GST on services by Director in personal capacity?

The 50th GST council meeting discussed, whether services supplied by a director to a company in their personal capacity. Such as leasing or renting immovable property, are subject to RCM or not?

Let’s explore when the reverse charge mechanism (RCM) applies to director services?

The GST department notified certain services taxable, under the reverse charge mechanism (RCM) under Section 9(3) of the Central Goods and Services Tax (CGST) Act, 2017. One of the notified services is “Services supplied by a director of company or body corporate”.

In this case, the service provider is the director of company or body corporate.

The recipient of service is the company or body corporate located in taxable territory.

The company or body corporate is liable to pay GST on the services supplied by the director, under the RCM.

The following question arises based on the above provision:

1. To determine whether remuneration paid to a director is taxable under GST:

First check whether the director is an employee of the company or not?

If the director is an independent director or other directors, who are not employees of the company, the remuneration paid to them will be taxable in the hands of the company under the reverse charge mechanism (RCM).

In other cases, where the director is considered as an employee of the company, check whether the remuneration paid is under a “contract of service” or a “contract for service”.

A contract of service means a relationship of employer and employee exists.

If there is a contract of service, the company is not liable to pay GST under the RCM. However, if there is a contract for service, the company is liable to pay GST under the RCM.

In short, if the remuneration paid as salary and TDS under section 192 is deducted, then company not liable to pay GST on RCM basis.

Otherwise, remuneration paid is other than salary and TDS under section 194J is deducted, the company is liable to pay GST under the RCM on the amount on which TDS under 194J is deducted.

2. Whether supply of services by the director on personal capacity attract RCM?

The GST department has clarified that services supplied by a director to a company or body corporate in his personal capacity are not taxable under the reverse charge mechanism (RCM). Only those services supplied by a director of a company or body corporate, which are supplied by him as or in the capacity of director of that company or body corporate, shall be taxable under the RCM in the hands of the company.

Services provided by a director of a company or body corporate in their capacity as a director will be taxable under the reverse charge mechanism (RCM) in the hands of the company.

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