GST on Director's remuneration : CBIC clarifies

The Central Board of Indirect Taxes and Customs (CBIC) vide Circular No: 140/10/2020 - GST clarified that remuneration to directors — whatever name they are referred to as (independent directors or whole time directors) - would attract goods and services tax (GST) in case they are not employees of the concerned companies, GST will be imposed on them on a reverse charge mechanism (RCM).

This way, CBIC has settled an ongoing controversy related to the matter due to conflicting rulings by the authority for advance rulings (AARs).

• Leviability of GST on remuneration paid by companies to the independent directors or those directors who are not the employee of the said company :

In respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable.

In terms of entry at Sl. No. 6 of the Table annexed to notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis. 

Accordingly, it is hereby clarified 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 reverse charge basis. 

• Leviability of GST on remuneration paid by companies to the directors, who are also an employee of the said company :

It has been clarified that the part of Director's remuneration which are declared as Salaries in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable being 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.

It is further clarified that the part of employee Director's remuneration which is declared separately other than salaries in the Company's accounts and subjected 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. Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.

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