Tuesday, January 27, 2015

For Asst Year 2015-16 Explanatory notes to the Finance Act, 2014 by CBDT

CBDT has issued Circular 01/2015 on 21st January 2015 as explanatory notes to the Provisions of Finance Act , 2014 Applicable for Asst Year 2015-16. Important Changes are here under:

Rates of Income Tax as per Finance Act, 2014

Income-tax is required to be deducted for the financial year 2014-15 (i.e. Assessment Year 2015-16) at the following rates

1.    In the case of every individual, Hindu undivided Family, AOP, Body of individuals or artificial juridical person ( other than a co-operative society, firm, local authority and company):-  

A. Normal Rates of Tax:


Total Income                                                                              
For Individual, HUF and AOP
For Senior Citizen Age Above 60but less than 80 years
For Super Senior above the Age of 80 Years
Up to Rs.2.5 Lakhs
More than Rs.2.5 lakhs & Upto Rs. 3 Lakhs
More than Rs 3 lakhs & Upto Rs 5 lakhs
More than Rs 5 lakhs & Upto Rs 10 lakhs
More than Rs 10 lakhs

2.    Co-operative Societies:-
The rates of Income Tax are as follows:-
Income Chargeable to Tax
Up to Rs 10000
Rs 10000-Rs 20000
Exceeding Rs 20000

3.  Firms and Local Authorities  : Income Tax is @ 30%

Surcharge of Income Tax

The amount of income-tax shall be increased by a surcharge @10% of the income-tax on payments to an individual taxpayer, if the total income exceeds Rs 1 crore during FY 2014-15 (AY 2015-16).
However the amount of Surcharge shall not exceed the amount by which the total income exceeds Rs 1 crore and if surcharge so arrived at, exceeds such amount (assessee‘s total income minus one crore) then it will be restricted to the amount of total income minus Rupees one crore.

Eg. In case of a resident individual age below 60 years, calculation of Tax liability:-
                Total Income                     Income Tax and Surcharge
ü  Rs 10000000                        Rs 28,25,000
ü  Rs 10100000                        Rs 28,55,000 + Rs 285500=Rs 3140500 Restricted to Rs 2925000
ü  Rs 10200000                        Rs 28,85,000 + Rs 288500=Rs 3173500 Restricted to Rs 3025000
ü  Rs 10400000                        Rs 29,45,000 + Rs 294500=Rs 3239500 Restricted to Rs 3225000
ü  Rs 10500000                        Rs 29,75,000 + Rs 297500=Rs 3272500 No Restriction

E. Cess & SHE Cess on Income tax:  2% and 1% of the income-tax respectively. No marginal relief shall be available in respect of E. Cess and SHE Cess.

4.    Companies:-                                           Domestic      Other Than Domestic
Income Tax                                                         30%              40%
Taxable income
Exceeding Rs 1 crore but > Rs 10 crores                  5%               2%
Exceeding Rs 10 crores                                          10%               5%                                                        
Surcharge on Additional Income-tax :-
Where additional income-tax has to be paid u/s 115-O or 115-QA or 115R (2) or 115TA of the Act, that is to say, on distribution of dividend by domestic companies or distribution of income by a
·        -  company on buy-back of shares from shareholders or
·        - mutual fund to its unit holders or
·        - securitization trust to its investors
 the additional tax so payable shall be increased by a surcharge of 10% of such tax.

Certain Amendments with their explanations:-

Raising the limit of deduction under section 80C of the Income-tax Act

The limit of deduction U/s 80C has been raised from  Rs.1 lakh to Rs.1.5 lakh. So, consequential amendment made in section 80CCE (the payments / contributions made u/s 80C, 80CCC and 80CCD) of the Act. The limit of employer’s contribution to a pension scheme is retained at Rs. 1 lakh u/s 80CCD.

Deduction from income from house property
There has been appreciation in the value of house property and cost of finance has also gone up so, section 24(b)  has provided  to increase the limit of deduction on account of interest in respect of property referred to  section 23(2) of the Income-tax Act from Rs.1.50 Lac to Rs 2.00 Lac  .

Roll back provision in Advance Pricing Agreement Scheme

For solving the issues relating to the calculation of ALP Roll back mechanism is made. Sec. 92CC of the I.Tax Act has been amended to provide for roll back mechanism in the Advance Pricing Agreement scheme. The “roll back” provisions refer to the applicability of the methodology of determination of Arm's Length Price, or the ALP, to be applied to the international transactions which had already been entered into in a period prior to the period covered under an APA.

Extension of tax benefits under section 80CCD of the I.Tax Act to private sector employees

For employees in the private sector, the date of joining the service is not relevant for joining the New Pension Scheme, So Now amended Sec. 80CCD provide that the condition of the date of joining the service on or after 1.1.2004 is not applicable to them for the purposes of deduction under the said section.

