The Companies Act, 2013 is indifferent to where a director was born. It cares a great deal about where they sleep. One provision, section 149(3), decides whether a company with founders spread across two countries is compliant or in continuing default, and it is tested not on the day of incorporation but across every financial year afterwards. This post explains the rule, who satisfies it, what happens when nobody does, and then turns to the other side of the same board: the obligations that attach to a foreign director from the day of appointment.
Every Indian company must have at least one director who stays in India for 182 days or more in the financial year. The test is physical presence, so a foreign national living in India can satisfy it and an Indian citizen living abroad cannot. The default is penalised under section 172 at ₹50,000 plus ₹500 a day. A foreign director, meanwhile, owes the company a DIN kept active by annual KYC, the standard disclosures and consents, attendance at meetings (video is fine), and, once paid, an Indian PAN and tax deducted on the fees.
What section 149(3) says
"Every company shall have at least one director who stays in India for a total period of not less than one hundred and eighty-two days during the financial year: Provided that in case of a newly incorporated company the requirement under this sub-section shall apply proportionately at the end of the financial year in which it is incorporated."
Three features of the wording do the work.
"Stays in India." The test is physical presence. It is not the director's nationality, not whether they hold an Indian passport or OCI card, not their address on the DIN record, and not their residential status under the Income-tax Act, although the last of these is measured on similar arithmetic. A German national on an employment visa in Bengaluru for ten months of the year satisfies the section. An Indian citizen who moved to Toronto and visits for six weeks does not.
"During the financial year." Since the 2018 amendment the count runs from 1 April to 31 March rather than the previous calendar year, and the days need not be continuous. Every day of physical presence in the year is added up. Because the test is applied to the whole year, a company can be compliant in September and in default by March without anything changing except a travel schedule.
"Proportionately." A company incorporated on 1 October needs a director present for roughly 91 days in that first, six-month financial year. A company incorporated in March needs about 15. The proviso stops a year-end incorporation from failing the test on day one, but it also means the count starts at the certificate of incorporation, not at the first board meeting.
Who satisfies the test, and who does not
| Director | Satisfies section 149(3)? | Why |
|---|---|---|
| Indian founder living in Mumbai, travels abroad for 60 days a year | Yes | About 305 days in India |
| Indian founder who spends alternate months with the US co-founder | No | About 180 days; one week short is still short |
| US co-founder living in Los Angeles | No | Physical presence in India is a few weeks a year |
| Foreign national on an employment visa working from the Indian office | Yes | Presence, not citizenship, is the test |
| NRI parent of the founder, added to the board "for the resident requirement", living in Dubai | No | Being Indian does not help; being in India would |
| Professional nominee director resident in India | Yes | Lawful, but carries real liability for the nominee and a diligence question for investors |
Where the test is close, the company should hold passport stamps, boarding passes or an immigration travel history for the director in the statutory records. The Registrar can ask; investors' lawyers usually do.
What non-compliance costs
Section 149(3) has no penalty of its own, so the residual provision in section 172 applies. As amended in 2020, it imposes a penalty of ₹50,000 on the company and on every officer in default, with a further ₹500 for each day the failure continues, subject to a ceiling of ₹3 lakh for the company and ₹1 lakh for each officer. It is adjudicated by the Registrar rather than prosecuted, which makes it cheap to levy.
The statutory penalty is rarely the main cost. The default appears in the secretarial audit report, in the auditor's CARO commentary for companies within its scope, and in the answer to the standard due-diligence question "has the company complied with section 149(3) in every financial year since incorporation". A "no" is curable, but the cure sits on the closing checklist of the next funding round, and the round waits for it.
How to fix a breach, or avoid one
- Track days, not assumptions. Keep a simple travel log for the director designated as resident. Review it in December, while there is still time to change flights.
- Appoint a genuinely resident director. A senior employee, a co-founder's spouse who lives in India and is willing to take on the duties, or a professional. Appointment is by board resolution with DIR-2 consent and DIR-8 declaration, followed by DIR-12 within 30 days. The appointee becomes an officer of the company with full section 166 duties and full liability; this is not a formality for either side.
