Limit on Director's Remuneration....

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Tax Payer (Querist)

02 January 2011 Is there any limit for the remuneration of directors of a pvt co.? I am the director of a pvt ltd co. The Co.s profit before my remuneration is Rs.5,00,000/-. I demanded a remuneration package of Rs.6,00,000/-p.a. But my legal solicitor rejected it saying that my remuneration will lead to a loss picture not acceptable by IT Act and also that a ceiling has been fixed by the Co.s Act. I also came to know from my friends that this limit is not applicable for a pvt ltd co. Can anyone clarify me that whether i could draw excess remuneration than the profits? Whether this will be accepted by IT authorities and MCA authorities?

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

02 January 2011 Ceiling of remuneration is not applicable to Private Limited Companies as per section 198 of the companies act,1956. As per the Articles of Association of the company, the company can decide the remuneration. However, as per section 40A (2)(a) of the Income tax Act,1961,if the assessing officer is of the opinion that such remuneration is excessive or unreasonable having regard to the legitimate needs of the business, so much of the excess can be disallowed to compute the taxable income of the company concerned.

Tax Payer

Tax Payer (Querist)

03 January 2011 Thank you sir...

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