Is GST payable on salary paid to a Whole-Time or Managing Director?

No. Under CBIC Circular No. 140/10/2020-GST, remuneration paid to a Whole-Time Director (WTD) or Managing Director (MD) in their capacity as an employee—where tax is deducted under Section 192 of the Income Tax Act as 'Salaries'—is covered under Entry 1 of Schedule III of the CGST Act (services by an employee to employer). It is treated as neither a supply of goods nor a supply of services, and is completely exempt from GST.

When is GST payable under Reverse Charge Mechanism (RCM) on director remuneration?

GST is payable under RCM at 18% by the company under Entry 6 of Notification No. 13/2017-Central Tax (Rate) on: (1) all sitting fees, commission, and consultancy fees paid to Independent Directors, (2) fees paid to Non-Executive Nominee Directors, and (3) any professional, technical, or commercial consultancy fees paid to executive directors where TDS is deducted under Section 194J of the Income Tax Act.

Can the company claim Input Tax Credit (ITC) on the 18% GST paid under RCM on director fees?

Yes! The company can claim 100% Input Tax Credit (ITC) of the 18% GST discharged under RCM, provided the company is engaged in making taxable outward supplies and the expense is incurred in the furtherance of business. The credit is claimed in Table 4(A)(3) of Form GSTR-3B in the same tax period in which the tax is paid in cash.

Does a director need to register for GST personally to receive sitting fees?

No. Because director services are notified under Section 9(3) for 100% Reverse Charge Mechanism, the tax liability is transferred entirely to the recipient company. The individual director does not need to register under GST or issue tax invoices, unless their aggregate turnover from other independent commercial businesses exceeds the statutory registration threshold.

GST on Director Remuneration: RCM vs Salary TDS Circular 140 Guide

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Quick Answer & Key Takeaways

Is GST applicable on director remuneration in India, and how does CBIC Circular 140 distinguish between salary and sitting fees?

Under CBIC Circular No. 140/10/2020-GST, the taxability of director remuneration hinges strictly on the nature of engagement and Income Tax TDS classification. Remuneration paid to Whole-Time / Managing Directors in an employer-employee relationship—where TDS is deducted under Section 192 as 'Salaries'—is exempt from GST under Schedule III Entry 1. Conversely, sitting fees, commission, or professional charges paid to Independent / Non-Executive Directors, or any consulting charges where TDS is deducted under Section 194J, attract 18% GST under Reverse Charge Mechanism (RCM) payable by the company in cash. The company can claim 100% Input Tax Credit (ITC) on the RCM paid.

1. GST on Director Remuneration: The Regulatory Landscape

The remuneration paid by companies to their board of directors has historically been one of the most litigated arenas under Indian indirect taxation. Following diverse advance rulings from state Authority for Advance Rulings (AAR) benches, the Central Board of Indirect Taxes and Customs (CBIC) issued landmark guidance to harmonize statutory provisions.

Under the Central Goods and Services Tax (CGST) Act, 2017, director payouts are governed by two opposing statutory forces: the Employer-Employee exclusion under Schedule III and the Reverse Charge Mechanism (RCM) under Notification No. 13/2017-Central Tax (Rate).

0% GST on Salaries

Executive director salaries subject to Section 192 TDS are completely outside GST scope under Schedule III.

18% RCM on Sitting Fees

Independent / Non-Executive director fees subject to Section 194J TDS attract 18% RCM payable by the company.

100% ITC Recovery

Companies can immediately reclaim the 18% RCM cash payment as Input Tax Credit against outward tax obligations.

2. Applicable Corporate Entities

These statutory provisions apply universally across all corporate entities incorporated under the Companies Act, 2013:

Private Limited Companies: Paying monthly executive remuneration or director advisory fees.
Public Limited Companies (Listed & Unlisted): Paying board sitting fees, committee meeting charges, and profit-sharing commissions.
One Person Companies (OPC): Where the sole director draws managerial compensation.
Section 8 Non-Profit Companies: Reimbursing professional out-of-pocket expenses to directors.

3. The Two Director Categories: Executive vs Non-Executive

Category A: Executive / Whole-Time Directors

Includes Managing Directors (MD), Whole-Time Directors (WTD), and Executive Directors bound by employment contracts, operational executive duties, and company HR policies.

Tax Rule: Section 192 TDS applied → Schedule III Exemption (0% GST).

