June-2017-e-Journal-Digest

VVoolulummee-1-106 DecemJbuenre-2-2001167 PPaaggeess11-1-341SBS Interns’ For Private circulation only Digest An attempt to share knowledge By Interns of SBS and Company LLP

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SBS Interns' Digest www.sbsandco.com/digestCONTENTSGST....................................................................................................................................................1A BIRD'S EYE VIEW OF GST............................................................................................................................1DEBT EQUITY ADVISORY.....................................................................................................................4BITCOIN ALL THE WAY.................................................................................................................................4FEMA..............................................................................................................................................11NBFC REGISTRATION AND FEMA COMPLIANCES....................................................................................................11DIRECT TAXES..................................................................................................................................15OVERVIEW ON TAXABILITY OF SHARES .............................................................................................................15SERVICE TAX....................................................................................................................................21TAXABILITY OF SERVICES UNDERTAKEN BY SUB-CONTRACTORS THROUGH MAIN CONTRACTORS FOR UNITS IN SEZ...........................21...UPDATESFEMA..............................................................................................................................................26FEMA UPDATES......................................................................................................................................26COMPANIES ACT, 2013.....................................................................................................................28RULES, CIRCULARS, NOTIFICATIONSAND ORDERS ISSUED DURING THE MONTH OF MAY, 2017..................................................28INCOME TAX....................................................................................................................................29INCOME TAX UPDATES...............................................................................................................................29

SBS Interns' Digest www.sbsandco.com/digestGSTA BIRD'S EYE VIEW OF GST Contributed by Bhavani & Vetted by CA Manindar KGST is likely to be implemented with effect from 1st July 2017, as the Central Government passed the GSTbills in the parliament. From time to time the government is trying to analyse the impact of GST on theIndian Economy. It has also set up committees to study the industry wise effects of GST. This article ismainly focussed on basic concepts under GST.Threshold Limit:GST provisions shall be applicable if the taxable person makes supplies of goods and/or services and heshall be registered in the state/union territory and pay tax if his aggregate turnover in a financial yearexceeds 20 lakhs and the limit of 10 lakhs shall be applicable for special category states. “AggregateTurnover” refers to turnover of all the supplies made on his own account including exempt supplies andalso on behalf of his principals.Supply of Goods and/or Services:Under GST Law, the taxable event shall be supply of goods or services or both. Supply is defined to includeall forms of supply such as transfer, sale, barter, exchange, lease, rentals when they are for considerationin the course of or furtherance of business or commerce. Since, it is an inclusive definition; it would coverwithin its ambit all kinds of transactions involving supply of goods or services or bothSupply shall also include importation of services whether or not received in the ordinary course ofbusiness. Under existing law, service tax is not attracted on the importation of service for personalconsumption/non-business use as it is exempted via entry 34(a) of Mega exemption notification. Servicesof this nature are pulled into tax net under GST regime to align with customs duties, which is levied ongoods imported for personal consumption/non-business.Schedule I of the Act specifies certain categories of transactions which shall be considered as supply eventhough there is no consideration involved. Permanent disposal/transfer of business assets on which inputtax credit is claimed, transfers between related persons, principal agent transfers, importation of servicefrom related person or any of the related foreign establishments shall fall under this schedule.Schedule II of the Act specifies the categories of transactions which are to be considered as supply ofgoods or supply of services. In item 4 (transfer of business assets) of the said schedule, it clearlydemonstrates(a) when the business assets transferred permanently, such transfer shall be treated as supply of goods;(b) when the goods held for business transferred for private use, such temporary transfer shall be treated as supply of service;(c) In case, if the person carrying out the business ceases to be taxable person, all the goods forming part of assets shall be considered as supply made by him unless the business transferred to another person or carried out by successor. Here, it is speaking whether such transfer can be treated as supply or not and silent on the point, whether such supply should be treated supply of service or supply of good. 1 |Page

SBS Interns' Digest www.sbsandco.com/digest A Bird’sCo-EmypaeniVesieAcwt of GSTIn item 5(c) of the said schedule, Temporary transfer or permitting the use or enjoyment of anyintellectual property right is to be treated as supply of service. However there still exists ambiguity withrespect of treatment of intangibles other than intellectual property right whether to consider such supplyas supply of service or supply of good since, they have been left uncategorised and unattended.Transactions covered under Schedule III and activities undertaken by Governments or local authoritywhich shall neither considered to be supply of service as well as supply of goods.Mixed Supply and Composite Supply:The tax treatment in case of Mixed Supply and Composite Supply shall be different from each other.Composite Supply means a supply comprising of two or more goods or services of which one shall be aprincipal supply and they cannot have provided separately and bundled naturally in the ordinary courseof business. Principal supply shall be considered as a supply of such composite transaction and taxedaccordinglyMixed Supply means a supply of two or more goods or services for a single price. They can be providedseparately and not naturally bundled. Among those supplies, goods or services which attracts higher taxrate shall be considered as supply of such goods and taxed at that higher rate for the entire transactionaccordinglyWorks Contract:As per the definition, Works Contract shall cover only immovable property and the contracts are treatedas service even though material is involved and in case of movable contracts, ambiguity is on taxtreatment i.e. whether to consider such supply as supply of goods or supply of services.Input Tax Credit shall not be eligible to claim on works contract services if they are supplied forconstruction of an immovable property (other than plant and machinery).However, such services can beclaimed if they are provided as an input service for further supply of works contract service;Electronic Commerce:“Electronic Commerce”refers to supply of goods/services through digital/electronic network mode and“Electronic Commerce Operator” refers to a person who owns and manages the platform of ECommerce.In case of certain services as may be notified by the central government, the Electronic CommerceOperator shall be liable to pay tax (Reverse Charge Mechanism) on behalf on the supplier supplying thegoods and/or services through itSimilar to Income Tax, under GST law, Tax collected at source (TCS) concept is being introduced for someof the supplies. E Commerce transactions falls among them. E commerce operator shall collect onepercent of value of net value of supplies made through it and deposit the same to the government within10th day on the next month, provided he shall not be the agent of the supplier and consideration shall becollected by such operator. 2 |Page

SBS Interns' Digest www.sbsandco.com/digest A Bird’sCo-EmypaeniVesieAcwt of GSTZero Rated Supplies:Export of goods and/or services and supply of goods and/or services to SEZ unit or SEZ developer shall beconsidered as Zero Rated Supply under GST law.Event hough the zero rated supplies are exempted supplies, Input tax credit can avail refund under twooptions as detailed below:1. Refund of unutilised input tax credit without payment of IGST on supplies made.2. Payment of IGST on the supplies made and claiming the refund of tax paid.Job Work:Job Work Charges are considered as supply of services under GST law and taxed accordingly.The Principal can claim input tax credit on inputs sent to the job worker and he shall also be eligible toclaim even the inputs are sent to job worker premises directly, without bringing them to his place ofbusiness. Unlike current provisions, the principal cannot not supply such goods from job worker placedirectly to the customer unless he declares job worker place as his additional place of businessUnder GST law, the principal can transfer inputs and/or capital goods to job worker without payment oftax and subsequently he can further send to another job worker provided, such inputs and/or capitalgoods shall be returned back to the principal place within one year in case of inputs and within 3 years incase of capital goods. If not returned back with the said time limit, such inputs or input services shall bedeemed to be supplied on the date of being sent to the job worker and taxed according along with theinterest.Reverse Charge Mechanism:Under GST law also, for certain categories of services, Reverse Charge Mechanism shall be applicablewhere the recipient of supply shall be liable to pay tax on behalf of provider of supply. In section 8 subsection 3 of the revised model law., the recipient of goods and/or services shall be liable to pay and hisresponsibility cannot be shifted to any other person. Whereas under Service Tax Law, for reverse chargesmechanism, it shall be payable by any person “other than service provider” and such liability can beshifted to any person other than service provider.Conclusion:Now it is certain that GST is going to be effective at the earliest and it is very essential to have an ideaabout it. With this article, an attempt has been made to understand some of the basic concepts underGST.This article is contributed by Bhavani, Intern of SBS and Company LLP. The author can be reachedat [email protected] 3 |Page

