Inter-ministerial body FIPB today cleared six foreign direct investment proposals worth about Rs 180 crore.
The Foreign Investment Promotion Board has cleared six proposals including those of Janalaxami Finance and Turmeric Vision, a Finance Ministry official said.
The panel headed by Economic Affairs Secretary Shaktikanta Das had considered 15 proposals.
The official further said four investments proposals were rejected while decisions on five were deferred for want of more inputs.
India allows FDI in over 90 per cent sectors via automatic route. However, investment proposals in sensitive sectors like telecom and banking go through FIPB.
In last two years, the government has taken a series of reforms measures to liberalise FDI regime. Last month, it announced FDI liberalisation in nine sectors such as civil aviation, retail and private security services. This was the current government’s second round of relaxation in these rules.
During 2015-16, FDI into the country increased by 29 per cent to $40 billion from $30.93 billion in the previous fiscal.
Temasek Holdings, Singapore government’s investment company, will continue to scout for investments across consumption-oriented segments in India this year, even as it’s open to opportunities from other sectors.
In the previous year, the company’s bigger investments were in consumption-oriented segments such as healthcare and pharmaceuticals, financial services (including insurance), technology (e-commerce or payment) and consumer (FMCG companies).
The investments were made across public and private companies.
“That trend is likely to continue, and that’s where we see most of the India story playing out, unless there are certain opportunities that come up from other sectors.
“We are always open to opportunities from other sectors too,” said R Venkatesh, Managing Director, Temasek Holdings Advisors India Pvt Ltd.
For the sector-agnostic investment firm, there is no preferred exit mode, and previously the company has exited through various modes such as strategic stake, secondary sales and IPOs.
On an average, the company has invested more than $1 billion every year in India across sectors such as consumer, financial services, new economy, healthcare and pharmaceuticals.
“We don’t have an industry allocation, a country allocation or any type of deal allocation. It’s entirely based on the deals that make the cart. Our investments are very much bottoms up, and depends on opportunities,” said Promeet Ghosh, also a Managing Director at Temasek Holdings Advisors.
Temasek, which started its Indian operations in 2004, has investments in companies such as Bajaj Corp, Crompton Greaves, Oberoi Realty, GMR Energy, Axis Bank, Glenmark Pharma and Sun Pharma.
India is one of the markets across the world the company is focusing on due to good macros, great demographics and a rising middle-income population, Ghosh added.
Dip in net portfolio value
Last week, Temasek posted a net portfolio value of S$242 billion for year ended March, lower from S$266 billion posted during the previous year.
This was the Singapore investment company’s first portfolio decline since the 2009 global financial crisis.
India’s exposure to that was about 5 per cent, which was a rise from 4 per cent last year.
“This is reflective of a mark-to-market fall in some of our listed portfolio companies across the world. About 60 per cent of our portfolio is listed and about two-thirds of these are exposed to markets in Hong Kong and Singapore stock exchanges, which have fallen between 15-26 per cent,” Venkatesh said.
After successfully completing over 1,000 scrutiny I-T assessments under a maiden taxpayer-friendly paperless inquiry system, CBDT is set to extend the initiative as it is mulling seeking taxpayers’ consent to opt for the scheme at ITR filing stage itself.
Central Board of Direct Taxes (CBDT), the policy-making body of the Income Tax department, had launched a pilot project last year to reduce taxpayers’ visit to the tax office and their interface with the taxman.
Under the project, the first set of e-communications were decided to be mailed to the assessees in DELHI, Mumbai, Bengaluru, Ahmedabad and Chennai region.
As per official data accessed by PTI, the department in these five cities has completed scrutiny assessments in 1,001 cases till now, after a total of 6,481 assesses were contacted of which 1,812 responded positively.
A senior official said the biggest “challenge” in achieving better success in this new project was obtaining the consent of the taxpayers.
The Assessing Officers (AOs) found that while in some cases the taxpayer could not be reached as their personal email ids were with their CAs or authorised representatives, in a few other cases the assessee withdrew his consent to join the scheme, the official said.
“It is now being mulled if the I-T department can print a footnote on the Income Tax Return (ITR) or on the scrutiny notice itself that the taxpayer is invited to participate in the exercise over email in a paperless manner.
“The results are encouraging and the CBDT wants to make this an institutional system for scrutiny assessments henceforth,” the official said, adding the scheme is expected to be widened and rolled out with new features within this financial year.
The success of the project, initiated last year, is evident from the fact that CBDT recently added two more cities (Hyderabad and Kolkata), to the existing five metros, under the paperless assessment system exercise.
With this project, CBDT aims to end corruption and bring hassle-free experience for the taxpayers who undergo a time-consuming scrutiny assessment procedure which entails production of a number of documents and financial statements.
The department, however, says it brings only about 1 per cent of cases under the said procedure.
An official notification had been issued earlier which spells out the procedure, formats and standards for ensuring “secured transmission” of emails between the AO and the assessee stating all communication between the two sides will be done in PDF file format and over bonafide email ids.
