Director Remuneration vs Consultancy Fee: TDS, GST and Company Law Compared
Director salary vs consultancy fee: salary has no GST, director fees attract 10% TDS with no threshold and GST under reverse charge. Compare the routes.
Short answer
Paying a working director a salary under an employment contract is usually simplest: no GST, TDS at slab rates and a standard deduction for the director. Fees or commission paid to a director outside employment attract 10% TDS with no threshold and GST under reverse charge payable by the company. Use consultancy terms for independent or non-executive directors.
- Salary to director-employee
- No GST; TDS at slab rates
- Director fees or commission
- 10% TDS, no threshold, section 393(1)
- GST on director's services
- Reverse charge, paid by the company
- Other professional fees TDS
- 10% above ₹50,000
- Public company cap
- Section 197 limits
- Private company cap
- No section 197 limit
What is the difference?
Director remuneration can take two forms. A whole-time or executive director can be an employee who receives salary under an employment contract, taxed as salary income. A non-executive director, or a director who is not an employee, receives sitting fees, commission or professional fees, which are taxed as business or other income.
The label in the board resolution is not enough. Tax authorities look at the substance: fixed working hours, reporting, employee benefits and an employment contract point to salary, while independent advice billed periodically points to fees.
Side-by-side comparison
The table compares salary to an executive director with fees paid to a director outside employment. Rates are those applicable from 1 April 2026 under the Income-tax Act 2025 and current GST law.
| Factor | Salary to director-employee | Fees or commission to director |
|---|---|---|
| Income head for director | Salary | Business, profession or other income |
| TDS | At slab rates on estimated annual salary | 10%, no threshold |
| Standard deduction | ₹75,000 under new regime | Not available; actual expenses may be claimed |
| GST | Not applicable | Reverse charge, company pays at applicable rate |
| PF and gratuity | May apply as employee | Not applicable |
| Deductible for company | Yes, if reasonable | Yes, if reasonable |
| Company approval | Board resolution, shareholder approval where required | Board resolution, shareholder approval where required |
| Documentation | Employment letter, payslips, Form 16 | Engagement terms, invoices, TDS certificate |
How does GST apply?
Services supplied by a director to the company are taxed under reverse charge, so the company pays GST and can usually claim it as input tax credit if its supplies are taxable. CBIC clarified in Circular 140/10/2020-GST that salary paid to directors who are employees, and shown as salary in the accounts with TDS deducted as salary, is not subject to GST.
Fees or commission to independent or non-employee directors fall under reverse charge. For an exempt or composition business that cannot claim input tax credit, this GST is a real cost and should be factored into the remuneration budget.
What about consultants who are not directors?
A consultant who is not a director is paid professional fees with 10% TDS once payments exceed ₹50,000 in a year. If the consultant is GST-registered, they charge GST on their invoice under forward charge. This is the cleanest route for advisers who do not need a board seat.
If a person holds a directorship and also bills consultancy personally, the company should treat the payment as director remuneration for TDS and reverse charge purposes, and document the separate scope of services.
Which should you choose?
The right route depends on the director's actual role, not on tax alone. These rules reflect common practice in Indian private companies and help keep payments defensible in a tax audit.
- Full-time founder or executive director: salary under an employment contract.
- Independent or nominee director attending board meetings: sitting fees, with TDS and reverse charge GST.
- Part-time adviser without board responsibilities: consultancy agreement, not a directorship.
- Public company: check section 197 limits before fixing remuneration.
- Company cannot claim input tax credit: salary avoids the reverse charge GST cost.
Related services
Sources
- TDS on professional fees and director remuneration under section 393(1) (TDSMAN)
- Income Tax Department FAQ: TDS on remuneration to a company director
- TDS on dividend under section 393(1) (TDSMAN)
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Is TDS deducted on director sitting fees?
Yes. Sitting fees, commission and other non-salary remuneration to directors attract 10% TDS with no minimum threshold under section 393(1) of the Income-tax Act 2025.
Is GST payable on remuneration to a whole-time director?
Not on salary paid under an employment relationship, as clarified by CBIC. Fees or commission outside employment attract GST under reverse charge.
Can a director be both an employee and a consultant?
It is possible but risky. The company should clearly separate employment duties from consultancy scope; otherwise tax authorities may recharacterise payments.
Do private companies need shareholder approval for director remuneration?
Private companies are outside the section 197 limits, but their articles, the Companies Act provisions on related party transactions and good governance usually call for board and shareholder approval.