Clarification on GST liability on Director of Company

FAQ’s on GST liability on Director of Company

1)      Who are Directors of a company?

The directors are the persons elected by the shareholders to direct, conduct, manage or supervise the affairs of the company. According to Sec. 2 (13) of the Companies Act, “Director includes any person occupying the position of director by whatever name called.”

2)      What do you mean by an independent director?

Section 2(47) of the Companies Act states that an ‘independent director’ means an independent director referred to in Section 149(6). Section 149(6) provides with a descriptive list of qualifications of an independent director.

3)      Can an employee be appointed as an independent director of the company?

Independent director cannot be an employee, proprietor or a partner of the said company, in any of the 3 financial years immediately proceeding the financial year in which he is proposed to be appointed in the said company.

4)      What do you mean by a whole time director?

“Whole-time Director” includes a director in the whole-time employment of the company. The definition of ‘whole-time director’ is an inclusive definition, so he may not be an employee of the company too.

5)      What do you mean by a managing director?

The Board of Directors generally appoints one of its members to manage the affairs of the company as a whole time officer and calls him the Managing Director. The Managing Director occupies a position of dual authority and responsibility. As a director, he attends the Board meetings and, as a manager, he performs the managerial functions.

6)      What is an important test to determine whether GST is leviable on services provided by directors?

The following criteria needs to be fulfilled in order to not constitute as a supply under GST:-‘

a.       Employer-employee relationship (master servant relationship)

b.      TDS is deducted u/s 192

c.       It should be a contract of service and not a contract for service

7)      How are services provided by a whole time director to a body corporate covered under GST?

Here, it is essential to note whether the services provided by the whole time director are in accordance of a contract of employment or not.

a)      If the whole time director is working according to a contract of employment, services provided do not constitute as a supply under GST. Hence, not taxable.

b)      If the whole time director is not working according to a contract of employment, services provided constitute as a supply under GST. Consideration received by the director is taxable on RCM basis in the hands of the company

8)      How are services provided by an independent director to a body corporate covered under GST?

Services provided by an independent director constitute as a supply under GST as there is no employer-employee relationship. Consideration received by the director is taxable on RCM basis in the hands of the company.

9)      Mr. A is a director employed by XYZ Pvt Ltd under the terms of an employment contract. Mr. A received salary of Rs 10 lakhs during the year. Is this consideration taxable under GST?

Services provided by Mr. A are in terms of the employment contract. There is employer-employee relationship in this case. These services will not be considered as supply under GST. Hence, not taxable.

10)   How are services provided by a managing director to a body corporate covered under GST?

It is essential to find out whether the services provided by the managing director are in accordance of a contract of employment or not.

a)      If the managing director is working according to a contract of employment, services provided do not constitute as a supply under GST. Hence, not taxable.

b)      If the managing director is not working according to a contract of employment, services provided constitute as a supply under GST. Consideration received by the director is taxable on RCM basis in the hands of the company.

11)   What is the GST payable on services provided by directors when they constitute as a supply under GST?

GST Rate payable by receiver (company or body corporate) is 18%.

12)   Who can avail the benefit of Input Tax Credit (ITC) on services provided by a director to a company or body corporate?

a)      The question of availing ITC does not arise on cases which do not constitute as a supply under GST (employer-employee relationships).

b)      The recipient (company or body corporate in this case) can avail ITC of GST amount that is paid under reverse charge on receipt of services (cases where employer-employee relationship does not exist)

13)    What is the time of supply for supply of director’s services when they are covered under RCM?

Time of Supply shall be earliest of:-

a)      the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier

b)      61st date from the date of issue of invoice

If it is not possible to compute time of supply using above method, the time of supply shall be the date of entry in the books of account of the recipient of supply.

14)   Mr. P is a director of ABC Pvt Ltd. On payment of consideration to Mr. P, ABC Pvt Ltd deducts TDS u/s 192 of Income Tax Act (TDS on salary). IS GST chargeable on this amount?

Services provided by Mr. P are in terms of the employment contract. There is employer-employee relationship, which is proved by the fact that TDS is deducted u/s 192. These services will not be considered as supply under GST. Hence, not taxable.

15)   Mr. Q is a director of ABC Pvt Ltd. On payment of consideration to Mr. Q, ABC Pvt Ltd deducts TDS u/s 194J of Income Tax Act (TDS on professional fees). Is GST chargeable on this amount?

Services provided by Mr. Q constitute as a supply under GST as there is not employer-employee relationship, which is proved by the fact that TDS is deducted u/s 194J. Consideration received by the director is taxable on RCM basis in the hands of the company.

