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FDI in LLP

RBI/2013-14/566
A.P. (DIR Series) Circular No. 123

April 16, 2014

To,
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.

Yours faithfully,

(Rudra Narayan Kar)
Chief General Manager-in-Charge


 

Annex I
[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.

5. Pricing:

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.

7. Reporting:

(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).

 

Overseas Direct Investments

RBI/2013-14/180
A. P. (DIR Series) Circular No.23

August 14, 2013

To

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.

Yours faithfully,

(C.D. Srinivasan)
Chief General Manager

RBI allows use of ECB fund for import of services

Reserve Bank of India relaxed ECB norms and allowed companies to use the overseas debt to pay for import of services, technical know-how and licence fee as part of capital goods imports.

Currently, eligible entities can raise ECB (external commercial borrowing) for investment such as import of capital goods, new projects, modernisation/expansion of existing production units in industrial sector, infrastructure sector and entities in the service sector.

“On review, it has been decided to include import of services, technical know-how and payment of licence fees as part of import of capital goods by the companies for the use in the manufacturing and infrastructure sectors as permissible end uses of ECB…,” RBI said.

The modifications to the ECB guidelines have come into force with immediate effect. The rupee today tanked by a massive 106 paise to close at all-time low of 60.72 against dollar on heavy capital outflows and month-end dollar demand from importers. In a separate notification, RBI also said it has been decided that credit enhancement can be provided by eligible non-resident entities to the domestic debt raised through issue of INR bonds/ debentures by all borrowers eligible to raise ECB under the automatic route.

“It has also been decided to reduce the minimum average maturity of the underlying debt instruments from seven years to three years,” it said. Prepayment and call/put options, however, would not be permissible for such capital market instruments up to an average maturity period of three years, the RBI added. As of now, credit enhancement is permitted to be provided by multilateral financial institutions, Government-owned development financial institutions, foreign equity holder(s) for domestic debt raised through issue of capital market instruments by Indian companies engaged in development of infrastructure and by IFC’s.

Export of Goods and Services – Simplification and Revision of Softex Procedure

A. P. (DIR Series 2012-13) Circular No. 47, dated 23-10-2012

Attention of the Authorised Dealers is invited to regulation 6 of the Notification No. FEMA 23/2000-RB, dated May 3, 2000 viz. Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, as amended by the Notification No.FEMA.36/2001-RB, dated February 27, 2001, in terms of which designated officials of the Ministry of Information Technology, Government of India at the Software Technology Parks of India (STPIs) or at Free Trade Zones (FTZs) or Export Processing Zones (EPZs) or Special Economic Zones (SEZs), had been authorized to certify exports declared through SOFTEX Forms.

2. Considering the spurt in the volume of software exports from India in recent times, the complexity of work contracts involved, the voluminous nature of contract agreements and the duration involved in execution of each contract as well as the time-consuming process involved in the certification of SOFTEX forms, simplified and revised Softex procedure was introduced vide A.P. (DIR Series) Circular No. 80, dated February 15, 2012. Initially the revised procedure was applicable in STPI at Bangalore, Hyderabad, Chennai, Pune and Mumbai with effect from April 1, 2012.

3. Since the revised procedure is running successfully at the 5 designated centres, it has been decided to implement the revised procedure in all the STPIs in India with immediate effect.

4. As per the revised procedure, a software exporter, whose annual turnover is at least Rs.1000 crore or who files at least 600 SOFTEX forms annually on all India basis, will be eligible to submit a statement in excel format as detailed in our A.P. (DIR Series) Circular No.80 dated February 15, 2012.

5. Authorised Dealers may bring the contents of this circular to the notice of their constituents concerned.

6. The directions contained in this circular have been issued under section 10(4) and section 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.

