Q 5 & Q 6 | Recovery by ER from EE | Renting of property | GST practical faq series issued by ICAI

QUESTION 5 Group insurance and LIC premium collected from employees salary by employer contains GST. The amount along with GST is remitted to the concerned insurance company. Is this supply for employer? Ans. In order to constitute a ‘supply’, the following elements are required to be satisfied: (i) there should be supply of “goods” and / or services”; (ii) supply is for a “consideration”; (iii) supply is made “in the course or furtherance of business”: • From the above, it is clear that any activity done against consideration is treated as supply; however, such an activity must be in the course of business or for the furtherance of business. • The term “in the course of business” or “furtherance of business” is not defined under the CGST Act. However, the term “business” has been defined in S 2(17) of the CGST Act The term “business” broadly means any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity whether or not it is for pecuniary benefits. Any activity ancillary or incidental to these activities is also covered as business. It has also been provided that any activity or transaction falling in above categories would be business whether or not there is volume, frequency, continuity or regularity in transactions. • In the instant case, Group insurance and LIC premium are collected from employees by the employer who is not engaged in the business of providing insurance services. The service of insurance is actually provided by the insurance company for which the insurance company is charging GST. The employer is just paying the insurance premium amount to the insurance company and recovering premium amount from the employees. Thus, it is clear that the employer is not in the business of providing insurance services. Therefore, activity of recovery of insurance premium cannot be treated as an activity done in the course of business or for the furtherance of business. • Accordingly. based on the reading of S 7 and 2(17) of the CGST Act, providing insurance service and recovery of premium amount is not in the course or furtherance of business and hence cannot be considered as “supply of service” . QUESTION 6 If a person gives his property on rent for commercial purpose and the property has been purchased for investment, whether the same shall be considered as supply being in the course of business and hence taxable? Ans. There are 3 questions in the above query: 1. Whether the above transaction shall be considered as supply being in the course of business? 2. If yes, whether the same is taxable? 3. Will it make any difference if the commercial property is shown as investment and not as business asset in the books of accounts? Renting of immovable property is covered in the first part of the definition. Further such transaction should be in the course or furtherance of business to be treated as supply. To decide whether a transaction is in the course or furtherance of business, we have to refer to definition of the term ‘business’ which is given in S 2(17) of the CGST Act. The definition further covers any trade, commerce, manufacture, profession, vocation, adventure, wager or any other similar activity. The definition of ‘business’ specifically mentions “similar activities”. Hence it appears that intention of legislature is that any activity which generates revenue/income is business activity. Therefore, the above transaction is supply in the course of business. Now the second question is, whether the same is taxable. There is no specific exemption to renting of commercial premises and hence the same will be taxable. Coming to the last question, whether it will make any difference by giving different accounting treatment? Since the activity is supply as per provisions of Section 7 of the CGST Act, it will not make any difference whether the commercial premises is shown as business asset or investment in the books of accounts. In the service tax regime, renting of immovable property was taxable. GST is continuation of earlier laws in a consolidated form.