1st- 15th Aug 2016
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Here are the highlights of our newsletter from preceding fortnight.
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GST passed by upper house of Indian Parliament paving the way for most awaited tax reform

Given the approval of the Constitution Amendment Bill for Goods and Services Tax (GST) in the Rajya Sabha on August 03, 2016, the Government of India seems committed to replace all the indirect taxes levied on goods and services by the Centre and States and implement GST by April 2017. With GST, it is anticipated that the tax base will be comprehensive, as virtually all goods and services will be taxable, with minimum exemptions. GST will be a game changing reform for Indian economy by developing a common Indian market and reducing the cascading effect of tax on the cost of goods and services. GST will simplify and harmonize the indirect tax regime in the country. It is expected to reduce cost of production and inflation in the economy, thereby making the Indian trade and industry more competitive, domestically as well as internationally. Read more..
Startup India Tax Breaks for Two More Co's
Two more startups qualified for tax breaks as part of the Startup India programme, taking the total to three. The duo was picked at the third inter-ministerial board meeting on Friday that considered applications of 13 startups, a senior official told ET. One company's application was deferred to the next round while the rest were rejected. The two-officials declined to name them-join Kanpur-based Bhurak Technologies Pvt, which was awarded the tax incentive in the second meeting held last month. Only companies registered after April 2016 and satisfying other criteria can apply for exemption. This includes recommendation by an authorized incubator that innovation is a key aspect of the startup's business. Singapore-registered LetsVenture and Kerala-based KSIDC Business Incubation Centre were added to the list of authorized incubators on Friday. Establishing a network of incubators is a thrust area of the department of industrial policy & promotion (DIPP). Last year, 20 private organizations were added to the pool of 278 government-run incubators allowed to certify and recommend startups.
DIPP is pushing for extending tax benefits under the programme to seven years from three now. Of the Rs. 10,000 crore fund of funds set up for startups, Small Industries Development Bank of India (SIDBI) has sanctioned Rs. 168 crore toward the corpus of six alternative investment funds.
GST: Not Just a Tax Reform, But Real Black Money Law
Much has been written about black money and its ill effects on the Indian economy and society in the last so many years. Efforts were made to bring back money , stashed in Swiss accounts and laws were introduced against money laundering and benami transactions. Yet, a significant part of the Indian economy still operates with cash that is not accounted for. Those with unaccounted money are more powerful in the system as they can buy favours, influence decisions, get away from the law of the land after committing a crime or breaking the law without leaving behind any trail as to how money changed hands to buy favours.
The proposed GST system envisages that every supply of goods and services will be taxed at the source of origination and at every stage of further supply , where the registered reseller or user will be able claim the full credit of taxes paid on earlier stages, as long as the same is used for further sale or used in manufacturing of goods or provision of service. These GST tax credits can be used to pay the GST liability arising out of further supply .It is mandatory to get registered under GST when they cross a threshold limit of Rs.10 lakhs and upload all transactions invoice wise on to the GST portal. Once the seller uploads details of the organisation's sales to another buyer who is registered, the system automatically generates a purchase register for the buyer and tax credit is allowed to the purchaser. This linking continues till the goods or services are bought by a consumer who is the last link in the supply chain. If a vendor fails to upload his/her ANIRBAN BORA sales, it would be at the cost of the buyer losing the tax credit and hence, the buyer will stop buying from a vendor who does not declare his/her sales.
USGAAP Update – Enhanced Disclosures for Foreign Income and Foreign Taxes

Developments in reporting of income taxes in corporate financial statements continue to gather steam under international accounting frameworks. Indian companies too would move to a "Balance Sheet Approach" to accounting for Income Taxes under the Indian variant of International Financial Reporting Standards, viz., IND-AS.
United States Generally Accepted Accounting Principles (USGAAP) continues to take the lead in improving reporting of income taxes. The USGAAP standard setter, the Financial Accounting Standards Board (FASB) has now proposed improved disclosures surrounding foreign income and related income taxes – a key change that would impact USGAAP stakeholders in India.
The disclosures proposed would provide improved valuation analysis inputs to analysts since effective income tax rates and disclosures play a key role in Discounted Cash Flow (DCF) Analysis.

