QUESTION
Dear Sir/Madam, Subject: Query on yearly commission paid from profit to
Directors of the company. I am sending herewith a query on the subject which is
as follows: One of my client company has two directors and are engaged in
full-time employment of the company, there is employee employer relationship in
the course of employment. Accordingly they are deducting the statutory payment
i.e. P.F., PT and TDS under section 192 Salary paid to the Directors. Only the
yearly commission is paying on profitability basis as per the agreement and same
has been considering the part of salary as the employee and employer
relationship of the employment. My point is whether GST is applicable on yearly
commission paid from profit as per agreement. In my view GST shall not be
applicable. However I am seeking your expert opinion/guidance on the above
subject with reference to recent AAR passed by Rajasthan Advance Ruling. Your
early reply is highly appreciated. Thanking you, Yours faithfully, ( A.G.Nagane)
Asst.Comm.Customs&Central Excise(Retd)
ANSWER
Facts of the case:Applicability of GST on yearly commission paid as part of salary as per
agreement.
Law Applicable: Notification No. 13/2017 Central Tax (Rate)
|
6 |
Services supplied by a director of a company or a body corporate to the said company or the body corporate. |
A director of a company or a body corporate |
The company or a body corporate located in the taxable territory. |
Interpretation: Karnataka Authority of Advance Ruling in case of Anil Kumar Agrawal has
clarified that In case of Director there may be two possibilities:
1. In case Director is working as employee of the Company, then service provided
as employee (Director) will not be considered as supply of goods nor supply of
services as per Schedule III of CGST Act.
2. However if Director is working as non executive Director then remuneration
received by Director will be liable to reverse charge in the hands of the
Company as per aforementioned Notification.
In the present case Director is engaged in full time employment and Company is
deducting the statutory payment i.e. P.F., PT and TDS under section 192 on
Salary paid to the Directors. Therefore commission received by Director is not a
consideration in lieu of any services provided rather it is considered as part
of salary as per the agreement and thus this transaction will not be considered
as supply of goods nor supply of services as per Schedule III of CGST Act. Hence
GST will not be applicable. The same will be shown in FORM 16 and treated as per
the provisions of Income Tax Act.
Copy of Advance Ruling is enclosed for your reference.
Conclusion:In this case commission received by the Director is part of salary as per
agreement and not liable to GST.(Reply dt.19-04-2020)