How to legally take salary from a private limited company as a director ?

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H Y

26 Points Posted on 11 April 2024

hello guys, I am owner and director of a pvt ltd company with my brother as second director.how can we take out our profits in a tax efficient way ,

i know taking out dividends is one way and salary is other, but being a pvt ltd company i want to know if i decide to take salary out from the company expenses to directors , should i take a fixed salary every month or can we pay salary every month depending on the business ,

for eg if the business makes more money one month can we take more money and if in other month it makes less we take less salary

how does that work if someone can explain please ?

Replies (8)

Quick Summary

As a director of a private limited company, you can legally take a salary. While you can opt for a variable salary based on monthly profits, it's often advisable to establish a flexible structure with a low fixed component and a variable amount, such as a bonus. This approach helps manage tax payments and avoids the need for frequent resolution changes. The primary goal is to minimise the overall tax burden for both the company and the directors.

RAJA P M

"Do the Right Thing...!!!"

77792 Points Posted on 12 April 2024

Yes, You can take as per above said way.

But, know the IT payment slap for individual and company.

H Y

26 Points Posted on 12 April 2024

okay, so can the salary be like 1 lakh in may and then 2 lakh in june and then 1.5 lakh in july,

does this variable salary will not have any issue ?

RAJA P M

"Do the Right Thing...!!!"

77792 Points Posted on 12 April 2024

As per me...

Better to give any standing value.

Take other amount as Your way...

sabyasachi mukherjee

Profession

19978 Points Posted on 12 April 2024

Dividend is not construed as salary

Nikhil Kaushik

Fellow CA

70840 Points Posted on 12 April 2024

Do one thing. Decide a salary flexible structure with a low fixed component plus variable amount (bonus etc). This way, you would not have to worry about 2 things, passing resolution for salary changes every now and then and 2, you can adjust TDS payment according to the amounts paid.

Since dividend is post tax, it is a bit less tax efficient than salary.

H Y

26 Points Posted on 13 April 2024

thanks got it, so its like making a structure with fixed salary + variable bonus and we can adjust bonus according to the business right ?

if business goes up, we can increase on the bonus right ?

Nikhil Kaushik

Fellow CA

70840 Points Posted on 13 April 2024

you can increase base salary too as your business scales. The purpose of having a variable pay is to link salary payouts with business growth.

CA Raj Doshi

Practising CA

5649 Points Posted on 14 April 2024

Your objective should be to minimise the tax outflow for the group ( company + directors )as a whole. While the company may pay 25.168% flat income tax, director may end up paying higher tax if salary is more than 32 lakhs or 50 lakhs in old and new regime respectively.

Also, booking director's expenses in the company will be a form of remuneration itself ( but won't be taxed in director's hand )

Please connect if you need further assistance.

Regards
CA. Raj Doshi
R C D & Co.
Chartered Accountants