxed at the rate same as that of the main service.
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