Managing Director Remuneration effectively is essential for every company’s smooth operation. Whether your company is a Private Limited Company or an OPC, director remuneration refers to payments made for their services, including salary, fees, or perks. These payments are governed by legal frameworks and tax regulations, making proper management crucial to avoid penalties and optimize taxation.
This guide helps you understand how to manage director remuneration and taxation with compliance and strategic planning.
Director remuneration is compensation given to company directors and can include:
💰 Salary: Fixed monthly payments + bonuses + allowances
📝 Professional Fees: Fees for consultancy or advisory services
🎁 Perquisites: Non-monetary benefits like rent-free accommodation or car allowance
| Key Provisions | Details |
|---|---|
| Section 197 | Limits director remuneration to 11% of net profits |
| Schedule V | Permits remuneration during losses under special conditions |
| Approvals | Requires Board & Shareholder approval |
| Disclosure | Must be disclosed in financial statements & ROC filings |
Pro Tip: Always keep Board Resolutions and Shareholder Approvals documented!
| Type | Description | Who it’s For |
|---|---|---|
| 💵 Salary | Fixed pay + allowances + bonuses | Executive Directors |
| 📋 Professional Fees | Payment per meeting or consultancy fees | Non-Executive or Consultant Directors |
| 📈 Commission | Profit-linked commission within legal limits | All Directors |
Taxed as ‘Income from Salary’
Deducted at Source under Section 192
Taxable as per individual slab rates
Includes taxable perquisites & allowances
Taxed as ‘Income from Business or Profession’
TDS deducted under Section 194J at 10%
Requires maintenance of books and filing of professional tax returns
| Payment Type | TDS Section | Rate | Return Form |
|---|---|---|---|
| Director Salary | 192 | As per slab | 24Q |
| Professional Fees | 194J | 10% | 26Q |
Important: Delay or failure in TDS filing invites heavy penalties!
Salary for executive directors
Fees for consultants or non-executive directors
Board Resolutions
Shareholder approvals
Service agreements/contracts
Include tax-exempt allowances like HRA, telephone reimbursement
Bonus and incentives linked to performance
Deduct as per legal rates
Deposit TDS before due dates
File TDS returns and issue Form 16/16A
Maintain payroll and payment records
Disclose remuneration in financial statements & ROC filings
| Mistake | Consequence | Solution |
|---|---|---|
| No approvals | Penalties under Companies Act | Always get Board & Shareholder approval |
| Non-compliance with TDS | Interest & penalties | Timely TDS deduction & filing |
| Incorrect classification | Tax disputes and notices | Classify remuneration correctly |
| Poor record keeping | Audit and legal issues | Maintain detailed documentation |
Executive Director: ₹1,00,000 salary + allowances
Non-Executive Director: ₹5,000 per meeting fees
Actions Taken:
Board and Shareholder approvals
TDS deducted at 192 and 194J rates
Proper documentation and disclosures
Result: Full compliance and smooth tax filing.
Avoids legal penalties
Ensures smooth tax compliance
Promotes good corporate governance
Optimizes tax liabilities legally
Builds stakeholder confidence
Q1: Can a director receive both salary and professional fees?
A: Yes, if the roles justify both types of remuneration.
Q2: Are perquisites taxable?
A: Yes, taxable perquisites are part of salary income.
Q3: What if the company is making losses?
A: Remuneration allowed within limits and with shareholder approval.
Q4: Do non-executive directors get employee benefits?
A: Generally no, unless specifically provided.
Properly managing director remuneration and taxation is a blend of legal compliance, tax planning, and documented approvals. Ensure:
Remuneration structures fit your company’s needs
All statutory approvals and disclosures are done
TDS is deducted and deposited timely
Records are maintained for audits and tax scrutiny
This approach secures your company’s financial health and legal standing.