CBIC Circular on applicability of GST on Directors’ remuneration

by | Jun 12, 2020 | Insight

The applicability of GST on Directors’ remuneration became debatable and confusion multiplied due to contradictory advance rulings on the issue. In a bid to bring clarity on the issue, the CBIC has issued Circular No. 140/10/2020 – GST dated June 10, 2020 clarifying the conundrum. The Circular has clarified as under:

Type of Director

 

Nature of payment

 

Implications under Income Tax law

 

GST Implications

 

Independent Director or Whole-Time Director who is not employee of the Company

 

Remuneration for service

TDS deducted under Section 194J of the Income Tax Act, 1961 (‘IT Act’)

GST payable under Reverse Charge Mechanism (RCM) by the Company

Director who is employee of the Company (irrespective of name and designation)

Salary for employment

(declared as salary in books of accounts)

 

TDS deducted under Section 192 of the IT Act

 

No GST applicable as per Schedule III of the Central Goods and Services Tax Act, 2017

Remuneration for service

(employee can act in dual capacity including as a service provider)

 

TDS deducted under Section 194J of the IT Act

GST payable under RCM by the Company

 

NITYA Comments: 

The Circular has rightly adopted the treatment under the IT Act and books of accounts for characterizing whether a Director constitutes an employee or not. 

Notably, the Circular is silent on other services (like renting of immovable property etc.) provided by Directors. In our view, RCM entry [Entry No. 6 of Notification No. 13/2017 – Central Tax (Rate) dated June 28, 2017] is wide enough to cover all services provided by a Director to Company within the purview of RCM.

 

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