Indian company laws makes the provision regarding maximum amount given to directors , managers and managing directors . The rules and regulations are mentioned in section 349, 350, 351 of Indian company law 1956. Here we are explaining simple steps for calculating managerial remuneration.
In case of nil profit
If any company earns nil profit, then and managerial remuneration is more than 10%, then managerial remuneration will limited up to Rs. 75000 to Rs. 200000
(Disclaimer: Please check new amendments of company law 1956 regarding this amount)
Schedule X111and its part 11 has directed with following way.
(Note : Managerial persons include managing or whole time directors and managers . )
In above managerial remuneration following items will not included :-
Contribution to provident fund + gratuity + encashment of leave at the end of the tenure +children’s education allowance + leave travel concession
Definition of effective capital of company
Effective capital of company means paid up capital excluding revolution reserve .
In case of Company earns profit
At that time managerial remuneration is calculated on net profit . For this net profit is calculated with following way:-
Gross profit + Add following
1. Subsidies received by company from govt.
2. Profit on sale of fixed asset but not include capital revenue of issue of shares , sale of business , etc.
- Less the following items
1. Usual working charges
2. Bonus or commission paid or payable to company staff .
3. Tax liability by central govt. except income tax liability
4. Interest on mortgage
5. Repair expenses
6. Normal depreciation
7. Liability of legal charges / damages
8. Bad debts
Following items will not deduct
1. Remuneration payable to other directors, managerial directors and managers .
2. Income tax charges
3. Capital losses
4. Unpaid losses and penalties
After calculating net profit, the following chart showing the rate of remuneration which is charged on calculated net profit.