what do you mean by managerial remuneration? What are the provision for increase in Managerial Remuneration?
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MANAGERIAL REMUNERATION IN CASE OF PROFIT MAKING COMPANY:-
(i)Maximum remuneration to all directors(Executive+Non-Executive) shall not exceed 11%.
(ii) Maximum remuneration to all executive directors( Managing directors,wholetime directors,manager) can't exceed 10%, individual maximum lit being 5%.
(iii) Maximum remuneration to all non executive directors eg.part time directors can't exceed 3% when there is no executive directors and it can't exceed 1% when there is even a single executive director.
(iv) All the above % are applied on net profit computed u/s 198 as shown below:-
PROFIT before tax & Managerial remuneration:- XXX
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**Remuneration payable by companies having profits:**
Subject to the provisions of section 197, a company having profits in a financial year
may pay remuneration to a managerial person or persons not exceeding the limits specified in
such section.
**Remuneration payable by companies having no profit or inadequate profit**
**without Central Government approval**:
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:โ
(A):Where the effective capital is Limit of yearly remuneration payable shall not exceed (Rupees)
(i) Negative or less than 5 crores 30 lakhs
(ii) 5 crores and above but less than 100 crores 42 lakhs
(iii) 100 crores and above but less than 250 crores 60 lakhs
(iv) 250 crores and above 60 lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores:
Provided that the above limits shall be doubled if the resolution passed by the
shareholders is a special resolution.
**Explanation.โ**It is hereby clarified that for a period less than one year, the limits shall
be pro-rated.
(B) 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, โ 2.5% of the current relevant profit:
Provided that if the resolution passed by the shareholders is a special resolution, this
limit shall be doubled:
Provided further that the limits specified under this section shall apply, ifโ
(i) payment of remuneration is approved by a resolution passed by the Board and, in
the case of a company covered under sub-section (1) of section 178 also by the
Nomination and Remuneration Committee;
(ii) the company has not made any default in repayment of any of its debts (including
public deposits) or debentures or interest payable thereon for a continuous period
of thirty days in the preceding financial year before the date of appointment of such
managerial person;
(iii) a special resolution has been passed at the general meeting of the company for
payment of remuneration for a period not exceeding three years;
(iv) a statement along with a notice calling the general meeting referred to in clause (iii)
is given to the shareholders containing the following information, namely:โ
I. **General Information:**
(1) Nature of industry
(2) Date or expected date of commencement of commercial production
(3) In case of new companies, expected date of commencement of activities as
per project approved by financial institutions appearing in the prospectus
(4) Financial performance based on given indicators
(5) Foreign investments or collaborations, if any.
II. **Information about the appointee:**
(1) Background details
(2) Past remuneration
(3) Recognition or awards
(4) Job profile and his suitability
(5) Remuneration proposed
(6) Comparative remuneration profile with respect to industry, size of the
company, profile of the position and person (in case of expatriates the
relevant details would be with respect to the country of his origin)
(7) Pecuniary relationship directly or indirectly with the company, or
relationship with the managerial personnel, if any.
III. **Other information:**
(1) Reasons of loss or inadequate profits
(2) Steps taken or proposed to be taken for improvement
(3) Expected increase in productivity and profits in measurable terms.
IV. **Disclosures:**
The following disclosures shall be mentioned in the Board of Directorโs report
under the heading โCorporate Governanceโ, if any, attached to the financial
statement:โ
(i) all elements of remuneration package such as salary, benefits, bonuses,
stock options, pension, etc., of all the directors;
(ii) details of fixed component and performance linked incentives along with
the performance criteria;
(iii) service contracts, notice period, severance fees;
(iv) stock option details, if any, and whether the same has been issued at a
discount as well as the period over which accrued and over which
exercisable.
Section III.โ Remuneration payable by companies having no profit or inadequate profit
without Central Government approval in certain special circumstances:
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 above:โ**
(a) 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 197 and
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.
