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Levy of GST on Director's Remuneration

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In this time of pandemic, one would expect Tax laws to be administered compassionately with Revenue authorities not running with mystifying interpretationof the GST Law.

Indian GST Law and regime will soon celebrate its Third Anniversary yet, but still there were controversies on some topics which caused unwanted chaos. GST on Director’s remuneration was one of such controversies which was in news due to its different rulings made by the State of Rajasthan & the State of Karnataka.

What was the Issue?

The Main issue was whether payments made by a company to its director will qualify as salary to an employee and accordingly not attract GST, or it will attract levy of GST under RCM.

And also the issue was how it will be treated to different classes of directors of a company, viz. Managing Director, Whole Time director, Independent Director, Nominated Director.

Provisions relating to Supply in GST Law:

As per Our GST Law, a supply of services by an employee to an employer is neither supply nor liable to Tax as per Schedule IIIof the CGST Act.

Tax is to be paid under Reverse Charge Mechanism by the Company if the Director receives remuneration as a Non-executive director, as per Notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017.


Category of Supplier of Service

Supplier               of Service

Receipient            of Service


Services supplied by a director of a company or a body corporate to said company or body corporate

A Director of company or body corporate

The Company or the body corporate located in Taxable


Decisions of Advance Rulings

Rajasthan Advance Ruling (Clay Crafts India Pvt Ltd.)

1.Whether GST is payable under RCM for salary paid to director of company?

This issue came before the authority and the authority ruled that “The Consideration paid to the directors by the Company will attract GST under RCM as it is covered under entry No.6 dated 28.06.2017 issued under section 9(3) of CGST Act, 2017”.

2.Whether the above situation would change from (a) if the director is a Part time Director in other company?

The situation will remain same as (a) above and will attract GST under RCM.

Karnataka Advance Ruling (Anil Kumar Agarwal)

The State ruled that an Executive director supplies services as an employee to the company (employer) and consequently remuneration paid to director will not attract GST.

It further held that remuneration to a non-executive director is liable to GST.

CBIC Clarification (Circular 140/10/2020 dated 10.06.2020)

Due to this difference in Ruling by the states, various references were also received from the Trade and Industry seeking for clarification on the issue. And finally CBIC issued “Circular no. 140/10/2020 dated 10.06.2020” on the treatment of this issue.

The clarification provided in the circular has been examined under two categories:

  • leviability of GST on remuneration paid by companies to the independent directors defined in terms of section 149(6) of the Companies Act, 2013 or those directors who are not the employees of the said company; and

Therefore, in respect of such directors who are not the employees of the said company, the services provided by them to the Company, in lieu of remuneration as the consideration for the said services,it is hereby clarified that the remuneration paid to such independent directors, or those directors, is taxable in hands of the company, on reverse charge basis.


  • Leviability of GST on remuneration paid by companies to the whole-time directors including managing director who are employees of the said

Once, it has been ascertained whether a director, irrespective of name and designation, is an employee, it would be pertinent to examine whether all the activities performed by the director are in the course of employer-employee relation (i.e. a “contract of service”) or is there any element of “contract for service”.

This identification can be done by treatment of Remuneration in Income Tax, Act, 1961

Accordingly, it is clarified that the part of 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.

It is further clarified that the part of employee Director’s remuneration which is declared separately other than “salaries‟ in the Company’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable. Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.

Example 1:

Mr. A is a Managing Director of B Ltd. and C Ltd. who receives remuneration of Rs. 1,00,000/- per month from company B Ltd and Rs.75,000/- per month from C Ltd.Company B Ltd records the payment in the books of accounts as salaries and deducts TDS under section 192 of Income tax Act, 1961 and whereas C Ltd. records as Professional services and deducts TDS under 194J. Whether GST is applicable on the amount paid as Remuneration to Mr. A?

In the above case, it is clearly evident that there exists an employer – employee relationship (Contract of Service) of Mr A. with B Ltd, as the company accounts the remuneration as salary and also TDS is deducted under section 192 of IT act, 1961. In this case, this transaction falls under Schedule III of the CGST Act, 2017 and outside the scope of GST.

But in the case of C Ltd, there is an element of “contract for service”provided by Mr. A The activities provided are in the nature of professional services and also evident from the fact that TDS is deducted under section 194J of IT Act, 1961. This transaction attracts GST under Reverse charge mechanism and C Ltd has to pay GST at the rate of 18%.

Example 2:

Mr. X, an Independent Director of Z Ltd. provides expert advice to the Board of Directors as and when required. The monthly remuneration is Rs.50, 000/-. Now the accountant of Z Ltd. is under confusion whether this remuneration of the nature of salary or of professional nature. Also he wants clarification on applicability of GST on this transaction?


As per Companies Act, 2013, Independent Director are such persons who are not the employees of the company and does not have any direct relationship with the company. They do not take part in the day to day business of the company and are not classified as an employee of the company. The services provided by Mr. X to the company in lieu of remuneration are therefore Taxable and the Z Ltd. to pay GST under RCM at the rate of 18%.

 View on Other aspects:

It is to be noted that the circular does not envisage a situation where there can be rent payments which are made to directors and TDS is deducted under section 194I of the Income Tax Act, 1961. Now let us analyse on this situation.


It should be noted that RCM notification entry no.6 uses the phrase “services supplied by a director of company” and hence by this it can be inferred that it covers only those services which are provided in the capacity of Director. The post of Director is a position in the company which is held by a person and when the services are provided in the individual capacity, it cannot be said that it is provided by the Director for which the consideration is paid.


Not only the notification but also the said circular has also emphasized the words “Director’s remuneration” and it is clear that the circular covers the aspects of remuneration paid to director, in his capacity as a Director. This aspect also supports the view that services provided in capacity of Director will only be covered under RCM.


Therefore with the above analysis we can conclude that the company would not be required to pay GST under RCM for the services provided by the directors in the individual capacity. The Director, if registered under GST, has to charge GST under forward charge on the Rental income earned from company.

For feedback /comments, you can reach

CA GauravKothari|

GST on Director s Remuneration-20200628125148.pdf


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