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GST on Director Services: Everything to know about including Guarantee given by the Directors

Since the implementation of GST, taxability under RCM in the hand of Companies pertaining to Directors Services is bone of contention between Taxpayers and the Department.

In this article, we have attempted to do the comprehensive analysis of all issues surrounding the taxability of Director Services under RCM. Further, we will also analyse the taxability of guarantees provided by the Directors to the Banks even without consideration.

Areas Covered in the Article

A. Discussion about Legal Provisions including Relevant Circulars

B. Taxability of various kind of Services by Directors other than Guarantee

C. Taxability of Guarantee by Directors including RBI Guidelines

D. Valuation of Services Provided by the Directors to the Company

Summary in Chart Form

A. Legal Provisions

Relevant Extract of RCM Notification:

As per provisions of Section 9(3) of CGST Act, 2017 Government may notify the category of supply of goods or services in respect of which tax will be paid by the Recipient of such supply under RCM. In this regard, category of service on which RCM is applicable has been notified under Notification No. 13/2017 as amended from time to time. Among other services, one service pertaining to Directors has also been notified as follows:


Category of Supply of Services

Supplier of Service

Recipient of Service


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.

Definition of Service is very wide in GST; it provides that anything other than goods, money and securities will be considered as Service.

Supply of Service by Director without Consideration (Schedule-I read with Section 7) :

As per clause-2 of Schedule-I read with Section 7, Service by the Director (being related person in terms of Section 15) even without Consideration will be considered as Supply.

Schedule-III (Neither Supply of Goods nor Services)

As per clause-1 of Schedule-III, Services by an employee to the employer in the course of or in relation to his employment will neither be considered as supply of Goods nor services.

Through this circular, Board has clarified that:

  • Independent Directors are not the employee of the Company, so any remuneration paid to the independent directors are against taxable supply, accordingly, covered under RCM.

  • Whole Time Directors may or may not be employee. Even he is employee, he is working in dual capacities, one as a director of the company (Contract for Service) and the other on the basis of the contractual relationship of master and servant with the company, i.e. under a contract of service (employment) entered into with the company.

  • Therefore, any payment made to Whole Time Director as an employee (TDS under Section 192 of the Income Tax Act, 1961), will be outside the ambit of GST. Any other payment to WTD including commission, Fee etc. will be considered as against service of director, accordingly, GST will be payable under RCM by the Company.

However, One pertinent question has not been answered by the Circular that where payment is not involved like in case of guarantee provided by the Whole Time Directors, however it is supply in terms of Schedule-I as discussed above, whether it will be considered as employee service or director service. We will discuss this aspect in details in Guarantee Section.

Through this circular, Board has clarified that services supplied by a director in his private or personal capacity such as services supplied by way of renting of immovable property are not taxable under RCM. Only those services supplied by director of company or body corporate, which are supplied by him as or in the capacity of director of that company or body corporate shall be taxable under RCM.

However, how it will be determined like in Company where Director is also a Chartered Accountant, so whether he is giving service in personal capacity as a Chartered Accountant or as a Director. We will discuss this aspect in next section of the Article.

B. Taxability of various kind of Services by Directors other than Guarantee

Considering the above legal discussions, it can be concluded that:

  • Remuneration to Independent Directors will be covered under RCM.

  • Payment to Whole Time Directors for which TDS has been deducted under Section 192 will be outside the ambit of GST.

  • Payment to Whole Time Directors for which TDS has been deducted under any section other than Section 192 (provided payment is not for service provided in personal capacity like rent for immovable property), will be chargeable to GST under RCM.

Now question is how to determine payment in the Personal capacity or in capacity of Director. In this regards, our advise will be that the separate contracts should be prepared for both service i.e. for service as professional (like for CA consultancy) and service as a Director. In the absence of which, Department can proceed for demand of GST under RCM using Circular140/10/2020 and Circular 201/13/2023-GST as discussed above.

C. Taxability of Guarantee Given by the Directors to Banks

As per RBI guidelines, Banks may seek personal guarantees from the Directors of the Company while extending the loan facilities to the Companies. In this regards, RBI guidelines mandates that no fee/commission will be charged by the Directors from the Company for such activity.

Now, question comes whether this activity of provision of guarantee by the Directors to Banks will be taxable under GST under RCM.

In this regard, it is pertinent to note that as definition of Service is very wide, this activity will definitely be covered under the definition of Service. Further, it is imperative from the guidelines of RBI itself that if it would not have restricted the payment of Fee/Commission for such activity, such payments could have been made by the Company to the Directors. Therefore, as far as question of service is concerned, in our opinion, this activity will definitely falls under definition of service.

Further, as per Schedule-I read with Section-7 as discussed above, any service by the Related Person even without consideration will also be considered as Supply of Service. Therefore, activity of guarantee given by the Directors (being related person) will be considered as Supply of Service in terms of Schedule-I read with Section 7.

However, as mentioned in Circular No.140/10/2010 as discussed above, Whole Time Directors are working in dual capacity in the Company i.e. on one hand as an Employee and as a Director on the other hand.

Now question comes whether this guarantee is given by the WTDs as an employee or as a Director. As per said Circular, Terms of Contract are of para amount important to determine the taxability.

Therefore, in our opinion, it will depend on Terms of Employment. Like while appointing Whole Time Directors, if Companies specifically mentions in their Terms of Employment that they will be required to give guarantee, this activity will be outside the ambit of GST in terms of Schedule-III. In case Terms of Employment Contract is silent, then Department may consider this as a Director Service using RBI Guidelines and may demand GST under RCM from the Company.

D. Valuation of Director Services

Since, Directors are Related Persons, Valuation need to be carried out in terms of Rule-28 which is summarised as below:

1. If the Company is eligible for full ITC on such service, any value declared in the Invoice will be accepted by the Department.

2. In case, Company is not eligible for ITC on such service (like involved in some exempt supply, therefore, need to reverse ITC under Rule-42 or otherwise), valuation will be carried out in following manner:

(a) First priority will be the Open Market Value

(b) Second priority will be the value of Like & Kind

(c) Third Priority will be Cost plus 10% as per Rule-30 or Best Judgement (based on available information) as per Rule-31.

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For any query please ask in comment section.

Disclaimer: We have analysed the various provision of Law to the best of our ability and wisdom, however we respectfully admit that there can be difference of opinion in interpretation of provisions. Therefore, Fab Gyan will not be responsible for any error in interpretation.


Legal Referencing

Section 2(102):

―services means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;

[Explanation.–– For the removal of doubts, it is hereby clarified that the expression services includes facilitating or arranging transactions in securities;


[See section 7]


2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business:


[See section 7]


1.Services by an employee to the employer in the course of or in relation to his employment.


28. Value of supply of goods or services or both between distinct or related persons, other than through an agent.-The value of the supply of goods or services or both between distinct persons as specified in sub-section (4) and (5) of section 25 or where the supplier and recipient are related, other than where the supply is made through an agent, shall-

(a) be the open market value of such supply;

(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;

(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order:

Provided that where the goods are intended for further supply as such by the recipient, the value shall, at the option of the supplier, be an amount equivalent to ninety percent of the price charged for the supply of goods of like kind and quality by the recipient to his customer not being a related person:

Provided further that where the recipient is eligible for full input tax credit, the value declared in the invoice shall be deemed to be the open market value of the goods or services.

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