GST on director remuneration depends on one question: is the amount paid to the director as an employee, or for services as a director? Salary paid to a director who is genuinely employed by the company is outside GST. Sitting fees, commission, retainers and any other payment that is not booked and taxed as salary attract GST, and the company (not the director) pays that tax under the reverse charge mechanism.
That split comes from a 2020 CBIC circular that still governs the position on 1 November 2026. What follows explains how to apply it to each kind of payment, what the company has to do each month once GST is payable, and where the income-tax treatment changes nothing except the section numbers.
Why the company pays the tax and not the director
Normally the supplier of a service charges GST and pays it to the government. Section 9(3) of the CGST Act lets the government notify categories of supply where the recipient pays instead, and then treats that recipient as the person liable for the tax.
Serial number 6 of Notification No. 13/2017-Central Tax (Rate) is one of those categories. It covers services supplied by a director of a company or a body corporate to that company or body corporate, with the company located in the taxable territory as the recipient. So when a director's service is taxable at all, the company self-assesses the GST. The director does not raise a tax invoice with GST on it, and it makes no difference whether the director is individually registered under GST or below any threshold.
A director who happens to be GST-registered for some other business still bills the company without GST and reports the amount as an outward supply on which the recipient pays tax. If you handle that director's own returns, see how outward supplies taxed under reverse charge are reported in GSTR-1 and GSTR-3B.
The employee test that decides whether GST applies
Paragraph 1 of Schedule III to the CGST Act says services by an employee to the employer in the course of or in relation to employment are neither a supply of goods nor a supply of services. If a director's payment falls here, there is no GST, reverse charge or otherwise.
CBIC Circular No. 140/10/2020-GST dated 10 June 2020 explains when a director's pay qualifies. It treats directors in two groups.
Independent and other non-employee directors
An independent director under section 149(6) of the Companies Act, 2013 cannot have been an employee of the company in the three preceding financial years, and does not become one by joining the board. According to the circular, such directors' services are outside Schedule III and taxable. Its paragraph 4.3 extends this to the remuneration of any director, by whatever name called, who is not an employee of the company. Sitting fees, profit-linked commission and fixed retainers to non-executive directors all fall here.
The circular also points out that a whole-time director is not automatically an employee. The Companies Act definition of whole-time director is inclusive, so a promoter who works full time in the business but has no contract of employment and takes "remuneration" outside the payroll can fall on the taxable side.
Directors who are also employees
A director may work in two capacities: as a member of the board and as an employee under a contract of service. For this group, the circular uses the company's own accounts and TDS treatment as the dividing line:
- The part of the remuneration declared as Salaries in the books and subjected to TDS under section 192 of the Income-tax Act, 1961 is consideration for services by an employee. It is not taxable under GST.
- Any part declared separately, other than as salary, and subjected to TDS under section 194J as professional or technical fees, is outside Schedule III. The company pays GST on it under reverse charge.
The circular was written when the 1961 Act was in force. For payments made from 1 April 2026, salary TDS falls under section 392 of the Income-tax Act, 2025, which requires any person paying income chargeable under the head Salaries to deduct tax. The logic of the circular does not depend on the section number: what matters is whether the company actually treats the payment as salary, deducts tax on it as salary and reports it as salary.
Which director payments attract GST
Most companies pay directors in more than one way. The table sorts the usual payments by the test above, as the law stands on 1 November 2026.
| Payment | Who receives it | Booked and taxed as | GST position |
|---|---|---|---|
| Monthly salary under an employment contract | Managing director or whole-time director on the payroll | Salary, with salary TDS | Not a supply under Schedule III; no GST |
| Performance bonus or commission paid through payroll | Executive director who is an employee | Salary, with salary TDS | No GST |
| Sitting fees for board or committee meetings | Independent or non-executive director | Fees, not salary | Taxable; company pays under reverse charge |
| Sitting fees paid to an executive director in addition to salary | Executive director who is an employee | Fees, separate from salary | Taxable on the fee portion; company pays under reverse charge |
| Annual profit commission | Non-executive director | Commission or fees, not salary | Taxable; company pays under reverse charge |
| Fixed monthly "remuneration" with no employment contract | Promoter director working in the business | Professional fees | Taxable; company pays under reverse charge |
Reimbursement of travel and hotel bills for attending board meetings needs separate thought, because the circular does not deal with it. Check whether the company paid the hotel or airline directly or paid the director a fixed allowance, since the second looks much more like part of the director's consideration.
A worked month: one company, three directors
Illustration. Shree Polymers Private Limited is registered under GST in Maharashtra. In November 2026 it makes these payments to directors, all of whom live in Maharashtra:
- Anil, the managing director, is on the payroll under an employment contract. His salary of ₹3,00,000 is booked as salary with tax deducted under section 392.
