KGS. Honesty and Integrity are by far the most important assets of an entrepreneur. Zig Ziglar. INTEGRITY FIRST

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1 Honesty and Integrity are by far the most important assets of an entrepreneur. Zig Ziglar. INTEGRITY FIRST

2 Cost INDEX S. No. Topic 1. GST Deadline Deferred To July 1, NPS forces the aged to annuitize 40% of their pension wealth. Time for a change? 3. Taxation of Real Estate 4. Sick Industries 5. GST and Power Sector

3 GST Deadline Deferred To July 1, 2017 This article aims to: Provide highlights of the 9 th GST Council meet on January 16, 2017 Ms. Garima Sharma (Director-Indirect Taxes)

4 GST Deadline Deferred To July 1, 2017 The Hon ble Finance Minister, Mr. Arun Jaitley after the 9 th GST Council meet on January 16, 2017 said that, I am trying my best (on deadline of April 1). There was a broad view that July 1 appears to be a more realistic date for the implementation. The list of the keys takenaway from the meeting of the GST Council are as follows: 1. GST deadline has been deferred to July 1. The Government earlier set April 1 as the GST roll-out deadline. 2. The entire taxation base will be shared between the Centre and the States for the purpose of scrutiny and audit. 3. Those above turnover 1.5 crores would be assessed in the ratio of 50:50 between Centre and state. 4. All assesses with GST turnover of Rs. 1.5 crore or less, 90 per cent of them will be assessed by States & 10 per cent by administrative machinery of Centre. 5. Each assessee would be assessed only by one authority only. Further, the Hon ble Finance Minister also said that, "You won't have to jump from authority to authority, that's the advantage of GST... Once you evolve numerically a lot more will come from state to the centre, because the percentage is 50:50 in higher category and 90:10 in lower category. The computer programming would be done in a manner so that there is no discretion." 6. Power to levy and collect the I-GST lies with the central government but states will also be crossempowered in the same ratio as above through a special provision in law. Any IGST disputes among states will be resolved by the Centre. 7. Centre also ceded ground on taxation rights over the sea. Territorial waters extending to 12 nautical miles fall under control of the Union Government but as per convention, states will be empowered to collect tax on any economic activity in this zone. In this regard, Hon ble Finance Minister said that, As far as the area of 12 nautical miles into the territorial waters is concerned, it's part of the Union government s territory but as per the convention, states will be empowered to collect tax on any economic activity. This decision has been taken after very wide consultation. As the discussions made in the 9 th GST Council meet would have an impact on the IGST Law, Compensation Law and correspondingly, on the Central Goods and Services Tax/State Goods and Services Tax Law, accordingly the Draft of IGST Law and other supporting legislations including Rules will be tabled again in the next meeting of the GST Council scheduled on February 18, Finally, the ninth GST Council meet saw a way forward for the Centre and the States reaching consensus on sharing powers for control over tax payers under GST and it is expected that the subsequent follow up meeting on February 18, 2017 will see remaining concerns getting streamlined.

5 NPS forces the aged to annuitize 40% of their pension wealth. Time for a change? This article aims to explain: Draw-down phase of NPS NPS and Annuity Coping Mechanism CA Jackie Verma & Sakshi Garg

