Advance Ruling Authority says Director’s Remuneration Attract GST

“Companies will have to pay GST on their director’s remuneration”, the Advance Ruling Authority stated. Clay Craft India Pvt. Ltd., in an application, filed before AAR’s Rajasthan Bench, had been seeking clarity as to whether salaries charged to directors would trigger Goods and Services Tax. The organisation said its directors are employed as workers for which a daily wage and other benefits compensate them.

The business deducts TDS on its salaries, and PF laws apply to their operation as well. Therefore, directors are the workers of the company in all practical purposes and work as such besides being the company’s head.

The AAR said in its ruling that the applicant company’s consideration charged to the directors would attract GST under reverse charge process. The AAR, when evaluating the situation, said director is the service provider, and the company’s applicant is the service receiver.

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The Central Tax (Rate) notification specifically states that services rendered by a company’s director would be regarded as supply and hence can not be named employee to directors.

The AAR order claimed that it is evident that under the Reverse Charge Scheme, the services provided by the director to the company for which consideration is charged to them in any head are liable to pay GST.

This decision needs to be explained by the government. Otherwise, lower authorities will take a legally incorrect view that causes trouble within the business community.

For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in