Non executive director

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Querist : Anonymous

Querist : Anonymous (Querist)

30 November 2012 hii friends can anyone guide me regarding the payment or any remuneration to non executive director of the company?

Ajay Mishra

Ajay Mishra (Expert)
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30 November 2012 Hi

Ceiling on remuneration of ordinary or non-executive directors

Sections 309(4) and 309(7) deals with remuneration payable to the part time directors, that is to say the directors who are neither in the whole-time employment of the company nor a managing director, within the overall limit stipulated in section 198(1) and further in section 309(4) itself.
Section 309(4) authorises payment of remuneration to part time directors in two alternative ways:—
(i) by way of monthly, quarterly or annual payment with the approval of the Central Government; and/or
(ii) by way of commission without the approval of the Central Government, subject to the approval of the members by way of special resolution.

Ajay Mishra

Ajay Mishra (Expert)
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30 November 2012
Non-executive directors are those on the Board of a company who are other than a managing or whole-time director. These non-executive directors normally receive only sitting fees for every meeting of the Board and Committee attended by them.
Therefore, a director who is neither in the whole-time employment of the company nor a managing director is called an ordinary director or non-executive director.

Section 309(4) provides that a director or directors who is/are not managing or whole-time directors may be paid remuneration periodically with the approval of the Central Government or may be paid commission, provided the said remuneration shall not exceed 1% of the net profits if the company has a managing or whole-time director and 3% in other cases. The net profits shall be computed in terms of sections 198, 349 and 350 of the Act.

Ajay Mishra

Ajay Mishra (Expert)
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30 November 2012 PAYMENT OF COMMISSION TO NON-WHOLE TIME DIRECTORS OF THE COMPANY UNDER SECTION 309(4) (b) OF THE COMPANIES ACT, 1956

Section 309(4) provides that a director or directors who is or not managing or whole time directors may be paid remuneration periodically with the approval of the Central Government or may be paid commission, provided that the said remuneration shall not exceed 1% of the net profits if the company has a managing or whole time director and 3% in other case. The net profit shall be computed in terms of section 198, 349 and 350 of the Act. The MCA vide its General Circular no. 4/2011 dates 04.03.2011 has provided that a company shall not be required to obtain the approval of the Central Government for making payment of remuneration by way of commission to its non-whole time directors in addition to sitting fee, if the total commission to be paid does not exceed 1% of the net profit of the company if it has WTD or MD or 3% of the net profit of the company if it does not have MD or WTD.

Ajay Mishra

Ajay Mishra (Expert)
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30 November 2012
APPLICABILITY OF SERVICE TAX ON COMMISSION PAYABLE TO NON-WHOLE TIME DIRECTORS-APPROVAL OF CENTRAL GOVERNMENT UNDER SECTION 309/310 OF THE COMPANIES ACT, 1956

The Finance Act, 2012 has introduced Service Tax which is applicable to anyone who provides a Service not covered under the negative/exempted list and if the value of annual revenue is more than Rs. 10 lakhs. The Non-Whole Time Directors of the company are presently not covered under the exempted list as such, the sitting fee/commission payable to them by the company liable to Service Tax.
If such Service Tax is paid by the company, it will be deemed to be a part of remuneration under section 198 of the Act and would accordingly increase the remuneration amount of such Non-Whole Time Directors. This remuneration could then exceed the limit of 1% of the profit under section 309(4) of the company when the company has Managing/Whole Time Directors/Manager or 3% of the profit under section 309(4) of the company if the company does not have a Managing/Whole Time Directors/Manager as the case may be. As per existing provisions of the Companies Act, 1956, this would require prior approval of the Central Government under section 309 and 310 of the Act.
It has now been decided that any company increase in remuneration of Non-Whole Time Director/Directors of the company solely on account of payment of service tax on commission payable to them by the company shall not require approval of the Central Government under section 309 and 310 of the Companies Act, 1956 even if it exceeds the limit of 1% or 3% of the profit under section 309(4) of the Company, as the case may be, in the financial year 2012-13.

Querist : Anonymous

Querist : Anonymous (Querist)

30 November 2012 sir thankx altt for clarify my query...

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