Payments to non executive director
This query is : Resolved
10 December 2010
1. Can we pay to a non executive director for his services other than as a director? any sum as professional charges etc at fixed/changing rates?
2. what if above is Rs10,000/- pm
3.is it contrary - to show as non executive in form 32 and pay him (though other than director services)
5. does deducting tds and showing a non executive director in 194j has got any problems? either for him or a deductor company
2. what if above is Rs10,000/- pm
3.is it contrary - to show as non executive in form 32 and pay him (though other than director services)
5. does deducting tds and showing a non executive director in 194j has got any problems? either for him or a deductor company
10 December 2010
Hi..
As per section 309(1) of the Companies Act, 1956 Remuneration of Directors includes payment for services rendered by a Director in any other capacity.
If the services rendered are of a professional nature the same shall not be included in the Director's remuneration provided:
1. Services are of professional nature,and
2. In the opinion of the Central Government, the Director concerned possesses the relevant qualifications and expertise to render such professional services.
However, the provisions of section 309 are not applicable to an independent private company.
2. As per section 314 of the Companies Act, 1956 if the Director of the Company receives anything over and above his remuneration as the Director of the Company, from the Company whether by way of salary, fees, commission, perquisites, allowances, right to occupy rent free premises for residential purposes etc. he is said to hold an office or place of profit in the Company or its subsidiary Company as the case may be.
Hence, if the Director is holding an office or place of profit in the Company carrying a monthly remuneration of Rs.10,000 or more, consent of the members by way of a Special Resolution has to be obtained in the General Meeting of the Company.
3. No it is not contrary.
God Bless
Udit Sharma
As per section 309(1) of the Companies Act, 1956 Remuneration of Directors includes payment for services rendered by a Director in any other capacity.
If the services rendered are of a professional nature the same shall not be included in the Director's remuneration provided:
1. Services are of professional nature,and
2. In the opinion of the Central Government, the Director concerned possesses the relevant qualifications and expertise to render such professional services.
However, the provisions of section 309 are not applicable to an independent private company.
2. As per section 314 of the Companies Act, 1956 if the Director of the Company receives anything over and above his remuneration as the Director of the Company, from the Company whether by way of salary, fees, commission, perquisites, allowances, right to occupy rent free premises for residential purposes etc. he is said to hold an office or place of profit in the Company or its subsidiary Company as the case may be.
Hence, if the Director is holding an office or place of profit in the Company carrying a monthly remuneration of Rs.10,000 or more, consent of the members by way of a Special Resolution has to be obtained in the General Meeting of the Company.
3. No it is not contrary.
God Bless
Udit Sharma
10 December 2010
thanks mr udit for deatiled reply
just to add
We have made a mistake for 2 months. We have actaully paid professional charges to a person, who was working for us. Later the directors in board meeting decided to take him to the board and but as a non-executive director from mid of June. However we continued to make the payment for July and Aug. Is it okay to show this as an item in the next ADM (ie for Sep 2011).
our main concern is we have shown this TDS return as Professional charges (NOT SALARY)
just to add
We have made a mistake for 2 months. We have actaully paid professional charges to a person, who was working for us. Later the directors in board meeting decided to take him to the board and but as a non-executive director from mid of June. However we continued to make the payment for July and Aug. Is it okay to show this as an item in the next ADM (ie for Sep 2011).
our main concern is we have shown this TDS return as Professional charges (NOT SALARY)
09 August 2024
### Payments to Non-Executive Directors and Professional Charges
**1. Payment to a Non-Executive Director for Services Other Than as a Director**
Yes, a company can pay a non-executive director for services other than those rendered in their capacity as a director. These payments can be made as professional fees or consultancy charges. The key considerations are:
- **Nature of Services:** The services should be distinct from the director’s duties as a board member.
- **Rate and Agreement:** Payment should be based on a clear agreement specifying the nature of services and payment terms.
**2. Payment Above ₹10,000 per Month**
If the payment to a non-executive director for professional services is ₹10,000 or more per month, the following points need to be considered:
- **TDS Deduction:** TDS should be deducted under Section 194J (Professional Fees) for professional services.
- **Form and Compliance:** Ensure proper compliance with tax regulations and maintain necessary documentation.
**3. Form 32 and Payment for Non-Director Services**
It is not inherently contradictory to classify someone as a non-executive director in Form 32 while paying them for services other than their directorial role. However, clarity and proper documentation are crucial:
- **Role and Service:** Ensure that the role as a director and the professional services are clearly distinguished.
- **Documentation:** Maintain proper records of both directorial duties and professional services to avoid any confusion.
