MONTHLY COMMUNIQUÉ DECEMBER 2011

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1 INCOME TAX: Investment limit in Public Provident Fund (PPF) increased: The existing regulations provided a limit of Rs. 70,000/- per annum for investment in PPF which is eligible for deduction u/s 80C. Now, vide amendment to PPF Act, 1968, the limit for investment in PPF is increased to Rs. 100,000/- per annum. (Notification [F.No. 1/9/2011-NS-II], dated November 25, 2011) Income Tax Service Tax Customs FEMA CENTRAL EXCISE: Exemption of goods covered under CETH 7305 for fabrication of goods at site: The benefit of exemption of excise duty with respect to goods fabricated at site of work used in construction work was available for goods covered under CETH 7308 vide notification no. 3/2005 dated The Central Government has now extended the benefit to cover goods covered under CETH 7305 also for the purpose of goods fabricated at site of work used in construction work. Thus, this exemption would now be available to goods such as tubes and pipes of iron and steel having cross sections whose external diameter exceeds 406.4mm. (Notification No.41/2011, dated November 18, 2011) CUSTOMS: Concessional rate of BCD on Import of LCD panel 20 inches and above: The concessional rate of basic customs 5% is limited to LCD (Liquid Crystal Display) TV panels of 20 inches and above. Hitherto, the same was available for all LCD panels subject to actual user condition within the factory of Importer. (Notification No.101/2011-Customs,dated November 17, 2011) The Bill of Entry (Electronic Declaration) Regulations, 2011: The Bill of Entry (Electronic Declaration) Regulations, 2011 are issued in tune with the new self-assessment procedure in supersession of the Bill of Entry (Electronic Declaration) Regulations, Under the new Rules the importer should enter the electronic declaration in the Indian Customs Electronic Data Interchange System through ICEGATE or by way of data entry through the service centre. The bill of entry number will be generated by the system for the declaration filed. This bill of entry shall be deemed to have been filed and self-assessment of duty completed. The Importer should file the original bill of entry (i.e. customs copy), duty-paid challan and other supporting import documents with the proper officer for permitting clearance of important goods. The proper officer will examine the imported goods, if he deems fit to examine. The proper officer will issue duplicate bill of entry (importer's copy) and the triplicate bill of entry (exchange control copy) to the importer. (Notification No. 79/2011 Customs(NT), dated the November 25, 2011) 1 P a g e

2 Eligibility of assessment of construction equipments under Project Imports Regulations (PIR), 1986: The CEBC has clarified that the Project Import Regulations, 1986 shall cover construction equipments as auxiliary equipment, if it is essentially required for initial setting up or substantial expansion of registered projects. It is further clarified that the construction equipments may be permitted to be transferred to other registered project/s under CTH 9801 after completion of its intended use subject to the recommendations of sponsoring authority. It is also clarified that Plant Site Verification Certificate (PSVC) is required to be submitted for finalization of project as per Customs Circular No.14/2006for incorporating the details of construction equipment imported and used for the project to ensure proper utilization of imported goods. The clarification has been issued in view of the decision of the Hon ble Supreme Court in the case of Commissioner of Customs, Mumbai vs. Toyo Engineering India Ltd., (2006(201) ELT 513 SC) and Punjab Power State Electricity Board [1997(91) ELT 247(SC). (Customs Circular No.49/2011,dated November 04, 2011) Location of Foreign Exchange Counters at International airports: The CBEC has clarified on location of Foreign Exchange Counters at departures/ arrival halls in international airports in India: Scenario The arrival halls The departure halls Location of Foreign Exchange Counters After the Customs Desk (Green Channel / Red Channel).However, Foreign Exchange Counters may also be established between the Immigration Desk and the Customs Desk subject to the condition that these counters shall only purchase Foreign currency and sell Indian Rupees (INR) and Encashment Certificates, shall invariably be issued by the money changers to the customers. Before the Customs Desk or the Immigration Desk, whichever comes first.putting up suitable display at these counters, reminding the passengers that the area is the last point for non-residents to possess Indian Rupees (INR) may be followed up with the Airport Authorities. The Foreign Exchange Counters of authorised dealers category-i banks, authorised dealers category-ii and full fledged money changers not conforming to the above, should be relocated in accordance with the above instructions latest by (Customs Circular No.51/2011, dated November 11, 2011) 2 P a g e

