Section 194J(1)(BA) states that any salary, fees, or commission paid to a company director, other than those on which tax is deductible under Section 192, is subject to TDS.
Directors are compensated in the form of salary or in any other way, such as sitting fees (paid to directors for attending board meetings), etc. TDS is levied on such payments made to the director. The purpose of this article is to explain how the director’s remuneration will be treated in terms of TDS obligation.
TDS on Directors Remuneration under Section 194J(1)(BA)
Section 194J(1)(BA) states that any salary, fees, or commission paid to a company director, other than those on which tax is deductible under Section 192, is subject to TDS.
Following is the Analysis of Section 194J(1)(BA)
- This clause applies only to payments made by a company to its directors and not in any other circumstances.
- This clause does not apply if the tax is deductible under Section 192, that is if the income is taxable under the head salaries. If an employer-employee relationship exists, such payment is exempt from Section 192. Executive directors are generally paid a salary and are not entitled to other fees such as sitting fees, etc.
- If a director is a non-resident director, TDS must be excluded under Section 192 if it is accountable under the head earnings or Section 195 otherwise.
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 on Directors Remuneration: TDS Rate
TDS must be deducted at a rate of 10% of the total amount.
Limit Threshold
Because there is no threshold limit, the tax must be deducted even if the total payment for the year is ₹10.
Examples of TDS on Directors Remuneration under Section 194J
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Instance 1
ABC Ltd paid ₹20,000 monthly to Mr Y, the company’s executive director, and ₹8,000 per year for sitting fees. Mr Y is an executive director of the company, so no TDS is required to be deducted from his monthly salary. However, a TDS of ₹800 will be deducted under Section 194J.
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Instance 2
ABC Ltd paid ₹20,000 per month to Mr Z, the company’s non-resident executive director, and ₹8,000 per year for sitting fees. Mr Z is an executive director of the company, so no TDS is required to be deducted from his monthly salary payment. TDS at 30%, that is ₹2400, shall be deducted under Section 195 for the sitting fees paid to the non-resident director.
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Instance 3
ABC Ltd paid Mr X, the company’s non-executive director, ₹20,000 per month plus ₹8,000 per year for sitting fees. TDS of ₹24,800 (₹2,48,000 *10 per cent) is required to be deducted.
TDS on Directors Remuneration
Where Does TDS Come Into Play?
Directors are paid salaries and other compensation such as sitting fees, commissions, etc. The nature of the payment made to the director will determine whether TDS is applicable. The following points will help to explain the requirement.
Where Is Remuneration Paid in the Form of a Salary?
In this case, the company and the director have an employee-employer relationship. As a result, this would come under the scope of Section 192.
Section 192 deals with TDS on taxable income under the salary heading. As a result, the company must deduct TDS on remuneration based on tax savings statistics, loan interest, etc. This is similar to the company’s TDS deduction for all employees.
Where Is Remuneration Paid in a Manner Other Than Salary?
The director receives other considerations, such as sitting fees or commission. The provisions of Section 192 do not cover this payout.
A new clause added to section 194J states that all compensation paid other than salary should be subject to TDS deduction.
Companies must now deduct TDS under section 194J for any remuneration that does not fall under section 192.
It is clear now that determining liability under sections 192 and 194J depends on whether there is an employee-employer connection.
- If the director is paid a wage, indicating an employer-employee relationship, the company must deduct TDS under Section 192. (In general, executive directors are paid)
- If the company pays directors remuneration other than salary, it is assumed that there is no employer-employee relationship. This would necessitate the company deducting TDS in accordance with Section 194J. (Generally applicable to managing directors/full-time directors who receive sitting fees or commission on top of their salary)
Conclusion
This article discusses how TDS comes into play when a director’s salary is concerned and whether the TDS: https://www.incometax.gov.in/iec/foportal/ is deducted or not. We have discussed in length various examples and conditions under which the TDS is deducted from the remuneration of the director of a company.
FAQs
What are the additional points covered under TDS on Directors Remuneration?
Additional points to be noted are as follows: There is no criterion (of ₹30000) for the director’s remuneration covered by section 194J. Any amount paid as compensation other than salary is subject to TDS deduction under Section 194J. Where section 192 is not followed, section 194J comes into play regarding director remuneration. TDS generally applies to the salary paid to a managing director, a full-time director, or an executive director under Section 192. Section 194J TDS will apply at a rate of 10%. TDS under Section 194J usually applies to non-executive directors (independent directors). This is because the company and the non-executive director have no employer-employee association. Directorship is a profession that generates income through sitting fees and other taxable means under the heading “income from business or profession.” As a result, such income is subject to TDS under section 194J.
