Monthly Archives: August 2020

[vc_row][vc_column][vc_column_text]The Cabinet on Wednesday approved key changes in India’s foreign direct investment (FDI) policy by easing investment norms across sectors including aviation, construction and single brand retail among others.

The Narendra Modi-led government has allowed 100 percent FDI under automatic route for single brand retail trading and construction development. Currently, for single brand retail, FDI up to 49 percent is allowed under automatic route

Similarly, foreign airlines can now invest up to 49 percent via government approved route in Air India. In addition, foreign institutional investors (FIIs) can now invest in power exchanges through primary market and definition of ‘medical devices’ has been amended in the FDI policy, the government said in a release.

 

These amendments are government’s broader strategy to liberalise and simplify the FDI policy to facilitate ease of doing business and turn India into a global investment hotspot.

The government has decided to allow single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 percent of purchases from India.

Hence, incremental sourcing will imply an increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies.

After completion of this 5-year period, the single brand retail trading entity shall be required to meet the 30 percent sourcing norms directly towards its India’s operation, on an annual basis,” the government release said.

According to experts, FDI in single brand retail trading sector will now gain momentum as the government has removed various procedural hurdles.

“The approval through automatic route with respect to single brand retail trading will quicken the FDI clearance process as no prior government approval would be required. We expect that FDI in single brand retail trading sector will now gain further momentum due to the process not being subject to regulatory scrutiny and approval process,” Rabindra Jhunjhunwala, Partner, Khaitan & Co said.

In case of the aviation sector, foreign airlines currently can make investment up to 49 percent of their paid up capital via government route in Indian companies operating scheduled and non-scheduled air transport services. However, the provision was not applicable to Air India, implying that foreign airlines could not invest in the national carrier.

“It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49 percent under approval route in Air India subject to the conditions that foreign investment(s) in Air India including that of foreign Airline(s) shall not exceed 49 percent either directly or indirectly. Substantial ownership and effective control of Air India shall continue to be vested in Indian National,” the release said.

In 2016, the government had brought FDI policy reforms in a number of sectors such as defence, construction, insurance, and pension, other financial services, asset reconstruction companies, broadcasting, civil aviation, as well as pharmaceuticals.

During April-September, 2017-18, FDI inflows grew 17 percent on year at USD 25.35 billion. In the financial year 2016-17, total FDI inflows hit an all-time high of USD 60.08 billion, as compared with USD 55.46 billion a year ago.[/vc_column_text][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]The government has closed the small savings window for non-resident Indians (NRIs). Till now, NRIs were allowed to keep their PPF accounts and NSCs but not extend them after maturity. The new rules say that existing PPF accounts will be deemed closed and NSCs will be treated as encashed when one becomes an NRI. These investments will now earn just 4% till maturity

These new rules add to the long list of financial discrimination that NRIs face in India. The tax rules for NRIs are quite different from those that apply to resident citizens. Though there is no tax on foreign income, the tax reporting is very elaborate, the TDS rules are quite stiff and NRIs don’t enjoy some of the tax privileges that normal citizens are eligible for

For instance, NRIs are also not eligible for certain tax deductions, including medical treatment of disabled dependent (under Sec 80DD), treatment of family member suffering from specified diseases (under Sec 80DDB), disability of self or dependent (under Sec 80U) or royalty income (under Sec 80QQB).

TDS can be a pain Tax deduction at source (TDS) is a major pain point for NRIs. Resident investors in stocks and mutual funds are not subjected to TDS, but NRIs are. Short-term capital gains from stocks are subject to 15% TDS, while those from debt funds and debentures, gold and property are slapped a higher rate of 30%. Even long-term gains from property and gold are subject to 20% TDS. The TDS on the interest on bank deposits is only 10% for resident Indians, but NRIs have to cough up 30%

If an NRI earns rent from property in India, the tenant has to deduct 30% TDS from the payment. The various procedures required add to the problems. NRIs need to submit Form 15 CA for remittance of their rental income

In certain cases, a certificate is also necessary wherein a chartered accountant certifies the details of the payment, TDS rate, and TDS deduction as per Section 195, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of the remittance

The TDS can be particularly painful for older individuals whose income doesn’t fall in the tax net. Unlike resident Indians, NRIs cannot submit Form 15G or H to escape the TDS. Even a person earning less than Rs 2.5 lakh a year will be subjected to 20-30% TDS

 

