commission paid to whole time director
shivanshu gupta (student) (28 Points)
14 May 2018
whether gst is payable on reverse charge basis if commission is paid to whole time directors?
14 Replies
Pankaj Rawat
(GST Practitioner)
(55052 Points)
Replied 14 May 2018
Yes RCM is applicable
The government has power u/s 9(3) of CGST Act & u/s 5(3) of IGST Act, to notify the levy of Vide entry no. 6 of Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 & entry no. 7 of Notification No. 10/2017- Integrated Tax (Rate) dated 28th June 2017, Government had notified that any services supplied by a director of a company to the said company would be covered under reverse charge.
The government has power u/s 9(3) of CGST Act & u/s 5(3) of IGST Act, to notify the levy of Vide entry no. 6 of Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 & entry no. 7 of Notification No. 10/2017- Integrated Tax (Rate) dated 28th June 2017, Government had notified that any services supplied by a director of a company to the said company would be covered under reverse charge.
shivanshu gupta
(student)
(28 Points)
Replied 14 May 2018
is there any clause which states that services provided by whole time director are not considered supply??
Pankaj Rawat
(GST Practitioner)
(55052 Points)
Replied 14 May 2018
As per notification 13/2017 CT (r)
Services supplied by a director of a
company or a body corporate to the
said company or the body
corporate.
So I dont find any such clause u r mentioning
Services supplied by a director of a
company or a body corporate to the
said company or the body
corporate.
So I dont find any such clause u r mentioning
Shashank Saxena
(Student CA Final )
(96 Points)
Replied 14 May 2018
Services provided by Director of a company to the company is covered under reverse charge services notified on 28th of June, 2017 but
As per sec 7(2) of IGST Act Supply EXCLUDES services supplied by an employee to the employer in the course of or in relation to his employment.
Whole time director is considered as an employee of the company and commission received by him is in the course of his employment.
In your case commission is received by the whole time director so it would not fall under the ambit of GST as it is not a supply so question of levy does not arise neither in reverse charge nor in normal charge.
PS: Reverse charge would come into picture in case of sitting fees or commission is received by a director other than whole time director.
Pankaj Rawat
(GST Practitioner)
(55052 Points)
Replied 14 May 2018
As per schdule I
2. Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
So other then the director remuneration anything paid to him above 50k Is taxable (RCM is to be done)
2. Supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.
So other then the director remuneration anything paid to him above 50k Is taxable (RCM is to be done)
Shashank Saxena
(Student CA Final )
(96 Points)
Replied 15 May 2018
The term GIFT has not been defined in GST law but in common parlance, gift is made without consideration, is voluntary in nature and is made occasionally.It can not be demanded as a right by the employee.
Whereas commission is recurring in nature and can be demanded by employee (Director) as his right so it can not be categorized as gift.
Sec 197 of Companies Act 2013 also states that managerial renumeration includes pay, compensation, commission or any reward and it shall be paid to the director in the event of adequacy of profits.
So considering above provisions and explanations it can be concluded that though employer and employee are related persons but commission paid to WTD can be treated as supply by virtue of Sec 7(2) of IGST Act bacause it is in the course of or in relation to his employment and hence REVERSE CHARGE WOULD NOT BE APPLICABLE.
Pankaj Rawat
(GST Practitioner)
(55052 Points)
Replied 15 May 2018
Notification No. 13/2017- Central Tax (Rate) dated 28th June 2017 & entry no. 7 of Notification No. 10/2017- Integrated Tax (Rate) dated 28th June 2017, Government had notified that any services supplied by a director of a company to the said company would be covered under reverse charge.
As to above notification its not mention anything like whole time director
As per section 2(102) of CGST Act, 2017, “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.
According to defination of services anything paid addtional to its remuneration is commsion for availing directtor services
As the director’s services are covered under section 9(3), the liability to pay tax is on the recipient company despite of the fact the turnover from director’s services exceeds Rs. 20L or 10L.
As to above notification its not mention anything like whole time director
As per section 2(102) of CGST Act, 2017, “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.
According to defination of services anything paid addtional to its remuneration is commsion for availing directtor services
As the director’s services are covered under section 9(3), the liability to pay tax is on the recipient company despite of the fact the turnover from director’s services exceeds Rs. 20L or 10L.
Shashank Saxena
(Student CA Final )
(96 Points)
Replied 15 May 2018
Special provisions always prevail over general provisions and excluding employee's services to employer is a special provision.
Lawmakers have already metioned the term employee in Sec 7(2) and now you have to interpret the term employee and when you will interpret it then you will find out that Whole time director is a employee because he is in full time employment of the company whereas others take fees just to represent themselves on the board of directors thats why their remuneration called 'Sitting Fees'.You can refer Section 2 (94) of the Companies Act, 2013 that defines “whole-time director” as a director in the whole-time employment of the company.
Secondly commission is not additional to remuneration it is a part of the remuneration. An employee gets car, house, medical facilities, bonus etc. from company but these all are part of his remuneration.You can not separate bonus from remuneration. He gets it due to services supplied in the capacity of employee not in some other capacity.Similarly commission might be performance based, profit based but that all is due to his services in the capacity of employee if he is a WTD.
Do not read the notification and the term employee, remuneration literally.Combine it with other sections, definitions then you will find out the best conclusion.
Pankaj Rawat
(GST Practitioner)
(55052 Points)
Replied 15 May 2018
Thanks shashank ji
Accepted , & agree with You
Conculsion : paid to whole time director is not cover under GST as it fall under the defination of employer & employee
Nice debate & very much informative from ur side
Accepted , & agree with You
Conculsion : paid to whole time director is not cover under GST as it fall under the defination of employer & employee
Nice debate & very much informative from ur side
zakirhusen Raja
(4 Points)
Replied 24 June 2018
Dear Shashank Ji
As you said as per Companies Act WTD is an employee of Company so it is out of ambit of GST under RCM but you are applying Companies act provisions under GST act, is there any provisions in the GST act to specify the term employment ?or said that use the term employment as specified in companies Act.?
So, How companies act provisions are apply in the GST act without any specification ?
Shashank Saxena
(Student CA Final )
(96 Points)
Replied 25 June 2018
My Friend,
It is called the Rules of Interpretation or Process of Interpretation.When any word used in the provision is not defined either in the section itself or in the definitions section, we try to find out such word used or defined in some other statute and take aid of such definition (i.e. external aid) to understand its meaning in the context of the provision you are interpreting.
Forget about whole time director tell me whom would you treat Director if you want to apply provisions of RCM or Eg. take this Section 89(1) which states:
Notwithstanding anything contained in the Companies Act, 2013, where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company.
Now whom would you treat director to levy such penalties.Director word is used in so many sections under GST but the term 'Director' itself is not defined under GST so you have to take aid of Companies Act 2013 where it is more appropriately and clearly defined.
CA Shivam Arora
(Chartered Accountant)
(2414 Points)
Replied 25 June 2018
Yes there was a circular also during service tax regime which indirectly approves the statement that service tax under RCM is not applicable on commision paid to WTD.
Same circular(24/2012 issued by MCA) can be applied in GST regime also and thus GST under RCM is not applicable for WTD.
JAGJIT SINGH
(2 Points)
Replied 27 June 2018
Thanks Mr. Shivanshu Gupta. your explanation is very useful to me
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