In this essay, you will learn about the grounds for TDS on Director Remuneration.
Directors are compensated in various ways, including salary, sitting fees (given to directors for attending board meetings), and so on. TDS is applied to such payments to the director. The goal of this article is to explain how the director’s salary will be considered for TDS purposes.
Table of Contents
TDS on Directors’ Salary (ba) Section 194J(1)
According to Section 194J(1)(ba), any salary, fees, or commission paid to a corporate director that is not deductible under Section 192 is subject to TDS.
Following is the analysis of Section 194J(1)(ba)
- This condition solely applies to payments made by a firm to its directors and not to any other payments.
- This provision does not apply if the tax is deductible under Section 192, i.e. if the income is taxable under the head salaries. If there is an employer-employee relationship, such payment is exempt from Section 192. Executive directors are normally given a salary and are not entitled to other payments such as sitting fees, etc.
- TDS must be excluded under Section 192 if the director is answerable under the head earnings, or Section 195 otherwise if the director is a non-resident director.
Nature of Payment, Rate of TDS and Other Information
Under Section 194J, the nature of payments is covered.
Fees for attending meetings (sitting fees)
Remuneration\sCommission\sBrokerage
TDS Rate
TDS must be deducted at a rate of 10% of the total amount.
Limit Threshold
Due to the lack of a threshold restriction, the tax must be deducted even if the total payment for the year is less than ten dollars.
Examples of TDS under Section 194J
Instance 1
ABC Ltd paid Mr Y, the company’s executive director, 20,000 dollars per month and 8,000 dollars per year in sitting fees. Mr. Y is an executive director of the company, hence no TDS is required to be deducted from his monthly compensation. However, a TDS of 800 will be deducted under Section 194J.
Instance 2
ABC Ltd paid Mr Z, the company’s non-resident executive director, 20,000 per month and 8,000 per year in sitting fees. Mr Z is a company executive director, hence no TDS must be deducted from his monthly salary payment. Section 195 requires that TDS at 30%, or $2400, be withheld from the sitting fees paid to the non-resident director.
Instance 3
Mr X, the company’s non-executive director, was paid 20,000 per month plus 8,000 per year in sitting fees by ABC Ltd. TDS of 24800 (2.48,000 * 10%) is required to be deducted.
TDS on Directors’ Remuneration
Where Does TDS Come Into Play?
Directors are paid salaries as well as other benefits such as sitting fees, commissions, and so on. The type of the payment made to the director will decide whether TDS is required. The following points will help to explain the requirement.
Where Is Remuneration Paid in the form of a Salary?
In this instance, there is an employee-employer connection between the corporation and the director. As a result, Section 192 would apply.
Section 192 deals with TDS on taxable income classified as salary. As a result, the corporation is required to deduct TDS on compensation based on tax savings statistics, loan interest, and so on. This is similar to the TDS deduction made by the corporation for all employees.
Where is remuneration paid in a manner other than salary?
Other considerations are given to the director, such as sitting fees or commission. This payment is not covered by Section 192 restrictions.
Section 194J now includes a new language stating that all compensation provided other than salary is subject to TDS deduction.
Companies are now required to deduct TDS under Section 194J for any remuneration that does not fall under Section 192.
It is now obvious that finding liability under sections 192 and 194J is dependent on whether or not there is an employee-employer relationship.
- If the director receives compensation, establishing an employer-employee relationship, the business is required by Section 192 to deduct TDS. (Executive directors typically receive compensation)
- There is no employer-employee relationship if the corporation offers directors compensation other than salary. As a result, the business would have to deduct TDS in accordance with Section 194J. (Typically relevant to managing directors/full-time directors who further get commission or sitting fees to their compensation)