TDS on Salary to Directors Under Section 194J (1) (ba)

TDS on Salary to Directors Under Section 194J (1) (ba)

What is Section 194J (1) (ba)?

Section 194J now features a new provision 1(ba) that expands the gross TDS calculation to include every remuneration granted to a company’s directors.

This provision came into effect on July 1, 2012. TDS At 10% is to be charged from any payment made to Directors of companies with the notice on July 1, 2012, as according to newly included clause 1(ba) in Section 194J. This provision is as described in the following:

Section 194J(1)(ba) states explicitly that any remuneration, fees, or commission payable to a corporation’s director other than those eligible for deduction of taxes under Section 192, is subject to TDS.

What are the Key Points of this Section’s Assessment?

  • This provision will extend solely to payments made by a corporation to its directors and therefore will not extend in any other situations.
  • This section does not pertain if the tax is deductible under Section 192, i.e., wage income. When there is an employer-employee link, such remuneration falls under Section 192. For example, executive directors are given remuneration and are not legally entitled to any other expenses such as sitting fees, etc.
  • If a director is a non-resident director, TDS should be collected following Section 192 if it is deductible under the category salaries; alternatively, TDS must be charged under Section 195.

What are the Different Types of Payments Covered by this Section?

This section 194J(1)(ba) includes the following categories:

  • Fees for attending meetings
  • Remuneration
  • Commission
  • Brokerage
  • Sitting Fee

What is a Sitting Fee?

Sitting fees are the charges levied to directors for having attended board meetings or committee meetings, as the occasion may be suitable.

What is the TDS Rate?

TDS Rate on Salary to directors is levied at 10percent of the total amount.

What Exactly is the Threshold Limit for this Clause?

There is no possible option of a threshold limit. Since there’s no threshold limit, the tax must always be collected even when the total payment for the year is as meager as Rs 100.

For Greater Comprehension, Consider The Following Example

XYZ Ltd. paid Rs. 40,000/- per month to Mr. A, the company’s executive director, and Rs. 20,000/- each year for sitting fees. Given Mr. A is an executive director of the firm, no TDS is deemed necessary to be collected from his monthly compensation payment.

Consequently, TDS of Rs.2,000/- would be deducted under Section 194J for the director’s sitting costs.

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