Nri Parent Director Remuneration Private Limited Share...

The first and most consequential decision the NRI senior-parent private limited company household makes is whether to use a director salary pathway (Section 17(1) + 17(2) + 17(3) + TDS 192) or a partner remuneration pathway (Section 10(2A) exempt + Section 40(b) 90% book profit or INR 1.5 lakh per partner whichever is less + Section 194T TDS post 2024) or a dividend pathway (Section 194 10% / 20% TDS) or a share buyback pathway (Section 115QA 23.296% buyback tax) or an ESOP + sweat equity pathway (Section 17(2)(vi) perquisite + Section 53A ROC) or a share transfer pathway (Section 56(2)(vii) + Section 50C + Section 45 + 48 + capital gains + Form FC-TRS within 60 days). Each one serves a different senior 60+ parent private limited + director + dividend + buyback + ESOP + share transfer + FEMA USD 1M / year need and triggers a different director + dividend + buyback + ESOP + share transfer + tax + ITR-6 + Schedule BP + Form 67 + TRC + DTAA + Schedule FA + FEMA USD 1M / year outcome. Pick the wrong one and the NRI senior parent pays INR 2-15 lakh / year extra tax + FEMA USD 1M / year window loss + 30% penalty Section 271 for non-filing + FEMA compounding penalty up to 3x for missed Form FC-TRS window.

Director salary is the operational income. Companies Act 2013 + Income Tax Act 1961 Section 17(1) + 17(2) + 17(3) + TDS 192 specify the director salary: (1) Section 17(1) basic salary + DA + bonus + commission. (2) Section 17(2) perquisites (rent-free accommodation + car + club membership + ESOP + sweat equity + medical + education + insurance + interest-free loan). (3) Section 17(3) profits in lieu of salary (leave encashment + compensation + retirement benefits). (4) Section 17(2)(vi) ESOP perquisite on exercise date at FMV. (5) TDS 192 on whole-time director + managing director + non-executive director + sitting fees Section 194J 10% above INR 30,000 / year + commission Section 194H 5% above INR 15,000. (6) Form 16 by 15-June + Form 24Q quarterly 15-Jul / 15-Oct / 15-Jan / 15-May + Form 12BA by employer. (7) Section 197 + Section 198 director remuneration approval by special resolution (overall cap 11% of net profit for 1 director + 5 directors cap 11% of net profit OR 1% if more than 1 managing / whole-time director). (8) House Rent Allowance (HRA) Section 10(13A) exempt for senior 60+ parent director. (9) Leave Travel Assistance (LTA) Section 10(5) exempt for senior 60+ parent director. (10) Standard Deduction Section 16 INR 75,000 / year for senior 60+ parent director (FY 2025-26). (11) Entertainment Allowance Section 16(ii) for government employees only. (12) Professional Tax Section 16(iii) for senior 60+ parent director. The catch: if director salary exceeds 11% of net profit cap, the excess is disallowed as deduction for company + taxed for director as personal income. The senior 60+ parent director must also claim Section 80C + 80D + 80DDB + Form 10-I + Section 80CCD(1B) in personal ITR-3 (NOT in company ITR-6).

Partner remuneration is the partnership firm / LLP layer. Indian Partnership Act 1932 + Limited Liability Partnership Act 2008 + Income Tax Act 1961 Section 10(2A) + Section 40(b) + Section 194T specify the partner remuneration: (1) Section 10(2A) partner salary exempt for LLP partner (but NOT for partnership firm working partner - partnership firm partner salary is taxable under Section 28). (2) Section 40(b) partner remuneration capped at 90% of book profit or INR 1.5 lakh per partner whichever is less (whichever is lower) for partnership firm + LLP. (3) If partnership firm / LLP pays the working partner a salary + bonus + commission + any other remuneration, the total remuneration must not exceed the lower of 90% of book profit or INR 1.5 lakh per partner. (4) If the firm / LLP pays more than the Section 40(b) limit, the excess is disallowed as a deduction for the firm / LLP, and the partner is taxed on the excess as personal income. (5) Section 194T partner remuneration TDS 10% post 2024 (Finance Act 2024) for partner remuneration paid by private limited company (NOT for partnership firm / LLP - they are exempt under Section 10(2A) for partner salary). (6) Form 26Q + Form 16A. (7) Section 80C + 80D + 80DDB + Form 10-I + Section 80CCD(1B) in partner personal ITR (NOT in firm / LLP / company ITR). The catch: Section 194T applies only to partner remuneration paid by private limited company (NOT for partnership firm / LLP), and the partner must claim Section 10(2A) exemption for partner salary from partnership firm / LLP.

