Overview of Overseas investment by NBFC

Overview of Overseas investment by NBFC

www.carajput.com; NBFC

www.carajput.com; NBFC

NBFC has become an integral part of our financial sector in India. Now, NBFC is taking lead in the financial sector to fulfill the financial needs of the people along with banks.

One of the questions that arise in the context of NBFC is whether it can extend its operations abroad also?

The answer is yes, but it has to follow certain compliances for doing the same.

No Objection Certificate for Overseas investment by NBFC

NBFC’s proposing to make overseas investment must, first of all, obtain the “No Objection Certificate” (NOC) from DNBS from the regional office within whose jurisdiction the registered office of the NBFC is situated before making any kind of overseas investment.

Also, the application made for obtaining NOC must state the activities undertaken by the overseas entity.

Further, the NBFC is not allowed to make any direct investment in the overseas entity engaged in activities that are not approved under FEMA.

Opening of Branch/Subsidiary/Joint Venture/ Representative Office abroad by NBFC

An NBFC can open a Branch/Subsidiary/Joint Venture/ Representative Office abroad only with the prior approval of the RBI.

An NBFC cannot open such an office abroad without prior permission of RBI.

General Conditions for permission of RBI.

  • NBFC shall not invest abroad in the Non-Financial sector.
  • NBFC is not allowed to make any direct investment and activities/Sectors which are prohibited under FEMA.
  • NBFC can invest in those entities abroad whose core activities are regulated by the financial sector regulator in the host country
  • The limit for aggregate overseas investment by NBFC is a maximum of 100% of NOF
  • NBFC cannot invest more than 15% of its owned funds in a single entity overseas including its step down subsidiaries, either by way of equity or in fund based commitment.
  • multi-layered, cross-jurisdictional structures should not be involved in Overseas investment, only a single immediate holding company is permitted
  • NBFC must maintain required NOF even after making o=investment overseas
  • The net NPA of NBFC should not be more than 5% of net advances
  • NBFC should be profit-making during the last three years before making overseas investment
  • FEMA regulations in place must be complied with by NBFC while making overseas investment
  • If NBFC holds any public deposit then it must comply with regulatory compliances as applicable.
  • KYC Norms must be complied with by NBFC
  • SPVs set up abroad or acquisition abroad shall be treated as investment or subsidiary/joint venture, depending upon the percentage of investment in an overseas entity
  • NBFC shall submit an Annual certificate with the regional office of the RBI regarding compliance with these guidelines
  • NBFC shall also submit a quarterly report with the regional office of the RBI and Department of Statistics and Information Management (DSIM) regarding overseas investment
  • RBI can withdraw the permission if any adverse features came to the notice of RBI relating to this transaction.

Read why RBI cancels the NBFC Registration?

 Opening of branch office of NBFC – Some specific Conditions

NBFC shall not be allowed to open a branch office abroad. But existing NBFC which has already set up their branches for financial business abroad can carry on operating those branches subject to compliance with the above guidelines.

Opening of a subsidiary abroad of NBFC – Some specific Conditions

NBFC must comply with the above conditions for opening a subsidiary abroad, apart from that the following shall also comply:

  • The parent entity shall not provide any guarantee, either implicit or explicit on the overseas subsidiary’s behalf
  • NBFC cannot give any letter of comfort on an overseas subsidiary’s behalf
  • NBFC liability shall be restricted to equity or fund based commitment in overseas subsidiary
  • The overseas subsidiary must not be a shell company.

Note: Subsidiary undertaking financial consultancy and advisory services with no significant assets shall not be considered as shell companies;

  • Overseas Subsidiary shall not be used as the vehicle should be used as a model for creating an asset in India for Indian operations
  • The parent company must obtain a periodical report/audit report from an overseas subsidiary and submit it to RBI for inspection
  • RBI can review/recall approval, in case the overseas subsidiary is not having any operations or not providing a periodical report
  • The permission granted for setting up of overseas subsidiary shall be subject to the condition that the subsidiary company shall disclose in its balance sheet that the liability of the parent entity is limited to either equity or fund based commitment.
  • The overseas subsidiary operations shall be subject to host country regulations

 Opening of Representation office abroad of NBFC – Some specific Conditions

The NBFC can open a representative office abroad for liaison work, undertaking market study and research.

