Is GST applicable to Full time Short Term Contractual Engagements on Renewable basis

If an organisation is engaging for 3-4 yrs on full time exclusive contract basis and give monthly remuneration, marks office attendance, accords leaves, does appraisals, gives life insurance, accident insurance etc.. What are the common policies to be applied w.r.t. statutory or related retirement benefits applicable - are they entitled to PF etc? Also if GST is applicable - why? Or why not? I’m asking for contractual engagements in general stating from minimum wages to even those above 20L.pa.

They are not service providers or consultants but are employees on fixed term contract. The remuneration payable to them is called salary and it will not attract GST.
If they were members of EPF in their earlier organisation, they should be given EPF also even if their salary is Rs 20 lakhs per month. If their service extends beyond 5 years, gratuity should also be paid to them on their leaving your organisation

Thank you for the insight, however however the Finance dept. insists on applying GST rule on 20 lac plus contractual engagees and have been booking their TDS under section 194J and issuing Form16(a) instead. How can this be argued so that the Management understands it

They are employees and their remuneration should be booked under section 192 and not under 194. You may please show the attached judgement which is self explanatory.

Thank you for the document this is really helpful - I have passed it on to my seniors, hoping there will be no more counter arguments, will keep this thread open to update further.

If the person in question is on contract and your company is deducting TDS under sec 194C, and the employee is not objected to it, meaning they are accepting they are contract employees, then their service will come under GST and they will need to register and pay GST on their invoices.

It also means that accounts can not pay them without a formal invoice. They are right in insisting on GST, as it will strengthen their position in case there is an investigation by income tax or GST department.

The employer knowingly offers such terms and the employee unknowingly accepts it. That does not mean that whatever agreed is maintainable in law. If there is anything against the law, the contract will become void. In this case, the contract is void since there exists employee- employer relationship. The employer is trying to deny the benefits under various Labour Acts including gratuity. That should not be allowed.

@Saswata Thank you for your comment Note#6 - this is exactly the current practice from a GST perspective however from a service rule perspective its highly debatable.

@Madhu.T.K - What you wrote on Nopte#7 - is exactly what is the situation here- and as a HR Manager I would like to sand with the contractual engagee.

Now having acknowledged both your views I have a new situation (as of yesterday) - while my earlier issue on enforcing GST on engagees by the finance and accounts division was put to rest thanks to the document (supreme court orders) shared in Note#4 - this new situation is as follows:

So owing to the past practices, Some mid level and junior contractual engagees (innocently/intentionally) opted for the GST registration number and started raising invoices, however now we have received a request from one person (and more may follow later) that they wish to "Opt out" of the GST category and continue as a full time contractual engagee that gets paid monthly consolidated remuneration fee, this person wants to resume filing tax under Section 192 - there are many engagees who are still filing personal income tax under 192 while this organisation is submitting under 194J and issuing Form16A.

Please help and advise way forward on the above matter - if you need further information from me - pls do ask and comment accordingly.

Thank you - Saudamini

If the engagement of the services of a person is under a Contract of Service, he becomes an employee and as such all the terms and conditions of his services are regulated by the applicable labor laws and the Income Tax has to be levied subject to the exemptions, if any.
On the contrary, if the services of a person is engaged under a contract for service, he becomes an independent contractor subject to the provisions of GST Act.
As Mr.Madhu has observed if either a contract of service or a contract for service includes any provision for deduction under the GST Act by inadvertance , it will not hold good.

It is not clear that how many employees are engaged on contractual basis starting from minimum wage to 20 L. The employees are enjoying facilities like regular employees - leave, attendance, appraisals, covered under insurance etc. as good as any permanent employee of any organization.

If they are contract for service and the number of employees engaged are reasonably more with a objective to by pass labor laws - PF, ESIC, Gratuity, Bonus etc.it is not legally right as they are enjoying other facilities like permanent employees ( contract of service).
I have noticed where organizations are engaging all retired employees in similar way for 3 / 4 years after retirement and in a dispute at Labor Directorate, DLC categorically told not to continue the system as contract for service rather it should be contract of service. They are basically employees. No GST will be applicable. For one / two cases it may be considered as contract for service as consultant, advisor etc. and the other service conditions should not be like permanent employees.

S K Bandyopadhyay ( WB, Howrah)
CEO-USD HR Solutions
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