 

AUTHORIZATION OF AOs IN CERTAIN CASES TO RECTIFY/RECONCILE DISPUTED ARREAR DEMAND

SECTION 119 OF THE INCOME-TAX ACT, 1961 – INCOME-TAX AUTHORITIES – INSTRUCTIONS TO SUBORDINATE AUTHORITIES – AUTHORIZATION OF AOs IN CERTAIN CASES TO RECTIFY/RECONCILE DISPUTED ARREAR DEMAND

CIRCULAR NO. 4 OF 2012, DATED 20-6-2012

The Board has been apprised that in certain cases the assessees have disputed the figures of arrear demands shown as outstanding against them in the records of the Assessing Officer. The Assessing Officers have expressed their inability to correct/reconcile such disputed arrear demand on the ground that the period of limitation of four years as provided under sub-section (7) of section 154 of the Act has expired.
Further, in some cases, the Assessing Officers have uploaded such disputed arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Center (CPC), Bengaluru which has resulted in adjustment of refund arising out of processing of Returns against such arrear demand which has been disputed by such assessees on the grounds that either such demand has already been paid or has been reduced/ eliminated in the appeals, etc. The arrear demands, in these cases also were not corrected / reconciled for the reason that the period of limitation of four years has elapsed.
2. The Board, in consideration of genuine hardship faced by the abovementioned class of cases, in exercise of powers vested under section 119(2)(b) of the Act, hereby authorize the Assessing Officers to make appropriate corrections in the figures of such disputed arrear demands after due verification/reconciliation and after examining the same on merits, whether by way of rectification or otherwise, irrespective of the fact that the period of limitation of four years as provided under section 154(7) of the Act has elapsed.
3. In view of the above the following has been decided:-
(a) In the category of cases where based on the figure of arrear demand uploaded by the Assessing Officer but disputed by the assessee, the Centralized Processing Center (CPC), Bengaluru has already adjusted any refund arising out of processing of return, the jurisdictional Assessing Officer shall verify the claim of the assessee on merits. After due verification of any such claim on merits, the Assessing Officer shall issue refund of the excess amount, if any, so adjusted by CPC due to inaccurate figures of arrear demand uploaded by the Assessing Officer. The Assessing Officer, in appropriate cases, will also upload amended figure of arrear demand on the Financial Accounting System (FAS) portal of Centralized Processing Center (CPC), Bengaluru wherever there is balance outstanding arrear demand still remaining after aforesaid correction/ reconciliation.
(b) In other cases, where the assessee disputes and requests for correction of the figures of arrear demand, whether uploaded on CPC or not uploaded and still lying in the records of the Assessing Officer, the jurisdictional Assessing Officer shall verify the claim of the assessee on merits and after due verification of such claim, will make suitable correction in the figure of arrear demand in his records and upload the correct figure of arrear demand on CPC portal.
4. It is specifically clarified that these instructions would apply only to the cases where the figures of arrear demand is to be reconciled/ corrected – whether such arrear demand has been uploaded by the Assessing Officer on to Financial Accounting System (FAS) of CPC or it is still in the records of the Assessing Officer.
This may be brought to the notice of all the officers of your CCA region.

EASE OF FOREIGN EXCHANGE FOR MISCELLANEOUS REMITTANCES – LIMIT RAISED FROM USD 5000 TO USD 25000

A.P. (DIR SERIES 2011-12) CIRCULAR NO. 118, DATED 7-5-2012
As per current provisions, upto USD 5000 or its equivalent, can be released BY AD, for all permissible transactions on the basis of a simple letter from the applicant containing the basic information, viz., names and the addresses of the applicant and the beneficiary, amount to be remitted and the purpose of remittance. It was clarified in the circular that Authorised Dealers need not insist upon submission of A2 Forms in such cases. (A.P.(DIR Series) Circular No. 55 dated December 23, 2003.)
With a view to further liberalizing the documentation requirements, the limit for foreign exchange remittance for miscellaneous purposes without documentation formalities, has been raised from USD 5000 to USD 25000 with immediate effect.
It is clarified that Authorised Dealers need not obtain any document, including Form A-2, except a simple letter as stated above as long as the foreign exchange is being purchased for a current account transaction (not included in the Schedules I and II of Government Notification on Current Account Transactions), and the amount does not exceed USD 25000 or its equivalent and the payment is made by a cheque drawn on the applicant’s bank account or by a Demand Draft. AD banks shall prepare dummy A-2 so as to enable them to provide purpose of remittance for statistical inputs for Balance of Payment

Union Budget 2012- Direct Tax Budget Proposal part-2

Intimation after processing of TDS Statement:

Existing Provision: As per Section 200A, After processing of TDS statement, intimation is generated specifying the amount payable or refundable. The intimation generated after processing of TDS statement is not

(i) subject to rectification under section 154;

(ii) appealable under section 246A; and

(iii) deemed as notice of demand under section 156.

