Introduction
Under the current GST Law, remuneration given to a Director (by whatever name given) is a taxable service chargeable under Reverse Charge Mechanism (‘RCM’) for levy of GST1.
On the other hand, an employee performing his functions under the contract of employment is not a taxable service exigible to GST2.
The dispute arises when a director is an employee of the company and receiving salary and remuneration as a director. There were contradictory views taken by varied appellate forums3.
The CBIC has tried to put the dispute to rest vide Circular No. 140/10/2020 dated 10th June, 2020.
The summary of the Circular can be tabulated as under:
| Sr. No. | Remuneration paid to | Employee of the Company? | Applicability of GST | Applicability of TDS under IT Act |
| 1 | Non-Employee Director (typically Independent Directors) | No | Yes | 194J |
| 2. | Employee Director (Typically WTD, MD etc) | Yes | No – On Salary Component | 192 – On Salary Component (Treated as any employee of the company deriving salary, PF, gratuity etc) |
| 3. | Employee Director (Typically WTD, MD etc) | Yes | Yes – On Non Salary Component (Typically Directors sitting fees) | 194J – On Non Salary Component |
Comments:
- A Whole Time Director (WTD) or Managing Director (MD) who is an employee of a company performs dual roles within the Company.
- Contract of Employment – Employer-Employee relationship exists and thus no GST is chargeable on the salary component of the Director. These directors perform day to day affairs of the company and actually run the company on a daily basis. This remuneration is treated as salary in the books of the company and income tax u/s 192 is deducted at source.
- Contract of Service – All other remuneration other than salary derived in performance of his duty as Director i.e Director Sitting fees. This remuneration is not treated as salary and income tax u/s 194J is deducted at source.
- On the other hand, a director by whatever name called who is not an employee of the company will derive entire remuneration as a contract of service chargeable to GST under RCM. Payment made for their participation are not in terms of employer-employee relationship and also not treated as “Salaries” in books of accounts. Further, TDS has to be deducted u/s 194J of the Act
1Notification No. 13/2017 – Central Tax (Rate) dt 28.06.17, Sr. No. 6 of the Table annexed
2Sch III of CGST Act
3 M/s. Alcon Consulting Engineers (India) Pvt. Ltd. [AR No. KAR ADRG 83/2019] (Karnataka AAR) and M/s Clay Craft India Private Limited [RAJ/AAR/2019‐20/33] (Rajasthan AAR) holds a view that all payments to director are liable to RCM as director is not an employee of the company
M/s. Anil Kumar Agarwal [AR No. KAR ADRG 30/2020] (Karnataka AAR) hold a view that payments made to directors as employee of the company is outside scope of GST being covered by Schedule III of CGST Act, 2017
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