Section 194J(1)(ba) Of The Income Tax Act: TDS Deduction on Remuneration Paid to Directors
Section 194J(1)(ba) states that any remuneration, fees, or commission paid to a director of a company, other than those on which tax is deductible under Section 192, shall be liable to 10% TDS deduction.
Note that before the insertion of clause (1)(ba), Section 194J included TDS deduction on the amount paid for technical or professional services. Now Section 194J(1)(ba) of Income Tax Act makes it clear that TDS is deducted on sitting fees and every other commission paid to a director. Read on to get all the details about Section 196J(1)(ba) and if it applies to you.
When is Section 194J(1)(ba) of the Income Tax Act Applicable?
The provisions of this Section are only applicable in the following situations:
- This section is only applicable if the tax is not deductible under Section 192. For example, full-time directors or managing directors of a company get paid salary, which doesn’t come under this Section.
- If the director is a non-resident, then any kind of remuneration paid is subject to TDS deduction under Section 192, and not this.
- This clause is solely applicable to the remuneration paid to a director of a company by the company and not in any other scenario.
Nature of Payments Covered under Section 194J(1)(ba) of Income Tax Act
By the terms mentioned like commission, fees, or remuneration, it might be confusing to comprehend the types of fees covered under Sec 194j1ba of the Income Tax Act. So here are the types of fees that are subject to TDS deduction:
- Remuneration
Remuneration is the compensation an employee receives for all the services (here, technical and professional) provided.
- Commission
The commission is the payment you receive against a targeted performance, i.e., sales. It is not fixed and varies with targets.
- Brokerage fee
Brokerage charges are the fees or commission paid to a company or firm that provides intermediary services in diverse areas, i.e., investment, loan, or real estate.
- Sitting fees
A sitting fee is a payment made to a director of the company for attending meetings with the board of directors or committee. As per the rule of Section 197(5), this fee should not exceed one lakh as decided by the said board of directors.
- Fees for attending meetings
This is almost similar to the sitting fees but not limited to the meetings of the board of directors.
Also Read: Section 145A Of The IT Act: Calculate the taxation value on inventories
Rate of TDS and Threshold Limit under Section 194J(1)(ba) of Income Tax Act
The rate of TDS is 10% of the gross amount. There is no threshold limit as such. TDS on salary is applicable even if the amount is as small as Rs. 10.
Let’s understand Section 194J(1)(ba) with the following example:
Suppose a company, ABC ltd., is paying its executive director Rs. 50,000 per month as a fixed salary and Rs. 25,000 per year as sitting fees for the board of directors meeting.
Now, no TDS will be deducted from Rs. 50,000 under Section 194J(1)(ba) of Income Tax Act.
But, Rs. 2,500 will be deducted from the sitting fees as per the rules of the said clause.
In the case of a non-resident director, Rs. 7,500 will be deducted according to the rules of Section 195.
The above example will help one compute TDS on directors’ remuneration of private companies.
Also Read: Income Tax Audit In India
Final Word
If you hold the position of a Director at a company, it is essential to know about the intricacies of Section 194J(1)(ba) of the Income Tax Act. Go through the above-mentioned details to get a clear idea regarding Section 194J(1)(ba) to avoid paying any penalty or interest.
FAQs on Section 194J(1)(ba)
Ans: A salary is a fixed amount that employers pay their employees. On the other hand, remuneration is a broader concept consisting of bonuses and other rewards. Note that remuneration can be monetary or non-monetary in nature.
Ans: Section 192 of the Income Tax Act, 1961 says that every person who is paying an employee a ‘salary’ is liable to charge TDS on the estimated value under the head salaries. That said, Section 194J(1)(ba) states that any remuneration, fees or commission paid to a director of a company is subject to TDS deduction.
Ans: Professional services under section 194J include
1. Engineering services
2. Medical services
3. Architectural services
4. Advertising services
5. Legal services
6. Accountancy or technical consultancy services
7. Interior decoration services
Technical services under 194J include any consideration for the contribution of any managerial, technical or consultancy services.
Ans: Section 194J(A) talks about TDS deduction on any amount paid as fees for technical services.
Section 194J(B) is related to TDS deduction on any fees paid as professional services.
Ans: A TDS certificate is issued to the assessee from whose income TDS was deducted by the person deducting TDS. Note that Form 16C, Form 16, Form 16A, and Form 16B are examples of a TDS certificate.
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