How to avoid TDS 

One way NRIs can avoid the high TDS is by being the second holder in joint investments. For all investments, the tax liability is always that of the first holder’s. If the first holder is a resident Indian, the gain will not be subjected to any TDS. Similarly, if the NRI is the second holder in a property, the TDS will not apply unless the rent is above Rs 50,000 a month

Another way to escape tax is by investing in the name of adult children or spouse, if they have resident status. It is also a good idea to gift fixed deposits to major children or parents before going on an overseas assignment. NRIs are not allowed to hold resident fixed deposits

If one already holds a fixed deposit jointly with a resident family member, the bank may allow the deposit to be held till maturity, but not renew it further. If an NRI still wishes to hold a deposit jointly, then he can open an NRO (non-resident ordinary) savings account, with the resident family member as a second holder

Mutual funds can be bought with the resident Indian as primary holder and the NRI as the joint holder. However, equities cannot be held jointly because NRIs who want to trade in the Indian stock markets have to register with a bank offering portfolio investment schemes.

Keep in mind that the joint holding is only to escape TDS. Both investors and property owners would ultimately have to bear the tax liability on the income.

 

Claim tax benefits

Though NRIs are beaten by the TDS stick, they also get some carrots. The interest earned on NRE account is tax-free and continues to be exempt for two years after the individual returns to India

It’s best to retain deposits held in foreign currency in the NRE account to earn tax-free interest for two more years. After two years, when the tax status changes, these deposits can be moved to the regular savings account.[/vc_column_text][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]NRI Inc. helped NRI to remit funds on Sale of Property without waiting of Lower TDS Certificate

Facts of the case:

NRI wanted to sale his property amounting to Rs 2.00 Crores and had applied for Lower deduction of Tax on 20.02.2020 to enable deduction of less than 20.8% of TDS.

The Registry date was 12.03.2020 and the client approached us on 28.02.2020. Further, he had to leave few days in advance for his hometown due to a global pandemic, which had started spreading globally.

The client had applied for the Lower TDS deduction which normally takes 30 days to get processed.

 

Outcome:

NRI Services Inc. analyzed all the information provided by the client

 

By making use of certain Apex Court judgments and the intricate provisions of Income Tax, found out solution to enable client get the maximum proceeds from the sale of property.

 

As a result, the NRI Client did not have to wait for lower TDS deduction and was able to remit the complete sale proceeds from sale of property. NRI Services Inc also got his remittance documents processed within 2-3 days.

 

Not only he reached home safe and sound, but NRI services Inc took care of his worry of TDS deduction and also avoided the blocking of his funds in the form of TDS Credit. The money had reached his bank account before he could reach home.

Further, the client did not had to again get the remittance of the funds back after the due TDS claim, as and when it would have got credited to him.[/vc_column_text][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]Presently, an Income Tax Assessee can only file return for last 2 years and claim refund if any due and not beyond that. In case he missed to file return within prescribe timeline he has no choice other than to forget his refund claim. Income Tax Department in Latest circular No 9/ 2015 has guided on how an assessee who has failed to file return and claim Refund according to section 119(2) (B) can now make an application and get Refund due up to last 6 Assessment years.

 

STEP ONE: FILE AN APPLICATION

In case the amount is less than Rs 10 Lacs for any one assessment year, the application shall be made to the Pr.CIT/CIT. CIT will review the application & communicate with reason for acceptance/ rejection of such applications/claims. In case the amount is more than Rs 10 Lacs the Application shall be made to Chief Commissioner of Income Tax. In case the amount is more than Rs 50 Lacs than the application has to be filed with CBDT.

 

STEP TWO: FILE ITR UPTO LAST 6 YEARS

Condonation application can be filed up to six previous years. Even Loss can be claimed for carry forward. The officer will ensure that the income/loss declared and /or refund claimed is correct and genuine and also that the case is of genuine hardship on merits.

 

STEP THREE: CLEARENCE FROM AUTHORTIES

The power of accepting or rejecting the condonation application of delay shall be subject to following Condition that the Income of Assessee is not assessable in the hands of other person under any provision of Income Tax Act. Further no interest will be admissible on belated claim of refunds and the refund has arisen due to excess payment of Advance Tax or Self-Assessment Tax or due to excess deduction of TDS.

 

STEP FOUR: SUPPLEMENTARY CLAIMS

A belated application for supplementary claim of refund (claim of additional amount of refund after completion of assessment for the same year) can be admitted for condonation provided other conditions as referred above are fulfilled. Assessee will not receive interest on belated claim of refunds.

