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.
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.
| Payment to director | How it is booked | GST |
|---|---|---|
| Salary to a whole-time or managing director | "Salaries" in the books, TDS under Section 192 | No GST (employer-employee relationship) |
| Sitting fees, commission or professional fees | Separately from salary, TDS under Section 194J | 18% under reverse charge |
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:
Step 1: Section 9(3), CGST Act 2017 Authorises the government to notify categories of supply where the recipient pays tax on reverse charge.
Step 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.
Step 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:
| Item | Amount |
|---|---|
| Sitting fees | Rs 1,00,000 |
| CGST under RCM at 9% | Rs 9,000 |
| SGST under RCM at 9% | Rs 9,000 |
| Total GST payable by the company | Rs 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) read with Section 2(82) of the CGST Act, since "output tax" excludes tax payable under reverse charge). 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
- Issue a self-invoice for the director's fees within 30 days of receiving the service (Rule 47A).
- Report the taxable value and GST in Table 3.1(d), "Inward supplies liable to reverse charge", for the month of the time of supply.
- Pay the RCM tax through the Electronic Cash Ledger in Table 6.1.
- Claim the same amount as ITC in Table 4(A)(3), "Inward supplies liable to reverse charge".
Common Mistakes Companies Make
Step 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.
Step 2: Paying RCM from ITC balance instead of cash Section 49(4) allows the credit ledger to be used only for "output tax", and Section 2(82) excludes reverse charge tax from output tax, so 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.
Step 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.
Step 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.
Step 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." An LLP is a body corporate (Section 3 of the LLP Act, 2008), but it has designated partners, not directors, so this entry does not cover payments by an LLP to its partners.
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 handles your director RCM 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.
