India Update: Resident Directors and the 2014-15 Budget

Resident Directors

Section 149(3) of the Indian Companies Act 2013 (the “Act”) requires every Indian company to have at least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year. Given that this provision was open to different interpretations, the Indian government received a number of requests from stakeholders for clarification with regard to its applicability in the current calendar / financial year.

On 26 June 2014, by way of General Circular No. 25 / 2014, the Indian government clarified that the so-called ‘residency requirement’ will be calculated from the commencement of section 149 of the Act, being 1 April 2014. The first ‘previous calendar year’ for compliance with these provisions is therefore calendar year 2014, and the period to be taken into account is the remaining period of calendar year 2014 (i.e. 1 April to 31 December). Therefore, on a proportionate basis, the number of days for which the director(s) will need to be resident in India during calendar year 2014 for purposes of complying with section 149(3) must exceed 136 days.

Companies incorporated between 1 April 2014 and 30 September 2014 should have a resident director either at the incorporation stage itself or within six months of their incorporation. Companies incorporated after 30 September 2014 will need to have a resident director from the date of incorporation itself.

The 2014-15 Budget

The Indian Union Budget 2014-15 was unveiled by Indian Finance Minister Arun Jaitley in Parliament on 10 July 2014. The main highlights for individuals and retail investors may be summarized as follows:

• Income tax exemption limit raised from Rs 2 lakhs at present to Rs 2.5 lakhs;

• for senior citizens, the income tax exemption limit was raised from Rs 2.5 lakhs to Rs 3.0 lakhs;

• the section 80C investment limit was raised from Rs 1 lakh to Rs 1.5 lakh for tax benefits;

• the tax exemption on the interest component on housing loans was raised from Rs 1.5 lakhs  to Rs 2 lakhs;

• the Annual Public Provident Fund (PPF) ceiling will be enhanced from Rs 1 lakh to Rs 1.5 lakhs;

• a special small saving scheme will be introduced to encourage, amongst others, savings towards education;

• a proposal was made to introduce a single demat account for all types of financial transactions;

• a proposal was made to introduce standardized KYC norms and a single KYC system across the financial sector;

• the EPFO is to launch a unified account scheme to ensure provident fund portability;

• cheaper housing loans and tax incentives for low income groups (LIG);

• insurance sector FDI is to be hiked to 49% from 26%, leading to an increase in insurance penetration; and

• the long term capital gains tax on debt mutual funds was increased from 10 % to 20% (tenure increased from 12 to 36 months).

In order to be able to make sense of amounts expressed above in “lakh”, please note that a lakh (also lac; abbreviated L) is a unit in the South Asian numbering system equal to one hundred thousand (100,000), written as 1,00,000. It is widely used both in official and other contexts in India, Pakistan, Bangladesh, Maldives, Nepal, Sri Lanka, and Myanmar, and is often used in Indian English.

By way of trivia, it may be pointed out here that Arun Jaitley’s aforesaid budget speech, which lasted for two hours and five minutes, has apparently broken many recent records for being the longest such speech ever - and for having 44 pages. It remains to be seen, whether the budget for 2014-15 is worth the paper the speech was written on.