Reduced Withholding Tax On Borrowings From Abroad and Long-Term Infrastructure Bonds

The Finance Act, 2012 has introduced section 194LC in the Income Tax Act. This section provides for lower withholding tax at the rate of 5% on interest payments by Indian companies on borrowings made in foreign currency by such companies from a source outside India. The lower rate of withholding tax is for monies borrowed or bonds issued during the period from 1.7.2012 to 30.6.2015. It is further provided that the rate of interest on such borrowings, for the purpose of eligibility under the section 194LC, shall be as approved by the Central Government. The Central Government has now issued guidelines for eligibility to reduced withholding tax rates and related matters vide its circular number 07/2012 dt. 21st September, 2012.

There are principally two modes of borrowing (referred to as “monies borrowed” in the said section) which are covered, subject to approval of the Central Government:

a. Monies borrowed under a loan agreement
b. Long term Infrastructure Bonds

Therefore, the approval of the Central Government is required in respect of both the loan agreement or bond issue and the rate of interest to be paid on such borrowings.

Considering the fact that there would be a large number of cases of overseas borrowings or bond issues to be undertaken by Indian companies, providing a mechanism involving approval in each and every specific case would entail avoidable compliance burden on the borrower/issuer of bond. In order to mitigate the compliance burden and hardship, the Central Board of Direct Taxes [with the approval of Central Government] has now conveyed the approval of Central Government for the purposes of section 194LC in respect of the loan agreements and issue of long term infrastructure term bond by Indian companies which satisfy the conditions mentioned in paras A, B and C below:

A. In respect of agreements for loan
a. The borrowing of money should be under a loan agreement.
b. The monies borrowed under the loan agreement by the Indian company should comply with clause (d) of sub section (3) of section 6 of the Foreign Exchange Management Act, 1999 read with Notification No. FEMA3/2000-RB viz. Foreign Exchange Management (Borrowing or Lending in Foreign exchange) Regulations 2000, dated May 3, 2000, as amended from time to time, (that is, “ECB regulations”), either under the automatic route or under the approval route.
c. The borrowing company should have obtained a Loan Registration Number (LRN) issued by the Reserve Bank of India (RBI) in respect of the Agreement.
d. No part of the borrowing has taken place under the said agreement before 1st July, 2012.
e. The agreement should not be restructuring of an existing agreement for borrowing in foreign currency solely for taking benefit of reduced withholding tax rates.
f. The end use of the funds and other conditions as laid out by the RBI under ECB regulations should be followed during the entire term of the loan agreement under which the borrowing has been made.

B. In respect of issue of Bonds
a. The bond issue by the Indian company should be authorized under ECB regulations either under the automatic route or under the approval route.
b. The bond issue should have a Loan Registration Number issued by the RBI.
c. The term “long term” means that the bond to be issued should have original maturity term of three years or more.
d. The bond issue proceeds should be utilized in the “infrastructure sector” only.
e. The term “infrastructure sector” shall have same meaning as is assigned to it by RBI under the ECB regulations.

C. Rate of interest
The Central Government has also approved the interest rate for the purpose of section 194LC as any rate of interest which is within the All-in-cost ceilings specified by the RBI under ECB regulations as is applicable to the borrowing by loan agreement or through a bond issue, as the case may be, having regard to the tenure thereof.

In view of the above, any loan agreement or bond issue, which satisfies the above conditions, would be treated as approved by the Central Government for the purposes of section 194LC. In the case of other long-term Infrastructure Bonds where the Indian company receives subscription of such Bonds in foreign currency and such bond issue is not covered under ECB regulations, the approval, for purpose of section 194LC shall be on case to case basis.

