Managerial Remuneration

Dear All,

I have a query regarding Managerial Remuneration in case of inadequency of profit or loss making company. Our Company is unlisted public company. We have one Managing Director and one Whole Time Director.

Now, as per the provisions of Schedule XIII it is stated that

1) 

Subject to the provisions of section 198 and section 309, a company having profits in a financial year may pay any remuneration, by way of salary, dearness allowance, perquisites, commission and other allowances, which shall not exceed five per cent of its net profits for one such managerial person, and if there is more than one such managerial person, ten per cent for all of them together.

Section II.- Remuneration payable by companies having no profits or inadequate profits

1[1. Notwithstanding anything contained in this part, where in any financial year during the currency of tenure of the managerial person a company has no profits or its profits are inadequate, it may pay remuneration to a managerial person by way of salary, dearness allowance, perquisites and any other allowances, not exceeding ceiling limit of Rs. 24,00,000 per annum or Rs. 2,00,000 per month calculated on the following scale: -1. Substituted by Notification No. GSR 215(E) dated 2nd. March, 2000.

 

Where the effective capital of Company is -		Monthly remuneration payable shall not exceed
(i)	Less than rupees 1 crore	rupees 75,000
(ii)	rupees 1 crore or more but less than rupees 5 crores	rupees 1,00,000
(iii)	rupees 5 crores or more but less than rupees 25 crores	rupees 1,25,000
(iv)	rupees 25 crores or more but less than rupees 100 crores	rupees 1,50,000
(v)	rupees 100 crores or more	rupees 2,00,000]

2. A managerial person shall also be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in paragraph 1 of this section:

(a) contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 1961,(b) gratuity payable at a rate not exceeding half a month's salary for each completed year of service, and(c) encashment of leave at the end of the tenure.

3. In addition to the perquisites specified in paragraph 2 of this section, an expatriate managerial person (including a non-resident Indian) shall be eligible to the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in paragraph 1 of this section:

 

(a) Children's education allowance: In case of children studying in or outside India, an allowance limited to a maximum of Rs. 5,000 per month per child or actual expenses incurred, whichever is less. Such allowance is admissible upto a maximum of two children.(b) Holiday passage for children studying outside India/ family staying abroad: Return holiday passage once in a year by economy class or once in two years by first class to children and to the members of the family from the place of their study or stay abroad to India if they are not residing in India with the managerial person.(c) Leave travel concession: Return passage for self and family in accordance with the rules specified by the company where it is proposed that the leave be spent in home country instead of anywhere in India.

Explanation I.-For the purposes of section II of this Part, "effective capital" means the aggregate of the paid-up share capital (excluding share application money or advances against shares); amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term loans and deposits repayable after one year (excluding working capital loans, over-drafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any investments (except in the case of investment by an investment company whose principal business is acquisition of shares, stock debentures or other securities), accumulated losses and preliminary expenses not written off.

Explanation II.-

 

(a) Where the appointment of the managerial person is made in the year in which company has been incorporated, the effective capital shall be calculated as on the date of such appointment;

(b) In any other case, the effective capital shall be calculated as on the last date of the financial year preceding the financial year in which the appointment of the managerial person is made.

Explanation III.-For the purposes of section II of this Part, family means the spouse, dependent children and dependent parents of the managerial person.
 

Does it mean that we can pay remuneration to only one managerial person within the limits i.e., 24 lacs?

Thanks.

Nirali Solanki