This followed an amendment in the I-T Act in December last year, which allowed emails to become the new mode of interaction between the AO and the tax-paying individual.
Under the new procedure, the taxman will send emails, for issuing notices and summons, through the government registered ‘@incometax.gov.in’ email domain and the attached PDF document will have his or her designation and signature.
In response to such I-T notice, taxpayers will have to submit the details called for, in a Portable Document Format (PDF) through their email id registered with the department.
The notification states, “Any email, in response to the notice issued by the AO, received from the primary email address of the assessee, shall be considered as a valid response to the notice.”
In the same notification, CBDT had also mandated that the taxman will maintain an audit trail of all e-communication with a taxpayer in the IT department’s central database for future reference and as record management of the entire transaction.
The new directives also allow a taxpayer to physically submit a reply to such e-notices in case of a technical problem in their email. “This shall be treated as adequate compliance,” it had said.
The project was launched after CBDT had asked the I-T department to “initiate the concept of using emails for corresponding with taxpayers and sending through emails the questionnaire, notice etc at the time of scrutiny proceedings and getting responses from them”.
“This would eliminate the necessity of visiting the Income Tax offices by the taxpayers, particularly in smaller cases, involving limited issues and where taxpayer is able to provide details required by the AO without necessitating his physical presence,” the order had said.
To provide relief to corporates with income abroad, the tax department has notified ‘Foreign Tax Credit’ rules allowing companies to claim credit for taxes, surcharge and cess paid overseas. The rules, which come into effect from April 1, 2017, allow taxpayers to claim credit of foreign tax under dispute once it is finally settled.
Foreign tax credit (FTC) will be available against tax, surcharge and cess payable under the Act, including minimum alternate tax (MAT) but not in respect of interest, fee or penalty.
The rules also provide that disputed foreign tax will be allowed as credit for the year in which the income is taxed in India, subject to certain conditions.To avail of the credit, the taxpayer will have to furnish evidence of settlement of the dispute and evidence of payment of the foreign tax. The taxpayer is also required to provide an undertaking that no refund, directly or indirectly, will be claimed for this foreign tax.
“The rules are progressive and provide much-needed clarity as well as certainty in claiming FTC,” said Rakesh Nangia, Managing Partner, Nangia & Co.
Taxpayers claiming FTC shall now be required to file a Statement of Income from a foreign country with details of tax paid in the prescribed Form 67.
“Rules also provide for situations of carry backward of loss of the current year resulting in refund of foreign tax,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
The Central Board of Direct Taxes (CBDT) has also allowed tax payers to give self-certified statement, giving the nature of income and the amount of foreign tax deducted or paid accompanied with the counterfoil or acknowledgment of taxes paid and/or proof of taxes having been deducted at source, for claiming FTC.
“This process is much simpler than the complex and difficult procedure involving obtaining a certificate from a foreign tax authority,” Nangia said.
The tax credit, the rule said, “shall be the aggregate of the amounts of credit computed separately for each source of income arising from a particular country or specified territory outside India”.
Non-resident investors who do not provide permanent account number will no longer have to face higher tax deduction at source.
The income tax department has eased norms for non-resident investors, who will not be subjected to a higher rate of 20% tax deduction at source or TDS on their interest earnings, royalty or technical fee if they furnish some personal details and tax residency certificate from their home country and a few other easily available documents.
“Provisions of Sec 206AA shall not apply in respect of payments in the nature of interest, royalty, fees for technical services and payments on transfer of any capital asset,” the Central Board of Direct Taxes said in a notification. Section 206AA of I-T Act provides that if an investor does not have permanent account number or PAN, he or she will be liable to withholding taxes on payments at the rate of 20% or as per tax treaty with the country where investor is resident, whichever is higher.
This clause forced non-resident investors to seek PAN, making investment process difficult.
Under the new rules 37BC, investors will instead need to provide their personal details such as e-mail and contact number, residential address and tax residency certificate from the government of their home country.
In case the country does not provide tax residency certificate, the investor can provide tax identification number or any other unique identification number issued by the country of residence. This will spare investors the hassles of securing PAN in India and attendant compliance that comes with having this number.
Finance minister Arun Jaitley had said in his budget speech in February that some concession would be provided in this regard. “Non-residents without PAN are currently subjected to a higher rate of TDS. It is proposed to amend the relevant provision to provide that on furnishing of alternative documents, the higher rate will not apply,” Jaitley had said, without spelling out the details.
In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors
In what showed a mindset shift among India’s policymakers, the government on Monday opened the floodgates for foreign direct investment (FDI) by easing the terms for nine sectors. Showing scant signs of legacy inhibitions, it virtually paved the way for even foreign airlines to acquire their Indian counterparts, removed the condition of domestic access to state-of-the-art technology for 100% FDI in the defence sector and put in abeyance the fractious 30% local sourcing norm for FDI in single-brand retail of advanced-technology products.
Despite the local pharma industry’s oft-expressed fear of being swamped by Big Pharma, foreign firms can now take majority (up to 74%) ownership in Indian drugmakers via the automatic route, which could again catalyse big-ticket M&A activity in the sector.
