Last updated: 3 May 2026. The question of whether GST applies to directors' remuneration is one of the most asked at year-end audit. The answer hinges on a single distinction: is the director an employee or not? Schedule III of the CGST Act takes services by an employee to the employer outside GST altogether. Anything that does not fit that description is a supply, and for directors, the company pays the GST under reverse charge. Circular 140/10/2020-GST gave the working test: look at the TDS section on the payment. Section 192 (salary) means employee. Section 194J (professional fees) means not. The rest follows from there.
Applicability Note: This guide is based on Schedule III Entry 1 of the CGST Act, Notification No. 13/2017-Central Tax (Rate) Entry 6, Section 9(3) of the CGST Act, and CBIC Circular No. 140/10/2020-GST dated 10 June 2020, all read together. The position stated is as of 3 May 2026. Always verify the current position on cbic-gst.gov.in or with a GST professional before acting.
Who Should Care?
This guide applies to:
- Private and public limited companies paying directors any form of remuneration
- Finance heads and CFOs preparing year-end RCM reconciliation
- Company secretaries documenting board resolutions on sitting fees and commission
- Audit teams reviewing TDS and GST positions on director payments
- Directors who hold roles in multiple companies and want to understand their own tax footprint
1. The One Test That Decides Everything
Schedule III Entry 1 of the CGST Act says services by an employee to the employer in the course of or in relation to employment are not a supply at all. They never enter the GST net. For an executive director with a salary structure, a leave policy, a notice period, and TDS deducted under Section 192 of the Income-tax Act, the entire package is outside GST.
For a director who is not an employee — no salary contract, no Section 192 TDS, paid instead by way of professional fees, sitting fees, commission, or consultancy retainers — Schedule III does not apply. The services rendered are a supply under GST. Notification 13/2017-Central Tax (Rate) Entry 6 then sweeps that supply into reverse charge: the company pays GST at 18% on the director's remuneration.
CBIC Circular 140/10/2020-GST formalised the test by tying it to Income-tax law. If the company is deducting TDS under Section 192 (salary), the payment is outside GST. If it is deducting under Section 194J (professional fees), the payment is inside GST under RCM. The same director can be on both sides of this line at the same time, in which case each component is treated separately.
2. Independent and Non-Executive Directors
An independent director, by the structure created under the Companies Act 2013, is not an employee of the company. There is no employer-employee relationship, no Section 192 deduction, and no protection under Schedule III. Every payment made to an independent director — sitting fees for board and committee meetings, commission, profit-share, consultancy retainers — is a service supplied to the company and falls under RCM.
The same logic applies to non-executive directors who are not on the company's payroll. The company pays GST at 18% under reverse charge on the gross remuneration. The 18% is paid in cash through the electronic cash ledger and claimed as ITC in the same GSTR-3B, subject to fulfilment of all conditions under Section 16 of the CGST Act.
3. Whole-Time and Executive Directors
Whole-time directors and executive directors are usually employees in substance — they have an employment contract, a fixed monthly remuneration, and TDS is deducted under Section 192. That portion of their package is outside GST.
Practical complications start when the same person is paid through more than one route. A common structure: a managing director draws ₹30 lakh per year as salary (TDS under Section 192) and an additional ₹5 lakh as sitting fees for attending committee meetings (TDS under Section 194J). The salary portion is outside GST. The sitting fees portion is inside GST under RCM at 18%, regardless of the same individual receiving both.
Auditors typically pull the company's Form 26AS or AIS for each director and split the total payment by TDS section as the first step in the year-end RCM reconciliation. Anything under 194J for a director is RCM territory.
4. Sitting Fees, Commission, and Profit-Share
Sitting fees paid under Section 197(5) of the Companies Act 2013 are paid for attendance at board or committee meetings. They are by their nature a fee for a service, not a salary, and TDS is invariably deducted under Section 194J. They attract RCM at 18% in the company's hands.
Commission and profit-share paid to non-executive directors follow the same logic. Where commission is paid to a whole-time director on top of regular salary, the test still tracks the TDS section. If the commission is treated as part of salary and Section 192 applies, it stays outside GST. If it is treated as professional remuneration with Section 194J, it triggers RCM.
