The Central Board of Indirect Taxes and Customs (CBIC) on Wednesday issued the clarification in respect of levy of the Goods and Service Tax (GST) on the remuneration of the directors.
This is in the light of recent orders of the various Advance Ruling Authorities where the benches interpreted the issue from a different perspective.
Recently, the Karnataka bench of the AAR held that the salary of a director is not subject to Goods and Services Tax (GST). The ruling is contradictory to the Rajasthan bench where the authority recently ruled that all directors are liable to pay GST.
The Board received several references from trade and industry seeking clarification on the issue whether the GST is leviable on Director’s remuneration paid by companies to their directors.
Further clarifications were sought on 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 i.e. “services by an employee to the employer in the course of or in relation to his employment” or whether the same is liable to be taxed in terms of notification No. 13/2017–Central Tax (Rate) dated June 28, 2017 (entry no.6).
“The remuneration paid to such independent directors, or those directors, by whatever name called, who are not employees of the said company, is taxable in hands of the company, on a reverse charge basis,” the board clarified.
The Board further clarified that 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.
“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 shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, 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 a reverse charge basis,” the circular said.