Query regarding remuneration to whole time director

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Querist : Anonymous

Querist : Anonymous (Querist)

30 September 2014 Dear Sir/Madam,
cab remuneration paid to Whole Time Director is considered as Related Party transaction.

Arun Jain

Arun Jain (Expert)
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30 September 2014 No, as the payment is just rooted through director, not paid to director

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Querist : Anonymous

Querist : Anonymous (Querist)

30 September 2014 Sir,
Whole time Director is employee and remuneration paid to director, classified in Employee benefit exp. in P&l or managerial Remuneration, if it is classified in managerial rem. than is it treated as Related Party Transaction. Please give me Idea??

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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19 July 2025 Great question! Here’s the detailed explanation:

1. Classification of Remuneration to Whole-Time Director:
A Whole-Time Director (WTD) is both a director and an employee of the company.
The remuneration paid to a Whole-Time Director can be classified in the Profit & Loss Account either under:
“Employee Benefits Expense” (since WTD is also an employee and remuneration is for services rendered), or
“Managerial Remuneration” (which specifically relates to payments to directors/managers).
Accounting practice varies, but typically:

If the remuneration is part of the salary and benefits payable under the service contract as an employee, it may be classified under Employee Benefits.
If it relates to sitting fees, commission, or remuneration approved by the Board/Shareholders specifically as managerial remuneration, it may be classified separately as Managerial Remuneration.
2. Is Managerial Remuneration a Related Party Transaction?
Yes. Remuneration paid to a Whole-Time Director is a Related Party Transaction (RPT) because a Whole-Time Director is a related party under Accounting Standard (AS) 18 and Ind AS 24.
The term related party includes key management personnel, directors, and their close family members.
Hence, remuneration to Whole-Time Directors is always considered an RPT.
3. Implications:
Disclosure: The managerial remuneration paid to Whole-Time Directors must be disclosed in the notes to accounts as a related party transaction.
Approval: Managerial remuneration requires prior approval by the Board or Shareholders, as per Companies Act provisions.
Accounting Treatment: Whether shown under Employee Benefits or Managerial Remuneration, the key is proper disclosure as a related party transaction.

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