GST Update: Directors not ‘company employees’, salary/remuneration paid to them taxable under ‘reverse-charge
Blog: NASSCOM Official Blog
The GST Policy Wing, Central Board of Indirect Taxes and Customs (CBIC) recently issued Circular 140/10/2020 – GST dated June 10, 2020 wherein it clarified the applicability of GST on Director’s remuneration paid by companies.
To recap, Rajasthan Authority for Advance Ruling (AAR) in case of M/s. Clay Craft India Private Limited, held that services rendered by the Director to the company for which consideration is paid to them in any head is liable to GST under reverse charge. Subsequently, Karnataka AAR in the case of Anil Kumar Agarwal, has held that remuneration received by a Director in the capacity of an employee of the Company is outside the purview of GST and any remuneration received by a non-executive Director, not being an employee of the Company, would be subject to GST under reverse charge.
CBIC has now clarified that:
- 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 Income Tax Act, 1961 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.
- 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 should be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable under reverse charge in the hands of company.
Copy of the Circular is attached for your reference
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