December 3rd, 2015 — Service Tax, service tax consultant
Top Five Trends In Service Tax In India
Over the last few decades, India has transitioned from a closed and insulated economy to a liberalized and global market. This transition has brought with it several challenges, which has necessitated major changes in the country’s taxation policies. Such changes are most evident in the service sector, which has grown exponentially. According to 2011-12 data, the service sector accounted for close to 65% of India’s GDP. To a large measure, we can argue that the service sector has enabled India to cope with global recessionary forces. Inevitably, the structure of service tax is metamorphosing rapidly to keep pace with the changes. To address these changes and keep track of compliance, a service tax consultant has become an integral part of most business entities.
Higher Rates, Higher Government Revenue
Ever since their inception in 1994, service tax regulations have gone through several mutations in terms of rates payable. Starting with a flat rate of 5%, it was revised upward to 8% in 2003 and then to 12% in 2006. However, the Finance Act (2007) resulted in a total levy of 12.36%. With the 2015-16 budget, the rate was revised to 14% with effect from November 2015. Consequently, the revenue accrued to the government from service tax returns has steadily gone up fromINR 410 crore in 1994-95 to INR 168132 crore in 2014-15.The projected revenue in 2015-16 is a massive INR 209774 crore. A service tax consultant can help providers keep abreast of these changes and advise accordingly.
More Services Under its Ambit
With rapid expansion in economic activities through the years, there is a dramatic increase in the number of services that fall under the ambit of the service tax regulations. From a measly three services in 1994, service tax is now applicable to hundreds of services. Therefore, it is important for service providers to seek service tax consultancy providers to ensure compliance and avoid penalties.
Negative List System
The Finance Act (2012) brought about a major change in service tax stipulations by introducing a negative list of services. All services apart from those listed in the negative list are subject to service taxes. This system has thrown more ambiguity into the service tax sector; instead of a positive list of about 120 services, the tax is applicable to all but those specified in the negative list. Consequently, many service providers are not sure whether their service falls under the tax purview. Consequently, they turn to service tax consultancy providers to help them out.
Exemption for Small Service Providers
Although the negative list system made it mandatory for service tax payments by all services except those in the negative list, there is still some leeway for small service providers (SSPs) to seek exemption from service tax provided the annual turnover of their services is under INR 10 lakh.
Swachh Bharat Cess
In early November this year, the government issued a notification to charge a tax of 0.5% as a cess over and above the existing rate of service tax. This cess is effective from November 15. The revenue from the imposition of this cess will be invested in the clean India campaign called Swachh Bharat Abhiyan. This new cess brings the total service tax payable to 14.5%.
Service tax payments are regulated in India by a complex body of laws and regulations. It might not be feasible for service providers to keep track of all applicable regulations for their services. To rid themselves of the worry of compliance, due dates, and other related modalities, service providers will be well advised to seek service tax consultancy services. That will help them delegate the intricate and technical processes and free up their own resources to focus on their core business.
December 3rd, 2015 — FDI consultants, Foreign Direct Investment
Multinational companies worldwide are striving to tread in new territories amidst a highly competitive business environment. In many cases, a wrong decision or inadvertent mistake can ruin their chances of success in overseas markets. In particular, their FDIs are riddled with fundamental questions such as dealing with regulatory challenges and bridging cultural differences. This accentuates the need for FDI consultants who can render good advice and strategize investment opportunities. More importantly, they can help firms avoid the major pitfalls in FDIs.
Premature Rush into Foreign Markets
Companies are generally prompted to explore foreign markets when they have exhausted the opportunities in the domestic market. However, few firms jump the gun and venture into foreign countries without evaluating the pros and cons of that market. In many cases, domestic success leads to overconfidence; firms are sure that they can replicate their success in foreign markets too. Consequently, without the services of a prudent FDI consultant, they often walk into investment traps that have a telling impact on their future growth. What they need is a team of FDI advisors who can formulate clear market-entry planning processes, so that companies can assess whether there is room in the foreign market for their genre of services or products. FDI consultants can conduct a market-fit analysis to know the potential of an FDI.
Failure To Recognize The Importance Of Due Diligence
Lack of preparedness in engaging with regulatory requirements in foreign markets is a major problem. Regulations, including taxation laws, are liable to changes, which could have a direct impact on the success of FDIs. There could also be duplication and multiplicity in regulations that govern a business, which make FDIs even more difficult. Companies need to recognize the best practices in a particular country and make informed decisions about investment opportunities. FDI consultants are aware of these opportunities and recognize the risks. They are in a position to advise firms about situations where an aggressive slant in investments is required, and other situations where a more muted approach could serve the company better. This input is critical because an inaccurate investment response can lead to conflicts with regulatory authorities and severe penalties.
