Understanding the GST implications on director’s remuneration is crucial for businesses and tax professionals. This guide will explore the intricacies of GST applicability on different types of director’s fees and ensure your business meets compliance requirements effectively.
Understanding Director’s Remuneration Under GST
Director’s remuneration under GST can be complex. Here, we break down the details into two main categories:
- Remuneration paid to Independent Directors and Non-Employee Directors
- Remuneration paid to Whole-Time Directors or Managing Directors who are Employees
The GST compliance for director’s remuneration hinges on the director’s employment status with the company.
1. GST on Independent Directors and Non-Employee Directors
Who are Independent Directors?
Independent Directors, defined under Section 149(6) of the Companies Act, 2013, do not participate in daily management and lack an employment relationship with the company.
GST Applicability:
- As highlighted in Notification No. 13/2017-Central Tax (Rate), dated 28-6-2017, GST at 18% is applicable on the services provided by independent directors.
- The Reverse Charge Mechanism (RCM) mandates that the recipient of the service (the company) is responsible for GST payment.
Example:
For a fee of ₹10,00,000, the GST payable by the company under RCM would be ₹1,80,000.
2. GST on Whole-Time Directors / Managing Directors (Employees)
Who are Whole-Time Directors / Managing Directors?
These directors are integral to the company’s day-to-day operations and are typically on the payroll.
GST Applicability:
- Remuneration treated as salary and subject to TDS under Section 192 of the Income Tax Act is exempt from GST.
- Payments considered professional fees with TDS under Section 194J require GST payment under RCM.
Example:
A director with ₹12,00,000 as Salary and ₹5,00,000 as Professional Fees would see GST of ₹90,000 paid by the company under RCM on the fees portion.
Determining GST Applicability on Director’s Remuneration
This table simplifies when GST is applicable and who bears the responsibility:
| Type of Director | Nature of Remuneration | TDS Deduction | GST Applicability | Who Pays GST? |
| Independent / Non-Employee | Professional Fees | 194J | Yes (18%) | Company (RCM) |
| Whole-Time / Managing | Salary | 192 | No | Not Applicable |
| Whole-Time / Managing | Professional Fees | 194J | Yes (18%) | Company (RCM) |
Compliance & Reporting Under GST
Ensuring GST compliance involves:
- GST Registration: Necessary for directors meeting the threshold limit, although GST is paid by the company under RCM.
- GSTR Filing: Companies must report the GST in GSTR-3B and may claim Input Tax Credit (ITC).
Impact on Businesses
Businesses must navigate:
- Increased Compliance Burden: Proper classification of director payments is critical.
- Financial Impact: Anticipate and budget for the 18% GST on director fees.
- Record Maintenance: Essential for justifying GST treatments during audits.
GST on Director’s Remuneration: Frequently Asked Questions (FAQs)
1. Is GST applicable on Director’s Remuneration?
Yes, GST may apply to a director’s remuneration depending on whether the director is an employee or a contracted professional. The classification determines the taxability under GST.
2. How do we differentiate between an employee-director and a non-employee director?
- Employee Director: On payroll, receiving salary and PF benefits.
- Non-Employee Director: Paid via board resolution or contract, not on payroll.
GST is not applicable if the director is treated as an employee under employer-employee relationship.
3. Under which section does GST apply to Director’s Remuneration?
As per Entry No. 6 of Schedule III of the CGST Act, services by an employee to the employer in the course of employment are not treated as supply.
However, RCM under Section 9(3) applies to services provided by a non-employee director.
4. What is Reverse Charge Mechanism (RCM) in the context of directors?
When a non-employee director provides services to the company, the company is liable to pay GST under RCM on the director’s fees, commission, or sitting fees.
5. Is Input Tax Credit (ITC) available on GST paid under RCM on director’s remuneration?
Yes, if the director’s services are used for furtherance of business, ITC can be claimed on GST paid under RCM, subject to general ITC conditions under Section 16 of CGST Act.
6. Should GST be charged if the director is a foreign national?
Yes, GST under RCM is applicable even if the director is a non-resident or foreign director, provided services are received in India and used for business purposes.
7. What GST rate is applicable on director’s remuneration under RCM?
The applicable rate is 18% (9% CGST + 9% SGST) under the category of “services not elsewhere classified.”
8. Is GST applicable on reimbursement of expenses to directors?
Yes, if a director is a non-employee and claims reimbursement (e.g., travel, accommodation), such reimbursements may attract GST under RCM unless purely out-of-pocket and supported with third-party invoices.
9. How should a company account for GST on director’s remuneration in GSTR-3B and GSTR-2A?
- In GSTR-3B: Report RCM liability under Table 3.1(d)
- ITC on RCM: Claim in Table 4A(3) of GSTR-3B
- No reflection in GSTR-2A as this is RCM-based liability.
10. What documentation should a company maintain to determine GST applicability?
- Board resolutions and employment contracts
- Payroll records and PF/ESIC contributions
- Invoices or fee approvals for non-employee directors
- RCM payment challans and ITC claim records
Conclusion
Proper understanding and implementation of GST provisions on director’s remuneration are imperative for maintaining compliance and avoiding penalties. Businesses should consult with tax professionals and stay informed through CBIC clarifications.
