In a major incentive, startups can now issue shares to investors at higher than fair value without worrying about tax consequences.
The Central Board of Direct Taxes (CBDT) has notified the much awaited tax exemption on investments above fair market rate for startups.
“The exemption provided to startups from the ‘rigour’ of section 56(2)(viib) of Income Tax Act has been long awaited,” Amit Maheshwari, Partner Ashok Maheshwary and Associates LLP, said.
The effect of the CBDT’s notification is that in case a startup gets investment from resident angel investors, family offices or funds which were not registered as venture capital funds, it will not be taxed even if the investment is made in excess to the fair value.
“It has been a long standing industry demand to abolish this Angel tax,” Maheshwari said.
A startup is a company in which the public are not “substantially interested” and conforms to certain conditions as prescribed by the Department of Industrial Policy and Promotion (DIPP) in February this year.
Under Indian tax law, if an Indian company receives share subscription amount from an Indian resident which exceeds the fair value of shares, then the excess amount is taxed as income of the Indian company, said Rajesh H Gandhi, Partner, Deloitte Haskins and Sells LLP.
“The notification now exempts startups from this rigorous provision. This is a welcome relaxation and would ensure that startups can issue shares to investors at higher than fair value without worrying about any tax consequences,” Gandhi said.
A similar exemption already exists for Venture Capital Funds (VCFs).
Maheshwari said this Angel tax still poses threat to earlier investments which could be perceived as being overvalued in light of the declining valuations globally and in India.
Last week, the DIPP has launched a portal and mobile app through which startups can gather all latest updates on various notifications, circulars issued by various departments and different funding agencies.
In January, Prime Minister Narendra Modi had unveiled a slew of incentives to boost startup businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000 crore corpus to fund them.
Prime Minister Narendra Modi (right) and Finance Minister Arun Jaitley at the first Rajasva Gyan Sangam in New Delhi.
Prime Minister Narendra Modi pitched for nearly doubling of tax base to 10 crore assesses while addressing tax officers in the first ever Rajasva Gyan Sangam that kick-started on Thursday.
Modi outlined a five-point charter for tax administrators – RAPID, which stands for Revenue, Accountability, Probity, Information and Digitisation to reform the taxation system in the country.
MODI’S FOUR COMMANDMENTS FOR TAX DEPARTMENT:
Increase tax base to 100 million people from 54.3 million now
Focus on RAPID: Revenue, Accountability, Probity, Information and Digitisation
Ensure simplification and go for total digitisation
Turn Gyan Sangam into a Karma Sangam, so ideas generated here lead to concrete action on the ground
In an hour-long interaction, he urged officers to build a ‘bridge of confidence’ between tax payers and tax officials, stressing on incorporating a sense of trust in the system so that they pay taxes without fear or harassment.
“While there should be respect for the rule of law among all citizens, and even fear of the long arm of the law for those who evade taxes, people should not fear tax administrators,” Modi said in his interaction with tax officers.
Citing the example of the “Give it up” initiative for voluntarily giving up gas subsidy, he said that the tax base too could be increased significantly, provided the tax administrators can demonstrate the leadership to bring about a change.
This is for the first time that the two boards — Central Board of Direct Taxes and Central Board of Excise and Customs — came together for the joint conference. Earlier they held separate conferences with the Finance Minister as the chief guest.
Modi said that tax officials should act like “mentors of taxpayers” and not treat them as “tax evaders”.
“People of India are inherently honest. If you build trust then people will pay taxes and you will be able to achieve the target,” Modi said.
The conclave will deliberate on a host of issues related to taxpayer services and effective implementation of fiscal laws and government policies with discussions around government’s financial inclusion initiatives, ensuring a transparent tax regime for businesses and foreign investors besides issues and challenges being faced by the two tax departments.
Minister of state for finance Jayant Sinha in a briefing after the first session said, “Prime Minister laid out certain goals and objectives for the officials to increase the tax base to 10 crore from 5.43 crore at present.”
Sinha said of the 25 crore households in the country, 15 crore are agriculturalists and hence the remaining 10 crore should be under the tax net.
Modi in his speech said 92% of tax department revenue comes from TDS, advance tax and self assessment tax, while the remaining 8% comes after scrutiny.
He said if 42,000 officials of CBDT are engaged for ensuring direct tax revenue, then the tax net should increase further.
Stating that the country is filled with “aspirational people”, Modi urged the taxmen to take steps so that people find it easier to pay taxes here.
Prime minister emphasized that people in India mostly pay taxes and the number of people who want to evade it is less.
“People don’t have problem in paying tax. So there is no question of tax evasion. The issue is how much cooperative are we in dealing with people. He said you should behave like mentors with the people rather than evader… If you become taxpayer friendly, then taxes will automatically come to you,” Modi said.
During the brainstorming session, he pressed officers to move towards digitisation besides making tax administration better and efficient.
