With goods and services tax (GST) set to be implemented, Institute of Chartered Accountants of India (ICAI) held a seminar to study the new system on Saturday. Organized by branches in Nagpur, Akola and Amravati, the meet was attended by over 700 chartered accountants.

As draft GST was discussed in detail, several technical aspects came out. One of the points was that several freebies given by an employer to an employee will now be covered under the tax. Already such benefits are covered under Income Tax Act as taxable perquisite borne by the employee. In this case, GST, which is an indirect tax, will be borne by the employer. Many free services given even to unrelated concerns can be subject to tax too, said chartered accountant Umesh Sharma.

Explaining intricate details of the draft GST law, Sharma said such pass-ons to the employee will now be part of deemed services and taxed. For example, if company distributes gifts over and above festival bonus or salary, or an executive has a car at his disposal, the employer will have to pay GST on it. Many such other perks can be taxed under the new regime, he said.

Sharma said such a provision can lead to complications leading to litigations with the government. The government is expected to allow input credit on such taxation which will ease the overall GST burden of a business concern, he said.

Many other free services to a client can also be subject to tax under GST. The draft law even covers services passed on without any charge under taxation. For example, if a hotelier gives a complementary lunch to a group or a firm takes a non-chargeable service from another business entity, GST has to be paid, Sharma added.

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Ashok Chandak, former president of ICAI and an indirect tax expert said that a number of issues needed to be clarified in the new regime. The system of VAT which breaks the tax chain in between has been continued in GST too. This leads to a cascading effect which GST is proposed to do away with.

Here is an example. Suppose a trader sells raw cotton to a ginning mill, the deal is taxed. The mill makes lint out of cotton and sells it to yarn maker who further sells it to a textile company. All these transactions are taxed. Under GST, each time a tax is paid, levy charged for a previous transaction can be deducted against the liability. Now, if the textile company sells cloth to a garment manufacturer, it will be considered as raw material and not taxed. But the garment will be taxed. It increases the cost as no input credit is available. If the chain had continued, input credit could also have been availed, he said.