Managerial Remuneration Under Companies Act, 2013 By CS Dhrumil Gokani

Extract of the provisions of Section 197 of the Companies Act, 2013 as under:-

Remuneration payable by companies having profits




One Managing Director; Or Whole-Time Director Or Manager

Shall Not Exceed 5% of the net Profits of the Company

If more than One Managing Director; Or Whole-Time Director Or Manager

Shall Not Exceed 10% of the net Profits of the to all such directors and manager taken together

1.   To Directors who is neither Managing Director, Or Whole-Time Director Or Manager, If there is a MD or WTD or Manger

2.   If no MD or WTD or Manger in the appointed in the compny

Shall Not Exceed 1% of the net Profits of the Company

Shall Not Exceed 3% of the net Profits of the Company


Provided that any remuneration for services rendered by any such director in other capacity shall not be so included if:

(a) the services rendered are of a professional nature; and

(b) in the opinion of the Nomination and Remuneration Committee, if the company is covered under sub-section (1) of section 178, or the Board of Directors in other cases, the director possesses the requisite qualification for the practice of the profession.
Relevant Extract of the provisions of Schedule V of the Companies Act, 2013 as under:- (SECTION - II)
  • Remuneration payable by companies having no profit or inadequate profit without Central Government approval
  • As per the Companies Act, 2013 and Subject to the provision of Schedule V :-
  • Notwithstanding anything contained in sub-sections (1) and (2), but subject to the provisions of Schedule V, if, in any financial year, a company has no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or whole-time director or manager, by way of remuneration any sum exclusive of any fees payable to directors under sub-section (5) hereunder except in accordance with the provisions of Schedule V and if it is not able to comply with such provisions, with the previous approval of the Central Government
  • Where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, without Central Government approval, pay remuneration to the managerial person not exceeding the higher of the limits under (A) and (B) given below:-

Where the effective capital of the Company is

Limit of yearly remuneration payable shall not exceed (Rs.)

Negative or less than 5 crores

30 lakhs

5 crores and above but less than 100 crores

42 lakhs

100 crores and above but less than 250 crores

60  lakhs

250 crores and above

60 lakhs plus 0.01% of the effective capital in excess of Rs. 250 Crores


In the case of a managerial person who was not a security holder holding securities of the company of nominal value of rupees five lakh or more or an employee or a director of the company or not related to any director or promoter at any time during the two years prior to his appointment as a managerial person, — 2.5% of the current relevant profit

NOTE: Provided that the above limits shall be doubled if shareholders pass special resolution.

• In the following circumstances, a Company may, without the Central Government approval pay remuneration to a Managerial person in excess of the amounts provided in section II:-
  • where the remuneration in excess of the limits specified in Section I or II is paid by any other company and that other company is either a foreign company or has got the approval of its shareholders in general meeting to make such payment, and treats this amount as managerial remuneration for the purpose of section 197and the total managerial remuneration payable by such other company to its managerial persons including such amount or amounts is within permissible limits under section 197 i.e 11% of the net profit.
Section IV.— Perquisites not included in managerial remuneration:

1. A managerial person shall be eligible for the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II and Section III:—
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 (43 of 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.

2. In addition to the perquisites specified in paragraph 1 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 Section II or Section III—
d. Children’s education allowance: In case of children studying in or outside India, an allowance limited to a maximum of Rs. 12,000 per month per child or actual expenses incurred, whichever is less. Such allowance is admissible up to a maximum of two children.

e. Holiday passage for children studying outside India or 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.
f. 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 is spent in the home country instead of anywhere in India.

Relevant Extract of the provisions of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:- 

·       A company may pay a sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be decided by the Board of directors thereof which shall not exceed one lakh rupees per meeting of the Board or committee thereof: 

·       Provided that for Independent Directors and Women Directors, the sitting fee shall not be less than the sitting fee payable to other directors.


Subject to the provisions of sections I to IV, a managerial person shall draw remuneration from one or both companies, provided that the total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of the companies of which he is a managerial person.


1. Can Take the Only higher of Following:

XYZ LTD                          10CR. * 5% = 50 Lakh
ABC LTD                          5CR.* 5%     = 25 Lakh
He can Take remuneration of Rs. 50 lakh from XYZ Ltd only and not from ABC Ltd. He have to Waive his remuneration which he is getting from ABC Ltd for taking full 5% from XYZ Ltd.
Because Mr. A can take 5% from the Company which has higher profit than other Company.

2. And if he is taking 4% from XYZ LTD and 1% remaining from ABC LTD
Than his Total remuneration should not exceed beyond Rs.  50 Lakh.
Ceiling  Limit of 1% and 3% of other Directors:
Directors other Than MD, WTD and Manager can take remuneration from any number of Companies in which he/she is appointed subject to it’s ceiling limit of 1% and 3% should not go beyond from any one Company.

Means he/she can take 1% and 3% Remuneration from all his/her 15 Companies where he/she is appointed as a Director.

 A director or manager may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other.

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