Circular No.: 140/10/2020-GST
Date of Circular: 10th June 2020
Relevant Sections and Rules:
- CGST Act, 2017:
- Section 7(2)(a): Schedule III – Employer-employee relationship
- Section 168(1): Power to issue instructions
- Income Tax Act, 1961:
- Section 192: TDS on salary
- Section 194J: TDS on professional services
- Notifications:
- Notification No. 13/2017–CT (Rate) dated 28.06.2017 (Sl. No. 6 – RCM)
Summary of Circular in Paragraphs (One Clarification Each):
- Applicability of GST on Remuneration to Independent Directors or Non-Employee Directors:
Independent directors, or directors who are not employees of the company (as defined under Section 149(6) of the Companies Act, 2013), are not covered under Schedule III of CGST Act.
Thus, any remuneration paid to them is taxable under GST, and the company is liable to pay GST on reverse charge basis under Sl. No. 6 of Notification No. 13/2017-CT(R). - GST on Remuneration to Whole-Time or Managing Directors Who Are Employees:
Where directors are also employees (i.e. have a contract of service), the following treatment applies:
- Salary component shown in books and TDS deducted under Section 192 of IT Act is not taxable under GST, as it falls under employer-employee relationship covered under Schedule III.
- Other remuneration declared separately in books and subjected to TDS under Section 194J (i.e. professional fees), is taxable under GST, and company must discharge liability under RCM.
Source: Circular No.: 140/10/2020-GST
