Service tax applicability on Directors remuneration

[Gopalarathnam Muralidharan]

A private Ltd company pays remuneration to the directors and does not deduct PF from the directors nor the company pays PF contribution.   In the recently concluded service tax audit, they observed since in the absence of PF deduction and payment of PF, no employer employee relationship subsists and hence whatever payment made to Directors are to be towards Professional services rendered and hence Director's as service provided they need to pay service tax.  My querries are

1) WHETHER PF Deduction and Payment are the conclusive proof for treating the directors as employees

2) Whether service tax audit is right in treating services of directors are to be treated as independant professional services and can not be regarded as Director's remuneration

AI Summary

Company's Director Payments Under Scrutiny: Service Tax Audit Questions Lack of Provident Fund Deductions, Employment Status Unclear A private limited company faced a service tax audit issue regarding the remuneration paid to directors without Provident Fund (PF) deductions. The audit suggested these payments be classified as professional services, subject to service tax, due to the lack of an employer-employee relationship. Participants in the forum discussed whether PF deductions are definitive proof of employment. It was noted that PF coverage is not mandatory for employees earning above a certain threshold and does not solely determine employment status. The company must provide documentation, such as employment agreements, to establish the directors as employees.