Director's remuneration v/s service tax

[Ashok Chopra]

Respected Forum,

 

Will monthly Directror's remuneration paid to Directors of the company attrach SERVICE TAX as reverse charge?

 

pls advice

[YAGAY andSUN]

The Finance Act 2012 has introduced Service Tax which is applicable to anyone who provides a Service not covered under the negative/exempted list and if the value of annual revenue is more than Rs. 10 lakh. The Non-Whole Time Directors of the Company are presently not covered under the exempted list and as such, the sitting fee/ commission payable to them by the company are liable to Service Tax.

Regular monthly payment to the full time/whole time directors of the company does not attract service tax.

[Debtosh Dey]

Recent notifications 45 & 46/2012-ST both dated 7-Aug-12 have included service by director - the first notification providing for reverse change on the company and the second amending Rule 2(d)(1) to include such service. Please advise what does these mean now.

Debtosh Dey

 

 

 

 

 

 

[YAGAY andSUN]

It means now service recipient will be liable to pay the service tax for such services.

[Debtosh Dey]

Going through notifications 45 & 46/2012-ST both dated 7-Aug-12, tax on 'service...by a director' is payable by the company for which sec 2(d)(1) has also been amended. Does this mean all directors are attracted irrespective of wholetime or non-wholetime ?

[Harsh Jindal]

As per Notification 46 dated Aug. 7, 2012, service provided or agreed to be provided by a director of a company to the said company, the recipient of such service i.e. company is liable to pay the tax in full on reverse charge basis.

[Debtosh Dey]

I am sorry that the issue is still not clear as to whether non-wholetime directors only are attracted for tax payable by the company. I do not find any distinction made in the notifications 45 & 46/2012-ST for wholetime or non-wholetime directors. If 'salary' to director is the criteria for considering him/ her as 'employee', then this needs clarification under service tax law itself. This is because a wholetime director may receive commission and perks  besides salary. Moreover, many are opining on the basis of Income Tax Act as form 16 is issued to salaried directors for TDS. I feel this may not be a correct view since there may be salaried non-wholetime directors. Also, salaried partners are not 'employees' in Income Tax (proving 'salary' criteria as incorrect). Further, in order to treat directors as wholetime 'employees', Companies Act requires certain formalities to be observed on appointment, remuneration, limitation of directorships, etc. 

AI Summary

Director services reverse charge: company becomes liable for service tax on director-provided services, clarity needed on whole-time status. Notifications in August 2012 include services by a director as taxable and place liability on the recipient company under the reverse charge mechanism. The notifications do not distinguish whole time and non whole time directors, creating uncertainty whether salaried or regularly remunerated directors fall outside the director service category; commentators have noted reliance on income tax or company law criteria but service tax clarification is absent.