GST & Indirect Tax
GST on Director Services and Reverse Charge: Step-by-Step Compliance Playbook
Director fees and sitting fees paid by Indian companies to directors attract GST under reverse charge — meaning the company pays GST, not the director. This is one of the most commonly missed GST compliance requirements for Indian companies. The playbook covers who is liable, how to calculate, when to file and what ITC can be claimed.
The Reverse Charge Rule for Director Services
Under Notification 13/2017-CT(Rate) Entry 6, services supplied by a director of a company to that company are liable to GST under Reverse Charge Mechanism (RCM). This means:
- The company (not the director) pays 18% GST on the director's remuneration/sitting fees
- The director need not register for GST solely for this purpose — the liability is on the recipient company
- If the director is also a whole-time employee (executive director on payroll), salary component is not subject to RCM — only fee-based payments qualify
What Payments Attract RCM?
| Payment Type | RCM Applicable? | Notes |
|---|---|---|
| Sitting fees for board meetings | ✅ Yes | 18% RCM by company |
| Commission to non-executive directors | ✅ Yes | 18% RCM by company |
| Salary to whole-time director on payroll | ❌ No | Employer-employee — not a supply under Schedule III |
| Professional fee to director for specific consultancy | ✅ Yes | 18% RCM; also TDS under Section 194J |
| Reimbursement of expenses to director (pure pass-through) | ⚠️ Case by case | If pure agent conditions met: no GST; otherwise 18% RCM |
Step-by-Step Compliance for Companies
- Identify all non-executive director sitting fees and commissions each month
- Issue a self-invoice for the RCM supply, since the director typically does not issue a GST tax invoice — under Circular 140/10/2020-GST and CGST Rules 46 and 52, the recipient company must raise a self-invoice (with all particulars of a normal tax invoice) and a payment voucher at the time of making payment to the director
- Determine the place of supply and tax head: place of supply for director services is the location of the recipient company (Section 12(2), IGST Act). Whether the supply is inter-state (IGST) or intra-state (CGST+SGST) then depends on comparing the director's own location (the supplier, ordinarily their usual place of residence) against that place of supply — if the director resides in a different state from the company, it's IGST; if in the same state, it's CGST+SGST. It is not correct to assume CGST+SGST applies automatically merely because the company is in a particular state; the director's location matters for the tax-head determination.
- Calculate RCM: 18% on the gross amount
- Pay RCM liability in cash via the GST portal (Form PMT-06), generally by the same due date as the relevant GSTR-3B — for monthly filers this is the 20th of the following month, but QRMP-eligible taxpayers who have opted for quarterly GSTR-3B follow the QRMP payment and filing calendar instead (monthly PMT-06 payment by the 25th for the first two months of the quarter, with the quarterly GSTR-3B due by the 22nd/24th of the month after quarter-end depending on the state) — the "pay by the 20th" rule is not universal across all RCM-liable taxpayers
- Declare in GSTR-3B: Row 3.1(d) — inward supplies liable to RCM; Row 4A(3) — ITC on RCM
- Claim ITC: RCM GST paid in cash is reported and claimed as ITC through GSTR-3B in the period of payment (Section 16(1)) — it does not auto-populate in GSTR-2B the way ITC on regular supplier-reported invoices does, because there is no third-party supplier filing a return that would feed GSTR-2B. The company must self-track and self-report the RCM liability and the corresponding ITC claim directly in GSTR-3B based on its own self-invoice and payment voucher records.
Cash Payment Mandatory: RCM GST must be paid in cash — existing ITC balance cannot be used to pay RCM. After payment, the same amount can be claimed as ITC through GSTR-3B (if the company's business is fully taxable). Net cash impact is typically nil over a tax period for fully taxable companies, but the cash outflow for RCM payment is real and must be tracked, reported and claimed manually rather than relying on any auto-population.
Case Study: Listed Company — Quarterly Board Meetings
Case Study: Techvance Ltd — 5 Independent Directors
Annual sitting fee: ₹1.5L per director × 5 = ₹7.5L
RCM GST (18%)
₹7.5L × 18% = ₹1.35L per year
Payment
Cash — ₹1.35L paid quarterly to GST portal
ITC claimed
₹1.35L — available as ITC same month
Net cost
Nil (fully taxable company); only cash flow timing impact
Techvance's CFO ensures RCM is paid before 20th of the month following each board meeting. Missing RCM payment triggers 18% interest per annum on the outstanding amount.
FAQ
Does a director need to register for GST because of sitting fees?
No. The GST liability on director sitting fees is on the company (as recipient under RCM), not on the director. The director is not required to register for GST solely because they receive sitting fees from one or more companies. However, if the director separately provides professional consulting services above ₹20L threshold, registration is required for those services.
Is GST on director fees available as ITC to the company?
Yes. GST paid by the company under RCM on director fees is available as Input Tax Credit under Section 16 of the CGST Act. For a fully taxable company, the RCM paid and ITC claimed net to zero — no real cost. For exempt-supply companies (e.g., banks, insurers making primarily exempt supplies), ITC may be partially blocked under Rule 42.
What is the place of supply for director services?
Place of supply for director services is the location of the company (recipient), under Section 12(2) of the IGST Act. But that alone doesn't decide whether CGST+SGST or IGST applies — that depends on comparing the place of supply against the director's own location as supplier. If the director's location and the place of supply (company's location) are in the same state, the company pays CGST+SGST of that state; if the director is based in a different state from the company, the supply is inter-state and IGST applies instead. So a company in Maharashtra paying a director based in Karnataka would self-invoice under IGST, not CGST+SGST, even though the company itself is in Maharashtra.