This is the most important topic on which problems are faced by various Companies while calculating GST liability.

Question is that whether payment to Director in the form of remuneration will attract GST or not. Answer to above question is that Companies will have to pay GST on the remuneration they dole out to directors,

The Authority for Advance Ruling has said. In an application filed before in Rajasthan bench of the AAR, Clay Craft India Pvt Ltd had sought clarification on whether salaries / remuneration paid to directors would attract GST. The company said its directors are working as employees for which they are being compensated by way of a regular salary and other allowances.

“The company is also deducting TDS on their salary and PF laws are also applicable on their service. Therefore, in all purposes these directors are the employees of the company and are working as such besides being Director of the company,” it said. In ruling, the AAR said, “the consideration paid to the directors by the applicant company will attract GST under reverse charge…”

The AAR, while analysing the case, said that Director is the supplier of said services and the applicant company is the recipient of the services.

The Central Tax (Rate) notification Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 clearly states that services supplied by a Director of a company will be considered as supply and hence directors cannot be called an employee.

“So it is clear that the services rendered by the Director to the company for which consideration is paid to them in any head is liable to pay GST under Reverse Charge Mechanism,” the AAR order said.

And also accordance with In re M/s Alcon Consulting Engineers (India) Pvt. Ltd. (GST AAR Karnataka) regarding the remuneration to the Directors paid by the applicant, the services provided by the Directors to the Company are not covered under clause (1) of the Schedule III to the CGST, 2017 as the Director is not the employee of the Company. The consideration paid to the Director is in relation to the services provided by the Director to the Company and the recipient of such service is the Company as per clause (93) of section 2 of the CGST Act and the supplier of such service is the Director.

The judgement states the question before us is not whether this service is taxable or not, but whether this supply of services is liable to tax under reverse charge mechanism.

Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017states that on categories of supply of services mentioned in column  of the Table below, supplied by a person as specified in column of the said Table, the whole of central tax leviable under section 9 of the said CGST, shall be paid on reverse charge basis by the recipient of the such services”. The notification is issued under Section 9(3) of the CGST Act, 2017. Entry 6 of the said Notification reads as:

Sl.No. Category of Services Supplier of Service Recipient of
6 Services supplied by a Director of a company or a body corporate to the said company or the body corporate A director of a company or a body
The company or a body corporate located in the taxable territory
  • In the present case, the applicant is the company and the Directors’ remuneration is paid for the services supplied by the Director to the company and hence the same is liable to tax under reverse charge basis under section 9(3) of the Central Goods and Services Tax Act, 2017.


In view of the foregoing, the amounts paid to the employees of the applicant company as reimbursement of expenses incurred by them in the course of employment of the applicant company are not liable to tax under the provisions of the Goods and Services Tax Act, 2017 as the transaction of the services supplied by a supplier to the employee and paid by the employee is liable to tax after 30.09.2019.The remuneration paid to the Director of the applicant company is liable to tax under reverse charge mechanism under sub­-section (3) of section 9 in the hands of the applicant company as it is covered under entry no. 6 of Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.

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April 2021