- Meera, an independent director, attends the board meeting on 12 November 2026. Her sitting fee of ₹50,000 is paid by bank transfer on 14 November 2026.
- Rahul, a promoter director, oversees purchases full time but has no employment contract. He is paid ₹1,50,000 a month, booked as professional fees.
Assume the company applies GST at 18% to these director services (confirm the rate entry your own company uses). The GST works out as follows:
- Anil's salary is outside GST under Schedule III. Nothing to pay.
- Meera's fee: ₹50,000 × 18% = ₹9,000, split as CGST ₹4,500 and SGST ₹4,500.
- Rahul's fees: ₹1,50,000 × 18% = ₹27,000, split as CGST ₹13,500 and SGST ₹13,500.
- Total reverse charge liability for November 2026: ₹36,000.
The company pays ₹36,000 from its cash ledger and, if the services are used for its taxable business, claims the same ₹36,000 as input tax credit in that return. The net cost is the cash locked up for a month. Getting it wrong costs more: interest on tax paid late, and a credit claim that has to be defended in a later scrutiny or audit.
Monthly compliance once reverse charge applies
Issue a self-invoice within 30 days
Directors are usually not registered, so the company has to raise the invoice itself under section 31(3)(f) of the CGST Act. Rule 47A of the CGST Rules, in force from 1 November 2024, requires that invoice within 30 days from the date of receipt of the supply. For Meera's meeting on 12 November 2026, the self-invoice is due by 12 December 2026.
Fix the time of supply
Under section 13(3) of the CGST Act, the time of supply for reverse charge services is the earlier of two dates. One is the date of payment, taken as the earlier of the book entry and the bank debit. The other, where the recipient issues the invoice, is the date of that invoice. If neither can be determined, it is the date of entry in the recipient's books. For Meera, payment on 14 November 2026 puts the liability in November even if the self-invoice is issued later. For a year-end commission approved in March but paid in May, the self-invoice date will often come first and decide the period.
Pay in cash, then take the credit
Section 49(4) of the CGST Act allows the electronic credit ledger to be used only for output tax, and the CGST Act's definition of output tax excludes tax payable on reverse charge. So the ₹36,000 cannot be set off against existing credit; it has to be paid through the cash ledger. The WIRC of ICAI material on reverse charge walks through this and the point that credit is available only after the tax has been paid.
Report it in GSTR-3B
The GST portal's GSTR-3B FAQ lists Table 3.1(d) for inward supplies liable to reverse charge and Table 4A(3) for the matching credit. GSTR-2B is built from what suppliers report, and an unregistered director files nothing, so do not expect the amount to appear there; check and enter it yourself before filing. A related point on how ICAI expects reverse charge credit to be shown in GSTR-3B is covered in ICAI's FAQs on GSTR-3B credit for import of services under reverse charge.
If the company also makes exempt supplies, the credit on director fees is a common credit and part of it may have to be reversed in the usual way. A company making only exempt supplies gets no credit at all, so the GST becomes a real cost.
The company that is not yet registered
Some companies pay directors sitting fees but have no GST registration, for example a holding company earning only dividends and interest. Section 24 of the CGST Act makes registration compulsory, notwithstanding the turnover threshold, for persons required to pay tax under reverse charge. A company paying taxable director fees therefore needs to register even if its own turnover would never cross the limit. The first sitting fee paid to an independent director is the trigger, so build this into the board calendar of a newly listed or newly reconstituted board.
Where companies go wrong on director pay
- Treating every whole-time director as an employee. What counts is an actual employment relationship. A promoter drawing a monthly amount booked as professional fees is on the taxable side, whatever the board resolution calls the role.
- Splitting one person's pay without splitting the tax treatment. An executive director who receives salary through payroll and separate sitting fees for committee meetings has two different payments. Only the salary portion escapes GST.
- Waiting for the commission to be paid. Commission to non-executive directors is often approved with the annual accounts and paid months later. Under section 13(3), issuing the self-invoice fixes the time of supply if it comes before payment, and Rule 47A puts a 30-day limit on that invoice.
- Using credit to pay the reverse charge. Section 49(4) does not allow the credit ledger to discharge reverse charge tax. An amount set off that way remains unpaid, and the credit taken on it rests on a payment that never validly happened.
- Letting the books and the TDS return say different things. If a payment is shown as salary in the accounts but tax is deducted as professional fees (or the other way round), the circular's test gives no clean answer. Make the classification consistent across the board resolution, the ledger and the TDS return before the year closes.
Before finalising the GST annual reconciliation for 2026-27, list every payment to every director from the ledger and mark each one as salary or non-salary using the same test. Then match the non-salary total to the reverse charge paid in Table 3.1(d) for the year. Any gap found then can still be paid with interest through DRC-03 before a notice arrives.
