Thursday, 15 June, 2017

Vistra India Update 329

June 01- June 15, 2017

Income Tax

Due date for issuing Form 16 extended

The Central Government has extended the due date for issuing Form 16 (Withholding tax certificate issued by the employer to employee) from 31st May to 15th June each year. 

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Cost Inflation Index for FY 17-18 notified

Every year the Central Government of India notifies the Cost inflation index ie, price index used to give effect to inflation in prices of capital assets applicable for the year.  For FY 17-18 Central Government has notified “272” as the Cost inflation index.

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Revised Safe harbour rules notified

Section 92CA of the Income Tax Act 1961 defines “safe harbour” as circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee.  The Central Government had notified the safe harbour rules on 20th September 2016 in order to reduce tax disputes and audits.  Now the Central Government has notified revised safe harbour rules. Key changes are listed below.

  1. Definition of Operating cost, operating revenue clarified.
  2. Safe harbour rates reduced for Software Development, ITES, KPO and contract research and development services.
  3. INR 200 crores threshold introduced for International transactions for Software Development, ITES, KPO and contract research and development services.
  4. Low value adding intra group services brought under safe harbour rules.
  5. Revised safe harbour rates/conditions detailed below.

Sl No

Eligible International Transaction referred in Rule 10TC of Income tax rules

Circumstances

1

Provision of software development services.

The operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense incurred is –

(i) not less than 17 per cent., where the value of international transaction does not exceed a sum of one hundred crore rupees or

(ii) not less than 18 per cent., where the value of international transaction exceeds a sum of one hundred crore rupees but does not exceed a sum of two hundred crore rupees.

2

Provision of information technology enabled services.

The operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense is –

(i) not less than 17 per cent., where the aggregate value of such transactions entered into during the previous year does not exceed a sum of one hundred crore rupees or

(ii) not less than 18 per cent., where the aggregate value of such transactions entered into during the previous year exceeds a sum of one hundred crore rupees but does not exceed a sum of two hundred crore rupees.

3

Provision of knowledge process outsourcing services.

 

The value of international transaction does not exceed a sum of two hundred crore rupees and the operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense is –

(i) not less than 24 per cent and the Employee Cost in relation to the Operating Expense is at least sixty per cent.

(ii) not less than 21 per cent and the Employee Cost in relation to the Operating Expense is forty per cent. or more but less than sixty per cent. or

(iii) not less than 18 per cent and the Employee Cost in relation to the Operating Expense does not exceed forty per cent.

4

Advancing of intra-group loans where the amount of loan is denominated in Indian Rupees (INR).

 

The interest rate declared in relation to the eligible international transaction is not less than the one-year marginal cost of funds lending rate of State Bank of India as on 1st April of the relevant previous year plus, –

(i) 175 basis points, where the associated enterprise has CRISIL credit rating between AAA to A or its equivalent.

(ii) 325 basis points, where the associated enterprise has CRISIL credit rating of BBB-, BBB or BBB+ or its equivalent.

(iii) 475 basis points, where the associated enterprise has CRISIL credit rating between BB to B or its equivalent.

(iv) 625 basis points, where the associated enterprise has CRISIL credit rating between C to D or its equivalent or

(v) 425 basis points, where credit rating of the associated enterprise is not available and the amount of loan advanced to the associated enterprise including loans to all associated enterprises in Indian Rupees does not exceed a sum of one hundred crore rupees in the aggregate as on 31st March of the relevant previous year.

 

5

Advancing of intra-group loans where the amount of loan is denominated in foreign currency.

 

The interest rate declared in relation to the eligible international transaction is not less than the six-month London Inter-Bank Offer Rate of the relevant foreign currency as on 30th September of the relevant previous year plus, –

(i) 150 basis points, where the associated enterprise has CRISIL credit rating between AAA to A or its equivalent

(ii) 300 basis points, where the associated enterprise has CRISIL credit rating of BBB-, BBB or BBB+ or its equivalent

(iii) 450 basis points, where the associated enterprise has CRISIL credit rating between BB to B or its equivalent

(iv) 600 basis points, where the associated enterprise has CRISIL credit rating between C to D or its equivalent or

(v) 400 basis points, where credit rating of the associated enterprise is not available and the amount of loan advanced to the associated enterprise including loans to all associated enterprises does not exceed a sum equivalent to one hundred crore Indian rupees in the aggregate as on 31st March of the relevant previous year.

 

7

Provision of contract research and development services wholly or partly relating to software development.

 

The operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense incurred is not less than 24 per cent., where the value of the international transaction does not exceed a sum of two hundred crore rupees.

 

8

Provision of contract research and development services wholly or partly relating to generic pharmaceutical drugs.

 

The operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense incurred is not less than 24 per cent., where the value of the international transaction does not exceed a sum of two hundred crore rupees.

 

9

Manufacture and export of core auto components.

The operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense is not less than 12 per cent.

 

10

Manufacture and export of non-core auto components.

The operating profit margin declared by the eligible assessee from the eligible international transaction in relation to operating expense is not less than 8.5 per cent.

 

11

Receipt of low value-adding intra-group services.

The entire value of the international transaction, including a mark-up not exceeding 5 per cent., does not exceed a sum of ten crore rupees.

Provided that the method of cost pooling, the exclusion of shareholder costs and duplicate costs from the cost pool and the reasonableness of the allocation keys used for allocation of costs to the assessee by the overseas associated enterprise, is certified by an accountant.


