One of the most debated issues under GST has been the applicability of tax on director remuneration, especially distinguishing between salary paid to directors and director sitting fees. Businesses often face confusion regarding whether GST should be paid under the Reverse Charge Mechanism (RCM) on such payments.

Understanding the distinction is critical because incorrect treatment may lead to GST notices, interest, and penalties.

1. What Are Director Sitting Fees?

Director sitting fees are payments made to directors for attending:

• Board meetings
• Committee meetings
• Corporate governance discussions

These fees are generally paid to:

• Independent directors
• Non-executive directors
• Nominee directors

Such directors are usually not employees of the company.

2. GST Applicability on Director Sitting Fees

Under GST law, services supplied by a director to a company are covered under Reverse Charge Mechanism (RCM) as per:

Notification No. 13/2017 – Central Tax (Rate)

This means:

• The company, not the director, is liable to pay GST
• GST is payable under RCM on director sitting fees

Applicable GST Rate:

👉 18% GST under RCM

The company must:

• Pay GST in cash
• Report it in GSTR-3B
• Claim Input Tax Credit (ITC), subject to eligibility

3. GST on Director Salary — Is It Applicable?

This is where major confusion arises.

✔ Salary Paid to Executive/Whole-Time Directors

If the director is:

• Working as an employee of the company
• Receiving remuneration treated as “salary”
• Covered under employment contract
• Subject to TDS under Section 192 of Income Tax Act

Then such payment is considered:

Services by an employee to employer

Which falls under:

Schedule III of CGST Act
(Neither supply of goods nor services)

Result:

✅ No GST is applicable on salary paid to employee directors

4. Key Difference: Sitting Fees vs Salary

5. Important Judicial & Departmental Clarifications

Various advance rulings and CBIC clarifications have emphasized that:

• Independent directors’ remuneration generally attracts GST under RCM
• Salary to employee directors does not attract GST if employer-employee relationship exists

The treatment in:

• Appointment letter
• Payroll records
• PF/ESI applicability
• TDS deduction

plays an important role in determining GST applicability.

6. Common Compliance Mistakes

Businesses often make errors such as:

❌ Not paying GST under RCM on sitting fees
❌ Treating all director remuneration as exempt salary
❌ Incorrect TDS classification
❌ Failure to disclose RCM liability in GST returns

These mistakes may lead to:

• Interest liability
• Penalties
• GST audits and notices

7. Best Practices for Companies

To ensure proper GST compliance:

✔ Clearly classify directors as executive or non-executive
✔ Maintain employment agreements for salaried directors
✔ Deduct TDS under the correct section
✔ Pay GST under RCM on sitting fees promptly
✔ Maintain proper documentation and board resolutions

Conclusion

The GST treatment of director remuneration depends primarily on the nature of relationship between the director and the company. While director sitting fees attract 18% GST under RCM, genuine salary paid to employee directors remains outside GST ambit.

Proper classification and documentation are essential to avoid disputes and ensure smooth GST compliance.

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