CBIC Circular on applicability of GST on Directors’ remuneration
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:
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Type of Director
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Nature of payment
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Implications under Income Tax law
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GST Implications
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Independent Director or Whole-Time Director who is not employee of the Company
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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 |
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Director who is employee of the Company (irrespective of name and designation) |
Salary for employment (declared as salary in books of accounts)
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TDS deducted under Section 192 of the IT Act
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No GST applicable as per Schedule III of the Central Goods and Services Tax Act, 2017 |
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Remuneration for service (employee can act in dual capacity including as a service provider)
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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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