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Computation of interest income pursuant to secondary adjustments

In order to make the actual allocation of funds consistent with that of the primary transfer pricing adjustment, Finance Act, 2017 inserted Section 92CE in the Income-tax Act, 1961 with effect from 1st April 2018 to provide for secondary adjustment by attributing income to the excess money lying in the hands of the associated enterprise. The provision shall be applicable to primary adjustments exceeding one crore rupees made in respect of the assessment year 2017-18 and onwards. 

Section 92CE of the Income Tax Act 1961 provides that where, as a result of primary adjustment to the transfer price, there is an increase in the total income or reduction in the loss, as the case may be, of the assessee, the excess money which is available with its associated enterprise, if not repatriated to India within the time as may be prescribed, shall be deemed to be an advance made by the assessee to such associated enterprise and the interest on such advance, shall be computed in such manner as may be prescribed.

Now the Central Government has prescribed the time limit of repatriation of excess money and the rate at which the interest income shall be computed in the case of failure to repatriate the excess money within the prescribed time limit as detailed below.

(a) Time limit for repatriation of excess money shall be on or before ninety days.

(i) From the due date of filing of return under sub-section (1) of section 139 of the Act where primary adjustments to transfer price has been made suo-moto by the assessee in his return of income.

(ii) From the date of the order of Assessing Officer or the appellate authority, as the case may be, if the primary adjustments to transfer price as determined in the aforesaid order has been accepted by the assessee.

(iii) From the due date of filing of return under sub-section (1) of section 139 of the Act in the case of agreement for advance pricing entered into by the assessee under section 92CD.

(iv) From the due date of filing of return under sub-section (1) of section 139 of the Act in the case of option exercised by the assessee as per the safe harbour rules under section 92CB or

(V) From the due date of filing of return under sub-section (1) of section 139 of the Act in the case of an agreement made under the mutual agreement procedure under a Double Taxation Avoidance Agreement entered into under section 90 or 90A.

(b) The imputed per annum interest income on excess money which is not repatriated within the time limit of the Act shall be computed

(i) at the one year marginal cost of fund lending rate of State Bank of India as on 1st of April of the relevant previous year plus three hundred twenty five basis points in the cases where the international transaction is denominated in Indian rupee or

(ii) at six month London Interbank Offered Rate as on 30th September of the relevant previous year plus three hundred basis points in the cases where the international transaction is denominated in foreign currency.

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Company Law

Clarification on Transfer of security as per section 124 (6) of Companies Act, 2013 read with Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016

Section 124(6) of the Companies Act, 2013 requires Companies to transfer the shares in respect of which dividend has not been paid or claimed for seven consecutive years or more to Investor Education and Protection Fund along with a statement with specified details. The ministry has clarified that the procedure similar to what is followed during transmission of shares may be followed while transferring shares to Investor Education and Protection Fund Authority as these transfers are made by operation of law.

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Exemptions/Relaxations to Private Companies, Section 8 Companies, Government Companies

The Ministry of Corporate Affairs has issued notification under Section 462 of the Companies Act, 2013, providing exemptions under various provisions of the Act to (i) Private Companies; (ii) Government Companies; (iii) Section 8 Companies. Significant relaxations provided to Private Limited Companies are:

1. Preparation of Cash Flow Statement as part of financial statements is not mandatory for startup Private Companies.

2. The auditors in their audit report need not state whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls in case of the following companies.

  • One person Company.
  • Companies having turnover less than Rs. 50 Crores as per latest audited financial statement or having aggregate borrowings from banks or financial institutions or any Body corporate at any point of time during the financial year less than Rs. 25 Crore.

3. A Private startup Companies can have at least 1 board meeting during each half of calendar year and the gap between the two meetings is not less than 90 days
4. In case of Private Limited Companies, Interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to section 184.

5. Earlier Private Limited Companies can accept deposits from the Member as per the procedure prescribed in Section 73 Clause (a) - (e). These procedures are now made not applicable to the following Companies.

  • Which accept from its members monies not exceeding 100% percent of aggregate of the paid up share capital, free reserves and Securities Premium account or
  • Which is a start-up for five years from the date of its incorporation or
  • which fulfill all of the following conditions, namely
  • Which is not an associate or a subsidiary of any other Company;
  • If the borrowing of such a company from the banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
  • Such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under the section.

Provided that the company referred above shall file the details of monies accepted to the Registrar in such manner as may be specified

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RBI and FEMA

Information Technology (IT) Framework for Non-Banking Finance Companies (NBFCs)

Master Directions on Information Technology (IT) Framework for the NBFC sector are issued with the objective to enhance safety, security, efficiency in processes. This framework covers IT Governance, IT Policy, Information & Cyber Security, IT Operations, IS audit, Business Continuity Planning and IT Services Outsourcing.  The directions are categorized into two parts, those which are applicable to NBFCs with assets size over INR 500 crore (Systemically Important) and for NBFCs with assets size below INR 500 crore. 

NBFC’s may place these directions before their Board, together with a gap-analysis vis-a-vis the Master direction and the proposed action by 30th September 2017.  NBFCs- Systemically Important shall comply with the Master Directions by 30th June 2018 and other NBFCs (asset size below INR 500 crore) shall comply by 30th September 2018.

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Customs

Publishing of rate of exchange for conversion of the foreign currency

The Central Board of Excise and Customs (CBEC) vide Notification No. 52 & 53 /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 2nd June 2017 and 16th June 2017 respectively. 

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Labour Laws

Clarification in the definition of “International Worker” as per Provident Fund Act

The Employee’s Provident Fund Organization (EPFO) has issued a circular clarifying that the Indian International workers on coming back to India after having worked in a foreign country will be treated as “employee” and not International worker if they do not fulfill the below two conditions:

  • He has worked or is going to work in a foreign country with which India has entered into Social Security agreement and
  • He is eligible to avail the benefits under a social security programme of the said foreign country.

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