Reimbursement for stipend paid in full to trainees not to attract GST, says AAR

Money reimbursed by a company to a third party for payment of stipend to trainees will not attract Goods & Services Tax (GST), Maharashtra Authority for Advance Ruling (MAAR) said.

The applicant, Yashaswi Academy for Skills, is a registered third-party aggregator under the Apprentices Act and is empanelled with the Skill Development Ministry.

It provides support for mobilising trainees under the National Apprenticeship Promotion Scheme under which companies provide on-the-job practical training to applicants in industries.

It entered into agreements with companies for various activities including processing of stipends and making payment to trainees. For these, it received professional service charges fee per candidate and reimbursement of stipends paid to the candidate.

The Academy had sought advance ruling on whether the reimbursement received from the industry partner in terms of the stipend paid to students, attracts GST. It also wanted to know whether GST will be applicable on reimbursement for insurance premium and expenses on uniforms and safety shoes. However, it withdrew these issues.

It submitted that the minimum stipend payable by the industry to trainees is fixed by the government considering the nature of work and their educational qualification. The applicant is paying GST on the services charges, received from the company. On its part, the jurisdictional GST officer said that since the applicant is only a conduit for the payment and the actual services are provided by trainers (in this case industry partner) to the trainees, reimbursement in the hands of the applicant will not be taxable.

The ruling

The AAR noted that the stipend in not directly paid to the trainees by the companies, rather the same are routed through the applicant. It also acknowledged the submission by the Academy that the entire amount received as stipend from the companies are paid to the trainees without any amount being retained.

“The applicant is only acting as an intermediary in collecting the stipend from the companies and then disbursing the same to the trainees in full since the applicant is not allowed to make any deduction from the stipend before disbursing the same to the trainees. The applicant is only a conduit for the payment of stipend and the actual services are supplied by the trainees to the trainer companies against which stipend is payable. Hence, the amount of stipend received by the applicant from the industry partners and paid in full to the trainees is not taxable at the hands of the applicant,” the AAR held.

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