Companies to deduct GST on payment of Remuneration to Independent Directors
The Central Board of Indirect Taxes and Customs (CBIC) has clarified that remuneration (sitting fees for attending the board meetings, commission etc.) paid to Independent Directors would attract goods and services tax (GST) as long as they are not employees of the concerned companies. GST will be imposed on them on a reverse charge mechanism (RCM). Under RCM, the receiver of the service i.e. the company pays the tax by deducting it from the service provider’s (Independent Directors) compensation. However, for the Whole Time Directors who are treated as employees of the company, GST deduction is not needed as their income is treated as salary income.
The clarification was issued by the authorities, because of the contradictory rulings of authorities for advance rulings (AARs). The AAR Rajasthan was of the view that director remuneration is under the ambit of GST, while the AAR Karnataka was of a different opinion. The clarification issued by CBIC has cleared the clouds on the subject for the benefit of the tax payers as well as the companies.
