Rajasthan Tax Department clarifies on levy of GST on Director’s remuneration

The Rajasthan Tax Department on June 15, 2020, issues clarification on levy of GST on Director’s remuneration. 

A lot of doubts were raised under this issue and under Rajasthan Goods and Service Tax Act, 2017, the clarification was provided under two categories. 

The main issue to be decided is whether a ‘Director’ is an employee of the company. In this regard, from the perusal of the relevant provisions of the Companies Act, 2013, it can be inferred that: 

1. The definition of a whole time-director under section 2(94) of the Companies Act, 2013 is an inclusive definition, and thus he may be a person who is not an employee of the company. 
2. The definition of “independent directors‟ under section 149(6) of the Companies Act, 2013, read with Rule 12 of Companies (Share Capital and Debentures) Rules, 2014 makes it amply clear that such director should not have been an employee or proprietor or a partner of the said company, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed in the said company.
3. Hence, 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, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable.
4. Therefore, it is hereby clarified that 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.

[GST Circular No. 10/2020]

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