GST council clears proposal of Phased reduction in late fees for not furnishing GSTR-3B for tax periods during July, 2017 - 31 Jan, 2020, provided THE PAYMENT & FILING OF RETURNS IS DONE BETWEEN 01.07.2020 to 30.09.2020

Phase 1:   Those with Nil tax liability to be charged NO LATE FEES

PHASE 2: Those with tax liability to be charges Rs500 per return, per month, instead of Rs10000 per month, per return

GST council clears the proposal to allow small taxpayers (below Rs5cr annual turnover) to file their returns for Feb-June,2020 with 9% interest beyond 30June & at 18% Interest after 30 Sept

Latest Updates in Income Tax Return Disclosures

Income Tax New disclosures asked in the new ITR forms 1 to 7 are:

1)      House ownership: Individual taxpayers who are joint owners of house property cannot file ITR 1 or ITR4.

2)     Passport: One needs to disclose the Passport number if held by the taxpayer. This is to be furnished both in ITR 1-Sahaj and ITR 4-Sugam. Hopefully, it will be made mandatory in other ITR Forms as and when they are notified.

3)   Cash deposit: For those filing ITR 4-Sugam, it has been made compulsory to declare the amount deposited as cash in a bank account, if such amount exceeds Rs 1 crore during the FY.

4)   Foreign travel: If you have spent more than Rs 2 lakh on travelling abroad during the FY, you need to disclose the actual amount spent.

5)  Electricity consumption: If your electricity bills have been more than Rs 1 lakh in aggregate during the FY, you need to disclose the actual amount.

6)   Investment details:  Details of investment qualifying for deduction under chapter VIA with bifurcation of details of investment made during the period from April 1, 2020 to June 30, 2020.

7)    For every assessment year, the last date for filing tax returns is July 31, However, this year ITR filing date has been extended till November 30, 2020 due to pandemic Covid-19.

8)   Income Tax Exemptions and Deductions that you can claim under the New Tax Regime for FY 2020-21 (AY 2021-22): Withdrawal by an employee from the Employees' Provident Fund (EPF) is not taxable after 5 years of continuous service.

9)   Withdrawal from National Pension Scheme (NPS) on maturity or premature closure up to 40% of the amount received on such withdrawal remains tax free for all. In case of partial withdrawal from NPS, up to 25% of the contributions made by the individual will be tax free. Employer’s contribution to NPS up to 10% of their basic salary and dearness allowance also remains tax free.

10) Under Section 10 (10D) of the Income Tax Act, the sum assured and any bonus paid on maturity or surrender of the life insurance plan is tax free. Maturity proceeds continue to be exempt under Section 10(10D) even in the new regime. The maturity amount including interest received on the Sukanya Samriddhi Yojana will not attract any tax.

11) Conveyance Allowance granted to meet expenditure incurred on conveyance in performance of duties of an office and any allowance granted to an employee to meet the cost of travel on tour or on transfer (including relocation) are tax free. Interest received from post office savings account balance up to ₹3,500 annually per individual will remain free from tax.

12)  Any scholarship granted to meet education costs is tax exempt under Section 10 (16) of the Income Tax Act. Gratuity received from the employer up to ₹20 lakh after rendering 5 years of continuous service. Leave encashment received at the time of resignation or retirement up to ₹3 lakh.

13)  Form 26AS will now be a complete profile of the taxpayer w.e.f. 01.06.2020, CBDT vide Notification dated May 28, 2020 amended Form 26AS in Sec 285BB w.e.f. 01.06.2020. Key takeaways are:

14) New form 26AS will also provide information in respect of “Specified financial transactions” which include transactions of purchase/ sale of goods, property, services, works contract, investment, expenditure, taking or accepting any loan or deposits of such value as may be prescribed but not less than of Rs 50,000.    

15) Information about income tax demand, refund, proceedings pending, and proceedings completed which may include assessment, reassessment under section 148,153A 153C, revision, appeal will also be shared in this form 26AS.     

16)  Information on this form 26AS will not be a one-time affair at year end. This will be a live 26AS, as this will be updated regularly within 3 months from the end of the month in which such information is received.      

17) Form 26AS will now be a complete profile of the taxpayer for that particular year as against earlier form 26AS which just provided the information about taxes paid by way of TDS/TCS or self-assessing. This form will also have mobile no, email I’d and Aadhar no. of the taxpayer.   

18) Further an enabling provision has been notified empowering the CBDT to authorise DG Systems or any other officer to upload in this form, information received from any other officer, authority under any law. Thus any adverse action initiated or taken or found or order passed under any other law such as custom , GST , Benami Law etc. including information about Turnover , import , export etc. will also be put in this form 26AS so that not only the concerned taxpayer but  also all the Income Tax authorities will  know and have access to such information.     

19) This form 26AS will also provide information received by Tax Deptt from any other country under the treaty /exchange of information about income or assets of the taxpayer located outside India.    

20) The implication of this new form 26AS will be that banks , financial institutions or any other authority or customer , buyer etc. while carrying out due diligence of the person/ corporate concerned will now ask for form 26AS  so as to be sure that there are not any major issues about such person/corporates.  

21) This will now make difficult for any taxpayer to hide information from any bank / financial institution/ authority about any proceedings against under any law or tax demand, tax disputes etc...