Dividend is the shareholder return. Companies Act 2013 + Income Tax Act 1961 Section 194 + Section 2(22)(a) to (e) specify the dividend: (1) Section 194 10% TDS for resident shareholder (individual / HUF / firm / company). (2) Section 194 20% TDS for NRI shareholder. (3) Section 195 for NRI remittance. (4) DTAA reduced rate (5% for US / UK / CA / AU per India-US / India-UK / India-CA / India-AU DTAA) with Form 67 + TRC + DTAA certificate. (5) Form 26Q + Form 16A. (6) Section 2(22)(a) deemed dividend on closely-held company (paid by company to shareholder as loan / advance) - if private limited company pays a loan / advance to a shareholder who holds 10% or more of the voting power, the loan / advance is treated as deemed dividend in the hands of the shareholder under Section 2(22)(a) and taxed accordingly. (7) Section 2(22)(b) to (e) deemed dividend on loans / advances to specified persons (HUF + firm + AOP / BOI + closely-held company in which shareholder has substantial interest). (8) Section 115-O dividend distribution tax abolished post 2020 (Finance Act 2020) - dividend now taxed in shareholder hands at slab rate. (9) Section 80M deduction abolished. (10) Dividend on preference shares + dividend on equity shares + interim + final + special dividend. (11) Section 115JB MAT (15% book profit + surcharge + cess for non-115BAA / 115BAB companies). (12) ITR-2 for individual shareholder + ITR-3 for director shareholder + ITR-6 for company return. (13) Form 15G / 15H not available for NRI (only for resident individual below 60 / senior 60+ respectively). The catch: NRI shareholder must file Form 67 + TRC + DTAA certificate to claim DTAA reduced rate (5% vs 20% default). The senior 60+ parent shareholder must claim Section 80C + 80D + 80DDB + Form 10-I in personal ITR (NOT in company ITR-6).

Share buyback is the alternative to dividend. Companies Act 2013 Section 68 + SEBI (Buyback of Securities) Regulations 2018 + Income Tax Act 1961 Section 115QA + Section 10(34) + Section 46A specify the share buyback: (1) Section 115QA 23.296% buyback tax for company (23% + 12% surcharge + 4% cess on distributed income = 23.296% effective). (2) Section 10(34) buyback exempt in shareholder hands (the buyback proceeds received by shareholder are exempt from tax in the hands of the shareholder). (3) Section 46A capital gains on buyback for shareholder (sale consideration = buyback consideration, cost of acquisition = original purchase cost). (4) Section 48 cost of acquisition. (5) Buyback through open market (max 25% of paid-up capital + free reserves) or tender offer or private arrangement. (6) Buyback limit 25% of paid-up capital + free reserves. (7) Buyback through special resolution (Section 68 + 69 + Companies Act 2013 Section 68). (8) Form SH-8 (letter of offer to shareholder) + Form SH-9 (register of buyback) + Form SH-11 (return of buyback). (9) Form MGT-14 (board resolution). (10) Form PAS-3 (allotment of securities). (11) Form FC-TRS within 60 days of buyback for NRI shareholder. (12) FEMA compounding penalty up to 3x for missed Form FC-TRS window. (13) ITR-6 for company return + ITR-2 / ITR-3 for shareholder personal return. The catch: share buyback is generally more tax-efficient for closely-held company than dividend because the buyback tax 23.296% on distributed income is often lower than the dividend tax 30%+ for senior 60+ parent shareholder at highest slab rate. The senior 60+ parent shareholder must file Form FC-TRS within 60 days of buyback for FEMA compliance.

ESOP + Sweat equity is the long-term incentive. Companies Act 2013 Section 53A + SEBI (Share Based Employee Benefits) Regulations 2014 + Income Tax Act 1961 Section 17(2)(vi) + Rule 3 specify the ESOP + sweat equity: (1) Section 17(2)(vi) perquisite on ESOP grant + Rule 3 valuation + fair market value (FMV) on exercise date. (2) Section 49(2)(iii) cost of acquisition (FMV on exercise date for capital gains on subsequent sale). (3) Sweat equity under Section 53A Companies Act 2013 + sweat equity maximum 25% of paid-up capital + sweat equity at FMV + sweat equity 1y lock-in. (4) ESOP scheme + ESOP trust + Form ESOP-1 (ESOP scheme registration with MCA) + Form ESOP-2 (ESOP grant) + Form MGT-14 (board resolution) + Form PAS-3 (allotment). (5) TDS 192 on perquisite (difference between FMV on exercise date and exercise price). (6) Form 16 + Form 24Q + Form 12BA. (7) Section 17(1) basic salary + Section 17(2) perquisites + Section 17(3) profits in lieu of salary. (8) Capital gains on subsequent sale of ESOP shares = sale price - FMV on exercise date (Section 48). (9) ITR-2 / ITR-3 for director personal return + ITR-6 for company return. The catch: ESOP perquisite is taxed at FMV on exercise date, not at grant date. If the share price declines between grant date and exercise date, the employee still has to pay perquisite tax on the FMV at grant date. The senior 60+ parent director must claim Section 80C + 80D + 80DDB + Form 10-I in personal ITR (NOT in company ITR-6).

