January 16th -31st, 2017
Clarifications on the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016
The Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 (hereinafter ‘the Scheme’) provides an opportunity to persons having undisclosed income in the form of cash or deposit in an account maintained with a specified entity to declare such income and pay tax, surcharge and penalty totaling in all to 49.9 % of such declared income and make a mandatory deposit of not less than 25% of such income in the Pradhan Mantri Garib Kalyan Deposit Scheme, 2016.The Scheme has commenced on 17.12.2016 and shall remain open for declarations/deposit upto 31.03.2017. Queries have been received from the stakeholders seeking further clarity on certain provisions of the Scheme. The Central Government has considered the queries and has clarified the queries in Question and Answer format.
Explanatory notes to the provisions of Finance Act 2016
The Central government has issued the explanatory notes to the provisions of Finance Act 2016 to assist the stakeholders in easy understanding of the provisions of Finance Act 2016. These notes have to be read in conjunction with the Finance Act 2016.
Clarifications on Indirect Transfer provisions under the lncome Tax Act. 1961 – Circular kept in abeyance
The Central Government had issued a circular on 21st December 2016 providing certain clarification on Indirect Transfer provisions in case of
- Small investor 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 is 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.,
As several representation were received from stakeholders expressing their concerns stating that circular does not address the issue of possible multiple taxation of the same income, the central government has kept in abeyance the above said circular for the time being.
Final guiding Principles for determination of Place of Effective Management (POEM) of a Company
India Income tax laws as amended provides that a company is said to be resident in India in any previous year, if (a) it is an Indian company; or (b) its place of effective management in that year is in India. These rules are effective from 1st April 2016 and will apply to Assessment Year 2017-18 and subsequent assessment years. On 23 December 2015, the Central Board of Direct Taxes had issued the draft Guiding Principles for determination of Place of Effective Management (POEM) of a Company inviting suggestion from the stake holders. After considering the suggestions received from the stakeholders, the CBDT has now issued the final guiding principles for determination of Place of Effective Management (POEM) of a Company. Important changes brought in are detailed below.
a. In determining whether a company is engaged in active business outside India, an explanation has been included with regard to terms income, value of assets, number of employees and payroll.
b. The decisions made by shareholder on matters which are reserved for shareholder decision under the company laws are not relevant for determination of a company’s place of effective management. However, the shareholder’s involvement can, in certain situations, turn into that of effective management
c. It is clarified that day to day routine operational decisions undertaken by junior and middle management shall not be relevant for the purpose of determination of POEM. The operational decisions relate to the oversight of the day-to-day business operations and activities of a company whereas the key management and commercial decision are concerned with broader strategic and policy decision.
d. The fact that there exists a Permanent Establishment of a foreign entity in India would itself not be conclusive evidence that the conditions for establishing POEM in India have been satisfied.
e. The test of POEM is one of substance over form
f. The guiding principles are not to be seen with reference to any particular moment in time, rather, activities performed over a period of time, during the previous year need to be considered.
Clarifications on implementation of General Anti-Avoidance Rule (GAAR) provisions under the Income Tax Act 1961
GAAR was introduced by Finance Act 2012 with an objective of preventing impermissible tax avoidance and would be come to force from 1st April 2017. GAAR is not applicable to any arrangement where the aggregate tax benefit to all parties of the arrangement in the relevant tax year does not exceed INR 30 million. Certain queries were received by the Board about implementation of GAAR provisions. The Board constituted a working group in June 2016 for this purpose. The Board has considered the comments of the working group and has now issued certain clarifications in question and answer format. Amongst others, it has been clarified that
- If the jurisdiction of foreign portfolio Investment (FPI) is finalized based on non - tax commercial considerations and the main purpose of the arrangement is not to obtain tax benefit, GAAR will not apply.
- GAAR will not interplay with the right of the taxpayer to select or choose method of implementing a transaction.
- Grandfathering as per IT Rules will be available to compulsorily convertible instruments, bonus issuances or split/consolidation of holdings in respect of investments made prior to 1st April 2017 in the hands of same investor.
- Adoption of anti-abuse rules in tax treaties may not be sufficient to address all tax avoidance strategies and the same are required to be tackled through domestic anti-avoidance rules. However, if a case of a voidance is sufficiently addressed by Limitation of Benefits (LoB) provisions in the tax treaty, there shall not be an occasion to invoke GAAR.
