Allowable Remuneration/Salary to Directors of a Company

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Allowable Remuneration/Salary to Directors of a
Company
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• One of the most thought-out and heatedly
  discussed issues in corporate governance has
  always been remuneration of Executive and
  Non-Executive Directors. The topic has become
  more important as it involves the cash outflow
  from the company, the calculation of net profits,
  disclosures to Shareholders, the approval of
  Directors, Shareholders, and the Remuneration
  Committee. Before knowing about remuneration to
  Directors first we will talk about Director and
  its types. Directors are members of the group
  known as the Board of Directors, who are
  responsible for charge of overseeing, managing,
  and guiding a companys operations. Managing
  Director A managing director is a director who
  has been entrusted with substantial management
  powers of a company by virtue of the companys
  articles, an agreement with the company, a
  resolution passed in the company general meeting,
  or by the Board of Directors. Executive Director
  An Executive Director is the companys
  full-time working Director. They are in charge of
  the companys affairs and are held to a higher
  standard. They must be diligent and cautious in
  all of their dealings.

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• Executive Director An Executive Director is the
  companys full-time working Director. They are in
  charge of the companys affairs and are held to a
  higher standard. They must be diligent and
  cautious in all of their dealings. Non- executive
  Director A Non-Executive Director is not
  involved in the day-to-day operations of the
  company. They might take part in the planning or
  policy-making process and challenge the executive
  directors to make decisions that are best for the
  company.Directors Salary vs. Remuneration
  Salary is a subcategory of remuneration. A salary
  is a fixed amount of money paid to an employee on
  a regular basis this amount is fixed and agreed
  upon by both the Employee and the Employer.
  Remuneration is a method of compensating a
  person for services rendered to a company. It
  refers to any money or equivalent given to anyone
  in exchange for services rendered. It includes
  perquisites as defined by the Income-tax Act of
  1961. A director must be aware of the managerial
  remuneration authorized by Companies Act, 2013.
  Both a private limited company and a public
  limited company are required to follow
  regulations regarding the payment of managerial
  remuneration.

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• There are some various methods at which Public
  Limited Company can pay remuneration/salary to
  Directors 1. If a company having only one
  managerial person then the maximum remuneration
  payable is 5 of the net profits of the company.
  2. Company with more than one managing
  director/whole time director/manager shall pay
  maximum remuneration of 10 of the net profits of
  the company 3. Overall limit on
  remuneration/salary payable is maximum of 11 of
  the net profit. Whether it is managing director
  or whole time directors. However, if company does
  not have a profit or has an inadequate profits or
  losses in that case Company can still pay
  remuneration by following the below mentioned
  limitsMaximum remuneration for a Director
• If paid up share capital of a Company is
  (Rupees) Highest limit for Remuneration to a
  Director (Rupees)
• Less than 5 crores
  30 lakhs
• 5 crore or more but less than 100 crore
  42 lakhs
• 100 crore or more but less than 250 crore
  60 lakhs
• 250 crore and above
  60 lakhs along with 9.99 of the
  capital in excess of Rs.250 cr

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• If a company makes a sufficient profit, it can
  pay its managing director or full-time manager
  remuneration of up to 200 of the above-mentioned
  managerial remuneration if shareholders approve
  through a special resolution. A managerial
  director who does not own shares worth Rs.5 lakhs
  or more and is not related to any promoter during
  the two years preceding his appointment as a
  managerial person, the company may pay him 2.5
  of current relevant profits and up to 5 with
  shareholder approval via a special resolution.
  The profit calculated under section 198 is the
  current relevant profit. It relates to all normal
  working charges incurred during the years in
  which the managerial person was not an employee,
  director, or shareholder of the company, its
  holding companies, or subsidiaries.The
  following perquisites shall not be included in
  the computation of the remuneration ceiling
  specified in sections II and III
• Under the Income-tax Act of 1961, a PF,
  superannuation fund, or annuity fund is not
  taxable (43 of 1961).
• Gratuity shall not be exceeding half a months
  salary for each year of service
• Encashment of leave at the end of the
  tenure.

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• Any contribution made to a PF (Provident fund),
  superannuation fund, or annuity fund that exceeds
  the tax-deductible limits under the Internal
  Revenue Code of 1961 is not to be counted toward
  determining managerial compensation, according to
  clause (a). Whether there will be a profit or
  not. Section 197 applies only to Public Limited
  Companies and not to Private Limited Companies.
  Therefore, Private Limited Companies are allowed
  to pay remuneration at any rate without any limit
  whether there is adequacy or inadequacy of
  profits. Penalty for non-compliance If any person
  makes any default in complying with the
  provisions of section 197, he shall be liable to
  a penalty of one lakh rupees and if any default
  has been made by a company, the company shall be
  liable to a penalty of five lakh rupees.
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