RCM on Non -executive director Commission

[Ashwin Bhalakiya]

My friends company is paying commission to their Non- Executive directors. They provided commission entry in books in FY 2020-21, the same got approved in Board meeting which is held in July-2021 & payment was made to director on 7th Aug 2021. Company Paid GST on RCM on 20th Sept 2021. Now Government GST officer raise the query that the company has paid the GST on RCM in Sept-2021, which is liable for interest for delay payment of GST. We would like to know the legal provision of the act. Whether RCM is to be paid on Provision or on Actual payment basis.

[KASTURI SETHI]

The department's objection is legally correct.You need to go through the meaning of 'consideration' as defined under Section 2(31) of CGST Act which is extracted

(31) “consideration” in relation to the supply of goods or services or both includes -

(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government;

 

[Shilpi Jain]

Section 13(3) of the CGST Act is the provision to decide when the liability to pay tax arises. In the present case, liability under RCM arises when the payment was made by the Company. In the present case no delay so no interest.

3) In case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, 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 there of by the supplier:

AI Summary

Time of supply for reverse charge: payment date or statutory follow-up period determines GST liability and interest exposure.
GST under the reverse charge mechanism on director commission becomes payable based on the statutory time of supply: the earlier of the payment date (as entered in books or debited to bank) or the date following the statutory period after invoice. The CGST definition of consideration treats payments made or to be made as taxable; consequently GST remitted after the operative time of supply can attract interest for delayed payment.