Attracting FDI and Formulating Special Schemes for FPIs
The Foreign Direct Investment in food processing sector has increased from USD 170.21 Million in 2011-12 to USD 505.88 Million in 2015-16. Foreign Direct Investment inflows into the food processing industries has been one of the reasons for 5.78 % growth of gross value added in food processing industries in 2014-15 at 2011-12 prices. Further, as per the Annual Survey of Industries the number of food processing industries in the registered sector has also grown from 36880 in 2011-12 to 37450 in 2013-14. To promote food processing units in the country, the Ministry of Food Processing Industries is implementing schemes of Mega Food Parks, Cold Chain, Value Addition and Preservation Infrastructure, Setting up/Modernization of Abattoirs and Strengthening of Institutions. Under these schemes, grant-in-aid is given for setting up projects. In addition to permitting 100% foreign direct investment in food processing sector through automatic route, Government has also allowed 100% FDI in retail marketing of food products produced and manufactured in India through approval route. To encourage the development of food processing industries Government has reduced excise duty on food processing and packaging machinery from 10% to 6%, allowed food processing units 100% income tax exemption on profits for the first five years of operation and after that at the rate of 25% income tax exemption on the profits for the next five years, etc.

India gets right to tax investment via Mauritius route; India-Mauritius protocol notified
Whereas, a Protocol amending the agreement between the Government of the Republic of India and the Government of Mauritius, signed on 24th August, 1982 for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains, and for the encouragement of mutual trade and investment, (hereinafter referred to as the said Protocol) as set out in the Annexure to this notification, was signed at Mauritius on the 10th day of May, 2016; 8 THE GAZETTE OF INDIA : EXTRAORDINARY [PART II—SEC. 3(ii)] And whereas, the said Protocol entered into force on the 19th day of July, 2016, being the date of the later of the notifications of the completion of the procedures as required by the respective laws for entry into force of the said Protocol, in accordance with paragraph 1 of Article 9 of the said Protocol; Now, therefore, in exercise of the powers conferred by sub-section (1) of section 90 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby notifies that all the provisions of said Protocol, as annexed hereto as Annexure, shall be given effect to in the Union of India, in accordance with Article 9 of the said Protocol.

Letter of comfort given to AE is outside the ambit of international transaction

IT/ILT : Where assessee-company gave certain advance to its AE and at same time it paid certain interest on amount borrowed, a part of profit of assessee-company to extent of interest payment was reduced and, therefore, TPO was justified in computing interest on amount advanced to AE on notional basis by applying LIBOR rate

IT/ILT : Corporate guarantee given by assessee to its AE does not involve any cost to assessee, and, therefore, such a transaction is outside ambit of international transaction

IT/ILT : Letter of comfort is nothing but a guarantee given by assessee-company to its AE to avail loan from financial institutions and since it does not involve any cost to assessee, it is outside ambit of international transaction.

ITAT disallowed interest exp. under sec. 57 as borrowings made for business purposes were utilized for lending
Where assessee having obtained loan from bank, gave advance to sister concern for purchase of property and, subsequently, when said transaction did not matrealise, aforesaid amount was utilised for purpose of lending to shareholders at higher rate of interest, since borrowings were not made for purpose of earning interest income assessee's claim for deduction under section 57(iii) in respect of interest paid to bank could not be allowed.
No prohibition for appointment of a female relative of a director on board: Arjun Ram Meghwal, MoS, MCA
Section 149 of the Companies Act, 2013 read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014 prescribesfor every listed company and every public company having paid­up share capital of not less than Rupees one hundred crore or turnover of Rupees three hundred crore or more to appoint at least one woman director. There is no prohibition for appointment of a female relative of a director on the board of a company. Further, there is no proposal to prescribe any such restriction. This was stated by Shri Arjun Ram Meghwal, Minister of State in the Ministry of Corporate Affairs in written reply to a question in Lok Sabha today.
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.

Neeraj Bhagat & Co.
New Delhi, Gurgaon, Mumbai 

Neeraj Bhagat & Co., S-13, St. Soldier Tower, Vikas Puri, New Delhi, 110018 India

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Neeraj Bhagat & Co · S-13, St. Soldier Tower · G-Block Commercial Centre, Vikas Puri · New Delhi 110018 · India