Managerial remuneration as per companies act 2013 :
Section 197 provides maximum limit of managerial remuneration in case of profit or inadequate profit
- maximum 11%
- WTD/MD
- 1 – 5%
- More than 1
- 10%
- Other director
- With WTD/MD
- 1%
- No WTD/MD
- 3%
- MANAGER
- 5%
If inadequate profit –maximum remuneration
| Effective capital (crores) | Limit in lakhs |
| Negative or less than 5 | 60 |
| More than 5 less than 100 | 84 |
| More than 100 less than250 | 120 |
| Above 250 | 120+.01%of excess of 250 |
Effective capital = equity share + preference shares + Reserves – profit and loss debit balance
Profit and loss as per 198 of companies act.
Credit is given – government subsidies
Credit is not given
Securities premium
Capital profit – forfeiture of shares, sale of capital assets, immovable properties, undertakings etc.
Revaluation of asset and liabilities
Allowable expenses:
Usual operating expenses
Director’s remuneration
Bonus commission of employee
Special taxes
Interest on loan and debentures
Repairs,
Allowable contributions
Depreciation as per companies act
Losses arise after commencement of act
Compensation of breach of contract due to legal liabilities,
Insurance paid, bad debt etc.
Not Allowable expenses:
Income tax
Compensation paid voluntary
Capital nature loss
Loss arise due to revaluation of assets or liabilities.
Divisible profit
Available for distribution of dividend to share holders. It is known as free reserve.
Dividend cannot be declared out of capital.
Profit shown in profit and loss account is not necessary to distribute to share holders. It may be available to various provisions and appropriation in priority.
Dividend may be of two types
Cash dividend
Capitalization of profit by way of bonus.
Interim dividend is also a part of dividend
It cannot be higher than average rate of preceding 3 years in case of loss in current financial year.
Profit can be distributed after providing current and previous year depreciation .
Profit can be distributed out of money provided by central or state government.
Declaration and payment of dividend rule 2014
In case of inadequate profit, dividend can be declared out of accumulated profit (past profit and reserve) by complying following conditions:
- If dividend is declared in past years, current year dividend cannot exceed average rate of dividend of last 3years
- amount withdrawn from accumulated profit cannot exceeds 10% of shareholder’s fund and free reserve as per last audited financial statement
- Current year loss should be adjusted first and then from excess dividend can be declared.
- after withdraw from general reserve, balance of general reserve not fall below 15% of share capital.
5 dividend can be declared after allowing previous losses up to depreciation against profit.
Dividend distribution tax
Salient features:
It is in addition of income tax
It is charged on gross dividend
It may be paid out of current or accumulated profit.
Rate of DDT = 15%+12% surcharge+3% cess (education and higher education)
If no liability of income tax then also DDT will be paid.
DDT will be paid to Government before declaration, distribution payment of dividend which is earlier.
Divisible profit
Available for distribution of dividend to share holders. It is known as free reserve.
Dividend cannot be declared out of capital.
Profit shown in profit and loss account is not necessary to distribute to share holders. It may be available to various provisions and appropriation in priority.
Dividend may be of two types
Cash dividend
Capitalization of profit by way of bonus.
Interim dividend is also a part of dividend
It cannot be higher than average rate of preceding 3 years in case of loss in current financial year.
Profit can be distributed after providing current and previous year depreciation .
Profit can be distributed out of money provided by central or state government.
Declaration and payment of dividend rule 2014
In case of inadequate profit, dividend can be declared out of accumulated profit (past profit and reserve) by complying following conditions:
- If dividend is declared in past years, current year dividend cannot exceed average rate of dividend of last 3years
- amount withdrawn from accumulated profit cannot exceeds 10% of shareholder’s fund and free reserve as per last audited financial statement
- Current year loss should be adjusted first and then from excess dividend can be declared.
- after withdraw from general reserve, balance of general reserve not fall below 15% of share capital.
5 dividend can be declared after allowing previous losses up to depreciation against profit.
Dividend distribution tax
Salient features:
It is in addition of income tax
It is charged on gross dividend
It may be paid out of current or accumulated profit.
Rate of DDT = 15%+12% surcharge+3% cess (education and higher education)
If no liability of income tax then also DDT will be paid.
DDT will be paid to Government before declaration, distribution payment of dividend which is earlier.
This notes usefull in revision