GST on Remuneration paid to Directors via Case Analysis

[Lalit Rajput]

GST on Remuneration paid to Directors

*(AAR - Authority for Advance Ruling)

Overview:

Clay Craft India Pvt Ltd has filed an application before the Rajasthan bench of the AAR to sought clarification on whether salaries paid to directors would attract Goods and Services Tax.

Company’s key points:

• The company said its directors are working as employees for which they are being compensated by way of a regular salary and other allowances.
• The company is deducting TDS on their salary and PF laws are also applicable to their service.
• directors are the employees of the company and are working as such besides being Director of the company.

Remarks by Authority for Advance Ruling

• The consideration paid to the directors by the applicant company will attract GST under reverse charge mechanism.
• Director is the supplier of services and the applicant of the company is the recipient of the services.

Order by AAR:

The services rendered by the Director to the company for which consideration is paid to them in any head is liable to pay GST under RCM (Reverse Charge Mechanism),

Conclusion:

Companies will have to pay GST on the remuneration they dole out to directors.

Link of the order :

IN RE: M/S. CLAY CRAFT INDIA PVT. LTD. [2020 (4) TMI 228 - AUTHORITY FOR ADVANCE RULING RAJASTHAN]

 

Discussions to this article

[OmPrakash jain]

Sir,

You have not expressed your views as to whether the Advance Ruling is right or wrong.

Kindly read detailed judicial analysis of higher courts in (2020) 33 J.K.Jain’s GST & VR 240 over the same Advance Ruling;

1. as to why Directors be treated as employee of the company and
2. what is the significance of specific entry of taxability of Directors remuneration specifically included in the notfn No13/2017-CT(R) dated 28.6.2017, in contrast to the service tax regime.

[KASTURI SETHI]

When an article is written the conclusion must drawn at the end of the article otherwise the article is incomplete. What is the purpose of writing an article ?

[CSLalit Rajput]

Hi Senior Members,

My views on the same.

1. AAR is generally pro-revenue centric. and is applicable to specific case only

2. Order is binding on the assessee in whose case ruling has been pronounced.

3. This ruling can be challenged at upper Authority , Appellate Authority for Advance Ruling ('AAAR').

Publishing my article for first time on this renowned platform, before wrting views article submitted. Sorry for the inconvienance.

[KASTURI SETHI]

O. K. It is right that AAR decision is applicable to the applicant only. It does not become precedent but has persuasive value.