RTGS - increase in operating hours

RBI has vide circular dated 21st August, 2019 extended the RTGS operating hours from 7.00 a.m. instead of from 8.00 a.m. The closing hours continues to be 6.00 p.m. This is effective from Monday, 26th August, 2019

Gist of RBI circular follows:

A reference is invited to the circular DPSS (CO) RTGS No. 2488/04.04.016/2018-19 dated May 28, 2019 on ‘Real Time Gross Settlement (RTGS) System – Extension of Timings for Customer Transactions’.

2. At present, the RTGS system is available for customer transactions from 8:00 am to 6:00 pm and for inter-bank transactions from 8:00 am to 7:45 pm. In order to increase the availability of the RTGS system, it has been decided to extend the operating hours of RTGS and commence operations for customers and banks from 7:00 am.

3. The RTGS time window with effect from August 26, 2019 will, therefore, be as under:

Sr. No.	Event	Time
1.	Open for Business	07:00 hours
2.	Customer transactions (Initial Cut-off)	18:00 hours
3.	Inter-bank transactions (Final Cut-off)	19:45 hours
4.	IDL Reversal	19:45 hours - 20:00 hours
5.	End of Day	20:00 hours

4. This directive is issued under Section 10 (2) read with Section 18 of Payment and Settlement Systems Act 2007 (Act 51 of 2007).

tax holidays for small start ups

The Central Board of Direct Taxes (CBDT) has clarified today that small start-ups with turnover upto Rs. 25 crore will continue to get the promised tax holiday as specified in Section 80-IAC of the Income Tax Act, 1961(the ‘Act’), which provides deduction for 100 per cent of income of an eligible start-up for 3 years out of 7 years from the year of its incorporation. 

CBDT further clarified that all the start-ups recognised by DPIIT which fulfilled the conditions specified in the DPIIT notification did not automatically become eligible for deduction under Section 80-IAC of the Act. A start-up has to fulfil the conditions specified in Section 80-IAC for claiming this deduction. Therefore, the turnover limit for small start-ups claiming deduction is to be determined by the provisions of Section 80-IAC of theAct and not from the DPIIT notification.

CBDT dispelled the confusion created by some media report claiming discrepancy that the I-T law was yet to reflect DPIIT’s higher turnover threshold of Rs. 100 crore. CBDT said thatthere was no contradiction in DPIIT’s notification dated 19.02.2019 and Section 80-IAC of the I.T. Act, 1961 because in para 3 of the said notification, it has clearly been mentioned that a start-up shall be eligible to apply for the certificate from the Inter-Ministerial Board of Certification for claiming deduction under Section 80-IAC of the Act, only if the start-up fulfils the conditions specified in sub-clause (i) and sub-clause (ii) of the Explanation of Section 80-IAC. Therefore, the turnover limit for eligibility for deduction under section 80-IAC of the Act, as per the DPIIT’s notification is also Rs. 25 crore.

It is further stated that Section 80-IAC contains a detailed definition of the eligible start-up which, interalia, provides that a start-up which is engaged in the eligible business shall be eligible for deduction, if (i) it is incorporated on or after 1st April 2016, (ii) its turnover does not exceed Rs. 25 crore in the year of deduction, and (iii) it holds a certificate from the Inter-Ministerial Board of Certification.

It was explained that this was the major reason as to why there was a wide difference between the number of start-ups recognised by the DPIIT and the start-ups eligible for deduction under section 80-IAC of the Act. It is pertinent to state that Section 80-IAC was inserted vide Finance Act, 2016 as an exception to the Government’s stated policy of phasing out profit-linked deduction for promoting small start-ups during their initial year of operation. Since the intention was to support the small start-ups, the turnover limit of Rs. 25 crore was considered reasonable for granting profit linking deduction.

mergers/ amalgamations

Ministry of Corporate Affairs has issued a circular today clarifying the import of section 232(6) of the Companies Act, 2013, which deals with the requirement of indicating an “appointed date” in the scheme of mergers and amalgamations, which would also be the effective date of the merger/amalgamation coming into force.

