GST On Services by Director of the Company to  the said Company

Legal provisions on Director’s Services:-

The government has legislative power u/s 9(3) of CGST Act & u/s 5(3) of IGST Act, to notify the levy of GST on notified  RCM basis on goods or services.

Services or Goods Definition:-

Under the act service definition has been defined i.e, “services” means anything other than goods, money, and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged.

Person liable to pay GST

Under the GST Law provisions, provisions related to the applicability of reverse charge(RCM) are governed under Section 9(3) and Section 9(4) of the CGST Act.

Accordingly, there are two cases in which the RCM is applicable as per the relevant provisions:

• Supplies notified by Government u/s 9(3)
• Taxable Supplies by an unregistered person to the registered person u/s 9(4)

As the director’s services are covered under section 9(3), the liability to pay tax is on the recipient company despite the fact the turnover from the director’s services exceeds Rs. 20L or 10L.

What is   Major director’s Service:-

Services of director i.e. sitting fees, commission, Remuneration to the company on which the tax would be payable on reverse charge.

What all services of the director would be covered under-provision?

The word services have to be taken from the definition so provided u/s 2(102) of the CGST Act which includes any activity other than goods, money, and securities for which separate consideration is charged. However,  when such services are provided on the capacity of director then almost in all the cases RCM will be applicable.

GST registration Liability:-

Government has notified that the persons who are exclusively  engaged in making supplies of taxable goods or services or both, then the  total tax on which tax is liable to be paid on (RCM)reverse charge basis by the recipient of such goods or services or both as the category of persons exempted from obtaining registration under the aforesaid Act.

Further, as per section 24(iii) of the CGST Act, a person who is required to pay tax under RCM exclusively, then they are required to be registered mandatorily irrespective of its turnover.

In view of the above, it may be construed that:

• The company’s Director is exempted from taking GST registration subject to the conditions that they providing only such services on which Tax is to be paid on RCM basis by the recipient of such services.
• However, the company is required to pay tax on the RCM basis,then it has to get registered compulsorily irrespective of its turnover size.

Place of supply

• Section 12(2)(a) of the IGST Act determines the place of supply as the location of the person where the services are received.
• A director services on the board of the company. Therefore, it can be said that the place where directors’ services are being consumed is the place where the board of the company is situated

Quick View on Director’s Services:-

• GST on remuneration if the director is an employee

Remuneration paid to directors who are whole-time directors or employee of the company is outside the purview of service tax / GST as services provided by the employee to the employer in the course of employment were not taxable 

• GST on services by non-employee director: Whether all services liable to reverse charge?

In the case of directors who are not employees, the services provided by the director to the company are liable under RCM. Here lies the real twist. Whether all services supplied by the director are liable to reverse charge or whether services supplied in the capacity of a director are liable to reverse charge is not clear.  If we read all serial numbers of the notification 13/2017, we find that in all entries except serial numbers 6, 7 and 8, the specific service supplied by the supplier is mentioned. However, in serial numbers 6, 7 & 8 it only mentions services supplied by the director/insurance agent/recovery agent. It does not specify a particular type of service. Therefore, the plain language employed in these entries suggests that any services or all services supplied by the director are liable under reverse charge. It can be argued that if the lawmakers wanted only the services as director to be covered under RCM, they might have said “services supplied by a person as a director to the company….” instead of “services supplied by the director of a company