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1st- 15th January 2017
Please find below highlights of our newsletter with latest updates and information.
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Startups Brace for Legal War with I-T

Startups that have been ordered to pay tax despite valuations being marked down in recent funding rounds are challenging the demands, complaining that the move runs counter to the government's campaign to encourage entrepreneurial spirit.
With startup fever having waned over the past year or so amid concerns over profitability and competition, valuations have declined sharply. Last month, the tax department challenged such reductions at about 100 startups and issued orders seeking 33% tax at the elevated levels that prevailed earlier.
Some startups have moved the income-tax tribunal against the notices while others have approached their advisers and could seek legal recourse in the coming days.
Lets Recycle, an Ahmedabad based and Aavishkaar Ventures-backed waste management startup, was among those to get the tax demand and has challenged it at the Income-Tax Appellate Tribunal. “Entrepreneurs don't understand I-T notices as they have to struggle daily to improvise business processes,“ said Lets Recycle founder Sandeep Patel. “When I-T (income tax) acts this way, investors will be sceptical to invest, entrepreneurship will never be born and startups will never become (large) enterprises.“ He said his startup directly or indirectly employs 1,650 waste pickers, among them 200 from the weaker sections of the society.

RBI Seeks to make India Inc's Foreign Debt Cheaper
The Reserve Bank of India has suggested a uniform rate of withholding tax for overseas borrowings, irrespective of type and currency. If the government agrees, this could lower the cost of overseas borrowing for Indian companies. Simplifying the levy will improve the ability of Indian companies to raise money, given that funds are expected to flow back to the US as interest rates rise there, experts said. Interest paid to a non-resident on foreign currency borrowing or debt is currently subject to 5-20% withholding tax, with the standard rate being 10%. The 5% rate is applied to some priority sectors such as infrastructure.
“It is for the government to decide on a uniform rate, whether it is to be at 5% or 20%. This is still being discussed,“ said an official aware of the deliberations. An email sent to RBI did not elicit any response. Withholding tax is deducted at source usually on the interest paid to an investor outside the country. “Uniformity in the withholding tax levy will help both investors and issuers as both bear the burden, depending on the deal structure,“ said Kalpesh Mehta, a partner at Deloitte. 
GST Launch: Excise, Service Tax Payers Being Moved To GST Platform
Several state ministers, like West Bengal finance minister Amit Mitra, and others have expressed doubt over the centre's ability to meet the 1 April deadline for rolling out the goods and services tax (GST). Among the concerns raised are the notion that GST roll-out will come as a second blow to the country, after demonetisation, and the compensation for states, especially in the wake of the recent cash crunch, is still up for debate.
However, the Union government seems firm on its resolve to meet the 1 April deadline. On Monday (9 January), the centre started the migration of existing central excise and service tax assessees to the GST platform. As part of the requirement is a valid income tax permanent account number (PAN). The finance ministry release said,
Once the existing registered Taxpayers (both Central Excise as well as Service Tax) login to CBEC's web portal www.aces.gov.in, a facility will be given in a secure manner to access the provisional login ID and password given by Goods and Services Tax Network (GSTN).
The Central Board of Excise & Customs (CBEC) is sending emails and recorded telephonic messages to all registered central excise and service tax assessees requesting them to migrate to GST. The migration has to be done as early as possible, said the release, and latest by 31 January 2017.
CBDT constitutes committee to implement BEPS
The Central Board of Direct Taxes (CBDT) has constituted a committee of officers to recommend on the implementation of the Base Erosion and Profit Shifting (BEPS) project of the Organization for Economic Cooperation and Development. Experts cautioned CBDT to take into account industry concerns over the issue. It would chalk out a clear-cut road map for implementing the recommendations contained in these reports. BEPS implementation would be done through amendments to the Income Tax Act or through framing of rules and guidelines. 

