Business

Directors remuneration paid by cos will be subjected to GST

New Delhi, June 11 (IANS) Payment of professional fees and remuneration to directors of companies will now come under the purview of goods and service tax (GST) as government looks to plug the loopholes in the taxation system to strengthen collections.

In a circular, the Central Board of Indirect Taxes and Customs (CBIC) has clarified that payments made by companies to independent directors or non-executive directors (not being employees of the company) will be subjected to GST at applicable rate.

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The fees paid to such directors for the services provided by them to the company, in lieu of remuneration, will be taxable in the hands of the company, on reverse charge basis, CBIC has said.

Also, all remuneration apart from salaries paid whole time directors or directors who are also employees of the company will also be subject to GST with conditions.

This would mean directors, whole time directors, managing directors, who are also on the rolls of a company and draw salary, would be subjected to GST if they draw any remuneration that is not in the nature of salary and attracts TDS applicable on fees for professional or technical service. There will, however, be no GST on salaries paid to such directors.

Even in case of employee directors, the CBIC has clarified that as payments apart from salary are in the nature of remuneration for service rendered to the company, the company would be liable to discharge the applicable GST on it in reverse charge basis.

“The clarification seeks to align the treatment of remuneration paid to directors under the various legislations will provide tremendous clarity to companies caught between divergent AAR rulings. The immediate resolution of this issue sends the right signal to the industry which is focussing on r ecovering it's momentum post the COVID-19 crisis,” said Mekhla Anand, Partner, Cyril Amarchand Mangaldas.

The CBIC clarification comes after it received various references from trade and industry seeking clarification whether the GST is leviable on Directors remuneration paid by companies to their directors.

Doubts have been raised as to whether the remuneration paid by companies to their directors falls under the ambit of entry in Schedule III of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act) i.e. “services by an employee to the employer in the course of or in relation to his employment” or whether the same are liable to be taxed in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017 (entry n o.6).

The CBIC has instruction all its field formations to apply these principles uniformally for applicability of GST.

–IANS

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