Article · 12 min read
Director Remuneration in Private Company: Rules & Tax
IncorpX Free Intermediate India
The India-specific piece your set needs. It spells out exactly how a founder-director who defers salary in the early years should record it: a board resolution setting the terms, waiver or deferral noted in the minutes, and the amount reflected in the financial statements (AOC-4). It also flags that deferred salary stays deductible when finally paid if it is reasonable and tied to real work, with Section 40A(2) risk on disproportionate amounts. This is the CA-level mechanics for keeping deferred pay a clean liability on Indian books.
- Private companies face no Section 197 remuneration ceiling, so founder pay is set by the board and articles, giving room to run a modest salary while equity stays split on contribution.
- A deferred or waived founder salary must be documented in board minutes and shown in the financial statements (AOC-4, MGT-7), i.e. tracked as a company payable, not a cap-table entry.
- Deferred salary remains tax-deductible when eventually paid if reasonable and tied to services rendered; disproportionate amounts can be disallowed under Section 40A(2).
