MCA relaxes the director residency criteria under section 149 for financial year 2020-21
Under the Income Tax Act, assesses are either resident in India or non-resident in India. The same with respect to an individual or an HUF can be further divided into resident and ordinarily resident or resident but not ordinarily resident. According to Income Tax in India, the source of income is considered necessary while computing the liability.
Whether the liability would arise or not it will depend on the residential status of a person? For instance, a person earning in India, or earning from Indian source is taxable in India and it will be immaterial whether the person earning is resident or non-resident. Whereas, for example, the foreign sourced income of a person is not taxable in India if such person is non-resident. Therefore, residential status becomes significant in computing tax liability.The residential status of any individual also plays an important role in the Companies Act. Let us first know who will be considered as a resident before we move forward.
Who will be considered as a resident in India?
An individual will be treated as a Resident in India in any previous year if he/she is in India for:
- At least 182 days in that year, or
- At least 365 days during 4 years preceding that year AND atleast 60 days in that year.
An individual who does not satisfy both the conditions as mentioned above will be treated as “non-resident” in that previous year.
Definition of Resident is relaxed by dropping Condition 2 given above (i.e. only Condition 1 is applicable),for the following cases:
- An Indian citizen who leaves India in any year for the purpose of employment outside India or as a crew member of an Indian ship,
- An Indian citizen or a person of Indian origin who resides outside India and who comes on a visit to India.
What is the requirement pertaining to residential status in Companies Act 2013?
- According to Section 149(3) of the Companies Act 2013, every company shall have at least one director who has stayed in India for at least 182 days in the previous calendar year.
- Company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs 10,000.
- If the contravention is continuing one, then a further fine which may extend to Rs 1,000 for every day after the first during which the contravention continues, will be applicable
Relaxation provided by the MCA pertaining to the above requirement
The COVID 19 pandemic has been largely disruptive to the growth of India. With an ever-increasing corona virus cases, lockdown was considered as an only solution to flatten the curve. However, the measures which were implemented to avoid a human disaster, have in turn led to the birth of several issues such as unemployment, recession, hindrance to economic growth, financial instability and so on.
Due to the emerging financial distress faced by most people on account of the large-scale economic distress caused by COVID 19, the Government of India had extended the due dates of various provisions to provide relief in the current pandemic situation. The Union Finance and Corporate Affairs Minister Smt. Nirmala Sitharaman announced several important relief measures taken by the Government of India in view of COVID-19 outbreak, especially on statutory and regulatory compliance matters related to several areas of Income Tax, GST, Customs and Corporate Affairs.
The Ministry of Corporate Affairs (MCA) vide its General Circular No. 11/2020 dated 24th March, 2020 had implemented several relief measures, especially on statutory and regulatory compliance matters related to several sectors, in the context of outbreak of pandemic COVID 2019. According to the said Circular, non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 shall not be treated as a non-compliance for the FY 2019-20.
Now in order to provide further relief, MCA vide General Circular No 36/2020 dated 20th October, 2020, further extended the benefit as provided above. According to the said Circular, non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 shall not be treated as a non-compliance for the FY 2020-21 also.
In the scenario, the relaxations granted by MCA from a few of the compliance requirements will definitely ease the burden on the management of the companies and LLPs.