Personal liabilities of a Director towards a company's tax obligations
We all know the advantages of a private limited company. And many people wish to be directors' in a private limited company. The title director has some sort of pride which every executive wishes to add to his profile.
While considering the directorship of a company, there are many aspects to be looked into.
One major point of consideration for any person before accepting directorship is: in case any income tax liability arises on the company (usually after assessment / scrutiny by the tax office) and the company is not able to honor such liability, then the directors can be held personally jointly and severally liable if the income tax cannot be recovered from the private company, in certain cases - section 179 of Income-tax Act.
Similar provisions have been made in Central Goods and Services Tax Act, 2017 and the respective State Goods and Services Tax enactments also.
Example
A subsidiary of a foreign company was operating in India till 2015-16 and shut its operations. The directors resigned thereafter. In 2017 the tax office assesses that there is a liability of 'X' amount on various grounds. The tax officer is unable to establish any contact with the company and the company too does not have any funds left in the bank account. The tax officer may then call upon those persons who were directors during the year 2015-16 to make good the tax liabilities of the company.
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