Director Sitting Fees: TDS Under 194J and Companies Act Schedule III Disclosure

Sitting fees — the payment for attending board and committee meetings — carry a 10% TDS under s.194J ITA 1961, with the annual threshold now ₹50,000 per payee (raised from ₹30,000 by Finance (No. 2) Act 2024 with effect from 1 October 2024). The fee is capped at ₹1,00,000 per meeting for listed companies and companies with paid-up capital of ₹10 crore or more, is disclosed separately in the P&L under Schedule III, and for non-executive and independent directors also attracts GST at 18% under reverse charge.

What the law actually requires

TDS under s.194J ITA 1961. Any person other than an individual or HUF paying fees to a resident director must deduct TDS at 10% on sitting fees. Three points matter in practice:

If the aggregate sitting fees in the year stay at or below ₹50,000, no TDS is required. Above it, TDS is due on the whole amount.

Companies Act s.197(5) and Rule 4. Sitting fees are fixed by the board for attending meetings of the board or its committees. Rule 4 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 caps the fee at ₹1,00,000 per meeting for a listed company and for a company having paid-up share capital of ₹10 crore or more. A smaller private company is not bound by that cap and can pay a higher fee if its articles permit and the board resolves it. Sitting fees are outside the 11% managerial remuneration ceiling of s.197.

Schedule III disclosure. Under Schedule III CA 2013, remuneration paid to directors is disclosed in the financial statements. In practice:

• Sitting fees to non-executive/independent directors are shown under "Other expenses" — typically a line item "Directors' sitting fees".
• Remuneration to whole-time/managing directors (salary, perquisites) is shown under "Employee benefits expense" as "Remuneration to directors" or a separate "Directors' remuneration" note.
• The aggregate is also reflected in the Board's Report (s.197(12)/Rule 5) and in MGT-7A, and the related-party side in AOC-2 where applicable. [VERIFY CA guidance on the exact Schedule III line for your company type.]

Commission to non-executive directors. Commission linked to net profits is also subject to s.194J TDS at 10%. For a company with a managing director/whole-time director, commission to directors who are neither MD nor WTD cannot exceed 1% of net profits (3% where there is no MD/WTD) and needs shareholder approval. Commission must be linked to performance, not shareholding, or it risks disallowance under s.36(1)(ii) ITA 1961.

Worked example: Arjun, independent director of Meridian Tech Pvt Ltd

Arjun is an independent director of Meridian Tech Pvt Ltd (paid-up capital ₹50 lakh). In FY 2025-26 he attends 8 board meetings and 4 audit committee meetings, and the board fixes his fee at ₹50,000 per meeting. Total sitting fees = ₹1,00,000 per year. Meridian:

• Deducts TDS u/s 194J at 10% = ₹10,000 and deposits it (the ₹50,000 threshold is crossed, so TDS applies to the full amount).
• Pays Arjun ₹90,000 net.
• Declares the ₹1,00,000 under "Other expenses — Directors' sitting fees" in the P&L, disclosed separately from employee costs.
• Being a private company with paid-up capital below ₹10 crore, Meridian is not bound by the ₹1 lakh-per-meeting cap of Rule 4 — ₹50,000 per meeting is lawfully payable.

Because Arjun is a non-executive/independent director, Meridian also self-assesses GST at 18% under reverse charge on the ₹1,00,000 (₹18,000), pays it to the government, and can claim ITC where eligible. If Arjun were instead a whole-time director drawing a salary, the payment would be s.192 salary, outside GST.

Practical implications

• TDS applies from the first rupee once the threshold is crossed — do not deduct TDS on a "net of tax" basis by accident; s.194J requires gross deduction, and the expense is disallowed under s.40(a)(ia) ITA 1961 if TDS is not deducted and deposited.
• The label decides your GST exposure. "Sitting fees" to a non-executive director = 18% RCM. "Salary" to a whole-time director = s.192, outside GST. Mislabelling creates either an unpaid RCM liability or an incorrect credit claim.
• No attendance register, no fee. Sitting fees are payable per meeting attended; paying a "monthly sitting fee" or paying an absent director is a compliance hole that shows up in a board-meeting-minutes review.
• MCA21 v3 reconciles. Sitting fees appear in the financial statements, the Board's Report, and the annual return. A payment with no traceable board resolution, or a figure that does not reconcile across forms, is exactly what the v3 system cross-flags.

Changed FY 2025-26: The s.194J threshold for professional/technical fees and director fees rose from ₹30,000 to ₹50,000 per payee per year, effective 1 October 2024 (Finance (No. 2) Act 2024) — so a small private company paying modest sitting fees may now sit below the TDS line. Confirm the threshold that applied at the date of each payment.

Step-by-step: what to do

• Fix the fee by board resolution before the meeting cycle starts — amount per meeting, per committee, with the basis recorded.
• Maintain an attendance register aligned to the payments; never pay sitting fees to an absent director.
• Track the annual aggregate per director; when it crosses ₹50,000, deduct TDS u/s 194J at 10% on the full amount from that payment onwards.
• Deposit TDS within the prescribed due date and report it in the quarterly TDS return.
• Pay GST under reverse charge at 18% on sitting fees to non-executive/independent directors, and claim ITC where eligible.
• Disclose under Schedule III — "Directors' sitting fees" under Other expenses — and reconcile with the Board's Report and MGT-7A.
• For commission, keep it within the 1%/3% net-profit sub-limits, approve it by shareholder resolution, and link it to performance.

FAQ

What is the TDS rate on director sitting fees?
10% under s.194J ITA 1961. The threshold is ₹50,000 aggregate per director per financial year (raised from ₹30,000 with effect from 1 October 2024); above that, TDS applies to the full amount.

Is there a cap on sitting fees for a private company?
The ₹1,00,000-per-meeting cap under Rule 4 of the 2014 Rules applies to listed companies and companies with paid-up capital of ₹10 crore or more. A smaller private company can pay more if the articles permit and the board resolves it.

Are sitting fees part of the 11% managerial remuneration ceiling?
No. Sitting fees under s.197(5) sit outside the s.197(1) managerial remuneration ceiling. They are a meeting-based payment, not remuneration for holding office.

Do we pay GST on sitting fees?
For a non-executive or independent director, yes — 18% under reverse charge, paid by the company. Sitting fees to a whole-time director treated as salary under s.192 are outside GST.

Where do sitting fees appear in the financials?
Under Schedule III, typically "Directors' sitting fees" in Other expenses, disclosed separately from employee costs. Executive-director remuneration appears under Employee benefits expense. [VERIFY CA guidance on your company's presentation.]

What if we pay sitting fees without deducting TDS?
The expense is disallowed under s.40(a)(ia) ITA 1961, and interest under s.201 plus penalty exposure follows. MCA21 v3 cross-referencing can also surface the missing resolution or mismatched disclosure.

Sources

• Income Tax Act 1961, s.194J (TDS on fees to directors; threshold), s.40(a)(ia), s.36(1)(ii)
• Finance (No. 2) Act 2024 — s.194J threshold raised to ₹50,000 w.e.f. 01-10-2024
• Companies Act 2013, s.197(5), s.197(12); Schedule III (financial statement disclosure)
• Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Rule 4 (₹1 lakh per-meeting cap)
• GST — Notification 13/2017-Central Tax (Rate) as amended (RCM on non-executive director fees)

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