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