Is GST on Director Remuneration applicable?. If Yes what are the basis for it under GST?. Let us understand the whole scenario of director remuneration. In order to understand this, we need to know first whether the director is getting a salary or remuneration from the company. Thus, here you will learn the applicability of GST on the director’S salary, their sitting fees, or any other professional services they provide to the company.
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- Introduction >> Salary Income >> Director Remuneration
- Remuneration Taxable or not >> Whole time director
- Reverse Charge >> FAQ
What is Salary Income?
According to section 17 of the Income-tax Act, whatever is received by an employee from his employer in cash, kind, or as a facility is considered as salary income. Read below the concept of GST on salary and GST on director remuneration including sitting fees in the company.
What is Director Remuneration?
In General, the Directors’ remuneration is the process by which directors of a company are compensated, either through fees, salary, or the use of the company’s property. However, this is payable after getting approval from the shareholders and board of directors.
Is Director Remuneration Taxable or not?
From the above meaning, it sounds the definition of salary and remuneration is almost the same. Then, why the GST law differentiates the salary income and remuneration to directors. Let us see further why the salary is not taxable under GST and the remuneration paid is taxable by the company on reverse charge basis.
In this regard the Central Board of Indirect Taxes and Customs issued a circular clarifying this matter having GST Circular reference No: 140/10/2020 – GST dated 10th June 2020. According to the circular they have framed the below questions:
Whether the remuneration paid by companies to their directors falls within the entry in Schedule III of the Central Goods and Services Tax Act, 2017?
I.e whether the Services or employment of an employee by the employer are taxable with reference to Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 (Entry No. 6).
The Board has provided the below clarification is this regard:
The GST liability on remuneration payable by companies to independent directors or directors who are not employees of the said company has definition in section 149 (6) of the Companies Act, 2013. Therefore the services rendered by such directors to the company are clearly outside the purview of Schedule III of the CGST Act. 2017. Therefore, these types of services to directors are taxable in nature.
GST on remuneration for whole Time Directors
Let us understand the concept of GST applicability on remuneration paid by companies to the whole-time directors including the managing directors who are also employees of the said company.
Once, it has been discovered that a director is an employee, it is necessary to check whether all activities performed by the director are during the employer-employee relationship. In other words, whether it is a “contract of service” Or is there any element of a “contract for service”.
Thus, the similar identification and treatment of director’s remuneration is also present in the Income Tax Act, 1961. Wherein the salary paid to directors is subject to TDS under section 192 of the Income Tax Act, 1961 (‘IT Act’). However, in cases where remuneration is in the nature of professional fees and not salary, it is liable for deduction under section 194J of the IT Act.
Therefore it has been clarified by the board that:
- The portion of the director’s remuneration that has been declared as ‘salary‘ in the books of a company and;
- Which is subject to TDS under section 192 of the IT Act.
Such Services provided to the employer by an employee are not taxable as per Schedule III of the CGST Act, 2017.
On the Other hand, the portion of the remuneration of an employee director:
- Who is declared separately in the company’s accounts other than ‘salary’ and;
- Is made subject to TDS under section 194J of the IT Act as fees for professional or technical services.
Therefore, the taxpayer shall consider such types of services for taxation. Similarly, these type of servcies are outside the scope of Schedule III of the CGST Act 2017. Hence such services are taxable under GST.
Reverse Charge Applicability
The recipient of the above type of services i.e the company is responsible for discharging GST on director remuneration on a reverse charge basis. This is as per Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017.
Frequently Asked Questions
No, if it is purely salary concept.
yes
Read above paragraphs to find out, whether it is sitting fees or salary paid to director.
It is a type of professional service provided to the company other than salaries.
