GST under RCM on fees or remuneration paid to director

The Goods and Services Tax (GST) is an indirect tax imposed on the supply of goods and services in India. It was introduced on 1st July 2017 to subsume various indirect taxes like excise duty, service tax, Value Added Tax (VAT), etc. However, there are certain supplies on which the recipient of the goods or services is liable to pay the tax instead of the supplier. This is called the Reverse Charge Mechanism (RCM) under GST.

Applicability of RCM on fees or remuneration paid to director

As per Notification No. 13/2017-Central Tax (Rate) dated 28th June 2017, services provided by a director of a company or a body corporate to the said company or body corporate are liable to GST under RCM. This means that the company or body corporate which is the recipient of the services has to pay the tax on behalf of the director who is the supplier of the services. The rate of tax applicable is 18% with effect from 1st July 2017.

It is important to note that the applicability of RCM on fees or remuneration paid to director is not limited to only the director's services as a director. It also covers the services provided by the director in any other capacity like a consultant, advisor, etc.

Exemption from RCM on fees or remuneration paid to director

There are certain exemptions from the RCM on fees or remuneration paid to director, which are as follows:

If the director is an employee of the company or body corporate and is receiving the fees or remuneration in his/her capacity as an employee, then the RCM will not apply. This is because the relationship between the employer and employee is that of an employer-employee and not that of a supplier-recipient.
If the director is a registered casual taxable person or a non-resident taxable person, then the RCM will not apply. This is because the liability to pay tax under RCM is on the recipient of the services who is a resident taxable person.
If the services provided by the director are in the course of furtherance of business of the company or body corporate and the said director has a turnover below the threshold limit of Rs. 20 lakhs (Rs. 10 lakhs for special category states), then the RCM will not apply. This is because the director is not liable to get registered under GST as his/her turnover is below the threshold limit.

Impact of RCM on fees or remuneration paid to director

The applicability of RCM on fees or remuneration paid to director has an impact on both the director and the company or body corporate. This is because:

The company or body corporate has to pay the tax on behalf of the director, which increases its compliance burden and cash outflow.
The director has to get registered under GST if he/she is receiving fees or remuneration from more than one company or body corporate. This is because the threshold limit for registration under GST is Rs. 20 lakhs (Rs. 10 lakhs for special category states) for providing services.
The director has to maintain proper records and raise invoices for the services provided to the company or body corporate.

Conclusion

The GST under RCM on fees or remuneration paid to director has been introduced to widen the tax base and bring more taxpayers into the GST net. The RCM ensures that the tax is paid by the person who is actually consuming the services instead of the supplier. It is important for companies and body corporates to keep a record of the services provided by the directors and pay the tax under RCM to avoid any penalties or interest. Similarly, directors who are receiving fees or remuneration from more than one company or body corporate should get registered under GST to comply with the law.