6 NPS forces the aged to annuitize 40% of their pension wealth. Time for a change? A pension program must ultimately be judged by the consumption delivered in retirement. In defined contribution (DC) pension systems, such as the NPS, we accumulate wealth over our working life, and draw down this wealth after retirement. When savings are gradually drawn down in order to pay for consumption, there is the possibility of living too long and running out of savings. Buying an annuity eliminates this risk, but it may yield a low consumption per year of life. In the early years, the focus in pensions policy thinking was on investment. Why do we care about the draw-down phase of NPS? In India, the NPS forces individuals to annuitize 40% of their pension wealth, and take the remainder as a lump-sum. The subscriber can delay the annuity purchase or lump-sum withdrawal by 3 years. If the accumulated corpus is less than or equal to Rs. 200,000, the subscriber can withdraw the entire amount and forgo the annuity purchase. Phased withdrawals are prohibited. Now that more than 10 years have passed since the first entrants into the NPS, and we are getting closer to the first full cohort retiring, it is time to evaluate the draw-down policy. If there is more clarity and improved design for the drawdown phase, this may induce increased enrollment into the NPS. There can be many reasons for exit from the NPS voluntary retirement, untimely death of the subscriber, and exit at the prescribed retirement age. In this article, we focus mostly on the latter i.e. draw down policy on retirement. Two questions are faced here: What is the optimum level of mandatory annuitization? Different countries have approached the question of mandatory annuitization differently, and are largely influenced by the existence of a state funded pension which offers protection from poverty in retirement. The Chilean approach, for example, has been to restrict lump-sum distributions, and mandate the use of fixed inflation-indexed annuities or lifetime phased withdrawals. The Australians are more flexible in allowing lump sum withdrawals. Most recently, the UK has done away with its rule of mandating the purchase of an annuity by the age of 75, and allows for programmed withdrawals. The US has very little mandatory annuitization. Is our mandatory 40% annuitization optimal, and if not, what should be done How do we make the market for annuities work? Life insurance companies are often reluctant to enter into annuity markets because of the lack of availability of good mortality tables as well as instruments for hedging longevity and inflation risk. Customers may like a survivor annuity that includes the spouse, children and dependent parents, but from a pricing perspective, this may not be feasible. Customers may like inflation indexed annuities, but this requires that the insurance company is able to trade in a market for long dated inflation indexed bonds. We need to understand what are the requirements for enabling an annuity market that can provide competitive pricing on its products. The problems of the Indian Bond-Currency- Derivatives Nexus inhibit the emergence of an efficient market for annuities. Gaps in our knowledge In order to arrive at an optimal level of annuitization, we need to have an understanding of what our objective is from the annuitization. For example, if our objective is to ensure a minimum consumption in retirement, then annuitization can be mandatory only to the extent that is required to buy the minimum annuity. This requires us to take a view on what constitutes minimum consumption. A nominal annuity may not be able to buy a minimum consumption basket if inflation surprises occur over the lifetime of the retiree. In this case, annuitization should mandate the purchase of an inflation indexed annuity instead of a nominal annuity. If, on the other hand, we believe that RBI will deliver on its 4% CPI inflation target, this changes the way we think about this. We have not had a larger policy discussion on this question.

7 Minimum consumption can be thought of either in terms of a minimum replacement rate relative to the average of the last few years of wage or contributions made, or a value that is linked to some consumption index. It may also vary depending on the age at which draw-downs are expected to begin. While the age of retirement is fixed for salaried employees, this may not be the case for informal sector workers. We, therefore, need to take a view on what will be the retirement age, or access age for informal sector workers. If insurance companies do not take into account person-specific mortality differences, this is unfair on the poor as they die sooner. In this case, it might be more prudent to allow for a policy of programmed withdrawals. The trade-offs between an annuity and programmed withdrawal, and the design features of programmed withdrawals need to be better understood. Finally we need to understand what impedes the development of annuities products. Why is it that insurance companies are reluctant to offer multiple products? What market and regulatory failures need to be addressed so that this market can take off. Given the gaps in our knowledge the following elements of work are now required: Design of annuitization policy and phased withdrawal policy The level of annuitization needs to be thought through from the perspective of consumption as well as the ability of the market to provide such an annuity. This includes questions such as the access age, the level of mandatory annuitization, the type of annuity, as well as the design of the programmed withdrawal product. Developing annuity markets Processes for solving market failures that may impede the functioning of annuities markets need to be set up. For example, an important policy measure that might be in the domain of the PFRDA is the development of mortality tables. PFRDA needs to establish a position on the requirements that the BCD Nexus has to satisfy in order to achieve PFRDA s objectives, and advocate this position with the Ministry of Finance. This includes dealing with questions about long dated bonds, inflation indexed bonds, interest rate derivatives, and instruments to hedge longevity risk. Procurement procedure for annuity providers The provision of annuities also depends on the competition in the annuity market, and the price at which the annuity is offered to the subscriber. A focus on low-cost annuity provision needs to be developed. For example, the procurement of annuity service providers should be done via auction, which leads to the lowest prices. This was the approach taken for the appointment of pension fund managers and has led to some of the lowest fund management costs in the world.

