GST & TDS on Director Remuneration: Executive vs Non-Executive & Sitting Fees Guide
Priya Sharma
· Corporate Legal & Compliance Counsel· 7 min read
Compensating company directors in India is a notorious tax trap. Founders and accountants frequently confuse employment salary, consulting fees, profit-sharing commissions, and board sitting fees. Deducting the wrong section under the Income Tax Act or failing to remit 18% GST under the Reverse Charge Mechanism (RCM) leads to immediate tax demands from both direct and indirect tax departments. Here is the definitive legal guide based on CBIC Circular No. 140/10/2020-GST.
- ✓Per CBIC Circular No. 140/10/2020-GST, remuneration paid to an Executive / Whole-time Director treated as salary under Section 192 is exempt from GST under Schedule III.
- ✓Remuneration, commissions, or sitting fees paid to Non-Executive Directors, Independent Directors, or part-time directors are subject to 18% GST under Reverse Charge Mechanism (RCM).
- ✓TDS on director sitting fees and professional commissions is deducted at 10% under Section 194J without ANY threshold limit (₹30,000 threshold does NOT apply to director fees).
- ✓The company must discharge RCM liability in cash through the Electronic Cash Ledger and can claim 100% Input Tax Credit in the same GSTR-3B return.
The CBIC Circular 140 framework: Employee vs Non-Employee Directors
To resolve nationwide tax litigation, the Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 140/10/2020-GST establishing a clear two-part test to determine GST and TDS liability on director payments:
Category A: Services by a Director in capacity of an Employee (Managing Director, Whole-time Director, Executive Director).
Category B: Services by a Director outside employee capacity (Independent Director, Nominee Director, Non-Executive Director).
Statutory classification matrix: GST, RCM and TDS
Here is how tax provisions apply across director roles and payment types:
| Payment Nature | Director Role | Applicable TDS Provision | GST & RCM Applicability |
|---|---|---|---|
| Regular Monthly Salary | Executive / Whole-time Director | Section 192 (TDS on Salary / Form 16) | Exempt from GST (Schedule III Paragraph 1) |
| Contractual Consulting Fees | Executive Director (Outside employment) | Section 194J (10% TDS) | 18% GST under RCM (Section 9(3)) |
| Board Sitting Fees | Independent / Non-Executive Director | Section 194J (10% TDS - Zero threshold) | 18% GST under RCM (Section 9(3)) |
| Commission on Profits | Non-Executive Director | Section 194J (10% TDS) | 18% GST under RCM (Section 9(3)) |
| Reimbursement of Actual Travel | Any Director | No TDS (if backed by original bills) | No GST (Pure agent concept) |
Why Section 194J has ZERO threshold for Director Fees
In general professional services, Section 194J provides a threshold exemption of ₹30,000 per financial year.
However, under Section 194J(1)(ba), introduced specifically for remuneration or fees or commission paid to a director, the ₹30,000 statutory threshold DOES NOT APPLY. If a company pays a director a single board sitting fee of ₹5,000, 10% TDS (₹500) must be deducted and deposited.
Section 31(3)(f) Self-Invoicing Mandate
When paying director fees subject to RCM, the company must issue a Self-Invoice under Section 31(3)(f) and a Payment Voucher under Section 31(3)(g) of the CGST Act. The company pays 18% GST in cash on GSTR-3B Table 3.1(d) and reclaims it as ITC in Table 4(A)(3).
Audit checklist for corporate boards and CFOs
1. Employment Agreement: Ensure executive directors have a written employment contract detailing fixed salary, provident fund, and leave entitlements.
2. Accounting Separation: In the trial balance, maintain two separate ledger accounts: 'Director Salary' (reported under Employee Benefits) and 'Director Sitting Fees & Remuneration' (reported under Other Expenses).
3. TDS Matching: Ensure the TDS booked in Form 26Q matches the RCM turnover declared in GSTR-3B to prevent automated mismatch notices between MCA, Income Tax, and GSTN.
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Frequently Asked Questions
Is GST applicable on salary paid to a Managing Director?
No. As clarified in CBIC Circular No. 140/10/2020-GST, salary paid to a Managing or Whole-time Director that is subjected to TDS under Section 192 of the Income Tax Act represents an employer-employee relationship and is completely exempt from GST under Schedule III of the CGST Act.
Does the ₹30,000 TDS threshold apply to director sitting fees?
No. Under Section 194J(1)(ba) of the Income Tax Act, TDS on any remuneration, commission, or fee paid to a director must be deducted at 10% without any basic exemption limit. TDS applies even on a payment of ₹1,000.
Can a company use Input Tax Credit to pay RCM on director fees?
No. Tax liability under reverse charge mechanism must be discharged entirely in cash through the Electronic Cash Ledger. However, once paid, the company can claim 100% ITC on that amount in the same GSTR-3B return.
Does an independent director need to register for GST?
If the independent director provides only director services to companies where the entire GST is paid by the company under RCM, the director is exempt from taking GST registration under Notification No. 5/2017-Central Tax.
Priya Sharma
Corporate Legal & Compliance CounselSpecializing in commercial contract litigation, Section 138 NI Act recovery, commercial property leases, and MSMED Act compliance.