An application had filed before the Rajasthan bench of the AAR by Clay Craft India Pvt Ltd who had sought clarification on whether salaries paid to directors would attract Goods and Services Tax. The company said it’s directors are working as employees for which they are being compensated by way of a regular salary and other allowances.
The company is deducting TDS on their salary and PF is also applicable to their service. Therefore, these directors are the employees of the company and are working as a Director of the company.
The AAR ruled ,”The consideration paid to the directors by the applicant company will attract GST under reverse charge mechanism.
The AAR said that Director is the supplier of services and the applicant of the company is the recipient of the services. It said that in the Central Tax (Rate) notification , it has been clearly states that services supplied by a Director of a company will be considered as supply and hence directors cannot be called an employee.
So, it is very clear that the services rendered by the Director to the company for which consideration is paid to them is liable to pay GST under RCM (Reverse Charge Mechanism)”.