Dr. Sanjiv Agarwal
With Service Tax regime migrating to negative list approach w.e.f. July 1, 2012, almost all the services except those in negative list (section 66D) and exempted services (Notification No. 25 2012-ST dated 20.06.2012) have become exigible to service tax .
Thus, services rendered by company directors in the capacity of director have also become taxable w.e.f. 1.7.2012 and are now liable to Service Tax. The remuneration they get for attending board meetings shall be subjected to Service Tax. However, Central Board of Excise and Customs has recently amended the provisions of reverse charge so as to provide that Service Tax on Services rendered by the directors shall be payable by the companies under the reverse charge mechanism.
The directors (generally whole time / managing / executive directors) who are under contractual employment with the company and receive salary or remuneration from the company will not be covered as they shall be considered as employees of the company. All such directors who are not in employment with the company shall be considered as providing services to the company which shall attract Service Tax. In case of whole-time directors, it is a contractual employment and is governed by the provisions of the Companies Act, 1956 which also require Government’s approval in certain cases.
The directors of body corporates shall also be covered for the purpose of service tax and service tax payable on services of directors of such body corporates. Body corporate includes a company. Since all the services provided by directors in their capacity of a directors shall be covered under scope of Service Tax, the gross charges payable to them by the company shall be liable to Service Tax. It may be in the form of any one or more – sitting fee, commission, bonus, share in profit, benefit in form of ESOPs etc.
All amounts paid as remuneration except salary to directors shall be liable to Service Tax, whether for attending board meetings or committee meetings or for any other service rendered in the capacity of a director. If an employed director gets sitting fee for attending the meeting, it may be liable to Service Tax as Department is likely to view it that way. There is need for clarification on this issue. However, the following amounts received by the directors from the company will not attract Service Tax as such amounts does not represent service provided by directors – interest on loan by director to company, dividend on shares and other professional charges on account of services not rendered as a director (in professional capacity)
Service Tax is payable under reverse charge by the companies who receive services from their directors who are not in employment. A director may be appointed either in an individual capacity or to represent an entity (including government) who has either invested in the company or is otherwise authorized to nominate a director. When a director receives payment in his personal capacity, the same is liable to be taxed in the hands of the director. However, where the fee is charged by the entity appointing the director and is paid to such entity, the services shall be deemed to be supplied by such an entity and not by the individual director.
In the case of Government nominees, the services shall be deemed to be provided by the Government and liable to be taxed under the exclusion sub- (iv) of clause (a) of section 66D of the Finance Act, 1994 i.e. support services by Government to business. Such services are liable to be taxed on reverse charge basis.