December 16th -31st, 2016
Clarifications on Indirect Transfer provisions under the lncome Tax Act. 1961
Under the indirect transfer provisions contained in section 9(1)(i) of the Income Tax Act, 1961 (.Act'), all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situate in India, shall be deemed to accrue or arise in India. Explanation 5 thereof clarifies that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. Explanation 6 provides that the said Explanation 5 will be applicable, if on the specified date the value of such assets exceeds the amount of Rs10 crore and represents at least 50% of the value of all the assets owned by the company/ entity. Explanation 7, however, provides a carve out from the applicability of Explanation 5 to small investors holding no right of management or control of such company / entity and holding less than 5% of the total voting power/ share capital/ interest of the company/ entity that directly or indirectly owns the assets situated in India. Section 285A of the Act casts a reporting obligation on the Indian concern whose shares are substantially held directly or indirectly by a company or entity registered or incorporated outside India.
Queries have been received by the Board about the scope of the indirect transfer provisions. In this regard, the Board constituted a Working Group on 15th June 2016 to examine the issues raised by stakeholders. The Board has considered the comments of the Working Group on the said issues and has provided clarification with regard to application of Indirect Transfer Provisions in case of
- Small investors as defined in explanation 5.
- Investment by feeder funds
- Investment by a company acting as nominee/distributor and is engaged in pooling of funds for Off Shore funds registered as Foreign Portfolio Investor
- Investment by an offshore listed fund registered as an FPI for undertaking portfolio investment in Indian securities
- Amalgamation, merger or demerger of funds
- Reporting obligations of Indian entity
- Applicability of interest, withholding taxes and penalty etc.
Clarification on Direct Tax Dispute Resolution Scheme 2016
The Direct Tax Dispute Resolution Scheme, 2016, incorporated as Chapter X of the Finance Act, 2016 provides an opportunity to tax payers who are under litigation to come forward and settle the dispute in accordance with the provisions of the Scheme. The provisions of the Scheme have been clarified vide circular No.33 of 2016 dated 12th September 2016. Subsequently, further queries have been received from the field authorities and other stakeholders. The Central Government has now clarified these queries in FAQ format. Further, as per the Scheme, 31st December 2016 was the due date for a person to make a declaration to the designated authority. Now the Central Government has extended this date to 31st March 2017.
Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana Rules, 2016
The Taxation Laws (Second Amendment) Act, 2016 has been enacted by Parliament on 15th December 2016. The said Act has inter alia amended the provisions of Finance Act, 2016 and inserted a new Chapter on, ‘The Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016’ (hereinafter referred to as ‘the Scheme’) in the Finance Act, 2016.
The salient features of the Scheme are as under:
- Declaration under the Scheme can be made by any person in respect of undisclosed income in the form of cash or deposits in an account with bank or post office or specified entity.
- Tax @30% of the undisclosed income, surcharge @33% of tax and penalty @10% of such income is payable besides mandatory deposit of 25% of the undisclosed income in Pradhan Mantri Garib Kalyan Deposit Scheme, 2016. The deposits are interest free and have a lock-in period of four years.
- The income declared under the Scheme shall not be included in the total income of the declarant under the Income - tax Act for any assessment year.
- The declarations made under the Scheme shall not be admissible as evidence under any Act (Eg Central Excise Act, Wealth - tax Act, Companies Act etc.). However, no immunity will be available under Criminal Acts mentioned in section 199 - O of the Scheme
The Scheme has commenced on 17th December 2016 and shall remain open for declarations/deposit upto 31st March 2017.
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax (Amendment) Rules, 2016
The Central government has amended the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules 2015 to notify the rules relating to.
- Remittance of tax by the employer or debtor.
