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Accounting for Companies-I

Notes (c) Expenditure incurred by the company in respect of any obligation or service which but for
such expenditure by the company, would have been incurred by them, and
(d) Expenditure incurred by the company to effect any insurance on the life of, or to provide
any pension, annuity, or gratuity for any of the managerial personnel, or his spouse or
child.

12.3 Provisions Regarding Overall Maximum and Minimum Limits

As per section 198 of the Companies Act 1956, these are several restrictions on the managerial
remuneration. These are as below:

Maximum Limit

Did u know? The managerial remuneration of the managerial personnel (as director,
manager and managing director) should not more than 11% of the net profit of that
company as per section 198 of the Companies Act 1956.
Any fees payable to the directors for attending the meeting of board of directors will not be
included in the above ceiling of the remuneration for this purpose the profit of the company will
be calculated as per sections 349, 350 and 351 of the Companies Act.

Minimum Limit

In case a company has no profit or its profits are inadequate in any financial year, the company
will pay the minimum amount of remuneration to the director, managing director, manager or
whole-time director. This minimum amount will vary from 75,000 to 2,00,000 p.m., which
will depend on the effective capital of the company as specified in part ii of schedule xiii of the
Companies Act as given below.

Schedule XIII, Part II

Section I - Remuneration payable by companies having profits-

Notes Subject to the provisions of sections 198 and 309, a company having profits in a
financial year may pay any remuneration by way of salary, dearness allowance, perquisites,
commission and other allowances, which shall not exceed 5% of its net profit for one such
managerial person and if there is more than one such managerial person, 10% for all of
them together.
Section II - Remuneration payable by companies having no profit or inadequate profit-

1. Notwithstanding anything contained in this part, wherein any financial year during the
currency of tenure of the managerial person, a company has no profits or its profits are
adequate, it may pay remuneration to a managerial person, by way of salary, dearness
allowance, perquisites and any other allowance, as per scale prescribed in part II which
have been revised vide Notification GSR no. 215(e) dated 2-3-2000. These revised scales are
as below:

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