Capital gains arising from transfer of an asset by way of compulsory acquisition
There was uncertainty about the year in which the amount of compensation received in pursuance of an interim order of the court is to be charged to tax, due to court orders.
Sec. 45(5) of the Income-tax Act, has been amended to provide that the amount of compensation received in pursuance of an interim order of the court/ Tribunal/other authority shall be deemed to be the income chargeable under the head ‘Capital gains’ in the previous year in which the final order of such court, Tribunal or other authority is made.

Transfer of Government Security by one non-resident to another nonresident

Explanation: - To facilitate listing and trading of Government securities outside India. A new clause(viib) has been inserted in Sec 47 of the I.Tax Act so as to provide that any transfer of a capital asset,  by a non-resident to another non-resident shall not be considered as transfer for the purpose of charging capital gains.

Disallowance of expenditure for non- deduction of tax at source
Explanation:-Only up to the amount of TDS the expenditure should be disallowed when tax is not deducted, before amendment full amount is disallowed which is not fair on the part of Tax payer.
So, Section 40(a)(ia) amended to provide that the disallowance shall be restricted to 30% of the amount of expenditure claimed in case of non-deduction of TDS  or non-payment of TDS on payments made to residents liable for TDS.

Corporate Social Responsibility (CSR)
Sec.  37(1) : Any expenditure by an assessee on the activities relating to CSR shall not be deemed to have been incurred for the purpose of business and hence shall not be allowed as deduction . However, the CSR expenditure which is of the nature described in section 30 to section 36 of the Income-tax Act shall be allowed as deduction under those sections subject to fulfillment of conditions specified.

Explanation:- CSR expenditure include
All expenditure including contribution to corpus projects or programs relating to CSR activities.
·         CSR expenditure, being an application of income, is not incurred wholly and exclusively for the purposes of carrying on business. So,CSR expenditure are not allowed as deduction for the purposes of computing taxable income of a company.
·         By CSR Companies are helping the Government to share the burden of social services. If such expenses are allowed as tax deduction, this would result in subsidizing of around one-third of such expenses by the Government by way of tax expenditure.

Taxability of advance for transfer of a capital asset
Prior to the amendment any advance retained or received was reduced from Cost of acquisition of the asset / the written down value / the fair market value of the asset.
New Section 56(2)(ix) : Any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset shall be taxable under the head ‘income from other sources’ if such sum is forfeited and the negotiations do not result in transfer of such capital asset.

Capital gains exemption on investment in Specified Bonds
Explanation: -
A proviso in section 54EC (1) of the Income-tax Act has been inserted to provide that the investment made by an assessee in the long-term specified asset, out of capital gains arising from transfer of one or more original assets, during the financial year in which the original asset or assets are transferred and in the subsequent financial year does not exceed fifty lacs rupees.

Contributed by Ms Tanya Gagneja  

Friday, January 23, 2015

Introductory Guide for Foreign Companies to do Business in India

Entry Strategies

Once your business has decided to invest in India, the next decision is determining the appropriate mode of entering the country. Some important entry strategies are:

  • Exporting
  • Licensing and Franchising
  • Management Contracting
  • Turnkey Contracts 
  • Fully Owned Manufacturing Facilities
  • Assembly Operations
  • Joint ventures
  • Mergers & Acquisitions
  • Strategic Alliance

To test the Indian market without investing large amounts from the beginning itself, it is advisable to open a Liaison Office or a Branch Office.

Liaison Office (LO)

Liaison office acts as a channel of communication between the head office and entities in India. It cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Its role is limited to:

·       Collecting information about possible market opportunities and providing information about the company and its products to prospective Indian customers.
·         Promote export/import from/to India
·         Facilitate technical/financial collaboration between parent company and companies in India.
·         Approval for establishing a Liaison Office in India is granted by Reserve Bank of India (RBI).

It is not permitted to: 
·         Earn any income; 
·         Undertake any industrial, trading or commercial activity; 
·         Enter into any agreement on behalf of the head office; 
·         Borrow or lend money for any commercial activity; 
·    Charge any fee or commission or otherwise earn any income, in respect of liaison activities carried on in India.

As the liaison office does not earn any income, the expenses at liaison office are met out of the funds received by Head Office from time to time through authorized banking channels.

Branch Office (BO)

Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes:
·         Export/Import of goods
·         Rendering professional or consultancy services
·         Carrying out research work, in which the parent company is engaged.
·    Promoting technical or financial collaborations between Indian companies and parent or overseas group company.
·         Representing the parent company in India and acting as buying/selling agents in India.
·         Rendering technical support to the products supplied by the parent/ group companies.
·       It is not allowed to engage in retail activities or carry out manufacturing or processing activities, directly or indirectly.