Category B: Independent & Non-Executive Directors

Includes Independent Directors, Nominee Directors representing banks/PE funds, and Non-Executive Directors attending board meetings without employer-employee relations.

Tax Rule: Section 194J TDS applied → 18% Reverse Charge Mechanism (RCM).

4. Landmark CBIC Circular No. 140/10/2020-GST Clearances

On June 10, 2020, the CBIC issued authoritative clarifications ending nationwide tax confusion:

Issue 1: Remuneration Paid to Independent / Non-Employee Directors: Circular 140 conclusively held that services supplied by non-employee directors to a company are taxable and subject to Reverse Charge Mechanism under Section 9(3) in the hands of the company.

Issue 2: Remuneration Paid to Whole-Time Directors: Circular 140 established a clean two-part bifurcation test:

Part 1 (Salary Element): The portion of remuneration declared as 'Salaries' in the company's books and subjected to TDS under Section 192 is covered under Schedule III Entry 1. NO GST is leviable.
Part 2 (Professional Fee Element): Any portion paid for specialized technical, financial, or management consultancy declared separately and subjected to TDS under Section 194J is treated as non-employee services. Subject to 18% RCM.

5. Notification No. 13/2017 18% RCM Mechanics

Under Entry 6 of Notification No. 13/2017-Central Tax (Rate), the reverse charge operates under the following statutory parameters:

Parameter	Statutory Mandate
Category of Supply	Services supplied by a director of a company or body corporate to the said company
Supplier of Service	Individual Director
Recipient Liable to Pay Tax	The Company or Body Corporate
Applicable GST Rate	18% (9% CGST + 9% SGST or 18% IGST)
Payment Mode	Strictly 100% Cash Ledger (ITC cannot be used)

6. Schedule III Entry 1: The Employer-Employee Shield

Entry 1 of Schedule III of the CGST Act explicitly provides:

"Services by an employee to the employer in the course of or in relation to his employment."

Because Schedule III items are statutorily deemed as neither a supply of goods nor a supply of services, salaries paid to executive directors are completely exempt from GST, regardless of turnover size.

7. Mandatory Documentation to Defend Schedule III Status

During GST audits under Section 65, tax officers routinely challenge director salary exemptions. To withstand scrutiny, companies must maintain:

Service Agreement / Employment Contract: Specifying designation, executive responsibilities, working hours, leave entitlement, and reporting hierarchy.
Board Resolution & Form DIR-12: Passed under Section 196/197 of the Companies Act, appointing the individual as a Whole-Time Director.
Form 16 Part A & B: Verifying that income tax was deducted under Section 192 (Salaries).
PF / ESI Statements: If applicable, evidencing employee payroll integration.

8. Step-by-Step Corporate Compliance Workflow

Monthly Director Payroll Bifurcation

Segregate all director payouts at month-end into: (a) Section 192 Employee Salaries, and (b) Section 194J Sitting Fees / Professional Commissions.

Generate Self-Invoicing Under Section 31(3)(f)

Because independent directors are unregistered suppliers, the company must generate a Self-Invoice for all RCM sitting fees under Section 31(3)(f) of the CGST Act.

Report Liability in Form GSTR-3B Table 3.1(d)

Enter the gross value of sitting fees and 18% GST under Table 3.1(d) (Inward supplies liable to reverse charge). Settle 100% of this tax via cash payment.

Avail 100% Input Tax Credit in Table 4(A)(3)

In the exact same GSTR-3B filing, claim the entire 18% tax paid under Table 4(A)(3) (Inward supplies liable to reverse charge other than import). The transaction is cash-neutral!

9. Direct Comparison: Section 192 Salary vs Section 194J Sitting Fees

Feature	Executive Director Remuneration	Independent Director Fees
Income Tax TDS Section	Section 192 (Salaries)	Section 194J (Professional / Fees)
GST Applicability	EXEMPT (Schedule III Entry 1)	18% GST Applicable
Payment Mechanism	None	Reverse Charge Mechanism (RCM)
Tax Certificate Issued	Form 16 Part A & B	Form 16A
ITC Available to Company?	N/A	Yes (100% Eligible)

10. Real-World Corporate Case Scenarios

Case A: Managing Director with ₹3,00,000 Monthly Salary

Context: The Managing Director of a software firm draws ₹3,00,000 per month. The company deducts TDS under Section 192 according to personal income tax slab rates and issues Form 16.

