INCOME TAX: Cost Inflation Index notified: Central Board of Direct Taxes (CBDT) has notified the Cost Inflation Index (CII) for the financial year (FY) 2013-14 as 939. (Notification No. 40/2013 dated 06.06.2013) Income Tax Customs FTP FEMA Electronic filing of reports: The CBDT has notified amendments to the manner of filing returns primarily relating to electronic filing of statutory forms. In the month of May, CBDT had notified that the tax audit report under section 44AB, the transfer pricing report under section 92E and the report by an undertaking claiming a tax holiday under Section 10A were required to be filed electronically. It has now notified that the following forms are also required to be filed electronically: Form 10BB required to be filed by a fund or trust or institution or any university or other educational institution or any hospital or other medical institution approved under section 10(23C) of the Act. Form 10B required to be filed by a trust or institution registered under section 12A of the Act. Forms required to be filed by an undertaking claiming deduction under section 80IA, 80IB, 80IC or 80ID of the Act. (Notification No. 42/2013 dated 11.06.2013) Rules in relation to transfer pricing for specified domestic transactions: Specified domestic transactions were brought within the ambit of the Indian transfer pricing regulations by the Finance Act, 2012. Vide the notification, amendments have now been made to expand the scope of the current rules to cover specified domestic transactions. Form 3CEB has also been amended by providing Part C, as per which details of specified domestic transactions are to be provided. (Notification No. 41/2013 dated 10.06.2013) CBDT provides clarification on its Circulars on transfer pricing approaches towards intangibles and R&D centres: CBDT had issued two Circulars in March 2013 clarifying transfer pricing approaches towards intangibles and R&D centres (refer our Special Transfer Pricing Communique dated 15.04.2013). Stakeholders represented before the CBDT requesting for clarity on the above circulars. The CBDT has reviewed the same and has now issued two circulars in order to provide better clarity on this subject. The first of these Circulars withdraws the earlier Circular which provided guidance on applying the Profit Split Method to transactions involving intangibles. The second of these Circulars outlines the conditions based on which captive Indian R&D centres of multinational enterprises would be regarded as insignificant risk bearing contract R&D service providers. Refer to our Special Transfer Pricing Communique dated 03.07.2013 for detailed analysis on the Circular. (Circular no 02/2013 and 03/2013 dated 26.03.2013) Commodities Transaction Tax Rules 2013: The Commodities Transaction Tax (CTT) was introduced in Budget 2013 to be levied on transactions of sale of derivatives in respect of commodities (other than agricultural commodities) which are traded in recognized associations. The Central Government has now notified rules in this regard. The rules prescribe agricultural commodities that would be outside the ambit of the CTT, procedures for filing return of taxable commodity transactions and filing appeals in relation to CTT assessment orders. (Notification No. 46/2013 dated 19.06.2013) 1 P a g e
Furnishing of authorisation, maintenance of documents etc, for transactions with persons located in notified jurisdictional area: Section 94A provides that where a taxpayer enters into a transaction with persons located in a notified jurisdictional area, all the parties in the transaction would be deemed to be associated enterprises as per the Indian transfer pricing regulations and these regulations would be applicable to such transactions. It also provides that the taxpayer would be allowed to claim a deduction with respect to: (a) any payment made by the taxpayer to a financial institution located in a notified jurisdictional area only if the taxpayer furnishes an authorisation in the prescribed form authorising the CBDT / any other incometax authority to seek information from the financial institution relating to the taxpayer s account maintained with such financial institution. (b) any other expenditure or allowance arising from the transaction with a person located in a notified jurisdictional area (specified person), only if the taxpayer maintains and furnishes prescribed information. The CBDT has now prescribed rules in this regard. Vide Rule 21AC, the CBDT has prescribed Form 10FC for authorization in respect of (a) above. In respect of (b) above, the rule prescribes