The two-day Gyan Sangam is being attended by close to 250 officers of the rank of Principal Chief Commissioners, Chief Commissioners and Principal Commissioners from CBDT and 170 from the CBEC.
During the interaction, Modi said if someone Googles ‘how to pay taxes in India’, there will be seven crore results. If the question of ‘how not to pay taxes in India’ is put to Google, there would be 12 crore feeds.
The tax officials in their interaction with the prime minister gave a host of suggestions, which included to setting up of National Tax Facilitation Act to regulate basic norms of tax collection.
Ideas and views were expressed on diverse subjects such as digitization, voluntary tax compliance, facilitation for taxpayers, increasing the tax base, upgradation of digital and physical infrastructure for tax administrators etc.
Modi urged officers to turn the Gyan Sangam into a Karma Sangam, so that the ideas generated from this conference lead to concrete action on the ground.
As many as 15 officers from the CBDT and CBEC posed their questions to Prime Minister on various issues being faced by them in their regular work.
The issues included dilemma over whether officials should act as law enforcement agency or taxpayer friendly agency while collecting due taxes from people.
They also raised the issue of voluntary tax compliance, increasing tax base, upgradation of digital and physical infrastructure for tax administrators.
In order to make the registration process of new non-banking finance companies smoother and hassle-free, the Reserve Bank of India has revised the application form for registration of these companies and the checklist of documents to be submitted.
The number of documents to be submitted by NBFC applicants has been reduced from the existing set of 45 documents to seven to eight in the revised process, the central bank said in a statement.
The RBI said henceforth there would be two different types of applications for non-deposit taking NBFCs (NBFC-ND) based on sources of funds and customer interface.
The first type (Type-I) will be a NBFC-ND not accepting public funds/ not intending to accept public funds in the future and not having customer interface/ not intending to have customer interface in the future.
“Public funds” include funds raised either directly or indirectly through public deposits, commercial paper, debentures, inter-corporate deposits and bank finance but excludes funds raised through issue of instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue.
“Customer interface” means interaction between the NBFC and its customers while carrying on its business.
The second type (Type-II) will be NBFC-ND accepting public funds/ intending to accept public funds in the future and/or having customer interface/intending to have customer interface in the future
Fast track mode
The RBI said processing of cases for Type-I of NBFC-ND applicants would be on fast track mode. As these companies will not have access to public funds and will not have customer interface, they will be subjected to less intensive scrutiny/ due diligence.
However, the certificate of registration issued to Type I – NBFC-ND companies will be conditional. These companies will be prohibited from accessing public funds and having customer interface, the RBI said.
In case Type-I companies intend to avail public funds or intend to have customer interface in the future, they are required to take approval from the Reserve Bank of India, Department of Non-Banking Regulation.
US-based Amazon on Friday said it had witnessed a 250 per cent year-on-year growth in bringing new sellers on board, as it looks to tap into the booming e-commerce market in India.
The company, which is making multi-billion dollar investments in India, has about 85,000 sellers on board.
“We started with 100 sellers three years ago and now we have about 85,000 sellers growing at 250 per cent year-on-year and adding nearly 90,000 products a day,” an Amazon India spokesperson stated.
Amazon, which competes with the likes of Flipkart and Snapdeal, has cut its commissions by 25-30 per cent across categories such as mobile phones, PCs, electronic devices and personal care appliances.
“We think these revised rates can significantly help sellers to perform even better and succeed in their business. In addition, we continue to innovate and offer best in class services such as Fulfilment by Amazon, Easy Ship, Seller Flex, etc, to help them with fulfilment/logistics, so that they can focus on their business,” the Amazon spokesperson said.
Flipkart, on the contrary, had recently increased its commissions across key segments and asked sellers to bear the costs of logistics in case of returns.
Recently, Amazon Chief Executive Officer Jeff Bezos had said the company will invest $3 billion in India. This is in addition to the American e-commerce giant’s $2-billion infusion in 2014, taking its total investments here to over $5 billion.
The funds will be channelled towards enhancing customer and seller experience, Amazon India managing director Amit Agarwal had told PTI.
“India is a key market for Amazon and we will work towards continuing to reduce operating costs for sellers backed by good logistics and fulfilment capabilities,” he had added.
The Securities and Exchange Board of India (Sebi) is not pleased with United Breweries (UB) allowing Vijay Mallya to continue on its board of directors, despite being tagged a wilful defaulter.
Mallya is chairman of the board of Bengaluru-based UB. Several banks have formally declared him a wilful defaulter and under new Sebi norms (late last month), any individual so tagged is barred from holding a board position in a listed company.
“Mallya should have stepped down as UB chairman and from its board, following Sebi’s new regulations. (We) are keeping a watch on the board functioning,” said a Sebi official, requesting anonymity.