5. Practical Scenarios
| Director Profile | Payment Type | TDS Section | GST Treatment |
|---|---|---|---|
| Independent director | Sitting fees ₹1L per meeting | 194J | 18% RCM in company's hands |
| Non-executive director | Annual commission of ₹10L | 194J | 18% RCM in company's hands |
| Whole-time director (employee) | Monthly salary ₹2.5L | 192 | Outside GST (Schedule III) |
| Managing director (employee) | Salary ₹30L + sitting fees ₹5L | 192 + 194J | Salary outside GST; sitting fees under RCM |
| Director-consultant under retainer | Quarterly retainer ₹3L | 194J | 18% RCM in company's hands |
6. Compliance — Self-Invoice, GSTR-3B and ITC
The director, as the "supplier" under Notification 13/2017 Entry 6, is rarely registered under GST for these services. The recipient company therefore has to issue a self-invoice. Rule 47A of the CGST Rules, in force from 1 November 2024, requires the self-invoice within 30 days of receipt of the supply. For monthly retainers or quarterly sitting fees, raising the self-invoice on the date of payment is the cleanest approach.
The company reports the RCM tax in Table 3.1(d) of GSTR-3B (inward supplies liable to reverse charge). The corresponding ITC is claimed in Table 4(A)(3), subject to fulfilment of all conditions under Section 16. The tax has to be paid in cash — existing ITC balance cannot be used to discharge an RCM liability — and only then re-claimed as ITC. For most companies the net cash impact in the same return cycle is zero, but the cash ledger must be funded for the gross amount before the ITC offset.
Time of supply for services under RCM is set by Section 13(3) of the CGST Act. For services from a registered supplier, it is the earlier of (i) date of payment or (ii) 60 days from the supplier's invoice. For services from an unregistered supplier, the position changed with effect from 1 November 2024: Section 13(3) was amended by the Finance (No. 2) Act 2024 to set the time of supply as the earlier of (a) date of payment or (b) the date the recipient issues the self-invoice under Rule 47A. Most directors are not GST-registered for board services, so the new rule applies and the self-invoice date directly drives the time of supply.
Key Takeaways
- The TDS section on the payment is the working test. Section 192 (salary) places the payment outside GST under Schedule III. Section 194J (professional fees, sitting fees, commission) places it inside GST under RCM.
- Independent directors are never employees. Every payment to them is under RCM at 18% under Notification 13/2017-CTR Entry 6, payable by the company.
- Whole-time directors paid purely as employees (Section 192 throughout) are outside GST. Mixed structures with both salary and sitting fees split by component.
- Sitting fees under Section 197(5) of the Companies Act invariably attract RCM, regardless of the director's other roles in the company.
- The company must issue a self-invoice within 30 days of receipt of supply under Rule 47A. The RCM tax goes into Table 3.1(d) of GSTR-3B; ITC is claimed in Table 4(A)(3) subject to Section 16.
- RCM tax is paid in cash through the electronic cash ledger first, then claimed as ITC. The net cash impact is usually nil within the same return.
Frequently Asked Questions
Is GST payable on the salary of a whole-time director?
No, where the director is in an employer-employee relationship and TDS is deducted under Section 192 of the Income-tax Act on the salary. Schedule III Entry 1 of the CGST Act keeps services by an employee to the employer outside the scope of GST entirely. CBIC Circular 140/10/2020-GST confirms this position.
Does the company pay GST on sitting fees to an independent director?
Yes. Sitting fees to an independent director are not a salary and there is no employer-employee relationship. The company pays 18% GST under reverse charge per Section 9(3) of the CGST Act read with Notification 13/2017-Central Tax (Rate) Entry 6. The company can claim ITC on the RCM tax paid, subject to fulfilment of all conditions under Section 16.
A managing director is paid both a salary and a separate sitting fee. How is GST applied?
Component-wise. The salary portion (TDS under Section 192) is outside GST. The sitting fee portion (TDS under Section 194J) attracts 18% GST under RCM in the company's hands. The same person can be on both sides of the line for different components of their pay.
Does the director need a GST registration for the company to pay RCM?
No. Under Section 9(3) read with Notification 13/2017-CTR Entry 6, the recipient (company) pays GST under RCM regardless of the supplier's (director's) registration status. The company should issue a self-invoice within 30 days of receipt of supply under Rule 47A. If a director is independently GST-registered for other professional services, that registration does not change the company's RCM liability for director services covered by Entry 6.
Can the company use existing ITC balance to pay the RCM on director remuneration?
No. Liability under reverse charge has to be discharged in cash through the electronic cash ledger. ITC balance cannot be used to pay the RCM tax. After the cash payment, the company can claim the same amount as ITC in Table 4(A)(3) of the same GSTR-3B, subject to Section 16 conditions, leaving the net cash impact at nil for most companies.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. GST rules are subject to frequent changes through notifications and circulars. Please consult a qualified tax professional or verify the current provisions on the official GST portal (gst.gov.in) before making any compliance decisions.
Have a specific question about GST on director payments or your year-end RCM reconciliation? Our GST experts can help → gstconsultancy.com