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  • Writer's pictureRahul Jain

IS GST APPLICABLE ON DIRECTOR'S REMUNERATION?

Updated: Jul 14, 2020


There was an ambiguity as to if GST is applicable on the Director's remuneration or will it be considered as a service in course of employment and exempt as per Schedule III.


“This issue was addressed by the department and a clarification was issued by the CBIC department, Circular No. 140/09/2020-GST dated 10th June 2020”

The remuneration is paid by the Company to Managing directors, Whole-time directors, and independent directors. The primary issue here was to identify if the director is an employee of the company. To keep uniformity the department considered the definition of directors as per relevant sections of companies act, 2013 according to which:

  • A Managing director or a whole-time director may or may not be an employee of the company and,

  • An Independent director should not have been an employee or proprietor or partner of such company.

From the above definitions, the department concluded that an Independent director is not an employee of the company, and provisions of GST to pay tax under Reverse charge at 18% shall apply. In the case of a Whole-time director or managing director, if nature is in terms of employment and an employer-employee relationship is established, it would be considered as salary and exempt from the provisions of GST.


Also, a reference to the Income-tax Act,1961 is quoted by the department. Accordingly, it is further clarified that in case of Managing or Whole-time directors, the part of remuneration that is declared as 'salary' in the books of the company and is subject to TDS under Section 192 of Income-tax act, no provisions of GST shall apply and the part of the remuneration that is declared separately other than 'Salary' in the books of the company and is subject to TDS under Section 194J of Income-tax act, shall act as Professional or consultancy fees and GST shall apply on such amount and the company will be required to pay tax on such payment on reverse charge basis.


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