Is remunerations paid to Directors is liable to RCM??

[Sharad Jain]

Is remunerations paid to Directors is liable to RCM??

[Rajagopalan Ranganathan]

Sir,

If the Director is an employee of the company then remuneration paid to him is not liable to gst under RCM. if any amount paid to the Director in lieu of service provided by him to the company then it is under RCM.

[HNA CharteredAccountants]

Reverse Charge would be applicable only when the director is providing services in a professional capacity. when director is appointed as an employee and is being remunerated by the company and on which TDS is deducted under section 194J of the Income Tax Act, such service would not qualify for RCM. Therefore, the Rajasthan Advance Ruling Authority in Clay Craft India Pvt. Ltd. = 2020 (4) TMI 228 - AUTHORITY FOR ADVANCE RULING RAJASTHAN holding that consideration paid to director as employee shall be liable to RCM is incorrect. Such ruling shall set a bad precedent for lower authorities to make undue extraction.

Also, salary paid to director does not fit into the definition of supply under section 7 of the Act and is comletely outside the tax ambit including leviability of RCM.

For any query or clarification, please contact [email protected]

[Parashiva Murthy]

further in case of Alcon Consulting Engineers (India) Pvt. Ltd. - 2019 (10) TMI 793 - AUTHORITY FOR ADVANCE RULING, KARNATAKA, it has been held that director payments will be subject to RCM. Again a bad ruling.

[KASTURI SETHI]

The decision of AAR Rajasthan is not in letter and spirit of GST laws. Such decisions contrary to GST laws have also been taken by different State Advance Ruling Authorities. There should be only single i.e. Central Advance Ruling Authority as it used to earlier.

[KASTURI SETHI]

Such like adverse decision will force tax payers to lose trust in Advance Ruling Authority.

[Rajagopalan Ranganathan]

Sir,

As per the ruling of AAR, Rajasthan salaries paid to employees (Workers and other) is also liable to GST. Ia is correct legal position? According to Schedule III Sl. No. 1 of CGST Act, 2017 services by an employee to the employer in the course of or in relation to his employment SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES. Whether this provision of CGST Act is not brought to notice of AAR? Logical extension of this ruling will result in demanding GST on salaries paid to all employees both government and non-government. Of course the ruling of AAR is applicable to the party who sought the ruling. It is not applicable to other. When the law is clear why the party sought the ruling.

[KASTURI SETHI]

Sh.Ranganathan Ji,

I concur with your views. The AAR has failed to differentiate between the terms, 'remuneration' and 'salary'. Remuneration is a wider term and includes salary also. Salary is not taxable whether it is GST or Service Tax. There are also other factors/parameters to ascertain whether Director is an employee or not and the same have been brushed aside.Director's services were brought into Service Tax net vide Notification No. 45/2012-S.T., dated 7-8-2012. Since then it has happened for the first time. An AAR decision has no precedent value but it can be used as persuasive tool. This is also denial of natural justice.

[Atul Rathod]

Not liable if the directors are executive such as whole time director and getting paid as regular salary or getting treated at par with employee.

Lible only if the service is provided by Non-executive director.

Advance ruling is incorrect. the said issued is decided in favour of the assessee by Mumbai CESTAT in case of Allied Blenders and Distillers and Law is very clear that executive directors would be treated as employee.

[Rachit Agarwal]

Liability to pay RCM all depends on EACH facts of the case and the terms of the appointment.

CESTAT, Eastern Bench, Kolkata in case of Maithan Alloys Ltd vs C.C.E & S.T Bolpur [2020 (33) G.S.T.L 228] = 2019 (4) TMI 1595 - CESTAT KOLKATA Remuneration/ salary paid to whole time director. Such remuneration comprising of fixed as well as variable components i.e commission payable based on the percentage of profit. Whole time director is an employee of company and payment of variable pay does not alter/ dilute his employer-employee relationship with company. Remuneration paid to whole time director on which tax deducted by company u/s 192 of the Income Tax Act, 1961 cannot be towards rendition of any taxable service and company not liable to pay service tax thereon under reverse charge mechanism.

CESTAT West Zonal Bench, Mumbai in case of Allied Blenders and Distillers Pvt Ltd Vs C.C.E. & S.T. Aurangabad = 2019 (1) TMI 433 - CESTAT MUMBAI Four Directors were appointed in the company in accordance with the provisions of the Companies Act, 1956 and Regulation of Article of Association of the company for managing day to day affairs of company. All the necessary deductions on account of Provident Fund, Professional Tax and TDS u/s 192 of the Income Tax Act, 1961 made as applicable. Form 16 was issued to all the directors like all other employees. No sitting fees was paid, Directors shown to be employees y appellant therefore directors salaries not chargeable to Service Tax.

[KASTURI SETHI]

Whether Director is an employee or not depends upon terms and conditions of contract/agreement or appointment letter. The following case law pertaining to Service Tax period is worth reading :-

2019 (24) G.S.T.L. 616 (Tri. - Kolkata) = 2019 (4) TMI 1537 - CESTAT KOLKATA BRAHM ALLOY LIMITED Versus COMMISSIONER OF CGST & C. EX., DURGAPUR

[YAGAY andSUN]

https://www.financialexpress.com/industry/gst-on-director-salaries-firms-receive-notices-despite-diverse-aar-rulings/1959398/

[YAGAY andSUN]

India: GST on Directors’ remuneration – An unresolved mystery

[YAGAY andSUN]

GST on director’s remuneration: Cannons of taxation sacrificed at the altar of revenue collection

[YAGAY andSUN]

GST officials seek directors’remuneration information

[YAGAY andSUN]

CBIC clarifies on Leviability of GST on remuneration paid by companies to the independent directors or those directors who are not the employee of the said company and Leviability of GST on remuneration paid by companies to the directors, who are also an employee of the said company Vide Circular No: 140/10/2020 – GST Dated 10th June, 2020.

AI Summary

GST reverse charge on director remuneration applies when directors act as non employee service providers, not for salaried whole time directors. Whether payment to directors is liable to the reverse charge mechanism depends on whether the director provides services as a non employee/professional or is remunerated as an employee. Salary paid to a director in an employer employee relationship falls under Schedule III exclusion and is not a supply for GST, while fees/remuneration to non executive or independent directors may be taxable under reverse charge. Conflicting advance rulings and tribunal authorities have applied these tests, and administrative clarification addresses liability differences between employee and non employee directors.