The Central Board of Indirect Taxes and Customs (CBIC) has issued a circular dated 10 June 2020 (Circular), clarifying the applicability of goods and services tax (GST) on the remuneration paid to whole-time directors and independent directors. Services rendered by an employee to his/her employer in the course of, or in relation to, his/her employment are not exigible to GST, and therefore, the moot issue was whether services provided by directors are in the course of employment or not.
The uncertainty in the industry stemmed from the conflicting advance rulings issued by the tax authorities in the cases of M/s. Alcon Consulting Engineers (India) Pvt. Ltd. [Advance Ruling No. RAJ/AAR/2019-20/33 dated 20 February 2020] and M/s Clay Craft India Pvt. Ltd. [Advance Ruling No. KAR ADRG 83/2019 dated 25 September 2019] where the authorities ruled that GST is payable on directors’ remuneration, and the ruling in the case of Anil Agarwal [Advance Ruling No. KAR ADRG 30/2020 dated 4 May 2020] where the tax authority opined that the salary paid to an executive director shall not be subject to GST as such services would have been provided in the course of employment.
The Circular has been issued to put to rest a bubbling controversy that was caused by divergent stands taken by different authorities for Advance Ruling.
The key takeaways from the circular are as under: