The Karnataka bench of the Authority for Advance Rulings (AAR) held that the salary of a director is not subject to Goods and Services Tax (GST). The ruling is contradictory to the Rajasthan bench where the authority recently ruled that all directors are liable to pay GST.
The applicant, M/s Anil Kumar Agarwal is an unregistered person and is in receipt of various types of income or revenue such as partner’s salary, salary as director from Private Limited company, interest income on partners fixed capital credited to partner’s capital account, interest income on partners variable capital credited to partner’s capital account, interest received on loan given, Interest received on advance given, interest accumulated along with a deposit or fixed deposit, interest income received on deposit/ fixed deposit, interest received on Debentures, interest accumulated on debentures, interest on Post office deposits, interest income on National Savings Certificate (NSC), interest income on PPF account, interest income on National Pension Scheme (NPS), etc.
A person or entity providing services pays the tax to the exchequer and recovers it from the receiver of the service. But under RCM, the receiver of the service pays the tax by deducting it from the service provider’s compensation.
The authority consisting of the members Dr. Ravi Prasad and Mashhoodur Rehman Farooqui ruled that the incomes received towards salary or remuneration as a Non- Executive Director of a private limited company, renting of commercial property, renting of residential property and the values of amounts extended as deposits or loans or advances out of which interest is being received are to be included in the aggregate turnover, for registration.
In a case relating to ALCON Consulting Engineers (India), the Karnataka AAR in 2017 had also ruled that the consideration paid to the director in the form of remuneration is in relation to services provided by the director to the Company.
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