Key Takeaways
- Companies pay 18% GST under reverse charge on fees, sitting fees, and commission paid to directors (Notification 13/2017-CT(Rate), Serial No. 6).
- Salary component is exempt: if the director is an employee and remuneration is booked as salary with TDS under Section 192, no GST applies (CBIC Circular 140/10/2020-GST).
- The classification test is simple: TDS under Section 192 = no GST. TDS under Section 194J = GST under RCM.
- ITC on the RCM amount is fully claimable in the same GSTR-3B return (Table 4A(3)).
- The company must issue a self-invoice and pay through the Electronic Cash Ledger (not ITC).
Do companies pay GST on director remuneration? Yes, but only on the non-salary portion. Under Notification 13/2017-CT(Rate), Serial No. 6, services supplied by a director to a company attract 18% GST on reverse charge. The company pays GST, not the director. Salary paid to an employee-director with TDS under Section 192 is excluded (CBIC Circular 140/10/2020-GST, dated 10 June 2020).
Every Indian company with a board of directors faces this question at least once: does the sitting fee you paid your independent director attract GST? What about the commission to your managing director?
The answer depends on one thing: how the payment is classified in your books and which TDS section applies. Get it wrong, and you either pay GST you didn't owe, or miss an RCM liability that shows up during a department audit.
Looking for expert help with GST on director remuneration RCM? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
The TDS Test: Section 192 vs Section 194J
CBIC Circular 140/10/2020-GST, issued on 10 June 2020, settled this classification with a clear rule.
Comparison
Director Remuneration: GST or No GST?
Based on CBIC Circular 140/10/2020-GST
| Parameter | No GST (Salary) | 18% GST under RCM |
|---|---|---|
| Relationship | Employee of the company | Not an employee (independent/non-executive) |
| Books Treatment | Declared as 'Salaries' | Declared as fees/commission/professional charges |
| TDS Section | Section 192 (Salary TDS) | Section 194J (Professional fees TDS) |
| GST Liability | Nil | 18% (9% CGST + 9% SGST) |
| Who Pays | Not applicable | Company pays under RCM |
| Example | MD drawing Rs 5 lakh/month salary | Independent director receiving Rs 50,000 sitting fee per meeting |
Takeaway: If TDS is deducted under Section 192, no GST. If TDS is under Section 194J, GST applies under RCM.
Source: CBIC Circular 140/10/2020-GST, dated 10 June 2020
Here's what trips companies up: a managing director might receive both a salary and a separate commission. The salary portion (Section 192 TDS) has no GST. The commission portion (Section 194J TDS) attracts 18% GST under RCM. You need to split the two in your books.
Which Directors Attract GST? A Quick Breakdown
Always attracts GST (RCM):
- Independent directors: sitting fees, commission, consultancy charges
- Non-executive directors: any payment for services rendered
- Nominee directors (appointed by banks, financial institutions): fees paid for their services
Never attracts GST:
- Whole-time director or MD receiving only salary (TDS under Section 192)
- Reimbursement of actual travel expenses (not a service)
Partially attracts GST:
- Whole-time director receiving salary + separate professional fees or commission. The salary part is exempt; the professional fees part attracts RCM.
The Legal Framework: Where This Comes From
Three provisions create the director RCM obligation:
1. Section 9(3), CGST Act 2017 Authorises the government to notify categories of supply where the recipient pays tax on reverse charge.
2. Notification 13/2017-CT(Rate), Serial No. 6 (dated 28 June 2017) Specifies that "services supplied by a director of a company or a body corporate to the said company or the body corporate" attract RCM. The supplier is the director; the recipient (company) pays GST.
3. CBIC Circular 140/10/2020-GST (dated 10 June 2020) Clarifies the salary vs professional fees distinction. Settled the litigation that arose after GST implementation, when businesses were unsure whether all director payments attracted RCM.
The rate is 18% under SAC heading 9983 (other professional, technical and business services).
How to Calculate GST on Director Remuneration
Say your company pays an independent director Rs 1,00,000 as sitting fees for the quarter. Here's the GST calculation:
| Particulars | Amount (Rs) |
|---|---|
| Sitting fees paid to director | 1,00,000 |
| CGST at 9% | 9,000 |
| SGST at 9% (intra-state) | 9,000 |
| Total GST under RCM | 18,000 |
| Total outflow | 1,18,000 |
The Rs 18,000 GST is paid by the company through the Electronic Cash Ledger. You cannot use ITC balance to pay RCM liability (Section 49(4), CGST Act). But once paid, the Rs 18,000 becomes eligible as ITC in the same return.
Net cash impact? Zero, if you have enough output liability to offset the ITC against. The Rs 18,000 comes out of your cash ledger and flows back as ITC.
