GAAR: Applicability deferred to FY 2017-18 onwards. Exits made before March 31, 2017 won’t attract GAAR. All investments made upto March 31, 2017 will be protected from applicability of GAAR by amendment to be made in Income tax rules (to be notified).
Permanent Establishment Safe Harbour- Fund management activity undertaken in India by an eligible fund manager on behalf of an eligible offshore fund will not trigger business income taxation for the offshore fund in India.
Qualifying criteria for an eligible fund include:
- Fund is a non-resident of India (activities of fund manager in India will not itself result in the offshore fund being regarded resident in India).
- Fund must be resident if a country with which India has a treaty (including information exchange treaty).
- Indian residents cannot own more than 5% of the corpus of the fund.
- Fund must be subject to investor protection regulations in home country jurisdiction.
- Fund must have minimum 25 unconnected members.
- No individual investor (including connected person) can hold 10% or more in the fund.
- Participation interest of 10 or less members along with their connected persons shall be less than 50% of the fund.
- Fund cannot invest more than 20% for its corpus in any entity.
- Fund cannot invest in any associate entity.
- Monthly average corpus of the fund cannot be lower than INR 100cr.
- Fund does not undertake any other business in India.
- Fund does not undertake any other activity in India, which can result into a business connection in India and
- Fund remunerates the fund managers on an arm’s length basis.
Key qualifying criteria for the eligible fund manager include:
- Fund manager cannot be connected person of the fund.
- Fund manager must be registered as a fund manager or investment advisors with SEBI under the regulations stipulated for portfolio manager, investment advisor or such other regulations as my be specified by SEBI.
- Fund manager is not entitled to more than 20% profits earned by the Fund.
Residency of Foreign Companies: Any foreign company with place of effective management in India (“POEM”) at any time during the year will qualify as Indian resident- may not be entitled to claim tax treaty. Currently, only 100% management and control in India triggers residency. POEM linked to key management and commercial decisions of an entity as a whole. Specific exemption for eligible Fund Managers covered in 4 above.
Global Depository Receipts: Definition modified to cover only GDRs with underlying listed Securities- tax planning opportunity curtailed.
Tax Pass-through for AIF 1 and 2:
- Eligible for pass through only for capital gains and interest income (but not for business income)-Fund will have to withhold tax @10%
- Income received by the Fund to be exempted from TDS by portfolio companies (notification to be issued)
- Capital loss cannot be passed on to the investors- Fund will have to carry it forward for set off in future years.
- Business income taxable at trust level-correspondingly distribution of such income exempt for investors.
- Fund will need to file tax return.
Indirect Transfer Taxation related relaxation:
- Substantial assets in India deemed at 50%
- Small shareholders holding 5% or less, directly or indirectly, excluded from the indirect transfer tax.
- Indirect transfer taxation restricted to proportion of assets in India v outside India (rules to be prescribed).
- Reporting obligation on Indian entity in case of taxable indirect transfer.
- Exemption for capital gains income earned by FIIs only- Interest income and short term capital gains on NCDs of FII may be subject to MAT.
- Creates a larger issue for investors other than FIIs- like PE and FDI investors- current debate whether MAT is exempt under the Treaty.
- Income from AOP exempt from MAT.
- Effective corporate tax rate (including BDT and DDT) increased for domestic companies due to increase in surcharge by 2%.
- Corporate tax rates to b reduced from existing 30% to 25% over 4 years starting from April, 2016 accompanied by the removal of many incentive provisions (no change in the current year.
Income Computation Disclosure Standards (ICDS): CBDT notified 10 ICDS on March 31, 2015, which is applicable from FY2015-16.
- Applicable to all assesses following mercantile system of accounting.
- Applicable to compute income chargeable under the head of ‘Profit and gains of business or profession’ or ‘Income from other sources’
- In case of a conflict between the provisions of the Income Tax Act and ICDS, provisions of the Act shall prevail.
- Substantial disclosure norms prescribed under each ICDS- manner of disclosure not yet prescribed.
Specified Domestic Transaction: Transfer pricing provisions to apply for transaction above INR 20crores as against INR 5crores.
Direct Tax Code (DTC): DTC is history.
3) Corporate Law
Changes introduced by Companies (Amendment) Act, 2015:
- Requirement of minimum paid up Share Capital by a company done away with
- Requirement of Common Seal non-mandatory
- Certificate of commencement of business no longer required to be obtained
- Penal provisions has been introduced for contravention related to Acceptance of deposit by Companies
- No person shall be entitled to inspect or obtain copies of the Board Resolutions filed with Registrar
- No dividend to be declared unless brought forwards losses and depreciation not provided on previous year are set off against profit of the company for the current year
- Auditor shall report an offence of fraud to Audit Committee or Board of Director and same shall be forwarded to Government.
- Loan/ guarantee/security provided by the holding company to its wholly owned subsidiary exempted from restrictions under Section 185 of Companies Act 2013, provided loans are utilized or its principal business activity
- Special resolution for approving the related party transaction has been done away with (Section 185). Now even a board resolution valid
- No resolutions required if the accounts of holding and subsidiary company are consolidated and place before shareholders in general meeting for approval
Exemption/Relaxations for private companies notified by Ministry of Corporate Affairs (MCA):
- Issuance of equity shares with differential voting rights without complying with stringent conditions, if provided in MOA and AOA
- Holding, subsidiary, associate, fellow subsidiary companies are not subjected to related party transactions. Member being a related party can vote for approval of such transaction
- Resolutions on providing loans (i) to directors/persons in whom the directors are interested OR (ii) to any person for purchase of its own shares not applicable to private companies, provided
- No other body corporate has invested in the share capital of such company
- Its borrowings from banks/FIs/anybody corporate is less than the lower of twice its paid up share capital or INR 50 crs
- It has not defaulted on repayment of such borrowings subsisting at the time of making the transaction
- Acceptance of deposits from its members without complying with specified conditions, provided the deposits accepted do not exceed aggregate of paid-up share capital and free reserves details of the deposits accepted are filed with the Registrar
- Time limit to offer Right Issue- can be less than 15 days, provided approved by 90% members.
- ESOPs can be issued subject to an ordinary resolution
- Possible for a director to participate in a meeting where the contract in which he is interested is discussed, after disclosure of his interest.