Failure to Recognize Cultural Differences
Conducting business in an alien country could be very trying because each country is different in terms of business culture and way of life. Therefore commercial viability of an FDI depends on the country through which it is routed. An FDI consultant in a particular market understands these nuances and suggests changes to adapt to different markets. Moreover, a consultant can identify the right people to build relationships and develop partnerships. This is critical because the upper echelons of management often fail to recognize the requisites of the market in which they are investing.
Ill-Defined Arbitration Processes
FDIs are plagued by clear regulations about arbitration of disputes in foreign markets. FDI consultants can help them by ensuring that foreign contracts and dealings fall under the arbitration of the home country of the investor. In case the foreign country has a stipulation that disputes must be addressed onshore, an FDI consultant can place mechanisms in place to avoid the inordinate delays associated with such arbitration processes. Bereft of this advice, many deals that could have been closed successfully end up in the rigmarole of long and arduous legal processes.
Failure to Comply with Taxation Policies
In their drive to maximise net profit, MNCs are often tempted to follow a policy of tax avoidance. However, this often culminates in the authorities stamping down hard on such FDIs.
Conversely, an FDI consultant can help MNCs from refraining in practices that could lead to:
- Inaccurate pricing structure.
- Financial transactions like advancing loans from the parent company to the foreign subsidiary at exorbitant interest rates to move profits back to the home country.
- Hiding real profits by attaching very high values for intangible assetslike goodwill, patents, and royalties.
- Generating inaccurate invoices to inflate/deflate figures.
Investment disasters can strike anywhere and anytime. Therefore, it is essential for all companies with FDIs to have a strategy in place to take care of all eventualities and ensure smooth business operations. FDI consultants can tailor their services to client-specific requirements and offer unique solutions to alleviate risks associated with FDIs, thus building a resilience that can withstand the vagaries of foreign markets.
December 3rd, 2015 — Financial Accounting Services
Dissemination of accurate information about a company’s financial health is critical. This information can act as a double-edged sword for SMEs as well as established behemoths because it is a statement of the company’s current financial well-being and its future prospects; in fact, it drives decision-making both within the organization as well as outside. Accurate and well-managed financial accounting information can propel customers towards a business, or away from it. Therefore, it is imperative for a company to seek a proficient financial accounting service provider so that it meets basic business objectives.
Let’s pause for a moment and identify these business goals. The primary aim of any company, regardless of the size of its operations, is to strike a balance between fast-tracking its revenue growth on the one hand and reducing outgoings and risks on the other. Besides, it is important to identify and root out inefficiencies and widen its product range to leapfrog to the next level. To achieve these goals, companies must have a holistic understanding of its performance and growth curve. Without this understanding, growth and innovation is well-nigh impossible.
Financial accounting: Widening business horizons
Financial accounting services not only help companies streamline internal processes, but also present them to the outside world as robust businesses. Would you like to work with a company that fails to communicate its business activities and performance? Would you like to invest in such a company? Chances are, you will shy away from firms that do not have financial accounting in place, which ultimately harms the growth prospects of that company.
So what difference will a financial accounting service provider make to your business? For a start, it will help you achieve sustainable growth at an ideal operational cost, manage and mitigate financial risks, tackle regulatory hurdles, and put your business on the highway ofrapid growth.
Financial accounting services enable a company to:
- Make future growth projections
- Future projections are based on revenues, operating costs, and assets that fuel demand.Financial accountingprovides analytical tools that make forecasts about what the company can achieve with optimum resource mobilization. In short, measurable and quantitative goals can be set based on financial accounting information.
- Scale operations and deliverables
- Companies need to constantly juggle time, energy, and finances to decide the scale of their operations. Towards this, financial accounting weighs costs against each business activity, so that prudent business decisions are made for future growth.
- Assess business performance and introduce remedial measures
- It is critical for any business to monitor performance, introspect, and redefine goals if necessary. The best way to achieve this is to use financial accounting tools because they help you answer a basic question: Are you meeting your aspired business targets?
To achieve these core objectives, financial accounting services streamline the following aspects of your business operations:
- Budget allocations and projectiles
- Tax planning
- Strategizing your financial plan
- Ledger maintenance
- What you owe and who owes you
- Recording transactions
- Complying with regulatory stipulations
Financial accounting brings transparency
Financial accounting is expected to be a transparent process that facilitates comparison among competitors in a particular industry. In effect, it is the language of business that facilitates communication. SMES can derive vital information about their competitors and reorient their business decisions based on financial information. Financial accounting services help a company compute the financial statements of other companies and arrive at benchmarks for the industry.
