Remuneration of director
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
08 September 2014
Case - A private limited company with two directors. One of the directors is providing full time management and consultancy services to the company and he is not working in any other company. The designation is director only (not as MD or WTD). Whether he will get remuneration as Consultancy fee or salary (payroll) ?
08 September 2014
he will get remuneration siting fee is treated as consultancy fee
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Querist : Anonymous
Querist :
Anonymous
(Querist)
08 September 2014
Under which section, tds on such remuneration will be deducted ?
21 July 2025
Great question! Let’s break it down:
Scenario recap:
A director in a private limited company is working full-time, providing management and consultancy services.
He holds the title Director (not MD or WTD).
You’re asking whether his payments should be classified as consultancy fees or salary (payroll).
Also, under which section of Income Tax Act TDS should be deducted.
1. Salary or Consultancy Fee?
If the director is engaged as an employee (even if the designation is just “Director” but he works full-time and is under a contract of employment), the amount paid is generally salary.
This means he should be on the company’s payroll, and the company should deduct TDS under salary rules.
If the director is not an employee but provides services as an independent contractor, then the payment would be treated as consultancy fees.
In your case:
Since he is providing full-time management and consultancy services and is not working elsewhere, it strongly indicates an employment relationship.
So, the payment should be treated as salary and subject to payroll provisions.
2. TDS Deduction on Remuneration
If treated as salary:
TDS on salary is deducted under Section 192 of the Income Tax Act.
The company deducts tax based on estimated salary income, applicable slabs, etc.
If treated as consultancy fees (assuming it was a contractor):
TDS is deducted under Section 194J (TDS on professional fees).
Currently, the rate under Section 194J is generally 10%.
Summary:
Nature of Payment TDS Section Notes
Salary (employment) Section 192 Deducted based on salary slabs
Consultancy fees (contractor) Section 194J Flat TDS rate (usually 10%) on fees
Final note:
Since the person is a full-time director providing management services and not working elsewhere, the company should treat payments as salary, deduct TDS under Section 192, and issue Form 16 annually.
Scenario recap:
A director in a private limited company is working full-time, providing management and consultancy services.
He holds the title Director (not MD or WTD).
You’re asking whether his payments should be classified as consultancy fees or salary (payroll).
Also, under which section of Income Tax Act TDS should be deducted.
1. Salary or Consultancy Fee?
If the director is engaged as an employee (even if the designation is just “Director” but he works full-time and is under a contract of employment), the amount paid is generally salary.
This means he should be on the company’s payroll, and the company should deduct TDS under salary rules.
If the director is not an employee but provides services as an independent contractor, then the payment would be treated as consultancy fees.
In your case:
Since he is providing full-time management and consultancy services and is not working elsewhere, it strongly indicates an employment relationship.
So, the payment should be treated as salary and subject to payroll provisions.
2. TDS Deduction on Remuneration
If treated as salary:
TDS on salary is deducted under Section 192 of the Income Tax Act.
The company deducts tax based on estimated salary income, applicable slabs, etc.
If treated as consultancy fees (assuming it was a contractor):
TDS is deducted under Section 194J (TDS on professional fees).
Currently, the rate under Section 194J is generally 10%.
Summary:
Nature of Payment TDS Section Notes
Salary (employment) Section 192 Deducted based on salary slabs
Consultancy fees (contractor) Section 194J Flat TDS rate (usually 10%) on fees
Final note:
Since the person is a full-time director providing management services and not working elsewhere, the company should treat payments as salary, deduct TDS under Section 192, and issue Form 16 annually.
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