A view was being taken in some quarters that the “appointed date” in the scheme need always be a definite calendar date, which led to difficulties for companies intending to give effect to their merger at a future/event-linked date, based on business considerations, fulfilling legal requirements such as procurement of license from sectoral regulators, etc. Besides this, IndAS 103 (Business Combinations), which deals with the accounting treatment, uses the expression “acquisition date”, as a date when the acquirer takes control of the acquiree, also required clarification.

The circular clarifies that the companies may choose the “appointed date” of the merger/amalgamation based on occurrence of an event, which is relevant to the merger between companies. This would allow the companies concerned to function independently till such event is actually materialised. The circular further clarifies that the term “appointed date” used in section 232(6) shall be deemed to be the “acquisition date” for the purpose of conforming to IndAS 103 standard dealing with business combinations.

This clarification would lead to harmonisation of practices in ascertaining the “appointed date” of merger/amalgamation and provide due clarity on the accounting treatment, thereby allowing stakeholders to align the “appointed date” of merger/amalgamation in accordance with their business considerations or legal requirements. This would also contribute significantly in the ease of Doing Business.

Debenture Redemption Reserve

The Ministry of Corporate Affairs has amended the Companies (Share Capital & Debentures) Rules by removing Debenture Redemption Reserve requirement for Listed Companies, NCFCs and HFCs.

The decision has been taken in pursuance of the Budget announcements for 2019-20 by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman and the Government’s objectives of providing greater ‘Ease of Doing Business’ to companies in the country, as part of its 100 Days Action Plan.

Through these amendments, the provisions relating to creation of Debenture Redemption Reserve (DRR) have been revised with the objective of;

1. removing the requirement for creation of a DRR of 25% of the value of outstanding debentures in respect of listed companies, NBFCs registered with RBI and for Housing Finance Companies registered with National Housing Bank (NHB) both for public issue as well as private placements;
2. Reduction in DRR for unlisted companies from the present level of 25% to 10% of the outstanding debentures.

Hitherto, Listed Companies had to create a DRR for both Public Issue as well as Private Placement of Debentures, while NBFCs & HFCs had to create DRR only when they opted for Public Issue of Debentures.  It is aimed at creating a level-playing field between NBFCs, HFCs and listed companies’ on the one hand and also between them and Banking Companies & All India Financial Institutions on the other, which are already exempted from DRR.

The measure has been taken by the Government with a view to reducing the cost of the capital raised by companies through issue of debentures and is expected to significantly deepen the Bond Market.

The rules, while retaining DRR requirement for Unlisted Companies, provide for reduction from a DRR of 25% to a DRR of 10% for such companies, so as to safeguard interests of investors.

differential voting rights

PIB press release dated 16th August, 2019

The Ministry of Corporate Affairs has amended the provisions relating to issue of shares with Differential Voting Rights (DVRs) provisions under the Companies Act with the objective of enabling promoters of Indian companies to retain control of their companies in their pursuit for growth and creation of long-term value for shareholders, even as they raise equity capital from global investors.

            The key change brought about through the amendments to the Companies (Share Capital & Debentures) Rules brings in an enhancement in the previously existing cap of 26% of the total post issue paid up equity share capital to a revised cap of 74% of total voting power in respect of shares with Differential Voting Rights of a company.

Another key change brought about is the removal of the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with Differential Voting Rights.

            The above two initiatives have been taken by the Government in response to requests from innovative tech companies & startups and to strengthen the hands of Indian companies and their promoters who have lately been identified by deep pocketed investors worldwide for acquisition of controlling stake in them to gain access to the cutting edge innovation and technology development being undertaken by them.

The Government had noted that such Indian promoters have had to cede control of companies which have prospects of becoming Unicorns, due to the requirements of raising capital through issue of equity to foreign investors.

Alongside the above two changes, another major step taken is that the time period within which Employee Stock Options (ESOPs) can be issued by Startups recognized by the Department for Promotion of Industry & Internal Trade (DPIIT) to promoters or Directors holding more than 10% of equity shares, has been enhanced from 5 years to 10 years from the date of their incorporation.

GI tag for 4 new products

PIB press release dated 16th August, 2019

The Geographical Indication (GI) under the Department for Promotion of Industry and Internal Trade hasrecenly registered 4 new GIs. PalaniPanchamirtham from Palani Town in Dindigul District of Tamil Nadu State, Tawlhlohpuan and Mizo Puancheifrom the state of Mizoram and Tirur Betel leaf from Kerala are the latest additions to the list of registered GIs.