It is no longer adequate for entrepreneurs to stereotypically regurgitate information based on set mathematical formulae. On the contrary, it is important for them to understand and implement financial accounting methodologies, so that they are able to achieve, assess, and reassess their business performance.Financial accounting services help firms make informed decisions to drive profit and growth.
March 2nd, 2015 — Service Tax
The Finance Bill, 2015 presented by the Finance Minister, Mr. Arun Jaitely on 28th February, 2015 has brought with it a whole new set of changes in the indirect taxes. The basic purview taken by the government behind rationalising the transformations is to bring the current taxing provisions in line with the proposed plan of Goods and Service Tax. The Finance Minister while addressing the august gathering highlighted that the backdrop idea of adverting the taxing aspects is not only the GST but the rising concern towards the environment.
Further, the penal proceedings have been made hoarse to minimise the tax evasion by the service providers. Below is gist of proposed and fallout amendments in the Service Tax:
1. Changes applicable w.e.f. 1st March, 2015
CENVAT Credit can be taken within 1year:
Time limit for availment of CENVAT Credit extended to 1 year from the date of invoice.
Registration for single premises shall be granted within two days of filing the application.
Records can be maintained in Electronic form:
In order to encourage digitalization, Government has allowed assesses to maintain records in the electronic form subject to authentication by him with the use of digital signature.
2. Changes applicable w.e.f. 1st April, 2015
Exemption given in respect of transportation of food stuff will be limited to the food grains only due to which food stuff other than food grains will also become costlier.
Relief in relation to precondition, pre-cooling ripening labeling of fruits and vegetables is allowed by which end cost of fruit and vegetable would get reduced.
Now watching of movies will become cheaper:
Now watching of movies will become cheaper because Service provided by way of exhibition of movie by the exhibitor (theatre owner) to the distributor or an association of persons consisting of such exhibitor as one of its members is being exempted.
Benefit given to senior citizen:
Exemption is granted in respect of life insurance services provided by way of Varishtha Pension Bima Yojna so that people can spend their old age life in a better manner.
Exemption for ambulance services:
Government has given specific exemption for transporting the patients through ambulances so that financial cost on patient and family of patient can be minimized to the some extent.
Uniform abatement for transport by rail, road and vessel:
A uniform abatement is now being prescribed for transport by rail, road and vessel thereby service Tax shall be payable on 30% of the value of such service subject to a uniform condition of non-availment of CENVAT Credit on inputs, capital goods and input services.
The impact of the above amendment is that cost of transportation through road and railway is increased whereas transportation cost through vessel is get reduced.
Air Transport will hit the pocket of High Class flights:
The government has reduced the abatement on business class flights. Now, travel in the business class will become costlier as the abatement has been reduced to 40% from 60%.
Construction of Government Schools and Buildings would become taxable.
Construction pertaining to port/airport would also become costlier due to withdrawal of exemption given in this respect.
3. Changes to be effective from the date Finance Bill, 2015 receives the assent of the president
Revised recovery and penalty provisions
Penalty provisions made more stringent with maximum penalty equal to 100 % of Service Tax. However, in certain cases the benefit of reduced penalty will be allowed to the assessee. Also, exemption from levy of penalty on defaulters has been removed.
Reimbursement made taxable under Service Tax
The government has clarified that the value of reimbursements of all expenses incurred during provision of a taxable service shall be subject to Service tax levy.
4. Changes to be effective from the date to be notified after the Finance Bill, 2015 receives the assent of the president
Rate of Service Tax increased from 12.36% to 14%
Finance Minister has proposed to revise the rate of Service Tax from 12.36% (inclusive of Education Cesses) to 14% (subsuming Education Cesses)
Entry to amusement park /entertainment events will become costlier:
Entry to amusement park/ entertainment events which was earlier exempted under negative list of services now brought under the ambit of service tax. However, exemption is still applicable to entertainment events in case the entry charge does not exceed Rs. 500.
Job Work for production of alcoholic liquor is now taxable:
Job Work for production of alcoholic liquor is now become taxable. Same has been brought under tax net by which liquor prices are expected to rise.
Curtsy- CA. Atul Gupta
January 2nd, 2015 — Service Tax
Courtesy: CA Ashish Gupta
THUMB RULE to avail CENVAT Credit is that it can be availed on those eligible Inputs, Capital goods or Input Services which have been utilized for providing taxable services or manufacturing dutiable goods except the cases where it is restricted under any notification. Therefore, a person engaged in rendering exempted services or manufacturing exempted goods shall not be allowed to avail any amount of CENVAT Credit. However, CENVAT Credit shall not be denied on:
- Capital goods to SSI units availing exemptions based on the value of clearance.
- Inputs used in the manufacture of goods cleared without payment of duty to a job worker referred to in rule 12AA of the Central Excise Rules, 2002.
