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Managerial Remuneration Under Companies Act, 1956

Maximum Limit

Section 198 of the companies act, 1956 puts a maximum limit of 11% of the net profits in any financial year on the managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to it’s directors including any managing or whole time director or manager.

Minimum Limit

 Section 198 (4) of the companies act 1956 as amended by the companies act 1988 provided that subject to the provisions of section 269 read with schedule XIII, if in any financial year a company has no profits or its profits are inadequate, the company shall not pay to its directors including any managing or whole time director or manager, by way of remuneration any sum except with the previous approval of the central government.

Calculation of Managerial Remuneration

The remuneration should as far as possible be broken up under the following broad heads as per the requirements of Schedule VI:-

a) Salaries and allowances

b) Monetary value of various perquisites

c) Contribution to provident, superannuation and gratuity funds

d) Commission

The following perquisites or benefits provided by the company to its managerial remuneration:

·        Any expenditure incurred by the company in providing rent free accommodation, or any other benefit or annuity.

·        Other benefit or concessional benefit

·        Any expenditure in respect of any obligation paid.

·        Any expenditure incurred by company in effecting any insurance on the life of the managerial.

 
Remuneration to Manager

Section 387 of the companies’ act 1956 contains the provisions relating to the remuneration payable to the manager of a public company or its subsidiary which are as follows:

·        A Manager may receive remuneration by way of a monthly payment or by way of a specific percentage of the net profits of the company or partly by way of monthly payment and partly by way of specific percentage of the net profits of the company.

·        The total remuneration can not exceed 5% of the net profits of the company except with the previous approval of the government.

·        The net profits of the company are to be calculated in the manner laid down in section 349 and 350 of the companies act.

A company can not have more than one manager at a time.
 

Overall Remuneration Limit

The following chart shows the maximum limit of remuneration:

If  there is only one managing director

11%

If more than one managing director

5%

If there is only one MD

10%

If there is only part time directors only and has no MD

3%

If there is pert time directors and also have one or more MD

1%

If there is manager

5%

 Remuneration to the Directors

Section 309 contain the provisions relating to remuneration payable to the directors including any MD or WHD of a public company and a private company which is the subsidiary of a public company which are as follows:

·        A director may be paid fee for attending the meetings of the board or a committee thereof attended by him.

·        A WHD or a MD may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits or partly by one way and pertly by other. But except with the previous approval of the central government the remuneration shall not exceed:

Ø     If one whole time director                            :           5%

Ø     If More than one whole time director         :           10%

Ø     If only part time directors                            :           3%

Ø     If part time directors as well

as whole time directors                                 :           1%

However the company can increase the remuneration with the previous approval of the central government and by passing a special resolution.

·        The net profit for this purpose shall be calculated in the manner laid down in section 349 and 350.

·        A director who is in receipt of any commission from the company is not entitle to receive any commission or remuneration.

 


Comments
 Ajay Singh May 19, 2010
I have job in a ltd. company as a Branch Manager but i have remunaration only 8500 inkluded all allounce i will know that is correct or not, i have done MBA, M.COM
 DEEPAK JALAN August 22, 2010
The above mention provisions apply only to a public company and a provate company which is a subsidiary of public company,
therefore does any private company need to follow any provisions
 ASHISH PARIKH December 18, 2010
How to calculate net profit for the purpose of managerial remuneration
CHANDRA SHEKHAR December 18, 2010
nice
asfak December 20, 2010
you have given satisfactory information about managerial remuneration and directors remuneration.:) but some problems are to be added for the purpose of better understanding.:)
 RAJ KUMAR January 18, 2011
you have given satisfactory information about managirial remunaration.But there is no information if remunaration exeeds maximum limit with the approval of central govt and special resolution speparatly.
 ATUL KUMAR GUPTA April 6, 2011
What will be the maximum remuneration allowable in case of a unlisted public company (closly held) and in case of a Private Limited Co.
 Dinesh Kashyap April 9, 2011
there is some more sections stated in company law, which is not clearly defined above, apart from this, can you plz defined how we can treat the same at the time of preparation of final accounts?
 SURINDER GUPTA April 26, 2011
I AM WORKING AS MANAGER IN LTD COMPANY
WE ARE PAYING SALARY TO MD 50000 AND WHOLETIME DIRECTOR 50000/- MD WIFE
TOTAL PROFITS OF THE COMPANY 1.75 CR PER ANNUM SHAREHOLDING IS MORE THEN 20 PERCENT,MD WIFE ACTUALLY WORK AND BA

