10 October 2014
Hi friends, Whether service tax is applicable on salary paid to Director/ED/MD under Reverse Charge Mechanism. When i saw the applicability of reverse Charge Mechanism it is mentioned that "Service by a director of a company" . Hence kindly let me know what type of services provided by directors are liable for reverse charge mechanism & also whether salary paid to the directors as mentioned above. Kindly do the needful.
10 October 2014
Services provided by a Director in his capacity as an employee is not chargeable to service tax since employer employee relationships are out of the purview of service tax. However, receipts by a director other than by way of salary shall be liable to service tax.
Eg: sitting fees to independent directors, guarantee commission received by an ED/MD for providing guarantees on loans taken by the company, etc.
10 October 2014
Ministry has already clarified (vide two circulars below) that Directors’ remuneration is not service taxable unless there is separate compensation/consideration to the Directors from the Company (Re. last line of para 2(ii) of Ministry’s circular dt. 31.07.2009). Without prejudice, Section 314(3)(a) of the Companies Act also deals with the same situation.
Reverse mechanism under Notification 30/2012 read with 45/2012 applies only when there is levy of service tax prima facie.
Dy.No.324/Comm (Service Tax)/2008 GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF EXCISE & CUSTOMS NEW DELHI Dated : December 1, 2008 Subject : Service Tax - clarification regarding 'Commission' covered under 'Business Auxiliary Service' - reg. Please refer to your letters V(ST)/15-96/Commissioner/BIL/2008/Adj dated 10.10.2008 and others on the subject mentioned above. 2. The matter regarding levy of service tax under the head 'Business Auxiliary Service' on the 'Commission' received by the Directors of the company has been examined. The Board is of the view that some companies make payment to their officials, such as Managing Directors/Directors, terming the same as 'Commissions'. This payment may be over and above the salary and other remunerations. Such commissions may be either performance linked or linked to the financial results of the company, but the fact is that it is nothing but remuneration paid to an employee by the employer. The relationship between an employee and the employer is distinct from the relationship between a service receiver and service provider. Thus action taken by an employee for the benefit of the employer cannot be in the nature of service. Therefore, so long as the activities performed are duties within the framework of the terms of employment, the amount paid by an employer to an employee, even if it is termed as commission, would not be treated as 'commission' mentioned under the definition of business auxiliary service and service tax would not be leviable on such amount. 3. In view of the above clarification, pending issues may be resolved in line with the above. GAUTAM BHATTACHARYA Commissioner (ST)
Circular No. 115/09/2009 – ST
Dy. No. 324/Comm (ST)/2008 Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs *** New Delhi, 31st July 2009
Subject: Service tax on commission paid to Managing Director / Directors by the company -reg ********** Below mentioned issues have been referred to the Board seeking clarifications,- (i) applicability of service tax under ‘Business Auxiliary service’ on commission paid to Managing Director / Directors (whole time, or Independent) by the company, (ii) applicability of service tax on Independent Directors who are part of the Board of Directors under ‘Management Consultant service’. 2. Both the matters have been examined by the Board and the clarifications are as under, - (i) Some Companies make payments to Managing Director/Directors (Whole-time or Independent), terming the same as ‘Commissions’. The said amount paid by a company to their Managing Director/Directors (Whole-time or Independent) even if termed as commission, is not the ‘commission’ that is within the scope of business auxiliary service and hence service tax would not be leviable on such amount. (ii) The Managing Director / Directors (Whole-time or Independent) being part of Board of Directors perform management function and they do not perform consultancy or advisory function. The definition of management consultant service makes it clear that what is envisaged from a consultant is advisory service and not the actual performance of the management function. The payments made by Companies, to Directors cannot be termed as payments for providing management consultancy service. Therefore, it is clarified that the amount paid to Directors (Whole-time or Independent) is not chargeable to service tax under the category ‘Management Consultancy service’. However, in case such directors provide any advice or consultancy to the company, for which they are being compensated separately, such service would become chargeable to service tax.
3. In view of the above, it is clarified that remunerations paid to Managing Director / Directors of companies whether whole-time or independent when being compensated for their performance as Managing Director/Directors would not be liable to service tax.
Pending issues may be resolved in line with the above.
Yours faithfully
(Himanshu Gupta) Commissioner (Service Tax) CBEC, New Delhi
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