Is GST Required to be paid on Independent Directors’ Salary? 

Last Updated at: Feb 02, 2021
Is GST Required to be Paid on Independent Directors’ Salary_
As per the new rules, employees will have to pay 18 percent of goods and services (GST) tax on the pay recovered for the notice period duration. According to the Gujarat Authority of Advance Ruling, the employee leaving the company without completing the notice period will have to pay 18% GST along with paying the salary amount to the company for the remaining period.


Directors are often called the minds and will of the company. It is the directors of the company who shape its future trajectory, by rendering their services to the company. In return, directors may get a salary, an equity stake in the company, or any other benefit. However, with Independent directors’, strict rules are regulating their remuneration. In this light, the Central Board of Indirect Taxes and Customs classify that an independent director’s salary subjects to GST. In this post, we explore the practical ramifications of this order and also highlight its effect on whole-time directors. 

Who is an independent director?

  • As the word suggests, these are directors who are “independent” in the sense that do not have a personal financial interest in the company. 
  • Independent Directors are directors who apart from receiving the director’s remuneration do not have any other material pecuniary relationship or transaction with the company, its promoters, its management, or its subsidiary, which in the judgment of the Board may affect their independence of judgment. 
  • Section 149 of the Companies Act also mentions that the Independent Director must be a person of integrity, should not be a promoter himself or with his relatives of any holding or subsidiary company. 
  • They recruit to provide professional services in fields such as marketing, accountancy, technology, etc. 
  • They provide integrity as well as impartial advice to the company 

An issue with Independent Directors Remuneration

Unlike regular managing directors or whole-time directors, the remuneration of independent directors strictly regulates by the Companies Act. They cannot offer any equity or financial stake in the company. Thus, this exists ambiguity on whether this remuneration would be subject to Tax Deducted at Source, or whether it is amenable to GST. 

Whether an independent director is an “employee” of the company?

No, the definition of an independent director under section 2(94) of the Companies Act, 2013 is inclusive, and thus he cannot be a person who is an employee of the company. Further, the rules of the Companies Act also clarify that he should not have been an employee or proprietor or a partner of the said company, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed in the said company.

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Clarification by the CBIC vide Circular No: 140/10/2020

No Tax Deduction at Source for Independent Director’s salary

The legal framework under the Companies Act provides clarity that an independent director is not like an employee. Further, they appoint to act as impartial guardians in the conduct of affairs of the company. Hence, they cannot treat as employees and their remuneration will not declare as “salary” to employees in the company’s books of accounts. The Income Tax Act provides for TDS collection on payments as salary to employees. Therefore, there is no need for TDS to be deducted on their independent director’s remuneration. 

GST Payable at 18%

Since GST payment exempt for “salaries” paid to employees, the Schedule III exemption to such payments will not extend to independent directors. Thus, GST becomes payable. The payment of remuneration to independent directors falls under the bracket of 18% GST. 

Reverse Charge Basis

The GST on remuneration to independent directors has to collect by way of reverse charge. This means that the business must collect GST as if it were dealing with an unregistered person (the director). This GST collection should deposit by the company to the tax department. Thus, the onus to collect and pay GST lies on the company and not on the director. 

Professional or Technical Fee to a whole-time director

  • The CBIC in its circular has clarified that TDS on other than an independent director’s salaries would depend on categorization in books of the company. 
  • Where the whole time directors get remuneration like “salary”. It is to treat as consideration for service by the employer to the employee. Hence, this salary is not subject to GST, being exempt under Schedule III of the CGST Act, 2017. 
  • However, if any “professional fee” provides to the whole-time director, other than salary, and on which TDS deducts, no GST is payable. However, if not done, GST in reverse charge basis becomes payable. For example, where a whole-time director certifies cyber expert and advises the company on its cybersecurity framework. GST on this amount would be payable.  


Avani Mishra is a graduate in law from the National Law Institute University, Bhopal. She qualified the Company Secretary course with an All India Rank 1 and is a recipient of the President’s Gold Medal for her academic distinctions. She also holds a B.Com degree with a specialization in Corporate Affairs and Administration.