Director’s Remuneration
Director’s remuneration refers to the compensation paid by a company to its directors for their services. This can include salary, commission, bonuses, sitting fees, or other benefits.
It is governed by the Companies Act, 2013 and has specific tax implications under the Income Tax Act, 1961.
What it Includes
Director’s remuneration may consist of:
- Monthly salary or fixed pay
- Commission based on profits
- Sitting fees for attending board meetings
- Performance bonuses and incentives
- Perquisites like car, accommodation, etc.
Tax Treatment
The taxability depends on the role of the director:
1. Executive / Whole-Time Director
- Treated as an employee
- Income taxed under “Salary”
- TDS deducted under Section 192
2. Non-Executive / Independent Director
- Treated as a professional service provider
- Income taxed under “Profits and Gains from Business or Profession”
- TDS deducted under Section 194J
GST Applicability
- Executive directors (employees): Not subject to GST
- Non-executive directors: GST applicable under reverse charge mechanism (RCM), payable by the company
Limits Under Company Law
As per the Companies Act, 2013:
- Total managerial remuneration generally capped at 11% of net profits
- Higher remuneration requires shareholder approval and compliance with Schedule V
Why it Matters
- Ensures legal compliance with company law
- Impacts tax planning for both company and director
- Affects GST liability under RCM
- Requires proper structuring to avoid penalties or disallowances