SBS Interns' Digest www.sbsandco.com/digestDEBT EQUITY ADVISORYBITCOIN ALL THE WAY Contributed by Uday Kumar P & Vetted by CA Rajesh DBitcoin – for some people, this may be something makingthem exited and sleepless while for some others, it maybe the first time they have come across such a term.Many believe it to be the greatest digital invention whilesome are convinced of its failure in near future.Some see it as undisputed future global currency, manybelieve it as a better investment asset (digital gold) in factto be better than gold.Some say it is the ultimate solution to modern day tyranny, some say it only fuels terrorism(physical andcyber) and results in financial chaos while most other people are yet to know about what exactly a bitcoinis.Keeping aside the issue “whether the old world will kill the new currency or the new currency will createa new world”, it is true that Bitcoin (since its inception in 2009) has made a long way till today (almost 8years) and many economies started recognizing bitcoin as legal currency. In this regard, (through thisarticle) a humble attempt has been made to give a decent introduction to the freshers (for bitcoin) aboutbitcoin as crypto-currency, its mechanism, its past-present and future way, in simple language.What is bitcoin?Bitcoin is cryptocurrency, which is entirely digital (has no physical existence). It has been invented by anunknown programmer (or a group of programmers) under the name ‘Satoshi Nakamoto’. It has beendesigned to be completely decentralized currency, running on peer to peer system structure (with opensource software).Bitcoin simplified:(this is simplified version for easy understanding, certain concepts mentioned below are much morecomplex and varied)Introduction:• Bitcoin is digital currency, dealing with it is much similar todealing your money in your paytm or bank account. It can be transferred to any person, with a small transaction fee charged.• However, while your traditional money can exist in paper and digital form (interchangeability), bitcoin can exist only in digital form• While the traditional currency is created (printed) by the government (through central bank) and circulated, no one can create bitcoin except by mechanism called bitcoin mining.4 |Page

SBS Interns' Digest www.sbsandco.com/digest Bitcoins all the way• While the transactions in bank accounts are verified, processed and maintained by the banks, there is no central authority maintaining and processing the transactions of bitcoin. The transactions are verified by decentralized bitcoin miners who verify the transactions, record them in a public ledger (located decentrally in the servers worldwide) called “blockchain”.• Bitcoin exists on the hard drives of users all over the internet, each updating one another about new transactions and checking each others work. Ownership of Bitcoins is tracked on a public ledger (the “block chain”) that is distributed to all users of the system. When a transfer takes place, the transfer is added to the ledger and distributed to all users• One can get bitcoins in only two ways: o Bitcoins are traded worldwide on special bitcoin exchanges like coinbase, bitsquare, BTC etc. One can exchange the traditional currency with the exchanges and get bitcoins of that worth in his/her bitcoin account. Currently 1 bitcoin trades at just Rs. 1,68,185 only (on 26th May 2017). o Bitcoins are created as reward for the miners when the miner successfully verifies and integrates a block of transactions in to the blockchain (public ledger).Digging deeper into bitcoin mechanism – blockchain, mining etc:A bitcoin transaction can be understood by the following chain: 1) Wallets: Bitcoin wallets are similar to bank wallets used. It is password protected. It generates a unique digital address to be used on the network and contains a record of the owner’s bitcoin balance. 2) Keys: There are two types of keys inbitcoin network. A public key and a private key. o A public key (‘address’) can be understood as a bank account number (serves similar function). o A private key authenticates ownership of bitcoins – similar to the password to bank account.3) Submitting a transaction: For example, Mr Sai wants to send 10 bitcoins to Mr Ram, for him, all he has to do is to select the public key of the receiver and authenticate the amount with his private key. What actually happens backend is, the transaction is encrypted with sender’s private key and submitted on the bitcoin network for verification by the miners.5 |Page

SBS Interns' Digest www.sbsandco.com/digest Bitcoins all the way4) Mining: Confirmation of the transaction is done by the miners. What exactly happens in mining – lets see Several hundreds of active transactions are made into a block (consolidated) and the same is associated with a mathematical problem (more accurately a random hash algorithm). The solving of the problem based on a certain logic is purely based on computing power of the computer (don’t imagine the mathematical problem to be one that can be solved by human with a calculator). The protocol of Bitcoin requires using SHA – 256 hashing algorithm (too much technical indeed), to link the current block with previous block chain. This way, following an algorithm, blockchain in updated with a new block and now the miners start working on next block of transactions. This is a tedious job, done by the computer. Mining requires two things – fast computing powered system and lots and lots of electricity.5) Verification: Miners across the world compete to solve the algorithm. The first miner to solve the algorithm is rewarded (or rather compensated with bitcoins). This is the only way that bitcoins can come into existence. All the miners already working on the block will then verify the solution for any duplication and the block gets included in the blockchain only when 51% of the miners verify and confirm the block inclusion, after which the miners start with next block.Thus, in order to fool the bitcoin network and use a bitcoin spent already, one needs around 51% ofmining power at a time, achieving of which is far from reality at present, even after consolidation allthe computing power of 600 super computers of the world.6) Compensation:The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees. As of 9 July 2016, the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins will be reached, the record keeping will then be rewarded by transaction fees solely.Thus, by the bitcoin protocol (unless revised later), only a maximum of 21 billion bitcoins can begenerated. One need to know that, in order to earn reward, speed is the only thing that matters. Thesystems consume so much power that for many miners, the electricity bills exceed the reward.Fascinating features of bitcoin: ØBitcoin offers more flexibility in the quantity of amount you transfer.The unit of account of the bitcoin system is bitcoin. Small amounts of bitcoin used as alternative units are millibitcoin (mBTC),microbitcoin (µBTC, sometimes referred to as bit), and satoshi. Named in homage to bitcoin's creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoin, one hundred millionth of a bitcoin. (Currently, a satoshi is equivalent to 1.67 paisa and 1 bitcoin is Rs. 167,652. Thus, one can imagine the wide range of flexibility that bitcoin offers for amount that can be transferred.6 |Page

SBS Interns' Digest www.sbsandco.com/digest Bitcoins all the wayØ21 million – That is the total number of bitcoins that can generated (as per the bitcoin protocol). This is because - Every block introduces 50 new coins in the system. This quantity (50) halves every 210,000 blocks. This ensures that the currency’s value does not decrease, and instead will steadily increase over the period.ØUnlike banks (where the process of recording transactions is done by a specific authority), in Bitcoin’s case, anyone can offer their computers to record the transactions onto the database. Bitcoin has made this process extremely simple. All you need to do is run a software provided by the Bitcoin development team and run it. The people who offered their computers for this purpose were called ‘Miners’ and the process of recording transactions was called ‘Mining’.ØBitcoin offers the promise of lower transaction fees than traditional online payment mechanisms.By this time in our reading journey, one mighthave formed a good picture of what a bitcoin is,how does bitcoin system works out, now let usunderstand its genesis – why and how it cameinto this world.Genesis of Bitcoin:The root cause for the creation of and the fast booming of bitcoin lies in the term “ the global financialcrisis 2008”. Bitcoin has come up as an answer to address the following problems with traditionalcurrency:• Losing of faith on the banking system due to financial crisis and safety of value of currency threatened;• Reduction in value of money in hand and in circulation due to excess printing of currency by the sovereign.Let us understand the global crisis 2008 and how it led to bitcoin creation:Global economic crisis 2008 (vis a vis bitcoin):People deposit their money and surplus earnings in banks for safe keeping. Banks use the same forlending and safe investing in order to generate its income and to pay interest on deposits. The same hasbeen happening in US, and everything was right. However, lately the US banks started to give give outrisky loans to people to attract new customers (the sub-prime crisis) and due to inability of the borrowersto repay the money, the banks faced significant defaults on such loans, ultimately forcing them to file forbankruptcy.7 |Page