3 The Shipping Bill (Electronic Declaration) Regulations, 2011: The Shipping Bill (Electronic Declaration) Regulations, 2011 are also notified in tune with the new self-assessment procedure for export of goods on similar lines of the Bill of Entry (Electronic Declaration) Regulations, (Notification No.80/201-Customs (NT), dated November 25, 2011) The Customs (Provisional Duty Assessment) Regulations, 2011: The Customs (Provisional Duty Assessment) Regulations, 2011 are issued by suppression of the Customs (Provisional Duty Assessment) Regulations, Under the new regulations the provisional assessment may be ordered if the importer or exporter in unable to make self-assessment or the proper officer is unable to verify the self-assessment. However, the importer/exporter is required to execute a bond with such surety or security, or both, to satisfaction of the proper officer. (Notification No.81/2011 Customs (NT), dated November 25, 2011) Clearance of goods from Custom Bonded warehouses utilizing duty credit scrips: The CBEC clarified that the duty credit scrips of SFIS, VKGUY, FMS, FPS, SHIS are allowed for clearance of goods from Custom Bonded warehouses without payment of duty under the same procedure as prescribed for DEPB scrips in terms of Circular 68/2000 dated and 72/2003 dated and subject to the conditions and limitations mentioned in Foreign Trade Policy (Customs Circular No. 50/2011,dated November 09,2011) FEMA External Commercial Borrowings (ECB) Review of all in cost ceiling: As On a review of developments in the global financial markets and the fact that domestic importers are experiencing difficulties in raising ECB within the existing all-in-cost ceiling, it has been decided to revise the all-in-cost ceiling for Trade Credits as under: Maturity Period All in cost over 6 month LIBOR Existing Revised Three years and upto five years 300bps 350bps More than five years 500bps 500bps (no change) The change in the all-in-cost ceiling will come into force immediately. The enhancement in all-incost ceiling is applicable upto March 31, 2012 and subject to review thereafter. All other aspects of Trade Credit policy remain unchanged. (RBI/ /273 A.P. (DIR Series) Circular No. 51, dated November 23, 2011) 3 P a g e

4 Foreign Direct Investment Transfer of shares: As a measure to further liberalize and rationalize the procedures and policies governing Foreign Direct Investment (FDI) in India, it has now been decided to allow the following without the prior approval of the Reserve Bank of India (RBI), which was required hitherto: A. Transfer of shares from a Non Resident to Resident under the FDI scheme where the pricing guidelines under FEMA, 1999 are not met provided that :- The original and resultant investment are in line with the extant FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation, etc.; The pricing for the transaction is compliant with the specific/explicit, extant and relevant SEBI regulations / guidelines (such as IPO, Book building, block deals, delisting, exit, open offer/ substantial acquisition / SEBI SAST, buy back); and Chartered Accountants Certificate to the effect that compliance with the relevant SEBI regulations / guidelines as indicated above is attached to the form FC-TRS to be filed with the AD bank. B. Transfer of shares from Resident to Non Resident : Where the transfer of shares requires the prior approval of the FIPB as per the extant FDI policy provided that (a) the requisite approval of the FIPB has been obtained and (b) the transfer of share adheres with the pricing guidelines and documentation requirements as specified by the RBI from time to time. Where SEBI (SAST) guidelines are attracted subject to the adherence with the pricing guidelines and documentation requirements as specified by RBI from time to time. Where the pricing guidelines under the Foreign Exchange Management Act (FEMA), 1999 are not met same conditions as outlined for transfer of shares from nonresident to resident as outlined above. Where the investee company is in the financial sector provided that: No Objection Certificates (NOC s) are obtained from the respective financial sector regulators/ regulators of the investee company as well as transferor and transferee entities and such NOCs are filed along with the form FC-TRS with the AD bank; and The FDI policy and FEMA regulations in terms of sectoral caps, conditionalities (such as minimum capitalization, etc.), reporting requirements, documentation etc., are complied with. (RBI/ /247 A.P. (DIR Series) Circular No. 43, dated November 04, 2011) 4 P a g e

