Director's Salary:
(One Issue - One State - Two Rulings)

Director's Salary has become the most concerning issue amongst directors and companies nowdays. The reason being the contradictory rulings being passed by the various authorities over the issue. In the below article, we will discuss the two contradicting rulings passed by the Karnataka AAR over the director's salary treatment under GST.

1. Salary received by director as employee (or executive director) is not subject to GST under reverse charge: AAR, Karnataka in the case of Anil Kumar Agarwal.

"Karnataka Advance Ruling Authority in the case of Anil Kumr Agarwal has passed a ruling on 04th May 2020 that the remuneration received by director as employee (or executive director) is not subject to GST under reverse charge, as it is the value of the services supplied by the director being an employee. However, if the director receives remuneration as a Non-Executive Director, such remuneration is liable to GST under reverse charge mechanism under section 9 (3) of the CGST Act 2017, in the hands of the company." - Click here for Full Order

vs.

2. Director cannot be the employee of company, therefore salary received by director is liable to GST under reverse charge: AAR, Karnataka in the case of Alcon Consulting Engineers (India) Pvt. Ltd.

"Karnataka Advance Ruling Authority in the case of Alcon Colsulting Engineers (India) Pvt. Ltd. has passed a ruling on 25th May 2019 that the director cannot be the employee of company and services provided by the directors to the company are not covered under clause (1) of the Schedule III to the Central Goods and Services Tax Act, 2017. The consideration paid to the Director is in relation to the services provided by the Director to the Company and the recipient of such service is the Company as per clause (93) of section 2 of the CGST Act and the supplier of such service is the Director. Therefore remuneration of directors is leable to GST under reverse charge." - Click here for ful Order

Author’s Note
As you can see that both the rulings have been passed by the Karnataka Authority over the same issue. Author believes that CBIC should clarify the matter in public interest and there is a strong need of time to establish harmony and consistency between advance ruling authorities, otherwise professionals, taxpayers & goverment machinary will end up wasting so much of their precious time over the litigation on similar issues. Please leave your views on the same in comment box.

Thank you!
Author - Mohit Jain
The Author is FCA with 10+ years experience and founder of TaxReply. The Author has experience of handling GST compliances of multiple countries including India.

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