SBS Interns' Digest www.sbsandco.com/digest Bitcoins all the wayThe banks also invested the money in variousoppurtunities, some of which did not payoff, resultingin banks losing all the money. Alarmed by the increasingbankruptcy, the US government tried to save somebanks by bailing them out. The money which thegovernment offered to banks was people’s moneycollected in the form of taxes.It became like, the people’s money was again offeredto the mis-users of the people’s money to savethemselves and the economy. However, it was too lateto recover and since all major global economies areinter-related, it resulted in global meltdown.This resulted in dilution of people’s confidence on banking system and government regulation.Second factor that triggered bitcoin creation is that the fact that the actions of government constantlyaffect the value of currency. Government spends money for development of its country, its revenue beingtaxes collected from people. Now, when the government spends more money than its earns (whichhappens in most cases), to compensate the deficit, it may resort to printing of more money or takingloans. In the former case, it asks the central bank of the country to print more money, resulting in moreavailability of money with the people. (Note that there is no fixed limit to the amount of currency that aGovernment can print, printing of money is left to its own conscience).As a result of pumping of more currency, it reduces the value of currency already in circulation. Forexample, if total money in circulation is Rs. 100 and you own Re.1, then you own 1% of money in thecountry, which reduces to 0.5% when new currency of Rs.100 is printed and circulated (total money incirculation would become Rs. 200). This way, the value of our money is constantly depleted (silentlywithout our knowledge) by government actions, forcing us to work and earn more and more money thanearlier to satisfy our needs.These issues of safety and surety of money made people look for alternate money which addresses them.Bitcoin emerged at this time and has experienced exponential growth mainly due to its right time entry.When the world(or atleast US) was in confusion and doubt of the financial, banking and monetory systemexisting, in 2008, the idea of this new currency (‘bitcoin’), its core principles and set or rules (protocol)was released on a white paper, the programmer identifying himself as ‘Satoshi Nakamoto’ (though hisoriginal identity is unknown till date).Bitcoin addresses the above issues this way –As readin the earlier paras, no one controls bitcoins. Only the owner of bitcoins can transact with hisbitcoins in his wallet, thus no question of third party(like bank) using your bitcoins for investment purposeand losing them. Since the entire mechanism is decentralized, no government of this world controls thebitcoin, the bitcoins are created, transacted only as per the protocol of bitcoin.8 |Page

SBS Interns' Digest www.sbsandco.com/digest Bitcoins all the wayComing to the issue of decrease in value of money,Bitcoin solved this problem by fixing the maximumnumber of Bitcoins that could ever be in circulation andthe rate at which new Bitcoins would be produced. Themaximum number and the rate of production cannot gobeyond the set limit because of the coding used in itsdesign. Also, to ensure that no more Bitcoins would beproduced, this code is made visible to everyone for easyverification.This way, the value of each Bitcoin was dependent onlyon the supply and demand in the market and was freefrom all kinds of Government intervention like when theGovernment artificially alters the value of a currency forvarious reasons.Bitcoin rate from 2009 to 2017:o On June 2009 1 BTC = 0.0001 USDo On June 2013 1 BTC = 100 USDo On 26th May 2017 1BTC =2632 USDIssues with bitcoin:Volatility, acceptability and complexity are major issues that ordinary users face. Bitcoin isn't a verypractical payment technology for ordinary users. The software is too complicated, and the risk of loss dueto hackers, forgotten passwords, hard drive failures and so forth are too large. Also, Bitcoin is extremelyvolatile right now, so your wallet could go from having $100 worth of Bitcoins oneday to $50 the next.For this reason, bitcoin is widespreadly used for speculation (due to volatility) and as alternative to goldinvestment (due to exponential upward rise of price), rather than using it as substitute for real money. Notmany merchants and establishments are accepting bitcoins as mode of payment, reducing its usability.Legal status of bitcoin:Due to its very nature, bitcoin is highly unregulated. Anyone can transfer any sum of money to any personin the world at any time without coming into the knowledge of anyone.This is mainly because of reasons like no personal identity is required to be linked to bitcoin account, thetransaction details of origin are highly untraceable (subject to exceptions) and there is no central authoritymonitoring and regulating the activity. Many argue (which to a larger extent is true) that bitcoin usagefuels terrorism both physical and cyber.Coming to its recognition as legal tender, there is still widespread uncertainty in the world. Many countries(mostly EU, US, China, Australia etc have accepted (though not officially in all aspects) bitcoin as legaltender. China has permitted its people to transact in bitcoins (note that China has the largest number ofbitcoin users and largest number of transactions in bitcoins).9 |Page

SBS Interns' Digest www.sbsandco.com/digest Bitcoins all the wayIn India, uncertainty prevails over the issue of usage of bitcoin as legal tender, even to this date, whichhopefully seems to be cleared in a short period of time by the RBI.WannacryRansomwarecyber attack – bitcoin:As known to everyone, this may of 2017 the world has experienced what many say as the largest cyberattack, where over 104 countries are affected, India being one among them. This ransomware, whichexploited a vulnerability in the outdated windows os versions, had blocked all the data in the affectedsystems and to access the same, demanded for ransom ranging from 300 to 600USD to be paid in bitcoins.Thus, bitcoin’s anonymity has been used by the hackers, spurring concerns on its usage as legal money.To conclude –If there is this lot of fuss on bitcoin usage and its uncertain future –why one need to bother about bitcoins?Well, until the 1990s, the internet was not a practical technology for people to use. It used complexprograms and need a computer expert to use it. But, had it not been foolishness if someone thought thatthis internet can never be a success. Now the whole world is connected with interned and we all are living(being stuck) in a web (not really cob-web, but the world wide web).Had anyone imagined that mobile phones (more specifically smart phones) would become theindispensible part of one’s life in current modern day life, simplifying things and multiplying connectivity.Thus, though bitcoin’s probability of replacing the conventional currency in entirety is far beyond sight, onecan be sure that bitcoin or similar virtual currencies would soon impact your life directly or indirectly (morethan the nine planets’ impact on your life). Once again, lets see whether the old world will kill the newcurrency or the new currency will create a new world.This article is contributed by Uday Kumar P, Intern of SBS and Company LLP. The author can be reachedat [email protected] | P a g e

SBS Interns' Digest www.sbsandco.com/digestFEMANBFC REGISTRATION AND FEMA COMPLIANCES Contributed by Vaishnavi & Vetted by CA MuraliKrishna GRevised Registration Process of NBFC with Reserve Bank of India (RBI)As per the statement given in First Bi-monthly Monetary Policy Statement - 2016-17, RBI has simplifiedand rationalised the process of registration of NEW NBFCs. The number of documents to be submittedhas reduced from 45 to 7-8 documents. From the date of press release, non-deposit taking NBFCs (NBFC-ND) based on Sources of Funds & Customer Interface are classified as follows:a) Type I - NBFC-ND not accepting public funds / not intending to accept public funds in the future and nothaving customer interface / not intending to have customer interface in the future.b) Type II - NBFC-ND accepting public funds/ intending to accept public funds in the future and/or havingcustomer interface/intending to have customer interface in the future.In case if Type I- NBFC-ND companies intend to avail public fund or intend to have customer interface inthe future, they are required to take approval from Reserve Bank of India, Department of Non-BankingRegulation.Following forms have been revised and uploaded on the RBI website:a) Application formb) Documents required for registration as Type I - NBFC-NDc) Documents required for registration as Type II - NBFC-ND (including new applications of NBFC-MFI,NBFC-factor, NBFC-IDF)?In the case of CIC-ND-SIs, a separate application form has been prescribed.?The application form mentioned above shall be applicable to new applications of Type I - NBFC- ND and Type II - NBFC-ND (including NBFC-MFI, NBFC-Factor and NBFC-IDF).?The application for new NBFCs may be submitted to Central Office, Department of Non-Banking Regulation directly.?It is further advised that the checklists mentioned are indicative and not exhaustive.?In the event of the Reserve Bank calling for further documents in addition to those mentioned in the checklist, the applicant company must respond within a stipulated time of one month.Investment by Indian party engaged in Financial services sector (ODI Regulation):An Indian Party engaged in financial services sector in India may make investment in an entity outsideIndia which is engaged in financial services sector subject to the following conditions;11 | P a g e

