Indian Cabinet Easis FDI Norms for Nri’s

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.

FATCA Update : US Tax Identity Number

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.

Expats stressed as Aadhaar becomes mandatory for tax returns

Expatriates living in India would often complain about heat, food and dirt. Applying, registering and getting an Aadhaar card might just extend the list of woes with another mandatory tryst with India’s famed red tape

 

Many expatriates would be required to obtain an Aadhaar number. The Finance Act, 2017 has made it mandatory to enrol for Aadhaar to file tax returns in India or apply for a PAN or keep the existing PAN active effective July 1. This applies to those who are eligible for Aadhaar and under the Aadhaar Act, anyone who is in India for more than 182 days in aggregate in the past 12 months becomes eligible to obtain Aadhaar, experts said

 

The possibility of giving out details including biometric ones has caused panic among the expat community

 

“Many expats have reached out to us and sought clarity around whether they require getting Aadhaar card for filing income tax returns in India. This would be an additional and unnecessary compliance requirement for them,” said Amit Maheshwari, Partner, Ashok Maheshwary & Associates LLP

 

“I already have a PAN card and other documents required for filing tax returns in India. It’s a bureaucratic burden and I think it affects the ease of doing business,” said Danny Carrol, of Orios venture Partners, a British expatriate living in Mumbai. Besides, expats are also wary of having their biometric profiles with the Indian government, as Aadhaar needs a biometric profile of every holder, Carrol added

 

“Those expatriates who have already left India or NRIs not physically present in India and have a tax filing obligation may face practical challenge to obtain Aadhaar. They should consider either filing the return before July 1, 2017 or else they may be required to visit India for Aadhaar. One may expect clarification from the government to either relax this requirement or make some arrangement where such individuals are able to obtain Aadhaar overseas,” said Kuldip Kumar, leader, personal tax, PwC

 

Many expats pay domestic income tax and now Aadhaar card has been made compulsory now on to file returns. Expats have rushed to their tax consultants — big four in most cases — for a way around this as they fear their privacy will be compromised among other concerns. “Many expats do file tax returns and pay income tax in India even when they do not have any permanent address in India

 

We hope that the government carves out exemption for expats in the fine print, but till then, the worry of expats needing an Aadhaar card for tax returns is a real worry,’ said Mayur Shah, partner, Ey

 

Even as many consultants lobby with the government for an exemption, some experts say applying for one may be the best way out. ‘We are telling all foreign nationals to get Aadhaar because there is a lot of ambiguity at the moment,’ said Poorvi Chothani, founder and managing partner of Law Quest, a unified business and immigration law firm with offices in New York, Mumbai and Bengaluru

“The clarity on the law has to come very quickly because there are only three months for filing of tax returns. Even then, it will be challenging for expats to get Aadhaar at such a short notice, if the law is applicable to them as well, because many of them don’t have permanent address in India,” she said

Speaking to ET, an expat, a resident of the US, and a tax consultant who had helped an Indian company with IT implementation of GST said the issue is just complicating matters further

“I lived in India for about six months but I don’t have an Indian bank account. I had barely managed a way around that when this issue propped up,” he cribs. “It seems to me Indian tax authorities are merely discouraging me to pay taxes honestly,” he laughs.

Closure of financial accounts under alternative procedure of FATCA

The Inter-Governmental Agreement (IGA) with USA for implementation of FATCA entered into force on 31st August, 2015. Under the alternative procedure provided in Rule 114H(8) of the Income-tax Rules, 1962, the financial institutions need to obtain the self-certification and carry out due diligence procedure to determine the reasonableness of the self-certification in respect of all individual and entity accounts opened from 1st July, 2014 to 31st August, 2015.

  • Government of India
  • Ministry of Finance
  • Department of Revenue
  • Central Board of Direct Taxes

Such self-certification and documentation is required to be obtained by the financial institutions by 31st August, 2016, otherwise they are required to close the accounts and report the same if found to be a “reportable account” as per the prescribed due diligence procedure for pre-existing account Stakeholders have highlighted several difficulties in following the provision for “closure” of financial accounts.

In view of the same, India and the United States are discussing the alternative procedures under paragraph G of Section VI of Annex I with a view towards adjusting them to permit a few month extension of time for completing the due diligence and not requiring account closure within one year of entry into force of the agreement (i.e., August 31, 2016)

 

For providing immediate relief to the account holders and in wider public interest, it has been decided that, the financial institutions may not close the accounts by 31st August 2016 in respect of which self-certifications have not been obtained under the alternative procedure.

The revised timelines for completing due diligence in respect of such accounts shall be notified in due course. In the interim, the financial institutions should continue to work on completing the required due diligence, including obtaining self-certifications.

CBDT enables PAN-Aadhaar Interchangeability

The Central Board of Direct Taxes (CBDT) has allowed interchangeability between permanent account number (PAN) and Aadhaar number for over 100 forms and returns. In the Union Budget in July, it was announced that Section139A of the Income-tax Act, 1961 has been amended to provide interchangeability of PAN and Aadhaar.But an amendment to implement the changes was pending.

CBDT has now amended the Income-tax Rules, 1962 (Rules), which means a person can use his or her Aadhaar number instead of PAN in various forms and documents.

The Finance Ministry also issued a notification G.S.R.825(E) dated November6 ,that on the basis of the power conferred by section 139A, read with section 295 of the Income-tax Act, 1961 (43of1961), the Central Board of Direct Taxes (CBDT) has made then rules to a mend the Income-tax Rules, 1962.

The government has   carried amendment in the various set of income tax forms and also certified that no person is being adversely affected by giving retrospective effect to these amendment rules.

The rules to amend the Income-taxRules,1962 will apply to various forms such as Form Nos. 3AC, 3AD, 8, 10CCB, 10CCBA, 10CCBB, 10CCBBA, 10CCBC etc and for the words and letters ‘Permanent Account No.’, wherever they occur, the words PAN or Aadhaar Number will be substituted.