TDS on Directors Remuneration
Are you in the process of hiring a director for your company? If so, then you need to be aware of TDS on Directors’ Remuneration. This article is a comprehensive guide to understanding the concept and calculating taxes accordingly.
What is TDS on Directors Remuneration?
It is a tax deducted from the payment made to directors for their services. The amount of tax that is deducted depends on the director's total income and the tax rate that applies to them. Directors who are residents of India are subject to TDS on their director's remuneration at the rate of 10%. Non-resident directors are subject to TDS at the rate of 20%.
Who is Eligible to Pay TDS on Directors’ Remuneration?
The board of directors of a company is responsible for its overall strategy and performance. They are typically paid a combination of salary, allowances, and commissions. In India, taxes on directors' remuneration are deducted at source (TDS) under the Income Tax Act.
Who is eligible to pay TDS on directors’ remuneration?
A resident director on a company’s board is liable for TDS on their director’s remuneration. A non-resident director is only liable for TDS if they receive income from sources in India. The company is responsible for deducting TDS from the director's remuneration and paying it to the government.
What is the rate of TDS on directors’ remuneration?
The current rate of TDS on directors’ remuneration is 10%. This means that if a director receives Rs 1 lakh as salary, the company will deduct Rs 10,000 as tax and pay the remaining Rs 90,000 to the director.
Are there any exemptions from TDS on directors’ remuneration?
Yes, there are some exemptions from TDS on directors’ remuneration. These include:
- Directors who are not residents of India.
- Directors who do not receive any income from sources in India.
- Directors who are 60 years or older receive a pension instead of a salary.
- Directors who have total income (including directors’ remuneration) below the basic exemption limit
Calculation of TDS on Director’s Remuneration
As per the Income Tax Act, any amount paid by a company to its director in the form of salary, commission, or remuneration is subject to TDS. The TDS on directors’ remuneration is calculated at the time of credit or payment whichever is earlier. The rate of TDS on directors’ remuneration is 2% if the PAN number is provided by the director and 20% if the PAN number is not provided.
The amount of TDS on directors’ remuneration is deducted from the total amount payable to the director and is deposited with the government. The company then issues a TDS certificate to the director, mentioning the details of the deduction made. It is important to note that no interest is payable on delayed payment of TDS by the company.
Benefits of TDS on Director’s Remuneration
As a company director, you are entitled to remuneration for the services you provide to the company. This remuneration can take the form of a salary, fees, commission, bonuses, or other benefits. The amount of remuneration you receive will depend on the size and type of company you work for, as well as your experience and expertise.
The Tax Deducted at Source (TDS) scheme was introduced in India to collect tax from individuals who earn income from salaries, commissions, professional fees, etc. TDS is deducted by the employer at the time of payment of salary/fees/commission, etc., and is deposited with the government.
TDS on the director's remuneration is beneficial for both the director and the company. Some of the benefits are as follows:
1. It helps in reducing the tax liability of the director: TDS on the director's remuneration is deducted at source, which means that it is deducted before it is paid to the director. This reduces the overall tax liability of the director as he/she would have otherwise been liable to pay tax on the entire amount of remuneration received.
2. It helps in saving time: TDS on directors' remuneration is deducted and deposited with the government by the employer itself. This saves a lot of time for both the director and the company as they don't have to file any separate tax returns or make any additional
Timely Payment and Deduction of TDS
Timely payment and deduction of TDS are important for several reasons -
Firstly, it ensures that the director receives the correct amount of remuneration. Secondly, it helps to avoid any penalties that may be imposed by the Income Tax Department for late payment or non-deduction of TDS.
Thirdly, it helps to maintain a good rapport with the Income Tax Department. Fourthly, timely payment and deduction of TDS also help to avoid any interest that may be levied on the outstanding amount.
Lastly, it ensures that the directors are not liable to pay any tax on their remuneration which has already been deducted at source.
How to File Return for TDS on Director’s Remuneration
When it comes to TDS on directors’ remuneration, there are a few key things that you need to know.
The first thing you need to do is ensure that you have all the necessary documents. This includes your PAN card, Form 16/16A (if applicable), and any other relevant supporting documents.
Next, you will need to log into the e-filing portal of the Income Tax Department. Once you are logged in, you will need to click on the ‘e-File’ tab and then select ‘Income Tax Returns’.
Now, you will need to select the assessment year for which you want to file your return. After that, you will need to select the form (ITR) which is applicable to your case. For instance, if you are an individual who is required to file their return under section 139(4), then you will have to select ITR-1.
Once you have selected the relevant form, you will be taken to a page where you will be required to fill in your personal details. After that, you will need to click on the ‘Submit’ button.
You will now be taken to the next page where you will be required to fill in your financial details. This includes information such as your income from salary, interest income, and capital.
Penalties for Non-Compliance
If you're a company director, it's important to be aware of the tax implications of your remuneration. You need to know about the TDS on Directors Remuneration (TDS-D).
The TDS-D is a tax that is levied on directors' remuneration by the Reserve Bank of India (RBI). It is payable by companies at the rate of 2% of the total remuneration paid to directors in a financial year.
However, there are certain exceptions to this rule. For instance, if the total remuneration paid to all directors in a financial year is less than Rs 1 crore, then the company is not liable to pay any TDS-D.
Further, if the amount of remuneration paid to an individual director is less than Rs 5 lakh in a financial year, then again, no TDS-D is payable on that amount.
It should be noted that the TDS-D is not an income tax. Rather, it is a kind of advance tax that companies are required to withhold and pay to the RBI. This tax is then used to set off any income tax liability that may arise for directors in respect of their remuneration for the financial year.
Non-compliance with the TDS-D regime can lead to severe penalties. Get a Director’s and Officer’s Insurance at Bimakavach