Service Tax on Directors Salaries

[Mathurthi RamKumar]

Dear All,

Greetings.. Kindly clarify my doubt. We are paying salaries to our directors and issue form 16. Can we labile for pay service tax as per notification 30/2012-st ? what is the difference between executive directors and non-executive directors.

Regards

M.RamKumar

99498 40959

[Rajagopalan Ranganathan]

Sir

According to sub clause (b) of clause (44) of Section 65B of Finance Act, 1994, "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include -

"a provision of service by an employee to the employer in the course of or in relation to his employment."

Since you have stated that you are paying salaries to your directors, that indicates that they are employees of your company. Therefore according to sub-clause (b) of clause (44) of Section 65 B of Finance Act, 2004 the relationship between your company and directors is employer and employee. Hence no service tax is payable on salaries paid by your company to directors.

[YAGAY andSUN]

Dear M Ramkumar, Service Tax under Notification No. 30/2012-ST as amended from time to time would not applicable, if the salary is being paid to the Directors.

Regards

YAGAY and SUN (Management and Indirect Tax Consultants)

[Ravi Kumar Somani]

Dear Mr. Ram Kumar,

Service Tax is not required to be paid under reverse charge as the directors seem to be in rolls of the company. There exists employer - employee relationship. The fact that you are filing Form - 16 also proves that they are employees of the company. Executive directors are the one who are into full time employment in the company and get monthly salaries. Whereas Non - Executive directors are the ones who get only sitting fees or consultation fees, they are not in full time employment. Generally they will also not be in the payrolls of the company. Further, Form 32 will be filed with MCA with respect to such directors.

Hope it clarifies your query.

AI Summary

Employee provision of services excludes directors' salaries from service tax when an employer-employee relationship exists. Salaries paid to directors who are on the company payroll constitute a provision of service by an employee to the employer and are excluded from service tax; payroll evidence such as Form 16 supports this employer-employee relationship and the inapplicability of Notification No. 30/2012 ST. Executive directors are full time salaried employees on payroll, while non executive directors typically receive sitting or consultancy fees and are not on payroll, affecting their treatment under service tax rules.