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

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Budget 2012 - impact on individuals & salaried class

It was exactly a year before that I posted my last post on leadership (in Cricket). Today, a history was created in Cricket. Yes, Sachin finally scored his 100th CENTURY!

Congrats Sachin!

Sachin's long awaited 100th Century overshadowed the Union Budget. How was the budget? The simple dipstick is the Sensex. Market was positive till the budget was presented and went down to close 210 points lower!

It shows that market is not happy about the budget.

Let us see what is in store for the salaried class and individuals:

Tax rate                             Current                         Proposed                 

Basic exemption                      180,000                      200,000

10%                                180,001 - 500,000      200,001 - 500,000

20%                                500,001 - 800,000     500,001 - 1,000,000

30%                                800,001 & above      1,000,001 & above

No special concession for women. The basic exemption stands revised to Rs.200,000 (from the current Rs.190,000).

For the Senior Citizen (60-80 yrs) & Very Senior Citizen (80+ yrs) - No change in the basic exemption

Senior Citizen - Proposed tax rates

Upto Rs.250,000 - Nil

250,001 -   500,000  - 10%

500,001 - 1,000,000 - 20% (current : 500,001 - 800,000)

Above 1,000,000      - 30% (current : 800,001 & above)

Very Senior Citizen - Proposed tax rates

Upto Rs.500,000      - Nil

500,001 - 1,000,000 - 20% (current : 500,001 - 800,000)

Above 1,000,000      - 30% (current : 800,001 & above)
The Finance Minister could have done more, but UPA needing support from others forced them to do a moderate budget.

Few benefits for an individual:

• Proposal to allow a deduction of upto Rs.10,000 for interest from savings bank accounts (earlier section 80L deduction brought back)
• Proposal to allow deduction of upto Rs.5,000 for preventive health check up.
• Senior citizens not having income from business proposed to be exempted from payment of advance tax.

Need to go through the fine prints to understand the conditions for availing the benefits.

Expect the service cost goes up, as the Service Tax rate has been increased from 10% to 12%. This is in line with implementing the GST. Your charges to banks, credit card companies will go up by 2%.

In a nutshell, the finance minister has given some benefit which will partly take care of the inflation.

Cheers,
Gopal

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GST - Implementation may be further delayed

I had earlier mentioned in my post that the GST implementation has been delayed from 1-Apr-2010 to 1-Oct-2010.

But now it seems that it may further delayed as it looks to iron-out differences with the states. The State finance ministers are scheduled to meet in mid-January to discuss details and timing.


There was a fear that the States may loose out if the GST is rolled out. In order to compensate states for potential lost revenue, a government panel has proposed to create a 500 billion rupee (USD10.8 billion) fund as incentive for states to buy into GST.

span style="font-family: Georgia, "Times New Roman", serif;">What are the next steps?

• The legislation to make constitutional amendments needs to be finalised 
• The mechanism for administering the tax needs to be created.
• The government also needs to set up the technology infrastructure to manage the tax.

What would be the revenue impact?


The GST is initially intended to be revenue-neutral but is eventually expected to increase the tax - thanks to more efficient collection and increased compliance. "It will smoothen the tax process, reduce transaction costs and raise the tax-to-GDP ratio," said DK Joshi, economist at ratings agency Crisil in Mumbai.


I was watching a TV news today, that the BJP is apposing the GST Roll-out and feel that if the GST can be rolled out after meeting all challenges  by 1-Oct-2010, it would be a great achievement by the Finance Minister.

Cheers,

Gopal

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GST Task Force recommendation - Implementation may be delayed!

The Thirteenth Finance Commission’s taskforce on the proposed goods and services tax (GST) has recommended a 5 per cent central GST and 7 per cent state GST on all goods and services, except five specific categories. It has proposed a zero rate for exports though it is not in favour of any special dispensation for the special economic zones (SEZs).

