Directors Remuneration

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Shruti (Querist)
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14 January 2011 In a private limited company, can the directors remuneration be increased in the proportion of increase in sales? If yes, Is there any ruling supporting the answer?

Also, can the directors remuneration be increased with the % increase in sales to keep the % increase the same. For eg. the directors remuneration for the past 5 years is on an average 10% of the sale. In the current year, the sales turnover has increased by 200% and hence the management wants to increase the directors remuneration accordingly to keep the percentage 10% of this years sales. Can the management increase the remuneration?

Thanks in advance

CS Taher

CS Taher (Expert)
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15 January 2011 The whole-time Director remuneration shall not exceed 5% of net profit for one Director and 10% for all Director-sec 309 of Companies Act.
Under sec 198 of Companies Act the Director or Managing Director remuneration shall not exceed 11% of net profit.
As under provision of sec 269 a company shall not pay to its director any remuneration in financial year where the company has incured loss except with Govt permission.

Answer to ur question is No...outside the purview of Company law in both the case.

Shruti

Shruti (Querist)
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15 January 2011 And if the percentage is below 5%?

CS Taher

CS Taher (Expert)
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15 January 2011 u can pay director remuneration below 5% of net profit but shall not exceed 5%...

Shruti

Shruti (Querist)
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15 January 2011 And is such sudden increase (upto 5%) approved by the income tax act?

CS Taher

CS Taher (Expert)
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15 January 2011 no need to take approval under income tax only u have to file ur return as usual.