Moment guide · FY 2026-27
Should I take salary or dividend from my company?
Should I pay myself a director's salary or declare a dividend from my own company for FY 2026-27?
Salary is usually better: it is deductible in the company (saving roughly 25–30% corporate tax), while dividend is paid out of post-tax profits and then taxed again at slab rates in your hands. A director's salary needs board approval and must be commercially reasonable — the excess is disallowed under section 40A(2), and an informal shareholder loan can be deemed dividend under section 2(22)(e).
Your legitimate options
Every route the statute actually gives you — with its condition, cap and deadline.
| Route | Condition | Cap / deadline |
|---|---|---|
| Director salary | Company wants a deduction and the director performs real executive duties | Deductible; TDS u/s 192; reasonableness limit u/s 40A(2) |
| Dividend | Company does not need a deduction, accumulated profits exist, and a formal board declaration is made | Not deductible; taxed at slab in shareholder's hands; TDS u/s 194 if dividend exceeds ₹5,000 |
| Expense reimbursement | Director incurs genuine business expenses personally | Non-taxable; requires bills and business nexus |
| Loan from company | Emergency personal cash need from one's own company | High risk of deemed dividend u/s 2(22)(e) to the extent of accumulated profits |
The #1 trap
Dividends may look clean, but they are paid out of post-tax profits and then taxed again at slab in your hands — and a shareholder loan is not a free advance, it can be deemed dividend under section 2(22)(e).
The decision path
Follow it top to bottom — the first condition that matches is your answer.
Worked example
Meera, sole director and 100% shareholder of a trading company
Meera's trading company earns ₹1.5 crore before any remuneration, and she needs ₹60 lakh for personal expenses this year. She is deciding between a director's salary and a dividend. If she takes a ₹60 lakh salary, the company deducts it while computing business income, leaving taxable profits of ₹90 lakh. Corporate tax at the 25% rate for a company with turnover below ₹400 crore works out to about ₹25.04 lakh after 7% surcharge and 4% cess. On the personal side, Meera claims the ₹75,000 standard deduction, so taxable income is ₹59.25 lakh. Under the new regime slab rates her tax before surcharge is about ₹13.58 lakh; adding 25% surcharge and 4% cess gives roughly ₹17.65 lakh. Total combined tax under the salary route is about ₹42.68 lakh. If instead she declares a ₹60 lakh dividend, the amount is not deductible in the company. Corporate tax on ₹1.5 crore is about ₹41.73 lakh. Meera then pays dividend tax at slab rates without any standard deduction — tax of about ₹13.80 lakh, plus surcharge and cess, comes to roughly ₹17.94 lakh. Total combined tax under the dividend route is about ₹59.67 lakh. So the salary route saves the family group roughly ₹17 lakh simply because the company gets a deduction. The biggest trap is taking a current-account loan from the company instead of a formal salary or dividend: since the company has accumulated profits, a loan to Meera as shareholder can be deemed dividend under section 2(22)(e) and taxed in her hands even if she repays it later. Also, if she paid herself an excessive salary — say ₹2 crore for a ₹60-lakh role — the excess is disallowed under section 40A(2), not section 36(1)(ii); IT simply adds it back to the company's income. For FY 2026-27, Meera finalises a board-approved salary, documents the market benchmark, and ensures TDS is deposited on time. A quick call with us dials in the final figure.
Questions people actually ask
Sections: 192, 115, 2(22)(e), 40A(2), 194 · Last verified 2026-08-11 · Reviewed by Harun Raaj & Associates, Chartered Accountants. Every figure cites the Income-tax Act, 1961 (with ITA 2025 mapping via our section index).