Can director of Section 8 company draw salary? Learn how Directors of a Section 8 Company get paid legally, salary rules, compliance, and limits in India.
One of the most common questions faced by founders, NGOs, social entrepreneurs, and even professionals while forming a non-profit entity is: can director of Section 8 company draw salary?
The confusion is understandable. Section 8 companies are known as non-profit companies, and many advisors loosely interpret this to mean that directors cannot be paid at all. This is legally incorrect.
In this blog, we clearly explain how do Directors of a Section 8 Company get paid, what is legally allowed, what is prohibited, and how to structure remuneration compliantly under Indian law.
Understanding a Section 8 Company
A Section 8 company is incorporated under the Companies Act, 2013 for:
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Charitable purposes
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Social welfare
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Education
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Research
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Environment protection
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Promotion of arts, sports, science, or commerce
The key restriction is that profits or income cannot be distributed as dividends to members.
However, the law does not prohibit payment for services rendered.
Can Director of Section 8 Company Draw Salary?
Yes. A director of a Section 8 company can legally draw salary, provided certain statutory conditions are met.
The Companies Act, 2013 does not bar remuneration to directors of Section 8 companies. What it restricts is distribution of profits.
A director can be paid if:
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Payment is for actual work performed
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Amount is reasonable and justified
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Payment is approved by the Board
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Articles of Association (AOA) permit such payment
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Proper records and disclosures are maintained
This distinction is critical.
Non-profit does not mean no-salary.
It means no profit sharing.
How Do Directors of a Section 8 Company Get Paid?
Now let us clearly answer the practical question: How do Directors of a Section 8 Company get paid?
There are three legally recognised methods.
1. Salary as an Executive Director or Employee
A director may also function as:
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Executive Director
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CEO
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Program Head
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Operations Manager
In such cases, the director is also an employee of the company.
✔ Salary can be paid from organisation funds
✔ Employment agreement must exist
✔ Salary must match market standards
✔ TDS and payroll compliance required
This is the most common and safest model used by NGOs and Section 8 companies across India.
2. Sitting Fees for Board Meetings
Directors can receive:
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Sitting fees for attending Board or committee meetings
This is allowed under Companies Act rules, subject to prescribed limits.
Sitting fees:
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Are not treated as profit distribution
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Are paid for time and responsibility involved
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Must be approved by the Board
3. Professional or Consultancy Fees
If a director provides services such as:
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Legal advisory
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Technical consultancy
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Strategic advisory
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Training or research services
Fees may be paid separately, provided:
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Services are outside routine director duties
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Payment is at arm’s length
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Invoices and disclosures are properly maintained
This is treated as a related-party transaction and must be transparently recorded.
What Is Not Allowed in a Section 8 Company
While answering can director of Section 8 company draw salary, it is equally important to know what is prohibited.
❌ Distribution of surplus or profit
❌ Excessive or inflated remuneration
❌ Payments without board approval
❌ Hidden profit sharing in the guise of salary
❌ Cash payments without documentation
Violation can result in:
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Cancellation of Section 8 licence
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Penalties under Companies Act
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Income-tax scrutiny
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Director disqualification
Why Different CAs Give Different Opinions
Many founders complain that every CA gives a different answer. This happens because:
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Some confuse non-profit with volunteer-only model
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Some fear scrutiny and advise blanket “no salary”
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Some ignore executive vs non-executive distinction
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Many rely on outdated interpretations
Legally speaking, the position is clear and settled.
Directors can be paid, but cannot take profits.
Practical Structuring Tips for Compliance
If you are forming or running a Section 8 company, follow these best practices:
✔ Include remuneration clause in MOA & AOA
✔ Clearly define executive roles
✔ Use employment or consultancy agreements
✔ Keep remuneration reasonable and documented
✔ Pass proper Board resolutions
✔ Maintain clean accounting and disclosures
A properly structured Section 8 company can pay directors without any legal risk.
Recommended reading: Parent Company Bound by Subsidiary’s Arbitration Agreement?
Final Answer in Simple Words
So, to summarise:
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Yes, a director of a Section 8 company can draw salary
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Payment must be for real work, not profit sharing
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Salary, sitting fees, and professional fees are allowed
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Compliance and transparency are the key
Understanding how do Directors of a Section 8 Company get paid correctly helps founders avoid unnecessary fear and ensures sustainable social impact.
The contents of this article are intended for informational and educational purposes only and do not constitute legal advice or a legal opinion. Readers are advised to seek specific and personalized legal counsel prior to acting upon any of the information provided herein. If you require any further information, you may reach out to Lawfluencers at hello@lawfluencers.com