Remuneration paid to directors to attract GST: AAR

There’s an article on Economic Time reporting Rajasthan Bench AAR’s decision that remuneration paid to directors to attract GST. This subject decision is in case of Clay Craft India Pvt Ltd. Rajasthan Bench AAR while referring to Karnataka Bench AAR’s decision in case of Alcon Consulting Engineers (India) Pvt. Ltd. has held that there is no employer-employee relationship between the Company and the Directors. Hence, directors’ remuneration wouldn’t be exempt under Clause 1 of Schedule III [services provided by employees to employers]. Instead they are covered under entry 6 of the reverse charge notification no. 13/2017 – Central Tax dated 28th June 2017. 

These decisions and their directions are very confusing because it was widely accepted that whole-time or executive directors are equivalent to employees of the company and their remuneration was equivalent to the salaries. Accordingly, statutory deductions such as TDS under Section 192, PF/ESI/deductions were also made. In fact these directors have also been beneficiaries of ESOPs in a few cases. Non-whole time or non-executive directors have been by and large treated as consultants and TDS under Section 194J has been deducted while making payments to them. 

These AARs may create unwarranted confusion and controversy and in turn tax litigations. 

What do you think?

Feel free to counter or contribute. 

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