GST on Director Remuneration: When Salary Is Outside GST and When You Pay Under Reverse Charge
Under CBIC Circular 140/10/2020, a director's remuneration declared as salary and subject to salary TDS is outside GST. Sitting fees, commission and other non-salary amounts paid to directors, especially independent directors, attract 18% GST under reverse charge, paid by the company in cash and claimable as credit.
Private limited companies pay their directors in many ways: salary, commission, sitting fees, professional fees. GST treats them differently, and the company, not the director, pays the GST on most non-salary amounts.
The rule
| Payment to a director | GST |
|---|---|
| Salary to a whole-time or executive director who is an employee, shown as salary with TDS on salary | Outside GST |
| Sitting fees to independent or non-executive directors | 18% under reverse charge, paid by the company |
| Commission or other amounts not part of salary | 18% under reverse charge |
| Professional fees for separate professional services (for example, a director who is also a lawyer advising the company) | Normal GST charged by the director if registered, or depending on the nature of service |
CBIC Circular 140/10/2020 clarified that the part of a director's remuneration declared as salary in the books and subject to TDS on salary is not taxable, while amounts declared separately, other than salary, are taxable under reverse charge.
How to account for it
- Classify every payment to a director at the time of the board resolution: salary or other.
- For non-salary payments, raise a self-invoice and pay 18% GST in cash through GSTR-3B.
- Claim input tax credit on it in the same return, if used for taxable business.
- Deduct TDS under the right provision: salary TDS for salary, and the TDS for directors' fees for other amounts.
A worked example
A Vadodara private limited company pays its managing director ₹2 lakh a month as salary, and two independent directors ₹40,000 each per board meeting. It holds four meetings a year.
- ✓MD's salary: outside GST; TDS on salary.
- ✓Sitting fees: ₹3.2 lakh a year. GST under reverse charge: ₹57,600, paid in cash and claimed back as credit.
Frequently asked questions
Is a director a "business associate" for TDS on benefits?
Payments to directors have their own TDS treatment. Check the right section with your CA.
What if the director is registered under GST?
For sitting fees and similar services, reverse charge still applies: the company pays the GST.
Are reimbursements of travel expenses taxable?
Genuine reimbursements of expenses incurred for the company, supported by bills, are generally not remuneration. Keep records.
Sources
- ✓CBIC Circular 140/10/2020-GST on director remuneration (copy hosted by Delhi Trade and Taxes)
- ✓GST liability on director remuneration clarified, Lakshmikumaran & Sridharan
- ✓Reverse charge mechanism under GST, Sleet
This is a summary, not legal advice. Confirm with your chartered accountant.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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