- Service of notice, summons, requisition, order or any other communication
- Approved valuer
India and Singapore Sign a Third Protocol for Amending the Double Taxation Avoidance Agreement (DTAA) – Press release
The India - Singapore DTAA at present provides for residence based taxation of capital gains of shares in a company. The Third Protocol amends the DTAA with effect from 1st April 2017 to provide for source based taxation of capital gains arising on transfer of shares in a company. This will curb revenue loss, prevent double non - taxation and streamline the flow of investments. In order to provide certainty to investors, investments in shares made before 1st April 2017 have been grandfathered subject to fulfillment of conditions in Limitation of Benefits clause as per 2005 Protocol. Further, a two year transition period from 1st April 2017 to 31st March 2019 has been provided during which capital gains on shares will be taxed in source country at half of normal tax rate, subject to fulfillment of conditions in Limitation of Benefits clause. The Third Protocol also inserts provisions to facilitate relieving of economic double taxation in transfer pricing cases. This is a taxpayer friendly measure and is in line with India’s commitments under Base Erosion and Profit Shifting (BEPS) Action Plan to meet the minimum standard of providing Mutual Agreement Procedure (MAP) access in transfer pricing cases. The Third Protocol also enables application of domestic law and measures concerning prevention of tax avoidance or tax evasion
Company (Incorporation) Fifth Amendment Rules, 2016
The Ministry of Corporate Affairs (MCA) has notified the “Companies (Incorporation) Fifth Amendment Rules, 2016” applicable from 1st January 2017. This is in continuation of MCA’s efforts to have integrated process for speedy incorporation of Companies by introducing ‘Simplified Proforma for Incorporating Company Electronically (SPICe). The amendment provides more detailed process of Incorporation of Companies using SPICe forms. Few of the changes are:
- The application for incorporation of a company be in FORM No. INC-32 (SPICe) along with e-MOA in Form No.INC-33 and e-AOA in Form no INC-34 (except for section 8 Companies)
- The application for allotment of Director Identification Number (up to three) Directors, reservation of a name, incorporation of company and appointment of Directors shall be filed in Form No. INC-32 (SPICe), with the Registrar
The Companies (Removal of Name of Companies from Register of Companies) Rules, 2016
Ministry of Corporate Affairs (MCA) has notified the Rules relating to removal of the name of the Company from register under section 248 to section 252 of the Companies Act, 2013. The Rules provide the procedures, conditions, exceptions for removal of the name of the Companies from the register:
- By the registrar of companies - on Su-moto basis
- By the Company by making an application
Commencement of sections 248 to 252 Companies Act, 2013
With the introduction of Rules relating to removal of the name of the Company from register under section 248 of the Companies Act, 2013, Ministry of Corporate Affairs has notified the commencement of section 248 to section 252 of the Companies Act, 2013 relating to those matters. Further, the government has informed the stakeholders that e-form STK-2, prescribed under the said rules for making application to the Registrar of Companies for removal of name of the company from the register of companies is under development and would be deployed in sometime.
RBI and FEMA
Purchase and sale of securities other than shares or convertible debentures of an Indian company by a person resident outside India
Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 stipulates terms and conditions for purchase and sale of securities other than shares or convertible debentures of an Indian company by person resident outside India. With a view provide more flexibility, RBI has now allowed Foreign Portfolio Investors (FPIs) registered with SEBI to transact in such instruments either directly or in any manner as per the prevalent/approved market practice.
Employee’s State Insurance (ESI) - Wage limit increased to INR 21,000 per month from 1st January 2017
The Employees' State Insurance Corporation (ESIC) raised the monthly wage limit from INR 15,000 per month to INR 21,000.00 per month with effect from 1st January 2017.
Employee’s State Insurance (ESI) introduces new scheme to promote registration of Employers/Employee
ESI launches a one-time employer friendly drive to encourage the employers to register themselves under the ESI Scheme. This scheme is open for the period from 1st January 2017 to 31st March 2017. The salient features of the scheme are:
- The Employer registering during period will be treated as covered from the date of registration or as declared by them.
- The newly registered employees shall be treated as covered from the date of their registration.
- This will not have any bearing on actions taken/required under ESI Act , if any, prior to 1st January 2017
Unified Annual Return under Central 8 Labour Laws enforced by Chief Labour Commissioner (Central)
- Ministry of Labour & Employment, Government of India and the State Governments enforce more than 44 labour laws in their respective spheres. There have been requests from various stakeholders for ensuring simplification of formats, ease of compliance, transparency in inspections and speedy redressal of grievances.
- In order to address these concerns Ministry of Labour & Employment has developed a single unified Web Portal- https://shramsuvidha.gov.in for Online Registration of units, reporting of inspections and submissions of Annual Returns.
- The Unified Shram Suvidha Portal is developed to facilitate reporting of Inspections, and submission of Returns. The Unified Shram Suvidha Portal has been envisaged as a single point of contact between employer, employee and enforcement agencies bringing in transparency in their day-to-day interactions. For integration of data among various enforcement agencies, each inspectable unit under any Labour Law has been assigned one Labour Identification Number (LIN).
- As an initiative on pilot basis, the Ministry has selected the Chief Labour Commissioner (Central) organization, the Employees State Insurance Corporation (ESIC), Employees Provident Fund Organization (EPFO) and Directorate General of Mines Safety (DGMS) covering 16 Labour Laws. State Governments would join this Unified Single Web Portal subsequently.
- This integrated portal operate through common Unique Labour Identification Number (Shram Pehchan Sankhya) for each Establishment. The employers will be allotted Labour Identification Number (LIN) after registration on web portal. The enforcement agency will upload the data of inspection on the web portal which will be updated periodically.
- This web portal provide for filing of single harmonized annual return by the employers.
- This web portal provide for online reporting of harmonized inspection report by inspecting officials.
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