Volume #16 | IssueNo. 306/2024 | November 2024
Yeh rishta kyaa kehlata hain…
(What is this relationship called?)
November was special with 2 milestone celebrations – Samhita turning 15 and our first team member reaching 15×4 ! I see lot of similarities between the two. They are consistent, resilient, grounded, adaptive, innovative (in their own ways) and committed. Rare to find gems. One (Samhita) created and nurtured by us and the other (senior citizen) joining us and growing through sheer providence ! Samhita has been my mouth-piece and I have talked a lot ‘about her’ and ‘through her’ on many legal topics, regulatory updates and musings, not to mention the diverse features introduced over the years (and dropped as well). It is time to turn the focus on THE MAN – the one and only MR.FIX IT of SCS&A 😊
He walked into my family exactly 3 decades ago to support my husband in his business venture – as an EMPLOYEE, leaving the rustic countryside to embrace a blossoming Bangalore (back then) life, making several adjustments and sacrifices along the way.
Over the years he lived with us, ate with us, slept with my two little boys, cared for them, watched over them during my absence in the day (owe my corporate life to him!), shared our joys and sorrows and became one of us. He was and is inseparable from us – a soul that providence sent us to take care and be cared for in return. He fondly became their UNCLE, my BROTHER.
He adapted himself as the need arose – getting the boys ready to school, ferrying them to their cricket practice, at times becoming a ‘he-nanny’, giving a helping hand in the kitchen, caring for them during their illness, sharing his vibrant village experiences and just being around for all of us – our MAN FRIDAY.
His deep interest and knowledge in farming converted our garden into a verdant green space dotted with plants and flowers of varying hues, providing the much needed soothing effect for all of us. Much later, this was extended to our office space when he joined us as No.1 EMPLOYEE (this time for me !). Thanks to his love for mother earth and his green thumb, our office space is surely a ‘neighbour’s envy and owner’s pride’ 😊 Seen to be believed ! There he was, donning the role of a GARDENER.
Over the last 17 years, his contribution has been immense – as an ACCOUNTANT, IT MANAGER, CHAIWALLAH (team misses his excellent chai on the weekends !), ADMIN OFFICER, PROCUREMENT MANAGER (from laptops, to electrical fittings to anti-virus software to furniture to keeping the snack box always filled!), TECH-ISSUES SOLVER, ELECTRICIAN, PLUMBER and what have you – MR. FIX IT.
While most of us play several of these roles, few can give the healing mother’s touch to someone battling a critical illness. During my entire cancer treatment months – he was around, caring for me, giving me medicines, making fresh juices through the day, working from home to ensure that I am not alone, waking up at night whenever I moaned in pain – he was no less than a MOTHER to me.
I can write reams about him. 30 years of life together cannot be encapsulated in words alone – it is a journey of emotions, thoughts, conversations, experiences that can be best expressed, only by reflecting at leisure. In today’s fast paced ‘reel world’, this is a humble, long form ode to a relationship that has manifested into several forms, growing deeper and stronger. Best described with this open-ended question…….Yeh Rishta kya kehelata hain (what is this relationship called) ?? If you ask me, it is : One in many and many in one !!
Now those who know him can identify the HE/HIM as Mr. Subramanya, the first pillar of SCS&A !!
As we reckon completion of 15 years of this Newsletter publication (Lexspeak turned Samhita), she has seen it all – from Legal Term to Incoterms, special articles, Best Buddy to Excel in English to Statutory Calendar. Some have survived. Some have passed on. Transient as Life. And at the core of all this remains the legal updates and my musings on all and sundry. This 306th issue carries updates from SEBI, IBBI, RBI, GST, IT, DGFT that were issued during November, 2024. For any previous issues of Samhita and the readers’ feedback, please visit http://www.sharadasc.com/resource-center/.
Happy Reading
S.C. Sharada
www.linkedin.com
Regulatory Updates
SEBI Updates
On November 4, 2024, SEBI has issued a circular outlining guidelines for mutual fund investments in overseas funds. This circular aims to promote transparency, prevent conflicts of interest, and protect investor interests.
