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TDS on Remuneration Paid To Directors U/S 194J(1)(ba)



TDS on Remuneration Paid To Directors U/S 194J(1)(ba)An employer needs to deduct TDS on salary paid to employees as per the provisions U/S 192 of the Income Tax Act 1961and the term employees in its scope also includes Managing Director. This provision also provides that if a Director receives any remuneration other than salary then tax is not to be deducted at source.

As per the new clause i.e., (1)(ba) of 194J inserted as on 1st July 2012 in Budget 2012 – Any remuneration of fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company shall liable to deduct 10%.

There was an ambiguity regarding TDS, whether the tax is to be deducted at source on sitting fees and commission paid to directors or not. But now with the insertion of the above mentioned clause, it is clear that TDS has to be deducted from any remuneration or fees or commission paid to directors.

It must be noted that the clause i.e., 194J (1)(ba) covers any remuneration paid whether by way of fees or commission or by any other name and such payments shall be subjected to TDS 10%.

It is useful to refer to provisions of the Companies Act relating director’s remuneration. The director remuneration includes payments made to directors for services rendered in any other capacity. In other words salary paid to Managing Director/Whole Time Director, commission, sitting fees paid to directors and any other fees paid for professional services shall be treated as remuneration under the Companies Act, 1956. The same analogy may be applied to determine what constitutes directors remuneration for deducting tax at source under Income Tax Act. However 194J (1) (ba) indicates that if remuneration paid is covered under section 192, this clause is not applicable. If TDS is not made U/S 192, it has to be invariably covered under 194J.

Previously, Section 194(J) refers to TDS on amounts paid for Professional and Technical services. By amendment TDS even sitting fees and commission paid have to be covered. By implication sitting fees and commission are bracketed under professional and technical services.

Few companies were used to follow the practice of deducting TDS. But as soon as the clause (1)(ba) introduced in Section 194J, it becomes mandatory for all the companies to deduct TDS @ 10%  on sitting fees, commission paid to directors other than whole time directors and managing directors. Thus, the amendment is welcome as TDS can now be affected on sitting fees, commission and any other payments made to Directors.

Note: Services rendered in professional capacity will be taxed as “Professional/Business Income” in the hands of Director, the sitting fees and commission paid will be taxed under the “Income from other Sources”.

About: 

Alok Patnia founded Taxmantra.com, an expert in tax advisory & compliance. He is a Chartered Accountant having prior exposure with Ernst & Young & KPMG.

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