Tds on director remunerations u/s194j(1)(ba)

This query is : Resolved

Pradyumna Atri (Querist)
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31 October 2012 Q1> Lets say a director is already getting deductions like pf and profession tax.. will the TDS@10% will apply on Gross or Net(after deduction PF and PT)?

Q2> this section is applicable since july 2012, what abt the TDS for Months April 2012 to June 2012? Can it be calculated under 194J(1)ba) or will it come under 192.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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31 October 2012 If PF and P. Tax is deducted then it means the payment is made as salary so Section 192 will apply. Only payments other than salary attracts TDS deduction u/s 194J(1)(ba).

So calculate TDS u/s 192 for the whole period.

CA. Subhash Dangi

CA. Subhash Dangi (Expert)
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31 October 2012 New clause 1(ba) in Section 194J which expand TDS net to on any remuneration paid to Directors of a company. This clause will be effective from 1st July, 2012.
In accordance with newly inserted clause 1(ba) in Section 194J, TDS @ 10% is to be deducted from any remuneration paid to Directors of accompany with effect from 1st July, 2012. This clause reads as follows
“Any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company shall liable to be deducted @10%.”
This decision of finance ministry was the result of bundle of uncertainties hovering over the deduction of tax at source on sitting fees, commission and remuneration paid to the directors. Sitting fees is the fees which are given to the directors for attending the meeting of board or any committee as the case may be. But now with the introduction of the above new clause (1)(ba) in section 194J, it is clear that TDS on any remuneration other than covered under salary or fees paid to directors or sitting fees or any payment of same nature by other name shall be covered under the ambit of sec. 194J and will be subjected to TDS @10%.

For the sake of easy understanding of our readers the whole issue may be bifurcated into two parts where the payments are made to directors in two ways:
a. By way of salary.
b. By way of fees paid for the professional services.

a) By way salary: The readers may notice that when payments are made in nature of salary, then provisions of sec.192 are attracted. It clearly means that under such situations directors are considered as employee of the company. Generally the executive directors are paid salary and they are not entitled to sitting fees or for other services.

b) By way of fees paid for the professional services: It may be noticed that directors’ remuneration includes payments made to Directors for services rendered in any other capacity as per the Companies Act, 1956. To further clarify this type of payments to directors the relevant sections of companies Act, 1956 i.e. sec. 198 and 309 can be relied upon. The collective interpretation of this section reveals that remuneration paid to whole time director/ managing director include payments made on account of
· Commission,
· sitting fees
· any other fees paid for rendering professional services.

From above analysis and careful reading of newly inserted clause in sec.194J it is very clear that before amendment sec.194J use to apply only on amount paid for professional and technical services but with above said insertion, the sitting fees and commission paid and any payment by whatever name are dragged into realm of Sec.194J.

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