Key Highlights:
- Eligibility: Indian Mutual Funds (“IMF”) can invest in Overseas Mutual Funds/Unit Trusts (“Overseas MF/UTs”) that have exposure to Indian securities, subject to certain conditions.
- Exposure Limit: Overseas MF/UTs must not have more than 25% exposure to Indian securities.
- Investment Requirements: To be eligible for investment by IMFs, Overseas MF/UTs must meet the following conditions:
a) Pooling: All investor contributions are pooled into a single investment vehicle, with no side-vehicles or segregated portfolios.
b) Pari-passu and Pro-rata: Investors have equal rights and receive returns proportional to their contribution.
c) Independent Investment Manager: Overseas MF/UTs must have an independent investment manager making autonomous investment decisions.
d) Public Disclosure: Portfolios must be disclosed to the public at least quarterly to maintain transparency.
e) No Advisory Agreements: No advisory agreements are allowed between IMFs and overseas MF/UTs to prevent conflicts of interest. - Breach of Limit: If an Overseas MF/UT exceeds the 25% exposure limit, IMF have a 6-month observance period to monitor portfolio rebalancing. If the limit is not rectified, IMF must liquidate their investments within the next 6 months.
- Non-Compliance: Failure to comply with these guidelines may result in penalties, including restrictions on fresh subscriptions and new scheme launches.
On November 11, 2024, pursuant to the Securities and Exchange Board of India Act, 1992 read with the SEBI (Foreign Portfolio Investors) Regulations, 2019, SEBI issued a circular outlining the procedure for reclassification of FPI investments to FDI as follows:
- Intent to Classify: The FPI shall submit its intent to reclassify its holdings to the Custodian, who shall report the same to SEBI.
- Freezing of purchase transactions: Upon receipt of the intent, the Custodian shall freeze purchase transactions by the FPI in equity instruments of the Indian company.
- Compliance with FEMA Rules: The FPI shall comply with the extant FEMA Rules and circulars for reclassification.
- Transfer of Equity Instruments: Upon completion of the reclassification, the Custodian shall transfer the equity instruments from the FPI’s demat account to its demat account maintained for holding FDI investments.
SEBI has issued a circular dated November 12, 2024, aimed at simplifying the registration process for Foreign Portfolio Investors (FPIs).
- Eligibility Criteria
FPI applicants belonging to the following categories are eligible for the simplified registration process:
a) Fund(s) operated by investing/non-investing Investment Manager (IM), wherein such IM or any fund operated by IM is already registered as FPI.
b) Sub-fund(s) of a master fund, wherein such master fund or any sub-fund of such master fund is already registered as FPI.
c) Sub-fund(s) or separate class(es) of shares or equivalent structure(s) with segregated portfolio of a fund, wherein such fund or any of its sub-fund or separate class of shares or equivalent structure with segregated portfolio is already registered as FPI.
d) Scheme(s) of insurance companies wherein the parent entity or any scheme of insurance company is already registered as FPI. - Simplified Registration Process
Eligible FPI applicants can opt for an abridged version of the Common Application Form (CAF), filling only unique fields. The remaining fields will be auto-populated from existing information or disabled, as applicable. - Explicit Consent
FPI applicants must provide explicit consent for using existing information and confirm that other details remain unchanged. - Implementation Standards
The pilot Custodians and Designated Depository Participants Standards Setting Forum (CDSSF) will formulate implementation standards in consultation with SEBI. - Effective Date
The provisions of this circular will come into force after three months from the date of the circular.
SEBI has introduced new guidelines on November 22, 2024, for stock exchanges, clearing corporations, and depositories based on the recommendations of the Committee on Strengthening Governance of Market Infrastructure Institutions (MIIs). To know more, read the highlights from below link.
(Open Highlights of SEBI)
(Open SEBI Guidelines dt November 22, 2024)
While there has been a surge in SME Listings and increased investor participation in such listings, there have also been instances of misconduct by such issuers. Issues such as diversion of issue proceeds to related parties /connected parties/shell companies and inflation of revenue by circular transactions through related parties/ connected parties/shell companies have been observed by SEBI. Accordingly, with a view to strengthen the framework, SEBI has released consultation paper vide Press Release dated November 19, 2024. Some of the key proposals are as follows:
- Minimum application size proposed to be increased from 1 lakh to 2 lakh or 4 lakh with a rationale that higher size will limit participation by smaller investors and attract investors with risk taking appetite
- Discontinuation of proportionate allotment for Non-Institutional Investors (NIIs) and introducing the draw of lot allotment methodology as currently in place for main board IPOs. The rationale for the same is that proportionate allotment tends to encourage over leveraging, over statement of interest and thus at times encourage mispricing.
