CBIC: Renting Services by Directors Are Not Taxable Under GST RCM

The companies would not be needed to deduct the GST under the reverse charge mechanism (RCM), the central board of indirect taxes and Customs (CBIC) stated on the services like immovable property furnished on rent via the directors in his personal capacity.

The clarification followed the goods and services tax GST council’s decision, made at its meeting on July 11, to only levy GST on services rendered to the firm by directors acting in their official capacities.

When paying the provider, the organization receiving the services is obliged by RCM to withhold GST. The sector had asked for clarity on whether or not personal or private services provided by a director of a business or body corporate, such as renting out real estate to the firm, are taxed under RCM. Due to a lack of clarity in the legislation, the industry was receiving several tax notifications for this.

It is made clear that Reverse Charge Mechanism (RCM) does not apply to services provided by a director of a business or body corporate to the company or body corporate in his personal or private capacity, such as services provided by renting out real estate to the company or body corporate.

However, experts warn there are still numerous grey areas. According to tax experts, this is a very restricted explanation that has neither explained ‘personal capacity’ nor ‘given an illustrative list of personal services that the director provides.

Important: Simplify GST Liability on Director’s Remuneration Under RCM

If CBIC doesn’t provide clear guidelines for classifying “director services,” taxation on other director services including bank guarantees, advisory services, training services, and planning services would continue to be a grey area for the sector.

You can read Circular No. 201/13/2023-GST for more details.