Share transfer is the family / succession mechanism. Companies Act 2013 + Income Tax Act 1961 Section 56(2)(vii) + Section 50C + Section 45 + 48 + FEMA 1999 Form FC-TRS specify the share transfer: (1) Section 56(2)(vii) under-valuation penalty if share transfer at less than stamp duty Section 50C value (recipient is taxed on the difference between Section 50C value and actual transfer price as income from other sources). (2) Stamp duty valuation per state-specific circle rate. (3) Section 50C + Section 45 + Section 48 + capital gains. (4) Section 111A STCG 15% for listed equity + Section 112A LTCG 10% for listed equity (post 1y holding) + Section 112 LTCG 20% for unlisted shares + debt + property. (5) Section 54 / 54F exemption for LTCG reinvested in residential house / any asset. (6) Form FC-TRS within 60 days of share transfer for NRI shareholder (FEMA compliance). (7) FEMA compounding penalty up to 3x for missed Form FC-TRS window. (8) Share transfer deed + share transfer register + Form MGT-14 (board resolution). (9) Form PAS-3 (allotment of securities on transfer). (10) Section 68 + 69 cash credit + Section 56(2)(xi) deemed dividend + Section 2(22)(a) deemed dividend on closely-held company. (11) ITR-2 / ITR-3 for transferor shareholder + ITR-3 for transferee shareholder + ITR-6 for company return. (12) FEMA USD 1M / year repatriation for NRI transferor. The catch: share transfer between senior 60+ parent + NRI child at less than Section 50C value triggers Section 56(2)(vii) under-valuation penalty for transferee + capital gains for transferor + FEMA compounding for NRI transferor for missed Form FC-TRS. The senior 60+ parent must claim Section 80C + 80D + 80DDB + Form 10-I in personal ITR (NOT in company ITR-6).

FEMA USD 1M / year is the post-tax repatriation trigger. After the senior 60+ parent + NRI director / shareholder pays the personal tax (Section 17(1) + 17(2) + 17(3) + Section 192 TDS + Section 194 dividend TDS + Section 194T partner remuneration TDS + Section 115QA buyback tax for company + Section 10(34) exempt for shareholder + Section 46A capital gains on buyback + Section 17(2)(vi) ESOP perquisite + Section 45 + 48 + Section 56(2)(vii) + Section 50C + Section 2(22)(a) deemed dividend + Section 68 / 69 cash credit + Section 115BAA / 115BAB concessional 22% / 15% for private limited + Section 115JB MAT + books of accounts + audit Section 44AB), the NRI director / shareholder can repatriate the net director salary + dividend + buyback + ESOP + sweat equity + share transfer proceeds (after TDS + tax + deductions) under FEMA USD 1M / year. The USD 1M / year limit is combined across all properties + all sources of capital gains + rent + business + salary + dividend + buyback + partner remuneration + director salary + ESOP + sweat equity + share transfer + all foreign currency remittances. The repatriation requires Form 15CB (CA certificate confirming the tax has been paid / deducted on the director salary + dividend + buyback + ESOP + share transfer) + AD-1 bank + NRO account + repatriation proof (FIRC + bank statement) for 7 years (Indian) + 10 years (US/UK/CA/AU). If the NRI director / shareholder remits the net director salary + dividend + buyback + ESOP + share transfer proceeds abroad, TCS 5% Section 206C(1G) applies above INR 50 lakh (Finance Act 2020) + Section 195 TDS for NRI remittance. The catch: the NRI director / shareholder must apply for FEMA USD 1M / year within 12 months of the director salary + dividend + buyback + ESOP + share transfer receipt to avoid the FEMA USD 1M / year window being missed.

