Compare salary, sitting fees, and dividends using the configured tax assumptions.
Salary / Remuneration
₹7,00,000
Net in hand
Personal tax: ₹3,00,000
Company saves ₹10,00,000 in corporate tax — no double taxation
Founder-directors drawing regular income; sustained compensation; most tax-efficient for top slab
Statutory basis: s.192; Taxable as Income from Salaries at slab rate; standard deduction ₹75,000 (new regime FY 2025-26) or ₹50,000 (old regime)
Sitting Fees
₹7,00,000
Net in hand
Personal tax: ₹3,00,000
No standard deduction; GST RCM 18% for non-executive directors
Non-executive directors, investor nominees, part-time advisors attending specific meetings
Statutory basis: s.194J; Taxable as Income from Other Sources (non-executive director) or Business Income (professional director); standard salary deduction does NOT apply
Dividend
₹7,00,000
Net in hand
Personal tax: ₹3,00,000
Company needed ₹13,36,362 in pre-tax profit to distribute ₹10,00,000
Extracting accumulated post-tax profits where additional salary is not feasible; low-income shareholders in sub-30% slabs
Statutory basis: s.194; Taxable at slab rates; DDT abolished FA 2020; no additional 115BBDA tax (also repealed FA 2020). Standard deduction for salary does NOT apply.
Net in hand per ₹10,00,000 extracted: salary ₹7,00,000 vs dividend ₹7,00,000; gap ₹0.
At 30% slab: Salary always beats dividend. Double-taxation gap = ~17 paise per rupee. On ₹50L annual extraction: ~₹8.5L more in hand via salary.
At lower slabs: Below ₹7L income under new regime (with 87A rebate making tax effectively zero) → salary route means ₹0 personal tax AND ₹0 corporate tax on the extracted amount. Maximum efficiency.
VERIFY: Break-even calculation assumes standard deduction of ₹75,000 available for salary under new regime (FA 2025). Confirm if scenario involves NRI director (no standard deduction) or director on non-employment contract.
VERIFY: Whether RCM on sitting fees applies to whole-time executive directors who sign a director service agreement (employment characterisation) — Notification 29/2019-CT excluded employees (under employer-employee relationship) from RCM; the boundary between executive director as employee vs director-for-fees is contested. CA confirm before applying RCM.