SERVICE TAX ON DIRECTORS REMUNERATION

[Mehul Pandya]

Greetings to all the Members,

As per Notification No. 45/2012 - Service Tax dated the 7^th August, 2012, Sr. No. 5A- in respect of services provided or agreed to be provided by a director of a company to the said company.(under RCM).

my query is - Will all the Directors fall under this or is it only for the Non – Executive Directors and the Independent Directors who are not the Employees of the Company, Kindly Explain, with any government order, if any.. Thanks.

[CSSANJAY MALHOTRA]

Refer to Section 65B(44)(b) of Service Tax Act, which excludes services provided by an Employee to Employer during the course of employment.

Services rendered by Managing Director & Whole Time Director is covered under the above section and are exempt from Service Tax.

[ashish chaudhary]

Directors having employer-employee relationship with company not covered under RCM. Liability under RCM arises in case of other directors. Guiding factor could be terms of appointment, nature of deduction of TDS, form filed with ROC etc.

[Mehul Pandya]

Thank you all

[Mehul Pandya]

If company gives Remuneration to the Directors then is it taxable?

If company pay consideration other than salary?

[CSSANJAY MALHOTRA]

Dear Mehul,

Managing Director and Whole Time Directors are full time Employees in the Company as these are executive posts and rest are non-executive posts such as Independent Directors. Hence amount / consideration paid to independent directors gets covered under Service Tax.

[rishi mohan]

Consideration paid to directors other than salary is liable to service tax.

[MAHESH MAIYA]

Dear Sir,

Kindly clarify the below scenario.

Mr. A is subscriber to the Memorandum and one of the Directors of M/s XYZ Co.

M/s. XYZ Co is 100% subsidiary of a foreign company.

Mr. A is management consultant to M/s. XYZ Co. and the entire show in India is run by him.

Mr. A gets fixed monthly consultancy charges along with yearend commission based on performance of the company.

Mr. A collects his consultancy through his proprietor firm by raising bills.

Apart from the above, Mr. A is not in the rolls of the company and do not get any remuneration.

At present, Mr. A is raising bill along with service tax in the name of his proprietorship firm.

In the above scenario, we would like to understand whether reverse charge mechanism is applicable to M/s. XYZ Co as per the notification no. 30/2012-ST Dt. 20.06.2012.

[CSSANJAY MALHOTRA]

Dear Mahesh,

Service rendered by Mr. A to Company M/s XYZ is in the capacity of Independent Director, which is liable to Service Tax under Reverse Charge.

Can't comment on services of Mr. A as Management Consultant through his proprietorship firm as the same acts as conflict of Interest with the Company. Same person acting as Independent Director with M/s XYZ and also as an Independent Director ???????

[MAHESH MAIYA]

Dear Sir,

Thanks for the reply. I would like to add some more information on this aspect.

XYZ is a Pvt Ltd Co having TWO Indian and TWO foreign directors.

None of the directors are getting sitting fees,attendance fees etc OR any other fees in any other form which are typically paid to the directors of a company.

Mr.A is an Indian Director who has been contracted by XYZ co as a management consultant represented by his sole proprietary firm and his scope of work includes;

1.Recruitment and training 2 procurement of materials 3 Billing 4 Advertising 5 Legal compliances

6 Capital projects

In short, his services are more in the nature of a executive director or a whole time director or a managing director .

For this services he is paid fixed +variable pay.

He has his own service tax registration ( in the name of his proprietary firm) and also bills other organisations as a consultant under this code .

He includes service tax in his bill and discharges it on the due dates.

My question is should his billing attract reverse charge mechanism from the xyz company point of view. The department is getting service tax. But who has to pay the service tax is our question.

Please clarify.

Thanks

Mahesh Maiya.P

[Guest]

Dear Mahesh,

The director has raised bills in capacity of outside service provider.

no need to do RCM.

AI Summary

Directors' remuneration under reverse charge: non executive and independent directors' fees attract service tax while employee directors are excluded. Remuneration to non employee directors (non executive/independent) is subject to service tax under the reverse charge mechanism, whereas services by directors who are employees (Managing Director/Whole time Director) are excluded under Section 65B(44)(b). Employment status is determined by terms of appointment and indicators such as payroll, TDS deduction and ROC filings. If a director bills through a separate firm as an external service provider and the arrangement reflects an arm's length supply, the supplier may discharge the service tax rather than the company under reverse charge, subject to examination of the actual nature of services and potential conflict of interest.