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Reverse charge of service tax on directors remuneration

Reverse charge of service tax on directors remuneration

The changes ushered in by the Finance Act, 2012 have resulted in the taxing of a host of services which were earlier outside the service tax ambit. One such service which now falls in the service tax net is service rendered by the directors of a company.

Services provided by an employee to an employer in the course of employment are specifically excluded from the definition of service, thus, remuneration paid to executive directors under employment contracts are not subject to service tax. However, services provided by other directors (not covered under an employment contract) to a company are taxable.

The Central Government vide notification no 45/2012 – ST and notification no 46/2012 – ST, both dated 7 August 2012 has shifted the liability for payment of service tax from the director to the company. Thus, in respect of services provided by the director of a company to the company, such company would be liable to pay service tax on remuneration paid to such directors.

This reverse charge is effective from 7 August 2012. Thus, directors would remain liable to pay service tax only on remuneration received by them during the period from 1 July 2012 to 6 August 2012 if the aggregate value of all taxable services provided during the preceding financial year or during the above referred period in the current year exceeds INR 1 million.

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