that documentation as required to be maintained under the Indian transfer pricing regulations are required to be maintained. In addition, the following documentation should also be maintained: a) a description of the ownership structure of the specified person, including name and address of individuals or other entities, whether located in the notified jurisdictional area or outside, having directly or indirectly more than 10% shareholding or ownership interests; b) a profile of the multinational group of which the specified person is a part along with the name, address, legal status and country of tax residence of each of the enterprises comprised in the group with whom the taxpayer has entered into a transaction, and ownership linkage among them; c) a broad description of the business of the specified person and the industry it operates in; d) any other information, data or document, which may be relevant for the transaction with the specified person. (Notification No. 47 dated 26.06.2013) CUSTOMS: Monetary threshold limit of penalty and fine for filing appeals by the Department: Both redemption fine and penalty are imposed for violations of the statutory provisions and therefore the treatment given to both redemption fine and penalty is required to be identical. Insofar as it relates to the threshold limit for filing of appeals before the CESTAT, High Court and Supreme Court, the CBEC has clarified that though the nature and scope of penalty is different from that of the redemption fine and that redemption fine cannot be said to be covered under the word penalty, the same would have to be clubbed to determine if it fulfills the requirement of the prescribed threshold limit for filing appeals. A similar instruction is also issued under the Central Excise and Service Tax Provisions. (Instruction F. No. 390/Misc./163/2010-JC dated 03.06.2013) 2 P a g e
Introduction of Risk Management Systems (RMS) in Exports: In continuation of the Business Process Re-engineering initiative, the Central Board of Excise and Customs has introduced RMS in exports in the Indian Customs EDI Systems (ICES). The RMS in exports will enable low risk consignments to be cleared based on self-assessment of the declarations by Exporters. The RMS in Exports is scheduled for implementation from 15.07.2013 onwards. The detailed instruction can be accessed at the following link: http://www.cbec.gov.in/customs/cs-circulars/cs-circ13/circ23-2013.pdf. (Circular No.23/2013-Customs dated 24.06.2013) Eligibly of Duty Free Scrip under the Focus Market Scheme: The Exporters are eligible for duty free credit scrip on export of goods to notified countries under the Focus Market Scheme. The conditions of eligibility for issue of duty free credit scrips are amended under the Focus Market Scheme. In computing the export performance or for computation of entitlement under the Foreign Trade Policy, the incremental growth shall be only in respect of each exporter [Importer Exporter Code (IEC) holder] and the exports of group companies or transfer of export performance from any other IEC holder shall not be considered. The following categories of exports shall not be counted for calculation of export performance or for computation of entitlements under the Focus Market Scheme: (i) Export of imported goods or exports made through trans-shipment; (ii) Export from SEZ/ EOU /EHTP /STPI /BTP/FTWZ; (iii) Deemed Exports; (iv) Service Exports; (v) Third Party exports; (vi) Diamond, Gold, Silver, Platinum, other precious metal in any form including plain and studded jewellery and other precious and semi-precious stones; (vii) Ores and concentrates of all types and in all formations. (viii) Cereals of all types; (ix) Sugar of all types and all forms; (x) Crude / petroleum oil and crude / primary and base products of all types and all formulations; (xi) Export of milk and milk products; (xii) Export performance made by one exporter on behalf of other exporter; (xiii) Supplies made to SEZ units; (xiv) Items, export of which requires an export authorisation (except SCOMET); (xv) Export of Meat and Meat Products; (xvi) Exports to Singapore, UAE and Hong Kong; (xvii) SEZ/EOU/EHTP/BTP/FTWZ products exported through DTA units. Accordingly, notification has been issued under Service Tax to give exemption to taxable services provided or agreed to be provided against a scrip by a person located in the taxable territory from the whole of the service tax.(notification No. 32/2103-Customs and Notification No.10/2013-ST both dated 13.06.2013) 3 P a g e