Proposed: In order to reduce the compliance burden of the deductor and also to rationalise the provisions of processing of TDS statement, it is proposed to provide that the intimation generated after processing of TDS statement shall be:

(i) subject to rectification under section 154;

(ii) appealable under section 246A; and

(iii) deemed as notice of demand under section 156.

Effective Date: These amendments will take effect from 1st July, 2012.

Extension of time for passing an order under section 201 in certain cases:

Existing Provision: Under the existing provisions section 201 of the Income-tax Act, a person can be deemed to be an assessee in default, by an order, in respect of non-deduction/short deduction of tax. Such order can be passed within a period of four years from end of financial year in a case where no statement as referred to in section 200 has been filed.

Proposed: It is proposed to amend provision of section 201, so as to extend the time limit from four years to six years.

Effective Date: This amendment will take effect retrospectively from 1st April, 2010.

Amendments in relation of prevention of Unaccounted Money
Cash Credits under Section 68:
Existing Provision: Section 68 of the Act provides that if any sum is found credited in the books of an assessee and such assessee either

(i) does not offer any explanation about nature and source of money; or

(ii) the explanation offered by the assessee is found to be not satisfactory by the Assessing Officer,
then, such amount can be taxed as income of the assessee.

Proposed: It is proposed to amend section 68 of the Act to provide that the nature and source of any sum credited, as share capital, share premium etc., in the books of a closely held company shall be treated as explained only if the source of funds is also explained by the assessee company in the hands of the resident shareholder.

However, even in the case of closely held companies, it is proposed that this additional onus of satisfactorily explaining the source in the hands of the shareholder, would not apply if the shareholder is a well regulated entity, i.e. a Venture Capital Fund, Venture Capital Company registered with the Securities Exchange Board of India (SEBI).

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent years.

Taxation of Cash Credits, Unexplained Money etc.

Existing Provision: Under the existing provisions of the Income-tax Act, certain unexplained amounts are deemed as income under section 68, section 69, section 69A, section 69B, and section 69C and section 69D of the Act and are subject to tax as per the tax rate applicable to the assessee.
In case of individuals, HUF, etc. no tax gets levied if such income is less than the Basic Exemption Limit.

Proposed: it is proposed to tax the unexplained credits, money, investment, expenditure, etc., which has been deemed as income under section 68, section 69, section 69A, section 69B, section 69C or section 69D, at the rate of 30% (plus surcharge and cess as applicable).
It is also proposed to provide that no deduction in respect of any expenditure or allowance shall be allowed to the assessee under any provision of the Act in computing deemed income under the said sections.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Share Premium in excess of the fair market value to be treated as income:

Existing Provision: Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head “Income from other sources”. There is no provision for Share Premium under the Section.

Proposed: It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax under the head “Income from other sources.

However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.

Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value.

Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value:

(i) as may be determined in accordance with the method as may be prescribed; or

(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets,

including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Compulsory filing of income tax return in relation to assets located outside India
Existing Provision: Under the existing provisions of section 139, every person is required to furnish a return of income if his income during the previous year relevant to the assessment year exceeds the maximum amount which is not chargeable to tax.

Proposed: It is proposed to amend the provisions of section 139 so that furnishing of return of income under section 139 may be made mandatory for every resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India. Furnishing of return by such a resident would be mandatory irrespective of the fact whether the resident taxpayer has taxable income or not.

Effective Date: – This amendment will take effect retrospectively from the 1st day of April, 2012 and will accordingly apply to assessment year 2012-13 and subsequent assessment years.

Reassessment of income in relation to any assets located outside India

Existing Provision Under the provisions of section 149 of the Income-tax Act, the time limit for issue of notice for reopening an assessment on account of income escaping assessment is 6 years.

Proposed : It is proposed to amend the provisions of section 149 so as to increase the time limit for issue of notice for reopening an assessment to 16 years, where the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.

Amendments are also proposed to be made in section 147 of the Income-tax Act to provide that income shall be deemed to have escaped assessment where a person is found to have any asset (including financial interest in any entity) located outside India.

