Clarification for GST on Director Remuneration

Circular No: 140/10/2020 - GST

Clarification in respect of levy of GST on Director Remuneration

Due to a lot of confusion in the trade and industry sector regarding the levy of GST on Director Remuneration in terms of Notification no. 13/2017-Central Tax(Rate) dated 28.06.2017 (entry no.6)  and advance ruling in case of Clay Craft India (P) Ltd. For this, CBIC has issued a circular clarifying the implication of GST on Director Remuneration.

Let me first discuss about the scenario or categories of director remuneration that has been paid by companies:

• Remuneration paid by the companies to independent directors in terms of section 149(6) of Companies Act, 2013 or 
• Remuneration paid by the companies to directors who are not an employee of the company
• Remuneration paid by the companies to whole-time directors including a managing director who are an employee of the company

By considering the above categories and for implementing the uniformity in provision of law, the following clarifications have been issued:

Remuneration in Company books	Schedule CGST Act, 2017	GST	Taxpayer
As technical and Professional Charges and TDS u/s 194J has been deducted	Not covered in Schedule III	Applicable	RCM is applicable to Company
Declared as “Salary” and TDS u/s 192 has been deducted	Covered in Schedule III	Not Applicable	NA
Is in the nature of Professional fees not salary	Not covered in Schedule III	Applicable	RCM is applicable to Company

Also, Director remuneration with regard to an Independent Director who is not the employee of the said company, the CBIC said services provided by them to the company in lieu of remuneration as the consideration for the said services will attract goods and services tax (GST).

Further, for more clarity regarding those category of Directors who are providing services to the company in dual capacity i.e. they are providing services as Director of the Company and on the other side there is a contractual relationship of master and servant with the company i.e. employer employee relationship.

For this, government has clarified that in case directors providing their service to the company in dual capacity, the following treatment has been to be done:

• The part of Director Remuneration which are declared as 'Salaries' in the books of Company and subject to TDS under Section 192 of the Income Tax Act, 1961 are not taxable and covered under Schedule III of CGST Act, 2017 and

• The Part of Director Remuneration which are declared in 'other than Salaries' in the books of Company and subject to TDS under Section 194J of Income Tax Act, 1961 as 'Fee for professional or Technical Services' are liable to GST under Reverse Charge and and not covered in Schedule III of CGST Act, 2017. Therefore, the Company is liable to discharge the GST on it  on a reverse charge basis as per notification no.13/2017-Central Tax (Rate) dated 28.06.2018 (entry no.6).

It may be noted that the above information is based on the latest circular issued by CBIC and notification issued. For detailed information regarding the same please refer:

Clarification- https://www.cbic.gov.in/resources//htdocs-cbec/gst/Circular_Refund_140_10_2020.pdf

Notification: https://www.cbic.gov.in/resources//htdocs-cbec/gst/Notification13-CGST.pdf

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