- Regulatory: Guidelines on disclosures, reporting and clarifications under AIF Regulations (Circular dated June 19, 2014 CIR/IMD/DF/14/2014)
- Regulatory: SEBI’s draft proposals for crowd funding may restrict it to accredited investors, allow crowd fund AIFs
- Securities market regulator Securities & Exchange Board of India (SEBI) has come up with draft proposals which may provide a legal platform for crowd funding in India, an alternate funding route for startups in the country.
- SEBI’s norm will restrict itself to security-based crowd funding and steer clear of donation and rewards based funding as also peer to peer lending which falls under the purview of RBI. The regulator has categorised three types of crowd funding equity-based (EbC), debt-based (DbC) and fund-based (FbC).
- Some of the key proposals include restricting the crowd funding to accredited investors; capping crowd funding up to Rs.10 crore within a 12-month period including over subscription (which shall be restricted to 25 per cent of the intended fund raise); attract money from maximum of 200 individual investors (besides institutional investors); founders or promoters need to maintain a minimum of 5 per cent stake in the company for at least three years from the date of the issue besides allowing a new class of crowd fund AIF (alternate investment fund which currently covers angel, VC, PE and hedge funds in the country) who can pool in money from other investors to invest in a company, among others.
- Corporate Laws: Companies Act, 2013The Ministry of Corporate Affairs (MCA) has notified most of the sections and has largely operationalized the Companies Act 2013 (2013 Act). All of the notified sections of the new Companies Act 2013 are in force from 1 April 2014.MCA vide notice dated 24th June, 2014 invited comments for the draft notification under section 462 of the Companies Act, 2013 to ease the operational activity for Private Companies.
- Income-tax: Budget Speech 2014-15, The Finance Bill, 2014
- Promotion of entrepreneurship and start-up Companies remains a challenge. While there have been some efforts to encourage, one principal limitation has been availability of start-up capital by way of equity to be brought in by the promoters. In order to create a conducive eco-system for the venture capital in the MSME sector it is proposed to establish a INR 10,000 crore fund to act as a catalyst to attract private Capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies.
- Income from sale of unlisted shares and units of non-equity oriented mutual fund, not held for more than 36 months to be taxable as Short Term Capital Gain; the earlier threshold was 12 months.
- REITs and Infrastructure Investment Trusts, to be formed as per regulations to be notified by SEBI, shall enjoy tax pass through status (except in respect of capital gains on disposal of assets). This facility is already extended to VCF like YourNest.
- Allowed manufacturing units with FDI, under the automatic route, to sell their products through retail, including e-commerce platforms, without any additional approval. It should enable VCFs with non-resident investors to invest in e-commerce companies with their own manufacturing unit & brand.
- Mutual funds, Securitization trusts, VCC / VCF are required to furnish a return of income if their total income exceeds the maximum amount not chargeable to tax. Accordingly, the requirement of filing prescribed statement (giving particulars of amount of income distributed to investors, the tax paid thereon, etc.) has been done away with in case of mutual funds and securitization trusts.
- Effective 1 October 2014, dividends distributed by domestic companies and mutual funds to be grossed up for the purpose of computing DDT.
- Income Tax: CBDT Clarification-additional income tax cannot be levied either on mutual fund redemption or at the time of allotment of bonus shares to the existing shareholders (vide circular No.6/2014 dated 11th February, 2014)
- Section 115R of the income-tax Act, 1961 (the Act) provides for levy of additional income-tax on distributed income to the unit holders. However, some field authorities are taking a view that mutual funds/specified companies are required to pay additional income tax under Section 115R(2) of the Act, not only on income distributed by way of dividend but also on payment made at the redemption /repurchase of units as well as the time of allotment of bonus units to existing investors.
- Further, the income so distributed by mutual fund or specified company in the hands of the recipient unit holder is specifically exempt from tax under Section 10(35) of the Act. Provision to section 10(35) of the Act stipulates that exemption of income under this section is not applicable to those cases where transfer of units takes place. The recipient of such income is liable to pay capital gains tax, if applicable, on transfer of such units as per the relevant provisions of the Act and shall not be subject to additional income-tax under section 115R of the Act. Similarly, bonus units at the time of issue would not be subjected to additional income tax under Section 115R of the Act since issue of bonus units is not akin to distribute of income by way of dividend. This may be inferred from provisions of Section 55 of the Act.
- RBI permitted issue of non-convertible/ redeemable bonus preference shares or debentures to non-resident shareholders under the automatic routePrior to issuance of this amendment, the companies required RBI approval for issue of bonus instruments to non-resident shareholders and RBI was considering the same on a case-to-case basis. However, RBI vide Circular dated 6 January 2014, has given a general permission to companies to issue of non-convertible/redeemable bonus preference shares or debentures (bonus instruments) to non-resident shareholders under the automatic route out of its general reserves under a Scheme of Arrangement approved by a Court in India under the provisions of the Companies Act, as applicable subject to no-objection from the Income Tax Authorities.
