SERVICE TAX ON SALARY PAYMENT TO DIRECTORS

[M.S.SUHAS MUNDARAGI]

WHETHER RCM APPLICABLE TO SUCH DIRECTORS ALSO WHO ARE FULL TIME EMPLOYEE OF A COMPANY.

[Rajagopalan Ranganathan]

Sir,

According to Section 65B (44) (b) 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. Therefore salary paid to Directors who are full time employee of the company will not attracts service tax.

[Vijay kumar]

Even in respect of whole time Directors, where the remuneration is paid in the course of employment, it is not taxable. However, if the Director renders any consultancy service or any other service to the company, for which he is compensated separately than the remuneration / salary, such service would be taxable.

[Ganeshan Kalyani]

Dear Vijay Kumar Ji,

I feel that any service provided in the relation of employer-employee would be exempted from service tax. How can a consultancy service be excluded from exemption. The compensation paid by employer to employee would be in the nature of salary. I doubt how salary in one hand and consultancy on other hand would mean to be different when the provider of service is an employee and receiver of service is employer. Please clarify my understanding.

[Mahir S]

Ganeshan ji,

The Directors can be the employee of company and received salary and other perks but the amount paid in any form to Director is covered under the Remuneration to Director, except the payment made to him for his services rendered by him in his Professional capacity (such as providing consultancy etc. )

[Ganeshan Kalyani]

Dear Mihir sir, whether reverse charge is applicable for payment made to Director as professional fees though there is employer employee relationship.

AI Summary

Employee-employer service exclusion prevents service tax on salaries, while separately paid consultancy by directors may be taxable. Salary and remuneration paid to a director in the course of employment fall within the employee-employer service exclusion and are not subject to service tax, while separately compensated professional or consultancy services provided by the director outside the employment relationship may be taxable and potentially subject to reverse charge.