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

OVERSEAS DIRECT INVESTMENTS BY INDIAN PARTY-RATIONALISATION

RBI/2012-13/203
A.P. (DIR Series) Circular No. 29
September 12, 2012

To,
All Category – I Authorised Dealer Banks

Madam / Sir,

Overseas Direct Investments by Indian Party – Rationalisation
Attention of the Authorised Dealer (AD – Category I) banks is invited to the Notification No. FEMA 120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] (the Notification), as amended from time to time. It has been decided to amend the guidelines relating to submission of Annual Performance Report (APR) as under:

2. An Indian party, which has set up / acquired a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) overseas in terms of the Regulations of the Notification ibid, shall submit, to the designated Authorised Dealer every year, an Annual Performance Report (APR) in Form ODI Part III in respect of each JV or WOS outside India and other reports or documents as may be specified by the Reserve Bank from time to time, on or before the 30th of June each year. The APR, so required to be submitted, has to be based on the latest audited annual accounts of the JV / WOS, unless specifically exempted by the Reserve Bank.

3. The exemption granted for submission of APR based on the un-audited accounts of the JV / WOS subject to the terms and conditions as specified in the A.P (DIR Series) Circular No. 96 dated March 28, 2012 shall continue.

4. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 are being issued separately.

5. AD – Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

6. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any, required under any other law.

Yours faithfully,
(Dr. Sujatha Elizabeth Prasad)
Chief General Manager-In-Charge

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

OVERSEAS INVESTMENT BY INDIAN PARTIES IN PAKISTAN

RBI/2012-13/198
A. P. (DIR Series) Circular No. 25
September 7, 2012

To
All Category – I Authorised Dealer Banks

Madam / Sir,

Overseas Investment by Indian Parties in Pakistan

Attention of the Authorised Dealer (AD – Category I) banks is invited to the Notification No. FEMA 120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] (the Notification), as amended from time to time.

2. In terms of Regulation 6 (2) of the Notification ibid, “Notwithstanding anything contained in these Regulations, investment in Pakistan shall not be permitted.” It has now been decided that the overseas direct investment by Indian Parties in Pakistan shall henceforth be considered under the approval route under Regulation 9 of the Notification, ibid.

3. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security), Regulations, 2004 are being issued separately.

4. AD – Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned.
5. The directions contained in this circular have been issued under Sections 10(4) and 11(1) of the Foreign Exchange Management Act (FEMA), 1999 (42 of 1999) and are without prejudice to permissions/approvals, if any, required under any other law.

Yours faithfully,
Dr. (Smt.) Sujatha Elizabeth Prasad
Chief General Manager-In-Charge

Disclaimer:

Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

Form 23AC and Form 23 ACA filing date extended by Ministry of Corporate Affairs

As per General Circular No. 28/2012 dated 03.09.2012, the Ministry of Corporate Affairs has extended the last date for filing of e-Form 23AC (non-XBRL) and e-Form 23ACA (non-XBRL) without any additional fees /penalty to 15.10.2012 or 30 days from the date of AGM, whichever is later. This is applicable for reporting periods beginning on or after 01.04.2011 for which the revised Schedule VI has to be complied with.

Disclaimer:

Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.

Reopening of assessment only if tangible material justified the reopening according to Gujarat High Court

When can reopening of assesssment be done?

Current law provides for an intimation u/s 143(1) of the Income Tax Act, 1961. This intimation is not considered to be an assessment because it results from a prima facie checking of a tax return for arithmetical errors, correctness of TDS /Advance Tax claims etc. An interesting question is whether a reassessment u/s 147/148 should be made when an intimation has already been processed u/s 143(1)? In a recent judgment, the High Court of Gujarat has ruled that a reopening in such an event can be effected only if there is tangible material that justifies the reopening.

This will cause a lot of consternation to the revenue authorities. Quite often, assessees who have earlier received an intimation u/s 143(1) are subjected to scrutiny for reasons that may have nothing to do with evasion of income tax. It is also possible that the authorities may make use of reassessment proceedings merely because the regular assessment has become time-barred. When a refund is issued to an assessee, (which is happening quite quickly now), it may be presumed (although this is debatable) that the issue of refund is a result of an intimation u/s 143(1). By precedent set by the ruling of the High Court of Gujarat, the authorities would now have to ensure issue of notice for regular assessment before it becomes time-barred because reassessment option u/s 147/148 may no longer be available.

Of course, we may now expect a retrospective amendment in the law !!

Disclaimer:
Proteus Consultants and I are not responsible for any and all losses, claims, damages and liabilities arising out of or related to following anything that may be posted in this blog. If you rely upon anything posted here, you do so at your sole risk and responsibility.