Director's salary - liable to GST? Clarified now.

Circular No: 140/10/2020 - GST dated 10-Jun-2020

Finally the government has cleared the air in terms of GST applicability on Directors Remuneration. The contention here is whether the Director is an employee or not. 

Wholetime/Executive Director

A whole time-director under section 2(94) of the Companies Act, 2013 is an inclusive definition, and thus he may be a person who is not an employee of the company.

Independent Director

Any such director should not have been an employee or proprietor or a partner of the said company, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed in the said company[ Section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014..

(A) Directors who are employees of the company

Salary is not taxable under GST

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.

Remuneration other than Salary is taxable under GST under reverse charge basis

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. 

(B) Directors who are not employees of the 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. 

Accordingly, 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