The trade-off: director salary is operational income (Section 17(1) + 17(2) + 17(3) + TDS 192 + Form 16 + Form 24Q + Section 17(2)(vi) ESOP), partner remuneration is partnership / LLP layer (Section 10(2A) exempt + Section 40(b) 90% book profit or INR 1.5 lakh per partner whichever is less + Section 194T TDS post 2024), dividend is shareholder return (Section 194 10% / 20% TDS + Section 2(22)(a) deemed dividend + Section 115-O abolished), share buyback is alternative to dividend (Section 115QA 23.296% buyback tax + Section 10(34) exempt in shareholder hands + Section 46A capital gains on buyback), ESOP + sweat equity is long-term incentive (Section 17(2)(vi) perquisite + Section 53A ROC + Rule 3 FMV), share transfer is family / succession mechanism (Section 56(2)(vii) + Section 50C + Section 45 + 48 + capital gains + Form FC-TRS within 60 days), FEMA USD 1M / year is the post-tax repatriation (USD 1M / year combined across all properties + all sources of capital gains + rent + business + salary + dividend + buyback + partner remuneration + director salary + ESOP + sweat equity + share transfer). For most NRI senior-parent private limited + director + dividend + buyback + ESOP + share transfer + FEMA scenarios, the right answer is: determine mechanism mix (T-3m to T-1m) + board resolution + special resolution (T-1m to T+0) + monthly / quarterly director salary + TDS 192 + Form 16 + Form 24Q (T+0 ongoing) + dividend declaration + Section 194 TDS (T+0 annual) + share buyback resolution + Section 115QA tax + Form FC-TRS within 60 days (T+0 to T+60d) + ESOP grant + ESOP exercise + Section 17(2)(vi) perquisite + TDS 192 (T+0 to T+vesting) + share transfer + Form FC-TRS + Section 56(2)(vii) + Section 50C + Section 45 + 48 + capital gains (T+0 to T+60d) + ITR-6 + Form 67 + TRC + DTAA + Schedule FA + 80C + 80D + 80DDB + Form 10-I (AY by 31-July) + FEMA USD 1M / year repatriation for NRI director salary + dividend + buyback + ESOP + share transfer (T+post-ITR within 12m) + Aadhaar + PAN + bank + MF + demat + OCI propagation within 90 days.

Six decisions in the NRI parent director + dividend + buyback + ESOP + share transfer + FEMA USD 1M / year arc have outsized financial impact. Each is a place where the wrong call costs the NRI senior parent + NRI director / shareholder INR 2-15 lakh / year over 5-10y - and where the right call preserves the FEMA USD 1M / year repatriation window + Section 17(1) + 17(2) + 17(3) + Section 192 salary TDS + Section 194 dividend TDS + Section 194T partner remuneration TDS + Section 115QA buyback tax + Section 17(2)(vi) ESOP perquisite + Section 49(2)(iii) cost of acquisition + Section 56(2)(vii) + Section 50C + Section 45 + 48 + capital gains + ITR-6 + Schedule BP + Form 67 + TRC + DTAA claim.

Decision 1: Mechanism mix. Pick director salary + Section 17(1) + 17(2) + 17(3) + TDS 192 for whole-time / managing director. Pick partner remuneration + Section 10(2A) + Section 40(b) for working partner of partnership firm / LLP. Pick dividend + Section 194 10% / 20% TDS for shareholder. Pick share buyback + Section 115QA 23.296% for tax-efficient buyback. Pick ESOP + Section 17(2)(vi) perquisite + Rule 3 for long-term incentive. Pick share transfer + Section 56(2)(vii) + Section 50C for family / succession mechanism. Wrong pick: senior 60+ parent director at 30% slab rate uses dividend (Section 194 20% TDS for NRI + dividend at 30% slab rate) instead of buyback (Section 115QA 23.296% buyback tax for company + Section 10(34) exempt in shareholder hands), pays 6-7% extra tax + loses buyback tax efficiency. Or senior 60+ parent director transfers shares to NRI child at less than Section 50C value (to avoid capital gains), triggers Section 56(2)(vii) under-valuation penalty for transferee + pays 30% Section 271 penalty + Form FC-TRS missed within 60 days triggers FEMA compounding 3x.

