GST in payable under reverse charge mechanism on salary paid to Director of the Company

Clearmytax.in Editorial Team

Rajasthan Authority for Advance Ruling, GST, Jaipur has vide Advance Ruling No. RAJ/AAR/2019-20/33 in the application filed by M/s Clay Craft India Pvt Ltd has adjudged that the consideration to the Directors will attract GST under reverse charge mechanism as it is covered under entry no. 6 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the CGST Act,2017.

The decision has come as a shocker for the Corporates in light of the fact that above ruling has been given on the question raised by applicant that whether GST is payable under RCM on the salary paid to Director of the Company who is paid salary as per contract. It has been undisputed legal position since Service Tax days that payment of remuneration to full time / executive Directors is not liable to tax since they are employees and both Service Tax as well as GST is not applicable on services rendered by employee to employer in the course of or in relation to his employment.

As per Clearmytax.in team the ruling is not in right footing. However in order save themselves from future disputes the Corporates should ensure that full time / Executive Directors should only be engaged as employee with clear contract substantiating employer employee relationship and preferably no other payment towards services than as employee should be made. It is pertinent to mention here that in the current case commission was also paid to the directors to whom salary was being paid and on such commission GST under RCM was paid which may have created doubt in mind of AAR and resulted in such shocking ruling.

For ready reference of our readers complete order of the Rajasthan AAR is attached below:

Frah Saeed

Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.