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RANJAN & ASSOCIATES, CHARTERED ACCOUNTANTS

MANAGERIAL REMUNERATION
APPLICABLE SECTIONS: 198,268,269,309,310,311 AND SCHEDULE XIII
OF THE COMPANIES ACT, 1956

 The remuneration payable to the directors of a company, including any managing or


whole-time director, shall be determined, in accordance the provisions given below
either by the articles of the company, or by a resolution (special resolution if the articles
so require), passed by the company in general meeting and the remuneration payable to
any such director determined as per the said provisions shall be inclusive of the
remuneration payable to such director for services rendered by him in any other
capacity.

However, any remuneration for services will not be so included if the services are of a
professional nature and in the opinion of the Central Government, the director
possesses the requisite qualifications.

 A director may receive remuneration by way of fees for attending each meeting of the
Board or of any committee thereof (Sitting Fees).

 A director who is in whole time employment of the company or a managing director


may be paid remuneration either by way of a monthly payment or at a specified
percentage of net profits of the company or partly by one and partly by the other.

 Such remuneration cannot exceed 5 % of the net profits of the company, except with
the approval of the Central Government in case of one director and 10 % for all
such directors.

 The total managerial remuneration payable by a public company or a private company


which is a subsidiary of a public company to its directors and its manager in any
financial year must not exceed 11 % of the net profits of the company calculated in
accordance with the provisions of sections 349 and 350.

 In the case of a director who is neither in the whole-time employment of the company
nor a managing director may be paid remuneration either by way of a monthly,
quarterly or annual payment with the approval of the Central Government or by way of
commission if the company by special resolution authorises such payment. Such special
resolution to in sub-section (4) shall not remain in force for a period of more than five
years; but may be renewed, from time to time, by special resolution for further periods
of not more than five years at a time. Remuneration payable to such directors cannot
exceed: -

a. if the company has a managing or whole-time director or a manager, one per cent, of
the net profits of the company;
b. in any other case, three percent of the net profits of the company.

 If any director earns remuneration from a company in excess of the above limits
without prior approval of the Central Government, he shall refund the excess to the
company and until such repayment; hold the money in trust with him for the company.

 The Company cannot waive recovery of such sum due from the
director unless approved by the Central Government.

 No approval of the Central Government is required in case the remuneration is within


the limits mentioned in Schedule XIII to the Companies Act, 1956.

 No director of a company who is in receipt of any commission from the


company and who is either in the whole-time employment of the company or
a managing director shall be entitled to receive any commission or other
remuneration from any subsidiary of such company.

 The above provisions pertaining to remuneration do not apply to a private company


unless it is a subsidiary of a public company.

LIMITS OF MANAGERIAL REMUNERATION IN A SUMMARISED


FORM:

Total Managerial Remuneration 11% of the net profits of the company calculated
Payable in accordance with the provisions of sections 349
and 350.

Only One Managing Director or Whole Not exceeding 5% of the net profits computed in
Time Director the manner as stated above.
More than One Managing Director or Not exceeding 10% of the net profits computed in
Whole Time Director the manner as stated above.
One or more Director(s), but no Not exceeding 3% of the net profits computed in
Managing Director or Whole Time the manner as stated above.
Director
One or more Director(s) and also a Not exceeding 1% of the net profits computed in
Managing Director or Whole Time the manner as stated above.
Director

IMPORTANT POINTS IN SCHEDULE XIII

REMUNERATION OF MANAGERIAL PERSONNEL HAS TO BE PAID AS PER


PART II OF SCHEDULE XIII.

Notes:

1.) If the Company has adequate profits, then Section I is applicable.

2.) If there are no profits or inadequate profits, then Section II is applicable.

3.) The profits are considered to be inadequate for this purpose if the company has profits but
the remuneration desired to be paid to the Managerial Personnel exceeds the limits as specified
by the other relevant Sections of the Companies Act, 1956.

4.) The remuneration can be paid as per Section II of this Schedule in case of no profits or
inadequate profits as under:

A.) A Managerial Person can be paid remuneration by way of salary, dearness allowance,
perquisites and any other allowances not exceeding the ceiling limit of Rs. 24,00,000 per
annum or Rs. 2,00,000 per month on the following scale:

If the effective capital** of the Company is: Monthly Remuneration not exceeding:

Less than Rs. 1 Crore Rs. 75,000


Rupees 1 Crore or more but less than
Rs. 5 Crores Rs. 1,00,000
Rupees 5 Crores or more but less than
Rs. 25 Crores Rs. 1,25,000
Rupees 25 Crores or more but less than
Rs. 50 Crores Rs. 1,50,000
Rupees 50 Crores or more but less than
Rs. 100 Crores Rs. 1,75,000

Rupees 100 Crores or more Rs. 2,00,000


but at the same time, the following conditions have to be satisfied:

i.) Payment of Remuneration is approved by a resolution passed by the Remuneration


Committee.

ii.) The company has not made any default in repayment of any of its debts (including public
deposits) or debentures or interest payable thereon for a continuous period of thirty days in
the preceding financial year before the date of appointment of such managerial person.