Clarification regarding re-import of pets under baggage: The Central Board of Excise and Customs has clarified that re-import of pets as baggage is allowed. However, re-import is subject to establishment of identity of pets by Customs authorities, production of required health certificate from the country of export and examination of the pets by concerned Quarantine Officer. (Circular No. 25/2013 dated 01.07.2013) Introduction of new Customs Brokers Licensing Regulations, 2013: The Central Government has introduced new the Customs Brokers Licensing Regulations, 2013 in place of the Customs House Agents Licensing Regulations, 2004. The new Regulation also deals with the licensing of custom brokers (hitherto called as Customs House Agents), who will assist in entry or departure of a conveyance or the import or export of goods at any customs station on the behalf of the exporters and importers. The new regulations can be accessed at the following link: http://www.cbec.gov.in/customs/cs-act/notifications/notfns-2013/cs-tarr2013/cs32-2013.pdf (Notification No. 65/2013 - Customs (N.T.) dated 21.06.2013) FOREIGN TRADE POLICY: Export of Imported Goods: Re-Export of goods, which were imported against convertible foreign exchange, would be permitted against payment in Indian Rupees to the notified countries. These exports in Indian Rupees should be subject to atleast 15% value addition. Hitherto, export of such imported goods were allowed only against convertible currency and export of imported goods was not allowed against payment in Indian Rupees.(Notification No 16 (RE 2013)/2009-2014 dated 06.06.2013) Defective parts/spares imported for undertaking certain activities need not be re-exported: The provisions of Foreign Trade Policy provides that goods or parts exported and found defective, damaged or unfit may be imported for repair and subsequently re-exported. However, it is provided that when such imports are made exclusively for undertaking root cause analysis, testing and evaluation by Companies/Firms and Original Equipment Manufacturers, re-export shall not be mandatory. (Notification No 24 (RE 2013)/2009-2014 dated 19.06.2013) Notification of monetary limits for exercise of powers of Adjudicating Authority: The Central Government has notified monetary limits of Designated Officers for exercising powers under the Foreign Trade (Development &Regulation) Act, 1992 and the same are as follows: Sl. Designation of Officer Value of Goods or Services 1. Additional Director General of Foreign Trade Without limit 2. Joint Director General of Foreign Trade Up to Rs. 25 crores 3. Deputy Director General of Foreign Trade/ Up to Rs. 10 crores Assistant Director General of Foreign Trade 4. Development Commissioner, Special Economic Zones Without limit in respect of Export Oriented Units and units in Special Economic Zones 4 P a g e
Sl. Designation of Officer Value of Goods or Services 5. Designated Officer, Department of Electronics & Information Technology Without limit in respect of units in Software Technology Parks (STPs) and Electronics Hardware Technology Parks (EHTPs). (Notification No 20 (RE 2013)/2009-2014 dated 13.06.2013) Officers to function as Appellate Authorities: The Central Government has notified Appellate Authorities for preferring appeals against the orders passed by the Adjudicating Authorities under the Foreign Trade (Development &Regulation) Act, 1992 and the same are as follows: Sl. Designation of Adjudicating Authority Appellate Authority 1. Assistant Director General of Foreign Trade 2. Deputy Director General of Foreign Trade 3. Joint Director General of Foreign Trade Additional Director General of Foreign Trade 4. Additional Director General of Foreign Trade 5. 6. Development Commissioner, Special Economic Zones Designated Officer, Department of Electronics & Information Technology A Bench of two Additional Director Generals of Foreign Trade in the Directorate General of Foreign Trade to be so constituted by the Director General. (Notification No. 21 (RE 2013)/2009-2014 dated 13.06.2013) FEMA: Time limit for export realization and repatriation for units located in Special Economic Zone (SEZ): Under the extant policy for export of goods and services, units located in an SEZ were not mandated to realize and repatriate export proceeds for exports made by them within any specified time limit. In light of the turbulent foreign exchange conditions, this relaxation has been removed and it is now specified that units located in SEZs shall realize and repatriate full value of goods/software/services into India within a period of twelve months from the date of export. Extension of time beyond the period may be granted by Reserve Bank of India, on case to case basis. However, RBI has not clarified on realizations which are already outstanding for more than 12 months. (Circular No. 108 dated 11.06.2013) Limit enhancement for repatriation through Online Payment Gateways: Under the extant foreign exchange regulations, a facility was provided to receive export related remittances up to USD 3,000 by way of standing instructions with online payment gateway service providers. Considering requests for enhancing this limit, the RBI has now enhanced the monetary limit to USD 10,000 per transaction. (Circular No. 109 dated 11.06. 2013) 5 P a g e
