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Karnataka AAR ruled that Director’s salary exempt from GST

Karnataka Authority of Advance Ruling ruled that,”The salary of a director in a company is not liable to be taxed under Goods and Services Tax (GST)”.

Due to this ruling , the incomes received towards salary or remuneration as a non-executive director of a private limited company along with renting of commercial property, residential property and the values of amounts extended as deposits or loans or advances, out of which interest is being received, are due to be included in the aggregate turnover for registration.

Salary of a working partner in a partnership firm was neither a supply of goods nor supply of service. The income is not under the purview of GST because the share of profit is an application of money. This comes within a month of the Rajasthan bench ruling in the case of Clay Craft India Pvt Ltd where it ruled that remuneration paid to directors will attract GST under the reverse charge mechanism and that a director was a supplier of service and not an employee.

Karnataka AAR’s order will provide relief to directors in a company but contrary rulings by state-level AARs will lead to increased confusion for taxpayers. Different state authorities are pronouncing diametrically opposite rulings is only adding to the uncertainty of the taxpayers, which is the last thing one would hope for in the current scenario. Taxpayers operating multiple locational offices especially in the states of Karnataka and Rajasthan would be under a dilemma as to which ruling would be made applicable to them.

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