11/06/2020
GST on Directors' Salary : End of litigation by CBIC
(Circular No. 140/2020 dated 10.06.2020)
Finally after multiple contradictory rulings by various authorities, CBIC has come up with the circular clarifying the GST treatment on Director's Salary.
WHEN GST IS APPLICABLE ON REVERSE CHARGE MECHANISM ?
In respect of 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 in GST.
Accordingly, it is clarified that the remuneration paid to independent directors, or those directors (by whatever name called, who are not employees of the said company) is taxable under GST in hands of the company under reverse charge mechanism.
WHEN GST IS NOT APPLICABLE?
A director who has also taken an employment in the company may be functioning in dual capacities, namely, one as a director of the company and the other 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 under GST 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.
It is further clarified that the part of 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 taxable under GST and thus would be liable to GST under reverse charge.