In case a person is engaged in providing Taxable & Exempted service or Manufacturing Dutiable or Exempted goods together then CENVAT Credit on inputs or input services used shall be availed the manner given in Rule 6 of CCR, 2004.
Before moving towards the answer of this question, we need to understand the meaning of Exempted Goods & Exempted Services as provided in Cenvat Credit Rules, 2004.
Following three types of Goods are covered in the aforesaid definition:
- Excisable goods which are exempt from whole of the duty under any exemption notification, which would otherwise be dutiable. But it does not include those goods which are not excisable at all i.e. not listed in Central Excise Tariff Act, 1958
- Excisable goods on which duty is charged at the NIL rate i.e. No Excise Duty is payable on such goods though mentioned in CETA.
- Excisable goods on which duty is reduced to 1% with a condition that CENVAT Credit on inputs or input services was not availed under N. No. 1/2011-C.E., dated 1st March, 2011 or under entries at serial numbers 67 and 128 of Notification No. 12/2012-C.E., dated 17th March, 2012.
Following three types of Services are covered in the aforesaid definition:
- Any taxable service which is exempt from whole of the service tax by way of exemption notification which would otherwise be taxable. But if any activity is not a “Service” as per section 65(44) of the Act then it can not be termed as Exempted Service like a transaction in money only.
- Services which are listed in section 66D of the Act as Negative List of services on which no service tax is levied under section 66B of the Act shall be treated as exempted service.
- Services where part of it has been exempted by way of abatement with a condition that no CENVAT Credit shall be availed on input and input services used in providing such services. However, it will not cover those services where abatement benefit is available without any condition or a condition which restrict availment of CENVAT credit of either inputs or input services. For example, service tax is being levied on 30% of the Total Value of service of construction of commercial complex where money was received from customers before receipt of completion certificate from competent authority. Under this category, abatement benefit is available with a condition that no CENVAT Credit shall be available on inputs used in providing output services. Here, CENVAT Credit on input services can be availed and thus this service can not be categorised as exempted services.
Further, it has specifically been mentioned in this definition that it shall not include the services which are exported. Most of the time it is misunderstood that export will also be considered as exempted service for the purpose of this Rule but it has been clarified now within the definition itself.
If a person is engaged in manufacturing dutiable & exempted goods or rendering taxable & exempted services together then he has to determine and avail CENVAT Credit only on those inputs or input services which are used for providing taxable services or manufacturing dutiable goods.
In such cases there can be two following situations:
- Inputs or Input Services exclusively used for exempted goods or services then no CENVAT Credit shall be allowed on such items.
- Common input or input services have been used for both taxable and exempted output then it would be difficult for the assessee to identify the amount of CENVAT Credit that has been used for taxable output only. For such cases, law provides three rules to determine correct amount of CENVAT Credit eligible for utilization.
Three Rules CENVAT Credit
If any person is engaged in manufacturing exempted goods or rendering exempted services along with the taxable service or goods then assessee has to determine the amount of CENVAT Credit utilized for taxable goods or services. There are three options available under the following rules to do so:
Rule 6(2) of CCR, 2004
The manufacturer or provider of output service for availing CENVAT Credit shall maintain separate accounts for the receipt, consumption and inventory of inputs & use of input services used:
(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to manufacture of dutiable final products excluding exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding exempted services.
and shall take CENVAT credit only on inputs & input services under clauses (ii) and (iv).
Rule 6(3)(i) of CCR, 2004
The manufacturer of goods or the provider of output service shall pay an amount equal to six per cent of value of the exempted goods and exempted services. In case of services by way of transportation of goods or passengers by rail, the service provider shall pay only two per cent on the value of service so exempted.
The amount paid under this rule shall be deemed to be CENVAT credit not taken for the purpose of exemption notification where part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs or input services shall be taken. In such cases, 6% shall be paid on the value so exempted under the notification.
Rule 6(3A) of CCR, 2004
Under this rule, an assessee shall reverse or pay the proportional amount of CENVAT credit availed, every month on provisional basis, which will be considered as utilized for the provision or manufacture of exempted service or goods respectively. Such reversal or payment shall be made by 5th of the following month or quarter as the case may be. Following formula has been prescribed for computing such amount under this rule:
Cenvat Credit* taken in a month x Value of Exempted Service or Goods manufactured or removed during the preceding financial year
Total Value of Taxable & Exempted Services and Dutiable Goods manufactured & removed during the preceding financial year
The amount computed would be the provisional amount of CENVAT Credit which shall be paid in cash or through CENVAT Credit account for all the 12 months. At the end of the financial year, the assessee shall re-compute the amount of CENVAT Credit required to be reversed or paid under this Rule for the current financial year based on the current year’s values of goods & services. Given below is the formula:
Cenvat Credit* taken in the year x Value of Exempted Service or Goods manufactured or removed for the current year
Total Value of Taxable & Exempted Services and Dutiable Goods manufactured & removed during the current year
* Cenvat Credit amount shall be excluded of the value of inputs used in or in relation of manufacture of exempted goods.
