Mr. X, Non-Executive Director of ABC Limited, has been granted ESOPs by holding company based in Dubai. Due to acquisition circumstances the holding company offered the opportunity to surrender all options granted under the ESOP plan for cash consideration. In this regard while making payment of the consideration of ESOP grant, the concerned Indian subsidiaries has deducted applicable TDS respectively on such transactions.
Tax
June,2020
Dubai
Relevant provisions:
Circular no. 140/10/2020 dated 10th June 2020, clarified that the part of employee Director’s remuneration which is declared separately other than “salaries” in the Company’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable. Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.
Further, the directors provide services to the Indian subsidiaries, in their own professional capacity. Thus, the services provided by the directors being professional in nature will not be termed as ‘salary’ since no employer-employee relationship exists between directors and Indian subsidiaries of Elara in order to attract withholding obligation under section 192 of the Act in the hands of Indian subsidiaries.
Further, as per provisions of section 194J of the Act, withholding obligation is attracted where payment is made by way of –
Given the above, since the payment to directors (Mr. X) will fall in the clause highlighted under the provisions of section 194J, taxes are withheld by ABC Ltd. under section 194 J. Thus, it can be concluded that GST is to be paid under RCM on the consideration paid in the form of ESOPs to Mr. X.
Time of Supply:
According to Section 13(3), the time of supply shall be the earlier of the following dates, namely:
(a) the date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier; or
(b) the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier
Therefore, the date of payment in books will be the time of supply in this case.
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