SERVICE TAX ON DIRECTORS

General Circular No. 24/2012

F.No.14/33/2012-CL. VII
*Government of India; Ministry of Corporate Affairs*

9th August, 2012

To,

All Regional Directors; All Registrars of Companies; The Institute of
Company Secretaries of India; The Institute of Chartered Accountants of
India
The Institute of Cost Accountants of India

Sub: Applicability of Service Tax on commission payable to Non-Whole Time
Directors of a company under section 309(4) of the Companies Act, 1956 –
approval of Central Government under section 309/310 of the Companies Act –
regarding.

The Finance Act 2012 has introduced Service Tax which is applicable to
anyone who provides a Service not covered under the negative/exempted list
and if the value of annual revenue is more than Rs. 10 lakh. The *Non-Whole
Time Directors of the Company* are presently not covered under the exempted
list and as such, the sitting fee/ commission payable to them by the
company is liable to Service Tax.

If such Service Tax is paid by the company, it will be deemed to be a part
of remuneration under section 198 of the Act and would accordingly increase
the remuneration amount of such Non-Whole Time Directors. This remuneration
could then exceed the limit of 1% profit [u/s 309(4)] of the company when
the company has a Managing /Whole Time Directors/ Managers or. 3% of the
profit [u/s 309 (4)] of the company if the company does not have a
Managing/ Whole Time Directors/ Managers, as the case may be. As per
existing provisions of the Companies Act,1956, this would require prior
approval of Central Government u/s 309 and 310 of the Act.

It has now been decided that any increase in remuneration of Non-Whole Time
Director(s) of a company solely on account of payment of service tax on
commission payable to them by the company shall not require approval of
Central Government under section 309 and 310 of the Companies Act even if
it exceeds the limit 1% or 3% of the profit [u/s 309 (4)] of the company,
as the case may be, in the financial year 2012-13.

(L. K. Trivedi)

Under Secretary to the Govt. of India

--
CA Swaran Singh
C/o Gawri & Munjal,
Chartered Accountants,
104A/378, Ram Bagh, Kanpur-208012
9415130759
e-mail - swaran.munjal@gmail.com