Effective Date: The provisions of sections 147 and 149 are procedural in nature and will take effect from 1st July, 2012 for enabling reopening of proceedings for and assessment year commencing prior to this date. This is proposed to be clarified through an Explanation stating that the provisions of these sections, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Penalty on undisclosed income found during the course of search
Existing Provision Under the existing provisions of section 271AAA of the Income-tax Act, no penalty is levied if the assessee admits the undisclosed income in a statement under sub-section (4) of section 132 recorded in the course of search and specifies the manner in which such income has been derived and pays the tax together with interest, if any, in respect of such income.

Proposed: In order to strengthen the penal provisions, it is proposed to provide that the provisions of section 271AAA will not be applicable for searches conducted on or after 1st July, 2012. It is also proposed to insert a new provision in the Act (section 271AAB) for levy of penalty in a case where search has been initiated on or after 1st July, 2012. The new section provides that,-

(i) If undisclosed income is admitted during the course of search, the taxpayer will be liable for penalty at the rate of 10% of undisclosed income subject to the fulfillment of certain conditions.

(ii) If undisclosed income is not admitted during the course of search but disclosed in the return of income filed after the search, the taxpayer will be liable for penalty at the rate of 20% of undisclosed income subject to the fulfillment of certain conditions.

(iii) In a case not covered under (i) and (ii) above, the taxpayer will be liable for penalty at the rate ranging from 30% to 90% of undisclosed income.

Effective Date: – These amendments will take effect from the 1st day of July, 2012 and will, accordingly, apply to any search and seizure action taken after this date.

Amendments for Tax Incentives and Reliefs:
Removal of cascading effect of Dividend Distribution Tax:
Existing Provision: Section 115-O of the Act provides that dividend liable for DDT in case of a company is to be reduced by an amount of dividend received from its subsidiary after payment of DDT if the company is not a subsidiary of any other company. This removes the cascading effect of DDT only in a two-tier corporate structure.

Proposed: With a view to remove the cascading effect of DDT in multi-tier corporate structure, it is proposed to amend Section 115-O of the Act to provide that in case any company receives, during the year, any dividend from any subsidiary and such subsidiary has paid DDT as payable on such dividend, then, dividend distributed by the holding company in the same year, to that extent, shall not be subject to Dividend Distribution Tax under section 115-O of the Act.

Effective Date: This amendment will take effect from 1st July, 2012.
Extending benefit of initial depreciation to the power sector:
Existing provision: Section 32(1)(ilia) provides for allowance of initial depreciation (in addition to normal depreciation) at the rate of 20% of the actual cost on new machinery or plant (other than ships and aircraft) to the assessee engaged in the business of manufacture or production of any article or thing in the year of acquisition and instalment.

Proposed: In order to encourage new investment by the assessee engaged in the business of generation or generation and distribution of power, it is proposed to amend this section to provide that an assessee engaged in the business of generation or generation and distribution of power shall also be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Weighted Deduction for Scientific Research and Development:

Existing Provision: Under the existing provisions of Section 35(2AB) of the Income-tax Act, a company is allowed weighted deduction at the rate of 200% of expenditure (not being in the nature of cost of any land or building) incurred on approved in-house research and development facilities. These provisions are applicable only in respect of any expenditure incurred by a company up to the financial year ending on 31st March, 2012.

Proposed: It is proposed to amend this section to extend the benefit of the weighted deduction for a further period of five years i.e. up to 31st March, 2017

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years up to assessment year 2017-18.

Weighted Deduction for expenditure incurred on Agricultural Extension project:

Existing Provision: No provision for deduction in respect of such expenditure.

Proposed: it is proposed to insert a new provision in the Income-tax Act to by way of Section 35CCC allow weighted deduction of 150% of the expenditure incurred on agricultural extension project. The agricultural extension project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years.

Weighted Deduction for expenditure on skill Development:

Existing Provision: No provision for deduction in respect of such expenditure.

Proposed: it is proposed to insert a new Section 35CCD to provide weighted deduction of 150% of expenses (not being expenditure in the nature of cost of any land or building) incurred on skill development project. The skill development project eligible for this weighted deduction shall be notified by the Board in accordance with the prescribed guidelines.

Effective Date: The proposed amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Turnover or Gross Receipts for Audit of Accounts and Presumptive Taxation:

Existing Provision: Under the existing provisions of section 44AB, every person carrying on business is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceed Rs.60,00,000/- Similarly, a person carrying on a profession is required to get his accounts audited if the total sales, turnover or gross receipts in the previous year exceeds Rs.15,00,000/-.