It shall be noted that representative office abroad cannot undertake any activity which involves an outlay of funds.

The representative office shall be subject to regulation by the host country

The parent NBFC shall also obtain periodical reports from such representative office abroad and if not provided the approval may be recalled or reviewed by RBI.

RBI may also recall or review the approval of the representative office is not carrying on any operations abroad.

Read about NBFC-MFI in India

FAQ’s on Overseas investment by NBFC

Q 1 Is there any permission required by NBFC for making the overseas investments?

Ans Yes, NBFC Is required to obtain NOC from RBI before making any overseas investment.

Q 2 is it mandatory for overseas branch/ subsidiary to comply with host country regulations along with compliance of RBI regulation for the Parent company?

Ans. Yes, the overseas entity must comply with the host country laws.

 Q 3 Can RBI recall the permission given for overseas investment/opening of offices abroad?

Ans. Yes, in case the overseas entity does not have any operations or is not providing a periodical report to the parent entity, then RBI may recall or review the approval.

Q 4 Can NBFC make overseas investments in the Non-Financial sector?

Ans No

The blog is posted by CS Akshay Gupta expert of RAJPUT JAIN & ASSOCIATES

CS Akshay Gupta is a diligent and innovative qualified Company Secretary, striving in matters related to Corporate Law. Akshay takes a deep interest in corporate, NBFC and FDI matters and his specialization includes corporate Compliance, FEMA Compliances, and NBFC Registration. As a Company Secretary, Akshay is passionate about matters relating to corporate funding, NBFC, and its compliances.

Don’t Worry! Our experts are here to help you. Get in Touch with our team for easy filing of SMF Form FCGPR.

Write to RAJPUT JAIN & ASSOCIATES  or call us on 9555555480

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

General Preventive Measures & revised Covid-19 Quarantine Guidelines for All RWA Society

General Preventive Measures & revised Covid-19 Quarantine Guidelines for RWA premises at all times during COVID-19

www.carajput.com; COVID-19

www.carajput.com; COVID-19

Revised Covid-19 Quarantine Guidelines & Rules across India: With states revising their quarantine and self-isolation guidelines for travelers from time to time, here are the updated rules in Delhi, Maharashtra, Kerala, Tamil Nadu, West Bengal, Andhra Pradesh, etc

We hope all of you are staying safe and healthy. We would like to share some generic preventive and care measures that are to be followed to reduce the risk of COVID-19. These measures need to be observed by all in RWA premises at all times. Also attached are GOI guidelines on Home Quarantine and a message about the importance of Wearing Masks.

GENERAL PREVENTIVE AND CARE MEASURES- COVID-19

  • The physical distancing of at least 6 feet to be followed as far as feasible.
  • Use of face covers/masks is mandatory when stepping out of the apartment, walking/running/playing in the common area.
  • Practice frequent hand washing with soap even when hands are not visibly dirty.
  •  Respiratory etiquettes to be strictly followed. This involves the strict practice of covering one’s mouth and nose while coughing/sneezing with a                    tissue/handkerchief/flexed elbow and disposing off used tissues properly.
  • Spitting in a common area is strictly prohibited.
  • Persons above 65 years of age, persons with comorbidities, pregnant women, and children below the age of 10 years are encouraged to stay at home only and keep contact with visitors/guests to a minimum.
  • Avoid assemblies and congregation to maintain a safe distance from other people.
  • Try and avoid visiting or meeting with anyone who has a recent history of having traveled back from a corona-affected region.
  • Self-monitoring of health by all is very important. If you have, by chance, come into contact and show certain symptoms, quarantine yourself till you feel alright and the lab results are negative.

PRACTICES TO BE FOLLOWED BY RESIDENT/FAMILY MEMBERS OF A PERSON INFECTED BY CORONAVIRUS

  • When a family member is tested positive for COVID-19, it is important that all other family members also quarantine themselves for a period of 14 days even though there may not be any symptoms. If there are symptoms, immediately get yourself tested too.
  • Self-declare the condition to your EC/RWA so that you do not have any visitors during such a period.
  • Only one family member should help the infected person if the latter needs help.
  • Do not handle the used clothes of such a patient directly with your hands. Do not wash these in the washing machine along with clothes of other family members.
  • All items and surfaces touched by the infected person should be disinfected. This includes table, chairs, shelves, toilets, clothes, utensils, etc.
  • Separate personal care items like soaps, shampoo, towels. Do not use the same bathrooms, if possible.
  • In case of an emergency, call on the coronavirus helpline number in your city/state for the way forward.