SBS Interns' Digest www.sbsandco.com/digest NBFC RCoemgpiasntireas Aticot n and FEMA CompliancesIndian party:Øhas earned net profit during the preceding three financial years from the financial services activities;ØIs registered with the regulatory authority in India for conducting the financial services activitiesØhas obtained approval from the concerned regulatory authorities both in India and abroad, for venturing into such financial sector activity;Any additional investment by an existing JV/WOS or its step down company in the Financial ServicesSector shall be made only after complying with the above stipulated conditions.Periodical Compliances under ODI (IP/RI):?To file Annual Performance Report (Part II) on or before 31st December, following the financial year end.?To submit the proof of receiving the share certificates evidencing the ownership of investment in JV/WOS.?Is also required to file Closure / Disinvestment report (Part III) within 30 days of Disinvestment.?To file/ include the details of Overseas Investments in FLA and file on or before 15th of July.Foreign Direct Investment(FDI) in NBFC:FDI is permitted in NBFCs listed as Other Financial Services, w.e.f 10-01-2017, as per the respectiveregulations.?If the NBFC is not registered/ regulated by any regulator – FDI is permitted with prior approval of the Government only?No minimum capitalisation norms under FDI RegulationsFDI Process flow:Board Approval:Convening of Board Meeting to consider issue of shares to Investor and calling of EGM for obtainingapproval from Members (Section 42 read with Rules made there under).Valuation Report:• The company has to obtain valuation report from a Chartered Accountant to arrive at the value of shares proposed to be issued.• In case of listed company, the valuation >= the value decided under SEBI regulations• In case of Unlisted Companies, the valuation has to be done as per internationally recognized method of valuation (Ref RBI A. P. (DIR Series) Circular No. 4, dated 15/07/2014 and for justification of issue price, pursuant to provision to Sub rule (2) (a) of Rule 14 of Companies (Prospectus and Allotment of Securities) Rules, 201412 | P a g e

SBS Interns' Digest www.sbsandco.com/digest NBFC RCoemgpiasntireas Aticot n and FEMA CompliancesShareholders Meeting:• The company needs to call General Meeting (EGM/AGM as the case may be) to obtain the approval of members by way of special resolution.• The company shall file the approved members resolutions with ROC, within 30 days of Shareholder approval in Form MGT-14.Letter of Offer (LOO):The Board has to approve the LOO (in PAS-4) along with share application (serially numbered) to be sent tothe investor(s). The number of proposed offer to the investors cannot exceed 200 persons aggregate in a FY.Filing of LOO with ROC:Company has to prepare the details/record of LOO in Form PAS-5, and file the same with ROC along withthe LOO, within 30 days of circulation of LOO. The value of such offer or invitation per person shall be witha minimum investment size of Rs. 20,000/- of face value of the securities.Open Escrow bank a/c:The company has to open separate bank account (escrow account) to receive the proposed subscriptionand can adjust such money only either for allotment of shares or for refund of money.Remittance:The investor remits the amount into the Company in eligible currency.Intimation to RBI:• The company shall intimate RBI through AD within 30 days of remittance• The intimation to be made in Part IV: Annex I to Master Direction dated 01/01/2016.• The reporting shall be made online through E-Biz portal w.e.f 08.02.2016KYC:• The company needs to facilitate the AD to obtain KYC information of the remitter from their counterpart bank.• The KYC format is prescribed vide Part IV: Annex II to Master Direction dated 01/01/2016UIN:• RBI upon receipt of the intimation allots Unique Identification Number (UIN) for each such remittance and intimates the company.• This UIN has to be quoted at the time of filing the FC-GPR / refund of the money13 | P a g e

SBS Interns' Digest www.sbsandco.com/digest NBFC RCoemgpiasntireas Aticot n and FEMA CompliancesAllotment/ Refund:• The company shall allot Shares / CCPS / CCD within 60 days of the remittance failing which the money shall be refunded within 15 days thereafter (Section 42 of Companies Act, 2013 read with rules made there under)• As per FDI, the allotment has to be made within 180 days (w.e.f. 29-11-07)PAS-3:Return on allotment is required to be filed with the ROC within 30 days in Form PAS-3, along with theprescribed details/information of the Allottees [Filing pursuant to Sec. 42(9) and Rule 14 (4) of theCompanies (Prospectus and Allotment of Securities) Rules, 2014].Form FC-GPR:• The company after allotting the shares/ CCPS/CCD shall file form FC-GPR with AD through which received the remittance• The intimation to be made in Part IV: Annex III to Master Direction dated 01/01/2016Intimation from RBI:Upon receipt of the Form FC-GPR, RBI after scrutiny of the form, allots UIN for FC-GPR which shall be usedat the time repatriation by the investor.NBFC Regulations – Branch/ Subsidiary/JV abroad?RBI has issued NBFC (Opening of Branch/ Subsidiary/ JV/ RO or Undertaking Investment abroad by NBFC) Directions, 2011 detailing the following:?Opening of Branch by NBFCis not permitted?For opening of Subsidiary / JV / RO etc, by NBFC prior approval of RBI is mandatory?Investment in Non-Financial Services sector, by NBFCis Prohibited?The foreign entity need to be regulated in Host Country?Aggregate Investment Limit is 100% of NOF?The Liability of NBFC is restricted to Fund Based commitment only?The Foreign entity shall be operating entity and shall not be a Shell Company?Round Tripping of the funds shall not be involved?The foreign entity shall submit annual reports / periodical reports to NBFC?The foreign entity has to state suitable information in its Annual Reports related to exposure of NBFCThis article is contributed by Vaishanavi, Intern of SBS and Company LLP. The author can be reachedat [email protected] | P a g e

SBS Interns' Digest www.sbsandco.com/digestDIRECT TAXESOVERVIEW ON TAXABILITY OF SHARES Contributed by Madhuri A & Vetted by CA Ramprasad TIntroduction: Section 2(14) of the Income Tax Act “Act”, defines the term “capital asset” to include property of any kind held by an assessee, whether or not connected with his business or profession. However, capital asset does not include stock in trade, personal effects subject to certain exceptions.Transfer of securities - capital asset (or) stock-in-trade?Gain arising on transfer of shares or any other securities is taxable. It can be taxable under the head of‘Capital Gain’ or under the head of ‘Profits or Gains from Business or Profession’.It shall be taxable as Business income, if such shares are treated as stock in trade by assessee and he isinvolved in trading of shares and income from sale of shares is earned at regular intervals.Example: Intraday transactions can be treated as business income.It shall be taxable as capital gain, if such shares are treated as investments by assessee and sale of sharesduring previous year is unusual transaction for him.However, to bring clarification on this point whether such gain shall be taxed under the head of businessincome or capital gain, Central Board of Direct Taxes (CBDT) has issued one Circular No. 4/2007, Dated 15-6-2007. In this circular various principle are quoted which are to be considered by assessing officer indetermining whether assessee is a trader or investor which are as follows: • The first principle to verify as to how the shares were valued/held in the books of account i.e. whether they were valued as stock-in-trade at the end of the financial year for the purpose of arriving at business income or held as investment in capital assets • The second principle furnishes a guide for determining the nature of transaction by verifying whether there are substantial transactions, their magnitude, etc., maintenance of books of account and finding the ratio between purchases and sales. • The third principle suggests that ordinarily purchases and sales of shares with the motive of realizing profit would lead to inference of trade/adventure in the nature of trade; where the object of the investment in shares of companies is to derive income by way of dividends etc., the transactions of purchases and sales of shares would yield capital gains and not business profits.15 | P a g e

SBS Interns' Digest www.sbsandco.com/digest OverviCeowmpaonniesTAacxt ability of SharesAlso, CBDT has issued Circular 6/2016 Dated 29-02-2016, wherein, choice was given to assessee, onlyw.r.t listed shares and securities, that• Where assessee itself, irrespective of period of holding of listed shares and securities, opts to treat them as stock in trade, the income arising from transfer of such shares/ securities, would be treated as business income.• In respect of listed shares, where period of holding is more than 12 months, before transfer and assessee opts to treat it as capital gain, then income arising from transfer, would be treated as capital gain. However, this stand taken by assessee in one assessment year shall remain applicable in subsequent years also and assessee shall not be allowed to taken different stand.• However, such clarification was only with respect to listed securities (held for more than 12 months). In case of unlisted securities and listed securities held for less than 12 months, assessee shall refer Circular No. 4/2007, Dated 15-6-2007, which is based on judgmental approach i.e., intervals of transfer, whether regular or unusual, intension of resale etc., which shall continue to be decided keeping in view aforesaid circular by assessing officer.Summary of theCircular 4/2007 &Circular 6/2016: Listed/ Unlisted Option for Assessee Treatment for relevant Subsequent Ay’s(Period of Holding) AYListed Securities held for Assessee opts to treat it Business Income Circular is silent aboutmore than 12 months as Business Income the same Capital GainListed Securities held for Assessee opts to treat it Capital Gainmore than 12 months as Capital Gain Circular is silent about the sameListed Securities held for Assessee opts to treat it Business Incomeless than 12 months as Business IncomeListed Securities held for Assessee does not opt Assessee have to decide Capital Gain/ Businessless than 12 months for Business Income based on Circular No. Income 4/2007 (Judgmental approach)Unlisted Securities No Option Assessee have to decide Capital Gain/ Business based on Circular No. Income 4/2007 (Judgmental approach)16 | P a g e

