RCA

The Central Board of Excise and Customs has issued a clarification on the applicability of Service Tax in respect of the commission paid to the Managing Director/ Directors of companies, on July 31, 2009.

It has been clarified that :

1. Payments termed as ‘commission’ made to a Managing Director/ Directors, whether whole-time or independent, would not be ‘commission’ as envisaged under the Service Tax category of Business Auxiliary Services. Hence, payments of commission made to the Managing Director/ Directors would not be subject to Service Tax.

2. The Managing Director/ Directors, being part of the Board of Directors of a company perform management functions and they do not perform a consultancy or advisory function as envisaged under the Service Tax category of Management or Business Consultant’s Services. Accordingly, the payments made to the Directors for discharging management functions would not amount to payments made for management consultancy services. Hence, the amounts paid to Managing Directors/ Directors, would not be subject to Service Tax under the category of Management or Business Consultant’s Services irrespective of whether the Director is working as a Whole-Time Director or an Independent Director.

3. However, if the Managing Director/ Directors receive separate payments for any advice or consultancy provided to the company, such payments would be subject to Service Tax.

Source: Circular No.115/09/2009-ST dated 31 July 2009