APPLICABILITY OF GST ON DIRECTORS REMUNERATION
As per Section 9(3) of the CGST Act, tax shall be paid on reverse charge basis by the recipient of such service. The Central Government vide Central Tax (Rate) Notification No. 13/2017 dated 28th June 2017 notified few services on which tax has to be paid on reverse charge basis.
Under Entry 6 of the said Notification it is mentioned that services supplied by a director of a company or a body corporate to the said company or the body corporate (located in the taxable territory) this will fall under Reverse Charge Mechanism, i.e. the company have to pay tax on the consideration paid to director and is eligible for Input Tax Credit.
As per Clause I of Schedule III – Services by an employee to the employer in the course of or in relation to his employment is not be treated as supply of goods / services.
Hence, director of a company are not treated as employee of the company.
Based on the above provisions the AAR Bengaluru on 25th September 2019 decided the case of M/s. Alcon Consulting Enginers (India) Pvt. Ltd. and held that RCM is applicable on remuneration paid to the Directors of the Company.
Similar decision was given by the Rajasthan AAR on 20th February, 2020 in the case of M/s. Clay Craft India Pvt. Ltd. based on Section 9(3) of the CGST Act and Clause I of Schedule III. It was held that any consideration paid to Director of a company for the services provided under any head of taxation, the company will be liable to pay GST under RCM.
In some company the position of director is same as that of an employee i.e. TDS under Section 192B, PF, ESI, P. Tax is being deducted from their remuneration. The director is an Executive director in one company only and the remuneration being paid by that company. There is an ambiguity with regard to charging of GST on Directors Remuneration under RCM as one may treat the director as an employee of the company and Clause I of Schedule III will attract and hence no GST will be charged on payment of remuneration to directors.
To avoid any unwanted litigation in future we would suggest charging GST on Directors Remuneration under on Reverse Charge Mechanism i.e. to pay GST in cash and then claim the same amount under the head ‘Input Tax Credit’if company usually have output liability


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