GST on Director Remuneration in India: Salary vs Fees, RCM and ITC Rules

Director remuneration does not have one GST treatment. A director may work for a company as an employee and may also provide services in a separate capacity as a director. Salary for employment is generally outside GST, while fees, commission or sitting fees for director services are generally taxable under reverse charge.

The company should classify each payment by its real nature, supporting documents and accounting treatment. The label used in a resolution or ledger is relevant, but it should match the actual arrangement. This article explains how to distinguish salary from director fees, when the company pays GST under reverse charge, and when it may claim input tax credit (ITC).

Who needs to consider GST on director remuneration?

This issue commonly affects companies and other body corporates that pay remuneration to directors, including managing, whole-time, executive and non-executive directors. It also affects finance teams processing monthly payroll, board meeting fees, commission and performance-linked payments.

A director can have two roles at the same time. For example, a whole-time director may be an employee under a contract of service and may separately receive a fee for a board or committee role. Each payment needs to be examined on its own facts.

The key GST distinction is between:

• Services by an employee to the employer in the course of employment: treated as neither a supply of goods nor a supply of services under Schedule III to the CGST Act.
• Services supplied by a director to the company in the director’s capacity: generally taxable, with the company responsible for GST under reverse charge.

Salary versus director fees: the GST distinction

The CBIC clarified the distinction in Circular No. 140/10/2020-GST dated 10 June 2020. It recognises that a person may be both a director and an employee of the company. The salary component for employment is outside GST, while remuneration paid for separate director services is subject to GST under reverse charge.

Under the 2020 circular, salary recorded as salary in the company’s books and subjected to salary TDS was an indicator that the payment arose from employment. Non-salary remuneration recorded separately and subjected to the then applicable professional-fee TDS provision was an indicator of director services. These indicators help explain the distinction, but GST treatment should not be decided by a TDS label alone. The actual relationship and nature of the payment must support the classification.

From 1 April 2026, the Income-tax Act, 2025 applies to relevant withholding events. Salary TDS is covered under section 392, while specified non-salary payments to directors are covered under section 393(1), Table Sl. No. 6(iii)(D)(b). Payments or credits up to 31 March 2026 remain subject to the earlier Act’s provisions. This change in section numbering does not, by itself, change the GST analysis. For background on the earlier TDS provision, see TaxClear’s guide to Section 194J TDS.

Examples of payments that may be outside GST

A whole-time director has an employment agreement, receives a fixed monthly salary through payroll, is included in employee records and receives the usual employment benefits. If the arrangement is genuinely one of employer and employee, the salary for that employment is outside GST.

A director also receives a separate fee for attending board meetings. The fee is not salary for employment and is paid for services as a director. The company should generally pay GST on that amount under reverse charge.

Examples of payments that may attract RCM

• Sitting fees paid to a non-executive director for board or committee meetings.
• Commission paid for services performed as a director.
• Non-salary remuneration separately approved and paid for director duties.

Do not assume every payment to a director is automatically RCM. The CBIC’s Circular No. 201/13/2023-GST clarifies that services supplied by a director in a private or personal capacity, such as renting property to the company, are not director services merely because the supplier is a director. The separate transaction must still be tested under the ordinary GST rules. For example, rent may have its own tax treatment.

When does reverse charge apply?

Entry 6 of Notification No. 13/2017-Central Tax (Rate), read with the corresponding IGST and State or Union Territory notifications, covers services supplied by a director of a company or body corporate to that company or body corporate. The recipient company pays the applicable GST under reverse charge mechanism (RCM).

In practice, the company should consider RCM when a payment is consideration for services supplied by the person as a director. The director does not charge GST to the company on that RCM supply. The company accounts for the tax and pays it to the government.

GST rate and tax type

Director services are commonly taxed at 18%, but the company should confirm the correct service classification and rate for the particular supply and applicable notification. For an intra-State supply, the tax is generally split between CGST and SGST, or CGST and UTGST. For an inter-State supply, IGST generally applies. The place-of-supply facts should be checked before selecting the tax type.

The reverse-charge entry determines who pays the tax; it does not make the supply exempt. Nor does paying RCM automatically entitle the company to ITC. Credit is a separate question.

How to calculate and pay GST under RCM

Calculate GST on the taxable value of the director service. If the company pays a director fee of ₹1,00,000 and the applicable rate is 18%, the RCM tax is ₹18,000. If the supply is intra-State, that may be ₹9,000 CGST and ₹9,000 SGST. If it is inter-State, it may be ₹18,000 IGST. This example assumes the full payment is taxable consideration and the 18% rate applies.

RCM liability must be discharged in cash through the electronic cash ledger. The company cannot use existing ITC to pay the reverse-charge tax. After paying the RCM liability, the company may claim eligible ITC in accordance with the usual credit rules.

