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GST on director’s remuneration: Cannons of taxation sacrificed at the altar of revenue collection

GST on director’s remuneration: Cannons of taxation sacrificed at the altar of revenue collection

In these times of a pandemic with morbidity surrounding us, one would expect tax laws to be administered compassionately with revenue authorities not running amok with mystifying interpretations of the GST law, and tax policy to be benevolent.

Indian GST law and regime will soon celebrate its third anniversary yet, controversies on some topics plague the field and cause unwarranted chaos. Unfortunately, cannons of taxation are sacrificed at the altar of revenue collection. An issue that has been overly complicated and subjected to varied interpretations, only to the detriment of taxpayers, is the issue of taxability of compensation paid to directors of an incorporated entity.

There are varied views, and not all of them are accurate. On the one hand are advanced rulings in Alcon Consulting Engineers and Clay Craft, from the States of Karnataka and Rajasthan respectively. It has been ruled (without noticing the different nature of appointments and capacities) that directors are not the employees of the Company and, that the services rendered by directors to a company for which consideration is paid under any head are liable to GST under the reverse charge mechanism (i.e. the company self-pays the tax).

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