Legal & Regulatory

India Regulatory Brief: Real Estate Act, 2016 in Effect, Single Window Clearance System for Drones, Satellite Phones

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Real Estate Bill comes into Effect on May 1

The long awaited Real Estate (Regulation and Development) Act (2016) came into force on May 1. After an eight year long process, the Ministry of Housing and Urban Poverty Alleviation (HUPA) was finally able to notify 69 of the total 92 sections of the Act on April 27. This sets in motion the operationalization of the rules and regulatory infrastructure required by the act.

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How to Establish a Startup in India

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By: Melissa Cyrill

A host of incentives have been unveiled by the Bharatiya Janata Party (BJP) led National Democratic Alliance (NDA) government that seek to promote the growth of startups in India. Economic goals are at the core of the government’s reforms, which include ease of doing business, job creation, promotion of skill development, and entrepreneurship. Towards this a national policy framework was launched in February 2016 called the Startup India Action Plan.

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India Regulatory Brief: New Rules to Ease Double Taxation, Contract Workers to Benefit from New Minimum Wage

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New Tax Rules to Bring Relief from Double Taxation

The Central Board of Direct Taxes (CBDT) has drafted new rules regulating the use of Foreign Tax Credits (FTC), bringing relief to corporates and individuals with overseas income. According to national tax experts, the proposed framework allows credits to be claimed on income tax, surcharges, cesses, and Minimum Alternate Tax (MAT) liability.

The rules state that FTC can be claimed only if the taxpayer has paid tax in a foreign country and the same income is subject to Indian taxes. Assuming that income meets this requirement, all claims are to be backed by certain documents, which include a tax certificate from the foreign country – specifying the nature of income and tax amount deducted or paid – acknowledgement of paid taxes, and a declaration of no dispute over the tax amount. The draft rules also clarify that the credit cannot be claimed on a sum that is payable by way of interest, fee, or penalty. Foreign tax that is under dispute will also not be entitled to make credit claims.

The CBDT has opened the new rules to feedback from stakeholders till May 2. Thus, while the FTC rules are welcome, they may be still be subject to changes.

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India Regulatory Brief: States to Regulate Taxi Aggregators, Key Land Reform Bills Passed in Rajasthan

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State Governments Seek to Regulate Taxi Aggregators

Last week Karnataka became the first state to introduce state-prescribed fares for taxi aggregators. In addition to set fares, taxis will have to fix digital meters with printers and register themselves with local transport authorities. Maharashtra, with two of the largest taxi hailing markets – Mumbai and Pune – is set to follow this example. According to a source in the Maharashtra state government, their proposed rules go beyond the scope of Karnataka’s. These will include fare determination based on the cost of the vehicle and its engine capacity; regulation of taxi numbers through an induction schedule, which could adversely impact the employment of driver partners of taxi aggregators; and the ability to cancel licenses for non-compliance.

Different states have responded differently to the entry of transport aggregators. For instance, both Uber and Ola have capitalized on the Delhi government’s call for car sharing as the city struggles to combat its high pollution. Ride sharing services were introduced in Delhi in January with no government resistance, unlike in Karnataka.

The taxi hailing market in India was US $1 billion in annual gross booking value in February 2016 according to RedSeer Management Consulting. This is why Uber and Ola have so far focused on undercutting each other’s pricing to build their respective customer bases. Strict regulation of taxi prices will hurt their business strategies, though benefiting customers in the long run.

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Navigating India’s E-Commerce Landscape

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By: Tracie Frost

According to a study by PricewaterhouseCoopers and The Associated Chambers of Commerce and Industry of India, India’s e-commerce industry could experience a compounded annual growth rate of 35 percent and reach US $100 billion in annual sales over the next five years.  The sector is estimated to realize a 72 percent jump in annual online purchases per individual in 2016.  Additionally, the number of consumers purchasing something online has been increasing by 60 percent or more year over year.

The opportunity for continued growth in India’s e-commerce industry is substantial.  A young population, rising standards of living, better internet penetration, and improved infrastructure for deliveries make e-commerce a tempting investment.  However, anyone contemplating investing in India’s e-commerce sector should carefully consider the many constraints on the industry, the lack of clarity with respect to regulatory guidelines, and India’s political environment.

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India Regulatory Brief: Government Retracts Pension Tax, Regulator Improves Taxpayer Services

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Government Retracts Pension Tax Introduced in Budget

Indian Finance Minister, Arun Jaitely, has withdrawn a proposal aimed at taxing withdrawals beyond 40 percent of the Employment Provident Fund (EPF) corpus in the Union Budget for 2016-17. Jaitely initially argued that this would discourage full withdrawals and help create a pension society in India. Taking salaried tax payers by surprise, the government was almost immediately inundated with heavy criticism from all political quarters. Assessing this overwhelmingly negative feedback, and with the fear it would hold up key legislation stated for the Budget session, the Prime Minister’s Office (PMO) recommended the complete withdrawal of the proposal. The Labor Ministry also stated its opposition to any kind of taxation on the EPF after coming under fire from trade unions and opposition parties.

In response to the public review, the finance ministry has rolled back both its decisions – to tax EPF withdrawals and the proposal to limit tax-free contribution by the employer to the EPF to US $2270 (Rs 1.5 lakh) per annum. Additionally, the proposal to offer 40 percent rebate on the already taxable National Pension System (NPS) stays in place, bringing relief to NPS subscribers.

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India Budget 2016: Business Elements

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By Dezan Shira & Associates
Editor: Tracie Frost

When Finance Minister Arun Jaitley released the 2016 Union Budget on February 29, the response was mostly positive.  The budget aims to stick to the 3.5 percent fiscal deficit target, addresses pressing social and infrastructural needs, and, for the most part, uses reasonable assumptions to forecast India’s growth over the next three years.

The Modi government has consistently focused on increased ease of business, opening markets to foreign investment, building India’s industrial sector, and improving transparency in taxation and regulation. While this budget delivered more on rural and infrastructure spending, it certainly includes some business elements that are worth exploring in detail.

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Union Budget 2016-17: An Overview

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By Rohit Kapur 
India Country Manager, Dezan Shira & Associates 

Finance Minister, Arun Jaitley has presented his third Union Budget for the fiscal year 2016-17. He started his speech by saying that, inspite of headwinds faced on account of a slowing global economy, Indian GDP growth is amongst the highest in the world at 7.6 percent. Affirming that the economy is on the right track, Jaitley cited the Consumer Price Index (CPI) which shows inflation down to just 5.4 percent from a pervious high of 9.4 percent. With inflation under control, the central Reserve Bank of India (RBI) is likely to reduce the lending rates and thus give an impetus to production and consumption.

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