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 clarified on the said issue vide Circular No. 140/10/2020 – GST dt. 10/06/2020

CATEGORY : 1

Remuneration is paid to Independent Directors u/s 149(6) of Companies Act, 2013

CATEGORY : 2

Remuneration is paid to Whole Time Directors including managing Directors who are employee of the company

As per provisions of Companies Act, 2013, independent director should not have been an employee the company.

 

Hence, services provided by them to the company are clearly outside the scope of Schedule III of the CGST act (amount paid by employer to employee in the course of employment).

 

Accordingly, it is 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.

Director who has taken employment in the Company may be functioning in dual capacities :

        a)      As a director of the company.

        b)      On the basis of the contractual relationship of master and servant with the company, i.e. under a contract of service (employment) entered into with the company.

 

Accordingly, it is 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.

 

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 and company is liable to discharge the applicable GST on it on reverse charge basis.

 Note:- As per provisions of Companies Act, 2013, a Non-Executive director means a director who is not involved in day-to-day activities of the company or in simple words, we can say that Non-Executive Director means an executive director without employment. 

Therefore, in line with the above context, any remuneration paid to a Non-Executive Director shall also fall under Category - 1 above and shall be taxable under GST and company is liable to discharge the applicable GST on it on reverse charge basis