tax levy on incentive paid to director who is not being paid regular salary

[V Sathyanarayan]

is there levy of tax on incentive of Rs.2cr paid to managing director of private company who is not being paid salary by the company. If so, what rate

[Kiran Tahelani]

To the best of my knowledge company will be liable to pay tax under RCM, if the test of employer and employee relationship fails to establish to the extend of said service.

Relavent entry is reproduced for the sake of brevity:

Notification No. 13/2017- Central Tax (Rate) 28.06.2017 (as amended)

6

Services supplied by a director of a company or a body corporate to the said company or the body corporate.

A director of a company or a body corporate

The company or a body corporate located in the taxable territory.

[Shilpi Jain]

Is he an independent director for which he is getting paid or he is being paid due to any of his services provided to the company in his professional capacity?

In the caee of former there is liability under rcm. Else director liable to pay assuming services are taxable

[Ganeshan Kalyani]

Rightly said by both the experts. The liability depends upon the agreement between the company and the Director.

[Ganeshan Kalyani]

* person liable to pay tax depend upon ...*

AI Summary

Reverse charge on director services may apply where incentives are payment for taxable services rather than salary. Taxation of an incentive to a managing director who is unpaid as salary depends on whether the payment is a taxable supply of services and on the party liable under the Reverse Charge Mechanism. If the director supplies services to the company and no employer-employee relationship exists, the company may be required to pay tax under RCM; if an employer-employee relationship exists, payroll treatment governs. The contractual terms and the director's status (independent supplier versus employee) determine liability.