This amount is the actual amount of CENVAT Credit which was supposed to be reversed or paid on account of credit availed for providing exempted services or manufacturing exempted goods.
The assessee shall compute the difference between the provisional and the actual amount of CENVAT as computed of CENVAT reversal. In case, the amount reversed by the assessee during the Financial Year falls short of the actual amount of CENVAT Credit then he shall have to pay the balance amount by 30th June of next Financial Year. Interest @24% p.a. will be levied if payment is delayed. In case excess CENVAT Credit was reversed during the year then he will be allowed to take it back by way of debiting its CENVAT Credit balance.
# In case there were no output services rendered or no goods were manufactured by the assessee during the preceding year then there is no need to compute the amount on provisional basis. The assessee will directly compute the amount to pay or reverse at the end of the financial year and will pay it by 30th June of succeeding financial year accordingly.
Exception to Rule 6(3A):
In case of a banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances, the amount of CENVAT credit required to be reversed or paid shall be equivalent to fifty per cent of the CENVAT Credit availed on inputs and input services in a particular month.
Compliance under Rule 6(3A):
In order to avail this option, assessee is required to submit following details to the jurisdictional Superintendent of Central Excise:
- Once an option is opted by an assessee, it shall be exercised on all the exempted goods manufactured or services provided by the assessee and shall not be withdrawn during the remaining part of the financial year.
- In terms of Rule 6(3)(ii), with respect to inputs, an assessee can maintain separate accounts for inputs used for manufacturing taxable & exempted goods and take CENVAT credit on inputs used for taxable goods. While with respect to input services, assessee can pay or reverse CENVAT Credit as provided under Rule 6(3A) ibid.
Exceptions to Rule 6 of CCR, 2004:
100% of CENVAT Credit on inputs or input services or capital goods can be availed even if the service provider or manufacturer of goods is engaged in providing exempted services or manufacturing exempted goods along with taxable services or goods. The provisions of Rule 6 shall not apply in the following cases:
- In case the excisable goods, where goods are removed without payment of duty to:
- Cleared to a unit in SEZ or developer of SEZ, software technology park;
- Cleared for exports under bond;
- Cleared to 100% EOU;
- Cleared for Solar power generation project;
- Gold or Silver falling under the Chapter 71 of the First Schedule arising in the course of manufacture of copper or zinc;
- Supplied to UN or an international organization or foreign diplomatic missions or consular missions for their official use
- In case of taxable services, where services are rendered without payment of service tax to a unit in SEZ or developer of SEZ or when services are exported.
- These rules shall not apply to persons who are liable to pay service tax as service receiver under reverse charge mechanism. For example: A person is manufacturing dutiable goods and has used services by way of transportation of goods by road on which he has to pay service tax, on 25% of the total value of the service, as a service recipient. Then, he shall not be required to reverse or pay CENVAT Credit utilized for manufacturing taxable goods even though he had paid service tax on the abated value of the service.
Further, CENVAT Credit on Capital Goods is not restricted where a person is providing taxable & exempted services or manufacturing dutiable or exempted goods together. But no credit shall be allowed where assessee deals in exempted services or goods only.
May 24th, 2014 — Income Tax
An option is available to the resident-assessee to file return of income either under the Indian tax laws or under the treaty – If assessee files the return of global income in India, the Revenue is bound to give effect to such return – Therefore, losses from house property located abroad was to be included in the income of resident-assessee
(a) The assessee filed his return of income after including losses from house property located abroad. He purchased this property in Australia which was already on rent. He obtained a loan from ANZ Bank, Australia (‘ANZ’) to purchase the property.
(b) The loss was computed under the head house property due to payment of interest to ANZ.
(c) During appellate proceedings, the CIT(A) referred to the decision of Apex Court in case of CIT v. PVAL Kulandagan Chettiar  137 Taxman 460 (SC) and held that as far as rent income from Australia was concerned, the assessee was required to file the return in Australia and such income could not be included in Indian income. Therefore, negative income could not be assessed in India.
The Tribunal held in favour of assessee as under:
(1) In view of Section 5 of the Income-tax Act (‘the Act’) in case of a resident, income accruing or arising outside India had to be assessed in India. The Sec 90(2) of the Act clearly provides that wherever DTAA is applicable to assessee he has an option to apply either Indian Tax Laws or provisions of DTAA, whichever are more beneficial to him.