Decision 2: Section 115BAA / 115BAB concessional tax. Pick Section 115BAA 22% effective for existing private limited (Section 115BAA: total income <= Rs 400 crore in AY 2020-21, no Section 115-O dividend distribution tax, no Section 80M deduction, no MAT credit claim). Pick Section 115BAB 15% effective for new manufacturing private limited company incorporated after 1-Oct-2019 (Section 115BAB: total income <= Rs 400 crore, no Section 115-O, no Section 80M, no MAT credit claim, must be manufacturing company, must not be formed by splitting or reconstructing existing business). Wrong pick: private limited company does not opt for Section 115BAA / 115BAB concessional tax, pays 25% corporate tax + 12% surcharge + 4% cess = 30% effective + Section 115JB MAT 15% book profit. Or new manufacturing private limited company incorporated after 1-Oct-2019 does not opt for Section 115BAB 15% effective, pays 25% corporate tax + 12% surcharge + 4% cess = 30% effective instead of 15% effective = 15% extra tax.

Decision 3: Director salary vs dividend vs buyback mix. Pay director salary within Section 197 + 198 overall cap 11% of net profit for 1 director + 5 directors cap 11% of net profit OR 1% if more than 1 managing / whole-time director. Pay dividend within Section 194 10% / 20% TDS. Pay buyback within buyback limit 25% of paid-up capital + free reserves + Form SH-8 + Form SH-9 + Form SH-11 + Form MGT-14 + Form PAS-3 + Form FC-TRS within 60 days for NRI. Wrong pick: private limited company pays director salary exceeding 11% of net profit cap, the excess is disallowed as deduction for company + taxed for director as personal income. Or private limited company pays buyback exceeding 25% of paid-up capital + free reserves limit, the buyback is invalid + must refund buyback consideration to shareholder + pay Section 68 / 69 cash credit penalty + 30% Section 271 penalty + 100% Section 270 penalty for concealment.

Decision 4: ESOP + sweat equity + share transfer. Grant ESOP at FMV on exercise date (Section 17(2)(vi) perquisite + Rule 3). Issue sweat equity under Section 53A Companies Act 2013 + sweat equity maximum 25% of paid-up capital + sweat equity at FMV + sweat equity 1y lock-in. Transfer shares at stamp duty Section 50C value to avoid Section 56(2)(vii) under-valuation penalty + Form FC-TRS within 60 days for NRI. Wrong pick: private limited company grants ESOP at below FMV on exercise date, the difference is taxed as perquisite for director under Section 17(2)(vi) + 30% Section 271 penalty for under-valuation. Or private limited company issues sweat equity exceeding 25% of paid-up capital limit, the excess sweat equity is invalid + must refund sweat equity consideration to employee + pay Section 68 / 69 cash credit penalty + 30% Section 271 penalty. Or senior 60+ parent director transfers shares to NRI child at less than Section 50C value, triggers Section 56(2)(vii) under-valuation penalty for transferee + pays 30% Section 271 penalty + Form FC-TRS missed within 60 days triggers FEMA compounding 3x.

Decision 5: ITR-6 + Form 67 + TRC + DTAA + Schedule FA. File ITR-6 for private limited company for AY of business income by 31-July (Section 139(1)) + Schedule BP + Schedule P&L + Schedule BS + Schedule FA + Form 67 + TRC + DTAA + 8-year carry forward per Section 90(4) + Section 17(1) + 17(2) + 17(3) + Section 192 salary TDS + Section 194 dividend TDS + Section 194T partner remuneration TDS + Section 115QA buyback tax + Section 115BAA / 115BAB concessional 22% / 15% for private limited + Section 115JB MAT. Wrong pick: private limited company does not file ITR-6 within 31-July, pays Section 234F late filing fee INR 1,000-5,000 + Section 234B + 234C interest for advance tax default + 30% penalty Section 271 for non-filing + Section 115JB MAT 15% book profit + interest + penalty. Or NRI director / shareholder does not file Form 67 + TRC + DTAA, loses foreign tax credit benefit + pays more tax than required + 30% penalty Section 271 for non-filing.

Decision 6: FEMA USD 1M / year timing. Apply for FEMA USD 1M / year repatriation within 12 months of the director salary + dividend + buyback + ESOP + share transfer receipt. Wrong pick: NRI director / shareholder does not apply for FEMA USD 1M / year within 12 months, director salary + dividend + buyback + ESOP + share transfer proceeds locked in India + must re-apply via RBI + additional documentation + delay 6-12 months. Or NRI director / shareholder remits more than USD 1M / year combined across all properties + all sources of capital gains + rent + business + salary + dividend + buyback + partner remuneration + director salary + ESOP + sweat equity + share transfer, must obtain RBI approval + LRS Liberized Remittance Scheme compliance. Or NRI shareholder does not file Form FC-TRS within 60 days of share buyback / share transfer, FEMA compounding penalty up to 3x the amount in violation + 30% Section 271 penalty for non-disclosure + FEMA contravention + ARFC reporting failure.