Managerial Remuneration

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Querist : Anonymous

Querist : Anonymous (Querist)

02 June 2010 If i need to pay the remuneration to a whole time Director of the Company for the financial year 2010 - 2011, which year's profit should be taken as the base for calculating the amount of remuneration because Section 198 reads as "The managerial remuneration payable by a public company to its director in any financial year shall not exceed 11% of the net profit for that financial year". If based on the Balancesheeet of March 31, 2010 I decide the remuneration and at the end of the year 2010-2011, the Company goes into losses, do i need to recompute the remuneration payable to the Director?

Rasesh

Rasesh (Expert)
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02 June 2010 The profit for the year 2010-11 has to be considered for the managerial remuneration of the year 2010-11. In case the company goes into losses and the remuneration is in excess of the limits prescribed under Schedule XIII, then the Company has to apply to the Central Govt in Form 25A for waiver of excess remuneration paid during the year. The Company can in anticipation of inadequate profits also apply to the central government for fixing the higher remuneration.

Querist : Anonymous

Querist : Anonymous (Querist)

02 June 2010 Do you mean that the profit for the year 2010-11 shall be recomputed for the remuneration already paid for the year 2009 - 2010 and make adjustments as per Section 309 or recomputed for deciding the remuneration to be paid for the next financial year 2010 - 2011?

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Rasesh

Rasesh (Expert)
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02 June 2010 No. I think i have confused you.

The remuneration for the year 2009-10 has to be within the limits presribed and calculated on the basis of profit for the year 2009-10 only. Figures of the previous financial year or the suceeding financial year are not be considered.

If at any time during the year, you feel that the company will make insufficient profit or losses, then you have two options:
1) Apply to central government for waiver of the excess remuneration paid for that year. This is generally done when the company feels that the current year was an exceptional year and that the company would start making regular profits from the next year onwards.
2) Apply to central government fixing remuneration for 3-5 years beyond the limits prescribed under the act. This is generally done when the company feels that it would not be making profits which are sufficient for the managerial remuneration to be within the limits.

Querist : Anonymous

Querist : Anonymous (Querist)

02 June 2010 Dear Mr. Rashesh,

Thanks a lot for your input. But I am still confused. How can I calculate the profit at the beginning of the financial year. If suppose I have appointed a Director as WTD on Aptril 1, 2009 , i at that point of time have to decide the remuneration also. so how to arrive at the calculation at the start of the year as I cannot know what profit / loss will the Company make at the end of the financial year 2009 - 2010.

Querist : Anonymous

Querist : Anonymous (Querist)

Rasesh

Rasesh (Expert)
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02 June 2010 You must be having your budget numbers. Based on the budgeted sales and profit numbers, you have to work out the managerial remuneration within the limits. If the profit is inadequate, then central govt. approval is required.

Querist : Anonymous

Querist : Anonymous (Querist)

02 June 2010 Thanks again.

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