(2) Therefore, the assessee had an option to file return of income under the Indian tax laws where DTAA was applicable.
(3) In the instant case, the assessee had exercised the option of filing return under Indian laws, thus, the same could not have been refused simply because DTAA was applicable.
(4) The decision in case of PVAL Kulandagan Chettiar (supra) was distinguishable because in that case the assessee was a resident of India and Malaysia. It was due to financial connection of the assessee with Malaysian property it was held that income from Malaysian rubber plantation was taxable only in Malaysia.
(5) The assessee had right to file the return of global income in India and the Revenue was bound to give effect to such return. The CIT(A) was not correct in holding that income from house property in Australia was not assessable in India. Accordingly, the order of the CIT(A) was to be set aside and the Assessing officer was to be directed to include the loss from such house property in the hands of the assessee.
May 21st, 2014 — Uncategorized
A.P. (DIR Series) Circular No. 123
April 16, 2014
All Category – I Authorised Dealer Banks
Madam / Sir,
Foreign Direct Investment (FDI) in Limited Liability Partnership (LLP)
Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to Schedule I to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (The Principal Regulations), notified videNotification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time. In terms of extant instructions, only a Company incorporated under the Companies Act, 1956 or a Venture Capital Fund is eligible to accept FDI.
2. It has now been decided that Limited Liability Partnership (LLP) formed and registered under the Limited Liability Partnership Act, 2008 shall be eligible to acceptForeign Direct Investment (FDI) subject to the conditions given in Annex I.
3. A copy of Press Note No. 1 (2011 series) dated May 20, 2011 issued in this regard by Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry, Government of India is enclosed. A reference is also drawn to paragraph 3.2.5 of the Consolidated FDI Policy Circular 1of 2013 dated April 5, 2013 issued by DIPP, in the matter.
4. Reserve Bank has since amended the Principal Regulations through the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Third Amendment) Regulations, 2014 notified vide Notification No. FEMA. 298 /2014-RB dated March 13, 2014 c.f. G.S.R. No.190(E) dated March 19, 2014.
5. The instructions issued in this circular shall be effective from May 20, 2011. However, reporting requirement of FDI in LLP shall come into force from the date of issue of instructions by the Reserve Bank in this regard. The LLP which have received foreign investment in terms of FIPB approval between May 20, 2011 to the date of this circular, shall comply with the reporting requirement in respect of FDI within 30 or 60 days, as applicable, from the date of this circular.
6. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
7. The directions in this circular have been issued under Sections 10(4) and 11(1) of Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
(Rudra Narayan Kar)
Chief General Manager-in-Charge
[Annex to A. P. (DIR Series) Circular No. 123 dated April 16, 2014]
Scheme for Acquisition/ Transfer by a person resident outside India of capital contribution or
profit share of Limited Liability Partnerships (LLPs)
The Scheme shall be called Foreign Direct Investment (FDI-LLP) in Limited Liability Partnerships (LLPs) formed and registered under the Limited Liability Partnership Act, 2008.
1. Eligible Investors:
A person resident outside India or an entity incorporated outside India shall be eligible investor for the purpose of FDI in LLPs. However, the following persons shall not be eligible to invest in LLPs:
(i) a citizen/entity of Pakistan and Bangladesh or
(ii) a SEBI registered Foreign Institutional Investor (FII) or
(iii) a SEBI registered Foreign Venture Capital Investor (FVCI) or
(iv) a SEBI registered Qualified Foreign Investor (QFI) or
(v) a Foreign Portfolio Investor registered in accordance with Securities and Exchange Board of India(Foreign Portfolio Investors) Regulations, 2014 (RFPI).
2. Eligibility of LLP for accepting foreign Investment:
(i) An LLP, existing or new, operating in sectors/activities where 100% FDI is allowed under the automatic route of FDI Scheme would be eligible to receive FDI. For ascertaining such sectors, reference shall be made to Annex-B to Schedule 1 of Notification No. FEMA 20/ 2000-RB dated 3rd May 2000, as amended from time to time.
(ii) An LLP engaged in the following sectors/activities shall not be eligible to accept FDI:
a) Sectors eligible to accept 100% FDI under automatic route but are subject to FDI-linked performance related conditions (for example minimum capitalisation norms applicable to ‘Non-Banking Finance Companies’ or ‘Development of Townships, Housing, Built-up infrastructure and Construction-development projects’, etc.); or
b) Sectors eligible to accept less than 100% FDI under automatic route; or
c) Sectors eligible to accept FDI under Government Approval route; or
d) Agricultural/plantation activity and print media; or
e) Sectors not eligible to accept FDI i.e. any sector which is prohibited under the extant FDI policy (Annex-A to Schedule 1 to Notification No. FEMA. 20/ 2000-RB dated 3rd May 2000) as well as sectors/activities prohibited in terms of Regulation 4(b) toNotification No. FEMA.1/ 2000-RB dated 3rd May 2000, as amended from time to time.
