GST on Director Remuneration
Company Directors are appointed to apportion the clerical work of the company and to ensure that all compliances are met well on time. Director works as a law-abiding and compliance moderating agent between the company, its associated members & the government. As directors of the company they also receive a pile of benefits in return in the form of remuneration, perks, allowances, etc. for the services they provide.
Other than compliance filling of the companies, the Companies Act, 2013 (“CA, 2013”) also state guidelines the way these directors shall mandatorily follow while discharging their duties and be paid remuneration in return ( Section 197).
As per the amended Goods & Services Tax Rules (GST Rules), the Directors representing a company in any way either working as a Managing Director or Work Manager or Part-time director or in any other form if paid additional remuneration in the form of commission, brokerage, etc from a company, it shall have to be charged with GST on provisioning of such payment.
This article gives a synopsis of the rules applicable for charge/discharged of GST on Director Remuneration.
Concerning the GST Council Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 & Entry No. 7 of Notification No. 10/2017- Integrated Tax (Rate) dated 28th June, 2017, remuneration paid if any to any director of any company for the services discharged by him/her to the company shall be liable to be charged under GST on a reverse charge basis.
Why on Director Remuneration?
Government as per Section 9(3) of Central Goods & Services Act, 2017 (“CGST Act”) and Section 5(3) of the Integrated goods & Services Act, 2017 (“IGST Act”), has a power to specify goods/services to be charged under reverse charge basis.
Services as per the GST Act means (Section 2(102)) :
Anything other than goods, securities, money but includes activities relating to money or its conversion by cash or any other mode, from one form currency or denomination to another form, currency or denomination for which a separate consideration is charged.
Accordingly, the transaction shall be considered to be leviable to GST only if ;
– Services are supplied by a director of a company or a body corporate to a company or body corporate located in the taxable territory of the country.
– Services include sitting fees, commission, charges received from the company for taking a loan, guarantees and all other services notified timely by the government with the official gazette.
Liability to pay: Company or Director?
The GST Law clearly defines situations where the rules for levy of tax on reverse charge mechanism (‘RCM’) shall become applicable being :
- On supplies notified by the government from time to time.
- On taxable supplies made by an unregistered person to a registered person.
Thus, in case of payment made to directors for their services by the company, the recipient of services being the company shall be considered liable to charge GST on the remuneration on a reverse charge basis while making payment to the director. Such tax has to be paid by the company irrespective of the fact that turnover from director services exceeds Rs 20 lakh or Rs 10 lakh as the case may be.
Note: It is necessary to determine the place of supply for determination of tax i.e., CGST, SGST or IGST.
- In case of services provided by directors to the company, the place where the services so discharged by the director and the consumed by the company shall be considered as the place of supply.
- In case the office of service of the director is held at any other place other than the registered office, in such case, the place where substantial board meetings are held shall be considered as the place of supply.
Is it necessary for directors to apply for GST Registration?
This has been clarified through Notification No. 5/2017 (dated 19th June 2017 ) the Central Government has specified persons those only engaged in making taxable supplies of goods or services or both , the total tax on which is liable to be paid on reverse charge basis by the recipient of goods or services shall only be exempted from obtaining registration if they do not qualify the turnover rules & rules for compulsory registration.
While as per Section 24(iii) of the CGST Act, the person paying tax under RCM shall have to get himself registered irrespective of the turnover.
In light of the above, directors are only exempted from registration under GST if they are providing services on which tax has to be paid on the RCM basis while the company receiving services shall have compulsorily get itself registered irrespective of the turnover.
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