CAN YOU SUGGEST ON THIS DATA IS IT OK OR CAN WE INCREASE SALARY OF BOTH AND UPTO WHAT LEVAL
 Akhil Banthiya June 4, 2011
Whether remuneration paid in professional capacity will be counted in limits specified in above section af companies act
 vanshika gupta August 28, 2011
what is a difference between MD and managerial renumeration
 anil dubba August 30, 2011
super explanation
 vaishali August 30, 2011
what is a difference between MD and managing director
Raghu September 26, 2011
hi Vaishali Mam,MD its ful form is managing director(am 2 nd year B.com eveg Collge )
 Sanjeet October 19, 2011
It is nice to Understand, but sir will u clear it to me that, Remuneration to the Directors
or Overall Remuneration Limit

are same or here having some diffrence in it ? i'm little bit confused here...
 sahay November 11, 2011
can a company fix Rs 0 as directorial remuneration?
 soNiA November 30, 2011
gud to understand
Sajad  December 8, 2011
I am preparing for b.com2nd year examination i find what d u mean by managerial remenuration
 Vijay Nayer February 14, 2012
There are 3 director of Pvt.Ltd. co., they are getting total remunaration to exceed 200% of total wages, allowances and salary paid labour & staff during the year. What is limitation of Director Remunarion or any law to protect in this regards
 Hitesh Patel February 18, 2012
If total 7 Directors and one of them id W.D than What is limit remuneration for W.d and rest of Directors...?
 Prashant shetye February 18, 2012
remunaration to regional manager in transport industry
 RAJIV RANA March 10, 2012
Directors salary in private limited company is goverened by the provisions of Section 314 of the Companies Act, 1956.

According to which you can pay only Rs. 50000 per month without obtaining prior approval of Central Government.

In my opinion maximum Rs. 50000/- per month can be paid to a director without obtaining prior approval of CG. Beyond which you have to obtain approval of Central Govt.
Regards,
RAJIV RANA
Accountant
Minikin Agro India Pvt. Ltd.
 BHAKTI March 21, 2012
HOW CAN I GIVE MAXIMUM REMUNERATION TO THE DIRECTORS OF PUBLIC COMPANY WHETHER IT IS PROFIT MAKING OR NOT
 Jatin Kakkar March 21, 2012
Managerial remuneration is a charge on profit and it will be given to manager either the firm is making profit or not
 Jatin Kakkar March 21, 2012
maximum limit of MR for companies having profits overall 11percent and companies having no profits or insufficient profits th MR will be given to him (40000 per month to 87500 per month depending upon the effective capital of the company)
 shailendra agarwal April 9, 2012
Is there any amendment or new rule in the companies act 1956 which makes differnce regards the provisions of sec 198 to listed publi co & unlisted public co?????
 Raviraj Rathod,Surat April 30, 2012
Quavtum of sitting fees;
1.Rs.20000 per board meeting - paidup share and free reserve of the company is Rs.10 crorers or turnover of the company is Rs.50 crores or more
2.Rs.10000 per board meeting - In case of other company.
 Chetan Joshi May 4, 2012
Please send these page
 Ankita May 25, 2012
thanx. tht will be useful in my exam of CS professional..
RITIKA SATI September 14, 2012
REALLY IMPRESSED BY THE CONTEXT.
dipak mohanty September 14, 2012
sir i want to know that whot should bea managerial basic salary and how much calculated hra from basic salary ,other allounces and hwat should be a hr executive salary pvt or ltd
Sushanta mondal December 16, 2012
Please send these qustion.
harvinder January 26, 2013
Whether the medical reimbursement given to MD is considered as part of managerial remuneration?
R.Arunachalam January 30, 2013
what is a difference between MD and managing director. How to calculate net profit for the purpose of managerial remuneration
madhav kumar March 1, 2013
1. 1whole time director and 3 parttime director 2. 3whole time director
Debanjan PAL March 3, 2013
I am read in ICAI..I want to know about for this reason
Prasanta Behera March 9, 2013
Can a Managing director of a company through contract fees & not through direct salary payment to individual?,
zoheb March 29, 2013
sec 198 says net profits of financial year.. what does that financial year mean...is it the previous year or the estimated profits of nxt year..
zoheb March 29, 2013
My company profits 2011-12 80 lakhs..now the director is to be appointed wef from 1st april 2012.. we wud like to pay 30 lakhs p.a. is that possible... estimated profits 4 crores. should we consider 80 lakhs or estimated 4 crores
Herleen April 2, 2013
Our Company has profit of 20Lac this year if we calculate profit as per section 349 and 350 is comes to 5900000 and we have one MD rest two are WTD now again the Company want to Pay its Directors Remuneration of 3900000( all the Directors) is is Execeeding the limit of Schedule XIII of Paart I whicg says 10% of ner profits we can pay now what i can do for the same if SR is required than what should i write if cental government approval is required than what should i do. please advice to resolve the problem as soon as possible
Ashish Agarwal April 10, 2013
Please Advise:
we are a private limited Co.,which is subsidiary of Foreign Private Co., but the foreign Private Co. is a 100% Subsidiary of Listed Foreign Co.
do we require the CG approval for paying remuneration of more than Rs. 250000 pm to our directors....

priyanka April 25, 2013
good answer
gaurav tripathi February 15, 2014
how to calculate net profit for the purpose of remunaration to director
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