Optimising Promoter Compensation and Tax
The promoters of a profitable healthcare-services group in Bengaluru were drawing income in a way that had grown up organically, without tax planning — an inefficient mix of salary, dividend, and informal drawings that increased their overall tax burden and complicated the company’s books.
A clear-eyed look at where they stood.
The promoters of a profitable healthcare-services group in Bengaluru were drawing income the way most founders do in the early years: however the month’s cash flow allowed. Salary, dividend, and informal drawings had accumulated side by side, none of it set up with tax planning in mind. The mix had simply grown up organically as the business grew.
That organic growth had a cost. An inefficient split between salary and dividend pushes promoters into a higher effective tax rate than a deliberately structured mix would, since the two are taxed differently and each carries its own compliance trail under the Companies Act and the Income Tax Act. Informal drawings compound the problem: money moving out of the company without a documented basis is hard to reconcile at year-end, and it leaves the books harder to audit and harder to plan around.
None of this was a crisis. The group was profitable and the drawings were real, earned income. But the promoters were paying more tax than they needed to, and the company’s books carried the untidiness of years of ad hoc decisions rather than a designed policy.
CapEasy began with the numbers: the promoters’ existing compensation, the company’s profit position, and how much of that profit could be distributed without straining the business. Only once that picture was clear did the review turn to the applicable provisions of the Companies Act and the Income Tax Act that govern how promoter compensation can be structured.
With that baseline in place, CapEasy redesigned the salary-and-dividend mix itself, working out what portion of promoter income should sit in each bucket to keep the overall tax outcome efficient without breaching any statutory limit on managerial remuneration or distributable profits.
The informal drawings were the other half of the job. Rather than let them continue as an undocumented habit, CapEasy formalised them, giving each drawing a clear basis, whether as salary, dividend, or a properly recorded loan or advance, so the company’s books reflect what actually happened instead of a running balance nobody can explain later.
The result was a structured approach to promoter remuneration that is tax-efficient and fully compliant, replacing the ad hoc pattern with a policy the promoters and their finance team can apply consistently going forward.
The outcome
The promoters reduced their overall tax burden and gained a clear, compliant framework for drawing income and distributing profits. The company’s books became cleaner and easier to plan around, which matters as much for next year’s tax planning as it does for this year’s filing.
What made it work
The fix was not a single clever move but the order of operations: understand the actual profit position and compensation baseline first, then apply the statutory rules, then rebuild the structure around both. Formalising the drawings alongside the salary-and-dividend redesign meant the company ended up with one coherent framework rather than a tax fix sitting on top of the same messy bookkeeping that caused the problem.
This describes work CapEasy delivered in a real engagement; the client’s name is withheld to protect their confidentiality. Outcomes vary by company, sector and stage; nothing here is a promise of a similar result. CapEasy is a private consultancy and is not affiliated with any government authority.