 

STEP FIVE: CUMULATIVE INTEREST BEYOND SIX YEARS

In the case of 8% Savings (Taxable) Bonds, 2003 issued by Government of India opting for scheme of cumulative interest on maturity but has accounted interest earned on mercantile basis and the intermediary bank at the time of maturity has deducted tax at source on the entire amount of interest paid without apportioning the accrued interest/TDS, over various financial years involved, the time limit of six years for making such refund claims will not be applicable.[/vc_column_text][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]The Union Cabinet on Thursday approved a relaxation of policy on investment proposals from Persons of Indian Origin ( PIOs) and Overseas Citizens of India ( OCIs), treating them at par with Non Resident Indians ( NRIs) in this regard.

 

The amendments will lead to greater foreign exchange remittances and investment. The investment under the amended norms will be treated as domestic at par with investment made by resident Indians.

 

NRIs are Indian citizens; the other two are not. “ The decision that NRI includes OCI cardholders as well as PIO cardholders is meant to align the Foreign Direct Investment ( FDI) policy with the governments stated policy to provide PIOs and OCIs parity with NRIs in ( the) economic, financial and educational fields,” was the official statement after the meeting, chaired by Prime Minister Narendra Modi.

 

The government also approved an amendment to Schedule 4 of the Foreign Exchange Management Act (FEMA) Regulations, that NRI investments would be “deemed to be domestic investment made by residents”.

 

“The measure is expected to result in increased investments across sectors and greater inflow of foreign exchange remittance, leading to economic growth of the country… This will enable investments by NRIs, OCI cardholders and PIO cardholders under Schedule 4 on a non repatriation basis, across sectors, without being subjected to any of the conditions associated to foreign investment,” the Cabinet said.

 

The idea is to encourage NRIs owning business ventures abroad to put money here, too, by giving them domestic investment treatment. Presently, under Schedule 4 of FEMA, investments by NRIs are made on a non- repatriation basis, though it has not been provided that these are domestic investments.

Between April 2014 and February 2015, the FDI equity inflow was $ 28.8 billion, a rise of nearly 39 percent over the same period in 2013- 14. The government has tried to liberalize the FDI regime. In its year in power, the FDI limit in the defence sector has been raised to 49 per cent, up to 100 per cent has been permitted in railways and norms pertaining to FDI in construction development were liberalized. And, FDI in the insurance and pension sectors have been permitted up to 49 per cent.[/vc_column_text][/vc_column][/vc_row]

[vc_row][vc_column][vc_column_text]The Finance Ministry has made life easier for the Indian Reporting Financial Institutions (RFI) to comply with the Inter-governmental Agreement (IGA) under FATCA in situations where US Tax Identity Number (TIN) is not available for pre-existing accounts (as of June 30, 2014)

 

It has now advised RFIs to insert nine capital letters eg (i.e AAAAAAAAA) in the TIN field (for the account holder or controlling person, as the case may be) for such accounts in their reports in Form 61B, provided certain conditions are met

 

An official release specified the three conditions as follows: (1) The reporting Foreign Financial Institution (FFI) obtains and reports the date of birth of each account holder and controlling person whose US TIN is not reported. (2) The reporting FFI requests annually from each account holder any missing required US TIN; and (3) The reporting foreign financial institution should before reporting information relates to calendar year 2017 to the partner jurisdiction, searches electronically searchable data maintained by the reporting FFI for any missing required US TIN.

 

Adhering to this practice — so long as the three conditions are met — would ensure that the Competent Authority of USA will not determine significant non-compliance with the obligations under the IGA solely because of a failure of a reporting FFI to obtain and report each required TIN.

 

India and the US have signed the Inter-Governmental Agreement (IGA) under FATCA in 2015. To enhance the effectiveness of information exchange and transparency, both the sides committed to establish, by January 1, 2017, rules requiring their Reporting Financial Institutions (RFIs) to obtain the Tax Identity Number (TIN) of each reportable person having a reportable account as of June 30, 2014 (pre-existing account).The Income-tax Rules, accordingly, provide for reporting of US TIN from the year 2017 onwards in respect of any pre-existing account.

 

The US-IRS has issued guidelines through Notice 2017-46 dated September 25, 2017 providing relaxation to Foreign Financial Institutions (FFIs) with respect to reporting of US TIN for calendar years 2017, 2018 and 2019

Now the Competent Authority of USA will not determine significant non-compliance with the obligations under the IGA solely because of a failure of a reporting FFI to obtain and report each required US TIN if these three conditions are met.[/vc_column_text][/vc_column][/vc_row]