Perks Gifts to Employees May Come Under GST

Cos could however claim input tax credit on intra-company transactions

India Inc may have to deal with another avatar of GST — the tax may be applicable on senior executives’ big-ticket perquisites over and above those mentioned in the employment contract and on gift items of over Rs 50,000. However, companies should be able to claim input tax credit on these intracompany ‘transactions’.

Tax professionals ET spoke to said the rate may be in the 1843% band, depending on the nature of the perk/gift. A finance ministry official, who did not wish to be identified, said an employer’s gifts to employees will be treated as supplies without any consideration and attract GST. However, companies are likely to be able to claim input tax credit on it. Keeping tabs on company perks and gifts will not be an additional enforcement cost to the government, tax experts said. All purchases by companies will be available on GSTN. Therefore, during audits these issues can be easily identified. GST rules say services by an employee to the employer will not attract tax if they are related to his/ her employment. However, other kind of services may attract GST. “If an employee acts as a DJ in a company offsite and gets paid, such payment by his employer will attract GST,” said Waman Parkhi, partner, indirect tax, at consultancy firm KPMG.

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The telecom price war is expected to continue for another year and the industry will be in for a tough time, the person said, referring to the ongoing competition that has hurt revenue and profitability. Airtel, the market leader, reported a 72% fall in net profit in the January-March quarter to Rs 373 crore, its smallest in four years.

The company’s net debt stood at $14.1 billion at the end of March, a quarter in which net finance costs rose 13%. Operating free cash flow has been under pressure amid a squeeze on revenue as voice and data rates fell sharply.

Airtel could look at several options, including sale of controlling stake or partial stake, the person said. Bharti Airtel declined to comment on the matter.

Airtel had talked about selling a controlling stake in Infratel in October, but shelved the plan in March.

Instead, it transferred a 21.63% holding to a wholly owned arm, Nettle Infrastructure Investments, as the share price declined amid an industry consolidation that

threatened tenancies and revenue.

Of the stake held by Nettle, 10.3% was sold to a consortium of KKR and Canada Pension Plan Investment Board for $952 million, or Rs 325 a share, in March. Airtel
directly holds 50.33% of Bharti Infratel and the remainder 28.05% is with the public and other shareholders. Since the sale to KKR and CPPIB, Bharti Infratel shares
have climbed over 26% on the BSE on expectations that a healthier telecom industry following consolidation will invest in expanding networks, benefitting tower companies.

Infratel shares rose 0.3% to Rs 402.30 at the close on Wednesday, giving the company a market capitalisation of ? 74,409.74 crore. At this price, a 51% stake sale can fetch Airtel about Rs 38,000 crore.

While the rise in Infratel stock may have triggered a change in Airtel’s plan, the higher price may also act as a deterrent to buyers, one person said. The KKR-CPPIB
consortium was widely expected to buy the remaining stake held by Nettle at Rs 350-360 per share.

“Since the current market price of Rs 400 is much above that, both sides are trying to find a middle ground, which is a win-win for both parties and for the public
shareholders,” the person said. KKR declined comment while CPPIB didn’t respond to emailed queries on the matter.

Airtel plans capital expenditure of $2.5 billion in the current financial year in India, where it is expanding its 4G network and deepening its 3G network. Airtel
spent about $2.3 billion in the previous year.

Bharti Infratel had 90,646 towers at the end of March, including its share in Indus Towers by virtue of a 42% stake.

Economic Times New Delhi, 06th July 2017