The goods and services tax (‘GST’) implications on the remuneration/ honorarium received by the directors of a company have been a topic of dispute since the implementation of GST in July 2017. In order to put a rest to the controversy, the Central Board of Indirect Taxes & Customs by a Circular dated June 10, 2020 has issued the following clarifications:

i.    Remuneration Paid to Independent Directors or Directors who are not Employees: As per the definition of the term “independent directors” under the Companies Act read with the Companies (Share Capital and Debentures) Rules, 2014, such director should not be an employee of the company or proprietor or partner of the company, in any of the three FYs immediately preceding the FY in which he is proposed to be appointed. Accordingly, the remuneration (by whatever name called) paid to them for their services, not being in the nature of salary paid during the course of employment, would be subject to GST in the hands of the company under reverse charge basis; and

ii.   Remuneration Paid to Directors who are also Employees: (a) part of a director’s remuneration which is declared as ‘salary’ in the books of the company and subjected to TDS under Section 192 of the IT Act, being in the nature of salary, would not be subject to GST, and (b) part of a director’s remuneration which is declared separately other than salary in the books of the company and subjected to TDS under Section 194J of the IT Act as fees for professional or technical services, not being in the nature of salary, would be subject to GST in the hands of the company under reverse charge basis.