The controversy on whether remuneration paid to directors of a company is subject to Goods and Services Tax (GST) has been put to rest by a recent ruling, given by the Authority for Advance Rulings (AAR), Karnataka bench.
The salary of a director in a company is not liable to be taxed under Goods and Services Tax (GST), the Karnataka Authority of Advanced Rulings (AAR) has said.
The AAR's ruling is based on the fact that executive director is an employee of the company and his work doesn't fall under the definition of supply under the CGST Act. On the other hand, non-executive director is not an employee and as such his inputs are essentially services under the CGST Act and therefore taxable under RCM.
Normally, a person or entity providing services pays the tax to the exchequer, and recovers it from the receiver of the service. But under RCM, the receiver of the service pays the tax by deducting it from the service provider's compensation.
The ruling should settle the dust raised by the recent Rajasthan ruling, in the case related to Clay Craft.
In that ruling, the Rajasthan AAR had ruled that the services rendered by the director to the company for which consideration is paid to them in any head is liable to GST under RCM and the situation would remain the same even when the director is also a part time director in another company. The AAR did not distinguish between executive director and non-executive director as was done by its Karnataka counterpart.
GST applicability of other considerations, as ruled by Karnataka AAR:
1) Working partner getting salary is not taxable under GST
2) If this partner gets earnings towards his share of profit, it is not liable to tax
3) The income received from renting of residential property by non-executive director is to be included in his aggregate income, though it is an exempted supply
4) Interest received from amounts extended as deposits, loans, advances are to be included in the income.
Note : CBIC has clarified over the Applicability of GST on Directors' Remuneration
Read : CBIC Clarifies Applicability of GST on Directors' Remuneration
This Article was authored by Tushant a passionate blogger by .
Co-founded Tax Ninja with the aim to serve knowledge digitally.
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