GSTR-3B Filing: Step-by-Step
Step-by-Step Guide
How to Report Director RCM in GSTR-3B
Complete this every month you pay director fees
Issue Self-Invoice
Create a self-invoice under Rule 46, CGST Rules, showing director details, amount, GST rate (18%), and CGST/SGST breakup. Date it on or before the date of payment.
Pay GST in Cash Ledger
Deposit CGST + SGST (or IGST for inter-state) amounts into your Electronic Cash Ledger via challan on the GST portal before filing GSTR-3B.
Report in Table 3.1(d)
Enter the RCM liability in GSTR-3B Table 3.1(d): 'Inward supplies liable to reverse charge.' Show taxable value, CGST, SGST/IGST separately.
Claim ITC in Table 4A(3)
Report the same GST amount in Table 4A(3): 'Inward supplies liable to reverse charge (other than import of services).' ITC is available in the same period.
Reconcile Monthly
Match your director payment register with GSTR-3B entries. Ensure every 194J payment has a corresponding RCM entry. Missing even one quarter triggers interest under Section 50.
Source: GSTR-3B format as per CBIC; Section 49(4) CGST Act for cash payment requirement
Common Mistakes Companies Make
1. Treating all director payments as exempt The biggest error. Companies assume that because the MD is on payroll, all board-level payments are salary. If even one director receives fees booked under Section 194J, RCM applies on that portion.
2. Paying RCM from ITC balance instead of cash Section 49(4) is clear: RCM liability must be discharged through the Electronic Cash Ledger. Using ITC to pay RCM is not allowed. The department will raise a demand with interest if this is done.
3. Not issuing a self-invoice Without a self-invoice, ITC on the RCM payment cannot be claimed. Some companies pay the RCM but skip the self-invoice, losing the ITC permanently.
4. Ignoring the time of supply Under Section 13(3) of the CGST Act, the time of supply for RCM services is the earlier of: (a) the date of payment, or (b) 61 days from the date of the invoice. Miss this window and you owe interest from the due date.
5. Not splitting a whole-time director's dual payments If your MD receives Rs 15 lakh salary (Section 192) and Rs 3 lakh commission (Section 194J), GST applies only on the Rs 3 lakh. Companies that apply RCM on the full Rs 18 lakh overpay. Companies that skip the Rs 3 lakh face audit risk.
What About LLPs and Partnership Firms?
Notification 13/2017-CT(Rate), Serial No. 6 applies to services supplied by a director to a "company or body corporate." LLPs (Limited Liability Partnerships) are body corporates under Section 2(11) of the Companies Act, 2013, so designated partners providing professional services to the LLP can trigger the same RCM obligation.
Partnership firms (not registered as LLPs) are not body corporates, so this specific RCM entry does not apply to them.
Tax Garden Handles Your Director RCM
Tracking which directors attract RCM, issuing self-invoices, paying through the cash ledger, and filing GSTR-3B with the right table entries every month is detailed work. Get one entry wrong, and the ITC is stuck.
Tax Garden's GST compliance team calculates your director RCM liability each month, generates self-invoices, files GSTR-3B with correct Table 3.1(d) and 4A(3) entries, and reconciles your ITC. See our GST filing plans.
Frequently Asked Questions
Is GST applicable on director salary?
No. The salary component of a director's remuneration, declared as 'Salaries' in the company's books and on which TDS is deducted under Section 192 of the Income Tax Act, is not subject to GST. Only the non-salary component (sitting fees, commission, professional fees) attracts GST under reverse charge.
Who pays GST on director remuneration?
The company pays GST under the Reverse Charge Mechanism (RCM) as per Notification 13/2017-CT(Rate), Serial No. 6. The director does not charge or collect GST. The company self-assesses, pays through the Electronic Cash Ledger, and claims ITC.
What is the GST rate on director sitting fees?
18% (9% CGST + 9% SGST for intra-state transactions). For directors located in a different state, 18% IGST applies. This rate covers sitting fees, commission, and all professional fees paid to directors.
Can a company claim ITC on GST paid on director fees?
Yes. GST paid under RCM on director remuneration is eligible for full Input Tax Credit under Section 16 of the CGST Act. Claim it in GSTR-3B Table 4A(3) in the same return where you report the RCM liability.
Does GST apply on independent director sitting fees?
Yes. All payments to independent or non-executive directors, including sitting fees, commission, and consultancy charges, are subject to 18% GST under reverse charge. The company pays GST on the entire amount.
How do I report director RCM in GSTR-3B?
Report the RCM liability in GSTR-3B Table 3.1(d) under 'Inward supplies liable to reverse charge.' Claim the corresponding ITC in Table 4A(3). Pay the GST amount in cash through the Electronic Cash Ledger before filing.
Is a self-invoice required for GST on director fees?
Yes. Under Rule 46 of the CGST Rules, when paying GST under reverse charge, the company must issue a self-invoice showing the director's details, amount, and GST breakup. This self-invoice is needed to claim ITC.
