The Rajasthan Authority of Advance Ruling (AAR) ruled the remuneration paid to the directors are liable for the Reverse Charge Mechanism (RCM) under Goods and Service Tax (GST).
In an application filed before the Rajasthan bench of the Authority of Advance Ruling (AAR), Clay Craft India Pvt Ltd. had sought clarification on the issue whether salaries paid to directors would attract Goods and Services Tax or not?
The company said its directors are working as employees for which they are being compensated by way of a regular salary and other allowances.
“The company is deducting Tax Deduction at Source (TDS) on their salary and Provident Fund (PF) laws are also applicable to their service. Therefore, in all practical purposes these directors are the employees of the company and are working as such besides being Director of the company,” the company said.
In its ruling, the Authority of Advance Ruling (AAR) said, “the consideration paid to the directors by the applicant company will attract GST under reverse charge mechanism”.
The Authority of Advance Ruling (AAR) clarified that if the director is a part-time director in any other company the position will remain the same, consequently consideration paid to the directors by the applicant company will attract Goods and Service Tax (GST) under Reverse Charge Mechanism (RCM).
The Authority of Advance Ruling (AAR) said that the Director is the supplier of services and the applicant of the company is the recipient of the services. It said that in the Central Tax (Rate) notification, it has been clearly stated that services supplied by a Director of a company will be considered as supply and hence directors cannot be called an employee.
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