GST on Director Remuneration and Sitting Fees

Short answer: Remuneration paid to an Executive or Whole-Time Director is not subject to GST if it's treated as salary in the company's books and TDS is deducted under Section 192 of the Income-tax Act. However, fees or commission paid to Non-Executive or Independent Directors are considered a taxable service. The company, not the director, is liable to pay GST at 18% on this amount under the Reverse Charge Mechanism (RCM).

Is GST applicable on salary paid to a director?

No, GST is not applicable on salary paid to a director if a clear employer-employee relationship exists. This is because services by an employee to an employer in the course of employment are listed in Schedule III of the CGST Act, 2017, which means they are treated as neither a supply of goods nor a supply of services. The key indicator is that the payment is accounted for as 'Salaries' and Tax Deducted at Source (TDS) is applied under Section 192 of the Income-tax Act, 1961.

What is the difference between an executive and a non-executive director for GST?

The key difference lies in the nature of their contract and relationship with the company. An executive director (like a Managing Director or Whole-Time Director) typically works under a contract of service (an employment contract), making them an employee. A non-executive or independent director works under a contract for service, providing professional advice and oversight as a consultant, not as an employee. This distinction determines the GST treatment.

Feature	Executive Director	Non-Executive / Independent Director
Nature of Relationship	Employer-Employee	Service Provider to Company
Governing Contract	Contract of Service (Employment)	Contract for Service (Professional)
GST Applicability	No GST (Schedule III Activity)	GST is applicable at 18%
Who Pays GST	Not Applicable	Company pays under Reverse Charge (RCM)
Income Tax TDS Section	Section 192 (TDS on Salary)	Section 194J (TDS on Professional Fees)
ITC for Company	Not Applicable	Yes, can claim ITC on GST paid under RCM

Who pays the GST on a non-executive director's fees?

The company receiving the service is liable to pay the GST. As per Notification No. 13/2017-Central Tax (Rate), services supplied by a director of a company to the said company fall under the Reverse Charge Mechanism (RCM). This means the director will not charge GST in their invoice. Instead, the company must calculate the GST liability, pay it directly to the government, and report it in its GSTR-3B return.

Does a non-executive director need a GST registration?

Generally, no. A director who only provides directorship services to a company in India does not need to obtain GST registration, regardless of the amount of remuneration received. This is because the entire tax liability for this specific service is shifted to the recipient (the company) under RCM. However, if the director provides any other taxable services (like independent consultancy to other entities) and their total turnover from those services exceeds the threshold limit (₹20 lakhs in most states), they would be required to register for GST.

How is GST calculated on director's sitting fees and commission?

GST is calculated at a flat rate of 18% on the total remuneration paid to a non-executive director. This includes sitting fees for attending board meetings, commission based on profits, or any other professional fees. The company must calculate this amount and pay it to the government while filing its GST returns. For example, if a director is paid a sitting fee of ₹1,00,000, the company would be liable to pay ₹18,000 (18% of ₹1,00,000) as GST under RCM.

Can a company claim Input Tax Credit (ITC) on GST paid for director's fees?

Yes, a company can claim Input Tax Credit (ITC) on the GST it pays under RCM for a non-executive director's services. This is because the services of a director are considered an input service used in the course or furtherance of business. The company must first pay the RCM liability in cash to the government and can then claim the same amount as ITC in the same month's GSTR-3B, subject to general ITC rules.

Worked example

Let's consider 'Zenith Innovations Pvt. Ltd.', a technology startup in Bengaluru, for the financial year 2025-26.

