Directors' remuneration-small company

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This query is : Resolved

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A small company's directors voluntarily reduced their remuneration to help manage cash flow issues caused by the lockdown. The auditor objected, citing potential TDS implications. The discussion seeks clarification on whether voluntary reductions are permissible and if a single board resolution can be passed annually to allow for flexible remuneration adjustments based on the company's financial situation.

Prakash Joshi

Prakash Joshi (Querist)

05 May 2022 Dear Friends,
A small company has two directors who are also the promoters and the company has been paying a monthly remuneration of Rs 1.50 lacs to each since a long time.

From March 2020, the company has been facing a financial a cash flow crunch due to lockdown. The directors decided to a voluntarily reduction in their remuneration and draw a lower remuneration than 1.50 lacs.

In FY 2020-21 they drew full 1.5 lacs for first 5 months then half remuneration for rest of the year. In FY 2021-22 drew 40k each for 6 months and then full remuneration for rest of the year and for current FY 2022-23 they propose to draw 50% remuneration for 1st half and full remuneration for the next half year.

The auditor objects to this saying that you can't change the remuneration voluntarily as it will affect the TDS to be deducted from their salary. I personally disagree with the auditor as there is no restriction on payment of remuneration of Directors in a small Pvt. Company and that too when the directors want to help the company to manage the cash flow.

Please share your views :

1. Whether there is any problem in the voluntary reduction of salary by directors.

2. Can the company pass a single board resolution in the beginning of the each FY for a voluntary reduction in remuneration by the Directors without specifying the amount by specifying a reduction upto say 75% of their actual remuneration depending upon cash flow of the company .
Thanks & regards

PC Joshi