Central Board of Indirect Taxes and Customs has issued a Clarification w.r.t. the levy of GST on Directors’ remuneration vide this circular dated on 10th May 2020. It is clarified that the part of Directors’ remuneration which is declared as ‘Salaries’ in the books of accounts of a Company and subject to TDS under Section 192 of the IT Act, is not taxable as 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 employee Directors’ remuneration which is declared separately other than ‘salaries’ in the Company’s books of accounts and subject 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 under GST.
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).
As per section 2 (94) of the Companies Act, 2013, a whole time-director could be a person who is not an employee of the company & section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 stipulates that an Independent Director should not be an employee of a company.
Therefore, the circular makes a distinction between a director, who is an employee and an independent director, who is not an employee of the company, and accordingly clarifies that 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.
Click here to read the Circular.
