GST on Director Remuneration and Sitting Fees

Two rules meet every time a company pays a director. One says services a director supplies to the company are taxed under reverse charge, so the company, not the director, owes the GST. The other says services an employee supplies to their employer are not a supply at all. Which one wins depends on the director and on how the payment is booked, and getting it wrong in either direction costs money: an unpaid reverse charge liability with interest, or GST paid on salary that was never taxable. This post walks through how to tell them apart, what the company files, and where the credit goes.

The two rules that collide

Rule one: director services are under reverse charge. The government has notified a list of services on which the recipient pays GST instead of the supplier. One entry covers services supplied by a director of a company or body corporate to that company or body corporate. The recipient is the company, so the company is liable. It does not matter whether the director is registered under GST, or how small the fee is: the reverse charge applies because of who the supplier is, not their turnover. The general mechanics are covered in the reverse charge mechanism guide.

Rule two: employment is not a supply. Schedule III to the CGST Act lists activities treated as neither a supply of goods nor a supply of services. Its first entry is services by an employee to the employer in the course of or in relation to their employment. Salary is therefore outside GST entirely: not exempt, not nil-rated, simply not a supply.

A whole-time or managing director is both a director and, very often, an employee. For years companies read the two rules differently, some paying reverse charge on every rupee paid to executive directors, others on none of it. Advance ruling authorities did not help, with at least one ruling treating all director remuneration as taxable on the reasoning that a director is not an employee of the company in the ordinary sense. CBIC settled the practical question with a clarification issued in June 2020.

Salary versus everything else

The clarification does not try to decide who is or is not an employee under company law. It borrows the answer the company has already given for income tax.

• Declared as salary, TDS under Section 192. Where the part of a director's remuneration is declared as salary in the company's books and TDS is deducted under Section 192 of the Income-tax Act, that part is treated as consideration for services in the course of employment. It is covered by Schedule III and is not taxable under GST.
• Not treated as salary, TDS under Section 194J. Where any part of the remuneration is treated as something other than salary, typically professional or technical fees, commission or sitting fees with TDS under Section 194J, that part is consideration for services outside employment. It is taxable, and the company pays the GST under reverse charge.
• Independent and non-executive directors. These directors are not employees of the company, so nothing they receive can fall under Schedule III. Their sitting fees and any commission are taxable under reverse charge.

The practical effect is that one director can have both treatments at once. A managing director on a salary package who is also paid a separate sitting fee for board meetings has salary outside GST and a sitting fee inside it. The split follows the TDS section applied to each component.

Director type and payment, mapped to GST

Most board payments fall into one of the rows below. The rate for the taxable rows is 18%, the standard rate for services, which did not change in the September 2025 rate rationalisation.

The reverse charge row applies only to services the director supplies to the company in the capacity of a director. If a director who is also a practising lawyer or chartered accountant bills the company for separate professional work, that is a supply by a professional, and whether reverse charge applies depends on the rules for that service. Legal services from an advocate, for example, have their own reverse charge entry, covered in GST on legal services. If a director lets property to the company, rent follows the rules in GST on rent.

How the company actually pays the tax

Once a payment is taxable, the company is the taxpayer for it. The steps are the same as any other reverse charge service.

1. Document the supply. Directors are almost always individuals who are not registered under GST. When the supplier is unregistered, Section 31(3)(f) of the CGST Act requires the registered recipient to issue an invoice itself, the self-invoice. The invoicing rules also set a time limit for issuing it; confirm the current limit on cbic-gst.gov.in. If the director is registered, the director issues the tax invoice, marked as a supply on which tax is payable under reverse charge, and no self-invoice is needed.
2. Issue a payment voucher. Section 31(3)(g) requires the recipient liable under reverse charge to issue a payment voucher when it pays the supplier. This applies whether or not the director is registered.
3. Work out the time of supply. For services under reverse charge, Section 13(3) fixes the time of supply as the earlier of the date of payment and the date immediately after sixty days from the date of the supplier's invoice. For a board meeting fee paid the same month, that is normally the payment date. A fee that is accrued but not paid for months does not defer the tax indefinitely.
4. Report and pay in GSTR-3B. The liability goes in Table 3.1(d), inward supplies liable to reverse charge. That figure is your own declaration, not pulled from any supplier's GSTR-1. The GSTR-3B filing guide walks through the table.
5. Pay it in cash. Reverse charge liability cannot be set off against your input tax credit balance. It is paid from the electronic cash ledger, so fund the ledger before filing. How the two ledgers interact is explained in electronic credit and cash ledgers.

The tax is calculated on the gross fee. If a sitting fee is ₹1,00,000, the company pays ₹18,000 of GST on top, typically as ₹9,000 CGST and ₹9,000 SGST because the director and the company are usually in the same state. The director still receives ₹1,00,000, less the income-tax TDS. GST is not deducted from the fee.

Claiming credit on the tax you paid

Tax paid under reverse charge is input tax in the company's hands. If the director's services are used in the course or furtherance of business, which board services almost always are, the company can claim the credit subject to the usual conditions of Section 16 and the restrictions of Section 17. Director services are not among the blocked credits under Section 17(5).

The credit is claimed in Table 4(A)(3) of the same GSTR-3B, ITC on inward supplies liable to reverse charge. It will not appear in GSTR-2B as a supplier-reported invoice when the director is unregistered, so it rests on your own self-invoice and proof of payment. The condition that matters is that the tax is actually paid before the credit is taken.

For a fully taxable company the net cost is a cash-flow timing difference: you pay ₹18,000 in cash and take ₹18,000 of credit in the same return, which you then use against output tax. The cost becomes real for companies whose outward supplies are exempt, wholly or partly, because credit must then be reversed or apportioned under the Section 17 rules. Banks, insurers and companies with large exempt income should model the reverse charge on board fees as a genuine expense.

Personal guarantees given by directors

Lenders routinely ask directors to guarantee the company's borrowings personally. Because a director and the company are related persons, departments had questioned whether such a guarantee is a supply by the director to the company that must be valued at open market value under the related-party valuation rules, even when the director charges nothing. The valuation side of that question is covered in GST valuation for related-party supplies.

CBIC addressed it in a 2023 clarification. As we read it, where a director gives a personal guarantee to a bank for the company's credit facility and receives no consideration from the company, the open market value of that supply is treated as nil, so no tax is payable. The position is different if the director is paid for the guarantee, for example by commission, or if the arrangement is a disguised way of paying remuneration: that consideration would be taxable under the ordinary rules. The same round of changes introduced a separate valuation rule for corporate guarantees between related companies, which does not cover a director's personal guarantee. Confirm the current text on cbic-gst.gov.in before relying on it for a specific facility.

If you are checking whether a director's own business, or a company in the same group, is registered and filing before you process a payment to it, the GST number search gives five free lookups a day, and the API returns registration details and GSTR filing history in one call at ₹0.50 per verification.

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