- Use a professional resident director with eyes open. Several firms provide the service for foreign subsidiaries. It is lawful and common. It also means a person who does not run the business is signing as an officer in default when something goes wrong, so the arrangement needs an indemnity, D&O cover and a real information flow. Investors will ask who the person is and why.
- If the year has already been lost, regularise it. Appoint a resident director now, and file an adjudication application under section 454 with the Registrar admitting the default period. The penalty is reduced for voluntary applications, and a documented cure closes the diligence question.
If the company is at the planning stage, the cleanest answer is the one on our foreign director incorporation page: decide before incorporation which founder will carry the residence requirement, and build the founders' agreement around that.
What a foreign director owes the company
Once appointed, a foreign director is a director. The Act draws no distinction, and every obligation below applies from the date of appointment. The list is in the order it arises.
Before and at appointment
- DIN and DSC. A Director Identification Number, obtained inside SPICe+ for a new company or through DIR-3 for an existing one, and a Class 3 digital signature to sign forms. Both require apostilled passport and address proof. The procedure is in our guide to DSC and DIN for a foreign national director.
- DIR-2 consent to act as director, filed with DIR-12 within 30 days of appointment.
- DIR-8 declaration that the person is not disqualified under section 164, renewed at the first board meeting of every financial year.
- MBP-1 disclosure of interest in other companies, firms and bodies corporate, including foreign ones, at the first board meeting after appointment and whenever the interests change. A foreign founder's shareholding in their own overseas company belongs here.
- Eligibility. Aged 21 or over, not an undischarged insolvent, not convicted of an offence carrying six months or more imprisonment within the last five years, and holding no more than 20 directorships overall (10 in public companies) including foreign-company positions that count under section 165.
Every year
- DIR-3 KYC by 30 September, every year, on the MCA portal. For a foreign director this is usually the web-based confirmation with OTPs to the mobile and email registered at allotment, which is why those must be the director's own. A missed filing deactivates the DIN, blocks the company's DIR-12 and annual return, and costs ₹5,000 to reactivate. Full detail in the DIR-3 KYC guide.
- Fresh DIR-8 and MBP-1 at the first board meeting of the year.
- Passport or address changes reported in DIR-6 within 30 days, with attested proof.
- DSC renewal every two years, which the company should diarise because the director will not.
Meetings and attendance
A private company must hold at least four board meetings a year with no more than 120 days between two of them, and every director is entitled to notice of each. Section 173(2) and the Companies (Meetings of Board and its Powers) Rules permit participation by video conferencing for all business, provided the meeting is recorded, attendance is confirmed at the start, and the director has given the standing intimation of intent to attend by video at the beginning of the year. Video attendance counts for quorum.
The cost of not attending is severe and automatic. Under section 167(1)(b), a director who is absent from all board meetings held during twelve months, with or without leave of absence, vacates office on the day the twelve months end. No resolution is passed; the seat is simply empty, and every act the person purports to do as a director afterwards is done without authority. For a foreign director who "leaves the Indian side to the Indian founder", this is the provision that bites.
The same director cannot ordinarily be the managing director or whole-time director. Schedule V Part I of the Act requires a managerial person to have been resident in India for a continuous period of at least twelve months immediately before the appointment, failing which Central Government approval is needed. An ordinary directorship carries no such condition.
Duties and liability
Section 166 sets out the duties every director owes: to act in good faith for the benefit of the company and its stakeholders, with due care, skill and diligence, avoiding conflicts and undue gain. They are not diluted by distance. A foreign director is an "officer" under section 2(59), and where they are entrusted with responsibility or the board as a whole is in default, they are an officer in default under section 2(60), personally liable for the penalties that attach to that status. Directors' and officers' insurance covering the foreign director is not a luxury; it is the answer to a question their own lawyer will ask.
PAN, TDS and the other 182-day test
A foreign director who is never paid can hold office on their passport alone. The moment the company pays them, three things follow.
PAN. Required for any Indian-source income, and required for the company to deduct tax at the treaty rate rather than the higher rate that applies where no PAN is furnished.