SBS Interns' Digest www.sbsandco.com/digest OverviCeowmpaonniesTAacxt ability of SharesClassification of shares as Long term or short term capital asset:Capital Asset Period of Holding immediately Long term capital asset preceding the date of transfer (LTCA)/ Short term capital asset(STCA)Listed shares (listed in recognized Held for more than 12 months LTCA STCAstock exchange) Held for less than 12 monthsListed shares (listed in unrecognized Held for more than 36 months LTCAstock exchange)/Unlisted Shares* Held for less than 36 months STCAUnits of equity oriented mutual Held for more than 12 months LTCAfund Held for less than 12 months STCAUnits of debt oriented mutual fund Held for more than 36 months LTCA Held for less than 36 months STCAListed Securities like debentures, Held for more than 12 months LTCAGovt securities, units of UTI, zero Held for less than 12 months STCAcoupon bonds*Note: With effect from AY 2017-18, period of holding in case of unlisted securities will be taken as 24months instead of 36 months.Tax on short term capital gain:For determining the tax rate, STCG is classified as follows-• STCG covered under Section 111A – such gain is charged to tax at the rate of 15% (plus surcharge and cess as applicable)• STCG other than covered under Section 111A – such gain is charged to tax at normal rate i.e. based on slab rateTransaction covered for calculating STCG covered Transaction covered for calculating STCG otherunder sec 111A than covered under Section 111ASale of equity shares listed in recognized stock STCG arising on sale of unlisted equity shares (or)exchange, on which STT is paid listed on other than recognized stock exchange Sale of shares other than equity sharesSale of equity oriented mutual fund listed in STCG arising on sale of non-equity orientedrecognized stock exchange, on which STT is paid mutual fund (debt oriented fund)Sale of units of business trust STCG arising on debentures, bonds and Govt securitiesSale of equity shares, units of equity oriented STCG arising on sale of assets other than sharesmutual fund & units of business trust listed in i.e., immovable property, gold etc.recognized in stock exchange located in anyinternational financial service centre andconsideration is paid or payable in foreign currency(irrespective of STT charged or not w.e.f AY 2017-18)17 | P a g e

SBS Interns' Digest www.sbsandco.com/digest OverviCeowmpaonniesTAacxt ability of SharesAdjustment of STCG covered under sec 111A against the basic exemption limitConditions to be satisfied for adjustment:• Tax payer is a resident individual/HUF (whether ordinarily resident or not ordinarily resident)• Taxable income minus STCG covered under sec 111A is less than basic exemption limitIf above conditions are satisfied, the following shall be deducted from such STCG covered under sec 111AExemption Limit minus (Taxable income minus such STCG)After deducting the above amount, the balance amount of STCG shall be charged to tax @15% (plusSC+EC+SHEC)And hierarchy of adjustment shall be such that all the incomes other than STCG under 111A are to be firstadjusted and then balance amount of exemption limit can be adjusted with STCG under 111A.Illustration: Mr. A have salary income Rs. 15,000pm,income from sale of units of equity oriented mutualfund Rs. 4,50,000 (Period of holding is 10 months). Income from sale of preference shares listed in BSEamounting to Rs. 25,000 (period of holding is 8 months)Particulars Amount (in Rs)Income from Salaries 1,80,000Income from Capital gain 25,000 a) STCG not covered under sec 111A Sale of Preference Shares 4,50,000 6,55,000 b) STCG covered under sec 111A Sale of equity oriented units of mutual fund 2,50,000 (1,80,000)Taxable IncomeAdjustment to basic exemption limit: (25,000)Basic exemption limit 45,000Less: Salary incomeLess: STCG not covered under sec 111A 4,05,000Balance exemption to be adjusted against STCG 62,570under 111ATaxable Income after adjustment:STCG covered under sec 111ATax thereon @15% (plus EC+SHEC)18 | P a g e

SBS Interns' Digest www.sbsandco.com/digest OverviCeowmpaonniesTAacxt ability of SharesEquity oriented mutual fund means mutual funds u/s 10(23D), and 65% of its investments are made inequity shares of domestic companies.Deduction under sec 80C to 80U• For STCG covered under in sec 111A –No deduction allowed on such gain• For STCG not covered under sec 111A – Deduction can be claimed on such gainAs per section 45(2A) of Income tax act, in case of transfer of shares in demat form, for purpose ofcomputing capital gain, the cost of acquisition and period of holding of any security shall be determinedon the basis of FIFO method.Tax on long term capital gain:Long term capital gain covered under Sec 10(38)Income arising from following transactions is exempted provided such transaction are chargeable to STTunder chapter VII of finance (no. 2) Act, 2004:- • Sale of equity shares listed in recognized stock exchange, • Sale of equity oriented mutual fund listed in recognized stock exchange, • Sale of units of business trustHowever, such transactions are exempted if undertaken on recognized stock exchange located inInternational Financial Service Centre and consideration is paid or payable in foreign currency (irrespective ofSTT charged or not w.e.f AY 2017-18)With effect from AY 2018-19, third proviso is inserted, where exemption will be available only for suchtransactions (other than the acquisition notified by central government in this behalf), which are actuallyliable to securities transaction tax under chapter VII of finance (no. 2) Act, 2004,and such transactions areentered into on or after 1st day of October, 2004. 19 | P a g e

SBS Interns' Digest www.sbsandco.com/digest OverviCeowmpaonniesTAacxt ability of SharesHowever, LTCG tax under this section has been exempted in genuine cases, where STT could not have beenpaid like acquisition of shares in:?IPO, FPO, Bonus issue, right issue, acquisition by Nonresident in accordance to FDI policy of the government, takeover etc.,?Where the shares are directly credited to the investors’ Demat accounts (on fresh allotment) will be exempt from this rule.*International Financial Service Centre shall have the same meaning as assigned to it in clause (q) ofsection 2 of the Special Economic Zones Act, 2005 (28 of 2005)Transactions covered for calculating LTCG u/s 112 • Any security listed on recognized stock exchange • Any unit of UTI or mutual fund whether listed or not, (if units are transferred on or before 10- 07-2014) • Zero coupon bonds LTCG in hands of non-resident/foreign company is taxable @10% if such gain arises on transfer of unlisted securities & Indexation benefit is not claimedDeduction under sec 80C to 80U – No deduction with respect to LTCGAdjustment of LTCG against the basic exemption limitConditions to be satisfied for adjustment:• Tax payer is a resident individual/HUF (whether ordinarily resident or not ordinarily resident)• Taxable income minus LTCG is less than basic exemption limitIf above conditions are satisfied, the following shall be deducted from such STCG covered under sec 111AExemption Limit minus (Taxable income minus such LTCG)After deducting the above amount, the balance amount is chargeable to taxSummary of tax rates for capital gain transactions:S.No Particulars STT paid STT not paid Long Term Short Term Long Term Short With indexation Term Without indexationEquityShares Exempt U/s Taxable @ 10% 20% Slab Rates 15% U/s 111A Not applicable 20% Slab Rates1 (Listed) 10(38) Not Equity Shares Not applicable2 (Not Listed) applicableThis article is contributed by Madhuri A, Intern of SBS and Company LLP. The author can be reachedat [email protected] | P a g e

