In a statement issued on June 10, CBIC (Central Board of Indirect Taxes and Customs) said that GST will not be levied on salaries paid to directors provided they are just an employee of the company. The statement was issued to give the clarification on the announcement made by Rajasthan Authority of Advance Ruling (RAAR) in April that said: “companies will have to pay GST on the remuneration they dole out to directors”.
CBIC said, “The part of director’s remuneration that is 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.
However, CBIC added, “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. The recipient of the said services, i.e. the company, is liable to discharge the applicable GST on it on a reverse charge basis”.
According to AMRG & Associates Senior Partner, Rajat Mohan, the decision would help save about 18 per cent of tax on the remuneration paid to executive directors of the company. He added, “Tax officers would be pushed to roll back tax notices issued in relation to taxation of director salary on account of divergent views expressed by advance ruling authorities”.
Tax partner of Ernst and Young, Abhishek Jain said, “With the clarification linking income tax and GST, businesses would need to now evaluate comprehensively treatment of remuneration of directors under income tax, GST and accounting”.