Remuneration paid to independent directors, or those directors who are not employees of a company is subject to GST on reverse charge basis, says CBIC
New Delhi: The pay independent directors draw from companies they serve are liable to Goods and Services Tax (GST) as it is not in the nature of salaries given to employees, the government clarified on Wednesday.
The Central Board of Indirect Taxes and Customs (CBIC) said in a communication to officials that the remuneration given to independent directors who do not have an employee-employer relationship with the companies they serve are distinct from the pay given to directors who are employees of the company. Salary given to an employee is not subject to GST.
Therefore, pay to independent directors who are not employees, are taxable. The company that receives the services of these directors are liable to discharge the GST liability on behalf of the independent directors on reverse charge, CBIC explained in the circular.
In the case of other directors, who are employees of the company, taxability of their remuneration will depend on the nature of payments. It needs to be assessed whether all the activities performed by such directors are in the course of employer-employee relationship of if there is any element of contract for service.
Directors’ pay declared as ‘salaries’ are not taxable under GST framework as it is paid for by the companies in the course of their employment. Salary payments are subject to income tax deduction at source under section 192 of the Income Tax Act.
However, the part of a director’s pay that is declared separately from salary in the company’s accounts and is subjected to an income tax deduction at source as fee for professional or technical services under section 194J of Income Tax Act shall be subject to GST as well. The CBIC circular explained that payment for professional and technical services fall outside the scope of salary payments.
Many businesses had sought a clarification on this especially on account of the contrary advance rulings and their potential impact, said Abhishek Jain, tax partner at EY. “With the clarification linking income tax and GST, businesses would need to now comprehensively evaluate the treatment of remuneration of directors under income tax , GST and accounting," said Jain.
Click here to read the Mint ePaperLivemint.com is now on Telegram. Join Livemint channel in your Telegram and stay updated
