{"id":21209,"date":"2024-10-03T12:47:48","date_gmt":"2024-10-03T07:17:48","guid":{"rendered":"https:\/\/piceapp.com\/blogs\/?p=21209"},"modified":"2024-10-03T12:47:57","modified_gmt":"2024-10-03T07:17:57","slug":"schedule-3-of-cgst-act","status":"publish","type":"post","link":"https:\/\/piceapp.com\/blogs\/schedule-3-of-cgst-act\/","title":{"rendered":"Purposes of Schedule 3 of CGST Act Services"},"content":{"rendered":"\n
Under the GST regime, Schedule 3 of CGST Act<\/strong> plays a crucial role in determining activities which qualify neither as a supply of goods nor as a supply of services. It outlines activities that do not come under the ambit of GST. These are services like actionable claims, sale of land, funeral services, etc.<\/p>\n\n\n\n Schedule III activities under the CGST Act come under services and transactions that are exempted from taxation. Therefore, tax cannot be levied against such activities. In this blog, we will discuss the purpose of Schedule 3 services, discuss services by an employee to employer in the course of employment, classify the levy of tax on a director’s remuneration and other important aspects.<\/p>\n\n\n\n As per Schedule III Services of the CGST Act, services by an employee to employer, in the course of their employment are not taxable. However, GST laws state that tax can be levied against remuneration towards an independent director or other non-executive directors. As per the reverse charge mechanism, since directors are not employees of the company, remuneration provided for services from employees is subject to tax.<\/p>\n\n\n\n Additionally, any payment made by an employer to an employee for not joining a business is considered as compensation for the service of forbearance to act and cannot be treated as providing services within the course of employment. Moreover, casual workers that security service agencies hire for the provision of security services<\/a> to a client are also services.<\/p>\n\n\n\n Employment services are not taxable according to the GST laws. As notice pay recovery is in the contract of employment, GST can not be charged against it. However, as per CGST Act, Schedule II – activities some transactions are considered as supply of services and goods. This includes \u201cAgreeing to the obligation to refrain from an act or to tolerate an act or a situation\u201d within the ambit of employment.<\/p>\n\n\n\n If the employee receives the notice pay for not serving the notice period after termination of employment, it implies tolerating the act of an employer. In that case, the notice pay recovery is taxable under GST. The notice pay recovery is not subject to taxation if there is no agreement for tolerating an employee’s act in the notice pay policy.<\/a><\/p>\n\n\n\n Some of the important decisions highlighting circumstances under which notice pay recovery is not taxable are listed below:<\/strong><\/p>\n\n\n\n The director’s remuneration is basically a compensatory amount the company gives for the services the directors provide. This amount can be either in the form of salary, fees or the company’s assets. The CGST circular no. 140\/2020 on June 10th, 2020 clarifies the applicability of GST on a director\u2019s remuneration and clearly outlines the criteria to determine whether a director is classified as an employee or not.<\/p>\n\n\n\n According to CGST, services from employee to the employer in the contract of employment are neither supply of goods nor services. Therefore, they are not subject to GST. However, if the services do not come under the employee to employer relationship i.e. contract of service, GST is charged against such remuneration. In such cases, the company needs to pay the GST on a reverse charge basis to the government under Notification No. 13\/2017.<\/p>\n\n\n\n It is important to note the portion of an employee Director\u2019s remuneration that is listed separately from “salaries” in the company\u2019s accounts and is subject to TDS under Section 194J of the IT Act as Fees for Professional or Technical Services will be considered as payment for services. As such, it falls outside the scope of Schedule III of the CGST Act and is therefore taxable.<\/p>\n\n\n\n The director\u2019s remuneration is issued in consultation with the Board of Directors<\/a> and shareholders. A director can be an Executive Director, Managing Director, or Independent Director, depending upon their dual capacities in the company.<\/p>\n\n\n\n A director’s activity in relation to an employee is considered only when:<\/p>\n\n\n\n GST is not charged on the director\u2019s remuneration if any of the above three conditions are met.<\/p>\n\n\n\n The director is not considered to be an employee when:<\/p>\n\n\n\n GST at the rate of 18% applies to the remuneration of a director if any of the conditions are met. This falls under the reverse charge mechanism of GST.<\/p>\n\n\n\n Tribunal services or courts, like the High Court, District Court, or Supreme Court of India, will not levy GST to pass their judgment. However, services towards any business organisation by an arbitral tribunal <\/a>are liable to GST on a reverse charge basis.<\/p>\n\n\n\n As per the Central Board for Excise and Customs, the fees that litigants pay in the Consumer Disputes Redressal Commission are not subject to taxation. Penalties imposed by or payments made to these Commissions will also be exempted from GST.<\/p>\n\n\n\n As per the laws of GST, no tax shall be levied against the duties performed by Members of Parliament, State\/ District legislatures and panchayats. Even the duties performed by municipality workers, or members of the local public authorities, are not taxable under the GST laws.<\/p>\n\n\n\n Responsibilities carried out by any individual holding a post in pursuance of the provisions of the Constitution in that role. They can be Prime Minister, President, Vice President, Chief Justice, Speaker of the Lok Sabha, Chief Election Commissioner, etc. As per the GST rules, tax can only be levied on such duties if they are performed for business purposes.<\/p>\n\n\n\n If a Chairperson\/Member\/Director in a government-established body of persons like the Auditor General of India or the Union Public Service Commission or a district commission is not an employee his\/her duties are not taxable. According to the CGST Act, tax can be levied on the duties of a Chairperson \/Member\/Director in a government-established body only if the duty is performed towards a business entity.<\/a> <\/p>\n\n\n\n Funeral, burial, cremation, or mortuary services, including the transport of the deceased, are exempt from tax, according to the laws of GST. The transportation charges and funeral services of the deceased, irrespective of religion, are not taxable as well by the government.<\/p>\n\n\n\n Sale transactions of land used for any purpose are exempted from tax under GST. A sale of building that is fully constructed for any reason is not subject to GST either, given it comes under the purposes of paragraph 5(b) of Schedule II of the CGST Act.<\/p>\n\n\n\n As per Schedule III, services rendered for the construction of new buildings are subject to tax, as they come under contract for service agreement. Therefore, before issuing a completion certificate, if the sale agreement is issued, tax can be levied on the sale of the building. However, as per Schedule II of the CGST Act, developmental charges on any developed land are subject to GST.<\/p>\n\n\n\nServices by an Employee to the Employer in the Course of Employment<\/strong><\/h2>\n\n\n\n

