Central Board of Indirect Taxes and Customs (CBIC) has clarified various circumstances when the renumeration paid to the director is liable to GST under reverse charge. Circular No. 140/10/2020-GST, dated 10-06-2020, issued for the purpose, observes that there were doubts as to whether the remuneration paid by companies to their directors fall under the ambit of Schedule III of the Central Goods and Services Tax Act, 2017 or is liable to GST under Sl. No. 6 of Notification No. 13/2017-Central Tax (Rate).
No GST on employee director’s renumeration paid as ‘salaries’
It has been clarified that part of Director’s remuneration which is declared as ‘Salaries’ in the books of a company and is subjected to TDS under Section 192 of the Income Tax Act, 1961 is not liable to GST. Such consideration for services by an employee to the employer in the course of or in relation to his employment is in terms of Schedule III of the Central Goods and Services Tax Act, 2017 and is not taxable.
GST liability on employee director’s renumeration paid as ‘fees for professional/technical services’
The Circular, however, clarifies that part of employee Director’s remuneration which is declared separately other than ‘salaries’ in the Company’s accounts and is subjected to TDS under Section 194J of the Income Tax Act as ‘Fees for Professional or Technical Services’ is a consideration for providing services which is outside the scope of Schedule III of the CGST Act and is therefore taxable. GST in this case has to be paid on reverse charge basis under Notification No. 13/2017-Central Tax (Rate).
GST liability on renumeration paid to independent directors
It may be noted that according to the Circular, the remuneration paid by the company to independent directors or those directors who are not employees of the said company is taxable in hands of the company on reverse charge basis. The said services provided by such directors to the company are also outside the scope of Schedule III of the Central Goods and Services Tax Act, 2017 and the company is liable to discharge the applicable GST on reverse charge basis as per Sl. No. 6 of Notification No. 13/2017-Central Tax (Rate).
Definition of ‘independent directors’ under Section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 was relied upon for the purpose.