Vistra Insights

Vistra India Update 350


Amended notification regarding Start-up entities

Ministry of Commerce and Industry has issued in supersession of G.O No. G.S.R 501(E) dated May 23,2017 a new notification defining start-up entities, tax benefits and also prescribed the forms to claim tax benefits under section 80-IAC and Section 56 subsection (2) Clause (viib) of Income Tax Act, 1961.

There is no change in entities that can be treated as a Startup i.e., any entity can be treated as a startup upto a period of seven years (10 years in case of entities in Bio technology sector) from the date of its incorporation/registration or turnover of the entity for any financial year since its incorporation has not exceeded Rs. 25 crores. Other condition like entities should be working towards innovation, development or improvement of products or services, or if it is a scalable business model with a high potential of employment or wealth generation.  Entities formed by splitting up or reconstruction of existing businesses are not classified.

A start-up being a private limited company or a limited liability partnership incorporated on or after 1st day of April 2016 but before 1st day of April 2021, can claim 100% tax exemption on profits for three out of seven years, as per the prescribed norms. To avail this, application should be made in Form-1 to get certification for the purpose of Section 80-IAC of the Income Tax Act, 1961.

The notification also provided tax relief for issue of shares by start-ups over the fair market value, with certain conditions like aggregate amount of paid-up share capital and share premium of the start-up after the proposed issue of shares should not exceed ₹ 10 crore and  the investor/ proposed investor, who proposed to subscribe to the issue of shares , should either have an average returned income of ₹ 25 lakh or more for the preceding three financial years or net worth of ₹2 crore or more as on the last date of the preceding financial year. Form -2 is prescribed to avail this benefit under section 56(2) (viib) of the Income Tax Act, 1961 which should be accompanied by FMV certificate along with other documentary support prescribed.

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Amendments to External Commercial Borrowings (ECB) Policy

Reserve Bank of India has rationalized and liberalized existing regulations regarding external commercial borrowings.  Some of these changes are as follows:

It has been decided to stipulate a uniform all-in-cost ceiling of 450 basis points over the benchmark rate. The benchmark rate will be 6 month USD LIBOR (or applicable benchmark for respective currency) for Track I and Track II, while it will be prevailing yield of the Government of India securities of corresponding maturity for Track III (Rupee ECBs) and RDBs.

It has been decided to increase the ECB Liability to Equity Ratio for ECB raised from direct foreign equity holder under the automatic route to 7:1. This ratio will not be applicable if total of all ECBs raised by an entity is up to USD 5 million or equivalent.

Eligible list of borrowers is expanded by including housing finance companies, Port Trust , companies engaged in the business of maintenance, repair and overhaul and freight forwarding

Rationalized the end use provisions for ECB by bringing in negative list of purposes

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Publishing of rate of exchange for conversion of the foreign currency

The Central Board of Excise and Customs (CBEC) vide Notification No. 33 /2018 - 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 April 2018.  The Notification is appended below for reference:

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Amendment to Pradhan Mantri Rojgar Protsahan Yoyana(PMRPY)

The Government of India laid down a scheme for incentivizing employers registered under the Employee's Provident Fund Organization for job creation. The Government of India, Ministry of Labour and Employment have revised the guidelines with effect from 1 April 2018.

The following are the changes made to the PMRPY Scheme as per the revised scheme:

Central Government will pay full employer contribution under Employer Provident Fund (EPF) and Employee Pension Scheme (EPS) from 1 April 2018. As per the earlier scheme, Government was paying only 8.33% to EPS and the employer was required to pay the balance of 3.67% to EPF.

New registration for availing PMRPY benefits is extended for one more year up to 31 March 2019. This means registration of new employees up to 31 March 2019 is permitted.

PMRPY benefit will continue for 3 years to new employees and for the existing employees for the remaining period up to 3 years.

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