Levy of GST on Director’s Remuneration

CBIC has clarified vide circular no :140/2020 on dated 10^th June 2020 regarding the confusion whether GST is leviable on directors remuneration paid by companies to their Directors.

Earlier as per vide entry no 6 of notification no.13 of CGT Act and entry no 7 of notification no.10 of IGT Act on dated 28^th June 2017, the government had notified that any service supplied by a director of a company or body corporate would be covered under RCM (Reverse Charge Mechanism ) under section 9.

As per section 2(102) of CGST Act, 2017, “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode to another for which a separate consideration is charged.

Accordingly it may be construed that services of director i.e:

1. sitting fees.

2. Commission.

3. services charges for giving guarantee for loan taken by company.

4. Any other Technical service

has  been covered under the Government notified services on which the tax  would be payable on reverse charge basis by the company under section 9 .

So 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.

Doubts have been raised as to whether the remuneration paid by companies to their directors 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 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).

One of decision by  Rajastan bench of AAR :

• As per Advance Rulling no :RAJ/AAR/2019-20/33 ,Clay craft india pvt.ltd had made an application before the Rajastan bench of AAR for clarification on wheteher salaries paid to director would attract GST under RCM.

Company views :

• It said that its director are working as employees for which they are getting salaries and other allowance like of other employee.
• Company clears that they are deducting TDS on their salary and PF laws are also applicable by them to the company.

Therefore those directors are the employees of the company and working as such besides being director of the company, as GST is not chargeable in the case where there is employer and employee relationship Exist.

 AAR views :

• AAR said that director is the supplier of service and the applicant of the company is the recipient of the service.
• It said in the CGST notification that service provided by a director of a company will be considered as supply and hence director cannot be called as employee.
• So it is clear that the service provided by a director to the company for which consideration is paid to them in any head is liable to pay GST under RCM.

After the circular released by CBIC vide circular no :140/2020 on dated 10^th june 2020 all the doubt has been cleared in many people’s mind.

Conclusion :

In this circular CBIC Clarified that :

1. The part of Director‟s remuneration which are declared as Salaries in the books of a company and subjected to TDS under Section 192 of the IT 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. However 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. The recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.