Applicability of GST on directors remuneration
Applicability of GST on Directors remuneration and liability to pay GST under RCM on Directors remuneration has always been a matter of dispute. Recently, Authority for Advance Ruling, Karnataka and the Authority for Advance Ruling, Rajasthan has determined that the company is liable to pay GST under RCM on remuneration paid to directors in capacity of employees.
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).
Now to put an end to all the doubts and confusion over applicability of GST on services supplied by directors to companies, the Government has issued Circular No – 140/10/2020 – GST dated 10th June 2020. The circular provides as follows
1.Remuneration to Independent Director would be charged to GST under RCM i.e. i.e., company, is liable to pay GST on remuneration to independent director under RCM
2.Remuneration to Whole time director and Managing Directors would not be charged to GST.
- Payment made to directors, which is declared as “Salary” in books of accounts and on which TDS has been deducted under section 192 of Income Tax Act, are covered under entry No. 1 of Schedule III of CGST Act. Therefore, no GST is applicable on such payment.
- Payment is recorded other than “Salary” in books of accounts of the company and which is subject to TDS under section 194J of Income Tax Act. Such payments falls under Entry No. 6 of N/No. 13/2017-Central tax (Rate) dated 28th June, 2017 and the company is liable to pay GST on such payment under RCM.
