Reverse charge mechanism
This query is : Resolved
15 January 2014
A DIRECTOR OF A PVT LTD CO. WHO IS IN EMPLOYMENT (SALARY PAID MONTHLY) WAS GIVEN EXTRA AMOUNT TOWARDS HIS MEDICLAIM (CHEQUE GIVEN IN THE NAME OF THE SAID DIRECTOR)
SHOULD WE DEDUCT TDS U/S 194JBA ?
SHOULD DEDUCT SERVICE TAX UNDER RCM ?
PLEASE HELP
SHOULD WE DEDUCT TDS U/S 194JBA ?
SHOULD DEDUCT SERVICE TAX UNDER RCM ?
PLEASE HELP
15 January 2014
i would give answer in two situations-
a. where mediclaim amount recovered from employee.
b. where mediclaim amount not recovered from employee.
Since, Director is an employee of a company, employee employer relationship governed.
in situation (a)RCM shall be applicable as here employer is providing the service and later recovering from employee.
in situation (b), cost is borne by the Company and therefore no RCM is applicable as assumption is made that this has been incurred during employee employer relationship.
For more clarification on , pl. read Department draft circular dated 27.12.2012
-------------------------------------------
on this Sec 194J is not applicable.
a. where mediclaim amount recovered from employee.
b. where mediclaim amount not recovered from employee.
Since, Director is an employee of a company, employee employer relationship governed.
in situation (a)RCM shall be applicable as here employer is providing the service and later recovering from employee.
in situation (b), cost is borne by the Company and therefore no RCM is applicable as assumption is made that this has been incurred during employee employer relationship.
For more clarification on , pl. read Department draft circular dated 27.12.2012
-------------------------------------------
on this Sec 194J is not applicable.
15 January 2014
MEDICLAIM AMOUNT WILL NOT be reCOVERED FROM EMPLOYEE SO RCM IS NOT APPLICABLE
BUT WHY 194Jba is not applicable ?
as payments other than salary to director attracts u/s 194jba
please cinfirm
BUT WHY 194Jba is not applicable ?
as payments other than salary to director attracts u/s 194jba
please cinfirm
22 July 2025
To address your query regarding TDS under Section 194J and service tax under Reverse Charge Mechanism (RCM) concerning Medicare for a director, let's break it down step by step based on the details you provided:
1. Applicability of Section 194J
Section 194J of the Income Tax Act primarily deals with the deduction of TDS on professional or technical fees paid to individuals, firms, or companies for professional or technical services. However, directors' fees are subject to TDS under Section 194J as well, but only for amounts paid other than salary.
Situation 1: Medicare (Health Insurance) for Director
Medicare is a benefit provided by the company to its director, and if the company pays the Medicare directly, it is generally treated as a perquisite.
If this payment is directly to the director, it is considered a perquisite, which is subject to tax under the head "Salary" (and not under professional fees).
Section 194J Consideration:
Section 194J does not apply in this situation because Medicare is a perquisite and not a professional/technical fee.
Payments made as salary (even if paid separately for mediclaim or other benefits) are not subject to Section 194J, because Section 194J is specifically for payments made for professional or technical services to an individual or entity.
The TDS on salary (including perquisites like medical benefits) should instead be handled under Section 192 (TDS on salaries).
Situation 2: If the mediclaim amount is recovered from the employee (director)
If the company recovers the mediclaim from the director’s salary, then the perquisite is reduced, but it still remains a salary-related benefit and thus subject to Section 192.
2. Applicability of Service Tax under Reverse Charge Mechanism (RCM)
As per the Reverse Charge Mechanism (RCM), a company may be liable to pay service tax on certain services received from directors (specifically when the director is treated as a service provider to the company). However, under the situation you described:
No RCM on Mediclaim
The Medicare (health insurance) amount given to a director by the company is not treated as a service provided by the director.
Under RCM, service tax is applicable on specified services provided by the director to the company (e.g., director’s services as per consultancy, management, or technical services), but mediclaim is a benefit and not a service provided by the director.
Therefore, service tax under RCM does not apply in the case of mediclaim paid on behalf of a director. It remains a perquisite, and RCM does not apply.
3. Why is Section 194J not Applicable in this Case?
Section 194J applies to payments made for professional or technical services. However, in your case:
Mediclaim paid to the director is not a payment for professional or technical services but is instead a company benefit provided to the director as part of his employment contract.