RIL, Essar offer sops for digital payments

Reliance Industries and Essar Oil, two privately-owned motor fuel retailers, are responding to the slump in sales due to demonetisation and the recent 0.75 per cent discount for cashless payment at public sector oil marketing companies (OMCs)-run outlets, through sops.Reliance is offering a flat discount of Rs. 1/litre, irrespective of the mode of payment. Essar is also giving a 0.75 per cent discount on digital/card payments. “RIL’s discount was started around two weeks earlier. Some market share was lost for a temporary period, as the public sector-run pumps were accepting the old ~500 and Rs. 1,000 notes but the private ones were not allowed to,” said a source, on condition of anonymity. RIL had a retail network of 1,400 outlets, defunct for quite a while; the company has restarted operations at a little more than 1,000 outlets. Essar has 3,000 outlets.
Bharat Petroleum Corporation, Hindustan Petroleum Corporation and Indian Oil Corporation are the three government-run oil marketing companies (OMCs). To incentivise digital payment methods, the government announced 0.75 per cent discounts on e-payments at public sector fuel outlets from December 13. “How long RIL will continue with these discounts will be decided by the market dynamics,” th e source said. The Essar spokesperson refused to comment. India is currently one of the fastest growing markets in retail fuel. OMC outlets are considering whether to experiment with dynamic fuel pricing. RIL and Essar have not done this till now.
Excise, service taxpayers to migrate to GST portal by January 31
Keen to ensure roll out of goods and services tax from April 1, 2017, the Central Board of Excise and Customs (CBEC) has begun migration of its existing excise duty and service tax assesses to the new regime.
"All existing central excise/service tax assesses are requested to migrate as early as possible, latest by 31st January, 2017," a CBEC statement said.
Once the existing registered taxpayers (both Central Excise as well as Service Tax) login to CBEC's Web Portal www.aces.gov.in, a facility will be given in a secure manner to access the provisional login ID and password given by Goods and Services Tax Network (GSTN), it said.
Thereafter, using the same, they can log in to GST Portal (www.gst.gov.in) to fill the required fields and submit scanned documents.
However, if they have already initiated the process of migration to GST as a Value Added Tax assessee under state commercial tax department, they will not need to re-register. Permanent Account Number is mandatory for migration to GST and if an existing excise duty or service tax registration does not have one then it has to be obtained from the income tax department. Registration details will have to updated on the ACES portal, it said.
 
Pension watchdog for tax parity between NPS and EPF
The pension regulator has sought tax parity between the National Pension System (NPS) and the Employees' Provident Fund (EPF) in the coming Union Budget. Hemant Contractor, chairman of the Pension Fund Regulatory and Development Fund Authority (PFRDA), made this suggestion at a meeting on Thursday with the finance minister and officials. He was here in connection with the first meeting after demonetisation of high-value currency notes of the Financial Stability and Development Council (FSDC). Coming out of the meeting, Contractor said he'd made a case for EEE-status (meaning, exemption at all three stages of investment, accretion and withdrawal) for NPS, as against the present EET regime (exemption for the first two stages but taxation at withdrawal. EPF and the Public Provident Fund (PPF) are both having the EEE status; the maturity amount is not taxed at withdrawal either.
In the current year's Budget, Finance Minister Arun Jaitley had made withdrawals from NPS on maturity tax-free up to 40 per cent of the total corpus; the balance 60 per cent continued to be taxable. “Our emphasis was more on increasing the pension coverage. The EEE benefit for NPS was the major demand. We have digitised a lot of our facilities,” said Contractor. The government is yet to amend the EPF Act to enable subscribers in the fund to shift to NPS, as was promised by Jaitley in the Budget for 2015-16. The amendment is stuck on a labour ministry demand that NPS subscribers be also allowed to shift to EPF, where there is presently a tax advantage.
Neeraj Bhagat & Company is a team of distinguished chartered accountant, corporate financial advisors and tax consultants in India. Our firm of chartered accountants represents a coalition of specialized skills that is geared to offer sound financial solutions and advices. The organization is a congregation of professionally qualified and experienced persons who are committed to add value and optimize the benefits accruing to clients.


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