There has been a lot of confusion on taxability of director’s remuneration from companies in which they are directors in different forms. The confusion or doubts got mounted in the wake of recent conflicting advance rulings.
CBIC has now come out with a detailed Circular No. 140/10/2020-GST dated 10.06.2020 which clarifies issues relating to taxability of director’s remuneration including salary.
This Circular examines following two situations in relation to directors remuneration:
a) leviability of GST on remuneration paid by companies to the independent directors defined in terms of section 149(6) of the Companies Act, 2013 or those directors who are not the employees of the said company.
b) leviability of GST on remuneration paid by companies to the whole-time directors including managing director who are employees of the said company.
Based on clarification, the following position emerges :
|GST on Director’s Remuneration|
|Whole time Directors (Employee)||Non-executive / Independent Directors|
|As employee, not a taxable supply to company||As director, taxable supply to company|
|GST – Not taxable||GST – Taxable and payable under reverse charge|
|Non-employee services – taxable and payable under reverse charge||Non-director services – Taxable and payable under reverse charge|
The companies need to understand the difference between kind of directors. In the board, all directors are equal but for taxation under GST, one needs to understand whether the director is employee of the company or otherwise.
The following points are worth noting :
Though the CBIC Circular clarifies that services provided by whole-time directors to the company which are not in the capacity as an employee shall be out side the scope of exclusion and be taxable, such GST shall be payable under reverse charge mechanism by the company. This would imply that all services provided by ‘employee directors’ to company which are not in the course of employment will the subject to levy of GST and tax be discharged by the company under reverse charge.
On this issue, there could be conflicting interpretation as what is taxable is supply per se and not the person who is supplying. For example, if a director provides services of renting a property, tax on such service is under renting of immovable property and not as director’s services. Confusion still persists as to whether ‘any’ or ‘all’ services provided by directors are under reverse charge or only the services provided in the capacity as a director.
It would be advisable for companies to document the transaction between directors as employee and director as non-executive director elaborately so that no dispute arises and the tax payers are saved from harassment.