TDS on Comm. paid to an independent director

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Anuj Gupta (Querist)
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11 June 2009 1.Can a company make payment to an independent director as commission.

2.If Yes then,Whether TDS on Commission paid to an independent director shd be deducted u/s 192 or 194H.

Ankur Garg

Ankur Garg (Expert)
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11 June 2009 Yes

A company can make payment to an independent director as commission.

If you go by the language of Section 309(4) you may pay commission to an independent director if company by passing special resolution in GM approve such payment.

Regards

Guest

Guest (Expert)

11 June 2009 Agreed with Mr. Garg and it will be come U/s 194H, limit is 2500 @ 10.30%

CA Nitin Wadhwani

CA Nitin Wadhwani (Expert)
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11 June 2009 But, then the director would no longer remain "Independent".

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)
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11 June 2009 such commission paid will not attract the TDS provision,

194H does not cover professional services, and in 192 there must be employer-employee relationship.

Anuj Gupta

Anuj Gupta (Querist)
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12 June 2009 still conflict b/w ankur & nitin...please give me d reply with relevant sections & rules....my own view is that - TDS section wud apply depending upon hw d director is showng it in his I.T. Return...as salary or Commission...

whethr an independent director can accept payment as commission..

Further section 309(4) wont apply as said by ankur..bcoz in companies act there is no concept of independent director..it defined only exe. or non-exe. director...sebi's listing guidelines & corporate governance define independent director...frnz i need a viable reply...

one more fact--director is receiving only comm. frm d company,nothng else.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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27 July 2025 Great question — TDS on commission paid to an **independent director** can be a bit tricky because it sits at the intersection of company law and tax law. Here's a detailed explanation to clear the confusion:

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### 1. **Can a company pay commission to an independent director?**

* **Yes**, a company **can** pay commission to an independent director.
* The payment of commission to directors (including independent directors) is governed under **Section 309(4) of the Companies Act, 1956** (relevant for older companies) or corresponding provisions in Companies Act, 2013 (Section 197).
* Usually, the company must get approval from shareholders through a **special resolution** in the General Meeting to pay commission to directors other than managing or whole-time directors.

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### 2. **Which TDS section applies — Section 192 or Section 194H?**

| TDS Section | Applicability | Key Points |
| ---------------- | ------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Section 192** | Salary income from employer-employee relationship | TDS under 192 applies **only if there is a salary** paid, i.e., employer-employee relationship. Independent directors generally do **not** have an employment relationship, so **Section 192 does not apply**. |
| **Section 194H** | Commission or brokerage | Commission paid to directors (non-salary) comes under **Section 194H** — TDS is deductible @ 10% if amount exceeds ₹5,000 in a financial year. |

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### 3. **Is commission paid to an independent director taxable under Section 194H?**

* **Yes**, commission paid to an independent director is taxable under **Section 194H** as "commission or brokerage".
* TDS @ 10% should be deducted if the commission amount exceeds ₹5,000.
* The independent director will report this commission income under **'Income from other sources'** in their tax return.

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### 4. **Does paying commission affect the 'independent' status of the director?**

* As per SEBI Listing Regulations, independent directors can receive fees, commission, or reimbursement, but **their independence must not be compromised**.
* If the commission is linked directly to performance or profits, it may raise concerns about independence.
* But paying commission approved by shareholders is common and acceptable.

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### 5. **Summary**

| Query | Answer |
| --------------------------------------------------- | ------------------------------------------------------------------------------------- |
| Can company pay commission to independent director? | Yes, with shareholder approval |
| Deduct TDS under which section? | Section 194H (commission/brokerage), not 192 |
| TDS rate? | 10% if commission > ₹5,000 per year |
| Effect on independent status? | Depends on nature of payment, must comply with SEBI & corporate governance guidelines |

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### **References for clarity**

* Section 194H, Income Tax Act, 1961 — TDS on commission/brokerage
* Section 192, Income Tax Act, 1961 — TDS on salary (not applicable here)
* Section 197, Companies Act, 2013 (and Section 309(4), Companies Act, 1956) — Payment of commission to directors
* SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 — Independent directors' fees and commission

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If you want, I can help draft a formal note or TDS compliance checklist for your company on this. Would that be helpful?

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