Hello Friends,

Whether GST is to be paid under Reverse Charge Mechanism on the Remuneration paid to the Directors??

• In the decision given by the Authority for Advance Rulings(AAR) for Karnataka in M/s Alcon Consulting Engineers (India) Pvt Ltd. (AAR No. KAR ARDG 83/2019), it was ruled that the directors are not the employees of the company, hence the services provided by the Directors to the company are not covered under Clause (1) of the Schedule III to the CGST Act 2017, therefore making the said services taxable under RCM under section 9(3) of the CGST Act 2017 [ as per Notification No. 13/2017 – CT (R) dt. 28th June 2017].
• Though the ruling does not provide for a detailed reasoning for the applicability of GST on the same, one may need to consider various scenarios/laws/acts in order to apply such a proposition for taxability under Reverse Charge Mechanism.

• There are different kinds of directors that a company can appoint. Broadly these can be divided into 2 categories:

1. Executive Directors (Includes Whole Time Directors, Managing Directors) who are generally involved in the day to day affairs of the Company
2. Non-Executive Directors (Includes Independent Director, Nominee Director) who do not involve in day to day activities of the company and receive sitting fees or commission for their services

• Section 2(94) of the Companies Act 2013, defines “Whole Time Director” as:

          “whole-time director” includes a director in the whole-time employment of the company”

• If we look at the GST perspective, Clause (1) of Schedule III (Services which shall neither be treated as supply of goods or services) to the CGST Act says:

          “Services by an employee to the employer in the course of or in relation to his employment”

• Further, Entry No. 6 of the Notification No. 13/2017 – CT (R) Dt. 28th June 2017 says:

Service	Provider of Service	Recipient of Service	Percentage of Tax payable by service recipient
Services provided or agreed to be provided by a director of a company or a body corporate to the said company or the body corporate;	A director of a company or a body corporate	A company or a body corporate	100%

Therefore, by a conjoint reading of Notification No 13/2017 – CT and Schedule III, it can be concluded that any amount paid to Director which is in the nature of employment contract is not liable for payment of GST, whereas any amount paid to Directors who are not on the payroll of the company will be liable for Reverse Charge Mechanism.

Generally, payments by way of Sitting Fees, Commission are taxable under RCM as such payments are made to those directors who are not under the employment of the company, whereas Directors Remuneration is in normal course paid to those directors who are under employment contract and is in the nature of Salary.

However, one needs to carefully consider the facts of each case to determine whether the amount paid to a director is with respect to his employment with the company or with respect to an independent professional service.