Various references have been received from trade and industry seeking clarification whether the GST is leviable on Director’s remuneration paid by companies to their directors. Accordingly the same has been clarified via Circular No: 140/10/2020 – GST dated 10/06/2020
Before going directly to the clarification its better to read the following for better understanding.
- Schedule III of CGST Act: Activities or Transactions which shall be treated neither as a SUPPLY OF GOODS nor a SUPPLY OF SERVICES
Schedule III includes: Services by an employee to the employer in the course of or in relation to his employment.
- Section 192 of Income tax Act; Salary.
Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.
- Section 194 J of Income Tax Act; Fees for professional or technical services:
At the time of payment for professional or technical services TDS will be deducted at rate of 2%/10% as the case may be.
The whole of central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of such services. Which means the company or a body corporate located in the taxable territory shall pay the CGST for Services supplied by a director of a company or a body corporate to the said company or the body corporate.
- Reverse Charge
Reverse Charge means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply.
In the above points only the matter relevant to taxability of Directors remuneration has been mentioned.
Now the clarification can be understood in the following manner:
1. In respect of such directors who are not the employees of the said company
2. In respect of such directors who are also the employees of the said company
1. In respect of such directors who are not the employees of the said company:
The services provided by such directors (eg. Independent Director) in lieu of remuneration as the consideration for the said services are clearly outside the scope of Schedule III of CGST Act. Therefore as per Notification No. 13/2017- Central Tax (Rate) dated 28th June, 2017 Company, is liable to discharge the applicable GST on it on reverse charge basis.
Accordingly, it is hereby clarified that the remuneration paid to such independent directors, or those directors, by whatever name called, who are not employees of the said company, is taxable in hands of the company, on reverse charge basis.
2. In respect of such directors who are also the employees of the said company:
a) Directors remuneration which are declared as ‘Salaries’ in the books of a company.
- Subject to TDS under section 192 of Income Tax Act
- Covered under schedule III of CSGT therefore not taxable.
b) Directors remuneration which is declared separately other than ‘salaries’ in the Company’s accounts.
- subject to TDS under Section 194J of the IT Act as Fees for professional or Technical Services
- outside the scope of Schedule III of the CGST Act, and is therefore, taxable
- Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28/06/2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.
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