Policy regarding External Commercial Borrowings (ECB) for the low cost affordable housing projects: Presently, ECB for low cost affordable housing projects is allowed as a permissible end-use under the approval route, subject to conditions. The RBI has reviewed the earlier guidelines in this regard and has made the following modifications to these guidelines. i. Developers/builders should have a minimum of three (3) years experience in undertaking residential projects as against five (5) years prescribed earlier and should have good track record in terms of quality and delivery. ii. The condition of minimum paid-up capital of not less than INR 50 crore, as per the latest audited balance sheet, for Housing Finance Companies (HFCs) stands withdrawn. However, the condition of the minimum Net Owned Funds (NoF) of Rs. 300 crore for the past three financial years remains unchanged. iii. The aggregate limit for ECB under the low cost affordable housing scheme is extended for the financial years 2013-14 and 2014-15 with a ceiling of USD 1 billion in each of the two years, subject to review thereafter. All other aspects of the scheme mentioned in the aforesaid A.P. (DIR Series) Circular would remain unchanged. (Circular No. 113 dated 24.06. 2013) External Commercial Borrowing (ECB) for Import of Services, technical Know-how and Licence Fees: Earlier eligible borrowers could raise ECB for import of capital goods, new projects, modernization / expansion of existing production units in the real sector industrial sector including small and medium enterprises (SME), infrastructure sector as defined under the ECB policy and entities in service sector viz. hotels, hospitals and software companies. Now, the scope of import of capital goods has been extended so that ECBs can be raised to fund import of services, technical know-how and payment of license fees by companies for use in the manufacturing and infrastructure sectors under the automatic / approval route, as the case may be. This is subject to the following conditions: i. there should be a duly signed agreement between the service provider and the borrower company; ii. the original invoice raised by the service provider as per the payment schedule in the agreement should be duly certified by the borrower company; iii. declaration by the importer that the entire expenditure on import of services will be capitalized; iv. declaration by the importer that entire expenditure on import of services forms part of project cost; and v. AD category I bank has to ensure the bonafides of the transaction. All other aspects of the ECB policy shall remain unchanged. (Circular No. 119 dated 26.06.2013) 6 P a g e
Buyback / prepayment of Foreign Currency Convertible Bonds (FCCBs): Considering the developments in the global financial markets, the existing scheme of Buyback / Prepayment of FCCBs under the approval route which expired on March 31, 2013 is now extended upto December 31, 2013. (Circular No. 115 dated 26.06. 2013) Extension of time limit for submission of forms by an Exporter undertaking Project Exports and Service Contracts: Form DPX-1, PEX-1 and TCS-1 were earlier required to be submitted to the approving authority within 15 days of entering into Contract for grant of approval. The time limit is now extended to 30 days from the date of entering into contract. All other instructions in the aforesaid A.P. (DIR Series) Circular would remain unchanged. (Circular No. 118 dated 26.06. 2013) CONSULTING PRIVATE LIMITED +91 (80) 2226 1371 www.accretiveglobal.com specialists@accretiveglobal.com Document date: 12.07.2013 The views expressed and the information provided in this newsletter are of general nature and are 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 advice. Accretive will not be responsible for any loss arising from any actions taken or to be taken or not taken by anyone based on this publication. This is meant for private circulation only. 7 P a g e