3. Eligible investment:
Contribution to the capital of a LLP would be an eligible investment under the Scheme.
Note: Investment by way of ‘profit share’ will fall under the category of reinvestment of earnings
4. Entry Route:
Any FDI in a LLP shall require prior Government/FIPB approval.
Any form of foreign investment in an LLP, direct or indirect (regardless of nature of ‘ownership’ or ‘control’ of an Indian Company) shall require Government/FIPB approval.
FDI in an LLP either by way of capital contribution or by way of acquisition / transfer of ‘profit shares’, would have to be more than or equal to the fair price as worked out with any valuation norm which is internationally accepted/ adopted as per market practice (hereinafter referred to as “fair price of capital contribution/profit share of an LLP”) and a valuation certificate to that effect shall be issued by a Chartered Accountant or by a practicing Cost Accountant or by an approved valuer from the panel maintained by the Central Government.
In case of transfer of capital contribution/profit share from a resident to a non-resident, the transfer shall be for a consideration equal to or more than the fair price of capital contribution/profit share of an LLP. Further, in case of transfer of capital contribution/profit share from a non-resident to a resident, the transfer shall be for a consideration which is less than or equal to the fair price of the capital contribution/profit share of an LLP.
6. Mode of payment for an eligible investor:
Payment by an eligible investor towards capital contribution/profit share of LLPs will be allowed only by way of cash consideration to be received –
i) by way of inward remittance through normal banking channels; or
ii) by debit to NRE/FCNR(B) account of the person concerned, maintained with an AD Category – I bank.
(i) LLPs shall report to the Regional Office concerned of the Reserve Bank, the details of the receipt of the amount of consideration for capital contribution and profit shares in Form FOREIGN DIRECT INVESTMENT-LLP(I) as given in Annex II, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report on the non-resident investor in Annex IV, through an AD Category – I bank, and valuation certificate (as per paragraph 5 above) as regards pricing at the earliest but not later than 30 days from the date of receipt of the amount of consideration. The report would be acknowledged by the Regional Office concerned, which would allot a Unique Identification Number (UIN) for the amount reported.
(ii) The AD Category – I bank in India, receiving the remittance should obtain a KYC report in respect of the foreign investor from the overseas bank remitting the amount.
(iii) Disinvestment / transfer of capital contribution or profit share between a resident and a non-resident (or vice versa) shall require to be reported within 60 days from the date of receipt of funds in Form FOREIGN DIRECT INVESTMENT-LLP(II) as given in Annex III.
8. Downstream investment:
a) An Indian company, having foreign investment (direct or indirect, irrespective of percentage of such foreign investment), will be permitted to make downstream investment in an LLP only if both, the company as well as the LLP, are operating in sectors where 100% FDI is allowed under the automatic route and there are no FDI-linked performance related conditions. Onus shall be on the LLP accepting investment from the Indian Company registered under the provisions of the Companies Act, as applicable, to ensure compliance with downstream investment requirement as stated above.
b) An LLP with FDI under this scheme will not be eligible to make any downstream investments in any entity in India.
9. Other Conditions:
(i) In case, an LLP with FDI, has a body corporate as a designated partner or nominates an individual to act as a designated partner in accordance with the provisions of Section 7 of the Limited Liability Partnership Act, 2008, such a body corporate should only be a company registered in India under the provisions of the Companies Act, as applicable and not any other body, such as an LLP or a Trust. For such LLPs, the designated partner “resident in India”, as defined under the ‘Explanation’ to Section 7(1) of the Limited Liability Partnership Act, 2008, would also have to satisfy the definition of “person resident in India”, as prescribed under Section 2(v)(i) of the Foreign Exchange Management Act, 1999.
(ii) The designated partners will be responsible for compliance with all the above conditions and also liable for all penalties imposed on the LLP for their contravention, if any.
(iii) Conversion of a company with FDI, into an LLP, will be allowed only if the above stipulations (except the stipulation as regards mode of payment) are met and with the prior approval of FIPB/Government.
(iv) LLPs shall not be permitted to avail External Commercial Borrowings (ECBs).
