Applicability of GST on Salary paid to Director of Company

Brief Facts of the case:

  • The appellant, M/s Clay Craft (India) Pvt. Ltd. are engaged in the manufacture of Crockery, Utensil items and moulds.
    1. Company’s Board of Directors consists of 6 directors performing all the duties and responsibilities as required under the law along with being in charge of different departments such as procurement of raw material, accounting etc.
    2. The directors are compensated by way of regular salary and other allowances as per the company policy and as per their employment contract. TDS is deducted from their salary and PF laws are also applicable to their services.
    3. The appellant had approached Rajasthan AAR for clarification on the following matters:
  • Whether GST is payable under Reverse Charge Mechanism (RCM); the salary paid to Director of the company who is paid salary as per employment
    contract, after deduction of TDS as well as PF.
  • Whether the situation would change from (a) above if the Director also is a part time Director in other company also.

Impugned ruling against which Appeal is filed:

  • The consideration paid to the Directors by the applicant company will attract GST under reverse charge mechanism as it is covered under entry No. 6 of Notification No. 13/2017 Central Tax (Rate) issued under Section 9(3) of the CGST Act, 2017.

Discussions & Findings of the Rajasthan AAAR:

  • CBIC has recently issued a Circular No. 140/10/2020-GST in which it has clarified that (i) remuneration paid by companies to the independent directors or those directors who are not the employee of the said company is taxable in hands of the company, on reverse charge basis;
  • The part of Director’s remuneration which 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.
  • It is further clarified in the circular that 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, will be liable to discharge the applicable GST on it on reverse charge basis.


  • In view of the legal position discussed above, the appeal stands disposed of in the above terms.
  • GST shall not be applicable on the salary paid to Director of the company who is paid salary as per employment contract, after deduction of TDS under Section 192.

Source: RAJ/AAAR/01/2020-21, DATED: 02.07.2020

– Abhinav Nagpal
Indirect Tax Associate
SW India