Your company may not give you a great Diwali gift this year. Here's why

The formal sector of India's economy has another GST surprise in store: benefits over and above employee contracts and gifts above Rs 50,000 will attract GST.

However, companies may be able to claim input tax credit on these proceedings, reported Economic Times.

The newspaper also reported that the GST rate may be between the 18-43 per cent tax band, the nature of the benefit or gift being the determining factor.

However, the government will not keep tabs of these transactions as a record of all purchases made by companies will be stored on the GSTN, thereby making auditing convenient.

Further, employee services to the employer will not attract GST, so long as it is in line with his/her employment profile. However, if he/she is made to undertake service outside of his/her employment it will be subject to the indirect tax.

This is because free services, along with gifts above Rs 50,000, are not a part of the employment contract and will indeed attract GST.

"This could increase cost for companies offering such benefits. The government should clarify ambit of free services - such as gym, creche, meals - that will be subject to GST," said Pratik Jain, Partner, Leader indirect tax, PwC, reported by ET.

In this scenario, companies have started to include these perks in employee contracts which bear further consequences. Now, these perks will attract additional income tax which will fall as a burden on employees.

These perks could be paid holidays, holidays homes, club memberships, chauffeurs, etc.

From small gifts to high-budget gifts like iPhones, and use of company cars by executives will now have to pay tax on them.

However, when a gift is given as a reward for performance it is still unclear whether it will attract GST.