8 Taxation of Real Estate This article aims to explain: Impact of Demonetisation on Real Estate CA Chandni Chandak & Shivam Agrawal

9 Impact of Demonetisation on Real Estate After demonetisation, the Government will next focus on real estate transactions for identifying the unaccounted money. The tax provisions such as computing the capital gain based on the stamp duty value under section 50C, computing income from other sources under section 56(2)(vii)(b) for taxing cases of inadequate consideration, deeming provision under section 43CA in case of difference between the stamp duty value and actual sale consideration where land or building is held as stock-in-trade, amendments in sections 269SS and 269T to curb the cash transactions relating to immovable properties and the requirement to deduct tax at source on transfer of immovable property as per section 194-IA are some of the steps taken by the Government to keep a check on unaccounted money in real estate transactions and enhance tax compliance. The demonetisation of 500 and 1000 banknotes was a policy enacted by the Government of India on 8th November 2016, ceasing the usage of all 500 (US$7.40) and 1,000 (US$15) banknotes of the Mahatma Gandhi Series as legal tender in India after 9 November Business Income vs Capital Gain When the transaction involves transfer of capital asset then the resultant gains would be taxable as capital gains, whereas if transaction is entered into normal course of business, the resultant profit shall constitute business income. There are certain disputes relating to what constitutes business income or capital gain. The intention of the parties and the nature of transaction will decide whether it is a business adventure or capital gain. An assessee has converted his HUF land into smaller flats after demarcation, developed, levelled and also obtained municipal approval for lay out plan after paying conversion charges and license fees. This is a business activity and is assessable as a business income arising out as adventure in nature of trade and not as capital gain Ref: Vita Kristappa vs. ITO 92 ITD 1[HYD] TM Section 50C - Computation of Capital Gains in Real Estate Transaction Section 50C provides that if the value stated in the instrument of the transfer is less than the valuation adopted by the stamp duty authority, the valuation as adopted by the stamp duty authority will be considered for the purpose of computation of capital gain arising on transfer of land or building or both. In case if there is a dispute on valuation of stamp duty by way of an appeal, revision or reference before any authority or Court or High court then the value fixed by the high authorities can be considered for computation of capital gain for the assessee. Where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, then the stamp duty the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be considered for computing the full value of consideration, if whole or part of the consideration is received on or before the date of agreement by way of an account payee cheque or account payee bank draft or electronic clearing system through a bank account. Date of registration in case of immovable properties In view of the provisions of section 47 of Registration Act 1908, a document on subsequent registration will take effect from the time when it was executed and not from the time of registration. Where two documents are executed on the same day, the time of their execution would determine the priority irrespective of the time of registration. The one, executed earlier in time, will prevail over the other executed subsequently. Where the sale deed was executed prior to the date of registration, the effective date of transfer for the purpose of capital gain is the date of execution of the sale deed. Section 17: Registration Act Amendment 2001 "(IA) The documents containing contracts to transfer for consideration, any immovable property for the purpose of section 53A of the Transfer of property Act, 1882 shall be registered if they have been executed on or after the commencement of the Registration and Other Related Laws (Amendment) Act, 2001 and if such documents are not registered on or after such commencement, then, they shall have no effect for the purposes of the said section 53A", Section 68 of Evidence Act says that a document shall not be used as evidence until at least one attesting witness has given the testimony and Section 92 indirectly says that compulsorily registrable document shall not be used as evidence if it is not registered.

10 Section 49 of Registration Act says that the un-registered document, listed in section 17, shall not be received/admissible in Courts. That is to say, if the vendor was not ready to sell the property as agreed, the buyer cannot approach Court for non-performance of the agreement on the basis of unregistered agreement. In other words, the unregistered agreement cannot be enforced in a Court of Law and as such, it becomes invalid. When does the capital gain arise where development agreement is executed? Date of execution of Development Agreement Date of handing over of possession Handing over of possession coupled with GPA in favour of developer/purchaser Date of execution of first sale deed for developer s share Date of execution of first sale deed for landowner s share Date of handing over of Landowner s built-up area

11 Sick Industries This article highlights What is Sick Industries Reasons and Causes of Industrial Sickness in India CA Kunal Jain & Yash Jaiswal