B.) A Managerial Person can be paid remuneration by way of salary, dearness allowance,
perquisites and any other allowances not exceeding the ceiling limit of Rs. 48,00,000 per
annum or Rs. 4,00,000 per month on the following scale:

If the effective capital** of the Company is: Monthly Remuneration not exceeding:

Less than Rs. 1 Crore Rs. 1,50,000


Rupees 1 Crore or more but less than
Rs. 5 Crores Rs. 2,00,000
Rupees 5 Crores or more but less than
Rs. 25 Crores Rs. 2,50,000
Rupees 25 Crores or more but less than
Rs. 50 Crores Rs. 3,00,000
Rupees 50 Crores or more but less than
Rs. 100 Crores Rs. 3,50,000

Rupees 100 Crores or more Rs. 4,00,000

but at the same time, the following conditions have to be satisfied:

i.) Payment of Remuneration is approved by a resolution passed by the Remuneration


Committee.

ii.) The company has not made any default in repayment of any of its debts (including public
deposits) or debentures or interest payable thereon for a continuous period of thirty days in
the preceding financial year before the date of appointment of such managerial person.

iii.) A special resolution has been passed at the general meeting of the company for payment
of remuneration for a period not exceeding three years.

iv.) Along with the notice as is referred to above, a statement is given to the shareholders
containing the information as is mentioned in Para B of Section II of Part II of this Schedule.
Such statement shall give the following information:
1. GENERAL INFORMATION
2. INFORMATION ABOUT THE APPOINTEE
3. OTHER INFORMATION
4. DISCLOSURES

C.) A Managerial Person can be paid remuneration by way of salary, dearness allowance,
perquisites and any other allowances exceeding the ceiling limit of Rs. 48,00,000 per annum
or Rs. 4,00,000 per month on the following scale:

If the effective capital** of the Company is: Monthly Remuneration payable exceeds:

Less than Rs. 1 Crore Rs. 1,50,000


Rupees 1 Crore or more but less than
Rs. 5 Crores Rs. 2,00,000
Rupees 5 Crores or more but less than
Rs. 25 Crores Rs. 2,50,000
Rupees 25 Crores or more but less than
Rs. 50 Crores Rs. 3,00,000
Rupees 50 Crores or more but less than
Rs. 100 Crores Rs. 3,50,000

Rupees 100 Crores or more Rs. 4,00,000

but at the same time, the following conditions have to be satisfied:

i.) Payment of Remuneration is approved by a resolution passed by the Remuneration


Committee.

ii.) The company has not made any default in repayment of any of its debts (including public
deposits) or debentures or interest payable thereon for a continuous period of thirty days in
the preceding financial year before the date of appointment of such managerial person.

iii.) A special resolution has been passed at the general meeting of the company for payment
of remuneration for a period not exceeding three years.

iv.) Along with the notice as is referred to above, a statement is given to the shareholders
containing the information as is mentioned in Para C of Section II of Part II of this Schedule.
Such statement shall give the following information:
1. GENERAL INFORMATION
2. INFORMATION ABOUT THE APPOINTEE
3. OTHER INFORMATION
4. DISCLOSURES

ADDITIONAL CONDITIONS TO BE FULFILLED FOR THIS PARAGRAPH:

i.) This Paragraph shall apply in the case the effective capital of the company is negative.
ii.)The prior approval of the Central Government is obtained for payment of remuneration as
per this Paragraph.
D.) A Managerial Person can be paid remuneration by way of salary, dearness allowance,
perquisites and any other allowances not exceeding the ceiling limit of Rs. 2,40,00,000 per
annum or Rs. 20,00,000 per month in case of companies in Special Economic Zones as
notified by the Department of Commerce from time to time.

but at the same time, the following conditions have to be satisfied:

i.) These companies have not raised any money by public issue of shares or debentures in
India.

ii.) These companies have not made any default in repayment of any of its debts (including
public deposits) or debentures or interest payable thereon for a continuous period of thirty
days in the preceding financial year.

FOLLOWING PERQUISITES SHALL NOT BE INCLUDED IN THE


COMPUTATION OF THE CEILING ON REMUNERATION SPECIFIED IN THE
ABOVE PARAGRAPHS:

1.) Contribution to Provident Fund, Superannuation Fund, or Annuity Fund to the extent they
whether singly or taken together are not taxable under the Income Tax Act, 1961.

2.) Gratuity payable at a rate not exceeding half a month’s salary for each completed year of
service.

3.) Encashment of leave at the end of the tenure.

4.) An Expatriate Managerial Person including an NRI shall in addition to the above
perquisites, be eligible for the following perquisites which shall not be included in the
computation of the ceiling on remuneration specified in the above paragraphs:

i.) Children’s Education Allowance: For maximum 2 children not exceeding Rs. 5,000 per
month per child or actual expenses incurred, whichever is less whether children are studying in
India or abroad.

ii.) Holiday passage for children studying abroad or family residing abroad: Return
holiday passage once in a year by economy class or once in 2 years by first class to children
and to the members of the family from the place of their study or stay abroad to India if they
are not residing in India with the Managerial Person.
iii.) Leave Travel Concession: Return passage for self and family in accordance with the rules
specified by the company where it is proposed that the leave be spent in home country instead
of anywhere in India.

** EFFECTIVE CAPITAL:

{ Paid-up share capital (excluding share application


money or advances against shares) + Amount standing to
the credit of share premium account + Reserves and
surplus (excluding revaluation reserve) + Long-term
loans and deposits repayable after one year (excluding
working capital loans, overdrafts, interest due on loans
unless funded, bank guarantee, etc. and other short-term
arrangements.) }

MINUS

{ Investments (except investments by an Investment


Company) + Accumulated Losses + Preliminary
Expenses not written off.}

EFFECTIVE CAPITAL =
Note:-

Negative Effective Capital: The effective capital calculated in


accordance with the above provisions and is less than zero.

IMPORTANT PROVISION APPLICABLE TO ALL PARTS OF


SCHEULE XIII:

 Both Appointment and Remuneration of the directors i.e. M.D. and/or W.T.D. are
subject to approval by resolution of shareholders in general meeting.

 The auditor or secretary or secretary in whole-time practice will certify that all
requirements have been complied with which shall be incorporated in the Return filed
under Section 269(2) i.e. Form 25C.