GST on directors remuneration
Schedule III ( see section 7)
ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES
1.Services by an employee to an employer in the course of or in relation to his employment
Understanding of the Text:
“Services supplied by the director of a company or a body corporate to the said company or the body corporate.”
Let us take some examples to analyse the meaning of the text:
1. Mukesh Ambani is using Jio number and is paying charges for the same. Whether the above service by Jio company is service to a director or service to a consumer?
In the above question Mr. Ambani is using jio number as a consumer and not in the capacity of director. Therefore using jio number shall not be construed as service to a director.
2. Mr. X a CA of a company has reached the level of CFO and now to give him a promotion he was inducted in the board of directors and his role has not changed whether merely because he is Director now will he not be considered as an employee of the company.
In the above case Mr. X was being inducted to the post of director only for the promotion sake and his role has not changed. He is still working in capacity of an employee. Thud the salary paid to him shall not be included as remuneration for the services provided by the director.
3. HP CEO(whole time director) uses HP cylinders for his household purposes in this case whether the transaction by HP is supply to a director or supply to a consumer?
Use of cylinders by CEO of HP for his household purposes is in the capacity as a normal consumer and the supply of the same should be considered as a supply to consumer and not as a director.
4. A is owner of a big commercial space, assuming it has 10 offices and he has let out 10 offices to different companies and one of the office is given to a company in which he is a Director. Whether in this case it is a supply by a Landlord to a company or Director to a company?
Here the transaction between the director and the company is a normal business transaction unless the rent paid by company is prejudicial to its interest i.e the transaction should be at fair value or arm’s length price. Supply should be considered as a supply by landlord to the company.
Extract of Notification No 13/2017:
|Sl. No.||Category of supply of services||Supplier of service||Recipient of service|
|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 corporate||The company or a body corporate located in the taxable territory.|
Case of M/S. CLAY CRAFT INDIA PVT. LTD. [2020 (4) TMI 228] – decided by AAR – Rajasthan:
Facts of the case:
Issue to be resolved:
Whether remuneration paid to directors as per employment contract is liable to tax under GST(RCM) or not and if the situation changed if the director is also part time director under some other company also.
The Advance ruling authority held that :
The AAR held that remuneration payable to all directors is liable to GST under RCM. The AAR does not provide any basis for giving ruling that the director is not the employee of the Company. Hence, the ruling is baseless and this ruling is applicable only in case of the company who sought it.
As per our view, remuneration payable to the director who is under employment contract with the salary is covered under schedule III of the CGST Act. Therefore, not subjected to GST under RCM. This AAR should be clarified by the Government in order to avoid situation where lower tax authorities take incorrect legal view to create havoc in the industry.
What if the director is also part time director under some other company also?