1. APPLICABILITY OF PROVISIONS TO WHOM:

 

section 197 which deals with remuneration payable to managerial personnel is applicable to public companies only. Schedule V is partly applicable to private companies (i.e. in relation to Part I that deals with appointment) and partly not applicable to private companies (i.e. Part II that deals with remuneration)

 

2.  MANAGERIAL REMUNERATION MEANING:

 

The clause comprises of eight sub-clauses followed by two Provisos, and they deal with the following perquisites:

 

1. Value of rent-free accommodation provided to the Assesse by his employer.

 

2. Value of any concession in respect of rent respecting any accommodation provided to the Assesse by his employer.

 

3. The value of any benefit or amenity granted or provided free of cost or at a concessional rate to employee directors; or to employees who have substantial interest and certain specified employees with some exceptions.

 

4. Sums paid by the employer in respect of any obligation which, but for such obligation, would have been payable by the assesse.

 

5. Sums payable by the employer to effect an assurance on the life of the assesse– employee or to effect a contract for an annuity.

           

6. W.E.F assessment year 2010-11, value of securities / sweat equity shares allotted or transferred by the employer or former employer to the employee.

 

7. W.E.F assessment year 2010-11 a contribution made by an employer to an approved superannuation fund to the extent it exceeds Rs1 lakh.

 

8. Value of any other fringe benefit or amenity as may be prescribed.

 

9. The first proviso states that certain medical benefits are not treated as perquisites in certain specific situations.

 

Any expenditure incurred by the Company to affect any insurance on the life of, or to provide any pension, annuity or gratuity for, any of the persons aforesaid or spouse or child shall be included in managerial remuneration.

 

3. REMUNERATION ALLOWED TO MANAGERIAL PERSON:

 

Section 197 of the Companies Act, 2013 provides a way to pay managerial remuneration in case of Company’s having adequate profits. A Public Company can pay remuneration to its directors including Managing Director s and Whole-time Directors, and its managers which shall not exceed 11% of the net profit as calculated in a manner laid down in section 198 of the Companies Act, 2013. Wherein a Company in which there is one Managing Director; Whole-time Director or manager the remuneration to be payable shall not exceed 5% of net profits and where there are more than one of such Directors remuneration payable shall not exceed 11 % of the net profit.

 

4. PROFIT OR INADEQUATE PROFIT IN SPECIAL CIRCUMSTANCES –

 

In certain special circumstances, a company suffering from no profit or inadequate profit may pay managerial remuneration in excess of limits specified in Section II above and that too without the approval of Central Government. Those circumstances are specified below:

 

1. The company paying managerial remuneration in excess of maximum specified limits is either a foreign company or a company who has got approval of its shareholders in this regard and the total managerial remuneration payable by such company is within the permissible limits of Section 197 of Companies Act’2013.

 

2. Where the company is:

 

• A newly incorporated company and is in existence for last seven years from the date of its incorporation, or

 

• A sick company in respect of which a scheme for revival and rehabilitation has been ordered by BIFR or NCLT for a period of five years from the date of sanction of revival scheme

 

• It may pay managerial remuneration up to two times of the amount specified in Section II, given above.

 

3. Where such excess managerial remuneration is fixed by BIFR or NCLT, subject to fulfilment of certain additional conditions apart from that given in Section 197 of Companies Act’2013

 

 

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