GI is an indication used on products that have a specific geographical origin and possess qualities or a reputation that are due to that origin. Such a name conveys an assurance of quality and distinctiveness which is essentially attributable to its origin in that defined geographical locality.

PalaniPanchamirtham, an abishegaPrasadam, from Palani Town is one of the main offerings in the Abisegam of Lord Dhandayuthapani Swamy, the presiding deity of ArulmiguDhandayuthapaniswamy Temple, situated in palani Hills, Palani Town in Dindigul District of Tamil Nadu. It is a combination of five natural substances, namely, banana, jaggery sugar, cow ghee, honey and cardamom in a definite proportion. It is prepared in a natural method without addition of any preservatives or artificial ingredients and is well known for its religious fervour and gaiety. This is the first time a temple ‘prasadam’ from Tamil Nadu has been bestowed with the GI tag.

Tawlhlohpuan, a medium to heavy, compactly woven, good quality fabric from Mizoram is known for warp yarns, warping, weaving & intricate designs that are made by hand. Tawlhloh, in Mizo language, means 'to stand firm or not to move backward’. Tawlhlohpuan, which holds high significance in the Mizo society, is produced throughout the state of Mizoram, Aizawl and Thenzawl town being the main centre of production.

Mizo Puanchei, a colourful Mizo shawl/textile, from Mizoram, is considered as the most colourful among the Mizo textiles. It is an essential possession for every Mizo lady and an important marriage outfit in the state. It is also the most commonly used costume in Mizo festive dances and official ceremonies. The weavers insert the designs and motifs by using supplementary yarns while weaving to create this beautiful and alluring textile.

Tirur betel vine from Kerala, which is mainly cultivated in Tirur, Tanur, Tirurangadi, Kuttippuram, Malappuram and Vengara block panchayaths of Malappuram District, is valued both for its mild stimulant action and medicinal properties. Even though it is commonly used for making pan masala for chewing, it has many medicinal, industrial and cultural usagesand is considered as a remedy for bad breath and digestive disorders.

GI products can benefit the rural economy in remote areas, by supplementing the incomes of artisans, farmers, weavers and craftsmen. India’s rural artisans possess unique skills and knowledge of traditional practices and methods, passed down from generation to generation, which need to be protected and promoted.The Department for Promotion of Industry and Internal Trade has taken several initiatives in this regard and is actively involved in promotion and marketing of GIs.

transparency in tax administration

PIB press release dated 14th August, 2019

With a view to bringing greater transparency in the functioning of the tax-administration and improvement in service delivery, almost all notices and orders of Income Tax Department are being generated electronically on the Income Tax Business Application (ITBA) platform. However, it has been brought to the notice of the Central Board of Direct Taxes (CBDT) that there have been some instances in which the notice, order, summons, letter and any correspondence (hereinafter referred to as “communication”) were found to have been issued manually, without maintaining a proper audit trail of such communication.

In order to prevent such instances and to maintain proper audit trail of all communication, the CBDT has, vide Circular No.19/2019 dated 14.08.2019 laid down parameters specifying the manner in which any communication issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person will be dealt with. All such communication issued on or after the 1st of October, 2019 shall carry a computer-generated Document Identification Number (DIN) duly quoted in the body of such communication.

CBDT has also specified exceptional circumstances where the communication may be issued manually but only after recording reasons in writing and with the prior written approval of the Chief Commissioner / Director General of Income-Tax concerned. In cases where manual communication is required to be issued, the reason for issue of manual communication without DIN has to be specified alongwith the date of obtaining written approval of the Chief Commissioner / Director General of Income-Tax in a particular format. Any communication which is not in conformity with the prescribed guidelines shall be treated as invalid and shall be deemed to have never been issued. Further, CBDT has also laid down the timelines and procedure by which such communication issued manually will have to be regularised and intimated to the Principal Director General of Income-tax (Systems).

            In addition to the above, in all pending assessment proceedings, where notices were issued manually, prior to issuance of the above referred Circular, all such cases would be identified and the notices so sent would be uploaded on ITBA by 31st October, 2019.

This is another step taken by CBDT towards better delivery of taxpayer services while ensuring accountability in official dealings.