5 Trade Credits for imports into India Review of all in cost ceiling: As on a review of developments in the global financial markets and the fact that domestic importers are experiencing difficulties in raising Trade Credit within the existing all-in-cost ceiling, it has been decided to revise the all-in-cost ceiling for Trade Credits as under: Maturity Period Upto One year More than one year and upto three years All in cost over 6 month LIBOR Existing Revised 200bps 350bps The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any. The change in the all-in-cost ceiling will come into force immediately. The enhancement in all-in-cost ceiling is applicable upto March 31, 2012 and subject to review thereafter. All other aspects of Trade Credit policy remain unchanged. (RBI/ /257 A.P. (DIR Series) Circular No. 44, dated November 15, 2011) Set off of export receivable against import payables: Presently, RBI has the power to allow for the set off of export receivables against the import payables. As a measure of further liberalization, it has been decided to delegate power to AD Category I banks to deal with the cases of set-off of export receivables against import payables, subject to following terms and conditions: The import is as per the Foreign Trade Policy in force. Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank. Payment for the import is still outstanding in the books of the importer. Both the transactions of sale and purchase may be reported separately in R Returns. The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted / received. The set-off of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for set-off has been obtained from him. The export / import transactions with ACU (Asian Clearing Union) countries should be kept outside the arrangement. All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions. (RBI/ /264 A.P. (DIR Series) Circular No. 47, dated November 17, 2011) 5 P a g e

6 External Commercial Borrowings (ECB) Parking of proceeds: At present, borrowers are permitted to either keep ECB proceeds abroad or remit these funds to India, pending utilization for permissible end-uses. ECB proceeds parked overseas can be invested in liquid assets, such as, deposits or Certificates of Deposit or other products offered by banks (rated not less than AA (-) by Standard and Poor/Fitch IBCA or Aa3 by Moody s), Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above and deposits with overseas branches / subsidiaries of Indian banks abroad. The underlying principle is that funds should be invested in such a way that the investments can be liquidated as and when funds are required by the borrower. ECB funds may also be repatriated to India for credit to the borrowers Rupee accounts with AD Category I banks in India pending utilization for the permissible end-uses. Based on a review of the current macro economic conditions, it is decided that henceforth the proceeds of the ECB raised abroad meant for Rupee expenditure in India, such as, local sourcing of capital goods, on-lending to Self-Help Groups or for micro credit, payment for spectrum allocation, etc. should be brought immediately for credit to their Rupee accounts with AD Category I banks in India. In other words, ECB proceeds meant only for foreign currency expenditure can be retained abroad pending utilization. The rupee funds, however, will not be permitted to be used for investment in capital markets, real estate or for inter-corporate lending, as hitherto. (RBI/ /274 A.P. (DIR Series) Circular No. 52, dated November 23, 2011) Export of goods and software-realisation and repatriation of export proceeds: The relaxation for the period of realization and repatriation to India of the amount representing the full export value of goods or software exported, from six months to twelve months from the date of export. was available up to September 30, Now this relaxation i.e. the time limit of twelve months for realisation is extended till 30 September (RBI/ /241 A.P. (DIR Series) Circular No. 40, dated November 01, 2011) ACCRETIVE SDU CONSULTING PRIVATE LIMITED +91 (80) specialists@accretiveglobal.com This monthly communiqué summarises select legislative developments on tax and exchange control regulations during the previous month. The views expressed and the information provided in this newsletter are of general nature and is not intended to address the circumstances of any particular individual or entity. Further the above content should neither be regarded as comprehensive nor sufficient for making decisions. Although we endeavour to provide accurate and timely information, there is no assurance or guarantee in this regard. No one should act on the information or views provided in this publication without appropriate professional advise. It should be noted that no assurance is given for any loss arising from any actions taken or to be taken or not taken by anyone based on this publication. 6 P a g e