GST is not payable on remuneration paid to a whole-time or executive director that is treated as salary (employer-employee relationship), but reverse charge applies to remuneration such as sitting fees and commission paid to a non-executive or independent director. Circular 140/2020-GST clarified this distinction.
The two categories of director pay
Circular 140/2020-GST drew the line by the nature of the relationship:
| Payment | Tax treatment | Income-tax marker |
|---|---|---|
| Salary to executive/whole-time director | Outside GST (Schedule III — employment) | TDS under Section 192 |
| Sitting fees, commission to non-executive director | GST under RCM (company pays) | TDS under Section 194J |
Why the income-tax treatment is the clue
The circular tied the GST treatment to how the payment is treated for income tax. If TDS is deducted under Section 192 (salary), the amount is part of an employer-employee relationship and is outside GST (Schedule III). If TDS is deducted under Section 194J (professional/technical, applicable to independent/non-executive directors), the service is taxable under reverse charge.
How the RCM works
For taxable director services, the company pays IGST/CGST+SGST under reverse charge (Notification 13/2017) in cash, issues a self-invoice, and claims the tax as ITC if used for taxable business. A non-executive director who only provides such services to one company need not register, since the liability shifts to the company.
Practical checklist
- Classify each director: executive (salary, Section 192) or non-executive (194J).
- Apply RCM only to the 194J-type remuneration (sitting fees, commission).
- Issue self-invoices for the RCM amount and report in 3B Table 3.1(d).
- Claim ITC of the RCM paid where eligible.
Key takeaways
- Director's salary (executive): outside GST, TDS under Section 192.
- Sitting fees/commission (non-executive): RCM, TDS under Section 194J.
- Circular 140/2020 tied GST treatment to the income-tax marker.
- Company pays RCM in cash and claims ITC if eligible.