Section 8 Company Director Salary & Remuneration Rules (Section 197)
Directors of a company — whether a private limited, public limited or a Section 8 (not-for-profit) company — can be paid remuneration, but the amount is regulated by Section 197 of the Companies Act, 2013. This guide explains how director remuneration works, the ceilings that apply, and what counts as remuneration beyond basic salary.
The legal basis: Section 197 of the Companies Act, 2013
A company can have several types of directors — Managing Director, Whole-time Director, part-time directors and managers. Remuneration to all of them is governed by Section 197 of the Companies Act, 2013. Under the earlier Companies Act, 1956, managerial remuneration was dealt with under separate provisions (Sections 198, 309 and others); the 2013 Act consolidated these into a single Section 197.
How remuneration can be paid
There are broadly three routes for managerial remuneration:
- Automatically, out of profits (within the prescribed limits)
- With shareholders’ approval (special resolution)
- With shareholders’ and, where required, Central Government approval
The key limits under Section 197 are:
- A public company can pay total managerial remuneration up to 11% of net profit (computed under Section 198), whether to the Managing Director or Whole-time Director.
- Where there is only one managing director, whole-time director or manager, remuneration shall not exceed 5% of net profits.
- Where there is more than one such director, the total shall not exceed 11% of net profits.
Maximum remuneration where profits are inadequate
Where profits are inadequate or nil, Schedule V prescribes ceilings based on the effective capital of the company:
| Effective capital (Rupees) | Maximum yearly remuneration to a director |
|---|---|
| Less than 5 crore | 30 lakh |
| 5 crore or more but less than 100 crore | 42 lakh |
| 100 crore or more but less than 250 crore | 60 lakh |
| 250 crore and above | 60 lakh plus 0.01% of the effective capital in excess of 250 crore |
These limits can be doubled (up to 200%) if the shareholders approve by a special resolution. A managerial person who does not hold shares of Rs. 5 lakh or more, and is not connected to any promoter or director in the two years before appointment, may be paid 2.5% of the current relevant profits (up to 5% with shareholder approval by special resolution).
What counts as remuneration
Remuneration is not limited to salary. Rewards, perquisites and certain expenses provided to a managerial person are also treated as remuneration, including:
- Rent-free accommodation or any amenity provided free of charge
- Amenities provided at a concessional rate
- Life insurance, pension, annuity or gratuity for the director or their spouse/child
- Premium paid to indemnify a director against liability for negligence, default, breach of duty or trust
- Expenditure on maintenance of vehicles for the director’s personal use
Certain items are excluded while computing the ceiling — for example, contributions to PF, superannuation or annuity funds that are not taxable under the Income-tax Act, gratuity not exceeding half a month’s salary for each completed year of service, and encashment of leave at the end of tenure.
A note on Section 8 companies
Section 8 companies are formed for charitable or not-for-profit objects and must apply their income towards their objects — they cannot distribute profits as dividend. Directors can still be paid reasonable remuneration for services actually rendered, within the framework of Section 197 and the company’s own rules, but payments must be genuine and consistent with the not-for-profit character of the company.
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This guide is general information and is not a substitute for professional advice. Rules, rates and deadlines can change — verify the latest position on the relevant official portal or consult a professional before acting.