MEASURES TO BE TAKEN ON OCCURRENCE OF CASE(S)

  • If residents/s show symptoms they should facilitate their testing, isolation and quarantine of contacts.
  • The resident/should inform their positive test result to EC/RWA so that information can be shared with all residents and staff to ensure prevention and sanitization practices are followed.
  • RWA will provide support and avoid stigmatization of COVID-19 affected individuals and families.
  • A risk assessment will be undertaken by the designated public health authority/personnel (or treating physician) and accordingly, further advice shall be made regarding the management of the case, his/her contacts, and the need for disinfection.
  • If a decision is taken for home quarantine of contacts/ home isolation of patients, RWA will facilitate those under home quarantine/home isolation to remain within their homes.
  • Duration of home quarantine is for 14 days from contact with a confirmed case (please see attached Home Quarantine Guidelines).
  • Installation & use of Aarogya Setu App by COVID-19 affected individuals and families.
  • Residents may help by giving provisions or any medical supply, to the family. Just leave it at their doorstep. Don’t enter the premises.
  • Quarantine is just physical isolation. Do keep in touch with the family by means of other mediums such as WhatsApp or phone calls.

Details Revised Covid-19 Quarantine Guidelines 

Rajput Jain and Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

KNOW ABOUT FOREIGN DIRECT INVESTMENT IN INDIA

FOREIGN DIRECT INVESTMENT IN INDIA

www.carajput.com; FDI

www.carajput.com; FDI

Introduction

FDI is the process whereby the residence of one country acquires the ownership of assets to control the production and other activities of the firm in another country (host country).

By FDI host country get valuable investment and the host country get cheaper access to the product.

It is an important factor to grow the local market by foreign investment. The company should do good market research before investing.

BASIC REQUIREMENT – FDI

  • The minimum requirement, a firm will have to keep itself abreast of global trends in the industry. From a competitive perspective, it is important to be aware of the competitors are entering into the foreign market and how do they do that.
  • A business decision also depends upon various key factors-
  • Assessment of internal and other resources, competitiveness, and market analysis.
  • Market expectations
    • It is also important to see how globalization is currently affecting the domestic industry.
    • Seek the answer to these questions before investing-
  • has the company done enough market research in domains?
  • is there a judgment in place of what level of resource utilization the investment will offer?
  • if applicable, have all the relevant government agencies and concurred?

ROUTE OF FDI

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www.carajput.com; FDI

  1. Automatic route – In this route, this is no approval from anybody is required. An investor can invest without any approval according to his need.
  2. Approval routeapproval of government is required before investing by this route.

FDI IN SMALL SCALE SECTOR  UNITS

Not more than 24 percent in its paid-up capital from any industrial undertaking, whether it is foreign or domestic is accepted by a small-scale industry. If the equity from another company (including foreign equity) exceeds 24 percent, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses at its small-scale status and requires an industrial license to manufacture items reserved for small-scale sector.

LIST OF LIMIT FOR DIFFERENT SECTORS FOR ROUTE OF FDI

Air Travel Services

1.Non-scheduled and other civil aviation sector services

2. Scheduled services for air transport, Regional services for air transport

 

100%

Up to 49%

 

 

Above 49%

Print media

1.Publication / Printing of Science and Professional Magazines / Specialized Journals / Reviews and International Newspaper Facsimile Edition

2. Publishing foreign magazines dealing with news and current affairs in newspapers, periodicals and Indian editions

 

100%

 

 

26%

Some Civil Aviation services

1. Maintenance and Repair Organizations, Flying Training Institutions, Technical Training Institutions, etc.

2. subject to sectoral legislation and security clearance for ground handling facilities

 

100%

 

100%

Airports (Greenfield & Brownfield) 100%
Biotechnology

1. Brownfield

2. Greenfield

 

