The Central Board of Indirect Taxes and Customs (CBIC), in a much-needed clarification, has resolved the controversy around taxation on salaries paid to the executive directors. The CBIC, in a circular, has said the Goods and Services Tax (GST) will not be levied on the part of a director's remuneration, which is declared as 'salaries' in the books of a company and is subjected to Tax Deducted at Source (TDS) under The Income Tax Act.
However, if a part of the director's remuneration is not declared 'salary' as per the company books of accounts, it would be treated as fees for professional or technical services and hence the GST will be levied. "The controversy around the taxability of director/independent directors' salary originated after divergent views expressed by the state advance ruling authorities. The latest clarification resolves the controversy," says Rajat Mohan, Partner, AMRG & Associates.
The main controversy around the issue was whether or not a director is an employee of the company. The CBIC circular says that as per the Companies Act, a whole time-director could be a person who is not an employee of the company. However, an independent director, as per the act, should not be an employee of a company.
Therefore, the circular makes a distinction between a director, who is an employee and an independent director, who is not an employee of the company, and accordingly clarifies whose remuneration would be taxable under the GST and whose will be exempted.