Applicability of GST on Directors’ remuneration

Various references have been received from trade and industry seeking clarification whether the GST is leviable on Director’s remuneration paid by companies to their directors. In order to ensure uniformity on applicability of GST on directors’ remuneration, the ministry of finance has clarified the issue as below:

• Applicability of GST on remuneration paid by companies to the independent directors or those directors who are not the employee of the said company:

If directors are not the employees of the company, the services provided by them to the company, In lieu of remuneration as the consideration for the said services, is clearly outside the scope of Schedule III of the CGST ACT and are therefore taxable.

Accordingly, it is hereby clarified that the 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.

• Applicability of GST on remuneration paid by companies to the directors, who are also an employee of the said company:

A director who has also taken an employment in the company may be functioning in dual capacities, namely one as 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 services (employment) entered into with the company.

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.

Further it is 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 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, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.