12 Sick Industries Introduction Industrial sickness or Sick Industries is defined in India as "an industrial company (being a company registered for not less than five years) which has, at the end of any financial year, accumulated losses equal to, or exceeding, its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year". Meaning For People Industrial sickness is an umbrella term applied to various things associated with industry that make people ill and cause them to miss work. The solutions will have to be tailored to the specific industry, and only in that way can any real effect be made on improving the health and productivity of the industrial workforce. The key is an aggressive work-up on the health issues for a given segment of the industrial workforce, and usually broken down by type of work (which makes sense). Even as coal miners face overpowering respiratory threats, and foundry and mill workers have to confront major physical threats from large (heavy) quantities of extremely hot materials, each facet of industrial production has its hot-button health issues. Industrial health managers need training and experience identifying and remediating conditions that present major health threats to their respective workforces. Then they can train the rest of management and can teach the workers themselves about the best way to carry out their jobs with minimum threats to their health. Meaning For Companies According to Companies (Second Amendment) Act, 2002 "'Sick Industrial Company' means an industrial company which has i) The Accumulated losses in any financial year equal to 50 per cent or more of its average net worth during four years immediately preceding such financial year; or ii) Failed to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor or creditors of such company." Potentially sick company An industrial company whose accumulated losses, as at the end of any financial year, have resulted in erosion of fifty per cent or more of its peak net worth during the immediately preceding four financial years. Where a company becomes a potentially sick company, amongst other things, it shall report BIFR of such erosion within a period of sixty days from the date of finalization of the duly audited accounts Sick Industries Companies Act,1985 The most important piece of legislation dealing with industrial sickness was the Sick Industrial Companies (Special Provisions) Act,1985 (SICA). It applies to industrial undertakings both in the public and private sectors. SICA pertains to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, (IDR Act) subject to the exceptions specified in the Act. SICA, including any rules or schemes made thereunder, had overriding provisions over other laws except the provisions of the Foreign Exchange Regulation Act,1973 and the Urban Land (Ceiling and Regulation) Act, The basic rationale of enacting SICA was to determine sickness in the industrial units. It also aimed at expediting the revival of potentially viable units so as to make the investments in such units profitable. At the same time, to ensure the closure of unviable units so as to release the investments locked up in such units for productive use elsewhere.

13 Thus, the broad objectives of SICA were:- Timely detection of sick and potentially sick companies. Speedy determination by a body of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies. The expeditious enforcement of the measures so determined and for all matters connected therewith or incidental thereto. Reasons and Causes of Industrial Sickness in India External Factor 1. Recession in the Market. 2. Decline in Market Demand for the product. 3. Excessive competition in the Market. 4. Erratic and insufficient supply of inputs. 5. Adverse Government Policy. 6. Unforeseen circumstances like Natural calamities. Internal Factor 1. Faulty planning in conducting business. 2. Incompetent Entrepreneurs. 3. Problems relating to Management. 4. Financial problems. The above causes are general causes of sickness. A firm could get sick because of one or more of the above causes. However, it has been found that industrial sickness results more due to faulty, careless behaviour and attitude of management, than due to any other reason. In many cases, irresponsible and callous behaviour of the managers has been found to be the most important cause of sickness for the firm.

14 GST and Power Sector This article highlights Adverse Impact of GST on Power Sector Recommendations CA Puneet Mehra & Shraddha Sharda