Proposed: it is proposed to increase the threshold limit of total sales, turnover or gross receipts, specified under section 44AB for accounts audited, from Rs. Sixty Lacs to Rs. One Crore in the case of persons carrying on business and from Rs.15,00,000/- to Rs.25,00,000/- in the case of persons carrying on profession.

It is also proposed that for the purposes of presumptive taxation under section 44AD, the threshold limit of total turnover or gross receipts would be increased from Rs. Sixty Lacs to Rs. One Crore.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply to the assessment year 2013-14 and subsequent assessment years.

Relief from long term capital gain tax on transfer of residential property if invested in a manufacturing SME:

Existing Provision: Under the existing provisions, there is no such relief.

Proposed: It is proposed to insert a new section 54GB so as to provide rollover relief from long term capital gains tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of sale consideration in the equity of a new start-up SME company in the manufacturing sector which is utilized by the company for the purchase of new plant and machinery.

The relief is subject to certain conditions prescribed under the section would be available in case of any transfer of residential property made on or before 31st March, 2017.

Effective Date: The proposed amendments in the provisions of the Income-tax Act shall be effective from 1st April, 2013 and would accordingly apply to assessment year 2013-14 and subsequent assessment years.

Deduction in respect of capital expenditure on specified business:

Existing Provision: Under the existing provisions of section 35AD of the Income-tax Act, investment-linked tax incentive is provided by way of allowing 100% deduction in respect of the whole of any expenditure of capital nature (other than on land, goodwill and financial instrument) incurred wholly and exclusively, for the purposes of the “specified business” during the previous year in which such expenditure is incurred.

Proposed: It is proposed to include three new businesses as “specified business” for the purposes of the investment-linked deduction under section 35AD, namely:-

(a) Setting up and operating an inland container depot or a container freight station notified or approved under the Customs
Act, 1962 (52 of 1962);

(b) bee-keeping and production of honey and beeswax; and

(c) Setting up and operating a warehousing facility for storage of sugar.

The dates of commencement of the “specified business” are detailed in section 35AD (5). It is proposed that the date of commencement of operations for availing investment linked deduction in respect of the three new specified businesses shall be on or after 1st April, 2012.

It is also proposed that the following specified businesses commencing operations on or after the 1st of April, 2012 shall be allowed a deduction of 150% of the capital expenditure under section 35AD of the Income-tax Act, namely:-

(i) Setting up and operating a cold chain facility;

(ii) Setting up and operating a warehousing facility for storage of agricultural produce;

(iii) Building and operating, anywhere in India, a hospital with at least one hundred beds for patients;

(iv) Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government, as the case may be, and notified by the Board in this behalf in accordance with the guidelines
as may be prescribed; and

(v) production of fertilizer in India.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Extension of sunset date for tax holiday for power sector:
Existing Provision: Under the existing provisions of section 80-IA (4) (iv) of the Income-tax Act, a deduction from profits and gains is allowed to an undertaking which is set up for the generation and distribution of power if it begins to generate power at any time during the period beginning on 1st April, 1993 and ending on 31st March, 2012.

Proposed: It is proposed to amend the above provision to extend the terminal date for a further period of one year, i.e., up to 31st March, 2013.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to assessment year 2013-14.

Deduction for expenditure on preventive health check-up:
Existing Provision: Under the existing provisions contained in section 80D of the Income-tax Act, a deduction is allowed in respect of premium paid towards a health insurance policy for insurance of self, spouse and dependent children or any contribution made to the Central Government Health Scheme, up to a maximum of Rs.15,000 in aggregate. A further deduction of Rs.15, 000 is also allowed for buying a health insurance policy in respect of parents.

Proposed: It is proposed to amend this section to also include any payment made by an assessee on account of preventive health check-up of self, spouse, dependent children or parents(s) during the previous year as eligible for deduction within the overall limits prescribed in the section. However, the proposed deduction on account of expenditure on preventive health check-up (for self, spouse, dependent children and parents) shall not exceed in the aggregate Rs.5, 000.

It is further proposed to provide that for the purpose of the deduction under section 80D, payment can be made

(i) by any mode, including cash, in respect of any sum paid on account of preventive health check-up and

ii) By any mode other than cash, in all other cases.

