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Service tax on director remuneration..???


Now recently ammendment about service tax on director remuneration. Notificatio No. 45/2012.

1) It is applicable Exemption limit 10 lac for service tax on director remuneration? 

2)Can every company must take service tax number and pay service tax for payment to director remuneration?

3) When director Remuneration paid less than 10 lac, it required to take service tax number. Ammendment say that " director remuneration is liable to service tax and respective company is liable to pay ST under reverse charges @ 100%".
What is exect meaning about that?

 
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Chartered Accountant


No service tax is payable if the director is employee of the company say MD/WTD/ED. In other cases directors remuneration is liable to service tax under reverse tax. Basic exemption of Rs.10L is not availble when reverse tax mechanism is applicable.


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Corporate Manager


BRIEF: In the absence of mention of any date in the notification, it shall be effective from the date of publication in official gazette i.e. 7th August, 2012. For services provided between1st July, 2012 to 6th August, 2012, directors will be liable to charge service tax.

 

 

Nature of service

% of ST payable by service Provider

% of ST payable by service Recipient

Services  by a director of a company to the said company

Nil

100%

 

 

INTRODUCTION: All the companies are required to pay service tax under reverse charge. Threshold exemption limit of Rs 10 lacs is not available for services taxable under reverse charge.Thus, the employer- employee relationship between the director of a company and company may be created either by a service agreement or by the articles of the company themselves.Hence, the remuneration paid to director in accordance with the terms of the salary contract can be treated as salary.

 

CONCLUSION : There is distinction between salary and remuneration. TDS on salary paid to directors is deductible under section 192 while TDS on any remuneration, fees, commission etc. in a form other than salary is deductible under section 194J (1) (ba). Following clarification is given by CBDT in the Memorandum explaining the provision of Finance Bill, 2012. Under the existing provisions of the Income-tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including Managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration. However it is mandatory for all NED Director to issue Invoice as now they are covered under the Service Tax Net though currently they are not charging as per the Amendment. 

SAVAN SOMANI, Corporate Manager Taxation

 


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Corporate Manager


BRIEF: In the absence of mention of any date in the notification, it shall be effective from the date of publication in official gazette i.e. 7th August, 2012. For services provided between1st July, 2012 to 6th August, 2012, directors will be liable to charge service tax.

                          

 

Nature of service

% of ST payable by service Provider

% of ST payable by service Recipient

Services  by a director of a company to the said company

Nil

100%

 

 

INTRODUCTION: All the companies are required to pay service tax under reverse charge. Threshold exemption limit of Rs 10 lacs is not available for services taxable under reverse charge.Thus, the employer- employee relationship between the director of a company and company may be created either by a service agreement or by the articles of the company themselves.Hence, the remuneration paid to director in accordance with the terms of the salary contract can be treated as salary.

 

CONCLUSION : There is distinction between salary and remuneration. TDS on salary paid to directors is deductible under section 192 while TDS on any remuneration, fees, commission etc. in a form other than salary is deductible under section 194J (1) (ba). Following clarification is given by CBDT in the Memorandum explaining the provision of Finance Bill, 2012. Under the existing provisions of the Income-tax Act, a company, being an employer, is required to deduct tax at the time of payment of salary to its employees including Managing director/whole time director. However, there is no specific provision for deduction of tax on the remuneration paid to a director which is not in the nature of salary. It is proposed to amend section 194J to provide that tax is required to be deducted on the remuneration paid to a director, which is not in the nature of salary, at the rate of 10% of such remuneration. However it is mandatory for all NED Director to issue Invoice as now they are covered under the Service Tax Net though currently they are not charging as per the Amendment. 

SAVAN SOMANI, Corporate Manager Taxation


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Dear sir

Please explain in detail


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HI .......... NIRMIT ............. 

ANS 1) THE LIMIT OF 10 LACS IS NOT APPLICABLE IN CASE IF THE SERVICE TAX ON DIRECTO'S REMUNERATION. SINGLE RUPEE PAYMENT AS DIRECTOR'S REMUNERATION IS CHARGABLE TO SERVICE TAX FOR THE SERVICES PROVIDED BY THE DIRECTOR TO THE COMPANY

ANS 2) IT'S MANDATORY FOR THE COMPANIES WHO ARE PAYING THE REMUNERATION TO THE DIRECTOR TO TAKE THE SERVICE TAX NUMBER IRRESPECTIVE OF THE AMOUNT OF DIRECTOR'S REMUNERATION.......

ANS 3) INDIRECTLY IT MEANS TO SAY THAT THE COMPANY HAS TO TAKE THE SERVICE TAX NUMBER TO PAY THE SERVICE TAX ON THE DIRECTOR'S REMUNERATION ON THE REVERSE CHARGE METHOD BECAUSE ONE CAN NOT PAY SERVICE TAX WITHOUT SERVICE TAX NUMBER...


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Remuneration paid to any type director is taxable as there is nothing mentioned in the notification So does notification 45/2011 of 7 august has to seen with Ny other section also ???

 
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Chartered Accountant


Dear Nirmit,

 

The Notification should not be read in isolation. It has to be read along with basic provisions of the Act.

 

As per the Finance Act, the term service has been defined. As per the definition, Service excludes any service rendered by an employee to his employer in the course of his employment. Hence, every Whole Time Director / Managing Director / Executive Director, who is in the rolls of the company is not liable to service tax, as they are employees of the company.

 

Hence, this notification is applicable only to non-executive directors.

 

Hope your doubt is clarified.

 
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Practising Company Secretary

Dear All,

Kindly inform who will be liable to pay Service Tax, Director or Company in following cases- 

for Remuneration paid to non executive director during 01.07.2012 to 06.08.2012 and

for remuneration paid to non executive director after 06.08.2012.

 

Also inform by what date it should be paid and if it is not paid by such date wheteher penaulty is to be paid @ 18%.

 

 
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Originally posted by : CA Ganesh Karthik

Dear Nirmit,

 

The Notification should not be read in isolation. It has to be read along with basic provisions of the Act.

 

As per the Finance Act, the term service has been defined. As per the definition, Service excludes any service rendered by an employee to his employer in the course of his employment. Hence, every Whole Time Director / Managing Director / Executive Director, who is in the rolls of the company is not liable to service tax, as they are employees of the company.

 

Hence, this notification is applicable only to non-executive directors.

 

Hope your doubt is clarified.

Sir, word used in the notification is "DIRECTOR" and as per Section 2(13) of the Companies Act,1956 defines the DIRECTOR as follows ......DIRECTOR includes any person occupaying the position of director ,by whatever name called......The notification has not been read in isolation .It's in agreement with the Definition of the "DIRECTOR" as per Companies Act,1956. And the said Notification is going to be applicable to all directors whether executive or non-executive.......

 
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