GST on Director Remuneration: Rajasthan AAR Ruling RAJ/AAR/2019-20/33
The Rajasthan Authority for Advance Ruling decided that companies must pay GST under the reverse charge mechanism on remuneration paid to their directors.
- Ruling
- ADVANCE RULING NO. RAJ/AAR/2019-20/33 dated 20/02/2020
- Authority
- Authority for Advance Ruling
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- The company asked if director salary is exempt from GST.
- The Authority ruled that director services are not employer-employee relationships.
- GST must be paid by the company under the reverse charge mechanism.
In short
The company asked the Rajasthan Authority for Advance Ruling (AAR) if they must pay Goods and Services Tax (GST) on the salary paid to their directors. They argued that directors are employees and their pay should be exempt from tax. The Authority disagreed, stating that these payments are for services provided to the company and are subject to tax under the reverse charge mechanism.
What has changed
How it worked before
Many businesses assumed that if they recorded director payments as salary in their books, it qualified as an employer-employee relationship and was therefore exempt from GST.
What has changed
The Authority confirmed that director remuneration is a taxable service under the reverse charge mechanism. This means companies must calculate and pay GST on these payments, even if they treat the money as salary for accounting purposes.
Who this affects
Private limited companies that pay remuneration or salary to their directors.
An example
A private limited company pays a monthly salary to its managing director. They previously did not pay GST on this amount. Based on this ruling, the company should now evaluate whether they need to pay GST on this remuneration under the reverse charge mechanism.
What you should do
This ruling only applies to the specific company that asked the question. If you are in a similar position, you should consult with your tax advisor to assess your specific liability, as this ruling is not automatically binding law for your business.
If you do nothing
If you assume this ruling applies to you and stop paying GST, or conversely, if you ignore the tax liability and a tax officer disagrees with your interpretation, you may face demands for unpaid tax, interest, and penalties. Relying on a ruling meant for another company does not protect you from scrutiny by your local tax authorities.
The terms explained
- Reverse Charge Mechanism
- A system where the person receiving the service, rather than the person providing it, is responsible for paying the GST to the government.
- Schedule III
- A list of activities in the GST law that are treated as neither a supply of goods nor a supply of services, meaning no GST applies.
- Advance Ruling
- A formal decision provided by tax authorities to a specific business regarding how GST laws apply to their particular transaction.
The ruling in detail
Authority for Advance Ruling
M/s Clay Craft India Pvt. Ltd.
ADVANCE RULING NO. RAJ/AAR/2019-20/33 dated 20/02/2020 · Rajasthan
Questions before the authority
- Whether GST is payable under Reverse Charge Mechanism (RCM) the salary paid to Director of the company who is paid salary as per contract.
- Whether the situation would change from (a) above if the Director also is a part time Director in other company also.
Facts
The applicant is a private limited company that pays remuneration to its directors, which is booked as salary in its accounts. The applicant contends that these directors are employees of the company and that such payments are not liable to GST under the reverse charge mechanism. The applicant sought a ruling on whether this remuneration is subject to GST under RCM.
Ruling
| Question | What the authority ruled |
|---|---|
| GST on salary paid to Director under RCM | Yes, it attracts GST under reverse charge mechanism Covered under entry No. 6 of Notification No. 13/2017 Central Tax (Rate) |
| Applicability if Director is also a part-time Director elsewhere | Situation remains the same and will attract GST under reverse charge mechanism None |
The Authority ruled that the consideration paid to the directors by the applicant company attracts GST under the reverse charge mechanism. It concluded that the services provided by the directors are not covered under Schedule III of the CGST Act as they are not employees of the company. Consequently, the company is liable to pay GST on such remuneration under RCM.
Reasoning
The Authority observed that the consideration paid to directors is for services provided to the company and does not fall under the employer-employee relationship described in Schedule III of the CGST Act. It relied on Notification No. 13/2017-Central Tax (Rate) issued under Section 9(3) of the CGST Act, which specifically includes services supplied by a director of a company to the said company under the reverse charge mechanism. The Authority held that the applicant is the recipient of services and the director is the supplier, making the transaction liable to tax under RCM. It further noted that the case laws cited by the applicant were not relevant to the interpretation of the specific GST provisions.
Provisions relied on
- Section 9(3) of the CGST Act, 2017
- Schedule III of the CGST Act, 2017
- Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017
For the practitioner
This ruling confirms that **remuneration paid to directors** is subject to GST under the **reverse charge mechanism** in the hands of the company. It clarifies that the Authority does not view directors as employees for the purpose of the Schedule III exclusion. Practitioners should note that this ruling rejects the argument that director remuneration is merely salary exempt from GST.
Source
This is a summary prepared from the published order, which is a scanned document. It is a reading aid and not the authority: where the two differ, the order governs. Verify every provision against the original before relying on it.
Original order: https://www.gstcouncil.gov.in/sites/default/files/AAR/raj_aar_33_2019-20_20.02.2020_ccipl.pdf
Legibility of the scan, as read: high.
Prepared 20-10-2026.
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