Branch Offices established with the approval of RBI may remit outside India profit of the branch, net of applicable Indian taxes and subject to RBI guidelines.

Reserve Bank has given general permission to foreign companies for establishing branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to some specific conditions.

Important Considerations for Setting Up of Liaison or Branch Office

Foreign entities desirous of setting up a Liaison Office or Branch Office are required to submit their application in Form FNC along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai through an Authorised Dealer bank. The applications from such entities in Form FNC will be considered by the Reserve Bank under two routes viz. Reserve Bank Route and Government Route.

Reserve Bank of India considers the track record of the applicant company, existing trade relations with India, the activity of the company proposing to set up office in India as well as the financial position of the company while scrutinizing the application.

Permission to set up Liaison Offices is initially granted for a period of 3 years and may be extended from time to time. The Branch/Liaison Offices established will be allotted a Unique Identification Number (UIN) and shall also obtain Permanent Account Number (PAN) from the Income Tax Authorities on setting up the offices in India.

The lead time in general for processing approval by RBI, Ministries of Finance, Corporate Affairs and Tax Department, etc. typically ranges from two to three months, depending on the inflow of information. 

Project Office (PO) 

Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. The central bank of the country, Reserve Bank of India (RBI), has now granted general permission to foreign entities to establish Project Offices subject to the following conditions.
         i.            the project is funded directly by inward remittance from abroad; or
       ii.            the project is funded by a bilateral or multilateral International Financing Agency; or
      iii.            the project has been cleared by an appropriate authority; or
     iv.            a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution or a bank in India for the project.

Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project.

Project Offices may remit outside India the surplus of the Project on its completion, general permission for which has been granted by the RBI.

Local Associate

Instead of opening a Liaison or Branch Office in India, you can also enter India by building a good relationship with a local associate, who can carry out all the functions of BO/LO like conducting market research, acting as a purchasing agent or providing technical support at a much lower cost. A formal agreement or Memorandum of Understanding with the Local Associate may be sufficient.

Company under the Companies Act, 2013

A company registered under the Companies Act, 2013 has a separate legal entity from the members who constitute it. The company is owned by its members or shareholders, who also appoint the Board of Directors. At the time of incorporation, names of the initial shareholders, first directors, registered office and the objectives for which the company is being formed are communicated to the Registrar of Companies.

You can choose from the different forms of companies viz. Private Limited, Public or One Person Company depending on the number of shareholders and restriction on transferability of shares.

The capital contribution for the company must be brought into India by transfer from a foreign bank account through normal banking channel.

A foreign business entity can act as the founder of the Indian company which will be fully owned (100% shareholding) by foreign citizens or companies. A foreign citizen can act as Director of such company. It is also possible to have a company with only foreign citizens as Directors. However, the Companies Act, 2013 requires every company to have at least one Director who has stayed in India for a total period of at least 182 days in the previous calendar year. Such a resident Director need not be a citizen of India and can be a citizen of any other country. However, for the sake of convenience, many foreign owned companies have an Indian shareholder and Director. Such Indian shareholder and Director is normally a professional with no investment in the company and holding only one token share of Rs. 10.

Sandeep Ahuja & Co. helps in setting up Companies, Branch Offices, Project Offices and Liaison Offices. It also has a team of Professionals who understand the Indian compliances in-depth and are competent to act as Professional Directors.

Sources of Financing

Local and Foreign Funding

An Indian company owned by foreign entities can borrow funds from banks and financial institutions in India or abroad by complying with the Reserve Bank of India (RBI) guidelines for the same.

The maximum amount of External Commercial Borrowing (ECB) which can be raised by a company other than those in the hotel, hospital and software sectors is US $ 750 million during a financial year. The limit for hotels, hospitals and software sector is US $ 200 million. ECB up to US $ 20 million in a financial year should be with minimum average maturity of three years. Borrowings beyond US $ 20 million should have minimum average maturity of five years. External Borrowings within these limits do not require any permission from any government authority.

ECB funds should be used mainly for import of capital goods, new projects and modernization/expansion of existing production units. These funds should not be used for the acquiring land.

Bank Accounts 

Ordinary Non-Resident Rupee (NRO) Account: NRO account does not require RBI approval. Funds kept in this account should be used for incurring expenses in Indian Rupees. They may be in the form of current, savings, recurring or fixed deposit accounts. Balances in these accounts are eligible for remittance abroad subject to some limits.

Non-Resident External Rupee (NRE) Account: Balance in NRE account can be freely repatriated outside India along with interest accrued without RBI approval. These are strictly for the use of Non-Resident Indians and companies or entities owned by them.

Exchange Earners’ Foreign Currency (EEFC) Account: Businesses that earn foreign exchange are allowed t maintain such accounts.


