Taxgen Team
- Apr 15, 2020
- 2 min read

RCM on Directors' Remuneration An Advance Ruling by AAR Rajasthan

Updated: Apr 20, 2020

Advance Rulings Made by Rajasthan AAR

In recent Ruling by the Hon’ble Rajasthan Authority for Advance Ruling (AAR) that the remuneration paid by the Company to its director would attract GST under Reverse Charge Mechanism (RCM) has created a lot of confusion among the Companies and Body Corporate.

So, let's have a brief understanding of it In the application filed Before the Rajasthan Bench of AAR, the Applicant said that the salary paid to the director are as per the Employer-Employee relationship and as per their employment contract. So, As per the Applicant, it comes under the purview of Schedule III to the CGST Act, 2017 which states as under:

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

Where Schedule III states that GST shall not apply to the entries in this schedule. Further, the company is deducting TDS on their salary and PF laws are also applicable to their service.

Ruling Authority was of the stand that “The salary paid to the directors by the company are

not covered under Schedule III to the CGST Act, 2017 as the Director is not the employee of the company.”

The Consideration paid to the Director is in relation to the service provided by the Director to the company and the recipient of such services is the company then, As per Notification No. 13/2017- CT (Rate) “Services supplied by a Director of a Company to such Company or Body Corporate would attract the provision of Reverse Charge” i.e; GST would be payable by the company on the services supplied by a Director to the company. So it is very much clear from the said Ruling that GST would be applicable Remuneration paid to the Directors for the services.

Concluding

On concluding, According to me, CBIC has to come up with a clarification on it, because almost every director draws a salary from the company for the services and companies didn’t charge any GST on the Remuneration paid to the except for the commission paid and on the contrary, the authority may start issuing demand by taking this Ruling into consideration.