GST circular 218 taxability of services provided by director

In our reconciliation practice, corporate finance teams frequently face scrutiny notices questioning every transaction between a company and its board members. Tax authorities often argue that any payment made to an individual who happens to be a director must automatically attract reverse charge under Entry 6 of the primary RCM notification. This broad interpretation creates tax exposure across commercial leases, technical consultancy retainers, and executive payroll. Companies that pay reverse charge indiscriminately lock up working capital, while those that misclassify taxable transactions face tax demands with mandatory interest.

To eliminate ambiguity and align departmental audits with statutory intent, the Central Board of Indirect Taxes and Customs issued CBIC Circular No. 218/12/2024-GST. This circular builds upon principles established in Circular No. 140/10/2020-GST and Circular No. 201/13/2023-GST. It draws a definitive boundary: reverse charge under Entry 6 applies strictly to supplies made in the official capacity of a director. Any supply made in an individual, personal, or distinct professional capacity follows its own statutory regime.

Statutory framework for Section 9(3) and Entry 6 director services

The reverse charge mechanism for corporate director services derives its legal authority from Section 9(3) of the CGST Act. Under this provision, the recipient company is designated as the person liable to pay tax. Entry 6 of Notification 13/2017-CT(Rate), dated 28 June 2017, as published in the official CBIC reverse charge schedule, provides:

“Services supplied by a director of a company or a body corporate to the said company or the body corporate.” Entry 6, Notification 13/2017-Central Tax (Rate)

The recipient liable to discharge the tax is the company or body corporate located in the taxable territory. The applicable tax rate is 18 percent (9 percent CGST plus 9 percent SGST for intra-state transactions, or 18 percent IGST for inter-state supplies). However, the critical phrase is "supplied by a director... to the said company". In practice, the legal test is whether the individual provides the service in their capacity as a director, or in a separate personal capacity.

The capacity test under CBIC Circular 218/12/2024-GST

Circular No. 218/12/2024-GST clarifies that an individual who is a director may engage with the company in multiple distinct roles. Taxability and reverse charge applicability depend entirely on the capacity in which the specific service is rendered:

1. Services rendered in the capacity of a director: These encompass core governance functions, attending board and committee meetings, strategic corporate oversight, and statutory fiduciary duties. Examples include board sitting fees, committee attendance allowances, and commission tied to board performance. These services fall squarely under Entry 6 of Notification No. 13/2017-Central Tax (Rate), making the company liable to pay GST under reverse charge.
2. Services rendered in a personal or professional capacity: When a director provides services outside their board duties, such as leasing private real estate, licensing personal intellectual property, or providing independent technical advice under a commercial contract, they act as an independent service provider. Circular No. 218/12/2024-GST clarifies that these transactions fall outside Entry 6 director RCM.

In our reconciliation reviews, this distinction prevents departmental officers from treating ordinary commercial transactions between a company and its shareholders or directors as mandatory director RCM supplies.

Renting of immovable property under Entry 5AA versus director RCM

A recurring area of dispute involves immovable property leased by a director to the company. Prior to recent amendments, tax officers frequently issued notices demanding RCM on commercial rent under Entry 6, claiming the landlord was a director. Circular No. 201/13/2023-GST and Circular No. 218/12/2024-GST firmly settled that leasing immovable property is carried out in the individual capacity of the property owner, not as a director.

However, companies must evaluate property rental under dedicated RCM entries rather than director RCM. Two specific entries govern immovable property:

• Residential property rental (Entry 5AA): Inserted vide Notification No. 05/2022-Central Tax (Rate), Entry 5AA covers services by way of renting a residential dwelling to a registered person. When a director rents a residential dwelling to the company, the company must pay 18 percent GST under RCM under Entry 5AA, not under Entry 6. You can review detailed filing rules in our guide on RCM on renting of residential property for commercial use.
• Commercial property rental amendments: Effective 10 October 2024, the government expanded property rental rules via Notification No. 09/2024-Central Tax (Rate). Under these revised provisions, renting of any immovable property (other than residential property already covered in Entry 5AA) by an unregistered supplier to a registered person attracts reverse charge. Consequently, if an unregistered director leases a commercial office to the registered company, RCM applies under property rental provisions, never under Entry 6. If the director holds a personal GST registration, the director charges GST under forward charge.

Executive salary compared to independent director fees under Circular 140

To establish complete clarity across all forms of director compensation, Circular No. 218/12/2024-GST must be read alongside CBIC Circular No. 140/10/2020-GST. That circular governs remuneration paid to executive versus non-executive directors:

1. Executive directors and employee remuneration: Remuneration paid to whole-time directors, managing directors, or executive directors that is booked as salary in the company books and subjected to Tax Deducted at Source (TDS) under Section 192 of the Income-tax Act, 1961 is governed by Schedule III Entry 1 of the CGST Act. Schedule III treats services by an employee to the employer in the course of employment as non-supplies. No GST applies, and no reverse charge arises.
2. Independent and non-executive directors: Independent directors appointed under Section 149(6) of the Companies Act, 2013 are not employees. Sitting fees, committee fees, and commissions paid to them attract TDS under Section 194J of the Income-tax Act. These amounts fall under Entry 6 of Notification No. 13/2017-Central Tax (Rate), requiring the company to pay 18 percent GST under RCM. For full compliance details, see our guide on RCM on director remuneration and ITC.
3. Professional or technical fees paid to executive directors: If an executive director receives compensation outside their contractual employment salary, such as commercial advisory retainers subjected to TDS under Section 194J, that compensation is outside Schedule III. Depending on whether the advisory relates to board governance or a distinct personal profession, it falls either under Entry 6 RCM or regular forward charge.

