Is Salary Subject to GST?
No — salary is not subject to GST. Services provided by an employee to their employer in the course of or in relation to employment are specifically excluded from the definition of "supply" under Schedule III of the CGST Act. This means there is no GST on salaries, wages, bonuses, or any employment income.
💡 Simple Answer
Employee salary = No GST. Contract labour / manpower agency supply = 18% GST. Director sitting fees (non-executive) = 18% GST under RCM.
GST on Various Employment-Related Transactions
| Transaction | GST Applicable? | Rate |
|---|---|---|
| Salary paid to employees | No | Exempt |
| Bonus and incentives to employees | No | Exempt |
| Gratuity and PF contributions | No | Exempt |
| Manpower supply by agency/contractor | Yes | 18% (RCM if unregistered supplier) |
| Director remuneration (non-executive) | Yes | 18% under RCM (company pays) |
| Director remuneration (executive/whole-time) | No | Treated as employee — exempt |
| Staff secondment (employee on loan between companies) | Yes (if cost recovered) | 18% |
| Canteen services subsidised by employer | ITC reversal on input, complex rules apply | 5% on canteen service |
| Transportation of employees (own vehicle) | Partial ITC rules apply | Nil if employer provides |
GST on Director's Remuneration — RCM
This is one of the most commonly missed GST liabilities for companies. When a company pays remuneration to a non-executive or independent director (who is not an employee), the company must pay GST under Reverse Charge Mechanism:
- Rate: 18% IGST
- Who pays: The company (recipient) — not the director
- ITC: Company can claim ITC on the RCM GST paid (subject to conditions)
- Threshold: No threshold — even ₹1 of director fees attracts RCM
⚠️ Executive vs Non-Executive Director
Whole-time directors, Managing Directors and Executive Directors who draw salary as employees are exempt from GST. Only non-executive and independent directors who are paid sitting fees or commission attract 18% GST under RCM.
GST on Manpower Supply / Contract Labour
If your company engages contract workers through a manpower agency or contractor, the agency charges 18% GST on their invoice. As a recipient, you can claim ITC on this GST if the manpower is used for business purposes.
If the agency is unregistered and the supply is otherwise taxable, RCM applies — your company must pay 18% GST on the manpower charges.
GST on Employee Benefits
| Benefit | ITC Claimable by Employer? |
|---|---|
| Health insurance for employees | Yes (if mandatory under law or contract) |
| Group term life insurance | Yes (if mandatory under law) |
| Food and beverages (canteen) | Partial — complex rules, generally limited |
| Club memberships for personal use | No — blocked under Section 17(5) |
| Travel for business purposes | Yes |
| Travel for personal/vacation | No |
| Mobile phones (business use) | Yes (business portion) |
Staff Secondment — GST Implications
When a holding company seconds (lends) employees to its subsidiary and recovers the cost, the transaction may be treated as supply of manpower services and attract 18% GST. The subsidiary can claim ITC on this GST if the employees are used for business purposes.
If no cost recovery is made (employee cost fully absorbed by holding company), there is no supply and hence no GST.
Frequently Asked Questions
My company pays salary to employees in a different state — which GST applies?
No GST applies to salary payments regardless of which state the employee is in. Salary is always outside the scope of GST.
We engage interns who are paid stipend — any GST?
No. Stipends paid to interns in an employer-employee or quasi-employment relationship are not subject to GST.
Our CA firm charges us for seconded staff — do we pay GST?
Yes — if a CA firm provides staff on secondment and charges a fee, it is a taxable supply of manpower services at 18% GST. Your company can claim ITC if the staff is used for business.
We provide free meals to employees — any GST impact?
ITC on food and beverages is generally blocked under Section 17(5)(b). However if the employer is obligated to provide canteen facilities under law (Factories Act etc.), ITC may be available up to a limit. This is a complex area — consult a CA for your specific situation.