A site engineer writes to the design engineer

Sub : High Priority

“Steel roof and column already constructed. Kindly send us the foundation drawings.”

The picture says it all ! This is what is exactly happening with start ups. The company is incorporated, website is created, technology is developed, people are hired, marketing is done and customers

acquired. However no compliance process is put in place. In most cases, no share certificates are issued for long even to the founders. Money is infused into the business from time to time – only the founders do not know whether it is coming in as share capital or loan and from whom. They don’t seek professional help and assume it can be taken care of after a year or two when they can afford. With stringent provisions under the Companies Act, 2013 it is critical to decide from whom the money can be taken, how it can be taken and what compliances are to be met. This is just one issue. There are several such instances which make the foundation shaky. How can the structure stand then ?
Of late, frequently I am getting requests to ‘set right’ the records because an investor is showing interest. It is high time entrepreneurs take compliances more seriously and the Government also really ‘eases regulations’ for start ups. With the passing of the Insolvency and Bankruptcy Code, 2016, (highlights enclosed) Ease of Doing Business ranking is likely to go up but on ground-zero the situation has not changed much for the life of a start up.
Just scroll down to see the regulatory changes in the last fortnight – quite a few in this 148th issue. Should you wish to refer to any of our older issues of LexSpeak, do visit our Resource Centre at sharadasc.com.
Warm regards

Vide Press release dated 10.5.2016, a Protocol has been signed with respect to taxes on income and capital gains. The key features are:

  1. India gets rights to tax capital gain on alienation of shares acquired on or after 1.4.2017 in a company resident in India with effect from financial year 2017-18.
  2. Taxation of Capital Gain in full from financial year 2019-20 onwards
  3. For capital gains arising during the transition period from 1.4.2017 to 31.3.2019, tax rate would be 50% of the domestic tax rate in India subject to fulfillment of the conditions in the Limitation of Benefits Article.
Revision in due dates for filing quarterly returns with effect from 1.6.2016 :

  1. For Quarter ending 30th June : 31st July of the financial year
  2. For Quarter ending 30th Sept : 31st Oct of the financial year
  3. For Quarter ending 31st Dec : 31st Jan of the financial year
  4. For Quarter ending 31st Mar: 31st May of the financial year immediately following the financial year in which deduction was made.
Central Board of Direct Taxes (CBDT) has inserted Rule 26C specifying the documents that need to be furnished by the employee to the employer for the purpose of TDS on salaries as follows :

  1. HRA : Name, address, PAN of the landlord / landlords where the aggregate rent paid during the previous year exceeds Rs. 1 lakh
  2. LTA : Evidence of expenditure
  3. Interest on house property : Name, address and PAN of lender
  4. Deduction Under Chapter VIA: Evidence of investment or expenditure
    Further form 12BB being the statement of claims by an employee for deduction of tax Under Section 192 has been inserted under Rule 26c.
Income Tax department has decided that the income arising from transfer of unlisted shares would be considered under the head ‘Capital Gain’, irrespective of period of holding, with a view to avoid disputes/litigation and to maintain uniform approach. However, this approach would not be applied where :

  1. the genuineness of transactions in unlisted shares itself is questionable; or
  2. the transfer of unlisted shares is related to an issue pertaining to lifting of corporate veil; or
  3. the transfer of unlisted shares is made along with the control and management of underlying business and the Assessing Officer would take appropriate view in such situations.
Receipt of sums without deduction of tax at source : Section 195(3) provides that a non-resident receiving certain types of payment may apply to the Assessing Officer to receive such sums without deduction of tax at source. One of the conditions to be fulfilled for the purpose is that the recipient should not have been subject to penalty under Section 271(1)(iii) which relates to penalty for failure to furnish returns, comply with notices, concealment of income etc, This requirement has been removed.

Form GNL-1 (for filing an application with ROC for compounding of offences, Merger & Amalgamation, extension of time to hold the AGM etc.) and form GNL-4 (for filing addendum for rectification of defects or incompleteness) have been modified.
SEBI has clarified that a peer reviewed Practising Company Secretary (PCS) can also certify in place of a Practising Chartered Accountant wherever certification is required regarding compliance by a Company which makes the offer or allots shares for more than 49 and upto 200 members. Compliance referred to is in terms of para 7 of the circular dated 15th December, 2015.
In April, 2015 DGFT had notified the reward rates under the MEIS wherein exporters are rewarded with Duty Credit Scrips which can be used for payment of Custom Duties for imports, excise duties on domestic procurement of input or goods, Service tax on procurement of services. Now the ITC(HS) code wise list of products with reward rates (which has 5012 lines) has been modified. Some of the lines required submission of proof of landing as reward was not available for all markers. Henceforth, Landing Certificate shall not be required under MEIS.
List of services where payment has been received in Indian Rupees which can be treated as receipt in Deemed Foreign Exchange as per guidelines of RBI has been notified. These are services rendered in Customs Notified Areas to a foreign liner, payments for which are treated as deemed foreign exchange and eligible for issuing rewards under the Service Exports From India Scheme.
As per the consolidated FDI Policy Circular of 2015, entry route for Asset Reconstruction Companies (ARC’s) was automatic up to 49% and with Government approval beyond 49%. This condition has been removed enabling 100% FDI under the automatic route.
Note: The contents of this
Newsletter are only a summary and has not dealt with any issue in detail. Any action
taken or proposed to be taken must be in consultation with professionals and not
merely based on the articles / news updates. Lex Valorem disclaims all liability on action taken without professional advice.