Page 20 - GSTL_20th August 2020_Vol 39_Part 3

J52 GST LAW TIMES [ Vol. 39
• Managing Director/whole-time Directors/Executive Directors are
employees of company if they get salary and allowances from such
company.
• Independent/Non-executive/Nominee Directors are not employees
of company and as such don’t get salary but are remunerated in
other forms such as sitting fees, commission, etc.
• Both types of Directors cannot be equated for the purpose of GST.
• In terms of Section 7 read with Schedule-III to CGST Act, 2017, ser-
vices by employee to employer in the course of or in relating to his
employment are excluded. As such, services by such Directors who
are considered as employees are not a supply and hence not taxable.
There is no question of levy of GST on such services and as such re-
verse charge also does not apply.
• One acid test for such cases can be that TDS is deducted under Sec-
tion 192 of the Income-tax Act, 1961 (i.e., salary).
• In case of Directors other than whole time Directors (i.e., independ-
ent, Non-executive, nominee, etc.), since they are not in whole time
employment, they do not earn salary but get rewarded in some oth-
er form which could be sitting fees, bonus, commission, percentage
of net profit, etc.
• In case of such non whole-time Directors, they are not ‘employees’
or in whole time employment by any interpretation and hence their
services do not fall under exclusion vide Schedule-III to CGST Act.
• Being taxable, such services of Directors shall be subject to levy of
GST but in such cases, Notification No. 13/2017-C.T. (Rate), dated
28-6-2017 comes into play which provides for discharge of GST lia-
bility under reverse charge mechanism i.e., by the company.
• Such Director’s remuneration is also subject to TDS but under Sec-
tion 194J of the Income-tax Act, 1961 (i.e., professional services).
• For other services rendered by whole-time Directors which are oth-
erwise taxable, GST shall be levied and discharged under Reverse
Charge Mechanism.
Though the CBIC Circular clarifies that services provided by whole-time Directors
to the company which are not in the capacity as an employee shall be outside the
scope of exclusion and be taxable, such GST shall be payable under Reverse
Charge Mechanism by the company. This would imply that all services provided
by ‘employee Directors’ to company which are not in the course of employment
will the subject to levy of GST and tax be discharged by the company under re-
verse charge.
On this issue, there could be conflicting interpretation as what is taxable
is supply per se and not the person who is supplying. For example, if a Director
provides services of renting a property, tax on such service is under renting of
immovable property and not as Director’s services. Confusion still persists as to
whether ‘any’ or ‘all’ services provided by Directors are under reverse charge or
only the services provided in the capacity as a Director.
It would be advisable for companies to document the transaction be-
tween Directors as employee and Director as Non-executive Director elaborately
so that no dispute arises and the taxpayers are saved from harassment.
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