**4. TDS Deduction and Reporting under Section 194J**
There should be no problem if TDS is deducted and reported under Section 194J for professional charges:
- **TDS Deduction:** Section 194J is applicable for professional fees, so payments for services rendered by the non-executive director, other than directorial services, should have TDS deducted under this section.
- **Compliance:** Ensure compliance with TDS provisions and accurately report in the TDS return.
**5. Handling Mistakes in Payments and TDS Reporting**
If you have made payments as professional charges to a person who later became a non-executive director, and continued payments under the professional charges head, you should:
- **Corrective Action:** Document the mistake and make necessary adjustments in your financial records.
- **TDS Reporting:** Correctly report the TDS under the professional charges category as per the payment made.
- **Documentation:** Clearly document the transition of the person from a professional service provider to a non-executive director.
**Handling the Scenario in Your Case**
- **Professional Charges:** Continue to report the payments made under professional charges as per Section 194J. If TDS was correctly deducted, there should be no issue.
- **Director’s Role:** Ensure that the transition to a non-executive director is correctly reflected in Form 32 and any other relevant filings.
- **Future Payments:** Going forward, payments for directorial services should be categorized and treated separately from professional fees.
**Practical Steps:**
1. **Adjust Records:** Make necessary adjustments in your accounting records for the incorrect payments.
2. **File Correct Returns:** Ensure TDS returns are filed correctly, reflecting the accurate nature of the payments.
3. **Documentation:** Keep detailed records of the nature of services and payments to avoid similar issues in the future.
In summary, payments to a non-executive director for services outside their directorial role should be handled carefully with proper documentation and compliance with tax regulations. Adjustments for past mistakes should be made transparently and in accordance with tax laws.
**1. Payment to a Non-Executive Director for Services Other Than as a Director**
Yes, a company can pay a non-executive director for services other than those rendered in their capacity as a director. These payments can be made as professional fees or consultancy charges. The key considerations are:
- **Nature of Services:** The services should be distinct from the director’s duties as a board member.
- **Rate and Agreement:** Payment should be based on a clear agreement specifying the nature of services and payment terms.
**2. Payment Above ₹10,000 per Month**
If the payment to a non-executive director for professional services is ₹10,000 or more per month, the following points need to be considered:
- **TDS Deduction:** TDS should be deducted under Section 194J (Professional Fees) for professional services.
- **Form and Compliance:** Ensure proper compliance with tax regulations and maintain necessary documentation.
**3. Form 32 and Payment for Non-Director Services**
It is not inherently contradictory to classify someone as a non-executive director in Form 32 while paying them for services other than their directorial role. However, clarity and proper documentation are crucial:
- **Role and Service:** Ensure that the role as a director and the professional services are clearly distinguished.
- **Documentation:** Maintain proper records of both directorial duties and professional services to avoid any confusion.
**4. TDS Deduction and Reporting under Section 194J**
There should be no problem if TDS is deducted and reported under Section 194J for professional charges:
- **TDS Deduction:** Section 194J is applicable for professional fees, so payments for services rendered by the non-executive director, other than directorial services, should have TDS deducted under this section.
- **Compliance:** Ensure compliance with TDS provisions and accurately report in the TDS return.
**5. Handling Mistakes in Payments and TDS Reporting**
If you have made payments as professional charges to a person who later became a non-executive director, and continued payments under the professional charges head, you should:
- **Corrective Action:** Document the mistake and make necessary adjustments in your financial records.
- **TDS Reporting:** Correctly report the TDS under the professional charges category as per the payment made.
- **Documentation:** Clearly document the transition of the person from a professional service provider to a non-executive director.
**Handling the Scenario in Your Case**
- **Professional Charges:** Continue to report the payments made under professional charges as per Section 194J. If TDS was correctly deducted, there should be no issue.
- **Director’s Role:** Ensure that the transition to a non-executive director is correctly reflected in Form 32 and any other relevant filings.
- **Future Payments:** Going forward, payments for directorial services should be categorized and treated separately from professional fees.
**Practical Steps:**
1. **Adjust Records:** Make necessary adjustments in your accounting records for the incorrect payments.
2. **File Correct Returns:** Ensure TDS returns are filed correctly, reflecting the accurate nature of the payments.
3. **Documentation:** Keep detailed records of the nature of services and payments to avoid similar issues in the future.
In summary, payments to a non-executive director for services outside their directorial role should be handled carefully with proper documentation and compliance with tax regulations. Adjustments for past mistakes should be made transparently and in accordance with tax laws.
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