GST Position: Fully exempt under Schedule III Entry 1. The company has zero RCM liability and does not report this salary in Form GSTR-3B Table 3.1(d).

Case B: Independent Director Attending 4 Board Meetings (₹2,00,000)

Context: An independent director receives ₹50,000 sitting fee per meeting, totaling ₹2,00,000 in Q2. The company deducts 10% TDS under Section 194J (₹20,000).

GST Position: The company generates a self-invoice for ₹2,00,000 under Section 31(3)(f), deposits 18% RCM (₹36,000) in cash in GSTR-3B Table 3.1(d), and claims ₹36,000 as Input Tax Credit in Table 4(A)(3).

11. Costly Tax Audit Mistakes

Omitting RCM Cash Payment

Assuming that because RCM is eligible for ITC, you don't need to report or pay it in cash. Failure to pay RCM attracts 18% interest under Section 50, which CANNOT be claimed as credit.

Mismatched Income Tax & GST Heads

Deducting TDS under Section 194J in Form 26Q while claiming Schedule III GST exemption in GSTR-3B. The department's automated cross-matching tools will flag this discrepancy immediately.

12. Legal & Financial Consequences of Default

Mandatory 18% Interest (Section 50): Interest accrues from the due date of return filing until actual cash discharge.
Section 73/74 Penalty: 10% penalty for bona fide errors, escalating to 100% penalty for suppression of facts.
Loss of ITC: If RCM is paid past the statutory November 30 annual deadline following an audit notice, the department may disallow corresponding ITC under Section 16(4).

13. Statutory Harmonization: Companies Act, IT Act & CGST Act

Companies Act, 2013 (Section 197): Regulates overall managerial remuneration limits (11% of net profits) and sitting fees limits (₹1,00,000 per meeting under Rule 4).

Income Tax Act, 1961: Section 192 (Salaries) vs Section 194J (Fees for professional or technical services).

CGST Act, 2017: Section 9(3) RCM read with Notification 13/2017 and Schedule III Entry 1.

14. How Companies Can Claim 100% ITC on RCM Payments

Because board governance and directorial oversight directly further the company's business operations, the 18% GST paid under RCM satisfies Section 16(1) criteria. It is NOT blocked under Section 17(5), enabling full recovery as input tax credit.

15. Corporate Governance & CFO Action Checklist

Review all board appointment resolutions and employment contracts for Whole-Time Directors.

Verify that executive director salaries are deducted strictly under Section 192 TDS and documented via Form 16.

Ensure all sitting fees and non-executive commissions are deducted under Section 194J TDS and documented via Form 16A.

Issue self-invoices under Section 31(3)(f) for every sitting fee disbursement.

Report and pay 18% RCM in cash under Table 3.1(d) of Form GSTR-3B monthly.

Reclaim 100% of the RCM paid under Table 4(A)(3) in the exact same GSTR-3B return.

16. Frequently Asked Questions (FAQs)

Is GST payable if an executive director receives rent for commercial property leased to the company?

Yes. Renting commercial property to the company is supplied in the individual's personal capacity as a landlord, not as an employee. If the director's aggregate turnover exceeds the registration threshold (₹20 Lakhs), the director must obtain GST registration and charge 18% GST forward charge (or RCM if unregistered commercial property rules apply).

Are reimbursements of travel and hotel expenses to directors subject to GST?

Pure reimbursements on actual cost-to-cost basis supported by third-party hotel and airline bills issued in the company's name do not attract RCM. However, if a lump-sum travel allowance is paid without third-party supporting vouchers, it may be treated as sitting fee component subject to 18% RCM.

Does RCM apply to a foreign director attending board meetings from abroad?

Yes. Services provided by a foreign non-executive director qualify as an Import of Services under Section 2(11) of the IGST Act, and the Indian company must pay 18% IGST under Reverse Charge Mechanism.

17. Statutory References & Official Citations

Central Board of Indirect Taxes and Customs (CBIC): Circular No. 140/10/2020-GST dated June 10, 2020.

Notification No. 13/2017-Central Tax (Rate): Entry 6 governing reverse charge on director services.

Central Goods and Services Tax Act, 2017: Section 9(3) (Reverse charge) and Schedule III Entry 1.