GST on Director Remuneration
In the GST era, there has been lot of confusion regarding applicability of GST on payment made to director of company in the course of their directorship.
From perspective of corporate remuneration expense can be booked under following heads
- Salary/Employee Expense (If on payroll of Company)
- Consultancy Fees/ Professional fees (If not on payroll of company)
Taxability
Case (a): Director is on Payroll of Company
- As per Schedule III to section 7(2) of CGST Act-2017, service provided by employee to employer in the course of employment shall neither be treated as supply of goods nor service. As service is excluded from definition of Supply, question of GST doesn’t arise.
- GST Law is silent on definition of employee, thus for our understanding we can take definition used in normal business terminology.
- To conclude if employer and employee relationship exist and TDS is deducted under section 192 of Income Tax Act-1961, there would be no levy of GST.
Case (b): Director is not on Payroll of Company
- As per section 7(1)(a) of CGST Act-2017, supply includes all forms of supply of goods or services or both made or agreed to be made for consideration in the course or furtherance of business. Thus, service provided by director to company not being on payroll is covered under definition of Supply; which means there is levy of GST.
- Next question would arise who is liable to pay tax?? To clarify, CBIC has issued the Notification 13/2017, dated 28.06.2017 stating that service supplied by director of company or a body corporate to the said company or body corporate, liability to discharge GST is on recipient under reverse charge mechanism. (RCM)
- To conclude if employer and employee relationship doesn’t exist and TDS is deducted under section 194J of Income Tax Act-1961, there would be levy of GST and company/ body corporate would liable to pay GST under RCM.
By CA. Shubham Sawal
Author may be contacted at cassrpn@gmail.com. Contact: 8888998239