With the relaxations in the aviation sector, even a foreign airline could acquire 100% ownership in an India airline company by working in concert with a related party, according to some analysts. For example, a Qatar Airways could acquire a GoAir by directly picking up a 49% in the Indian firm and lapping up the balance equity through the West Asian nation’s sovereign wealth fund, Qatar Investment Authority.
Analysts, however, said the government seems to have tightened the sourcing rule in single-brand retailing, instead of giving a blanket exemption from such a rule for entities having “cutting-edge” technology, as was the case earlier. For instance, Apple will be exempted from the local sourcing rule for three years and have a relaxed sourcing regime for another five years if it wants to set up its own retail store, as its technology has already been described as “cutting edge” by a government panel. However, the company will still have to start local sourcing from the fourth year itself, thanks to the insistence of the finance ministry, which wanted that the Make in India programme get a boost. Similarly, Chinese company LeEco will be subjected to the same conditions if its claim of having “cutting edge” technology is endorsed by the panel headed by department of industrial policy and promotion secretary Ramesh Abhishek. However, another Chinese smartphone maker, Xiaomi, which recently withdrew its application for such a waiver, will have to comply with the mandatory 30% sourcing rule from the beginning should it wish to set up its own retail store.
Commenting on the new FDI policy for airlines, Amber Dubey, partner and India head of aerospace and defence at KPMG in India, said: “The avoidable controversies on settling ‘ownership and control’ issue is now over. Foreign airlines can now focus on the customers and competition rather than wasting time on legal and regulatory issues.”
“The likely increase in competition will bring down prices and enhance air penetration in India, both international and domestic. Indian carriers can now look for enhanced valuations in case they wish to raise funds or go for partial or complete divestment,” he added.
Calling the new norms a “bit tricky”, Amrit Pandurangi, senior director, Deloitte Touche Tohmatsu India, said, “Foreign airline investment is restricted to 49% and FDI investment in this sector has been opened up to 100%, so if the beyond the portion of the equity is by a related entity, then that needs to be tested.”
Among domestic airlines, the Rahul Bhatia-controlled Interglobe Enterprises holds close to 43% in IndiGo, Ajay Singh has a 60% stake in SpiceJet and Naresh Goyal holds 51% in Jet Airways. While Tata Sons holds 51% in both Vistara Airlines and AirAsia India, GoAir is wholly owned by the Wadia Group.
In defence, the decision to scrap the condition of access to “state-of-the-art technology” for FDI beyond 49% (through government route) will make it easier for foreign investors to invest in India. Already, Russian firm Kalashnikov is reportedly looking for local partners for manufacturing in India. Similarly, Swedish defence major Saab is learnt to be looking at more than 49% FDI in defence in its joint venture with a local partner to make the Gripen aircraft in India.
The government’s move to allow 100% FDI through the automatic route (earlier it was up to just 49%) in the broadcast carriage industry, comprising teleports, cable, direct-to-home (DTH) players, HITS (head-end-in-the sky) and mobile TV operators will provide a breather to the cable industry which has been struggling with the process of digitalisation of cable TV. The government has also allowed 74% FDI (49% under automatic route and through government approval beyond this ceiling) in private security agencies. Earlier, only 49% of FDI through government route was allowed.
Also allowed now is 100% FDI in animal husbandry (including breeding of dogs), pisciculture, aquaculture and apiculture under the automatic route under controlled conditions. It has been decided to do away with this requirement of ‘controlled conditions’ for FDI in these activities.
“For establishment of branch office, liaison office or project office or any other place of business in India if the principal business of the applicant is Defence, Telecom, Private Security or Information and Broadcasting, it has been decided that approval of Reserve Bank of India or separate security clearance would not be required in cases where FIPB approval or license/permission by the concerned Ministry/Regulator has already been granted,” a PMO statement said..
Monday’s is the second largest FDI liberalisation initiative by the Modi government, after the steps taken in November 2015. Prime Minister Narendra Modi tweeted: “In two years, Govt brings major FDI policy reforms in several key sectors… India now the most open economy in the world for FDI; most sectors under automatic approval route.” He added: “Today’s FDI reforms will give a boost to employment, job creation & benefit the economy.”
In what seemed to indicate that the government’s intention was indeed to let foreign airlines acquire Indian firms and thereby augment their capital and fleet strength for the benefit of air travellers, economic affairs secretary Shaktikanta Das said that Monday’s reforms in the sector were a “game changer”.
India’s FDI inflows increased to $55.5 billion in FY16 from $36 billion in FY14. Net FDI inflows stood at $36 billion in FY16 compared with $32.6 billion in FY15.
Commerce and industry minister Nirmala Sitharaman, however, rejected assumptions that the government decided to announce so many FDI policy reforms in one go to divert public attention from RBI governor Raghuram Rajan’s decision to not continue at the central bank after his current tenure ends on September 4. The reforms are a result of months of deliberations among various departments and are not announced in a hurry to divert attention, she affirmed.
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.
Inter-ministerial body FIPB today cleared six foreign direct investment proposals worth about Rs 180 crore.