- At the time of sanctioning an arrangement, where the Court has explicitly and adequately considered the tax implications, GAAR will not apply to such an arrangement.
- GAAR will not apply if an arrangement is held as permissible by the Authority for Advance Rulings.
- If an arrangement has been held to be permissible in one year by the PCIT/CIT/Approving Panel and the facts and circumstances remain the same, GAAR will not be invoked for that arrangement in a subsequent year.
- The proposal to apply GAAR will be vetted first by the Principal Commissioner of Income Tax/ Commissioner of Income Tax and at the second stage by an Approving Panel headed by a judge of High Court.
- Adequate procedural safeguards are in place to ensure that GAAR is invoked in a uniform, fair and rational manner.
Salary TDS circular for FY 16-17 issued on 2nd Jan 2017 – typo error corrected
The Central Government, on 2nd January 2017 had issued the salary TDS circular for FY 16-17. However, there were certain typo errors in the said circular pertaining to due dates for filing ETDS returns, exemption u/s section 80GG etc. The same has now been corrected.
Procedure for registration and submission of statement of financial transactions (SFT) as per section 285BA of Income-tax Act, 1961 read with Rule 114E of Income-tax Rules, 1962
Section 285BA of the Income Tax Act, 1961 requires specified reporting persons to furnish statement of financial transaction ( such as payment made in cash for purchase of demand drafts, cash deposits, time deposits, credit card payments, Receipt from any person a sum exceeding Rs. 10 lakhs for acquiring bonds, shares, purchase and sale of immovable property, Receipt of cash in excess of Rs. 2 lakhs for sale of goods or services etc.,) Rule 114E of the Income Tax Rules, 1962 specifies that the statement of financial transaction required to be furnished under sub-section (1) of section 285BA of the Act shall be furnished in Form No. 61A. The nature and value of transaction to be furnished by the reporting person is specified under Rule 114E. Now the Principal Director General of Income-tax (Systems) has laid down the procedures for the following.
- Registration and Generation of Income Tax Department Reporting Entity
- Identification Number (ITDREIN):
- Registration of designated director and principal officer:
- Submission of Form 61A
- Submission of correction statement
- Security, archival and retrieval policies
Company Incorporation Amendment Rule, 2017
FORM No. INC-32 (SPICe) introduced by the Ministry of Corporate Affairs (MCA) enables application for DIN allotment, reservation of name, incorporation, PAN and TAN. Accordingly, MCA has amended form INC-11, Certificate of Incorporation to be issued by Registrar of Companies to capture the PAN allotted by the Income Tax department as well to be issued for an application made in FORM No. INC-32 (SPICe)
Amendments in relation to online information and database access or retrieval services
Post taxation of online information and database access or retrieval services, the following amendments have been made in respect to taxation of online information and database access or retrieval services
- The exemption available for online information and database access or retrieval services provided by a person located in non-taxable territory to an entity in India registered under section 12AA of the Income Tax Act, 1961is withdrawn.
- Service tax payable for the month of December, 2016 and January, 2017 in case of online information and database access or retrieval services provided or agreed to be provided by any person located in a non-taxable territory and received by non-assesse online recipient, shall be paid by the 6th day of March, 2017.
Publishing of rate of exchange for conversion of the foreign currency
The Central Board of Excise and Customs (CBEC) vide Notification No. 5 /2017 - Customs (N.T.) notified the rate of exchange for conversion of the foreign currency into Indian currency or vice versa for Export and Import of goods, with effect from 20th of January 2017. The Notification is appended below for reference:
Employees State Insurance
Effective from 20 January 2017, an insured women covered under Employee’s State Insurance shall be entitled to maternity leave of 26 weeks instead 12 weeks. However, not more than 8 weeks should precede the expected date of confinement. An insured woman having two or more than two surviving children shall be entitled to receive maternity benefits during a period of twelve weeks of which not more than six weeks shall precede the expected date of confinement.
Further, the following Insured Women, covered under the ESI Act, would also be eligible for twelve weeks of Maternity Benefit under the Act if they fulfil the contribution eligibility criteria:
- a commissioning mother who as a biological mother wishes to have a child and prefer to get embryo implanted in any other woman; and
- a woman who legally adopts a child of up to three months of age.
In both cases, the twelve weeks of maternity benefit for the insured woman would commence from the date the child is handed over to the commissioning mother after birth or adopting mother, as the case maybe
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