Partner Remuneration

[CABayyaReddy DK]

Sir/Madam,

In a company, director salary paid u/s. 192 of the Income Tax Act - RCM is not applicable.

Other than salary in a company- any amount paid other than loan or advance attracts the RCM liability.

In case of Partnership firm or LLP - Whether Partner remuneration attracts the RCM liability? Please advice

[KASTURI SETHI]

Extract of FAQs

Q. Whether remuneration to partners by partnership firm is liable to GST?

A. Yes, remuneration payable to partners is exgible to GST in view of the fact that partners are not employees of partnership firm.

[KASTURI SETHI]

Sh BayyaReddy DK Ji,

Here is a case law in favour of the assessee. Although it pertains to pre-GST era yet it can be useful to the assessee.

2022 (5) TMI 800 - GUJARAT HIGH COURT - PR. COMMR. OF CENTRAL TAX & SERVICE TAX Versus CADILA HEALTHCARE LTD.

 

[CABayyaReddy DK]

Sir, 

Can it be argued that Partners are not employees of the company, but owners of the company and they have taken the share of profit as remuneration which is otherwise is share of profit credited to partner account as per their sharing ratio. Pls advice      

[Yash Shah]

The RCM Entry specifically mentions about the liability to be paid in case of Director of a company or a body corporate and no one else, and also the recipient of such services is such Body corporate or company.

In the current case, Partner is receiving the remuneration from his firm or LLP in terms of agreement and hence RCM is not applicable.

Also it could be considered as self services, as the benefits arising out of such partnership is to them only.

According to me, GST is not applicable.

You may refer to below discussion as well on same lines - https://www.taxtmi.com/forum/issue?id=115497

[KASTURI SETHI]

Sh. D.K. BayyaReddy Ji,

The issue is not litigation-free. The possibility of SCN cannot be ruled out. At the same time, I am of the opinion that the issue can be well contested on the following grounds :-

(i) GST cannot be charged twice since remuneration to the partner has been paid out of tax-paid (presumed) turnover of the partnership firm.

(ii) Remuneration paid to the partner is on account of self-service as explained in detail at serial no. 4. Self-service is no service. Case laws can be easily traced out.

(iii) Also peruse the definition of 'Remuneration' in the Company Act and legal meaning of 'remuneration'. These will also be helpful in contesting the issue.

[Shilpi Jain]

Partners remuneration not liable to gst. It is like a share in the firm.

[Shilpi Jain]

And 100% no rcm liability as there is no such entry in the rcm notification 

[KASTURI SETHI]

Regarding  non-applicability of RCM, I agree with the views of  Sh.Yash Shah  and Madam Shilpi Jain. 

Other aspects have to be taken care of.

[Padmanathan KV]

I agree with Yash ji. No RCM on remuneration to partners. 

AI Summary

Debate on GST Liability: Is Partner Remuneration in LLPs Subject to Reverse Charge Mechanism? Exploring Tax Law Interpretations. A discussion on a forum revolves around whether partner remuneration in a partnership firm or LLP is subject to Reverse Charge Mechanism (RCM) under GST. One participant argues that partner remuneration is liable to GST since partners are not considered employees. Others counter that RCM does not apply, as partners are owners, not employees, and their remuneration is akin to a share of profits. They suggest that GST should not be applicable as it constitutes self-service. The discussion includes reference to case law and differing opinions on the potential for litigation and the interpretation of related tax laws.