Professional fees of director other than salary is taxable under RCM basis: AAAR Rajasthan

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Professional fees of director other than salary is taxable under RCM basis: AAR Rajasthan

Appellate Authority for Advance Rulings, Rajasthan M/s Clay Craft (India) Pvt Ltd – [2021] 123 taxmann.com 364

Short Overview of the Case: 

The appellant company was engaged in manufacture of bone China Crockery, Transfer Sheet Demoniacal, other Utensils Item and Molds.

It filed an application for advance ruling to determine the taxability of salary paid to Director of the company.

It submitted that its Directors would be working in the company at different level of management in the company and each one of them would be holding charge of procurement of raw material, production, quality checks, dispatch, accounting etc.

The Authority for Advance Ruling held that consideration paid to the Directors by the company would attract GST under reverse charge mechanism as it would be covered under entry No. 6 of Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017 issued under Section 9(3) of the CGST Act, 2017. It filed appeal against the order.

The appellant submitted that the Authority for Advance Ruling has erred in deciding that the consideration paid to the Directors by the applicant company will attract GST under reverse charge mechanism.

The Appellate Authority for Advance Ruling observed that CBIC had issued a Circular No. 140/10/2020-GST dated 10.06.2020 and clarified that remuneration paid by companies to the independent directors or those directors who are not the employee of the said company would be taxable in hands of the company, on reverse charge basis.

It was also clarified that part of Director’s remuneration which would be declared as “Salaries in the books of a company and subjected to TDS under Section 192 of the IT Act, would not be taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.

Hence, it was held that professional fees paid to directors other than salary would be taxable under RCM basis only.

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