Since mediclaim is classified as a perquisite, it falls under Section 192 for TDS on salary and not under Section 194J for professional/technical services. Hence, Section 194J is not applicable.
Conclusion:
TDS: No TDS under Section 194J for the mediclaim paid to the director. The mediclaim is a perquisite, and TDS should be deducted under Section 192 (TDS on Salary).
RCM: No RCM on mediclaim because it is a perquisite provided by the company, not a service. RCM typically applies to services, and mediclaim is not considered a service under RCM.
1. Applicability of Section 194J
Section 194J of the Income Tax Act primarily deals with the deduction of TDS on professional or technical fees paid to individuals, firms, or companies for professional or technical services. However, directors' fees are subject to TDS under Section 194J as well, but only for amounts paid other than salary.
Situation 1: Medicare (Health Insurance) for Director
Medicare is a benefit provided by the company to its director, and if the company pays the Medicare directly, it is generally treated as a perquisite.
If this payment is directly to the director, it is considered a perquisite, which is subject to tax under the head "Salary" (and not under professional fees).
Section 194J Consideration:
Section 194J does not apply in this situation because Medicare is a perquisite and not a professional/technical fee.
Payments made as salary (even if paid separately for mediclaim or other benefits) are not subject to Section 194J, because Section 194J is specifically for payments made for professional or technical services to an individual or entity.
The TDS on salary (including perquisites like medical benefits) should instead be handled under Section 192 (TDS on salaries).
Situation 2: If the mediclaim amount is recovered from the employee (director)
If the company recovers the mediclaim from the director’s salary, then the perquisite is reduced, but it still remains a salary-related benefit and thus subject to Section 192.
2. Applicability of Service Tax under Reverse Charge Mechanism (RCM)
As per the Reverse Charge Mechanism (RCM), a company may be liable to pay service tax on certain services received from directors (specifically when the director is treated as a service provider to the company). However, under the situation you described:
No RCM on Mediclaim
The Medicare (health insurance) amount given to a director by the company is not treated as a service provided by the director.
Under RCM, service tax is applicable on specified services provided by the director to the company (e.g., director’s services as per consultancy, management, or technical services), but mediclaim is a benefit and not a service provided by the director.
Therefore, service tax under RCM does not apply in the case of mediclaim paid on behalf of a director. It remains a perquisite, and RCM does not apply.
3. Why is Section 194J not Applicable in this Case?
Section 194J applies to payments made for professional or technical services. However, in your case:
Mediclaim paid to the director is not a payment for professional or technical services but is instead a company benefit provided to the director as part of his employment contract.
Since mediclaim is classified as a perquisite, it falls under Section 192 for TDS on salary and not under Section 194J for professional/technical services. Hence, Section 194J is not applicable.
Conclusion:
TDS: No TDS under Section 194J for the mediclaim paid to the director. The mediclaim is a perquisite, and TDS should be deducted under Section 192 (TDS on Salary).
RCM: No RCM on mediclaim because it is a perquisite provided by the company, not a service. RCM typically applies to services, and mediclaim is not considered a service under RCM.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- ITR-3 ignores Section 211 (1) (b) for Professionals u/s 44ADA
- ITC Re-claimable Ledger
- Make-up ITC- Eligibility
- ERROR IN ITR3
- Overtime income in salaried person case
- New tax regime and old tax regime.
- Regarding GST applicability on RWA
- F & O Loss Audit Requirement
- RCM invoice related QRMP
- Error while filing ITR3 AY2025-26
- Late fee CMP-08 FY 2021-22
- Mismatch in gstr-1 and eway bill invoice no
- Clarification Regarding Tax Deduction at Source on Receipt Against Issuance of Privilege Voucher
- GST TDS on metal scrap
- ITC Inter head difference
- 80CCD(2) of IT ACT
- Guidance for proper GST accounting (eway bill with correct valuation) for cut-to-pack job work given
- GST Treatment multiple delivery services
- Sale of foreign shares in Indian Rupees - FEMA rules
- Calculate Tax Liability of Sharmila
Trending Online Classes
-
Input Tax Credit, GST refunds and Recovery of refunds- Roadblocks and way outs
CA Nipun Arora03 September 2025 -
GST LIVE Certification Course - 43rd Weekdays Batch(With Govt Certificate)
Industry Expert15 September 2025
CAclubindia