SBS Interns' Digest www.sbsandco.com/digestSERVICE TAXTAXABILITY OF SERVICES UNDERTAKEN BY SUB-CONTRACTORS THROUGH MAIN CONTRACTORS FOR UNITS IN SEZ Contributed by Sai Ram & Vetted by CA Manindar KIn the recent times, controversy gloomed up over the applicability of service tax for services provided bySub-Contractors on behalf of the Main Contractors to the SEZ units. Services provided by Maincontractors to SEZ units are exempt from payment of service tax under Notification 12/2013-ST dated01.07.2013. Majority of the Sub-Contractors are of the opinion that the services provided by them areconsumed directly by the Developer or Co-developer or unit in SEZ unit and are exempted from paymentof service tax. However, the Revenue Authorities are contending that these sub-contractors are liable toservice tax especially in the absence of any specific exemption in this regard, as the services are directlyprovided to Main Contractors but not to SEZ units.Analysis of the provisions in the Finance Act, 1994 and SEZ Act, 2005,Section 26(1)(e) in CHAPTER VI of the SEZ Act - Special Fiscal Provisions for Special Economic Zonesprovides for “the exemption from service tax under Chapter-V of the Finance Act, 1994 on taxableservices provided to a Developer or Unit to carry on the authorised operations in a Special EconomicZone”.On the other hand, Rule 10 of SEZ rules talks about exemption to sub-contractors of SEZ developer.“Provided further that exemptions, drawbacks and concessions on the goods and services allowed to aDeveloper or Co-developer, as the case may be, shall also be available to the contractors including sub-contractors appointed by such Developer or Co-developer, and all the documents in such cases shall bearthe name of the Developer or Co-developer along with the contractor or sub-contractor and these shallbe filed jointly in the name of the Developer or Co-developer and the contractor or sub-contractor, as thecase may be:”On combined reading of Section 26 with Rule 10, SEZ law carries the intention of providing exemption toservices provided in SEZ whether provided by a Developer, Unit or a Main Contractor or a Sub-contractor.In order to give effect to the provisions section 26(1), exemption is given only to services provided to SEZunits under Notification 12/2013.21 | P a g e

SBS Interns' Digest www.sbsandco.com/digest Sub-ConCtormapcatnoiress tAhctrough Main Contractors for Units in SEZ ?Furnish a declaration in Form A1 along with approved list of services as required for the authorised operations by Approval commitee to the special Officer of the SEZ;Form A1Form A2 ?Authorisation for the services mentioned in Form A1 is provided by jurisdictional Deputy Commissioner of Central Excise or Assistant Commissioner of Central Excise, as the case may be to the SEZ Unit or the Developer, in Form A-2;Service ?Copy of authorisation is provided to the service provider, thereby an exemption isProvider provided to Service Provider from charging of service Tax; ?A quarterly statement to be filed with jurisdictional Superintendent of Central Excise furnishing the details of specified services received by it without payment of service tax;Form A3Fails to fulfill ?If the SEZ fails to fulfill the conditions provided then, it shall pay to the government conditions an amount that is claimed by way of exemption from service tax and cesses along with interest as applicable on delayed payment of service tax.Thus, it is evident from the above provisions that all the relevant documents i.e. Form A1 & Form A2comprising the name of Developer or Co-developer and the contractor or sub-contractor has to besubmitted with the authorities in order to claim exemption.Incorporating the names of sub-contractors in forms A1 and A2 are not practically feasible. In most of thecases approval authorised operations would be obtained immediately after agreements for provision ofservices is entered into with Main contractors. Accordingly, Form A1 and A2 would also be processed bySEZ units to claim exemption. Whereas Sub-contractors are appointed by main contractors during theexecution phase.22 | P a g e

SBS Interns' Digest www.sbsandco.com/digest Sub-ConCtormapcatnoiress tAhctrough Main Contractors for Units in SEZServices being intangible in nature, the basic intention of the Central Government to frame suchprocedure is to ensure that the consumption of services has been done in the SEZ unit. No undue taxbenefit can be claimed by portraying the services used at DTA units as those used in SEZ units. But, if theService Provider (Sub-Contractor) be able to prove that the services have been provided and consumed inthe SEZ unit the requirement of such formalities may not be considered as substantial benefit of taxexemption on services received by SEZ cannot be denied for want of procedural compliances.If Service Tax has to be charged on the services which are not covered by Form A1 and Form A2. Then theimpact of the same is explained with the following example.Illustration: Uday Ltd is planning to setup an automobile industry in the SEZ Zone in Hyderabad whichrequires contractors for construction of factory buildings, the contractors are purely engaged in providingservices to the SEZ units. The Contractor has subcontracted the same to almost 120 subcontractors. Dueto some unexpected reasons, he hasn’t registered some of his Sub-Contractors in Form A1 & Form A2.The different scenarios have been explained below If service Tax is charged If service Tax is not If services are provided to Non- Particulars by Sub-Contractor (SEZ charged by Sub- SEZ unit Unit) Contractor (SEZ Unit) Amount Amount AmountCost to Subcontractor 10,00,000 10,00,000 10,00,000+ Profit of subcontractor(10% on cost) 1,00,000 1,00,000 1,00,000Gross Bill 11,00,000 11,00,000 11,00,000+ Service Tax (15%)Total bill to Main Contractor 1,65,000 0 1,65,000(-) Input services eligible for 12,65,000 11,00,000 12,65,000creditCost to Main Contractor 1,65,000* 0 1,65,000+Profit of Main Contractor 11,00,000 11,00,000 11,00,000(10% of cost)Gross bill of Main Contractor 1,10,000 1,10,000 1,10,000+ Service Tax (@15%) 12,10,000 12,10,000 12,10,000Total bill to the service receiver(-) Input services eligible 0** 0** 1,81,500Cost to the service receiver 12,10,000 12,10,000 13,91,000 0 0 1,81,500 12,10,000 12,10,000 12,10,000*As the main contractor is providing a service to an SEZ unit, he would be eligible to take CENVAT Credit asper rule 6(6A)) of the CCR,2004.** Assuming that ab-initio exemption is claimed by the Main contractor.23 | P a g e

SBS Interns' Digest www.sbsandco.com/digest Sub-ConCtormapcatnoiress tAhctrough Main Contractors for Units in SEZPoints to be carefully examined• As the Main contractor is purely providing services to the SEZ units, then he would have an accumulated credit and would not be able to utilize the credit in any manner.• There is no enabling provision which provides refund for the Service providers providing the service to the SEZ units.• Thus, the accumulated CENVAT Credit of the Main Contractor will get lapsed.• Ultimate burden of the service Tax is shifted to the Main Contractor which in turn be passed to the SEZ unit as a cost. This has been explained by the following scenario Particulars AmountCost to Subcontractor 10,00,000+ Profit of subcontractor (10% on cost) 1,00,000Gross Bill 11,00,000+ Service Tax (15%) 1,65,000Total bill to Main Contractor/ cost to the Main contractor 12,65,000+Profit of Main Contractor (10% of cost) 1,26,500Gross bill of Main Contractor 13,91,000+ Service Tax (@15%)Total bill to the SEZ unit 0(-) Input services eligible 13,91,500Cost to the SEZ 0 13,91,000On comparing the above scenario with the example supra, it can be observed that the cost to the SEZunit increased by (13,91,000 – 12,10,000) = 1,81,000. Thus, the burden of the tax charged by thesubcontractor is passed on to the SEZ unit which defeats the basic intention of the government of nottaxing the SEZ units.Thus, ambiguity prevails over the applicability of service tax on services undertaken by sub-contractorto main contractor who in turn providing services to SEZ. This issue came up for consideration in thecase of Shyam Engineers vs. CCE, 2014-TIOL-CESTAT-AHM, wherein it was held that – “On perusal ofthe records, we find that there is no dispute that the appellant is a sub-contractor and the maincontractor has provided services in relation to the contract executed in a special economic zone. Wealso find that the main contractor has given a certificate indicating that the appellant is asubcontractor and has given the services which are consumed by the main contractor in a specialeconomic zone. On perusal of notification no.09/2009-ST, we find that the said notification grantsexemption to the services rendered in a special economic zone and does not distinguish between acontractor and subcontractor. When there is no dispute as to the fact that the services are rendered to24 | P a g e

