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Tax & Regulatory Updates: October 2016

Direct Tax Updates

The CBDT has issued a notification clarifying special provision regarding the determination of the cost of acquisition of shares received in different cases which are subject matter of buy-back. Such as shares received through employee stock option or sweat equity shares, shares in case of amalgamation & demerger. It also clarifies that if shares being bought back are held in DEMAT form, FIFO method is applied to calculate the amount received on those shares.
The CBDT has issued a notification for draft rules specifying the method of valuation of fair market value of shares & other securities in respect of trust & other institutions for the purpose of calculation of accreted income.
Central Government has notified Prohibition of Benami Property Transactions Rules, 2016 which clarify certain aspects of the Act. These rules provides clarification for determination of prices in certain cases, furnishing of information, confiscation of Property, management of confiscated property, disposal of confiscated property. Further, it has also laid down the procedure for appeals to the appellate tribunal.

Indirect Tax Updates

The Central government has made amendments to Notification no. 157/1990-Customs, which makes the federation and the importer equally liable to pay the duties of custom leviable on the goods as on the date of import, along with applicable interest for the goods not exported with in the period of six months. It further limits the liability of the federation to 10% of the duties of customs.

Foreign Exchange Regulation Updates

The Reserve bank of India has simplified the process of dealing with matured but unpaid ECB by designing new guidelines for extension and conversion of ECB. AD Category-I banks have been delegated with the power to approve requests from borrowers for extension of matured but unpaid ECB subject to the conditions that lender’s consent is available, reporting requirements are fulfilled and no such additional cost is incurred as may be prescribed. They have also been authorized to approve cases of conversion of matured but unpaid ECB into equity.
As per Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, Foreign investment up to 100% has been allowed in ’Other Financial Sectors’ under the automatic route.
“Other Financial Services specified therein includes, activities which are regulated by any financial sector regulator viz. RBI, SEBI, IRDA, PFRDA, NHB or any other financial sector regulator as may be notified by the Government of India in this regard.
The financial activities which are not regulated or partly regulated by any financial sector regulator or where there is lack of clarity; foreign investment will be allowed up to 100% under the Government approval route.
AD Category-I Banks are provided with the power to allow the startups to raise ECB subject to certain conditions as provide below:
  • An entity shall be recognised as a Startup by the Central Government as on date of raising ECB;
  • Minimum average maturity period will be 3 years; and
  • Lender/Investor shall be resident of a country who is either a member of Financial Action Task Force (FATF) or a FATF-Style Regional Bodies.
The borrowing can be in the form of loans or non-convertible, optionally convertible or partially convertible preference shares and it can be denominated in any freely convertible currency or in Indian Rupees (INR) or a combination thereof. In case of borrowing in INR, the foreign currency - INR conversion will be at the market rate as on the date of agreement.