File Your Income Tax Return Before 31st July 2024.
| Table of Content |
Director of any company is divided into two different categories the first one is directors who receives salary and directors who are eligible to get remuneration instead of salary. The salary received by the in lieu of services provided by them to the company is subjected to TDS (Tax Deducted at Source) under Section 192 of the Income Tax Act and are not taxable under Goods and services because it forms relationship of employer and employee and hence chargeable as salary in the hands of director under Income tax Act.
GST on remuneration paid by companies to the independent directors
Independent director means that the person should not be the employee or proprietor or partner of the said company. Therefore, the remuneration paid to such directors who are not the employees or proprietor or partner of the said company, the services provided by them to the Company, in lieu of remuneration, are clearly outside the scope of Schedule Ill of the CGST Act and are therefore taxable. Schedule III of CGST Act specifies the list of activities excluded from GST in India. Consideration given to the director who is working in the capacity of employee is in the list of activities excluded from Goods and Services Tax. Hence the remuneration paid to Independent director is chargeable to GST.
The remuneration paid to the Independent directors (not employee) in lieu of services provided by them is chargeable to tax under Goods and Services Act under section 9(3) reverse charge mechanism of CGST Act. Reverse charge mechanism means the GST on the payment made will have to deduct by the company. The payment made by company will be chargeable to GST @ of 18%.
GST on remuneration paid by companies to the whole-time directors
Any services provided by the director in the employer-employee relationship are not chargeable to tax under GST and will be taxable in the head of salary under Income Tax Act. The whole time director including managing director establishes employer employee relationship with the company covered under schedule III of CGST Act. Schedule III of CGST Act specifies the list of activities excluded from GST in India. Hence the remuneration receives by the whole time director including managing director is not chargeable to GST
Part of Director’s remuneration which declared as `Salaries’ in the books of a company and subjected to TDS under Section 192 of the Income Tax Act, are not taxable being consideration for services provided by the director under Goods and Services Tax.
The Part of Director’s remuneration which is declared separately other than “salaries‟ in the Company’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act.
Given below table will help you in understanding the provision:
| Director | Whole time Directors (Employee) | Non-executive or Independent Directors |
| GST Applicable | Not Applicable | Taxable and payable under reverse charge |
| Rate | Taxable under head salary | 18% GST |
| TDS | TDS under section 192 or 194J | Not Applicable |
Differentiate between whole time director and Independent director
| Whole time Directors | Independent Directors |
| Managing director or whole-time directors or executive directors are the employees of the company if they get salary and allowances from in the capacity of employer employee relationship from such company. | Independent or non-executive or nominee directors are not the employees of the company and as such director don’t get salary but remunerated in other forms such as sitting fees, commission etc. |
