{"id":8710,"date":"2020-05-16T15:36:55","date_gmt":"2020-05-16T10:06:55","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=8710"},"modified":"2021-02-22T14:06:47","modified_gmt":"2021-02-22T08:36:47","slug":"gst-on-directors-remuneration","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/gst-on-directors-remuneration\/","title":{"rendered":"Goods and Service Tax on Directors Remuneration"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Directors remuneration is payable for the\nservices that the director offers. The supreme power of a company or a\ncorporate firm is the director. Services related to a corporate body or\ncompanies are the part of services that the director offers.<\/p>\n\n\n\n<p>In the recent case of <strong><em>M\/S CLAY CRAFT INDIA PVT LTD<\/em><\/strong> the Rajasthan Authority for Advance Ruling has given a message that companies will be liable to pay goods and service tax on the remuneration paid to directors. Furthermore, salaries paid to directors would fascinate GST. Under the reverse charge mechanism, GST will be chargeable on directors\u2019 remuneration. Government proposition would get followed on the basis of the case of <strong><em>M\/S CLAY CRAFT INDIA PVT LTD<\/em><\/strong> in the recent Advanced Ruling by Rajasthan AAR.<\/p>\n\n\n\n<p>As per the declaration made on <strong>20 February 2020<\/strong>, Rajasthan AAR has held that the services rendered by the director will get distinct identity, and their inclusion will be in the services category in which goods and service tax will be payable under reverse charge mechanism.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/gst-on-directors-remuneration\/#GST_Applicability_on_Directors_Remuneration\" >GST\nApplicability on Directors\u2019 Remuneration<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/gst-on-directors-remuneration\/#Concise_Insights_on_the_Above-Stated_Points_related_to_Directors_Remuneration\" >Concise\nInsights on the Above-Stated Points related to Directors\u2019 Remuneration<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/gst-on-directors-remuneration\/#Is_it_Mandatory_for_Directors_of_Company_to_get_GST_Registration\" >Is\nit Mandatory for Directors of Company to get GST Registration?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/gst-on-directors-remuneration\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"GST_Applicability_on_Directors_Remuneration\"><\/span>GST\nApplicability on Directors\u2019 Remuneration<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Based on the reverse charge mechanism,\nGST is applicable on Directors&#8217; Remuneration. The CBIC has shed light on this\npoint by further stating that at the time of return filing, when the reverse\ncharge applies, the recipient of the service must pay the taxes on RCM. In the\ndirectors&#8217; remuneration case, the Company makes the GST payment on the\nremuneration of directors.<\/p>\n\n\n\n<p><strong><em>Evaluation of the Information on the GST\nPayable under RCM on Directors\u2019 Remuneration<\/em><\/strong><\/p>\n\n\n\n<ul><li>Under the <strong>Goods and Service Tax Act<\/strong><sup><a href=\"https:\/\/www.gst.gov.in\/\"><strong>[1]<\/strong><\/a><\/sup>, no section talks about the directors, but the same thing has got covered under the Companies Act. As per the classification, directors can be of two types-<\/li><\/ul>\n\n\n\n<ol><li>Executive Directors<\/li><li>Non-Executive Directors<\/li><\/ol>\n\n\n\n<p>Under the Companies Act, 2013, the\ninformation is available about Whole Time Director. Executive Directors are the\nWhole Time Director. This director acts as a director for the Company&#8217;s\nwhole-time employment. In brief, Executive Directors are those directors who\ngot the tag of the whole-time employee of the Company.<\/p>\n\n\n\n<ul><li>According\nto the 2(78) of the Companies Act, 2013, remuneration is money or equivalent to\nthe money that any person gets for services he has provided and also includes perquisites\nmentioned in Income Tax Act, 1961.<\/li><\/ul>\n\n\n\n<p>Remuneration shall be a part of\nremuneration paid to him for services provided. Notwithstanding this rule,\nthere is no inclusion of remuneration paid for services of professional nature\nas well as sitting fees.<\/p>\n\n\n\n<ul><li>The remuneration that whole-time directors received must go through the assessment process beneath the head &#8220;Income from Salary&#8221; and won&#8217;t get assessed under &#8220;Income from Professional Fees.&#8221; Also, there is a scope of deduction of TDS on salaries paid to whole-time directors.<\/li><li>Schedule III of the CGST Act asserts that services that employees provide to their employers regarding their employment won&#8217;t be a part of the Supply of goods or services.<\/li><li>In the general circular no. 24\/2012, the Ministry of Corporate Affairs has defined that the Non-Whole Time Directors are out of the exempted list. Besides this, service tax is payable on the commission payable and sitting fees paid to Non-Whole Time Directors.