This article addresses the provision related to Director's remuneration.
Provision of the Companies Act, 2013 governing the Director’s Remuneration:
Section 197 provides the details in regards to the director’s remuneration. The section states that: 1. The section applies to Public Companies. 2. The total remuneration paid to Directors, Managing Director (MD), Whole-Time Director (WTD), and manager shall not be more than eleven percent of the company's net profits for that financial year. 3. Managerial remuneration exceeding 11% can be paid after obtaining approval from shareholders by passing a special resolution; and subject to the provisions of Schedule V. 4. The limits imposed on the payment of managerial remuneration are:
Particulars
Maximum Remuneration for a year
(% of the net profits of company)
Overall limit
11%
To anyone
MD; or
WTD or Manager
5%
If more than one MD; or
WTD or manager
(for all such Directors and managers together)
10%
To Directors who are
Neither MD nor WTD
1% (if there is an MD or WTD or manager)
OR
3% (in other cases)
If the company has defaulted in the payment of any Bank/Public Financial Institution/Non-Convertible Debenture (NCD) holders/other secured creditors, prior approval of the creditors shall be required before obtaining approval in the general meeting.
The concept of remuneration and salary goes towards divergent roads while calculating as salary means a fixed amount of money paid to an employee regularly. Such an amount is fixed and agreed upon by both employee and the employer. It is a subset of remuneration.
Whereas the term remuneration includes compensation given by the company to its directors for the services rendered by them towards the company. It includes how a director is compensated for his work and his role in the company. This can be through fees, salary, use of company assets, and all the privileges that a director can benefit from being a part of the company. Hence, making remuneration a wider term which includes salary as well.
Though being different concepts of payment, the terms salary and remuneration are often used interchangeably—the Income Tax Act, 1961, where the director’s remuneration is treated as salary. In accordance with Section 16 read with Section 192 of the Act, all directors' remuneration will be covered under head "Salary" for taxation purposes. The company must deduct TDS on such amount except the sitting fees amount.
Section 197 and Schedule V provision stating the concept of Board of Director’s remuneration applies to Public Companies. The remuneration payable to directors in a Private Company shall not be covered under the limits of maximum remuneration payable as per the Act. This implies that director remuneration in Private Limited Company has no specified limits as per the Act.