Effective Date: These amendments will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Deduction in respect of interest on saving deposits:
Existing Provision: There is no such deduction under the existing provisions.
Proposed: Under the proposed new section 80TTA of the Income-tax Act, a deduction up to Rs.10,000/- shall be allowed to an assessee, being an individual or a Hindu undivided family, in respect of any income by way of interest on deposits (not being time deposits) in a savings account with a Bank, Co-operative Society or a post office.

However, where the aforesaid income is derived from any deposit in a savings account held by, or on behalf of, a firm, an association of persons or a body of individuals, no deduction shall be allowed in respect of such income in computing the total income of any partner of the firm or any member of the association or body.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Reduction in the rate of Securities Transaction Tax:

Existing Provision: The Securities Transaction Tax is payable at the Rate of 0.125% for Delivery based purchase or sale of equity shares in a company or units of equity oriented fund, through the recognized stock exchange in India.

Proposed: It is proposed to reduce the STT in Cash Delivery Segment by 20%. Thus, the proposed rate of STT would be 0.1% for all delivery based purchase or sale transactions.

Effective Date: The proposed amendments in the rates of Securities Transaction Tax (STT) will be effective from the 1st day of July, 2012 and will accordingly apply to any transaction made on or after that date.

AMENDMENTS FOR WEALTH TAX:

Exemption of Residential House allotted to employee etc. of a Company

Existing Provision: Under the existing provisions of section 2 of the Wealth-tax Act, the specified assets for the purpose of levy of wealth tax do not include a residential house allotted by a company to an employee or an officer or a whole time director if the gross annual salary of such employee or officer, etc. is less than Rs.5,00,000/-.

Proposed: it is proposed to increase the existing threshold of gross salary from Rs.5,00,000/- to Rs.10,00,000/- for the purpose of levying wealth-tax on residential house allotted by a company to an employee or an officer or a whole time director.

Effective Date: This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.

Reassessment in relation to any asset located outside India:
Exisiting Provision: Under Section 17 of the Wealth Tax Act, The time limit for issue of notice for reopening of assessements is 6 years, in case the net wealth in relation to any asset which has escaped assessment.
Proposed: It is proposed to amend the provisions of section17 so as to increase the time limit for issue of notice for reopening an assessment to 16 years, in the case the net wealth in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment
Year.”

This is proposed to be clarified through an Explanation stating that the provisions of these sections, as amended, by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.

Effective Date: These amendments will take effect from the 1st day of July, 2012.

Exemption from Wealth Tax- RBI

Existing Provision: Under the existing provisions of the Wealth-tax Act, wealth-tax is levied on individual, HUF and company.
The definition of “Company” under the Act includes a corporation established by or under the Central, State or Provincial Act. Therefore, the Reserve Bank of India (RBI), being a corporation established under the Central Act, would be deemed as company for the purpose of levy of wealth-tax and shall be liable to pay wealth-tax.

There is no provision for exempting RBI from the levy of wealth-tax either in the Wealth-tax Act or in Reserve Bank of India Act, 1934.

Revised Validity Period – Payment of Cheques/Drafts/Pay Orders

As per the new RBI guideline effective 1st April 2012, CC/DDs /Cheques validity being reduced from 6 to 3 months. Pls note

– Cheques / Demand Drafts / Pay Orders dated April 01,2012 or after, if presented on or after April 01, 2012 will be valid only for three months from the date on the instrument.

– Cheques / Demand Drafts / Pay Orders issued and dated on or before March 31,2012 shall continue to be valid for six months from the date on the instrument.

Update your IEC Record

In View of Public Notice No. 84/2009-2014 (RE-2010) Complete PAN details, Telephone Numbers, Email IDs, and Mobile Number (of the Signatory of the ANF2A)have been made mandatory fields; while Alternate Email ID, Website Address are optional. This is required to facilitate updating the IEC records. No payment of application fee is required till 31.3.2012 for such updating of IEC Records.

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Effect of not filing of ITR by Due Date

Followings are disadvantages of not filing the ITR on or before due dtae:

1. Interest will be charged on tax amount payable on the due date of filing.

2. Loss under any head of income will not be allowed for carry forward.

3. You can’t revise the return, if you not file return on time.

 

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