[Opinion] Understanding Employer-Employee Relationships and GST Taxability in Contractual Agreements

Vineet Jain – [2023] 152 taxmann.com 620 (Article)

When a person enters into a contractual agreement with other person (which may be body corporate/firm/Individual/etc) to perform or work as per the directions issued by the other person, the person who is performing the activities gets remuneration in consideration & it can be considered that he is in employment of the other person & this relationship is called employer employee relationship.

From the above it can be concluded that to establish employer employee relationship there should be-

1. Employers (who provide the employment & pay salary to employees).
2. Employee (who works as per the directions/instructions of the employer).
3. Contractual agreement between the employer and employee.

GST taxability in case of employer employee relationship

In Schedule III (Sec 7 CGST Act,2017) activities shall not be treated as either supply of goods or supply or services. Activities mentioned in Schedule III are out of ambit of CGST Act,2017. Entry no. 1 of Schedule III is mentioned below-

• Services by an employee to the employer in the course of or in relation to his employment.

The aforesaid entry of schedule III clearly specifies that any services provided by an employee to his employer in the course of or in relation to his employment is out of the ambit of GST. Here it is very pertinent to note that services that are only provided in the course of or in relation to his employment is to be considered as out of the purview of GST, all other services provided by an employee to his employer which are not in the course of or in relation to his employment shall not be excluded from the GST & shall be considered in the ambit of GST.

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