Published 26 October 2026
A company pays its independent directors sitting fees and an annual commission. It pays its managing director a salary, and perhaps a separate professional fee for advice outside that role. Its promoter-director has guaranteed the company’s bank loans. GST treats each of these differently, and in every taxable case it is the company, not the director, that pays the tax. Services supplied by a director to the company are under reverse charge. Salary paid to a director who is an employee is outside GST. CBIC’s Circular No. 140/10/2020-GST draws the line between the two by looking at how the company itself records and deducts tax on the payment. A director’s unpaid personal guarantee is a supply with a nil value.
This guide states the position on 23 October 2026. The general mechanics of reverse charge (self-invoice, payment voucher, cash payment and credit) are covered in Reverse Charge for Businesses. This guide adds what is particular to directors.
Reverse charge on a director’s services
Section 9(3) lets the Government specify categories of supply on which the recipient pays the tax. Entry 6 of the Table to Notification No. 13/2017-Central Tax (Rate) of 28 June 2017 specifies:
| Category of supply | Supplier | Recipient |
|---|---|---|
| “Services supplied by a director of a company or a body corporate to the said company or the body corporate.” | “A director of a company or a body corporate” | “The company or a body corporate located in the taxable territory.” |
The corresponding entry for inter-State supplies is in Notification No. 10/2017-Integrated Tax (Rate). Notification No. 07/2025-Central Tax (Rate), the most recent amendment to Notification No. 13/2017 on CBIC’s list, did not change entry 6.
The entry turns on who supplies and who receives, not on whether the director is registered. Its words are not confined to services rendered in the capacity of director. A director who is a practising professional and advises the company is still “a director of a company” supplying services “to the said company”.
No registration for the director on this account. Notification No. 5/2017-Central Tax, issued under section 23(2), exempts from registration “persons who are only engaged in making supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse charge basis by the recipient”. A director whose only supplies are to companies under entry 6 need not register for them (Who Must Register).
Salary is not a supply; other remuneration is
Paragraph 1 of Schedule III keeps “services by an employee to the employer in the course of or in relation to his employment” outside GST. A director may or may not be an employee. Circular No. 140/10/2020-GST of 10 June 2020 deals with two groups.
Directors who are not employees. These include independent directors under section 149(6) of the Companies Act, 2013, who by definition cannot have been employees of the company in the preceding three financial years, and any other director who is not an employee. For them, the services “are clearly outside the scope of Schedule III of the CGST Act and are therefore taxable”. The company pays the tax under reverse charge (paras 4.2 and 4.3). Sitting fees and commission paid to such directors fall here.
Directors who are also employees. A whole-time or managing director “may be functioning in dual capacities”, as a director and as an employee under a contract of service (para 5.1). The circular draws the line by the company’s own treatment of the payment:
- “the part of Directors remuneration which are declared as ‘Salaries’ in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable” (para 5.3);
- “the part of employee Directors remuneration which is declared separately other than ‘salaries’ in the Company’s accounts and subjected to TDS under Section 194J of the IT Act as Fees for professional or Technical Services shall be treated as consideration for providing services which are outside the scope of Schedule III”, and is taxable under reverse charge (para 5.4).
The income-tax references after 1 April 2026. The circular refers to sections 192 and 194J of the Income-tax Act, 1961. That Act was repealed and replaced by the Income-tax Act, 2025 from 1 April 2026. Under the 2025 Act, tax on salary is deducted under section 392. Remuneration, fees or commission paid to a director “other than those on which tax is deductible under section 392” is an item in the table under section 393(1). The circular has not been reissued with the new references. Its test, salary versus remuneration other than salary, carries over to the 2025 Act’s provisions.
Personal guarantees by directors
Circular No. 204/16/2023-GST of 27 October 2023 (item 1) treats a director’s personal guarantee to a bank for the company’s loans as a supply of service between related persons, since directors and the company are related under the Explanation to section 15. RBI’s directions do not allow the company to pay the director for it. The circular therefore holds that “the open market value of the said transaction/ supply may be treated as zero”, and “no tax is payable”. Where the director, or a former director whose guarantee is retained, is paid in any form, the taxable value is that payment. Rule 28(2), the one per cent rule, “shall not apply” to personal guarantees by directors. Corporate guarantees are covered in Corporate Guarantees Between Related Parties.
Other payments to directors
- Reimbursement of expenses incurred by a director on the company’s behalf is not mentioned in either circular. Whether an amount is a reimbursement or part of the consideration for the director’s service turns on the facts and on section 15(2).