Cash ledger payment requirement under Section 49(4)

Under GST law, reverse charge liability cannot be settled by debiting accumulated input tax credit balances. Under Section 49(4) of the CGST Act, the electronic credit ledger can only be used to pay output tax. Section 2(82) of the CGST Act explicitly provides that output tax excludes tax payable on a reverse charge basis.

As a result, whenever a company incurs RCM liability on director sitting fees or applicable property rentals, it must deposit the full tax amount into the electronic cash ledger using Form GST PMT-06 and discharge the liability in cash in Table 6 of Form GSTR-3B.

Input tax credit eligibility under Section 16

After discharging the reverse charge liability in cash, the recipient company can claim the tax back as input tax credit. Under Section 2(62) of the CGST Act, input tax explicitly includes tax payable under Section 9(3) and Section 9(4). The company qualifies for credit by fulfilling the core conditions of Section 16 of the CGST Act:

1. Business furtherance (Section 16(1)): Board governance, strategic oversight, and corporate committee reviews directly support business operations.
2. Possession of tax-paying document (Section 16(2)(a)): For unregistered directors, the company must issue a self-invoice under Section 31(3)(f) and a payment voucher under Section 31(3)(g). Under Rule 36(1)(b) of the CGST Rules, this self-invoice serves as the legal tax-paying document. If the director is registered and issues a tax invoice, that invoice supports the claim.
3. Receipt of service (Section 16(2)(b)): The board meetings, committee evaluations, or advisory sessions must have actually occurred.
4. Payment of tax to government (Section 16(2)(c)): The company satisfies this requirement in the same tax period by discharging Table 3.1(d) liability in cash in Table 6.
5. Filing of return (Section 16(2)(d)): The company furnishes its monthly return in Form GSTR-3B under Section 39.

Because the tax is paid in cash in the current month return, the company can claim input tax credit in Table 4(A)(3) of the very same GSTR-3B. There is no statutory requirement to defer the credit claim to the subsequent month.

Worked rupee example of monthly director payments

Consider Zenith Dynamics Private Limited, a corporate enterprise in Bengaluru, Karnataka. During October 2026, the company accounts for five distinct transactions involving its directors:

• Managing Director contractual salary: ₹4,00,000 monthly executive salary, subjected to TDS under Section 192 of the Income-tax Act.
• Independent Director sitting fees: ₹1,50,000 paid to two independent directors for board meetings, subjected to TDS under Section 194J.
• Commercial office rent to Director A (unregistered): ₹1,00,000 rent paid to a director for commercial office space. The director is not registered under GST.
• Technical consulting to Director B (personal capacity, registered): ₹2,00,000 paid to Director B for specialised software architecture consulting provided in his professional capacity. Director B holds a valid GSTIN and issues a tax invoice with 18 percent forward charge GST (₹36,000).
• Residential flat rented for transit guest house: ₹50,000 rent paid to Director C for a residential apartment used as an operational guest house for visiting engineers.

In this worked scenario, Zenith Dynamics Private Limited treats the transactions as follows:

1. The ₹4,00,000 MD salary is completely outside GST under Schedule III Entry 1.
2. The ₹1,50,000 sitting fees attract RCM under Entry 6 at 18 percent (₹27,000).
3. The ₹1,00,000 commercial rent from an unregistered director attracts RCM under property rental rules at 18 percent (₹18,000), not under director Entry 6.
4. The ₹50,000 residential guest house rent attracts RCM under Entry 5AA at 18 percent (₹9,000).
5. Total reverse charge liability equals ₹54,000 (calculated on ₹3,00,000 taxable value). The company deposits ₹54,000 into the electronic cash ledger, reports ₹3,00,000 value and ₹54,00,00 tax in Table 3.1(d), and offsets it in Table 6.
6. The company simultaneously avails ₹54,000 as input tax credit in Table 4(A)(3) of Form GSTR-3B.
7. For the ₹2,00,000 technical consulting invoice issued under forward charge, Director B files GSTR-1. The invoice reflects in Zenith Dynamics' GSTR-2B Table 4A(5) ("All other ITC"), allowing Zenith Dynamics to claim ₹36,000 credit in Table 4(A)(5) of GSTR-3B.

GSTR-2B reconciliation and reporting rules

When checking purchase registers on the portal, reconciling director payments against GSTR-2B requires understanding how the GST portal processes registered versus unregistered suppliers:

Unregistered directors: Individual directors providing governance or leasing personal property are rarely registered under GST. Therefore, no invoice appears in GSTR-2B. Accounts teams must generate self-invoices under Section 31(3)(f) with serial numbers complying with Rule 46(b). Credit is entered directly into Table 4(A)(3) of Form GSTR-3B. For broader principles, examine our analysis of RCM on legal services by advocates and RCM on renting of motor vehicles.

Registered directors: When a director holds a GSTIN for independent professional activities, the director must upload their tax invoice in Form GSTR-1. When preparing GSTR-3B, consult the official GSTN GSTR-3B user manual. In GSTR-2B:

• If the supply is under reverse charge, the director flags the invoice as "Reverse Charge = Y". This populates GSTR-2B Table 4A(3) and auto-drafts into GSTR-3B Table 3.1(d) and Table 4(A)(3).
• If the supply is under forward charge (such as registered technical consulting), the invoice appears in GSTR-2B Table 4A(5) and auto-populates into GSTR-3B Table 4(A)(5).

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Frequently asked questions

Last checked: 19 October 2026. Sources: CBIC Circular No. 140/10/2020-GST, CGST Act Section 9, CBIC Reverse Charge Services Schedule (Notification No. 13/2017-CT(Rate)), CGST Act Section 7 and Schedule III, CGST Act Section 16, CGST Act Section 49, GSTN GSTR-3B User Manual.