Is GST applicable on remuneration, salary, consideration paid to Directors of the Company.
Salary is not a taxable supply of services or goods as most of us know as per Clause (a) of Sub-Section 2 of Section 7 of the CGST Act,2017. Regarding this a question raised by the M/s Clay Craft India Pvt. Ltd., in respect of Salary paid to the Directors of the Company beside remuneration paid to them is taxable under Section 9 of the Act or not.
M/s Clay Craft India Pvt. Ltd., (Here in after called as applicant) bearing GSTIN 08AACC6866D1ZO has given a declaration in FORM GST ARA-01 to the Rajasthan Authority for Advance Ruling, which issued a ruling on 20-02-2020 through Advance Ruling No. RJA/AAR/2019-20/33 its decision where it is taxable or not as per the provisions of the CGST Act, 2017.
The applicant questioned the Authority for Advance Ruling under Clause e of sub-section 2 of Section 97 of CGST Act, 2017, whether the salary paid to the Directors of the company is taxable under GST Act, 2017 or not.
Interpretation of the applicant
The applicant is a Private Limited Company having a six Board of Directors. All the directors of the company are also working as employees at difference levels of management and the company is paying salary for them, for their management services apart commission for their services as directors. The company is deducting TDS on their salary and PF laws are also applicable to their service. Therefore, the directors are the employees beside directors of the company.
Existing advance ruling no. KAR ADRG 83/2019 decision by Karnataka State
Authority for Advance Ruling, Karnataka, already given its decision regarding the same event in the case of M/s Alcon Consulting Engineers (India) Pvt. Ltd., Bangaluru. But it was only related to Remuneration of the directors and no decision available in case of the salary to the directors who are working as employee for the company beside the directors.
Remuneration to the Directors paid by the company, the services provided by the Directors to the company are not covered under Clause (1) of the Schedule III to the CGST Act, 2017 as the Director is not the employee of the Company as Notification No. 13/2017 – Central Tax (Rate) Dt. 28-06-2017 issued in connection with Sub-Section 3 of Section 9 of the CGST Act. As per the Entry 6 of the notification reads as follows.
The whole of the Central Tax leviable under Section 9 of the CGST Act, 2017, shall be paid on reverse charge basis by the Company or a body corporate located in the taxable territory where it takes the services of a Director of a company or a body corporate.
Here the applicant is a Company and is located in the taxable territory and the Directors’ remuneration is paid for the services supplied by the Director of the applicant company and hence the same is liable to tax under reverse charges basis under Sub-Section 3 of Section 9 of the Act.
Final Decision by Rajasthan Authority for Advance Ruling
Authority says that as per the Notification No. 13/2017 – Central Tax (Rate), the whole of the Central Tax leviable under Section 9 of the CGST Act, 2017, shall be paid on reverse charge basis by the Company or a body corporate located in the taxable territory where it takes the services of a Director of a company or a body corporate.
As per conclusion it is clear that with reference to the notification whatever the name we use for the payment to the services provided by the Directors of the company whether it is Salary, Commission, Stipend, Professional Feel etc., it is paid purely for the services of the Directors so, it will considered as per the notification and Tax is to be paid off as RCM.
