Services by directors to companies not taxable under GST RCM: CBIC

On Tuesday, the Central Board of Indirect Taxes and Customs (CBIC) provided clarity on the matter, stating that companies are not obligated to deduct Goods and Services Tax (GST) under the reverse charge mechanism (RCM) for services like renting of immovable property when such services are provided by directors in their personal capacity.

This clarification follows the decision made by the GST Council during its meeting on July 11, where it was decided that GST would be applicable only to services provided by directors in their official capacity to the company.

The reverse charge mechanism requires entities receiving services to deduct the applicable GST while making payments to the service provider. The lack of clarity in the law had led to the industry seeking clarification on whether services offered by a director of a company or body corporate in their personal or private capacity, such as renting immovable property to the company, are taxable under RCM or not. The industry had been receiving numerous tax notices due to the ambiguity in the law.

Also Read: Reverse Charge Mechanism(RCM) in GST: A Complete Guide

The CBIC’s clarification explicitly stated that services rendered by a director of a company or body corporate to the company or body corporate in their private or personal capacity, such as renting immovable property, are not taxable under RCM.

However, experts have raised concerns about certain unresolved issues. They pointed out that the clarification is quite restrictive as it does not clearly define ‘personal capacity’ nor provide an illustrative list of personal services offered by a director.

Also Read: GST Rule Change from today to Impact Lakhs of Indian Companies

The taxation of other director services like bank guarantee, advisory services, training services, and planning services will continue to be a gray area for the industry until the CBIC establishes unambiguous rules for categorizing ‘director services,’ according to experts.

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