Is GST payable under RCM on Director's Remuneration or not?

Arjun (Fictional Character): Krishna, “Whether GST is payable under RCM on Director's Remuneration?” is the talk of the corporate world today who is already crises due to Corona. Now, what's this new unnecessary tension to them, please explain?

Krishna (Fictional Character): Arjuna, the confusion of whether GST is payable under RCM on Director's remuneration has raised due to the recent order passed by Authority of Advance Ruling (AAR) of Rajasthan in the case of Clay Craft India Pvt Ltd, & AAR of Karnataka in the case of Alcon Consulting Engineers (India) Pvt Ltd. These advance rulings state that remuneration paid to the Director of the applicant company is liable to tax under reverse charge mechanism. Let's discuss this in detail.

Arjun (Fictional Character): Krishna, what was the position in Service tax of Director Remuneration in case of employee Director?

Krishna (Fictional Character): Arjuna, In the case of employee director, remuneration is paid as salary. Hence, service tax was not payable on salary paid to the employee.

The wording for the exclusion of employee services under service tax was: As per section 65B (44) of the Finance Act, 1994, Service does not include - (b) A provision of service by an employee to the employer in the course of or in relation to his employment.

Further Reverse Charge was also not levied when service is exempt.

Arjun (Fictional Character): Krishna, what is the provision in GST for Director Remuneration in case of employee Director?

Krishna (Fictional Character): Arjuna, as per Section 7 of the CGST Act, 2017, Scope of Supply: Schedule III - Activities or transactions which shall be treated neither as a supply of goods nor a supply of services includes services by an employee to the employer in the course of or in relation to his employment.

Considering the same provision, the Director's remuneration in case of employee director does not fall under the purview of supply itself, and hence, RCM provisions are not applicable to it.

Arjun (Fictional Character): Krishna, What is the similarity between the provision of Service tax & GST regarding the Director's Remuneration?

Krishna (Fictional Character): Arjuna, the provision of Service tax & GST regarding Director's Remuneration is the same as both excludes the provision of service/supply by an employee to the employer in the course of or in relation to his employment. Further, the Notification of RCM on Director Remuneration is on the same principle under Service tax and GST. Both are still on the same principle. Hence, GST shall not be leviable under RCM on Director's remuneration.

It is to be noted that as per section 9(3) of the CGST Act, 2017, RCM shall only apply on the services supplied by the director of a company or a body corporate to the company or a body corporate located in the taxable territory, and not on the services provided by a director who is in the employment of the company.

Arjun (Fictional Character): Krishna, what lesson should the taxpayer take from this?

Krishna (Fictional Character): Arjuna, this matter of whether RCM provisions are applicable to the Director's remuneration or not can be confusing at times for companies as well as directors. The government should clarify this issue and make it clear for both the company and directors. In the time of crises, such type of litigation is unwarranted.