12-02-2011, 07:48 PM
Firstly, I can't understand why you have said that you can't pay salaries to your directors. By saying directors are owners of company, I think, you mean to say that they hold the entire shareholding of the company. I don't know any provision of law that debars payment of salaries to the Directors who are also substantial shareholders in the company.
With respect to consultancy fee, it is stated that you would have to deduct tax under section 153(1)(b) at the rate of 6% while paying such fee. Said deduction would be minimum tax [section 153(3)(b)] on the income of directors and they would be liable to tax in accordance with Table under Clause 1 of the First Schedule. If their rate of tax is higher than 6% then tax deducted at source would be adjusted. If the net rate is less than 6% then they won't get any refund.
I would advise that you should pay them salaries instead of fee. In this case tax rates are lower and while deducting tax for salaries you may also grant adjustment for tax deducted under other heads like mobile, cash withdrawal from bank, etc.
I have recently read in loose leaf binders of SA SALAM on INCOME TAX LAW, which is a credible and up to date book, that SRO 368/1994 is still in force. However, it is not available on FBR website. If no other SRO has deleted it then by virtue of s.239(12) it will be applicable and according to it a company having paid up capital not exceeding 1.5 million rupees (Rs.15,00,000) shall not be liable to deduct tax under section 153. If you are a company with paid up capital of less than 1.5 million rupees then you may, after being satisfied of the applicability of the said SRO, avail the benefit of said SRO and not deduct tax for consultancy fee. (It will not affect the tax liability of directors in respect of such consultancy fee)Readers are invited to share any statutory instrument or case law that may further confirm applicability or non-applicability of SRO 368(I)/1994.
With respect to consultancy fee, it is stated that you would have to deduct tax under section 153(1)(b) at the rate of 6% while paying such fee. Said deduction would be minimum tax [section 153(3)(b)] on the income of directors and they would be liable to tax in accordance with Table under Clause 1 of the First Schedule. If their rate of tax is higher than 6% then tax deducted at source would be adjusted. If the net rate is less than 6% then they won't get any refund.
I would advise that you should pay them salaries instead of fee. In this case tax rates are lower and while deducting tax for salaries you may also grant adjustment for tax deducted under other heads like mobile, cash withdrawal from bank, etc.
I have recently read in loose leaf binders of SA SALAM on INCOME TAX LAW, which is a credible and up to date book, that SRO 368/1994 is still in force. However, it is not available on FBR website. If no other SRO has deleted it then by virtue of s.239(12) it will be applicable and according to it a company having paid up capital not exceeding 1.5 million rupees (Rs.15,00,000) shall not be liable to deduct tax under section 153. If you are a company with paid up capital of less than 1.5 million rupees then you may, after being satisfied of the applicability of the said SRO, avail the benefit of said SRO and not deduct tax for consultancy fee. (It will not affect the tax liability of directors in respect of such consultancy fee)Readers are invited to share any statutory instrument or case law that may further confirm applicability or non-applicability of SRO 368(I)/1994.
