Director remuneration is more than just a monthly salary—it includes bonuses, allowances, benefits, and other perks. Proper documentation is essential not only for accurate accounting but also for audit compliance and tax purposes.
a. Ensures Tax Compliance
Directors’ remuneration must be reported correctly to the IRB. Proper records help in preparing:
- Form E (for company submission)
- Form EA (for employee/director tax reporting)
Correct tax deductions for the company
Failing to document remuneration can lead to non-deductible expenses, penalties, or IRB queries during audits.
b. Supports Accurate Audits
Auditors verify that all director payments are properly authorised and recorded. Documentation should include:
- Board resolutions approving salaries/bonuses
- Payroll summaries
- Contracts and agreements detailing benefits
- Any adjustments or allowances
This ensures auditors can trace every payment, reducing audit queries and speeding up the process.
c. Maintains Transparency and Corporate Governance
Properly documented director remuneration demonstrates good governance. It protects the company from disputes, ensures fair compensation, and shows that the company operates responsibly and transparently.
d. Helps Financial Planning
Clear remuneration records make it easier for management to plan cash flow, forecast expenses, and budget for bonuses or benefits. It also ensures that payments remain within approved limits and corporate policies.