IN TROUBLED WATERS
SEBI’s new curbs on wilful defaulters
New rule bans wilful defaulters from taking any board positions
Disallow defaulters from setting up market intermediaries
Defaulters would not be allowed to take control of other listed company
No wilful defaulter shall make a public announcement of an open offer for acquiring shares or enter into any transaction
Sebi’s rule disqualifies Mallya from various posts he holds at the moment
The regulator could soon initiate action if UB is in violation of the corporate governance norms, said the official. The regulator is believed to have also raised questions on the role of independent directors on UB’s board.
UB refused to comment on an email query sent to it.
Earlier this year, Mallya had resigned as chairman and managing director of United Spirits, as part of a deal with the company’s new owner, Diageo. Mallya, however, continued to serve on the board of other companies, including UB. Diageo now owns 55 per cent of USL and Mallya had stepped down from the board in February, for a $75 million payoff.
From the March quarter shareholding data, Mallya holds 8.08 per cent in UB in his personal capacity. Another 22 per cent in UB is owned by his group companies.
Heineken acquired a 37.5 per cent stake in United Breweries in 2008 through its takeover of Scottish & Newcastle and has since increased its holding to 42.4 per cent.
The banks say Mallya had given personal guarantees, apart from pledging his stake in UB Group companies, to raise funds for his now-grounded Kingfisher airline. This resulted in Mallya losing control over his liquor empire to global players — Diageo in spirits and Heineken in beverages.
Mallya reportedly left India on March 2, allegedly to escape enforcement action by multiple probe agencies and Indian banks, to which he owes Rs 6,963 crore in loans. In March, a consortium of lender approached the Supreme Court to stop Mallya from going abroad but he’d left; on April 18, a court in Mumbai issued a non-bailable arrest warrant against him.
Last week, the enforcement directorate had attached United Breweries Holdings and Mallya assets worth Rs 1,411 crore in Mumbai, Bengaluru, Coorg and Chennai. He was also declared a proclaimed offender early this week.
This was issued in response to a plea by the Enforcement Directorate on April 15 before the special court hearing cases under the Prevention of Money Laundering Act, 2002. There were allegations on him that he transferred Rs 4,000 crore ($590 million) to tax havens.
Bharti Airtel and Singapore Telecommunications (Singtel) have combined resources to form an Internet Protocol Virtual Private Network (IP VPN) to deliver high-speed, secure data network coverage to enterprise customers in Asia-Pacific, the Middle East, Africa, Europe and the US.
The combined network will provide data connectivity to 325 cities across the world through 370 Points of Presence (PoP). Together, Singtel’s 200 PoPs in 160 cities around the world and Airtel’s 170 plus PoPs in 165 cities across India, Africa and Middle East will form a new network that offers a connectivity backbone to enterprises across Asia, Europe, Africa and North America.
“This association will strongly enhance our value proposition for enterprise customers by offering them a wider global reach and the largest reach within India under a single platform. In particular, this will benefit companies in the pharmaceutical, IT and IT-enabled services as well as financial services segments, which are branching out to international locations rapidly,” Manish Prakash, director for strategic ventures at Bharti Airtel, said in a joint statement issued on Tuesday.
Under this global network, multinational corporations can maintain line of sight of their operations across different regions by using high-bandwidth business applications such as cloud applications, unified communications, video conferencing and software-defined networking solutions.
“By tapping on one another’s infrastructure assets, we enhance each other’s capabilities,” said Lim Seng Kong, Managing Director of Global Enterprise Business at Singtel Group Enterprise.
Japanese developers and private equity investors are looking to enter Indian property market and could invest at least USD 2 billion over the next three years in residential as well as industrial projects, says JLL.
Realty consultant JLL India said in a report that the country is emerging as major investment destination for Chinese and Japanese developers.
China’s biggest developer Wanda has signed an MoU with Haryana government earlier this year and more developers from China and Japan are expected to enter the Indian realty market, it said.
Private equity investors from these two countries are also looking at entering India’s real estate sector, it added.
“Japanese developers are keen to explore strategic partnerships and enter into joint ventures with Indian builders, and are particularly interested in industrial projects. There is likely to be an inflow of at least USD 2 billion in investments from Japan into the Indian real estate market over the next three years,” JLL India Chairman and Country Head Anuj Puri said.
After 100 per cent foreign direct investment (FDI) was allowed into the real estate industry, it was only a matter of time before foreign developers made big investment announcements, he said.
“One of China’s most prominent developers, Dalian Wanda Group, signed a memorandum of understanding (MoU) earlier this year with the northern state of Haryana to develop Wanda Industrial New City’. The investment of USD 10 billion, phased out over the next decade, is a very significant outlay by any Chinese company in India,” Puri said.
Other Chinese developers are also interested in India and most likely to follow suit, he added.
The RICS-JLL survey this January had shown that 62 per cent of the respondents felt that institutions from Japan and China could come knocking to the Indian real estate market in 2016.
In a major incentive, startups can now issue shares to investors at higher than fair value without worrying about tax consequences.