For inter-state transactions, the taskforce, in its report, recommended zero-rated structure through adoption of the modified bank model. Pending constitutional amendment, the report suggested that the collection from 7 per cent state GST should accrue to the state government and devolution to the third-tier (local) government should be made based on recommendations of state finance commissions.

The exemption list includes public services of Union, state and local governments, service transaction between an employer and employee, unprocessed food articles sold under the public distribution system, educational and health services provided by non-government schools, college and agencies.

It has favoured doing away with area-based exemption and replacing it with direct investment-linked cash subsidy in case the government wants to support industry for balanced regional development.

The taskforce has also recommended that “sin” goods comprising emission fuels, tobacco products and alcohol should be subject to a dual levy of GST and excise with no input credit for excise. “However, industrial fuels should be subjected only to GST with the benefit of input credit like any other intermediate good,” the report said.

Central taxes proposed to be subsumed in GST are central excise duty, including additional excise duty, service tax, additional customs duty, all surcharges and cesses. Among state taxes that should be subsumed are value added tax, including purchase tax and central sales tax, and entertainment tax, among others.

In recommending what it terms as a “flawless” GST, the taskforce, headed by Arbind Modi, joint secretary, Department of Revenue, has made wide variations from what was proposed by the empowered committee of state finance ministers in their first discussion paper released last month.

The discussion paper had recommended a two-rate structure for both state GST and central SGT while keeping the purchase tax levied by states like Punjab, Haryana and Uttar Pradesh out of the purview of GST.

The discussion paper had recommended a dual rate structure for CGST and SGST with a single rate for services. The finance commission taskforce, however, said “there should be no classification between goods and services in law so as to ensure that there is no classification dispute”.

The state governments will meet soon to discuss the fine contours of GST as the scheduled date (April 1, 2010) for its introduction draws closer.

Even in the case of exempted items, the discussion paper did not list the items but favoured retaining the exempted list of value added tax and Central VAT which is currently around 100.

• A zero rate for exports though it is not in favour of any special dispensation for the special economic zones.
• It has favoured doing away with area-based exemption and replacing with direct investment-linked cash subsidy.
• The taskforce has also recommended that ’sin’ goods comprising emission fuels, tobacco products and alcohol should be subject to a dual levy of GST.
• 
  
  The taskforce in its report has suggested that small dealers, service providers and manufactures with an annual turnover of less than Rs 10 lakh should be exempted from both CGST and SGST though they could voluntarily register themselves for GST in order to get the benefit of input credit. The discussion paper had suggested Rs 10 lakh as threshold for SGST and Rs 1.5 crore as threshold for CGST
  
  
  

In order to reduce administrative and compliance burden, the taskforce report proposed compounded levy of one per cent each for CGST and SGST for those with turnover of Rs 10 lakh to Rs 40 lakh with “no input credit allowed against compounded levy or purchases made from exempt dealers”.

The 13th Finance Commission task force on the proposed Goods and Services Tax has recommended a single, 12 per cent rate on all items and suggested deferring implementation of the new tax regime by six months from April to October next year.

Out of the GST of 12 per cent, states should receive seven per cent while the rest five per cent should go to the Centre’s kitty, said thetask force.

The recommendations, however, are at variance with the Discussion Paper prepared by the Empowered Committee of State Finance Ministers which had suggested four rates, including a separate category for exempt items.

The task force has said the GST be introduced from October 1, 2010.

The Empowered Committee, which is yet to take a final call on GST tax rates, is meeting here under the chairmanship of Asim Dasgupta.

“It (GST) will have four slabs. I hope the rates will be released in the next 15 days,” Dasgupta had said.

I feel that the implementation will be delayed further not only because of the rates and structure but also due to getting the constitutional amendment done. With the strong government in place it is not that difficult. But issues like Telangana, Terrorism will digress important issues.

Cheers,

Gopal

PROPOSALS:-

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GST - PM's Economic Advisory Committee favors single slab for Goods & Services

In my earlier posting, I have mentioned the salient points of the recommedations by the Empowered Committee of the State Finance Ministers (EC). 