SBS Interns' Digest www.sbsandco.com/digest Sub-ConCtormapcatnoiress tAhctrough Main Contractors for Units in SEZa unit in special economic zone, we find that appellant has made out a prima facie case of the waiver of thepre-deposit of the amounts involved. The concerns of Ld. Departmental Representative as to whether theservices provided by the appellant would fall under authorized operations or not is a question which canbe considered at the time of final disposal of the appeal and the Ld. Counsel for the appellant is directed toproduce the entire list of authorized operations which has been approved by SEZ authorities, in this case.”However, it is noteworthy to mention that this controversy is going to be rested under GST regime.Section 16 of the IGST Act provides that supplies to SEZs are considered as zero rated and thereby themain contractors can provide services to SEZ units without charging GST. Further, with respect to GST ifany charged by sub-contractors while providing services to main contractors, unlike the current regime,the main contractor is entitled to claim refund of ITC or setoff the ITC with GST liabilities on supplies otherthan to SEZ. where by the Service provider providing services purely to the SEZ units is now eligible to takerefund of the ITC.Conclusion:Taking cognizance of the benefit extended under SEZ Act or the rules made there under, services providedto SEZ units are deemed as exports and accordingly exempted from service tax. However as discussedabove, the exemption is benefit is taken away in situations where sub-contractors are involved due toprocedural complexities. Hence ambiguity exists over the services of sub-contractor. It is welcomingmove on the part of Government as this anamoly is fixed under GST regime.This article is contributed by Sairam, Intern of SBS and Company LLP. The author can be reachedat [email protected] | P a g e

SBS Interns' Digest www.sbsandco.com/digestFEMAFEMA UPDATESI. Setting up of IFSC Banking Units (IBUs) – Permissible activitiesRBI vide Notification RBI/2016-17/273, DBR.IBD.BC.59/23.13.004/2016-17, dated April 10, 2017, haspermitted IBUs to operated both in Domestic Activities and IBUs as a single entity. As per para 6 of saidnotification (reproduced below), IBUs are permitted to provide various facilities to the entities operatingin IFSCThe following text is added at the end of paragraph 2.11 of Annex I and II of the RBI circularDBR.IBD.BC.14570/23.13.004/2014-15 dated April 01, 2015:“As per FEMA Notification No.339/2015-RB dated March 02, 2015, a financial institution or a branch of afinancial institution set up in the IFSC and permitted/recognised as such by the Government of India or aRegulatory Authority shall be treated as a person resident outside India. Further, under FEMA NotificationNo.5(R)/2016-RB (schedule-4) dated April 01, 2016, any person resident outside India, having businessinterest in India, may maintain Special Non-Resident Rupee Account(s) (SNRRA) with an AuthorisedDealer in the domestic sector for meeting their administrative expenses in INR. Accordingly, any financialinstitution (as defined under FEMA Notification No.339/2015-RB dated March 02, 2015) or a branch of afinancial institution including an IBU operating in an IFSC and permitted/recognised as such by theGovernment of India or a Regulatory Authority, can maintain SNRRA with a bank (Authorised Dealer) inthe domestic sector for meeting its administrative expenses in INR. These accounts must be funded only byforeign currency remittances through a channel appropriate for international remittances which wouldbe subject to the extant FEMA regulations. The financial institution can make payments, permissibleunder FEMA regulations, from its SNRRA, in its capacity as a customer, by suitably instructing thedomestic bank with whom the SNRRA is maintained.”For further details please refer to the aforesaid notification.II. Finances of Foreign Direct Investment Companies, 2015-16RBI vide press release number 2016-2017/2936 dated April 28th, 2017, has released the data relating tofinances of Foreign Direct Investment (FDI) Companies for the year 2015-16 along with the data for thecomparative years 2014-15 and 2013-14.The analysis is based on audited annual accounts of selected 6,433 non-government non-financial(NGNF) FDI companies. These entities accounted for 40.4% of the total paid-up capital of non-financialFDI companies reported in the Reserve Bank’s Census on foreign liabilities and assets of Indian directinvestment companies. The highlights relating to the performance of Non-financial FDI Companies hasbeen given in brief in the above mentioned Press release. An article analysing the performance of NGNFFDI companies at the aggregate and granular levels will be published in the June 2017 issue of the RBIBulletin.26 | P a g e

SBS Interns' Digest www.sbsandco.com/digest FEMA CUomppdaanitees sActFor further details, please refer the above mentioned press release.III. Proposed Regulations under Foreign Exchange Management Act, 1999 for Cross Border Mergers:RBI vide press release number 2016-2017/2909 dated April 26th, 2017, has released the draft guidelinesproposed to be issued on cross border merger transactions pursuant to the Rules notified by Ministry ofCorporate Affairs (MCA) through Companies (Compromises, Arrangements and Amalgamation)Amendment Rules, 2017.In pursuant with the draft guidelines released by RBI, Section 234 of the Companies Act, 2013 provides formergers and amalgamations between Indian companies and foreign companies as per the rules notifiedby MCA on April 13th, 2017.RBI has proposed these Regulations under the Foreign Exchange Management Act, 1999 (FEMA) in orderto address the issues that may arise when an Indian company and a foreign company enter into Scheme ofmerger, demerger, amalgamation, or rearrangement. These Regulations stipulate conditions that shouldbe adhered to by the companies involved in the Scheme. The Regulations shall be named ForeignExchange Management (Cross Border Merger) Regulations.The draft guideline includes the regulations pertaining to Inbound merger, Outbound merger andvaluation of the companies involving in the cross border mergers. Further, press release invites public,stakeholders and the experts to provide their views on the draft guidelines which are proposed to beissued.For further details on draft guidelines, please refer the above press release.These updates are contributed by Vaishnavi A and vetted by CA Murali Krishna G of SBS and Company LLP,Chartered Accountants. For any queries, please reach at [email protected] | P a g e

SBS Interns' Digest www.sbsandco.com/digestCOMPANIES ACT , 2013 RULES, CIRCULARS, NOTIFICATIONSAND ORDERS ISSUED DURING THE MONTH OF MAY, 2017RULESvThe Companies (Acceptance of Deposits) Amendment Rules, 2017,Dt: 11.05.2017:Vide the said amendment rules, the Ministry has amended the Companies (Acceptance of Deposits) Rules,2014 [Principal Rules], in Rule No.2, so as to exclude monies received by a Company from a InfrastructureInvestments Trusts, from the purview of Deposit; and amended the Rule No.5, by including a new proviso, inplace of the existing proviso, enabling Companies to accept deposits without deposit insurance contract tillthe 31st March, 2018 or till the availability of deposit insurance product, whichever is earlier.http://mca.gov.in/Ministry/pdf/CompaniesAcceptanceofDeposits_12052017.pdfCIRCULARSvCircular No.4 of 2017,Dt: 16.05.2017, Clarification regarding applicability of Section 16 (1) (a) of the Companies Act, 2013, with reference to cases under corresponding provisions of Companies Act, 1956:Vide the said Circular the Ministry has clarified that the applications which were rejected by the RegionalDirectors under Section 22 (1) (ii) (b) of the Companies Act, 1956[relating to rectification of names/companiesregistered with names that are similar to the names of companies which are already registered] on the groundthat the applications were made after the requisite period of 12 months in the section, cannot apply afreshunder the provisions of Section 16 (a) (a) of the Companies Act, 2013, as the already extinguished limitationcannot be considered to be revived even if no limitation period has been prescribed/laid down under Section16 (1) (a) of the Companies Act, 2013.http://mca.gov.in/Ministry/pdf/Circular04_2017_17052017.pdfvCircular No.5 of 2017, Dt: 16.05.2017, Transfer of shares to IEPF authority:Vide the said Circular, the Ministry has withdrawn the guidelines notified vide General Circular No.3Dt:27.04.2017, in connection with transfer of shares to IEPF authority, as the said guidelines are under reviewby the Ministry. http://mca.gov.in/Ministry/pdf/Circular_16052017.pdfvCircular No.6 of 2017, Dt:29.05.2017, Clarification regarding due date for transfer of shares to IEPF authority.As the procedure/guidelines for transfer of shares to IEPF Authority are being finalised, vide the said Circular,the Ministry has clarified that the revised due date for transfer of shares to IEPF Authority will be notified, andfurther the Companies were advised to complete all formalities as laid down in the Investor Education andProtection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, and further clarified that theCompanies which have already published notice in Newspaper and sent notices to the Shareholders, need notsend fresh notices again, due to the extension.http://mca.gov.in/Ministry/pdf/GeneralCircular6_29052017.pdfNo Notification and Orders were issued during the Month of May, 2017.These updates are contributed by CS D V K Phanindra of SBS and Company LLP, Chartered Accountants.For any queries, please reach at [email protected] 28 | P a g e

