Can't block ITC for GST on obligatory transport for women employees: AAR

Sep 28, 2023 

Authority's ruling in Tamil Nadu would hold precedence in states where employers are obliged to drop women staff at specific hours, say experts 

Employers can claim input tax credit (ITC) on the goods and services tax (GST) paid on leasing vehicles that ferry women employees at night and early morning in Tamil Nadu, the authority for advance rulings (AAR) has said.

The ruling would hold precedence in states where employers are obliged to drop women employees at specific hours, said experts.

The ITC can be claimed if the employees arrive or leave office at 8 pm and 6 am, with the rule being effective from May 28, 2019 in Tamil Nadu, the AAR ruled.

GST officials had argued that tax paid on rent a cab service cannot be availed as ITC, according to a provision in the indirect tax law. The provision cited was the section 17(5)(b)(iii) of the GST law.

However, AAR said the section was amended through a notification in January 2019 whereby ITC in respect of goods or services or both shall be available where it is obligatory for an employer to provide the same to its employees under any law with effect from May 28 of that year.

It is obligatory for employers to provide transportation to women employees working between 8 pm and 6 am, according to the Tamil Nadu Shops and Establishment Act.

Sandeep Sehgal, partner at tax and consultancy firm AKM Global, said that the AAR clarified that since the local law puts an obligation for employers to provide a cab facility for female employees, it cannot be classified as a blocked credit.

"Thus businesses should ensure that they adhere to the requirements of these provisions carefully while availing the credit," he said.

[The Business Standard]