- To increase the requirement of minimum 50 allottees in public issue to 200. This would ensure only companies where investors have interest get listed. Further the same would help in post listing liquidity.
- The purpose of setting up of SME Exchange was to make finance available to needy small and medium enterprises for their growth. However, it has been observed that promoters are diluting their stake through OFS which was not the objective. Accordingly, it is proposed that OFS in SME IPO may be restricted to 20% of the issue size as against present scenario where no limit has been prescribed.
- Considering only few SME IPOs have been of issue size more than 100 Crore, it is proposed to reduce the threshold for appointment of Monitoring Agency from more than 100 crore to more than 20 crore. This would bring in more transparency and reduce the risk of diversion of funds.
- To introduce requirement of conversion of outstanding convertible securities before IPO in line with Main Board IPO requirements and provide more clarity on capital structure of the issuer.
- RPT provisions under Regulation 23 of LODR Regulations proposed to be made applicable to SME listed entities other than those which have paid up capital not exceeding Rs. 10 crores and net worth not exceeding Rs. 25 crores. However, materiality threshold under Regulation 23(1) of LODR Regulations for approval by shareholders for RPT shall be only for transactions exceeding 10% of annual consolidated turnover, and not lower of Rs. 1000 crore or 10% annual consolidated turnover since SMEs may not enter into high value transactions exceeding Rs 1000 crores.
- Requirement to submit Shareholding pattern, Statement of deviation(s) or variation(s) and financial results on a quarterly basis, instead of the existing requirement of half-yearly basis on par with the Main Board listed entities.
Public can provide their comments/suggestions by December 04, 2024.
SEBI vide Notification dated November 28, 2024 has specified amendments to attestation requirements under various regulations. The requirement for notarized affidavits has been replaced with self-attested application in most of the regulations such as Custodian Regulations (1996), Credit Rating Agencies Regulations (1999), Substantial Acquisition of Shares and Takeovers Regulations (2011), KYC Registration Agency Regulations (2011), Buy-back of Securities Regulations (2018), Depositories and Participants Regulations (2018), Settlement Proceedings Regulations (2018), Delisting of Equity Shares Regulations (2021), and Index Providers Regulations (2024).
Pursuant to the above, an acquirer under SEBI (SAST) Regulations who seeks exemption from making an open offer for acquiring shares, and the target company, seeking relaxation from strict compliance with any procedural requirement under Chapter III and Chapter IV of the SEBI (SAST) Regulations, can now file only a self-attested application with the SEBI giving details of the proposed acquisition and the grounds on which the exemption has been sought.
A Foreign Portfolio Investor (FPI) is an investor that holds securities or other financial assets in a foreign country, typically with the intention of generating returns through dividends, interest, or capital appreciation, rather than exercising control over the issuing company. Investment made by the FPI should be less than 10 % of the total paid-up equity capital on fully diluted basis. Pursuant to regulatory requirements, FPI exceeding the 10% threshold must take corrective action within five trading days of the breach. In the event of breach of threshold limits, the FPIs have two options as follows:
- Divest their holdings to below the prescribed limit.
- Reclassify their holdings as Foreign Direct Investment (FDI), subject to adherence to RBI and SEBI guidelines.
On November 11, 2024, pursuant to the Securities and Exchange Board of India Act, 1992 read with the SEBI (Foreign Portfolio Investors) Regulations, 2019, SEBI issued a circular outlining the procedure for reclassification of FPI investments to FDI as follows:
a) Intent to Classify: The FPI shall submit its intent to reclassify its holdings to the Custodian, who shall report the same to SEBI.
b) Freezing of purchase transactions: Upon receipt of the intent, the Custodian shall freeze purchase transactions by the FPI in equity instruments of the Indian company.
c) Compliance with FEMA Rules: The FPI shall comply with the extant FEMA Rules and circulars for reclassification.
d) Transfer of Equity Instruments: Upon completion of the reclassification, the Custodian shall transfer the equity instruments from the FPI’s demat account to its demat account maintained for holding FDI investments.
