Is Directors Remuneration Taxable Under Gst

Circular No: 140/10/2020 – GST dated 10^th June 2020 clarify about the GST applicability on Remuneration.

The issue of remuneration to directors has been examined under following two different categories:-

1. Leviability of GST on remuneration paid by companies to the independent directors or those directors who are not the employee of the said company
2. Leviability of GST on remuneration paid by companies to the directors, who are also an employee of the said company.

GST applicability on remuneration paid by companies to the independent directors or those directors who are not the employee of the said company:

As per Section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014, Independent directors are individuals who must not have served as an employee, proprietor, or partner of the company in any of the three financial years immediately prior to the financial year in which they are being considered for appointment to the company's board.

Hence, with regards to directors who do not hold employee status within the company, the services they render to the company, for which they receive remuneration as compensation, fall distinctly outside the purview of Schedule III of the CGST Act and are consequently subject to taxation.

Leviability of GST on remuneration paid by companies to the directors, who are also an employee of the said company:

A director, irrespective of name and designation, is also act as an employee & 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.

The remuneration received by an Employee Director, which is disclosed separately in the company's financial statements and is subject to TDS (Tax Deducted at Source) under Section 194J of the Income Tax Act as fees for professional or technical services, should be regarded as compensation for rendering services that fall beyond the purview of Schedule III of the CGST (Central Goods and Services Tax) Act. Consequently, it is liable to taxation.

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