GST is applicable for any services by employee to employer. According to Entry 2 of Schedule I of GST Valuation Rules, any activity in relation to the employer to employee is taxable, except gifts up to \u20b950,000. Any service on contract basis<\/a> given by an employee to an employer is not taxable unless specified. <\/p>\n\n\n\nAmount Paid to Employee on Premature Termination of Employment is not Taxable<\/strong><\/h2>\n\n\n\n
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Clarification on Levy of GST on Director\u2019s Remuneration<\/strong><\/h2>\n\n\n\n

Whether All the Directors Including the Managing Director is an Employee or not<\/strong>?<\/h2>\n\n\n\n
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Services by the Supreme Court, Lower courts or Tribunal<\/strong><\/h2>\n\n\n\n
Services Provided by Consumer Disputes Redressal Commission (CDRC) is Exempt from GST<\/strong><\/h2>\n\n\n\n
Functions Performed by MP, MLA, etc. Under Statutory Functions<\/strong><\/h2>\n\n\n\n
Duties Performed by Person in His Post Under Constitution Capacity<\/strong><\/h2>\n\n\n\n

Duties performed by Chairperson\/ Member\/ Director in a Body Established by or Under any Central or State Act<\/strong><\/h2>\n\n\n\n
Services of Funeral, Burial, Crematorium or Mortuary<\/strong><\/h2>\n\n\n\n
Sale of Land & Building Except Under-construction Building<\/strong><\/h2>\n\n\n\n
Actionable Claims Other than Lottery, Betting and Gambling<\/strong><\/h2>\n\n\n\n