Managerial Remuneration - Director's Salary as per Companies Act

As per the

Companies Act, 2013, Managerial Person means a managing director, whole-time director or manager of a company incorporated in India. Managerial renumeration includes pay, compensation, or reward for work which is earned by a managerial person. Companies Act, 2013 has certain restrictions on pay of Managerial Renumeration. In this article, we look at such restrictions.

Applicability

Private limited and

public limited companies are both required to comply with the regulations pertaining to payment of managerial renumeration. Hence, its important for any person becoming a Director of a company to be aware of Managerial Renumeration, as per Companies Act, 2013.

Managerial Renumeration

Managerial renumeration includes pay, compensation or reward for work provided to a managerial person. The following types of expenditure incurred by a company are also termed as managerial renumeration.

Expenditure incurred by the company in providing rent free accommodation, or any other benefit or amenity, free of charge, to any of the company's director and manager.
Expenditure incurred by the company in providing any other benefit or amenity free of charge or at a concessional rate to any of the company's director or manager.
Expenditure incurred by the company in respect of any obligation or service, which, but for such expenditure by the company, would have been incurred by any of the company's director or manager.
Expenditure incurred by the company to effect any insurance on the life of, or to provide any pension, annuity or gratuity for, any of the company's director and manager or his/her spouse and/or child.
Expenditure incurred by the company on behalf of its managerial person for indemnifying them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they maybe guilty in relation to the company and if such person is proved to be guilty, the premium paid on such insurance would be treated as part of its renumeration.
Expenditure incurred by the company for maintenance of vehicles pertaining to personal use by director or manager.

Managerial Renumeration - Company Having Profit

A company can pay any renumeration by way of salary, dearness allowance, perquisites, commission and other allowances not exceeding 5% of its net profit for one managerial person. If there are more than one managerial person, then managerial renumeration cannot exceed 10% of net profit for all of the managerial persons together.

Back to Learn

Frequently Asked Questions

Common questions about Managerial Remuneration Guidelines.

Managerial remuneration, as per the Companies Act, 2013, includes pay, compensation, or reward for work earned by a managerial person, which includes a managing director, whole-time director, or manager of a company incorporated in India. It also covers various expenditures incurred by the company for the benefit of managerial persons, such as rent-free accommodation, insurance premiums, and personal vehicle maintenance.

Both private limited and public limited companies incorporated in India are required to comply with the regulations pertaining to the payment of managerial remuneration as per the Companies Act, 2013.

For a company having profits, the managerial remuneration cannot exceed 5% of its net profit for one managerial person. If there are more than one managerial person, the total managerial remuneration cannot exceed 10% of the net profit.

Managerial remuneration includes expenditures incurred by the company on providing rent-free accommodation, insurance premiums for managerial persons and their families, pension or gratuity payments, indemnifying managerial persons against liabilities, and maintenance of vehicles for personal use by directors or managers.

It is crucial for any person becoming a director of a company to be aware of the regulations on managerial remuneration as per the Companies Act, 2013, as these regulations govern the compensation and benefits that can be provided to directors and managers.

No, a company cannot pay managerial remuneration exceeding the prescribed limits as per the Companies Act, 2013, unless it obtains prior approval from the Central Government or other appropriate authorities as specified in the Act.

If a managerial person is proved guilty of negligence, default, misfeasance, breach of duty, or breach of trust in relation to the company, any insurance premium paid by the company to indemnify the managerial person against such liabilities would be treated as part of their remuneration.

The Companies Act, 2013, and the related rules and regulations may provide specific exceptions or exemptions from the regulations on managerial remuneration for certain types of companies or under certain circumstances. It is advisable to consult with legal experts or refer to the relevant provisions for updated information.

The Companies Act, 2013, and the related rules and regulations provide guidelines for calculating the net profit of a company for the purpose of determining the limits on managerial remuneration. These guidelines may take into account various factors, such as accounting standards, income tax provisions, and other relevant considerations.

Non-compliance with the regulations on managerial remuneration as per the Companies Act, 2013, may result in penalties, fines, or other legal consequences for the company and its directors or managers, as specified in the Act and related rules and regulations.