Background
Section 9(3) and Section 9(4) of the CGST Act, 2017 contains the provisions with respect to Reverse Charge Mechanism in respect of certain services which are notified from time to time. Notification 13/2017 – CT (R) dated 28-06-2017 vide entry No. 6 provides for levy of RCM on services provided by a director of the company or a body corporate to the said company or body corporate.
Further, Schedule III of CGST Act, 2017 provides for certain transactions which are neither considered as supply of goods or supply of service such as “Services by employee to employer in the course/ relation to employment”
Types of Directors
Broadly Directors can be divided into two categories – executive directors and non- executive directors. Executive directors are the ones who basically are involved in the day to day execution of the affairs of the Company and include whole time directors, managing directors, etc. whereas non-executive directors include independent director, nominee director etc. The executive directors of a company receive remuneration and are in full time employment of the company.
The non-executive directors are generally the ones who are professionally involved merely in broad business of the Company and do not involve into the day to day activities. These non-executive directors attend the board meetings and receive sitting fees or commission for providing services to the company or body corporate.
Leviability of GST on remuneration paid by companies to the independent directors or those directors who are not the employee of the said company
In respect of Directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable. In terms of entry at Sl. No. 6 of the Table annexed to notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.
Accordingly, it is clarified that the remuneration paid to such independent directors, or those directors who are not employees of the said company, is taxable in hands of the company, on reverse charge basis.
Leviability of GST on remuneration paid by companies to the directors, who are also an employee of the said company
It is clarified that the part of Director‟s remuneration which 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