Income Tax

All incomes earned or received in India by any entity are subject to Income Tax. The rates and manner of computing Income Tax vary according to the nature of entity viz. individual, partnership firm, Indian company, Foreign company, etc.

A PAN (Permanent Account Number) has to be applied for with the Income Tax Department for registration in their records. Having a PAN is a mandatory requirement to carry out business as opening of bank accounts as well as registration with various other government authorities requires quoting of the Permanent Account Number in the applications.

Further, your business may also be required to obtain a TAN (Tax Deductor’s Account Number) from the Income Tax Department for compliance with laws relating to certain business payments. 

Service Tax, Excise & Customs

Service Tax is collected by the Service Provider from the Service Receiver and paid periodically to the government. If your business provides services over Rs. 1 million in a financial year, it is mandatory to get a Service Tax registration. Certain Service Receivers may also be required to obtain such registration irrespective of the amount of service turnover in a financial year.

Excise is a tax liable to be paid by manufacturing businesses on removal of goods from their factory or warehouse. Excise Registration is obtained from the Central Board of Excise & Customs.

Customs Duty is a tax levied on import and export of goods. 

Sales Tax

Sales Tax is levied on sale of goods. The rates at which the goods are taxed vary from state to state and depend on the type of product being sold.

Registration under Sales Tax is mandatory if your business plans to sell goods from one state in India to another.

Other Taxes & Legal Compliances

Other taxes applicable to your business may be Wealth Tax, Stamp Duty, Professional Tax, Property Tax, Octroi, etc.

Your business may also attract requirement of compliances relating to various other laws in the ambit of Labor Laws, etc.

Sandeep Ahuja & Co. provides services to take care of all tax related registrations and compliances that your business may require in India. You may contact any of our Partners or Offices at any time for any help in this regard.

For more details, refer to our Publication "How to Do Business in India?"

Wednesday, January 21, 2015

Foreign Director may Authorise any Resident Director or Professional to Intimate MCA by filing DIR -11

19 th January, 2015 MCA has notified Companies (Companies (Appointment and Qualification of Directors) Amendment Rules, 2015 in Rule 16.

Amendments have been made in Rule 16, Now Foreign Director may Authorise at the time of Resigning  any professional or Resident Director to file DIR 11.
Amendment has been made by adding the following words to Rule 16:
"Provided that in case a company has already filed Form DIR-12 with the Registrar under rule 15, a foreign director of such company resigning from his office may authorise in writing a practising Chartered Accountant/  Cost Accountant or Company Secretaries or any
other resident director of the company to sign Form DIR-11 and file the same on his behalf intimating the reasons for the resignation "

Tuesday, January 20, 2015

MCA Introduced AOC-5 For Notice of Address at which books of account are maintained

MCA has introduced AOC -5 on 17 Jan, 2015 which is required to intimate MCA address of a place where company maintains Books of Accounts if it is other than registered office of the company.

This time there is change in TAX AUDIT FORM -3CD. A New Column 11 B is introduced for reporting of Address at which the books of accounts are kept. Now MCA Introduced this Form AOC -5 for reporting of address where books of accounts maintained if otherwise than at registered office of the company.


If there is any change in the place of keeping all or any of the books of account in India besides the registered office then, the company shall, within seven days of passing the Board Resolution, file this form giving full address of that other place in form AOC-5.
Section-128  : Every company shall prepare and keep at its registered office Including that of its branch office or offices, if any, all books of account and other relevant books and papers and financial statement for every financial year with respect to :

ü  all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place;

ü  all sales and purchases of goods by the company;

ü   the assets and liabilities of the company; and

ü  in the case of a company engaged in production, processing, manufacturing or mining activities, such particulars relating to utilization of material or labor or other items of cost as may be prescribed by the Central Government, provided the Central Government so directs to any such class of companies or any particular company.

 Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken, the company shall, within seven days thereof, file with the Registrar a notice in writing giving the full address of that other place in form AOC-5.

Attachments to AOC -5
·         Copy of Board  resolution wherein a decision regarding address at which books of accounts are to be maintained has been taken is to be attached.
·         Any other information i.e address proof if rented or owned as per the case applicable

Filing Fee Of AOC -5 :
Filing fee as per  Companies (Registration of offices and Fees) Rules, 2014

Normal Fee
Company having Nominal Share Capital                                               Fee applicable
 Less than Rs. One Lac                                                                     Rs.200 per document
 Above Rs. One lac but less than Rs. Five Lac                                     Rs.300 per document
 Above Rs.Five lac but less than Rs. Twenty Five Lacs                         Rs.400 per document
 Above Rs.Twenty Five lacs but less than Rs. One Crore                      Rs. 500 per document
 Above Rs.One Crore                                                                         Rs. 600 per document

Additional fee applicable as per other forms for delay in filing