Section 194J(1) (ba) | TDS on the Director Remuneration

Overview

In India, the tax provisions concerning the remuneration paid to directors of a company are governed by Section 194J(1) (ba) of the Income Tax Act, 1961, specifically under the provisions relating to Tax Deducted at Source (TDS). While salary paid to employees is subject to TDS under Section 192, the remuneration paid to directors, other than salary, follows distinct guidelines.

The nature of such payments, the TDS rate, and the applicable sections vary depending on the type of remuneration and the director’s role in the company. This article aims to provide an overview of TDS provisions on Directors' Remuneration Other Than Salary, covering important aspects such as the types of remuneration, applicable tax rates, and the responsibilities of the company in deducting and remitting the tax.

Types of Directors' Remuneration Other Than Salary

Directors of a company can receive various types of remuneration apart from salary. Some common examples include:

• Sitting Fees: This is the fee paid to directors for attending board meetings or committee meetings. It is usually paid on a per-meeting basis and is not considered as salary.
• Commission: Directors may receive commission payments as a percentage of profits or revenue, particularly if they are involved in the company's management and have specific performance targets or benchmarks.
• Profit-linked Incentives: This refers to payments made to directors based on the company's profitability, such as bonuses linked to specific financial achievements.
• Other Payments: Any other kind of remuneration that is not classified as salary can be subject to TDS, such as reimbursement of certain expenses or non-salary-based perquisites.

TDS Applicability on Directors' Remuneration

TDS provisions are applicable on remuneration paid to directors, but there are different tax treatment criteria based on the nature of the payment.

1. Sitting Fees

Sitting fees paid to directors for attending meetings are taxable under the head "Income from Other Sources." The company is required to deduct TDS on such payments under Section 194J of the Income Tax Act. This section applies to payments for professional or technical services, which includes sitting fees.

• TDS Rate: The applicable TDS rate on sitting fees is 10% (without any surcharge or cess) as per Section 194J.


• Threshold Limit: If the total sitting fees paid during a financial year to a director do not exceed ₹30,000, the company is still required to deduct TDS at the specified rate.


• Payment Mode: The company needs to deduct TDS at the time of crediting or paying the sitting fee, whichever is earlier.

2. Payment to Non-Executive Directors

Non-executive directors (i.e., those who are not part of the day-to-day management of the company) may receive remuneration in the form of sitting fees, commission, or other payments. For such directors, TDS is applicable in a similar manner as for other directors under Section 194J.

• Sitting Fees: As stated earlier, TDS is deducted at 10% under Section 194J on sitting fees.


• Commission: The commission or other payments to non-executive directors are also subject to TDS under Section 194J at the rate of 10%.

3. Payments to Executive Directors

Executive directors (those who are involved in the day-to-day management of the company) may receive a combination of salary, commission, and other forms of remuneration. For commission or other payments, TDS is deducted under Section 194J. However, if an executive director is receiving remuneration under an employment contract (i.e., salary), then TDS will be deducted under Section 192, and not under Section 194J. Therefore, payments that are classified as salary (rather than commission or sitting fees) will be subject to different TDS provisions, including the tax slab rates applicable to individual employees.

Threshold limit and Rate of TDS u/s 194J(1)(ba)

Under section 194J(1)(ba), TDS on Directors remuneration other than salary (sitting fees, non-compete fees) there is no such limit to deduct TDS, which means any amount paid will be subjected to TDS under this section @10%.

When to deduct and deposit TDS on Directors remuneration u/s 194J(1)(ba)?

Time of Deduction:
TDS on directors remuneration is to be deducted at the time of payment or credit to the account of the director, whichever is earlier. For example, if the remuneration is credited to the director’s account on the 1st of January, the TDS must be deducted on that date.

Deposit of TDS:
The company is required to deposit the TDS with the government by the 7th of the following month (for monthly deductions except for March, which is to be deposited on or before 30th April). If the company fails to deposit the TDS on time, it may face penalties and interest.

Important points

• Salary paid to directors will get covered under section 192
• Payments other than salary will get covered under section 194J, for example sitting fees or non compete fees.

Why choose Bizfoc for TDS?

At Bizfoc, we specialize in providing you the best accounting services in filing your TDS. Here are the reasons why we are known for our services to our clients on filing TDS:

• Assist in suggesting the right documents for TDS filing.
• Providing valuable insights on sections of TDS computations
• Prescribe forms as per the necessity
• Helps in accurate computations for TDS computations and returns
• Tailored advice and guidelines for TDS filing

In general, we assist the client to solve their queries and doubts regarding the documentation, procedures, and fees for filling out the form. Other than making your filing successful, we help you make a better decision by covering every aspect of what you actually need to get your TDS.

Conclusion

TDS on directors remuneration (other than salary) is an essential compliance requirement for companies. By adhering to the relevant provisions of the Income Tax Act, companies ensure that they fulfill their tax obligations correctly and directors are taxed in accordance with the law.

The key takeaways for companies are:

• Understand the nature of the payment made to the director (sitting fees, commission, or other remuneration).
• Deduct TDS at the appropriate rate (typically 10% under Section 194J).
• Ensure timely payment of TDS to the government and timely filing of TDS returns.
• Issue TDS certificates (Form 16A) to directors for transparency and proper record-keeping.

For directors', it is equally important to be aware of the taxability of their remuneration, the TDS deducted, and the income reporting requirements to ensure compliance with the tax laws and avoid any penalties or interest for non-compliance.

Frequently Asked Questions? (FAQs)