MSME sector

RBI circular dated 5th February, 2020 regarding interest subvention scheme for MSMEs.

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11803&Mode=0

As Government of India, on November 2, 2018, has announced ‘Interest Subvention Scheme for MSMEs 2018’.

Key points of the Scheme:

-          Prime Minister announced 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.

-          Eligibility

1.      All MSMEs who meet the following criteria shall be eligible as beneficiaries under the Scheme :

                               a. Valid Udyog Aadhar Number [UAN]

                          b. Valid GSTN Number

2.      Incremental term loan or fresh term loan or incremental or fresh working capital extended during the current FY viz. from 2nd November 2018 and next FY would be eligible for coverage.

3.      The term loan or working capital should have been extended by Scheduled Commercial Banks.

4.      In order to ensure maximum coverage and outreach, all working capital or term loan would be eligible for coverage to the extent of ₹100 lakh only during the period of the Scheme.

5.      Wherever both the facilities working capital and term loan are extended to a MSME by an eligible institution, interest subvention would be made available for a maximum financial assistance of ₹100 lakh.

6.      MSME exporters availing interest subvention for pre-shipment or post-shipment credit under Department of Commerce will not be eligible for assistance under Interest Subvention Scheme for Incremental credit to MSMEs 2018.

7.      MSMEs already availing interest subvention under any of the Schemes of the State / Central Govt. will not be eligible under the proposed Scheme.

Based on this Scheme RBI has vide its notification dated 5^th February, 2020, modified the operational guidelines:

1.      Submission of statutory auditor certificate by 30^th June, 2020 and in the meantime, settle claims based on internal / concurrent auditor certificate.

2.      Acceptance of claims in multiple lots for a given half year by eligible institutions.

3.      Requirement of Udyog Aadhar Number (UAN) may be dispensed with for units eligible for GST. Unit not required to obtain GST, may either submit Income Tax Permanent Account Number (PAN) or their loan account must be categorized as MSME by the concerned bank.

4.      Allow trading activities also without Udyog Aadhar Number (UAN)

5.      There is Revised Format of Certificate for claiming Subsidy i.e. Annex I, where Banks are advised to submit claims to SIDBI as per the revised format.

Alternative Investment Funds

SEBI circular dated 5th February, 2020 on streamlining disclosure standards for Alternative Investment Funds (AIFs)

·        The said circular is based on disclosure standards for AIF which is required to be followed by all AIF.

·        Since there is a significant growth in AIF in current scenario, SEBI has taken an initiative through a Consultation Paper dated on 04^th December 2019 for inviting public opinion on “Introduction of Performance Benchmarking” and “Standardization of Private Placement Memorandum (PPM) for AIF’s”.

·        After invitation of public opinion and also after consultation and deliberation with Alternate Investment Policy Advisory Committee (AIPAC) the SEBI has finally decided to introduce templates for PPM but it shall be subject to certain exemptions and also mandatory performance benchmarking for AIF’s.

·        PPM is a primary document in which all the necessary information about the AIF is disclosed to the investors for making investment decisions. Also in order to ensure that a minimum standard of disclosure is made available in the PPM, now it has been made mandatory to provide certain minimum level of information in a simple and comparable format in accordance with the template provided.

·        Such template consists of 2 parts namely:

o   Party A- Section for minimum disclosure and

o   Part B- Supplementary section to allow full flexibility to the Fund in order to provide any additional information, which it deems fit.

·        The template for PPM of AIFs raising funds under Category I and Category II is provided at Annexure 1.The template for PPM of AIFs raising funds under Category III is provided at Annexure 2.

·        SEBI has also specified that in order to ensure compliance with the terms of PPM, it will be mandatory for AIFs to carry out an annual audit of such compliance. The audit shall be carried out by either internal or external auditor/legal professional. However, audit of sections of PPM relating to ‘Risk Factors’, ‘Legal, Regulatory and Tax Considerations’ and ‘Track Record of First Time Managers’ shall be optional.

·        In case any defect or query arises during the findings of the audit then the same shall be communicated with the Trustee or Board or Designated Partners of the AIF and SEBI.

·        It is to be noted that the terms and conditions pertaining to contribution and subscription agreement shall be in accordance with the terms and conditions of the PPM and it shall not contradict the same.

