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Director Salary

Ashish Sharma (Service) (1028 Points)

13 July 2010

Dear All,

can we increase & pay salary of directors in private limited company like govt. employees from last year as an arrear. if yes what will be the procedure and what will be the tax consequence. can we justify it in scrutiny in I.T.

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4 Replies

Amir (Learner) (4016 Points)
Replied 13 July 2010

Dear Ashish,

Salary of Directors can also be increased with retrospective effect. No stopping as such.

Follow the procedure as prescribed in the terms of appointment of the Director - If salary has to be approved by Shareholders in the GM in that case the resolution shall be required to be passed in the GM otherwise follow the procedure prescribed in their terms.

Salary will be taxable in the year of receipt and Director shall be eligible to get relief u/s 89(1). Company will also get the deduction in the year of payment.

As far as justifying the same at the time of assessment goes then - Yes AO can question the same with or without bringing Sec 40A(2) in play.

For that you should be having grounds like the Increment was due but deferred due to financial crises or in view of the organizational plans for growth, etc as a result of which it materializes in later years

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Ashish Sharma (Service) (1028 Points)
Replied 13 July 2010

Thanks a lot Amir. one more question pls.

our company incorporated in sep. last year and last year we have losses we shows only 10000/- as director salary now we are get the line of profit is this will be sufficient reason for increasing salary from last year.