Legal & Regulatory
By Nishant Dixit
India’s Companies Amendment Act of 2015, effective May 26, updates the previous 2013 amendment with new provisions designed to improve ease of doing business. It addresses issues such as incorporation, corporate governance and management of subsidiaries. Provisions that will affect foreign companies doing business in the country are discussed below.
Incorporation and Business Commencement
Incorporation processes have become much easier under the amendment.
The 2013 law required minimum paid-up capital of up to INR 0.1 million (US$ 1,572) for private companies and INR 0.5 million (US$ 7,862) for public companies. These requirements have been removed completely; no initial capital will be required to incorporate a private or a public limited company.
ITR Form Simplified Before New August 31 Filing Date
The Central Board of Direct Taxes (CBDT) last week simplified the Income Tax Retun (ITR) form and delayed the filing date from July 31 to August 31. Expatriates and Non-Resident Indians (NRIs) will no longer have to report foreign assets as previously planned. Furthermore, previous plans to require taxpayers to submit foreign travel itinerary and additional bank account information have been relaxed by the government.
CBDT Creating Online PAN Database for Taxpayers
The Central Board of Direct Taxes (CBDT), the Income Tax Department’s administrative and policy-making body, is creating an online permanent account number (PAN) database for taxpayers. Tentatively called the ‘Income Tax Business Application’, the database will use PAN numbers to allow tax authorities to access tax related information for persons or entities that pay income tax in India.
Opening a Bank Account to Become Easier
The Reserve Bank of India (RBI) on June 11 revised the list of documents that can be used as proof of identity and address to open a bank account. Following an amendment to the Prevention of Money Laundering (Maintenance of Records) Rules, 2005, the RBI notified banks across India that the following documents may now be used as proof of identity or address:
NGO Regulations May Tighten Further
According to local media, the Prime Minister’s Office has instructed the Ministry of Home Affairs (MHA) to tighten regulations on non-governmental organizations (NGOs. The reports state that the MHA has been asked to amend aspects of the Foreign Contributions Regulation Act (FCRA) to ensure that NGOs report foreign financing within 48 hours of receipt. The reports also claim that the MHA is exploring different ways to audit NGOs and make their financial information public. If enacted, these reforms would significantly increase the compliance requirements of foreign financed NGOs
I-T Expanding Tax Collection Efforts in Tier-II Cities
The Income Tax Department plans to expand its tax collection activities in Tier II cities, such as Jaipur in Rajasthan state, Indore in Madhya Pradesh state and Vishakhapatnam in Andhra Pradesh state. The initiative follows a directive from the federal government to increase the number of taxpayers in the country by 2.5 million individuals and entities every month.
The Central Board of Direct Taxes (CBDT), the Income Tax Department’s administrative and policymaking body, found that the gap between the actual number of taxpayers and potential number of taxpayers was widest in the country’s rapidly growing Tier-II cities. Income Tax and CBDT officials quoted in the media report that authorities will not use adversarial or intrusive measures to expand tax collection.
New Service Tax Rate Effective June 1
The Central Board of Direct Taxes (CBDT) confirmed that the new 14 percent service tax rate will take effect on June 1, replacing the current 12.36 percent rate. Although the new service tax rate was recently passed in the in the Finance Act, 2015, the CBDT had not confirmed its implementation date until last week. Business affected by service tax should make plans to accommodate the new rate from June 1. Finance Minister Arun Jaitley first announced the new service tax rate in India’s budget for FY 2015-16; authorities expect the new rate to ease the transition to the new Goods and Services Tax (GST) that will take effect in April 2016.
FDI Cap for B2C E-commerce to Remain
Last week, Commerce Minister Nirmala Sitharaman met with public and private sector representatives to discuss foreign direct investment (FDI) for e-commerce in India. Local observers in the media speculated that the discussion might lead the government to raise, or even lift, the FDI cap on business-to-consumer (B2C) e-commerce. However, domestic e-tailers predictably voiced their opposition to any such reform, and while the discussion did not produce any concrete outcomes, the government has long sought to protect India’s booming B2C e-commerce industry from foreign competition.
Although the government allows 100 percent FDI in business-to-business (B2B) e-commerce, it does not allow any FDI in B2C e-commerce. Many foreign e-commerce companies, such as Amazon and Alibaba, have shifted from an ‘inventory model’ to a ‘marketplace model’ to sidestep this FDI cap and access the Indian market. However, the marketplace model is cost prohibitive for many small and medium sized e-tailers based abroad. While many government officials and domestic e-tailers remain opposed to reforming the B2C FDI cap, domestic industry groups, foreign retailers, and some foreign governments have encouraged the Indian government to lift the cap.