Tax planning for directors remuneration

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Querist : Anonymous

Querist : Anonymous (Querist)

02 August 2011 Dear All,

How are you?

Can any one tell me how to plan for maximum tax savings on Directors Remuneration.

Whether all tax benefits, deductions, exemptions applicable to salaried employees are also applicable to Directors or not?

Can any one please give guidance.

Please send the details to my mail id: swamykarlapudi@gmail.com, if possible.

Thanking you,
Swakar.

Amol Gopal Kabra (CA,CS,DISA)

Amol Gopal Kabra (CA,CS,DISA) (Expert)
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02 August 2011 If the directors are shown as employees, then these are applicable. If they are shown as professional, then you can pay them professional fees. It will depend upon case to case.

Querist : Anonymous

Querist : Anonymous (Querist)

03 August 2011 Thank you Mr.Gopal gi.

If we treat them as employees for deducting tds u/s 192B, so we can give all benefits available under salary income provisions under IT Act. (Like HRA etc). Some experienced person advised to give only 80C max limit and to deduct tax on entire amount by applying average rate of tax. How far his statement is correct. Could you please provide any notification/case law/specific reading on Director remuneratin.

If we treat them as professionals for deducting tax, can they claim professional expenses as deduction from gross remuneration received.

In TDS point of view, this treatment as professional is better for lower deduction of tax. Can I do so like?

Thanking you once again...
Swamu.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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26 July 2025 Hi Swakar,

You're on the right track in examining the **tax planning possibilities for directors’ remuneration**, and yes — treatment **as an employee vs. as a professional** makes a big difference. Here's a clear breakdown for you:

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### 🔹 1. **Treatment as Employee (TDS u/s 192)**

If the director is a **whole-time director or executive director** involved in the day-to-day operations, they are usually treated as employees.

#### ✅ Tax Benefits:

* Standard deduction (₹50,000)
* HRA exemption (Section 10(13A))
* Leave travel allowance (LTA)
* Children education allowance
* Deduction under **Section 80C, 80D**, etc.
* Exemption for perquisites (as per Rule 3 of Income Tax Rules)

#### ❌ Limitations:

* Cannot deduct "professional expenses" from gross income.
* Tax deducted at **slab rates**.

#### 📝 Notes:

* TDS under **section 192**.
* You **must structure the salary** properly (basic, HRA, allowances, perquisites) for maximum benefit.
* Safe, clear, and commonly accepted structure for compliance.

---

### 🔹 2. **Treatment as Professional (TDS u/s 194J)**

If the director is **not in full-time employment**, and is rendering services in a consultancy or non-executive role, you can treat remuneration as **professional fees**.

#### ✅ Tax Benefits:

* Allowed to **deduct expenses** from income (e.g., office expenses, staff, phone bills, travel for professional work).
* TDS @ **10% u/s 194J**.
* Can use **Presumptive Taxation** under **Section 44ADA** if applicable (although some debate exists for directors – depends on nature of service).

#### ❌ Limitations:

* No HRA, LTA, or standard deduction benefits.
* Might attract **GST** if total professional income > ₹20 lakh p.a.
* May not look good for executive directors as they are typically “employees.”

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### 🔍 Practical Guidance:

| Aspect | Employee (192) | Professional (194J) |
| ------------- | --------------------------------- | -------------------------------- |
| TDS | As per slab | 10% flat |
| Deductions | HRA, 80C, 80D, Standard Deduction | Business expenses (if justified) |
| Structure | Fixed salary + perks | Professional fees invoice |
| Tax Rate | Slab-based | After business deductions |
| Applicability | Full-time, executive roles | Independent, advisory, part-time |

---

### ⚖️ Legal & Compliance Points:

* **CBDT Circular No. 715 (dated 8-8-1995)**: Clarifies that **remuneration to directors is salary if there is an employer-employee relationship**.
* **Section 17(1)** of IT Act defines salary to include director remuneration if under employment.
* **Section 194J** applies only to **independent, non-executive directors** or those offering professional services (e.g., legal, technical).

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### 🔐 Tax Planning Suggestion:

If the director is full-time:

* Structure salary well to **optimize exemptions** under salary.
* Include **HRA**, **telephone reimbursements**, **meal vouchers**, **medical reimbursements**, etc.
* Claim **80C**, **80D**, etc.

If director is non-executive:

* Go with **professional fee**, deduct expenses (work-related), consider **Section 44ADA** if profession qualifies.

---

### 📚 Suggested Reading:

1. **CBDT Circular No. 715 (1995)** – Salary vs. professional fees
2. Income Tax Act – Sections 17, 192, 194J
3. Taxmann's book: *Taxation of Salaried Individuals* or *Direct Tax Planning & Management* (Vinod K. Singhania)

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Would you like a **sample salary structure for tax planning** or **comparison spreadsheet** for 192 vs. 194J? I can provide that too.

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