Similar guidelines including reporting requirements have been issued by RBI, highlights of which may be referred from below link.
(Open SEBI Circular dt November 11, 2024)
(Open Highlights of RBI circular)
(Open RBI Notification dt November 11, 2024)
IBBI Updates
The Insolvency and Bankruptcy Board of India (IBBI) has introduced a centralized electronic listing and auction platform for the sale of assets under the liquidation process through its circular dated October 29, 2024. IBBI has collaborated with the Indian Banks’ Association (IBA) to facilitate the auction of assets through the eBKray platform which is in existence since last 5 years.
- Key Features of the Platform:
a) Centralized Listing Platform: The platform will host all assets being sold in liquidation cases, providing a single window for stakeholders to access information on available assets.
b) Detailed Asset Information: The platform will provide detailed information on assets, including photographs, videos, and geographical coordinates, enabling potential buyers to make informed decisions.
c) Online Listing and Auction: The platform will enable online listing and auction of assets, reducing the time and cost associated with the traditional auction process.
d) Enhanced Transparency and Efficiency: The platform will enhance transparency and efficiency in the liquidation process, enabling stakeholders to track the progress of the auction and sale of assets. - Implementation
a) Pilot Mode: The platform will be initially deployed in pilot mode and improved based on user experience.
b) Full-Fledged Rollout: The full-fledged rollout of the platform will be notified later.
c) Access to IPs: Insolvency professionals (IPs) can access the platform using their login details on the IBBI platform. - Directions to IPs
a) Listing of Assets: IPs handling liquidation processes must list the details of all unsold assets on the eBKray platform.
b) Timeline for Listing: IPs must list all assets within 7 days of submitting the asset memorandum to the Adjudicating Authority.
c) Use of eBKray Auction Platform: IPs may use the eBKray auction platform for the sale of assets in ongoing cases.
IBBI has proposed amendments to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, and the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017
The proposed amendments aim to streamline the liquidation process under the Insolvency and Bankruptcy Code (IBC) by addressing issues related to the auction process, compromise or arrangement schemes, and the management of unclaimed proceeds in the Corporate Liquidation Account and Corporate Voluntary Liquidation Account.
Key proposals include:
- Allowing prospective bidders to participate in the auction process based on an affidavit/declaration of their eligibility under section 29A of the IBC. This would reduce the time spent by liquidators in verifying documents for eligibility of bidders.
- Requiring the liquidator to file the final report along with Form H whenever an application for approval of a scheme of compromise or arrangement has been filed. This would enhance transparency and oversight through reporting, where a scheme under Section 230 of the Companies Act, 2013 is adopted instead of sale of the Corporate Debtor as a going concern.
- Permitting the IBBI to operate and manage the Corporate Liquidation Account and Corporate Voluntary Liquidation Account permanently, dispensing with the requirement of having these accounts within the Public Accounts of India. This is aimed at ease of Deposits, withdrawals and operations of these accounts where there are unclaimed proceeds.
- Allowing the IBBI to use the interest income on deposits made into the Corporate Liquidation Account and Corporate Voluntary Liquidation Account to create awareness among stakeholders about unclaimed proceeds and the process for claiming them.
The IBBI has invited comments from stakeholders on these proposals by December 9, 2024.
DGFT Update
DGFT has issued Trade Notice dated 14 November 2024, proposing to notify a harmonized Schedule-II (Export Policy) based on 8-digit ITC (HS) codes. This move aims to streamline the Export Control and Facilitation process, providing enhanced clarity for all stakeholders.
The proposed harmonized Schedule-II (Export Policy) will replace the description-based Export Policy, aligning with the latest tariff codes notified under the Finance Act 2024.
