Section 197 Companies Act managerial remuneration cap
How section 197 of the Companies Act, 2013 caps managerial remuneration in a public company: the 11% of net profits overall limit, the sub-limits for managing and other directors, and how a company pays more with approval.
In this guide
Section 197 of the Companies Act, 2013 caps the total managerial remuneration a public company can pay its directors, including the managing and whole-time directors and the manager, at 11% of the net profits of the company for that financial year, computed under section 198. Within that, remuneration to a managing or whole-time director or manager is capped at 5% of net profits for one and 10% for more than one, and other directors at 1% or 3%. A company can pay more than these limits with the approval of its members by resolution, and there are separate rules for remuneration when profits are inadequate or absent.
What does section 197 cap?
Section 197 of the Companies Act, 2013 caps how much a public company can pay its directors and managers as remuneration. Section 197 ties the ceiling to the net profits of the company for the year, computed under section 198.
The limits apply to a public company. A private company can pay its directors under its own articles without the section 197 ceiling, though other provisions still apply.
What is the overall 11% limit?
The overall ceiling is 11% of the net profits of the company for the financial year. Net profit for this purpose is computed under section 198, which sets the additions and deductions to reach the figure.
This 11% covers all managerial remuneration together: the managing director, whole-time directors, manager, and other directors. Sitting fees for meetings are outside the ceiling, within their own per-meeting cap.
What are the sub-limits by role?
The 11% ceiling contains sub-limits by role. These sit within the overall figure, not on top of it.
| Recipient | Cap on net profits |
|---|---|
| One managing or whole-time director or manager | 5% |
| More than one such director | 10% together |
| Other directors, if there is a MD or manager | 1% |
| Other directors, if there is no MD or manager | 3% |
How can a company pay more?
A public company can pay remuneration above the section 197 limits with the approval of its members by resolution. The company must meet the conditions attached to that approval before it pays the higher amount.
The board and, where relevant, the nomination and remuneration committee recommend the package, and the members approve it. Where profits are inadequate, the extra approval interacts with Schedule V.
What if there is no or low profit?
When a company has no profit or inadequate profit in a year, it can still pay managerial remuneration under Schedule V. Schedule V sets the amounts by reference to the company's effective capital.
Paying beyond the Schedule V amounts in such a year needs members' approval and compliance with the schedule's conditions. This is how a loss-making company can still pay its whole-time management within a controlled limit.
How do I apply the limit?
- Compute net profits for the year under section 198.
- Cap total managerial remuneration at 11% of that figure.
- Apply the role sub-limits within the 11%.
- Take members' approval for anything above the limits.
- Where profit is inadequate, work within Schedule V.
Where do companies go wrong?
- Treating the role sub-limits as additional to the 11% ceiling.
- Applying the limits to a private company that they do not bind.
- Using book profit rather than section 198 net profit.
- Paying above the cap without members' approval.
- Ignoring Schedule V in a year of inadequate profit.
Where are the remuneration rules published?
The remuneration ceiling sits in section 197 of the Companies Act, the net profit computation in section 198, and the inadequate-profit rules in Schedule V. For how the managing director is appointed, see section 196. Complied AI keeps MCA updates in one feed so you can open a rule or schedule change and read section 197 next to it.
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Common questions
What is the maximum managerial remuneration under section 197?
Section 197 caps total managerial remuneration in a public company at 11% of the net profits of the company for the financial year, computed under section 198. This overall ceiling covers the managing director, whole-time directors, manager, and other directors together, and a company can exceed it only with members' approval.
Does section 197 apply to a private company?
No. The remuneration limits in section 197 apply to a public company. A private company is not bound by the 11% ceiling or the sub-limits, though its own articles and other provisions still govern how it pays its directors.
What is the sub-limit for a managing director's remuneration?
Within the 11% overall ceiling, remuneration to a managing or whole-time director or manager is capped at 5% of net profits if there is one such person, and 10% if there is more than one. This sits inside the 11% total, not in addition to it.
What is the limit for directors who are not managing directors?
Directors who are neither managing nor whole-time directors can be paid up to 1% of net profits if the company has a managing or whole-time director or manager, and up to 3% of net profits if it does not. This too is within the overall 11% ceiling.
Can a company pay remuneration above the section 197 limits?
Yes. A public company can pay remuneration beyond the limits in section 197 with the approval of its members by resolution. The company must follow the conditions attached to that approval, including any relating to inadequate profits under Schedule V.
How is remuneration paid when a company has no profit?
When a company has no profit or inadequate profit in a year, it can still pay managerial remuneration in accordance with Schedule V, which sets the amounts by reference to the company's effective capital. Payment beyond Schedule V limits in such a year needs members' approval.
Does section 197 cover sitting fees paid to directors?
Sitting fees for attending board or committee meetings are outside the managerial remuneration ceiling, within a prescribed per-meeting cap. So the fee a director receives for attending a meeting is not counted against the 11% limit, subject to the maximum set in the rules.
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How this guide was prepared
This guide is published by the Complied AI research desk. Its source list and stated position were checked against the official records shown below on 19 September 2026.
Automation, including AI, may assist research, drafting and structure. It does not replace the official record or amount to an independent professional review. Read our editorial standards and corrections policy.
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