Clarification in respect of levy of GST on director’s remuneration
June 12, 2020
The Central Board of Indirect Taxes and Customs (CBITC) has issued a clarification in respect of levy of GST on Director’s remuneration. The clarification is in the context of doubts as to whether the remuneration paid by companies to their directors falls under the ambit of the entry in Schedule III of the CGST Act, 2017 i.e. “services by an employee to the employer in the course of or in relation to his employment” (and therefore not to be treated as supply of goods or services) or whether the same is liable to be taxed in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 (entry no.6) in the hands of the company on a reverse charge basis. The issue has been examined under two categories and clarified as follows:
Leviability of GST on remuneration paid to independent directors and directors who are not employees of the company
With respect to independent directors (u/s 149(6) of Companies Act 2013) or such directors (WTD u/s 2(94)) who are not employees of the company, the services provided by them to the Company in lieu of remuneration as consideration for the said services, are outside the scope of Schedule III of the CGST Act and are therefore taxable in the hands of the company on reverse charge basis.
Leviability of GST on remuneration paid by companies to directors who are also employees of the said company
The part of Director’s remuneration which is declared as “Salaries‟ in the books of a company and subjected to TDS under Section 192 of the IT Act, is 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.
However, the part of the 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 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 in terms of aforesaid notification No. 13/2017 dated 28.06.2017.
To refer to the CBITC Circular dated 10 June 2020, click here.
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