RCM under GST on Director’s Remuneration Divya Rathi, dated 20 June, 2020

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The Tax Publishers RCM under GST on Directors Remuneration Divya Rathi Recently the Central Board of Indirect Taxes and Customs (CBIC) has issued a Circular on 10th June, 2020 to clarify upon applicability of GST on Directors remuneration. This Circular finally puts to rest the confusion that was created by the contrary Rulings of Rajasthan and Karnataka AARs on this subject. The provisions of this Circular are discussed in this write up. 1. Background Applicability of GST on Directors remuneration and liability to pay GST under RCM on Directors remuneration has always been a matter of dispute. The question lies in whether services provided by the director to a company is required to be treated as services by an employee to the employer in the course of or in relation to his employment under Schedule III (i.e. neither supply of services and/or goods) of the Central Goods and Services Tax Act, 2017 (CGST Act) 1 or the same is to be treated as supply of services and made taxable in the hands of the Company through reverse charge under the Act. Recently, Authority for Advance Ruling, Karnataka and the Authority for Advance Ruling, Rajasthan has determined that the company is liable to pay GST under RCM on remuneration paid to directors in capacity of employees under section 9(3) of the CGST Act, 2017, read with Entry No. 6 of the Notification No. 13/2017 Central Tax (Rate), dated 28 June, 2017. Verdict was given in the case of M/s. Alcon Consulting Engineers (India) Pvt. Ltd. (No. Kar ADRG 83/2019 dtd. 25th September, 2019) by Authority for Advance Ruling, Karnataka and M/s In Re: M/s. Clay Craft India Pvt. Ltd. (RAJ/AAR/2019-20/33 dated 20th February, 2020) by Authority for Advance Ruling, Rajasthan. Both of these rulings have created chaos in the minds of all companies, Directors, and Management of companies, especially due to recent ruling in the case of Clay Craft India Pvt. Ltd. Considering the various representations and increasing confusions due to advance ruling, Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 140/10/2020 GST dated 10th June, 2020 to clarify applicability of GST on Directors remuneration. Below are detailed analysis of the provisions of GST on basis of which order passed by the honourable Authority of Advance Ruling and consequently circular issued by CBIC in the matter. 2. Applicability of Reverse Charge Mechanism on Directors Remuneration Section 9 of the CGST Act, 2017, provides for the provisions relating to levy and collection. Generally, the levy is made under forward charge, in which GST is payable by the supplier. However, section 9(3) and 9(4) of the CGST Act deals with reverse charge mechanism, where GST is payable by recipient of service or goods or both and not by the supplier. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

RCM under GST on Directors Remuneration

Divya Rathi

Recently the Central Board of Indirect Taxes and Customs (CBIC) has issued a Circular on 10th June, 2020 to clarify upon applicability of GST on Directors remuneration. This Circular finally puts to rest the confusion that was created by the contrary Rulings of Rajasthan and Karnataka AARs on this subject. The provisions of this Circular are discussed in this write up.

1. Background

Applicability of GST on Directors remuneration and liability to pay GST under RCM on Directors remuneration has always been a matter of dispute. The question lies in whether services provided by the director to a company is required to be treated as services by an employee to the employer in the course of or in relation to his employment under Schedule III (i.e. neither supply of services and/or goods) of the Central Goods and Services Tax Act, 2017 (CGST Act) 1 or the same is to be treated as supply of services and made taxable in the hands of the Company through reverse charge under the Act.

Recently, Authority for Advance Ruling, Karnataka and the Authority for Advance Ruling, Rajasthan has determined that the company is liable to pay GST under RCM on remuneration paid to directors in capacity of employees under section 9(3) of the CGST Act, 2017, read with Entry No. 6 of the Notification No. 13/2017 Central Tax (Rate), dated 28 June, 2017.

Verdict was given in the case of M/s. Alcon Consulting Engineers (India) Pvt. Ltd. (No. Kar ADRG 83/2019 dtd. 25th September, 2019) by Authority for Advance Ruling, Karnataka and M/s In Re: M/s. Clay Craft India Pvt. Ltd. (RAJ/AAR/2019-20/33 dated 20th February, 2020) by Authority for Advance Ruling, Rajasthan.

Both of these rulings have created chaos in the minds of all companies, Directors, and Management of companies, especially due to recent ruling in the case of Clay Craft India Pvt. Ltd.

Considering the various representations and increasing confusions due to advance ruling, Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 140/10/2020 GST dated 10th June, 2020 to clarify applicability of GST on Directors remuneration.

Below are detailed analysis of the provisions of GST on basis of which order passed by the honourable Authority of Advance Ruling and consequently circular issued by CBIC in the matter.

2. Applicability of Reverse Charge Mechanism on Directors Remuneration

Section 9 of the CGST Act, 2017, provides for the provisions relating to levy and collection. Generally, the levy is made under forward charge, in which GST is payable by the supplier. However, section 9(3) and 9(4) of the CGST Act deals with reverse charge mechanism, where GST is payable by recipient of service or goods or both and not by the supplier.