Income Tax Implications of Drawing Salary vs Dividend vs Director’s Remuneration

• company law
• March 30, 2026

Income Tax Implications of Drawing Salary vs Dividend vs Director’s Remuneration

1. Salary From Company

• Taxed as salary income in the hands of director / founder.
• Company deducts TDS u/s 192.
• Allows:
• Standard deduction.
• Eligible allowances and perquisites as per law.

2. Director’s Remuneration (Professional Fees)

• In some structures, treated as professional fees.
• TDS under section 194J may apply.
• Taxed as income from profession in personal return, with deduction of related expenses.

3. Dividends

• Taxed in hands of shareholder at applicable slab rates.
• Company may need to deduct TDS u/s 194.
• Not deductible expense for company.

4. Comparing Options

• Salary / remuneration is deductible expense for company, reducing its taxable profit.
• Dividend is post-tax distribution and not deductible.
• Mix often used:
• Reasonable salary/remuneration within limits set by company law and tax rules.
• Dividend for profit distribution based on shareholding.

5. Practical Planning Points

• Ensure remuneration is backed by board / shareholder approvals where required.
• Avoid aggressive structures that could be challenged as tax avoidance.
• Discuss with CA based on company profits, personal slabs, and compliance costs.