APPLICABILITY OF GST ON DIRECTORS REMUNERATION
As per Section 9(3) of the CGST Act, tax shall be paid on reverse charge basis by the recipient of such service. The Central Government vide Central Tax (Rate) Notification No. 13/2017 dated 28th June 2017 notified few services on which tax has to be paid on reverse charge basis. Under Entry 6 of the said Notification it is mentioned that services supplied by a director of a company or a body corporate to the said company or the body corporate (located in the taxable territory) this will fall under Reverse Charge Mechanism, i.e. the company have to pay tax on the consideration paid to director and is eligible for Input Tax Credit.
As per Clause I of Schedule III of CGST Act, 2017 – Services by an employee to the employer in the course of or in relation to his employment is not be treated as supply of goods / services and hence not liable to be taxed.
To bring uniformity in the implementation of the provisions of the law across the field formations, the Board, in exercise of its powers conferred under Section 168(1) of the CGST Act hereby clarifies the issue by Circular No. 140/10/2020-GST dated 10th June, 2020.
Leviability of GST on remuneration paid by companies to the independent directors or those directors who are not employees of the said company
The services provided by independent directors or those directors who are not employees of the said company, in lieu of remuneration as consideration for the said services will fall under Entry 6 of the Table annexed to notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 and GST is liable on reverse charge basis on the recipient of the services i.e., the Company.
Leviability of GST on remuneration paid by companies to the directors who are also employees of the said company
In some company the director is functioning in dual capacity, one as the director of the company and other on the basis of the contractual relationship of master and servant with the company. If remuneration is paid in terms of salary than TDS is being deducted under Section 192B of the Income Tax Act, 1961 and Clause I of Schedule III of CGST Act, 2017 will attract and hence no GST will be charged on payment of remuneration to directors.
But if remuneration is paid in the nature of professional fees than TDS is being deducted under Section 194J of the Income Tax Act, 1961 which is outside the purview of Clause I of Schedule III of CGST Act, 2017 and is therefore taxable. Further, in terms of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.
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