Tax Break for Indian Directors and Managing Directors

August 3, 2009 Taxation in India  No comments

The Central Board of Excise and Customs (CBEC) of India has released their stance on service tax for Directors’ and Managing Directors‘ remuneration, clarifying that commission paid is in most cases not liable for service tax.

The CBEC has clarified their position on the situation of “commission” based on company performance being paid to Directors and Managing Directors, in regards to service tax purposes. Doubts were raised as to the position due to many of India’s listed companies treating the payments made towards Directors as “salary”, while in the strict reading of the law they were “commission”.

It was stated by the CBEC in a publication that “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 services. Hence service tax would not be leviable on such amount.”

The decision applies to both whole-time and independent Directors and Managing Directors. However it was decided that any consultancy or advice provided by a Director or Managing Director, for which they are compensated for separately from their “commission”, service tax will apply.

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