Tax Updates
Form 10-IC needs to be filed by Domestic Companies willing to opt for concessional rate of taxation u/s 11BAA at the rate of 22% and Form 10-ID needs to be filed by New Manufacturing Domestic Companies incorporated after 1st October 2019 who are willing to opt for the special tax rate of 15 % u/s 115BAB of the Income Tax Act, 1956. The CBDT vide circular dated November 18, 2024 has permitted condonation of delay for filing Form No. 10-IC or Form No. 10-ID for Assessment Years 2020-21, 2021-22, and 2022-23.
Key points include:
- Authorisation: The CBDT has authorized the Principal Commissioners of Income Tax (Pr. CsIT) and Commissioners of Income Tax (CsIT) to admit and deal with applications for condonation of delay in filing Form No. 10-IC or Form No. 10-ID for Assessment Years 2020-21, 2021-22, and 2022-23, where the delay is up to 365 days.
- Conditions for Condonation: The CBDT has specified conditions for condonation, including:
a) The return of income for the relevant assessment year has been filed on or before the due date.
b) The assessee has opted for taxation under section 115BAA or section 115BAB of the Act.
c) The assessee was prevented by reasonable cause from filing the form before the expiry of the time allowed. - Time Limit for Filing Application: No application for condonation of delay shall be entertained beyond three years from the end of the assessment year for which the application is made.
- Disposal of Condonation Application: A condonation application should be disposed of within six months from the end of the month in which the application is received by the competent authority.
CBDT has issued Notification dated November 19, 2024, specifying that the following forms must be furnished electronically under sub-rule (1) and sub-rule (2) of Rule 131 of the Income-tax Rules, 1962:
a) Form 42: Appeal against refusal to recognise or withdrawal of recognition from a provident fund
b) Form 43: Appeal against refusal to approve or withdrawal of approval from a superannuation fund
c) Form 44: Appeal against refusal to approve or withdrawal of approval from a gratuity fund
These forms shall be verified in the manner prescribed under sub-rule (1) of Rule 131.
CBDT issued a notification on November 12, 2024, granting tax-exempt status to the Petroleum and Natural Gas Regulatory Board (PNGRB) under section 10(46A)(b) of the Income-tax Act, 1961. This exemption is effective from the assessment year 2024-25, provided the PNGRB continues to fulfil its statutory functions as outlined in the Petroleum and Natural Gas Regulatory Board Act, 2006.
The PNGRB plays a crucial role in regulating India’s petroleum and natural gas sector. With this exemption, the board can reallocate resources to enhance its regulatory infrastructure and oversight capabilities.
Due date for furnishing the return of income u/s 139(1) of the Income-tax Act,1961 (the Act) in the case of an assessee who is required to furnish a report referred to in section 92E has been extended from November 30, 2024 to December 15, 2024 for the AY 2024-25.
GST Updates
GSTN vide Advisory dated November 05, 2024 has informed that with effect from April 01, 2025, taxpayers with an AATO of 10 crores and above would not be allowed to report e-Invoices older than 30 days from the date of reporting on IRP portals. It is further clarified that there would be no such reporting restriction on taxpayers with an AATO of less than 10 crores as of now.
GST Department has observed that some of the taxpayers have paid tax demand amount vide DRC 07/DRC 08 instead of using payment facility ‘Payment towards demand’ available on GST portal. This led to a situation where demand has been paid by the taxpayer, however the demand is not closed in the electronic liability register. A new Form GST DRC-03A has been introduced on GST portal to adjust the paid amount through DRC-03 against the corresponding demand order. Taxpayers have been advised to use the DRC-03A form to link the payment made vide DRC-03 with the demand order.
Invoice Management System (IMS) has been introduced from October 2024 on GST Portal, on which the invoices/records saved/furnished by the supplier can be accepted, rejected or kept pending by recipients. Based on the action taken on the IMS, system will generate the GSTR 2B on 14th of subsequent month. Further, the liability and input tax credit is being auto -populated in GSTR 3B of the taxpayer on the portal based on his liability declared in GSTR 1.
Considering it is a new functionality, presently the tax payer can edit wrongly populated details, if any in GSTR 3B before filing the returns.
Statutory Compliance Calendar
December 2024
Quote of the day
"Legacy is not leaving something behind for other people.
It's leaving something behind in other people."
- Peter Strople
Disclaimer: 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. S. C. Sharada & Associates disclaims all liability on action taken without professional advice.