·        The requirements as mentioned above shall not be applicable to Angel Fund as defined in SEBI (AIF) Regulations 2012 and to AIF’s/Schemes in which each investor commits to a minimum capital contribution of Rs70 crores and also provides a waiver to the fund from the requirement of PPM in the SEBI prescribed template and annual audit of terms of PPM, in the manner provided at Annexure 3.

·        All the above specified requirements shall come into force with effect from 01^stMarch 2020.

·        Secondly the SEBI on receipt of industry request a proposal for performance benchmarking of AIF’s was incorporated in the above mentioned Consultation Paper.

·        Also the industry demands flexibility to showcase the performance of AIF’s based on different criteria so it has been finally decided to introduce:

o   Mandatory benchmarking of the performance of AIFs (including Venture Capital Funds) and the AIF industry.

o   A framework for facilitating the use of data collected by Benchmarking Agencies to provide customized performance reports.

·      As a result of this the following things is mandated:

o   Any association of AIFs(“Association”),which in terms of  membership, represent  at  least  51%  of  the number  of AIFs,  may notify one  or  more Benchmarking Agencies, with whom each AIF shall enter into an agreement for carrying out the benchmarking process.

o   The agreement entered between the Benchmarking Agencies and AIF’s shall cover the mode and manner of data reporting and other confidential information and etc.

o   AIFs, for all their schemes which have completed at least one year from the date of ‘First Close’, shall report all the necessary information including scheme-wise valuation and cash flow data to the Benchmarking Agencies in a timely manner.

o   Also the form and format of reporting shall be mutually decided by the Association and the Benchmarking Agencies.

o   If an applicant claims a track-record on the basis of India performance of funds incorporated overseas, it shall also provide the data of the investments of the said funds in Indian companies to the Benchmarking Agencies, when they seek registration as AIF.

o   In  the  PPM, as  well  as in any  marketing  or  promotional or  other material, where past performance of the AIF is mentioned, the  performance versus benchmark report provided by the  benchmarking   agencies for such AIF/Scheme shall also be provided.

o   In any reporting to the existing investors, if performance of the AIF/Scheme is compared to any benchmark, a copy of the performance versus benchmark report provided by the Benchmarking Agency shall also be provided for such AIF/scheme.

o   In the first step Association will appoint Benchmarking Agencies and thereafter will set timeline for reporting of requisite data to Benchmarking Agencies by all the registered AIFs. In this regard, Association and  Benchmarking Agencies  will  ensure  that  the  first  industry  benchmark  and  AIF  level performance versus Benchmark Reports are available latest by July 01, 2020, for the performance up to September 30, 2019. Further the Association shall submit  a  progress  report  in  this  regard  to  SEBI  on  a  monthly  basis  till  the creation of first industry benchmark.

·        It is to be noted that all the operational guidelines in respect of performance benchmarking are provided in Annexure 4 which is divided into 2 parts i.e. Part A and Part B.

·        In case any AIF seeks customized performance report in a particular manner other than as it was decided earlier then the same may be generated by the Benchmarking Agencies and it shall be subject to the following:

o  Consent of the AIFs, whose data needs to be considered for generation of       the customized performance report.

o  Terms and conditions, including fees, decided mutually between the Benchmarking Agencies and the AIF.

·        It is to be noted that the above mentioned requirements is not applicable in case of Angel Funds registered under sub category of Venture Capital Fund under Category I-AIF.

·           The said circular is been issued in exercise of powers mentioned under section 11(1) of SEBI Act , 1992 and also the main object behind this is to protect the interest of investors in securities and to promote and developed the securities market. 

TDS on mutual fund

PIB press release dated 4th feb 2020

The Finance Bill, 2020 proposed to remove Dividend Distribution Tax (DDT) at the level of Company/ Mutual Fund and proposed to tax the same in the hands of share/unit holder. It was also proposed to levy TDS at the rate of 10% on the dividend/ income paid by the Company/Mutual Fund to its share/unit holder if the amount of such dividend/ income exceeds five thousand rupees in a Financial Year.

Queries have been received to the effect that whether under the proposed section 194K, the Mutual Fund would be required to deduct TDS also on the capital gains arising on redemption of units. It is hereby clarified that under the proposed section, a Mutual Fund shall be required to deduct TDS @ 10% only on dividend payment and no tax shall be required to be deducted by the Mutual Fund on income which is in the nature of capital gains. Necessary clarification, if required, shall be proposed in the relevant provision of the law.