Ask a company accountant how to deduct tax on a director's payment, and you'll often get one answer even though two different rules could apply. A managing director drawing a monthly salary is taxed one way. An independent director collecting a sitting fee for attending four board meetings a year is taxed a completely different way — different section, different rate logic, different ITR form on the director's side. Mixing the two up is one of the more common TDS errors companies make.
This page breaks down how director's remuneration is actually taxed in India, which section applies to which kind of director, and what changed after the Income-tax Act, 2025 came into force.
Remuneration isn't limited to a monthly paycheck. Under the Companies Act, it covers any money or money's worth paid to a director for services rendered — salary, sitting fees for board or committee meetings, commission linked to profits, and non-cash perquisites like a company car or rent-free accommodation. The tax treatment depends heavily on which kind of director is receiving it.
Executive / whole-time / managing directors work in the business day to day. There's an employer-employee relationship here, formalised through an appointment letter or employment contract, and their pay is structured as salary — often with a basic component, HRA, and other allowances just like any other employee.
Non-executive and independent directors don't run day-to-day operations. They attend board meetings, sit on committees, and bring outside oversight. There's no employment relationship, so they're typically compensated through sitting fees and, sometimes, a commission tied to company profits.
This distinction is exactly what decides which TDS section applies.
If a director is on the company's payroll with an employer-employee relationship, the salary portion is taxed under the head "Income from Salaries," and the company deducts TDS the same way it would for any employee — based on the director's declared tax regime, projected annual income, and applicable deductions. Under the Income-tax Act, 2025, which took effect from 1st April 2026, this provision now sits under Section 392, replacing the earlier Section 192 of the 1961 Act, though the underlying computation hasn't changed.
The company issues Form 16 for this component, the same certificate any salaried employee receives.
This is where most of the confusion happens. Any payment to a director that isn't taxed under the salary provision — sitting fees, commission, or any other non-salary remuneration — falls under what used to be Section 194J(1)(ba) and is now Section 393(1) of the 2025 Act.
The rule here is stricter than people expect:
The company issues Form 16A for payments under this section, not Form 16.
A quick example: if a company pays an independent director ₹15,000 as a sitting fee for a quarter, ₹1,500 must be deducted and deposited as TDS — no exemption applies just because the amount is modest.
Tax isn't the only ceiling here — the Companies Act, 2013 caps how much a company can pay its directors in the first place, particularly for public companies:
Private companies have more flexibility here, but the numbers are worth knowing if you're structuring remuneration for a public company or one converting to public status.
Something that catches many companies off guard: sitting fees and commission paid to a non-executive or independent director attract GST — but under the Reverse Charge Mechanism. The director doesn't charge or collect GST; the company receiving the director's services is liable to pay GST directly to the government on that amount. This follows from the position that a director's services to the company they serve fall outside the scope of "employment" for GST purposes when there's no employer-employee relationship.
Executive directors on a genuine employment contract don't attract this — salary paid under an employment relationship is outside GST altogether.
The most common mistake isn't a wrong TDS rate — it's applying the wrong section to begin with. Companies sometimes deduct TDS under the salary provision for a non-executive director just because that's the default process in their payroll software, missing that no employer-employee relationship exists. The reverse also happens: a whole-time director's genuine salary gets bucketed as "professional fees" because someone assumed all director payments go through the non-salary route. Either error creates a mismatch between what's reported in the company's TDS return and what the director declares in their ITR — exactly the kind of discrepancy that draws a notice from the tax department.
We work with companies and individual directors to get this classification right from the start — reviewing whether a director's arrangement is genuinely an employment relationship or a fee-for-service one, and making sure TDS is deducted under the correct section before the mismatch becomes a filing problem. For directors filing their own returns, we handle the ITR-2 or ITR-3 filing, reconcile the TDS reflected in Form 26AS/AIS against what was actually deducted, and check whether any advance tax is due beyond what's already withheld.
No. If there's a genuine employer-employee relationship, an executive director's salary is taxed exactly like any other employee's — under "Income from Salaries," with TDS deducted under the salary provision (Section 392, formerly Section 192).
Yes. Sitting fees and commission are taxable income, generally under "Income from Other Sources," and TDS at 10% is deducted before payment under Section 393(1) (formerly Section 194J(1)(ba)), with no minimum threshold.
No. Unlike other categories under the same section, which carry a ₹50,000 annual threshold, director remuneration is specifically excluded from that exemption — TDS applies from the first rupee.
The company itself pays GST on non-executive directors' fees under the Reverse Charge Mechanism — the director doesn't collect or remit it themselves.
ITR-2 generally covers salary plus sitting fee/commission income with no separate business income. ITR-3 applies if the director also has business or professional income.
Effective 1st April 2026, TDS on salary moved from Section 192 to Section 392, and TDS on director remuneration/professional payments moved from Section 194J to Section 393(1). The rates, the 10% figure, and the no-threshold rule for director remuneration remain the same — only the section numbers changed.
Or need help filing your own director's income tax return? Talk to Legal Dev and we'll sort out the classification and the filing.