A. TAX UPDATES
In this quarter, angel tax has been the topic of attention for the startup ecosystem. The following two changes are worth reporting:
V. No coercive measures on startups to recover demand w.r.t additions u/s 56(2)(viib), directs CBDT.
January 02, 2019: CBDT: CBDT directs AOs not to take coercive action till further instructions, to recover outstanding demand in case of start-ups if additions have been made u/s 56(2)(viib) after modifying /rejecting valuation under Rule 11UA; Also states that the matter is under consideration of the Board.
VI.Government eases process for startups to seek tax exemption
January 16, 2019: DIPP: Government eases procedure for start-ups to seek income tax exemption on investments from angel funds as part of efforts to address concerns of budding entrepreneurs. The application procedure has been simplified by making application to CBDT through DIPP. The earlier requirement for startup to submit a report from the merchant banker specifying the fair market value of shares has also been removed.
As per the revised procedure, a startup, which is recognised by the DIPP, would be eligible to seek exemptions, subject to certain conditions. Apart from INR 10 crore threshold for paid-up share capital and share premium, the conditions also include that:
• An Investor should have returned income of INR 50 lakh or more for the financial year preceding the year of investment.
• The net worth exceeding INR 2 crore or the amount of investment made/proposed to be made in the startup, whichever is higher, as on the last date of the financial year preceding the year of iinvestment/proposed investment.
Application for approval under this para shall be made in specified form to DIPP:
• Provided that in case the approval is requested for shares already issues by the startup, no
application shall be made if assessment order has been passed by assessing officer for the relevant financial year.
• The application of the recognised startup shall be transmitted by DIPP to CBDT with the necessary documents.
• The CBDT, within a period of 45 days from the date of receipt of application from DIPP, may grant approval to the startup for the purposes of clause (viib) of sub-section (2) of section 56 of the Act or decline to grant such approval.
B. REGULATORY UPDATES
I. The Companies (Amendment) Ordinance, 2018
November 06, 2018: MCA: Amendments to certain provisions of the Companies Act, 2013 have been carried out with effect from November 02, 2018. The key aim of the amendments are, as follows:
• Re-categorisation of certain offences, which are in the category of compoundable offences to an inhouse adjudication framework, wherein defaults would be subject to the penalty levied by an adjudicating officer.
• Instituting a transparent and technology driven in-house adjudication mechanism on an online platform and publication of the orders on the website.
YourNest India VC Fund II: Quarterly Report December 2018 16
Tax & Regulatory Updates
• De-clogging the National Company Law Tribunal by introducing certain amendments and enhancing the role of the Regional Director.
• Tackling the larger issue of “shell companies,” enhancing accountability with respect to filing documents related to charges, non-maintenance of registered office, etc.
II. Operating guidelines for AIFs in IFSC
November 26, 2018: SEBI: A circular issued specifying the operating guidelines for AIFs in IFSC. Circular providing guidelines in relation to: registration process, investment conditions, minimum investment and corpus requirements, set-up requirements for manager/sponsor of AIFs, requirement to appoint custodian, requirements for angel funds, and the overseas investments requirements.
III.Extension of deadline for transfer of securities only in demat form
December 03, 2018: SEBI: A notification issued extending the timeline from December 5, 2018 to April 1, 2019 to allow transfer of securities, other than transmission and transposition, only if they are held in dematerialised form with a depository.
IV.Report of the expert committee for listing of equity shares of companies incorporated in India on foreign stock exchanges and vice-versa
December 04, 2018: SEBI: Expert Committee submitted its report on listing of equity shares of companies incorporated in India on foreign stock exchanges and of companies incorporated outside India on Indian stock exchanges.
V. SEBI Board meeting
December 12, 2018: SEBI: SEBI in its meeting decided on certain matters such as creation of segregated portfolio by Mutual Funds, review of framework for Institutional Trading Platform, clubbing of investment limits for FPIs, review of framework for OFS of shares through Stock Exchange mechanism, consultation paper on uniform valuation methodology for pricing of Corporate Bonds, etc.
VI.FEMA Update – e-Commerce – Clarification issued by DIPP
January 04, 2019: DIPP: In relation to FDI in entities engaged in e-commerce, DIPP has issued clarification in support of PN 2 / 2018. The clarification specifies the following:
• e-Commerce platform operating on inventory-based model is a violation to FDI under e-Commerce section as well as under multi-brand retailing;
• PN 2/2018 is applicable only to entities which operate a marketplace for e-commerce and thus, FDI in other sectors continues to be governed by the specific provisions pertaining to them.