February 20th, 2014 — Income Tax, Investment in India
A.P. (DIR SERIES 2013-14) CIRCULAR NO. 106, DATED 18-2-2014
Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to A.P. (DIR Series) Circular No. 12 dated November 16, 2006 in terms of which the lock-in period of 10 years for remittance of sale proceeds of immovable property was dispensed with and AD Category – I banks could allow remittances out of balances in NRO accounts including sale proceeds of immovable property provided the amount does not exceed USD one million per financial year (April-March). In terms of the circular ibid, AD – Category I banks were required to furnish on a quarterly basis, to the Chief General Manager-in-Charge, Foreign Exchange Department, Foreign Investments Division (NRFAD), Reserve Bank of India, Central Office, Mumbai-400001 within 10 days of the reporting quarter, a statement on the number of applicants and total amount remitted, as per proforma annexed to it.
2. With a view to having access to more real time data, it has been decided to collect this information on a monthly basis. Accordingly, AD – Category I banks may furnish on a monthly basis, a statement on the number of applicants and total amount remitted, as per proforma annexed, to the Chief General Manager-in-Charge, Foreign Exchange Department, Foreign Investments Division (NRFAD), Reserve Bank of India, Central Office, Mumbai-400001 within 7 days of the end of the reporting month. The data may be sent preferably by e-mail as per the proforma.
3. It may be noted that the proforma has been revised to also include “Transfers from NRO to NRE account”.
4. AD Category- I banks may bring the contents of the circular to the notice of their constituents concerned.
5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions/approvals, if any, required under any other law.
November 14th, 2013 — Income Tax
The problem is due to missing of Principal contact details. If the principal contact details is not exist in the portal, then these assessee can not reset the password using the existing procedure. These assessee has to submit the following documents to email@example.com to reset the password.
1. Copy of the PAN card of the Company/Trust/Firm/HUF etc.
2. Copy of Proof of the date of incorporation.
3. Copy of the PAN card of the principal contact.
4. Copy of the one more identity proof issued by the Government Agency like Passport/Driving Lincence/Voter ID card/Aadhar card etc.
5. Authorisation letter issued using the in letter head of the Company/Trust/Firm/HUF etc.(having the address telephone etc)
After verifying the credentials, password will be sent to the new e-mail id.
August 24th, 2013 — Uncategorized
A. P. (DIR Series) Circular No.23
August 14, 2013
All Category-I Authorised Dealer Banks
Madam / Sir,
Overseas Direct Investments
Attention of Authorised Dealer Category – I (AD Category – I) banks is invited to the Notification No. FEMA.120/RB-2004 dated July 7, 2004, [Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004], as amended from time to time (the Notification) and the A.P. (DIR Series) Circular No. 11 dated September 26, 2007; A.P. (DIR Series) Circular No. 48 dated June 3, 2008 and A.P. (DIR Series) Circular No. 99 dated April 23, 2013. On a review, it has been decided to rationalize the regulations governing the overseas direct investments with immediate effect as under:
2. Reduction of limit for Overseas Direct Investment
In terms of the extant provisions under the Foreign Exchange Management Act, 1999 (FEMA, 1999) on overseas direct investments, the total overseas direct investment (ODI) of an Indian Party in all its Joint Ventures (JVs) and / or Wholly Owned Subsidiaries (WOSs) abroad engaged in any bonafide business activity should not exceed 400 per cent of the net worth of the Indian Party as on the date of the last audited balance sheet under the Automatic Route.
It has now been decided:
To reduce the existing limit of 400 per cent of the net worth of the Indian Party to 100 per cent of its net worth under the Automatic Route. Accordingly, AD Category – I banks may allow overseas direct investments under the Automatic Route up to 100 per cent of the net worth of the Indian party, as on the date of the last audited balance sheet;
To reduce the existing limit of 400 per cent of the net worth of the Indian company, investing in the overseas unincorporated entities in the energy and natural resources sectors, under the automatic route, to 100 per cent of the net worth of the Indian company investing in the overseas unincorporated entities in the energy and natural resources sectors, as on the date of last audited balance sheet; and
Any ODI in excess of 100% of the net worth shall be considered under the Approval Route by the Reserve Bank of India.
3. In respect of the Navaratna Public Sector Undertakings (PSUs), ONGC Videsh Limited (OVL) and Oil India Ltd (OIL), the extant provision for investing in overseas unincorporated entities and the overseas incorporated entities in the oil sector (i.e., for exploration and drilling for oil and natural gas, etc.), which are duly approved by the Government of India, without any limits under the automatic route, would however continue as hitherto.
4. The above provisions shall come into effect with immediate effect and would apply to all fresh Overseas Direct Investment proposals on a prospective basis but would not apply to the existing JV/WOS set up under the extant regulations.
5. AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
6. Necessary amendments to the Notification No. FEMA.120/2004-RB dated July 7, 2004, [Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations 2004] are being notified separately.
7. The directions contained in this circular have been issued under sections 10(4) and 11(1) of the Foreign Exchange Management Act 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.
Chief General Manager