Service Tax for Directors for the Year 2012-13

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Mar. 22 – Before the new budget was issued, there was ambiguity surrounding the dealing of director’s remuneration. There is inconsistency about whether it is considered salary income or business income chargeable under the head business and profession. However, in the new union budget, India has issued a new clause – clause 194(J) – clarifying that any payment or commission paid to the director of a company is liable to tax deduction at source at the rate of 10 percent.

Section 194(J) is considered for professional and technical services. Therefore, by including the director into the remuneration, it signifies that remuneration or commission paid to directors must be professional services. Then, director remuneration must be considered as business income.

If the earnings of any professional cross the threshold limit u/s 44AB (i.e. 25 lacs for the 2013-14 fiscal), he/she is legally responsible for a tax audit. By inclusion of director remuneration in professional and technical services for TDS purpose, it is clear that the concerned Income Tax Department of India intends to charge such income as income derived from the source (business and profession). Then, section 44AB becomes applicable to such entities and any person getting director remuneration exceeding the threshold limit may be legally responsible for a tax audit.

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