Decoding – CBIC Circular No: 140/10/2020 – GST dt. 10.06.2020 – Clarification in respect of levy of GST on Director’s remuneration
Point of Doubt: –
Whether the remuneration paid by companies to their directors
1. falls under the ambit of entry in Schedule III of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act) i.e. “services by an employee to the employer in the course of or in relation to his employment” or
2. whether the same are liable to be taxed in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 (entry no.6)
The issue of remuneration to directors has been examined under the following two different categories:
*Independent directors here mean the directors defined u/s 149(6) of the Companies Act, 2013
Category 1: GST on remuneration paid by companies to the independent directors* or those directors who are not the employees of the said company
Clarification: –
1. Therefore, in respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable.
2. In terms of entry at Sl. No. 6 of the Table annexed to 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.
3. 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.
Category 2: GST on remuneration paid by companies to the whole-time directors including the managing director who are employees of the said company
Clarification:-
1. Accordingly, it is clarified that the part of Director’s remuneration which is declared as “Salaries‟ in the books of a company and subjected to TDS u/s 192 of the Income Tax Act are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.
2. It is further clarified that the part of employee Director’s remuneration which is declared separately other than ‘Salaries’ in the Company’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is, therefore, taxable.
3. 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.
References: CBIC Circular No: 140/10/2020 – GST dt. 10.06.2020
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