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/online-gst-return-filing-procedure-types-due-date-and-penalty\/\">GST Return Filing Procedure \u2013 Types of GST Returns, Due Date and Penalty<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concise_Insights_on_the_Above-Stated_Points_related_to_Directors_Remuneration\"><\/span>Concise\nInsights on the Above-Stated Points related to Directors\u2019 Remuneration<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>Executive\nDirectors and Managing Director involved in the Company&#8217;s whole-time employments\nare employees of the Company. On the other hand, non-executive directors are\nnot the Company&#8217;s employees. <\/li><li>Schedule\nIII will include all the services rendered by Executive Directors within the\nemployment range. Services given by employees to their employers concerning\ntheir employment would be objectionable to be a part of the Supply of goods or\nservices.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Case Analysis<\/h3>\n\n\n\n<p>In <strong><em>M\/S. Allied Blenders and Distillers Pvt.\nLtd. <\/em><\/strong>case, CESTAT, Mumbai has held that those Directors, who are\nlooking into the management matters of the Company, were presented as employees\nof the Company to all statutory bodies. Provisions of the respecting Acts were\nconferring the director as an employee of the Company. Therefore, Service tax\ngot levied on the remuneration paid to the director.<\/p>\n\n\n\n<p>AAR didn&#8217;t try at all to differentiate\nbetween non-executive directors and executive directors. M\/S Clay Craft India\nPvt. Ltd Company was paying remuneration along with commission. In addition to\nthis, the Company was discharging goods and service tax under reverse charge\nmechanism on the commission amount paid to directors. After jumping to the\ndecision, AAR has taken the fact into consideration that the Company was paying\ngoods and service tax on commission given to directors under the reverse charge\nmechanism. Along with this, it held that on remuneration paid to directors, GST\nwas charged.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Confusions require Clarifications<\/h3>\n\n\n\n<p>The decision of AAR has brought puzzlement, which may lead to legal actions. Directors would demand goods and service tax to get levied on the directors&#8217; remuneration regardless of the fact that it is paid to non-executive or executive director. It would take a lot of time for things to get clarified to liberate the taxpayers from the burden of judicial proceedings and will eventually head to ease of compliance process.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Is_it_Mandatory_for_Directors_of_Company_to_get_GST_Registration\"><\/span>Is\nit Mandatory for Directors of Company to get GST Registration?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although goods and service tax is applicable on directors remuneration, remuneration paid directors are not liable to obtain <a href=\"https:\/\/corpbiz.io\/gst-registration\"><strong>GST registration<\/strong><\/a>. Only rendering directors service is not enough. Nevertheless, those companies which are receiving the services and are accountable to make GST payment on the reverse charge mechanism would have to take GST registration without consideration of yearly turnover.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>CBIC has confirmed that GST is applicable to directors\u2019 remuneration on the basis of reverse charge method. Since GST applies on a reverse charge basis, only providing director services won&#8217;t make a person liable for obtaining goods and service tax registration.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/change-authorized-signatory-in-gst\/\">How to change Authorized Signatory in GST<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Directors remuneration is payable for the services that the director offers. The supreme power of a company or a corporate firm is the director. Services related to a corporate body or companies are the part of services that the director offers. In the recent case of M\/S CLAY CRAFT INDIA PVT LTD the Rajasthan Authority [&hellip;]<\/p>\n","protected":false},"author":19,"featured_media":8728,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[16],"tags":[573],"acf":{"service_id":"334"},"authorName":"Margesh Rai","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2024\/03\/Margesh.png","authorDescription":"With 10+ years of creative writing experience and 500+ blogs and thought leadership articles to his credit, Margesh Rai has left a significant impact in the field of content marketing. A published author and poet, Margesh Rai has experience writing for 20+ segments, such as Legal, Fintech, SAAS, Dairy, Real Estate, Hospitality, Recruitment, Sustainability, etc.","postViews":5130,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/8710"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/19"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=8710"}],"version-history":[{"count":16,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/8710\/revisions"}],"predecessor-version":[{"id":26327,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/8710\/revisions\/26327"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/8728"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=8710"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=8710"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=8710"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}