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TDS on Remuneration Paid to Directors, TDS on Director’s Remuneration

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TDS on Remuneration Paid to Directors, TDS on Director’s Remuneration. Directors are paid consideration in the form of salary, or in any other nature for e.g. sitting fees (payable to directors for attending board meetings), etc. Such payment made to the director is subject to TDS deduction.  This article will explain how the director’s remuneration will be treated with respect to TDS liability. Now Check more details for “TDS on Remuneration Paid to Directors, TDS on Director’s Remuneration” from below…

TDS on Remuneration Paid to Directors, TDS on Director’s Remuneration

Where does TDS come into the picture?

Directors are paid salary and other remuneration for e.g. sitting fees, commission, etc. TDS applicability will depend on the nature of payment made to the director. Following points will clarify the provision.

Where the remuneration is paid as salary

In this scenario, we can say that there is an employee- employer relationship between the company and the director. This would hence come under the purview of section 192.

Section 192 is for TDS for the income which is liable to be taxed under the head of the salary. Hence, here, the company is liable to deduct TDS on remuneration depending upon the tax saving figures, interest on the loan, etc. This is like TDS deduction for all the employees made by the company.

Where the remuneration is paid other than salary.

Director receives certain other consideration in the form of sitting fees or commission etc. This payment is not covered under section 192 purview.

A new clause inserted under section 194J, state that all such compensation paid other than salary should be liable for TDS deduction under section 194J.

Henceforward, the companies must deduct TDS under section 194J, wherever such remuneration is not covered under the purview of section 192.

It becomes apparent now that for determining the liability under section 192 and section 194J depends on whether there exists employee-employer relationship.

  • If the director is paid salary, which means there exists employer-employee relationship, then the company should deduct TDS under section 192. (generally, executive directors receive salary)
  • If the company pays remuneration to directors, which is other than salary, then it would be presumed that there exists no employer-employee relationship. This would require that the company should deduct TDS under section 194J. (generally applicable to managing director/ whole time director, who receive sitting fees or commission in addition to salary )

Additional points to be noted

  • There is no threshold (of Rs. 30000) for director’s remuneration which is covered under the purview of section 194J. This means that any and every amount paid as compensation other than the salary would be liable under section 194J TDS deduction.
  • Wherever section 192 is not practiced, section 194J comes into the picture with respect to director’s remuneration.
  • TDS under section 192 is generally effected with respect to the salary paid to manage director, whole-time director or executive director.
  • TDS under section 194J will be applicable @10%.
  • TDS under section 194J applies generally to the non-executive director (independent director). This is because there is no employer-employee relationship between the company and the Non-executive director.
  • Directorship is on the list of professions which would result in income by way of sitting fees etc., which would be taxable under the head “income from business or profession.” Such income is hence liable for TDS under section 194J.

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About Yash Shah

Yash Shah is passionate article writer and has written more than 100 articles in the field of Finance, Insurance, Stock Market, Company Law, Auditing, Taxation and many others. In case of any queries or suggestions, you can reach the author @ [email protected], you can also catch him on facebook @ yashshah299

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