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GST on Salary — Is Employee Salary Subject to GST?

Updated: 3 June 2026  |  CGST Act 2017 (Schedule III)  |  Employee vs Contractor

Employee salary is NOT subject to GST — Schedule III of the CGST Act excludes employee services from the definition of "supply." TDS under income tax applies, but no GST. However: director fees (non-executive): 18% GST RCM on company; contract staff agency: 18% GST; freelancers above ₹20L turnover: must charge GST.
0% GST
Employee salary — ZERO GST. Employer-employee relationship is outside GST scope entirely.
Freelancers and independent contractors are NOT employees — they must charge 18% GST on professional services if turnover >₹20L.

Employment Payments — GST Applicability

Payment TypeGST Applicable?RateWho Pays
Employee salary / wagesNo0%Schedule III exclusion
Bonus / incentive to employeeNo0%Part of employment contract
Notice pay recovery by employerDisputed (AAR rulings vary)18% (per some AARs)Employer charges GST; employee pays
Whole-time director fees (on payroll)No0%Treated as employee
Non-executive / independent director feesYes — RCM18%Company pays under RCM
Manpower supply agency chargesYes18%Agency charges GST on invoice
Freelancer / contractor professional feesYes (if >₹20L turnover)18%Contractor charges GST
Employee secondment to related entityDisputed (often taxable)18%Entity receiving secondment

Frequently Asked Questions

Is salary income subject to GST in India?
No — salary paid to employees is NOT subject to GST. Schedule III of the CGST Act 2017 explicitly states that services provided by an employee to his employer in the course of or in relation to employment are NEITHER a supply of goods nor a supply of services — they are outside the scope of GST entirely. This means: no GST registration required just because you earn salary; employer does not add GST to salary; employee does not charge GST on salary. Income tax (TDS under Section 192) is deducted from salary — that is a direct tax, not GST. Professional tax is also deducted — that is a state tax, not GST.
What salary-related payments DO attract GST?
While employee salary is outside GST, certain employment-related payments DO attract GST: (1) Notice pay recovery: When employee pays notice pay to employer — treatment is debated; AAAR rulings differ but many hold it attracts GST; (2) Contract staff/manpower supply: Third-party staffing agency deploying workers → 18% GST on manpower supply charges; (3) Director remuneration (non-executive): Whole-time director who is an employee → no GST; but Independent Director/Non-executive director fees → 18% GST on reverse charge mechanism (company pays GST); (4) Secondment of employees: Deputing employees to related entity for consideration may attract GST — 18%; (5) Employee reimbursements above actual cost.
Does an independent contractor need to charge GST on their fees?
Yes — independent contractors and freelancers are NOT employees; they provide services to clients under a contract for service (not contract of service). Their income is business/professional income, not salary. GST implications: If aggregate turnover > ₹20 lakh (₹10L in some states): mandatory GST registration. Charge 18% GST on professional/consulting fees; issue GST invoice; file GSTR-1, GSTR-3B returns. Composition scheme: available if turnover ≤ ₹50L (for service providers) — pay 6% GST, no ITC. Difference from employee: an employee works under employer's control/direction, uses employer's tools, cannot substitute self — these tests determine employee vs contractor status.
How is director remuneration treated under GST?
Director remuneration GST treatment: Executive/Whole-time Director who is on payroll as employee: salary → outside GST (Schedule III). Independent Director / Non-Executive Director (not on payroll): director is not an employee → services to company are taxable at 18% GST. Who pays GST: COMPANY pays GST under Reverse Charge Mechanism (RCM) — director does not charge GST; company self-assesses and pays 18% GST on director fees as RCM. ITC: Company can claim ITC on this RCM GST paid if used for business. Sitting fees, commission, profit-linked bonus paid to non-executive directors: all subject to 18% GST under RCM.
What is manpower supply and how is it taxed under GST?
Manpower supply (labour/staffing agency providing workers to a company): 18% GST on the service charge. The agency registers under GST, charges GST on the invoice raised on the hiring company. Hiring company receives ITC (if registered, and used for business supply). This is different from actual salary — the salary paid by the agency to workers is outside GST; only the placement/staffing service fee attracts GST. If the arrangement involves secondment (company A seconding its employees to company B and charging only salary cost with no markup): disputed — some AAR rulings say it is taxable at 18% even without markup if company B controls the employees. Clean solution: document as cost sharing, not supply of service.

Related Pages

TDS on Salary Professional Tax Reverse Charge (RCM) GST Registration File ITR Freelancer Tax
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