Last week the Prime Minister's Economic Advisory Committee (PMEAC) headed by C.Rangarajan favoured a single slab each for goods and services or one common rate for both under the proposed goods and services tax (GST), unlike the proposal mooted by the states.

Rangarajan said,"The Centre could follow the pattern in which there is only one rate for goods and one rate for services, or one rate which is common to both goods and services". He added that there is an advantage in having single uniform rate. He added that having a separate slab for precious metals is neither advisable nor advantageous.

As I mentioned in my post that the empowered committee suggested two main rates for goods, besides a special rate for precious metals. However, for services the committee proposed just one rate. It also suggested that some goods be exempted from the proposed GST.

Last week, chairman of empowered committee of state finance ministers Asim Dasgupta had said GST would have four slabs. Among the GST tax slabs, it would be zero for exempted items, one standard rate for majority of goods and services and another having a moderate rate, he said.

The EC expected the Centre will follow same structure for GST as mooted by it. However, a task force set up by the 13th Finance Commission has suggested a single GST for the Centre and the states, though rates proposed are different.

 

Wait for more updates. I will post a separate note on the hurdles on implementaion.

 

Cheers,

Gopal

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GST - Get...Set....Take-off

Here I am with an update on what is happening on GST (Goods & Services Tax). 

What is GST?


GST stands for Goods & Services Tax. It will replace Excise Duty, Customs Duty, Sales Tax, VAT, Services Tax, Luxury Tax, Entertainment tax, Cesses charged by States, etc.,). Stamp Duty, Toll Fee, Passenger Tax, Road Tax are not part of the GST. It will be a simplified tax, which can be easy to administer across the states in India.


As you know that the Government is keen in rolling out the GST with effect from 1-Apr-2010, all the teams are working towards the same.Here are the some high level points on the recommendations by the Empowered Committee of the State Finance Ministers (EC):

• Dual GST - Central GST (CGST) & State GST (SGST) - an agreement reached.
• Dual GST Rates agreed :
• Standard rate would be in the range of 8% to 9%
• Essential Commodities - 4% to 5%
• Precious metals (Special rate) - 1%
• Few products - exempted from GST
• Special treatments:
• Tobacco products subject to GST and Centre to levey excise duty over & above the GST
• Alcoholic beverages & Petroleum products kept out of the GST purview
• Inter-State GST
• It is known as IGST (Integrated GST) - taxable for all inter-state sales including branch transfers & consignment goods
• Centre will be taxing these transactions
• Input credits of IGST, CGST & SGST will be available for offset.
• Central agency to act as a clearing house for IGST funds among States.
  
• Central Govt agreed to compensate the State for any revenue loss
• GST paid on imports are available as input tax credits
• Place of supply determines the State in which the SGST on Import payable.
• Services to be charged in the state of consumption
• Supply rule determines the place of consumption for cross-border services
  
• State GST - Charged based on the location of the recipient of services
• Thresholds for the GST applicability:
• For SGST - Gross Annual Turnover of Rs.10,00,000 (both for Goods & Services)
  
• For CGST - Gross Annual Turnover of Rs.150,00,000 (for goods) and for services it may be slightly higher. This is in line with the basic exemption duty from Central Excise.
• For a better monitoring purposes, a PAN-linked Tax Payer Id with 13/15 digits will be allotted.
  

A Joint Working Group (JWG) to prepare paper on:

• Rules and Procedures
• Legal & Constitutional changes required
  

It is expected that the required Constitutional amendments (required for Centre & State sharing the revenue etc.,) would be made in the winter session of the Parliament (Let us hope it get through)
 

The Information Technology (IT) infrastructure is expected to operational by end-Jan 2010.

Let us hope for the best!!! The above is the gist of EC recommendations.

We will see in the next post on the latest developments.

Cheers,

Gopal

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