TDS on fees and remuneration. For a resident director, any remuneration, fees or commission not taxed as salary is deducted at 10% with no threshold under section 393(1), Table Sl. No. 6(iii)(c) of the Income-tax Act, 2025, the provision practitioners still call 194J(1)(ba). For a non-resident director, the payment falls under section 393(2), the non-resident table that replaced section 195, at the rates in force, or the lower rate under the applicable tax treaty if the director furnishes a tax residency certificate from their home country and Form 10F. Forms 15CA and 15CB are filed before each remittance. The TDS rate chart carries the current rates with the 2025 Act references.
FEMA. Sitting fees, commission and remuneration to a non-resident director are permitted current-account transactions and can be remitted through the AD bank on production of the tax-payment evidence. No RBI approval is needed. A foreign director who is also a shareholder has the separate FEMA reporting covered on our FEMA annual compliance checklist.
The one-page checklist
| Obligation | Who | When | Reference |
|---|---|---|---|
| One director in India 182+ days | Company | Every financial year, proportionate in year one | s.149(3), s.172 |
| DIN, DSC, DIR-2, DIR-8, MBP-1 | Foreign director | At appointment | s.152, s.164, s.184 |
| DIR-12 filing | Company | Within 30 days of appointment | s.170, Rule 18 |
| DIR-3 KYC | Foreign director | By 30 September each year | Rule 12A |
| Attend at least one board meeting in any twelve months | Foreign director | Continuous | s.167(1)(b), s.173 |
| Standing video-conference intimation | Foreign director | Start of each year | Rule 3, Meetings of Board Rules |
| PAN before first payment | Foreign director | Before fees are paid | ITA 2025 |
| TDS on fees; 15CA/15CB; treaty documents | Company | Each payment | s.393(2) ITA 2025 |
| Days-in-India log | Both | Continuous | s.149(3) Companies Act; s.6 ITA 2025 |
Frequently Asked Questions
Section 149(3) requires every company to have at least one director who stays in India for a total of not less than 182 days during the financial year, applied proportionately in the year of incorporation. The test is physical presence, not citizenship or tax residency.
Yes. A foreign national living in India on an employment or business visa who spends 182 days or more here in the financial year satisfies the section. An Indian citizen who lives abroad and spends fewer than 182 days in India does not.
Section 172 applies: ₹50,000 on the company and on every officer in default, plus ₹500 for each day the failure continues, capped at ₹3 lakh for the company and ₹1 lakh per officer. It is a continuing default and also surfaces in the secretarial audit and in investor due diligence.
Yes. Section 173(2) and the Meetings of Board Rules permit video participation for all business, and it counts for quorum. A director absent from every board meeting for twelve months, with or without leave, vacates office automatically under section 167(1)(b).
Yes. Resident directors' fees are deducted at 10% with no threshold under section 393(1), Table Sl. No. 6(iii)(c) of the Income-tax Act, 2025. Non-resident directors' fees fall under section 393(2) at the rates in force or the lower treaty rate against a tax residency certificate and Form 10F. The director needs a PAN, and Forms 15CA and 15CB accompany the remittance.
Only if they satisfy Schedule V Part I, which requires the person to have been resident in India for a continuous period of at least twelve months before the appointment; otherwise Central Government approval is needed. An ordinary directorship has no such condition.
Sources
- Authority: Ministry of Corporate Affairs. Title: Companies Act, 2013, sections 2(59), 2(60), 149(3), 164, 165, 166, 167, 172, 173, 184 and Schedule V; Companies (Appointment and Qualification of Directors) Rules, 2014; Companies (Meetings of Board and its Powers) Rules, 2014. View Source. Accessed: September 2026.
- Authority: Government of India. Title: Income-tax Act, 2025, sections 6 and 393, as amended by the Finance Act, 2026. Accessed: September 2026.
- Authority: Reserve Bank of India. Title: Foreign Exchange Management (Current Account Transactions) Rules, 2000 and Master Direction on Other Remittance Facilities. View Source. Accessed: September 2026.
Board split across two countries?
We keep the days-in-India log, the DIR-3 KYC calendar, the board-meeting cycle and the TDS on director fees under one compliance retainer, so the section 149(3) question has a documented answer before anyone asks it. Start with a review of where the company stands today.
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Written by CA Karan Shah
Founder of KC Shah & Associates. Incorporates and advises startups with foreign founders and investors, handles their FEMA reporting in-house, and provides outsourced accounting, Zoho Books implementation and Virtual CFO services to startups and SMEs across India.