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16th- 28th February 2017
Please find below highlights of our newsletter with latest updates and information.
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India’s growth rate of more than 7% is the strongest among G-20 countries: OECD survey

The Indian economy is expanding at a fast pace, boosting living standards and reducing poverty nationwide. Further reforms are now necessary to maintain strong growth and ensure that all Indians benefit from it, according to a new report from the OECD. The latest OECD Economic Survey of India 2017 finds that the acceleration of structural reforms and the move toward a rule-based macroeconomic policy framework are sustaining the country’s longstanding rapid economic expansion. The Survey, launched in New Delhi today by OECD Secretary-General Mr Angel Gurria and Secretary, Department of Economic Affairs, Ministry of Finance, Govt. of India, Shri Shaktikanta Das, hails India’s recent growth rate of more than 7 percent annually as the strongest among G-20 countries. It identifies priority areas for future action, including continuing plans to maintain macroeconomic stability and further reduce poverty, additional comprehensive tax reforms and new efforts to boost productivity and reduce disparities between India’s various regions.
The implementation of the landmark GST reform will contribute to making India a more integrated market. By reducing tax cascading, it will boost competitiveness, investment and job creation. The GST reform – designed to be initially revenue-neutral – should be complemented by a form of income and property taxes, the Survey said.

Post-FIPB, RBI to Frame Procedure for FDI Approval
The Reserve Bank is expected to formulate standard operating procedure (SOP) for approval of FDI proposals by ministries following the government decision to phase out FIPB.
The proposal for setting up norms for foreign direct investment (FDI) approvals in sensitive sectors, which are currently under government approval of the FDI policy, was discussed at a recent inter-ministerial meeting.
According to sources, several options came up for discussions at the meeting. In order to further improve ease of doing business, the government has decided to abolish Foreign Investment Promotion Board and form a new mechanism for expeditious clearance of foreign investment proposals.
Once the FIPB is abolished, the onus of approving FDI proposals would be on the ministries and regulatory authorities concerned.
The inter-ministerial committee has also discussed the possibility of approving the FDI proposals along with of licences, sources said.
PoEM Rules only for Cos Earning over Rs 50 cr
The Central Board of Direct Taxes, the apex direct taxes body, has issued a circular clarifying that the provisions relating to place of effective management (POEM) will apply to companies with over Rs. 50-crore turnover.
The clarificatory circular comes after a CBDT press release specified this but the circular issued omitted a mention.
“...it is clarified that provisions of Sec 6(3)(ii) relating to place of effective management (POEM) won't apply to companies having turnover or gross receipts less than Rs. 50 crores in a financial year,“ it said.
The board had on January 24 issued final guidelines to determine if an entity can be considered an Indian resident and taxed here.
These norms come into effect from April 1, 2017.
A foreign company will be considered Indian resident if its place of effective management in a given year is in India.The rules seek to curb tax avoidance, targeting shell companies incorporate outside India, but their real control and management is in India.
The limit will ensure that only substantive cases are taken up and small companies do not clog the system.

No GST Credit If Vendors aren't Paid in 90 Days

The Government circulated draft of the GST Model Law requesting for suggestions from the industry. The industry and experts have been poring over the draft. The article seeks to highlight the need to reconsider one of the provisions related to input tax credits. The proposed GST Legislation appears to deny tax credit in relation to input services for which payments are made after three months of the date of the invoice of the supplier. In fact the proposal mandates payment of interest in addition to the denial of credit.
Also, under the current legislation, customer can re-claim the credit reversed earlier on making payment against the invoice. However, a similar provision is missing under GST and consequently may result in permanent loss of input credit of tax paid earlier.
It appears that this proposal was inserted to mitigate benami transactions. This anxiety is clearly misplaced for several reasons: A) The compliance prescribed under the GST regime requires every person making a supply to upload transaction wise de tails on to the GST network and input tax credits are available to purchaser only where the tax as reported by the supplier is actually deposited. B) Any supplier charging tax would need to necessarily register and report the transactions. The Government will have all the information and can identify and pursue any suspicious activity. C) The proposal mandating effective reversal of credit and imposing interest actually is double taxation on the same service. Given that the supplier has already paid tax and the amount equivalent of credit taken is sought to be recovered from the customer, will clearly result in cascading tax. While the intention to curb abuse is laudable ¬ penalising the whole industry is daunting.

Tax-free limit for gratuity hiked to Rs. 2 million
Formal sector workers may soon be eligible for up to Rs 2 million tax-free gratuity as central trade unions have agreed on the proposal in a tripartite consultation with the Labour Ministry. 
The central trade unions have agreed on doubling gratuity amount ceiling as an interim measure in a tripartite meeting on the proposed amendment to Payment of Gratuity Act conducted by the Labour Ministry. 
"While accepting the maximum payment limit of Rs 2 million as an interim measure, the unions demanded that the ceilings/ limit with respect to number of employees and years of service should be removed," the All India Trade Union Congress (AITUC) said in a statement. The statement said the application of amended provision regarding maximum amount should be made effective from January 1, 2016 as done in the case of central government employees. 
GST final draft to retain clause on services sector
The goods and services tax (GST) council is likely to retain a clause in the law that will require service providers to register in every state where they operate, despite recent representations from various Union ministries and telcos, banks, and insurance firms for a single registration system.
At present, service providers benefit from a single centralized registration system for paying service tax—a tax levied and collected by the Union government.
However, under the GST regime, even states will get the powers to collect tax on services and the service providers will have to register in every state where they have operations.
As per the provisions of draft GST laws that will be finalized in the 11th meeting of the GST council on 4, and 5 March, service providers operating across India will have to obtain more than 30 separate registrations. Companies have highlighted the procedural hassles of such a move but states, concerned about their revenue, are not willing to agree to a centralized registration.
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
www.neerajbhagat.in 

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