SBS Interns' Digest www.sbsandco.com/digestINCOME TAXINCOME TAX UPDATES1. CBDT has issued a circular no. 18/2017 dated 29th May, 2017 which supersedes the earlier circulars vide circular no. 4/2002 dated 16th July, 2002 and circular no. 7/2015 dated 23rd April, 2015 on the issue ‘Requirement of tax deduction at source in case of entities whose income is exempted under Section 10 of the Income-tax Act, 1961 - Exemption thereof’.And also, it has been decided that in case of below mentioned funds or authorities or Boards orbodies, by whatever name called, referred to in section 10 of the Income-tax Act, whose income isunconditionally exempt under that section and who are also statutorily not required to file return ofincome as per section 139 of the Income-tax Act, there would be no requirement for tax deduction atsource, since their income is anyway exempt under the Income-tax Act, 1961.(i) \"Local authority\", as referred to in the Explanation to clause (20).(ii) Regimental Fund or Non-public Fund established by the armed forces of the Union referred to in clause (23AA).(iii) Fund, by whatever name called, set up by the Life insurance Corporation of India on or after 1st August, 1996, or by any other insurer referred to in clause (23AAB).(iv)Authority (whether known as the Khadi and Village Industries Board or by any other name) referred to in clause (23BB); (v) Body or authority referred to in clause (23BBA).(vi) SAARC Fund for Regional Projects set up by Colombo Declaration referred to in clause (23BBC).(vii) lnsurance Regulatory and Development Authority referred to in clause (23BBE).(viii) Central Electricity Regulatory Commission referred to in clause (23BBG).(ix) PrasarBharati referred to in clause (23BBH)(x) Prime Minister's National Relief Fund referred to in sub-clause (i), Prime Minister's Fund (Promotion of Folk Art) referred to in sub-clause (ii), Prime Minister's Aid to Students Fund referred to in sub-clause (iii), National Foundation for Communal Harmony referred to in sub- clause (iiia), Swachh Bharat Kosh referred to in subclause (iiiaa), Clean Ganga Fund referred to in sub-clause (iiiaaa) of clause (23C);(xi) Provident fund to which the Provident Funds Act, 1925 (19 of 1925) referred to in sub-clause (i), recognized provident fund referred to in sub-clause (ii), approved superannuation funds referred to in sub-clause (iii), approved gratuity fund referred to in sub-clause (iv) and funds referred to in sub-clause (v) of clause (25);(xii) Employees' State Insurance Fund referred to in clause (25A)(xiii) Agricultural Produce Marketing Committee referred to in clause (26AAB).(xiv) Corporation, body, institution or association established for promoting interests of members of Scheduled Castes or Scheduled Tribes or backward classes referred to in clause (26B);(xv) Corporation established for promoting interests of members of a minority community referred to in clause (26BB).(xvi) Corporation established for welfare and economic upliftment of ex-servicemen referred to in clause (26888).(xvii) New Pension System Trust referred to in clause (44).29 | P a g e

SBS Interns' Digest www.sbsandco.com/digest INCOCoEmTpAanXiesUApctdates2. CBDT has issued a Circular vide No. 16/2017 dated 25th April, 2017 which states that Lease rent from letting out buildings/developed space along with other amenities in an Industrial Park/SEZ is to be treated as Business Income.3. CBDT has issued a Circular vide No. 15/2017 dated 21st April, 2017 regarding Clarification on removal of Cyprus from the list of notified jurisdictional areas under section 94A of the Income Tax Act, 1961.4. CBDT has issued a notification vide No. 5/2017 dated 29th May, 2017 regarding procedure for TDS and filing of ITR in case both the parents are dead of minor.It has been brought to the notice of CBDT that in cases of minors whose both the parents havedeceased, TDS deductors/Banks are clubbing the interest income accrued to the minor in the handof grandparents and issuing TDS certificates to the grandparents, which is not in accordance with thelaw as the Income-tax Act envisages clubbing of minor's income with that of the parents only and notany other relative.In exercise of the powers delegated by the Central Board of Direct Taxes (Board) under sub-rule (5) ofRule 31A of the Income-tax Rules, 1962, the Principal Director General of Income-tax (Systems)hereby specifies that in case of minors where both the parents have deceased, TDS on the interestincome accrued to the minor is required to be deducted and reported against PAN of the minor childunless a declaration is filed under sub-rule(2) of Rule 37BA of the I.T. Rules, 1962 to that effect.5. CBDT has issued a notification vide No. 6/2017 dated 30th May, 2017 regarding clarification on Declaration in Form 15G/H to be furnished to the Deductor/Payer for each Financial Year [i.e, depositor is required to file the details of all investments in form 15G/15H]When the income for each year changes, new Form 15G/15H has to be filed. Whenever the estimatedtotal income/aggregate income changes and new investments are made, one needs to file new Form15G/15H providing particulars of the same. However, in case of old investments he needs to providetotal number of earlier declarations filed in Form 15G/15H and aggregate income for which suchForm 15G/15H have been filed. Therefore, it is hereby clarified that the amended new forms15G/15H vide CBDT notification No. 76 dated 29th September, 2015 require the depositor to furnishthe details of all the investments up to that date including the current Fixed Deposit for which theForm 15G/15H is being given and which are to be listed in Form 15G/15H to enable thedeductor/payer to ascertain whether the Form 15G/15H can be accepted.6. Extension of due date for furnishing Statement of Financial Transaction (SFT) [i.e., filing Form-61A] for A.Y: 2017-18 to 30th June, 2017 vide Press Release dated 31st May, 2017.These updates are contributed by Venkat Krishna and vetted by CA Suresh Babu S of SBS and Company LLP,Chartered Accountants. For any queries, please reach at [email protected] | P a g e

SBS Interns' Digest www.sbsandco.com/digestSATURDAY SESSIONSS.No. Event Date Speaker Venue Hemanth SBS - Hyd Capital Structuring & 10/06/2017 Priya SBS - Hyd1 Audit - Code of Ethics (Part-1) 17/06/2017 Sai Ram SBS - Hyd 24/06/2017 Harini SBS - Hyd Section 54 & 54F of Income Tax Act, 1961 & Visweswara Rao SBS - Hyd2 Audit - Code of Ethics (Part-2) Registration under GST Act &3 Audit - Code of Ethics (Part-3) Statement of financial transactions (Form-61A) &4 01/07/2017 Audit - Code of Ethics (Part-4)5 Foreign Liabilities and Assets Statement & 08/07/2017 Audit - Code of Ethics (Part-5)Audit of Scarp Sales - Ashok Credit Rating Part-2 - Uday Kumar Overview on taxability of Shares - Madhuri31 | P a g e

SBS Interns' Digest www.sbsandco.com/digest By Team SBS© All Rights Reserved with SBS and Company LLPHyderabad: 6-3-900/6-9, #103 & 104, Veeru Castle, Durganagar Colony, Panjagutta, Hyderabad, TelanganaKurnool: No. 302, 3rd Floor, V V Complex, 40/838, R.S. Road, Near SBI Main Branch, Kurnool, Andhra PradeshNellore: 16-6-259, 1st Floor, Near Santi Sweets Opp: SBI ATM, Vijayamahal Centre, SPSR Nellore, Andhra PradeshTada: 8-3-425/2, Flat No. 202, 2nd Floor, Bigsun Avenue, Near SRICITY, TADA, SPSR Nellore Dist, Andhra PradeshVisakhapatnam: # 39-20-40/6, Flat No.7, Sai Yasoda Apartments, Madhavadhara,Visakhapatnam (Urban),Vizag, Andhra PradeshBengaluru: B104,RIRCO, Santosh Apartments, Wind Tunnel Road, Murugeshpalya, Old Airport Road, Bengaluru , Karnataka.Disclaimer:The articles contained in SBS Interns’ digest, are contributed by the respective resource persons and any opinion mentioned thereinis his/their personal opinion. SBS Interns’ digest is intended to be circulated among fellow professional and clients of the Firm, toprovide general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). Theinformation provided is not for solicitation of any kind of work and the Firm does not intend to advertise its services or solicit workthrough SBS Interns’ digest. The information is not intended to be relied upon as the sole basis for any decision. Before making anydecision or taking any action that might affect your personal finances or business, you should consult a qualified professionaladviser.SBS AND COMPANY LLP [Firm]does not endorse any of the content/opinion containedin any of the articles in SBS Interns’ digest,and shall not be responsible for any loss whatsoever sustained by any person who relies on the same.To unsubscribe, kindly drop us a mail at [email protected] with subject ‘unsubscribe’.