19 February 2014
Can a Company (PVt Ltd/Public Ltd) provide club membership to its diretors. I mean can a company pay membership fee while the director will be the member in his capacity?
Read more at: https://www.caclubindia.com/forum/club-membership-to-directors-282184.asp#.UwQnIHlU4WZ
19 July 2024
Yes, a company (whether private limited or public limited) can provide club membership to its directors. However, there are specific rules and provisions under the Income Tax Act, 1961 that govern the taxation of such club memberships provided by the company to its directors.
### Allowability by Company: - **Company's Perspective**: Companies can provide club memberships to directors as a part of the perks or benefits offered to them. This can be seen as a legitimate business expense, provided it is within reasonable limits and is in the interest of the company's operations or employee welfare.
### Taxability as Perquisite for Directors: - **Director's Perspective**: From the director's standpoint, the value of club membership provided by the company is considered a perquisite (a benefit or privilege received over and above salary) and is taxable under the Income Tax Act.
### Relevant Provisions:
1. **Income Tax Act, 1961**: - Section 17(2)(iii): Defines "perquisites" and includes any payment by the employer towards any expenditure on club facilities or club membership fees. - Section 28(iv): Specifies that any benefit or perquisite arising from the business or profession of the taxpayer, including those received by virtue of being a director, are taxable under the head "Income from Other Sources."
2. **CBDT Circular No. 6/2016**: - Provides guidance on various aspects of perquisites, including club memberships, and clarifies their tax treatment.
### Taxation of Club Memberships:
- **Valuation**: The value of the club membership provided by the company is typically determined based on the actual cost incurred by the company. If the membership is not available on commercial basis, the tax authorities may determine the value based on fair market value.
- **Tax Liability**: The value of the club membership is added to the director's income and taxed at their applicable income tax slab rates. The company is also required to withhold taxes (TDS) on the value of perquisites provided to directors.
### Business Justification:
- While club memberships can indeed enhance networking opportunities for directors and potentially benefit the business through increased contacts and relationships, the taxability stems from the fact that such memberships are considered a form of compensation beyond salary.
### Conclusion:
In summary, yes, a company can provide club memberships to its directors, but the value of such memberships is taxable as perquisites in the hands of the directors under the Income Tax Act. The taxation is based on the cost or fair value of the membership, and the company must comply with withholding tax requirements while providing such benefits. It's advisable for companies and directors to consult with tax advisors or professionals to ensure compliance with tax laws and optimize tax implications related to perquisites like club memberships.
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