New Delhi, Jun 11: The Central Board of Indirect Taxes and Customs (CBIC) on Wednesday said GST will not be levied on salaries paid to directors who are employees of the company.

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The CBIC issued a clarification following a ruling by the Rajasthan Authority of Advance Ruling (AAR) in April that said companies will have to pay GST on the remuneration they dole out to directors.

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"The part of director's remuneration that are declared as 'salaries' in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017," the CBIC said.

However, where the directors' remuneration is in the nature of professional fees and not salary, GST will be levied on a reverse charge basis.

"The part of employee director's remuneration which is declared separately other than 'salaries' in the company's accounts and subjected to TDS under Section 194J of the IT Act as 'fees' for professional or technical services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable...the recipient of the said services, i.e. the company, is liable to discharge the applicable GST on it on a reverse charge basis," the CBIC said.

With regard to independent directors who are not the employees of the said company, the CBIC said services provided by them to the company in lieu of remuneration as the consideration for the said services will attract goods and services tax (GST).

"The recipient of the said services, i.e. the company, is liable to discharge the applicable GST on it on a reverse charge basis," it added.

AMRG & Associates Senior Partner Rajat Mohan said this clarification from CBIC would save a tax of 18 per cent on the remuneration paid to executive directors of the company.

"Tax officers would be pushed to roll back tax notices issued in relation to taxation of director salary on account of divergent views expressed by advance ruling authorities," Mohan added.

Abhishek Jain, tax partner, EY, said, "With the clarification linking income tax and GST, businesses would need to now evaluate comprehensively treatment of remuneration of directors under income tax , GST and accounting."

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