The Companies Act lays down restrictions on the remuneration to be paid to directors, manager, and managing director. Under section 198 of the Companies Act, the total remuneration payable to directors, manager and managing director in any financial year should not exceed 11% of the net profits of that company for the financial year computed in the manner laid down in sections 349, 350 and 351. For the purpose of section 198 and other related sections, however, remuneration shall include:
- any expenditure incurred by the company in providing any rent-free accommodation, or any other benefits or amenity in respect of accommodation free of charge, to any of the managerial personnel;
- any expenditure incurred by the company in providing any other benefit or amenity free of charge or at concessional rate to them :
- any 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 any of the managerial personnel; and
- any 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.
It shall, however, exclude any fee payable to the directors for attending the meeting of the Board or a committee thereof.