Rajasthan bench of Advance Authority Ruling held in the case of Clay Crafts India Pvt. Ltd. that GST shall be applicable on payments made to Director of a Company in any form of Salary, Professional or technical services or by whatever name called. However this ruling is contradictory to the Karnataka bench where the authority has recently ruled in case of Alcon Consulting Engineers (India) Pvt. Ltd. that payments made to Directors is not subjected to GST.
Schedule III of the Central Goods and Services Tax Act, 2017 deals with those areas which can be neither treated as supply of goods nor treated as supply of services and hence are outside the ambit of taxation under GST and one such case includes Services provided by employee to employer shall be regarded as neither supply of goods nor supply of services.
According to Circular No: 140/10/2020 – GST issued on 10th June,2020 by the Central Board of Indirect Taxes and Customs (CBIC), the policy making body for indirect taxes under the Finance Ministry, the issue of remuneration to directors has been examined under two different categories. The first one refers to independent directors and second one includes whole-time directors, including Managing Director, who are employees of a company.
Payments made to Whole Time Directors, including Managing Director in the form of Salaries are at the managerial position and they are full time employees of the company. As there is a relationship between Employer and Employee involved, further payments made to them are liable to be deducted at source under Section 192 of Income Tax Act,1961 (TDS on Salaries). Hence payments made to such Directors do not attract the provisions of GST 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,
In respect of such directors (independent director) 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. Also 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 and is therefore, taxable.
Further the liability to pay GST shall be vested on Companies i.e. payment made to Director in any form other than Salaries shall attract the provisions of Reverse Charge Mechanism under GST and hence Companies shall while making such payments also deposit GST and be eligible for claiming Input tax credit.
The above article is written by CA Suyash Tripathi and can be reached at tripathi.r.suyash@gmail.com
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Very useful ! And very well drafted, simple and easy to understand ! 👏