• Mr. Arjun, the Managing Director (an Executive Director), has an employment contract and receives an annual salary of ₹40,00,000. TDS is deducted under Section 192.
• Ms. Sara, an Independent Director (a Non-Executive Director), provides strategic guidance. She does not have an employment contract. She receives:
  • Sitting fees for 4 board meetings: 4 x ₹75,000 = ₹3,00,000
  • Annual performance commission: ₹7,00,000

GST Calculation:

1. Payment to Mr. Arjun (Executive Director):

   • The payment of ₹40,00,000 is salary under an employer-employee relationship.
   • This falls under Schedule III of the CGST Act.
   • GST Liability: ₹0

2. Payment to Ms. Sara (Non-Executive Director):

   • Her services are professional services, not employment.
   • The company is liable to pay GST under RCM.
   • Total taxable value = Sitting Fees + Commission = ₹3,00,000 + ₹7,00,000 = ₹10,00,000.
   • GST payable by Zenith Innovations Pvt. Ltd. under RCM = 18% of ₹10,00,000.
   • GST Liability: ₹1,80,000

Action for the Company: Zenith Innovations must pay ₹1,80,000 in cash to the government as its RCM tax liability. It can then claim this full amount of ₹1,80,000 as ITC in its GSTR-3B filing for the relevant tax period, which can be used to offset its output GST liability.

Common mistakes

1. Treating all Director Payments as Salary: Many companies incorrectly assume all payments to any director are salaries and fail to pay GST under RCM on fees paid to non-executive directors.
2. Incorrect TDS Deduction: Using Section 192 (Salary) for a non-executive director or Section 194J (Professional Fees) for an executive director creates a contradiction that can be flagged by tax authorities during scrutiny.
3. Non-Executive Director Charging GST: A non-executive director might mistakenly register for GST and issue a tax invoice. The company should not pay this GST; instead, it should inform the director of the RCM provisions and pay the tax itself.
4. Forgetting to Self-Invoice: The company liable to pay tax under RCM is required to issue a tax invoice in respect of the services received from the director.
5. Improper Reporting in GSTR-3B: Failing to declare the RCM liability in Table 3.1(d) of GSTR-3B and simultaneously claiming ITC in Table 4(A)(3) is a frequent error. Both must be done in the same return.

How SP & SC helps

Navigating the nuances of GST on director remuneration is crucial for maintaining compliance and avoiding penalties. SP & SC's team of Chartered Accountants and tax lawyers provides comprehensive assistance with GST matters. We review your director agreements and payment structures, advise on the correct classification, ensure accurate RCM calculation and payment, and manage all aspects of your GST return filing. We handle the complexities end-to-end, so you can focus on running your business with peace of mind.

Frequently asked questions

H3: What is the SAC code for director's services?

The appropriate Services Accounting Code (SAC) for services provided by a non-executive director is 99831 which covers 'Other professional, technical and business services'.

H3: Does TDS deduction under Section 192 vs 194J determine GST liability?

Yes, it is a very strong indicator for the tax authorities. If TDS is deducted under Section 192 (TDS on Salary), it supports the argument of an employer-employee relationship, meaning no GST. If TDS is deducted under Section 194J (TDS on Professional/Technical Fees), it implies a service provider relationship, which triggers the reverse charge mechanism for GST.

H3: What if a director is also a consultant to the company under a separate agreement?

If a director provides separate, distinct consultancy services (e.g., tech consulting) under a different contract, those services are also taxable under GST. The liability for GST would depend on the agreement. It could fall under RCM, or if the director is registered for GST for these other services, they might charge GST on a forward charge basis. This requires careful structuring.

H3: Is GST applicable on reimbursement of expenses to a director?

If the director incurs expenses as a 'pure agent' on behalf of the company and seeks exact reimbursement with supporting bills, GST is not applicable on the reimbursed amount. However, if the expenses are part of the overall service contract and a consolidated fee is charged, the entire amount, including the expense component, becomes part of the taxable value for GST.

H3: What if the company is not otherwise required to be registered under GST?

Under Section 24 of the CGST Act, any person required to pay tax under reverse charge must compulsorily take GST registration. Therefore, even if a company's turnover is below the threshold, the moment it pays a fee to a non-executive director, it becomes liable to register for GST and comply with RCM provisions.

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