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Payment to MDs not to attract service tax: CBEC
August, 01st 2009

The government today clarified that payments made to Managing Directors and Directors of companies would not call for service tax.

" Remunerations paid to the Managing Directors/ Directors of companies whether whole-time or independent when being compensated for their performance as Managing Director/ Director would not be liable to service tax,"the Central Board of Excise and Customs said in a circular issued here today.

The amount paid to Managing Directors even if termed as commission, is not&aposcommission&aposthat is within the scope of business auxiliary service and hence service tax would not be levied on such amount, it said.

Meanwhile, the circular also clarified on the consultancy and advisory services given by the MDs of companies.

It said that being part of the Board of Directors, the MDs perform management function and the payments made by the companies to these directors cannot be called as payments for providing management consultancy services, and hence no service tax on that.

However, in case such directors provide any advice or consultancy to the company for which they are being compensated separately, such service would become chargeable to service tax.

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