15 GST and Power Sector "More the exemptions, the higher will be the rate... Because when you exempt some people, you charge others a higher rate. For everybody to accept exemptions, actually would end up in a higher rate. India indefinitely cannot survive and sustain merely on regimes of incentives and exemptions" he said. - Arun Jaitley, Finance Minister Power Sector currently enjoys various concessions and benefits from indirect tax perspective. The renewable energy sector enjoys various fiscal incentives like 100 per cent tax holiday on earnings for 10 years, concessional excise and custom duties and so on. The indirect tax reform through the GST is expected to hike renewable energy costs and pricing and hit investors. GST's effect on cost of setting up of renewable projects would vary across segments. The possible impact may include 16-20% rise in Solar off Grid costs; 12-16% rise in Solar PV Grid installations and 11-15% jump in the cost of setting up wind energy projects. Key Factors of Adverse Impact S. No. Key factor Comments 1 Removal of Exemptions Various exemptions are provided currently to capital goods and inputs used in renewable energy projects. However the foundation of GST is based on pruning of exemptions as far as possible. Hence, if exemptions are pruned for goods used in renewable energy projects, there would be a significant increase in tax cost on procurements. Taxes on various capital goods, inputs and input services (both forming part of capital cost as well as operation & maintenance costs) used for generation of renewable energy would continue to be non-creditable for the energy sector and hence, forming part of costs and hence, increase cost of renewable energy. 2 Increase in tax rates Currently, different tax rates are applicable depending on the nature of procurement. GST aims to provide a single rate for goods and services. The Select Committee has recommended that the standard GST rate should not exceed 20%. A GST rate of 20% would also be substantially higher than the rates currently applicable on procurement of goods and services in the renewable energy sector This would have an adverse impact as the taxes paid on procurements would increase the tax cost burden for the renewable energy sector. 3 Removal of statutory forms In case of inter-state purchases, currently a concessional rate of CST of 2% is provided against issuance of statutory form (Form C) in case the goods are to be used in generation or distribution of electricity. GST is expected to be levied on all inter-state supplies, with availability of credit in destination States. It is likely that statutory forms (eg Form C) would be done away with under the GST regime. Hence, concessional rate of tax may not be available even if the goods are to be used in generation of distribution of electricity. IGST at 20% would be applicable on inter-state procurements along with an additional tax of 1%. This would lead to a substantial increase in tax costs as compared to the current regime having a direct impact the cost of renewable energy.

16 Key recommendations The Government has always strived to boost the renewable energy sector. This is also evident from the current Government policies and initiatives. Current tax concessions play an important role to make renewable energy competitive. Under GST, increase in tax cost for renewable energy sector could not only have a possible negative impact on cost of setting-up renewable energy plants but also increase the working capital requirements for the renewable energy sector leading to higher financial as well as operating costs. Further, the renewable energy sector benefits every strata of the society (including various rural areas) and hence, any increase in tax costs would also have an adverse social impact. In line with the endeavour of the Government to promote the renewable energy sector and to ensure that there is not a substantial increase in the delivered cost of renewable energy, the following recommendations may be taken into account: Current tax exemptions provided to the renewable energy sector should be continued under the GST regime as well. The services rendered to a project owner for setting up and operation of renewable energy plant/ project should be exempt from levy of GST. This would ensure that there is no adverse impact on the procurements made for generation of renewable energy due to increase in tax costs. Exemptions should be provided for all categories of goods supplied to a renewable energy project (whether meant used in setting up or are parts/ components of the plant or are used for O&M). Sale of goods and services to renewable energy projects should be zero-rated, i.e. the vendors providing such goods and services at nil GST rate should be eligible to avail credit of the GST paid on inputs, capital goods and services used. Wherever, exemptions are not available, concessional rate of GST (both at Central and State level) should be applicable on goods and services used by renewable energy sector. The project developer should be eligible to claim refund of GST paid (both at Central and State level) on goods and services used for setting up and operating renewable energy project. Conclusion Power producing companies - both renewable and conventional - would have to pay GST for their inputs such as fuel and machinery but will not be able to get these taxes refunded, given that their output - electricity - is exempt. This higher cost of producing electricity will then be passed on to consumers. GST is based on the foundation of reduction of exemptions. Considering the fact that renewable energy sector currently benefits from various exemptions and concessional duty, the impact on the delivered cost of renewable energy needs to be examined under the GST regime which is likely to eliminate/ reduce exemptions.

17 Contact Us Contact Name Mobile Mr. Anuj Somani Mr. Bhuvnesh Maheshwari Head office: Branch Offices: Network Offices: DELHI MUMBAI BANGALORE Delite Cinema Hall GHAZIABAD BHOPAL 3 rd Floor, Gate No. 2, New Delhi, India GURGAON BUBNESHWAR SILIGURI CHENNAI CHENNAI KOLKATA Disclaimer This material and the information contained herein prepared by the authors is of a general nature and does not exhaustively deal with the subject discussed. Although the authors have put their earnest effort in providing accurate and appropriate information, the article is not intended to be relied upon as the sole basis for any decision which may affect you or your business. The authors recommend you take professional advice before acting on specific issues. is neither responsible for any views, opinions and statements made by the authors nor is liable for consequences, if any, arising from actions based on such views or opinion.