No GST on Remuneration to Whole time Directors:
A lot of controversy were taking a rounds in the market due to Rajasthan AAR issued a month ago which had opened a pandora box and held that GST would be applicable on the Director’s remuneration keeping the industry in a jolt. A proper explanation and clarification was required from CBIC about the applicability of GST on Whole Time Directors.
In lieu of such clarification, Mr. Anil Kumar Agrawal, a director receiving salary from a private limited applied for an Advance ruling from Karnataka Bench. After studying all the facts and circumstances, the AAR bench clarified that if a director is a a full time/ whole time director or employee, there will be no incidence of GST. However, if a director is an non-executive director and provide services to the company, then GST would be applicable on the remuneration received by him. It is pertinent to note that reverse mechanism would apply here and the recipient (i.e. company) will have to pay GST.
The intention of law was also not to tax salary component. Schedule III of CGST Act clearly excludes services by an employee from the purview of GST and a long time ago, Supreme Court in its judgement laid down the employer-employee relationship.
The applicant has not furnished documents such as the agreement between him and the company, the appointment letter, provident fund dedeuction details, etc. which could have help in deciding whether he is receiving salary or not, said the Karnataka Bench. They further addded that if the salary is received by the director in his capacity as an employee, it would be outside the purview of GST.
This AAR has brought significant relief and clarified the matter across the industry post issue of Rajasthan AAR order on applicability of GST on remuneration to directors.
Download Official AAR Order here.
Watch complete AAR ruling video here on the same ruling!
https://youtu.be/rPmVjh0v0a0