Whether RCM is applicable on rent paid to a director of the company

[Manoj Kumar]

Dear Professionals,

Whether rent paid to a director of company is covered under reverse charge mechanism as per Notification 13/2017 (CTR).

The notification says for 'services provided by a director of a company to the said company ' GST is liable to be paid under RCM by the company.

The notification do not state anything about whether services provided only in his capacity as a director or excluding services provided in his individual capacity. Whether services covered only for remuneration or of all nature.

Can we be very sure that RCM is not at all applicable in case of rent paid to director and dept will also not question in future period?

Or can the company take a stand to pay GST on rent under RCM and still win the legal battle.

Can the director be rest assured that no notice to pay tax on FCM be issued to him?

Request the experts guidance.

[Kiran Tahelani]

The services provided by the Director (As a director) of the company alone is liable to service tax under reverse charge mechanism, and other services personal in nature or in the individual capacity i.e. renting of immovable property services rendered by him, beyond the capacity of director are not subject to RCM. Thus service provided by director not in a capacity of director shall not be covered under this notification and RCM shall not be applicable.

[KASTURI SETHI]

This issue has been discussed so many times in this forum. Can be traced out easily.

[Padmanathan KV]

I agree with Ld. Kiran Ji. The activities which are beyond his/her scope as a director of the company (such as professional services, renting, etc) will not be covered under the entry No 6 in my opinion.

With regard to the director's liability under FCM, one has to consider the aggregate annual turnover of the director, whether it is commercial or residential rent, etc. if he is liable to be registered under section 22 or 24, rental services (if commercial) shall be liable to GST under FCM.

Also note that as per newly inserted Entry No. 5AA wef 18-7-22, if services are provided by any person by way of renting residential dwellings to a registered person, such registered person shall be liable to pay GST under the RCM.

with respect to tax, no one can be very sure about what stand the department will take. As you can see in this forum, there are multiple views on a subject matter and so is the case with Department. None of the posts in TMI forum constitute any professional advice or an assurance that there will not be any litigation.

[Shilpi Jain]

Do have a look at this recent case in the context of service tax where it was held no rcm liability on rent paid to director

2023 (4) TMI 441 - CESTAT NEW DELHI - M/S CORDS CABLE INDUSTRIES LIMITED VERSUS COMMISSIONER, CENTRAL EXCISE, JAIPUR (RAJASTHAN

[Amit Agrawal]

I concur with my professional colleagues!

As Dept. can always dispute stand so taken, one can opt for advance ruling if one wants certainty (though whether such ruling can be biding for Dept. from point of BOTH service provider and receiver .... can also be a matter of dispute).

Considering my views that "Liability under RCM" does not exist for given situation under Serial No. 6 of Notification No. 13/2017- Central Tax (Rate) (as amended till date) (i.e. directors should pay gst under forward charge unless NOT required to be registered under GST) and presuming that Serial No. 5AA of said notification is NOT applicable to given situation (i.e. 'Service by way of renting of residential dwelling to a registered person' is not involved here), it would be better if the director - in his individual capacity - seek these advance rulings (instead of 'Co., the service-recipient').

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

AI Summary

RCM Under GST Not Applicable for Rent Paid to Directors; Applies Only to Official Capacity Services per Notification 13/2017. In a discussion about the applicability of the reverse charge mechanism (RCM) under GST for rent paid to a director by a company, participants debated whether such payments fall under Notification 13/2017. The consensus was that RCM applies only to services provided by a director in their official capacity, not for personal services like renting property. It was noted that the director's liability under forward charge mechanism (FCM) depends on factors like turnover and the nature of the rent. Participants suggested seeking advance rulings for certainty, acknowledging potential departmental disputes. A recent case supported the view that RCM liability does not apply to rent paid to directors.