- A director located outside India who supplies services to an Indian company presents an import of services. The company pays under reverse charge on that basis as well (GST on Import of Services).
- Directors of companies outside India. Entry 6 requires the recipient to be “located in the taxable territory”. An Indian resident who is a director of a foreign company is outside entry 6. Whether his service is an export depends on the conditions in section 2(6) of the IGST Act (Export of Services).
What the company needs
| Item | Where it comes from |
|---|---|
| List of directors, and which are employees under a contract of service | Board records, appointment letters |
| Payments to each director split into salary and other remuneration (sitting fees, commission, professional fees) | Books |
| The TDS section under which each payment was deducted | TDS returns |
| Whether each director is registered (for the supplier details on the self-invoice) | Directors’ declarations |
| Any payment for a personal guarantee | Books, board resolutions |
| Board approvals for sitting fees and commission, with dates | Minutes |
Documents, timing and payment
Self-invoice and payment voucher. Where the director is not registered, section 31(3)(f) requires the company to issue an invoice for the services received. Rule 47A requires this “within thirty days from the date of receipt of the said supply”. Section 31(3)(g) requires a payment voucher when the company pays the director. A registered director issues his own invoice, marked as attracting reverse charge.
Time of supply. Section 13(3) makes the time of supply on a reverse charge service “the earlier of” the dates in its clauses. Clause (a) is the date of payment. Clause (b) is the day after sixty days from the invoice, where the supplier issues it. Clause (c), in force from 1 November 2024, is “the date of issue of invoice by the recipient, in cases where invoice is to be issued by the recipient”. For an unregistered director, the time of supply is therefore the earlier of payment and the company’s self-invoice. Sitting fees paid at each meeting create a liability on each payment, or on each self-invoice. Commission accrued at the year end and paid after the accounts are adopted is taxed on the earlier of payment and the self-invoice date (Time of Supply).
GSTR-3B. The company declares the tax in table 3.1(d), “inward supplies (liable to reverse charge)”, and pays it in cash. Reverse charge tax cannot be paid from the credit ledger: Circular No. 172/04/2022-GST (item 6) confirms that “the electronic credit ledger cannot be used for making payment of any tax which is payable under reverse charge mechanism”. The company then takes the credit in table 4(A)(3), subject to section 16 and section 17. The GST portal’s user manual describes table 3.1(d) and table 4(A)(3) as auto-drafted from GSTR-2B. A self-invoiced purchase from an unregistered director does not appear in GSTR-2B, so the company enters it. The return is due on the 20th of the following month under rule 61, or the 22nd or 24th after the quarter for QRMP filers. The portal steps are in Filing GSTR-3B and Paying the Tax.
GSTR-1. The company reports self-invoices in table 13 (documents issued) as invoices for inward supply from unregistered persons (Filing GSTR-1).
Signing. A company verifies its returns with a digital signature certificate under rule 26(1); EVC is not available to it.
Interest, penalty and corrections
Reverse charge tax paid late carries interest at 18 per cent a year under section 50(1), from the day after the due date. The proviso to section 50(1) limits interest on a liability declared late in a return to the part paid in cash. Reverse charge tax is always paid in cash, so the whole of it carries interest. Circular No. 211/05/2024-GST of 26 June 2024 deals with self-invoices issued late. For the time limit on credit under section 16(4), the relevant financial year is the year in which the recipient issues the self-invoice. But where the recipient “issues the invoice after the time of supply” it pays interest on the delayed tax, and “may also be liable to penal action” under section 122 (Time Limit for Claiming ITC). Missed liabilities are added in a later return or paid through FORM GST DRC-03 (Correcting Mistakes in Returns).
The sequence for a company
- List payments to each director for the period, and classify each director as an employee or not.
- Treat salary to an employee-director, booked as salary and taxed at source as salary, as outside GST (Schedule III para 1; Circular No. 140/10/2020-GST).
- Treat all other payments for a director’s services as taxable under reverse charge (entry 6, Notification No. 13/2017-Central Tax (Rate)): sitting fees, commission, professional fees, and remuneration to non-employee directors.
- Issue a self-invoice within thirty days where the director is unregistered, and a payment voucher on payment.
- Declare the tax in table 3.1(d) of GSTR-3B, pay it in cash, and take credit in table 4(A)(3).
- Treat an unpaid personal guarantee by a director as nil-valued, and a paid one at the amount paid (Circular No. 204/16/2023-GST).
- Pay any missed tax with interest under section 50.
This is the last guide in the “Common transactions” set. The set began with Gifts and Perquisites to Employees.