For a regular monthly filer, RCM liability is generally reported in Table 3.1(d) of GSTR-3B. Eligible ITC on inward supplies liable to RCM is generally reported in Table 4(A)(3). QRMP filers should follow the applicable quarterly return and payment process. Filing and payment dates can be extended by government notification, so check the current GST portal calendar for the relevant tax period.

TaxClear’s guide to GSTR-3B ITC reporting and GST mismatch notices may help when reconciling return disclosures.

Time of supply and documentation

For services taxable under RCM, the time of supply is generally the earlier of the date of payment or the date immediately following 60 days from the supplier’s invoice. If it is not possible to determine the time of supply under those rules, the statutory fallback is the date the recipient records the supply in its books. The exact facts and invoice date matter, so the company should not postpone RCM simply because it has not yet paid the director.

Keep records that explain both the payment and the GST treatment. Useful documents include:

• Employment contracts, director appointment terms and remuneration policies.
• Board or shareholder resolutions approving salary, commission or sitting fees.
• Payroll registers, payslips, salary ledgers and TDS records.
• Invoices, payment vouchers, meeting attendance records and fee calculations.
• RCM workings, challans, GSTR-3B disclosures and ITC records.

When the recipient is required to issue a self-invoice for a supply received from an unregistered supplier under section 31(3)(f) of the CGST Act, Rule 47A generally requires it to issue that invoice within 30 days from receipt of the supply. The recipient must also issue a payment voucher when paying the supplier, as required by section 31(3)(g). Apply these requirements to the facts and current rules for the particular transaction.

Can the company claim ITC on GST paid under RCM?

A company may claim ITC on RCM tax only if the tax is paid and the ordinary ITC conditions are met. The service must be used or intended to be used in the course or furtherance of business, the company must hold the prescribed documents, and the credit must not be blocked or restricted under the CGST Act.

ITC is not available merely because the company paid GST. It may be unavailable where the service relates to exempt supplies, non-business use, or another restriction under section 17. Where the service supports both taxable and exempt or non-business activities, the company may need to apportion or reverse credit under the applicable rules.

For an eligible credit, the company generally reports it in GSTR-3B after discharging the RCM liability. Maintain a link between the payment of tax and the corresponding ITC entry so that the liability and credit can be reconciled.

GST registration considerations

A person who makes only supplies on which the recipient is liable to pay tax under reverse charge may be covered by the registration exemption in Notification No. 5/2017-Central Tax, subject to its conditions. This does not remove the company’s obligation to pay RCM where applicable. A director with other taxable supplies, or a company with other registration triggers, should assess registration separately.

Companies should not rely on this narrow exemption without checking the director’s full supply profile and the current notification. Registration can depend on other activities and facts.

Common mistakes to avoid

• Applying one GST treatment to all director payments: separate salary, fees and other services before calculating tax.
• Using the payment name as the only test: a “commission” label does not prove that a payment is a director service or employment income.
• Paying RCM through ITC: discharge the reverse-charge liability through the electronic cash ledger.
• Claiming ITC automatically: first test business use, documentation, payment and statutory restrictions.
• Ignoring TDS or accounting evidence: withholding and books can support the analysis but must be consistent with the real arrangement.
• Missing the time-of-supply date: monitor the invoice and payment dates even if the director has not yet been paid.

A practical checklist for companies

1. List each payment to each director, separating salary, sitting fees, commission and other services.
2. Review the employment contract, appointment terms, board resolution and actual work performed.
3. Check that payroll, books, TDS and supporting documents tell a consistent story.
4. For director services taxable under RCM, confirm the taxable value, rate, place of supply and time of supply.
5. Pay RCM in cash, report it in the correct GSTR-3B table and assess ITC separately.
6. Retain invoices or self-invoices, payment vouchers, challans, return workings and credit calculations.

FAQs

Is GST payable on salary paid to a whole-time director?

Salary paid for genuine employment services is generally outside GST under Schedule III. Keep employment terms, payroll records and accounting treatment that support the employer–employee relationship.

Are sitting fees paid to a director taxable under GST?

Sitting fees for services supplied as a director are generally taxable under RCM, with the company paying the applicable GST.

Does every payment to a director attract RCM?

No. The payment must be for a service supplied by the person in the capacity of a director. A separate service supplied in a private or other capacity should be analysed under the rules that apply to that supply.

Can a company use ITC to pay GST under RCM?

No. The company must pay the RCM liability through the electronic cash ledger. It can claim eligible ITC separately after payment, subject to the normal conditions and restrictions.

Can the company claim ITC on director remuneration?

Potentially, if the RCM tax has been paid, the service is used for business, the company has the required documents and no ITC restriction applies. The company must test the facts rather than assume all RCM tax is creditable.

Does the TDS section decide the GST treatment?

No. TDS and accounting treatment are relevant indicators, but they do not replace the GST analysis of the real relationship, service and payment. From 1 April 2026, the Income-tax Act, 2025 uses new section references for salary and non-salary director payments; that change does not itself decide GST treatment.