(b) where the companyโ
(i) is a newly incorporated company, for a period of seven years from the date of
its incorporation, or
(ii) is a sick company, for whom a scheme of revival or rehabilitation has been
ordered by the Board for Industrial and Financial Reconstruction or National
Company Law Tribunal, for a period of five years from the date of sanction of
scheme of revival,
it may pay remuneration up to two times the amount permissible under Section II.
(c) where remuneration of a managerial person exceeds the limits in Section II but the
remuneration has been fixed by the Board for Industrial and Financial Reconstruction
or the National Company Law Tribunal:
Provided that the limits under this Section shall be applicable subject to meeting all the
conditions specified under Section II and the following additional conditions:โ
(i) except as provided in para (a) of this Section, the managerial person is not
receiving remuneration from any other company;
(ii) the auditor or Company Secretary of the company or where the company has
not appointed a Secretary, a Secretary in whole-time practice, certifies that all
secured creditors and term lenders have stated in writing that they have no
objection for the appointment of the managerial person as well as the quantum
of remuneration and such certificate is filed along with the return as prescribed
under sub-section (4) of section 196.
(iii) the auditor or Company Secretary or where the company has not appointed a
secretary, a secretary in whole-time practice certifies that there is no default on
payments to any creditors, and all dues to deposit holders are being settled on
time.
(d) a company in a Special Economic Zone as notified by Department of Commerce
from time to time which has not raised any money by public issue of shares or
debentures in India, and has not made any default in India in repayment of any of its
debts (including public deposits) or debentures or interest payable thereon for a
continuous period of thirty days in any financial year, may pay remuneration up to
Rs. 2,40,00,000 per annum.
Section IV.โ **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:โ
(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 monthโs 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 IIIโ
(a) Childrenโs 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.
(b) 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.
(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.โ For the purposes of Section II of this Part, โeffective capitalโ 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 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.โ (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.โ For the purposes of this Schedule, โโfamilyโโ means the spouse,
dependent children and dependent parents of the managerial person.
Explanation IV.โ The Nomination and Remuneration Committee while approving the
remuneration under Section II or Section III, shallโ
(a) take into account, financial position of the company, trend in the industry,
appointeeโs qualification, experience, past performance, past remuneration, etc.;
(b) be in a position to bring about objectivity in determining the remuneration
package while striking a balance between the interest of the company and the
shareholders.
Explanation V.โ For the purposes of this Schedule, โnegative effective capitalโ means
the effective capital which is calculated in accordance with the provisions contained in
Explanation I of this Part is less than zero.
Explanation VI.โ For the purposes of this Schedule:โ
(A) โcurrent relevant profitโ means the profit as calculated under section 198 but
without deducting the excess of expenditure over income referred to in sub-section 4
(l) thereof in respect of those years during which the managerial person was not an
employee, director or shareholder of the company or its holding or subsidiary
companies.
(B) โRemunerationโ means remuneration as defined in clause (78) of section 2
and includes reimbursement of any direct taxes to the managerial person.
Section V. โRemuneration payable to a managerial person in two companies:
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.
PART III
Provisions applicable to Parts I and II of this Schedule
1. The appointment and remuneration referred to in Part I and Part II of this Schedule
shall be subject to approval by a resolution of the shareholders in general meeting.
2. The auditor or the Secretary of the company or where the company is not required to
appointed a Secretary, a Secretary in whole-time practice shall certify that the requirement of
this Schedule have been complied with and such certificate shall be incorporated in the
return filed with the Registrar under sub-section (4) of section 196.
PART IV
The Central Government may, by notification, exempt any class or classes of companies
from any of the requirements contained in this Schedule.
Section 198 lays down the ceiling of total managerial remuneration payable by a company to its managerial personnel at 11% (eleven percent) of the net profits of the financial year before charging such remuneration. Remuneration payable to part time directors shall not exceed 1% (one percent) of such profits. Where a company does not have a MD, WTD or a manager, overall remuneration payable to part time directors shall not exceed 3% (three percent) of such net profits