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Service tax applicable to nonwhole time director -309(4)imp

CS,CA F,Numrologi TusharSampat (CS CA F Numerologist Astrologer Graph) (85935 Points)

01 December 2012

CLICK ON FOLLOWING FILE TO CHECK THE APPLICABILITY OF SERVICE TAX ON

COMMISION PAYABLE TO NON WHOLE TIME DIRECTORS OF A COMPANY UNDER

SECTION 309(4) OF COMPANIES ACT,1956 AND APPROVAL OF

CENTRALGOVERNMENT REQUIRED.

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8 Replies

Poonam (Student CA Final ) (90 Points)
Replied 01 December 2012

Bookmarked

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Sumit Middha (Head (Fin.& A/c) M.COM M.A.(Eco) MBA CS) (2453 Points)
Replied 01 December 2012

wow its very usefull ..

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Ajay Mishra (Company Secretary) (74342 Points)
Replied 01 December 2012

Very good information.....Keep it up.....

PAYMENT OF COMMISSION TO NON-WHOLE TIME DIRECTORS OF THE COMPANY UNDER SECTION 309(4) (b) OF THE COMPANIES ACT, 1956

Section 309(4) provides that a director or directors who is or not managing or whole time directors may be paid remuneration periodically with the approval of the Central Government or may be paid commission, provided that the said remuneration shall not exceed 1% of the net profits if the company has a managing or whole time director and 3% in other case. The net profit shall be computed in terms of section 198, 349 and 350 of the Act. The MCA vide its General Circular no. 4/2011 dates 04.03.2011 has provided that a company shall not be required to obtain the approval of the Central Government for making payment of remuneration by way of commission to its non-whole time directors in addition to sitting fee, if the total commission to be paid does not exceed 1% of the net profit of the company if it has WTD or MD or 3% of the net profit of the company if it does not have MD or WTD.

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Ajay Mishra (Company Secretary) (74342 Points)
Replied 01 December 2012

APPLICABILITY OF SERVICE TAX ON COMMISSION PAYABLE TO NON-WHOLE TIME DIRECTORS-APPROVAL OF CENTRAL GOVERNMENT UNDER SECTION 309/310 OF THE COMPANIES ACT, 1956

The Finance Act, 2012 has introduced Service Tax which is applicable to anyone who provides a Service not covered under the negative/exempted list and if the value of annual revenue is more than Rs. 10 lakhs. The Non-Whole Time Directors of the company are presently not covered under the exempted list as such, the sitting fee/commission payable to them by the company liable to Service Tax.

If such Service Tax is paid by the company, it will be deemed to be a part of remuneration under section 198 of the Act and would accordingly increase the remuneration amount of such Non-Whole Time Directors. This remuneration could then exceed the limit of 1% of the profit under section 309(4) of the company when the company has Managing/Whole Time Directors/Manager or 3% of the profit under section 309(4) of the company if the company does not have a Managing/Whole Time Directors/Manager as the case may be. As per existing provisions of the Companies Act, 1956, this would require prior approval of the Central Government under section 309 and 310 of the Act.

It has now been decided that any company increase in remuneration of Non-Whole Time Director/Directors of the company solely on account of payment of service tax on commission payable to them by the company shall not require approval of the Central Government under section 309 and 310 of the Companies Act, 1956 even if it exceeds the limit of 1% or 3% of the profit under section 309(4) of the Company, as the case may be, in the financial year 2012-13.

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