Clarification in respect of levy of Goods and Services Tax on Director’s remuneration
by ReinHeads Team | Jun 11, 2020
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Clarification in respect of levy of Goods and Services Tax on Director’s remuneration
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The Central Board of Indirect Taxes and Customs has issued a Circular No. 140/10/2020 – GST dated 10 June 2020 (‘the Circular’) wherein clarification has been issued on the leviability of Goods and Services Tax (‘GST’) in respect of directors remuneration paid by the company. The key aspects of the Circular has been summarized hereinbelow for your reference:
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Scenario
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Clarification
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| Remuneration paid by the companies to Whole Time Directors (‘WTD’) including Managing Director who are employee of the said company |
· A director who has taken an employment in the company may be functioning in dual capacities i.e., one as a director and other on the basis of contractual relationship of master and servant (under a contract of service)
· Similar identification and treatment of director remuneration is also present in the Income Tax Act, 1961 (‘the IT Act’) wherein salaries paid to director are subject to Tax Deducted at Source (‘TDS’) u/s 192, whereas remuneration is in nature of professional fees is subject to TDS u/s 194J of the IT Act
· Accordingly, director’s remuneration declared as ‘salaries’ in the books of the company and subjected to TDS u/s 192 of the IT Act is not liable to GST under Entry No. 6 of the Schedule III of the Central GST Act, 2017 (‘the CGST Act’) i.e. “service by an employee to the employee in the course of or in relation to his employment”
· However, Director’s remuneration which is declared separately other than ‘salaries’ and subjected to TDS u/s 194J of the IT Act (as professional/ technical services), shall be treated as consideration for providing services and liable to GST in hands of the company under reverse charge |
| Remuneration paid by the companies to independent directors or those directors who are not employee of the said company |
· In light of the provisions under the Companies Act, 2013, it can be inferred that:
- WTD may be a person who is not an employee of the company
- An independent director should not have been an employee/ proprietary or a partner of the said company, in any of the three FY immediately preceding the FY in which he is proposed to be appointed in the company
· In respect of directors who are not employee, services provided by them to the company in lieu of remuneration is the consideration for the services and outside the scope of Entry No. 6 of the Schedule III of the CGST Act
· Accordingly, remuneration paid to such directors (by whatever name called) is liable to GST in hands of the company under reverse charge |
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