(A) SEBI Updates
1) Amendments to SEBI (AIF) Regulations, 2012
- Timeline and minimum corpus for declaring First Close of a scheme of an AIF to be prescribed
- Tenure of close ended schemes of AIFs shall now be calculated from date of declaration of First Close
- Change in manager/sponsor shall now require prior approval of SEBI
2) Guidelines for overseas investment by AIFs/VCFs:
SEBI has specified the conditions to be followed by AIFs and VCFs while investing in securities of companies incorporated outside India:
1. Requirement of the overseas company to have Indian connection done away with. Investment to be made in an overseas investee company which:
- Is incorporated in a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s Multilateral MoU or a signatory to the bilateral MoU with SEBI.
- Is not a company incorporated in a country identified in public statement of FATF as: jurisdiction having strategic AML or Combating the Financing of Terrorism deficiencies to which counter measures apply; or
- jurisdiction that has not made sufficient progress in addressing deficiencies or has not committed to an action plan developed with FATF to address deficiencies.
2. Sale proceeds received from liquidation of investment made in overseas investee company previously, to be available to all AIFs/VCFs (including the selling AIF/VCF) for reinvestment upto extent of investment made in said overseas investee company.
3. Furnish details of sale/divestment of overseas investments to SEBI, in format specified (Annexure B):
within 3 working days of divestment, going forward; and within 30 days from date of circular for all overseas investments sold/divested till date.
3) Recognition granted as an Accreditation Agency under SEBI(AIF) regulations
NSDL Database Management Limited, a wholly owned subsidiary of National Securities Depository Limited, has been granted recognition as an “Accreditation Agency” under Regulation 2(1)(aa) of SEBI (Alternative Investment Funds) Regulations, 2012 read with SEBI circular dated August 26, 2021
4) Requirement of Compliance Officer for Managers of all AIFs
All AIFs to ensure that Manager to AIF designates an employee or director as Compliance Officer
(person to be other than CEO or such equivalent role)
The compliance officer shall be responsible for monitoring compliance with the provisions of the SEBI Act, AIF Regulations and circulars.
(B) Tax Updates:
1) Revised guidelines issued for compounding of offences under the IT Act
Some of the key changes under the revised guidelines are as follows:
- Offence punishable under section 276 of the IT Act now been made compoundable i.e. option available to avoid prosecution by paying the prescribed fine in case where the taxpayer fraudulently removes, conceals, transfers or delivers any property or interest therein, to thwart tax recovery by the tax department.
- Scope of eligibility for compounding widened – case of an applicant convicted with imprisonment for less than 2 years being previously non-compoundable, now been made compoundable.
- Time limit for acceptance of compounding applications increased from 24 months to 36 months from the date of filing of complaint.
- Specific upper limits introduced for compounding fee covering defaults across several provisions of the IT Act.
- Additional compounding charges in the nature of penal interest @ 2% per month up to 3 months and 3% per month beyond 3 months reduced to 1% and 2% respectively.
2) Notification of CII for FY23
CBDT notified the cost inflation index, used for the purpose of indexation while computing capital gains, for financial year 2022-23 as 331.
3) Reduction in time limit for verification of ITRs from 120 days to 30 days
Time limit for verification of ITRs where the return is electronically transmitted has been revised:
|If return is filed before 1 August 2022 (i.e., upto 31 July 2022):||120 days from the date of filing of the ITR.|
|If return is filed after 1 August 2022||30 days from the date of filing of the ITR|
4) Assessee qualifies as ‘VCU’, hence section 56(2)(viib) would be inapplicable on share premium received from VCF
Delhi ITAT held that if the company falls within the definition of ‘VCU’ as defined in explanation to section 10(23FB) of the Act read with clause (n) of Regulation 2 of SEBI (Venture Capital Funds) Regulations, 1996, the share premium received from VCF doesn’t attract section 56(2)(viib).
5) Mauritius updates on distribution from AIFs
Mauritius Revenue Authorities issued a clarification (by way of Communique) that income which is distributed by a foreign fiscally transparent entity shall retain its initial character in Mauritius (i.e. any capital gains distributed by a foreign fiscally transparent entity to a Mauritian resident shall be treated as capital gains in Mauritius).
(C) Other Updates:
1) Amendments in corporate law requirements and filings to give effect to Press Note 3
To curb opportunistic takeovers/acquisitions of Indian companies, Government of India introduced Press Note 31 (‘PN3’) whereby all foreign investment from countries sharing land border with India (‘Neighbouring Countries’) was required to be made through government approval route.
To give further effect to the provisions and intent of PN3, Ministry of Corporate Affairs (MCA) has incorporated various changes in corporate law requirements/filings, such as:
- Restriction on Offer
- Restriction on directorship in Indian companies
- Declaration in forms to be filed
2) Harmonisation of Startup definition in various laws
The Department for Promotion of Industry and Internal Trade (‘DPIIT’) vide Notification, inter alia, provided the definition of “Startup”.
As per the said definition, an entity will be considered as a “Startup” on satisfaction of the following conditions:
- Upto a period of 10 years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India; and
- Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded Rs 100 crores; and
- Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.