CBIC elucidates: Salaries paid to company directors not to attract GST.

CBIC elucidates: Salaries paid to company directors not to attract GST

 The Central Board of Indirect Taxes and Customs (CBIC) on Wednesday announced GST will not be levied on salaries paid to directors who are employees of the company. The CBIC published a clarification following a ruling by the Rajasthan Authority of Advance Ruling (AAR) in April that declared companies will have to pay GST on the payment they dole out to directors.

"The part of director's remuneration that 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," the CBIC stated.

However, where the directors' payment is like professional payments and not salary, GST will be levied on a backward charge basis. 

"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 of the IT Act as 'fees' for professional or technical services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is, therefore, taxable...the recipient of the said services, i.e. the company, is liable to discharge the applicable GST on it on a reverse charge basis," the CBIC stated.

Concerning individualistic directors who are not the employees of the said company, the CBIC said services provided by them to the company in lieu of remuneration as the consideration for the said services will pull goods and services tax (GST).

"The recipient of the said services, i.e. the company, is liable to discharge the applicable GST on it on a reverse charge basis," it continued.

AMRG & Associates Senior Partner Rajat Mohan told this explanation from CBIC would save a tax of 18 percent on the remuneration given to executive directors of the company.

"Tax officers would be pushed to roll back tax notices issued in relation to taxation of director salary on account of divergent views expressed by advance ruling authorities," Mohan attached.

Abhishek Jain, tax partner, EY, stated, "With the clarification linking income tax and GST, businesses would need to now evaluate comprehensively treatment of remuneration of directors under income tax, GST and accounting."