Free Tool · FY 2025-26 · Finance Act 2020 DDT Abolished · Section 115-O History
Salary vs Dividend Calculator
For Pvt Ltd directors: which gives you more money in hand — paying yourself a salary or declaring a dividend? The answer depends on your company's taxable profit, your slab rate, and whether the company is a MSME with presumptive taxation.
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Company's taxable profit before any director salary deduction
What you want to pay yourself as director salary
Applicable to both salary income and dividend income under new regime rates
Most domestic Pvt Ltds qualify for Section 115BAA (22% + surcharge + cess ≈ 25.17% effective). Does not apply if company claims deductions under Chapter VI-A or 10AA.
Section 80CCD(2): deductible for company AND exempt from perquisite tax for you, up to 10% of salary
Finance Act 2020 — DDT abolished: Dividend Distribution Tax (Section 115-O) was removed effective 1 April 2020. Dividends are now taxable in shareholders' hands at their applicable slab rate. This tool uses current law only.
Fill in your company's profit and proposed salary above, then click Compare Scenarios.
Statutory Basis
Section 36(1)(ii) — Salary Deductibility
Section 36(1)(ii) of the Income Tax Act, 1961: Salary paid to an employee (including a director-employee) is deductible as a business expense, provided it is paid for services actually rendered and is reasonable. Excessive salary to a director-shareholder to avoid dividend can be disallowed by the Assessing Officer.
Section 8, Companies Act 2013 — Dividend
Dividends are paid from after-tax distributable profit. Under Finance Act 2020, Dividend Distribution Tax (DDT) was abolished. Dividends are now taxable in the hands of the shareholder at their applicable income tax slab rate.
Section 115BAA — Corporate Tax at 22%
Section 115BAA of the Income Tax Act, 1961: Domestic companies can opt for a concessional corporate tax rate of 22% (plus surcharge and cess = effective ~25.17%) subject to foregoing certain deductions and exemptions. Once opted, irrevocable.
Finance Act 2020 — DDT Abolished
Finance Act 2020, effective 1 April 2020: Dividend Distribution Tax (Section 115-O) was abolished. Dividends received are now taxable as income in the hands of the recipient at their slab rate. Section 10(34) exemption for dividends is repealed.
Section 80CCD(2) — Employer NPS Contribution
Section 80CCD(2) of the Income Tax Act, 1961: Employer contribution to NPS on behalf of an employee is deductible for the company and is not treated as a perquisite for the employee, up to 10% of salary (basic + DA). This applies in both old and new tax regimes.
Want a CA to optimise your director compensation?
The right mix of salary, NPS, and dividend depends on your company's profit trajectory, personal tax situation, and long-term exit plans. Our CAs structure director pay to be defensible under Section 36(1)(ii) while minimising total tax outflow.