Clarification of Levy of GST on Director’s Remuneration

GST on Remuneration

 

The most controversial issue has come to an end. Various references have been received from trade and industry seeking clarification whether the GST is leviable on Director’s remuneration paid by companies to their directors. CBIC has given clarification of levy of GST on the Director’s Remuneration on 10th June 2020 circular no 140/10/2020.

Clarifications were raised whether the remuneration paid will fall under the scope of Schedule III of the CGST Act 2017 or under the limit of entry 6 of Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017.

Let us know the above provision in detail.

Schedule III of the CGST Act, 2017 contains activities or transactions which shall neither be treated as supply of goods nor a supply of services Entry No. 1 of the same schedule has been mentioned below for reference. “Services by an employee to the employer in the course of or in relation to his employment.”

Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017  requires that body corporate or companies shall pay tax under reverse charge mechanism where the Services are supplied by a director of a company or a body corporate to the said company or the body corporate.

How to determine the Category of Directory:

The primary issue to be decided is whether or not the director is an employee of the company.

Whole Time Director in terms of Section 2 (94) of the Companies Act, 2013 has been defined in an inclusive manner and it may so happen that he may be a person who is not an employee of the company.

While being an Independent Director in Company requires that Director should not have been an employee of the company in any of the three financial years immediately proceeding the financial year in which he is proposed to be appointed.

The clarification on levy of GST is completed explained in Circular No: 140/10/2020 – GST Dated 10th June 2020.

  1. Independent Director – Received any payment – TDS to be deducted u/s 194J – GST on RCM Basis
  2. Whole Time Director or MD – Employee Salary – TDS deducted u/s 192 – No GST
  3. Whole Time Director or MD – Received anything other than salary – TDS Deducted u/s 194J – GST on RCM basis

For better understanding given the above information in table format in detail.

Clarification on levy of GST on Director’s Remuneration:

DR1

Bottom line:

If Remuneration of Said Director is subject to TDS under the section of 192 of IT Act, then the services provided by said director covered under Schedule III of the CGST Act, 2017, and not taxable under GST.

If the Remuneration of the said director is subject to TDS under the section of 194J of IT Act, then the services provided by the said director are covered under entry 6 of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 and liable for GST under RCM.

Download the Notification:

Circular  No: 140/10/2020 dated 10th June 2020

Circular_Refund_140_10_2020

Notification No: 13/2017 dated 28th June 2017

Notification13-CGST

Happy Reading

Sumathy Saravanan

 

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