Page 49 - GSTL_14th May 2020_Vol 36_Part 2

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Director’s salary exempt from GST : Karnataka AAR Ruling

In contrast with ruling by Rajasthan Bench
The salary of a Director in a company is not liable to be taxed under
Goods and Services Tax (GST), the Karnataka Authority for Advanced Rulings
(AAR) has said. The ruling is set to stir up the controversial issue of taxing in-
comes of Directors or Partners in a firm, since the Rajasthan Bench of AAR had
ruled last month that the incomes were liable to be taxed.
“The incomes received towards salary/remuneration as a non-Executive
Director of a Private Limited company, renting of commercial property, residen-
tial property and the values of amounts extended as deposits/loans/advances
out of which interest is being received are due to be included in the aggregate
turnover for registration,” the Karnataka AAR said in its ruling dated May 4.
ET has seen a copy of the order, which also notes that salary of a work-
ing partner in a partnership firm was “neither a supply of goods nor supply of
service... the income is not under the purview of GST as share of profit is nothing
but application of money”.
This comes within a month of the Rajasthan Bench Ruling in the case of
Clay Craft India Pvt. Ltd. that remuneration paid to Directors “will attract GST
under the reverse charge mechanism” and that a Director was a supplier of ser-
vice and not an employee.
Experts said while the Karnataka AAR’s order will provide relief to Di-
rectors in a company, contrary rulings by State-level AARs will lead to increased
confusion for taxpayers.
“Different State Authorities are pronouncing diametrically opposite rul-
ings is only adding to the uncertainty of the taxpayers, which is the last thing one
would hope for in the current scenario,” said Harpreet Singh, Partner-Indirect Tax
at KPMG India.
“Taxpayers operating multiple locational offices especially in the States
of Karnataka and Rajasthan would be under a dilemma as to which ruling would
be made applicable to them,” said Rajat Mohan, Senior Partner at AMRG Associ-
ates.

GST LAW TIMES  14th May 2020  49