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A company is liable to pay Goods and Services Tax (GST) on remunerations paid to Independent Directors on a reverse charge basis.

The Rajasthan Appellate Authority on Advance Ruling (AAR) has also clarified that the parts of Director's remuneration which are declared as 'salaries' in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable, being consideration for services by an employee to the employer.

The Central Board of Indirect Taxes and Customs (CBIC) also clarified through circular that in respect of such Directors who are not the employees of the said company, the services provided by them to the company, in lieu of remuneration as the consideration for the said services, are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable.

As per the CBIC circular, service tax liability arises for the company only in respect of payments made to non-whole time Directors.

Further, the development would not bring revenue to the government as any GST paid on salary to the Director under reverse charge mechanism would be available to any company as input tax credit and the whole exercise would revenue neutral.