The Karnataka bench of the Authority for Advance Ruling ( AAR ) has determined that the Retention Bonus, Joining Bonus, and work from home allowance, along with expenses under the Tuition Assistance Program (TAP), are exempted from Goods and Service Tax ( GST ).
The applicant, Fidelity Information India Services Pvt Ltd is a Private Limited Company registered under the Central Goods and Services Tax Act, 2017 and Karnataka Goods and Services Tax Act, 2017. The company specializes in software development, maintenance services, and Information Technology Enabled Services (ITES), which include back-office operations, call center services, and business support services for both domestic and international clients.
Upon hiring, the company issues a Letter of Appointment to each employee, outlining the employment terms. In addition to standard compensation, the company provides various bonuses to encourage employee retention and satisfaction.
The company offers a retention bonus to incentivize employees to stay longer. This bonus is contingent on the employee serving a predetermined period. If an employee voluntarily leaves within this period, the bonus is recovered, similar to an advance salary recovery, and is not considered payment for services rendered..
To attract new talent, a one-time joining bonus is issued alongside the first salary, subject to a similar retention condition. If the employee exits within the stipulated period, this bonus is also recoverable
In response to the COVID-19 pandemic, the company provided a one-time work-from-home setup allowance of INR 22,000 to help employees create a suitable home office environment. This allowance is also contingent upon the employee serving a specified duration post-payment; recovery applies if the employee leaves early.
To promote professional development, the company offers financial assistance for job-related education. Eligible employees can receive INR 50,000 per year for educational pursuits, with recovery provisions if the employee exits before the agreed period.
The bench noted that the recovery of retention bonuses, joining bonuses, work-from-home allowances, and TAP-related expenses occurs only if employees voluntarily exit before the stipulated duration. The intent of these incentives is to motivate employees to remain with the company.
The two-member bench of the Advance Ruling Authority ( AAR ), comprising M.P Ravi Prasad and Kiran Reddy, concluded that the recovery of joining bonus, retention bonus, work from home allowance and expenses under TAP are not taxable under GST.
The AAR bench ruled that “GST is not applicable on recovery of joining bonus and retention bonus on account of employee’s inability to serve the organization (or a particular department, in case of retention bonus) for a pre-agreed period. GST is not applicable on recovery of work from home one-time setup allowance paid to employees in case where the employees exit before serving the pre-defined period from the payout date. GST is not applicable on recovery of amount paid as financial assistance to employees under Tuition Assistance Program (TAP) policy in cases where the employee exits before serving the pre-agreed period in the organization”.
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