Can a director, who is also a shareholder, who is the sole full-time employee of a small Section 8 company be given a small salary, to compensate for their time and effort ?
Yes, a director can be paid remuneration through a contract for service but fulfilling the qualification and experience required for such job/task and must be reasonable i.e. comparable with market rates. He will be a specified person under Section 13 of Income Tax Act and reporting will be required appropriately in income tax returns and annual financial statements. The Income Tax Department is becoming strict on reasonability of remuneration paid which is to be noted which maybe disallowed and therefore such application becomes taxable.
CS Sharad Bhargava
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