Up to 74%

100%

 

Above 74%

Motorists(Automobile) 100%
Components of Automobile 100%
Mining and mineral isolation of minerals and ores containing titanium, its addition of value and integrated operations 100%
Pharmaceuticals

1. Brownfield

2. Greenfield

 

Up to 74%

100%

 

Above 74%

Exploration and extraction of metal and non-metal minerals 100%
Carriage Services Broadcasting 100%
Content Broadcasting systems 49%
Financial Items(Capital Goods) 100%
 Healthcare

1. Brownfield

2. Greenfield

 

Up to 74%

100%

 

Above 74%

Chemical 100%
Lignite & Coal 100%
Development of Hospitals 100%
Defense Up to 74% Above 74%
Digital Media 26%
 Duty Free Shops 100%
 E-commerce Operations 100%
Processing of Food 100%
Retail Trading for food products 100%
(Manufacturing) Crystals & Jewellery 100%
BPM and IT 100%
Telecom service Up to49% Above 49%
Garments & Textiles 100%
Thermal Power 100%
Accommodation & Tourism 100%
Retail Trading for Single Brand Product 100%
Railways Infrastructure 100%
Energy from renewable sources 100%
Expressways & Roads 100%
Natural Gas & Petroleum 100%
Petroleum Refining(by PSUs) 49%
Wholesale Cash & Carry Trading / Wholesale Trading (including MSEs sourcing) 100%
Leather 100%
Shipping and Terminals 100%
Broadcast information services (Up-linking of TV Channels from Non-‘News & Current Affairs/ Down-linking of TV Channels) 100%
Electronic systems 100%
Development of construction: townships, houses, built-up infrastructure 100%
Medical Equipment 100%
Multi Brand Trading for Retail 51%

Sectoral Limited under FDI 

Liberalization of FDI in India (Industries permitted)

FDI is allowed in certain jurisdictions with a ceiling on the overall allowable foreign holdings. Information of the same sectors in which FDI is subject to sector-specific caps are available at the various link:

Strictly prohibited Industries for FDI

The new policy forbids FDI in the following categories:

  • Gaming and Betting
  • Lottery sector (including government / private lottery, online lottery, etc.)
  • Activities/sectors not available to private sector investment (e.g. nuclear energy/railways)
  • Agricultural production (excluding floriculture, horticulture, apiculture, and cultivation of vegetables and mushrooms under controlled circumstances, growth and processing of seeds and planting materials, animal husbandry including dog breeding, wine-growing and aquaculture under controlled conditions and related services to the agro-and allied sectors)
  • Trade-in retail (expected retailing of single-brand products)
  • Chit fund Company
  • Nidhi Company
  • Real estate company or farmhouse construction
  • Trade-in transferable development rights (TDRs)
  • Production and Manufacture of tobacco, cigars, cheroots, cigarillos, cigarettes, and other tobacco substitutes

REASON FOR FOREIGN INVESTMENT DECISION

    • The cost of production of that product will be less in that country.
    • For avoiding transportation costs the foreign direct investment is also made.
    • The product gets the international image by foreign direct investment.
    • For business expansion, foreign direct investment is also made.

IMPACT OF FOREIGN INVESTMENT DECISION 

POSITIVE IMPACT TO HOST COUNTRY  –

  • It brings an important factor of production for the host country.
  • There is a transfer of technology by the FDI.
  • Human resource development is possible by
  • Employment generation is possible by FDI.
  • Improvement in the balance of payment by FDI.

POSITIVE IMPACT TO HOME COUNTRY

  • Increase in income of a home country.
  • FDI helps in the learning skills of the employees.
  • Good establishment of political relationship by FDI.
  • There is an increase in export by FDI.

NEGATIVE IMPACT TO HOST COUNTRY  –

  • Lack of technology can be an issue for the host country.
  • Increase in the competition by FDI
  • Possibility of conflict in the decision.

NEGATIVE IMPACT TO HOME COUNTRY  –

  • The exploitation of resources of the home country.
  • The outflow of a factor of production by FDI.
  • There is a loss of small industry by FDI.

FAQ On FDI

Q1.  Is 100% FDI is possible in any sector?

Ans. yes, RBI has allowed 100% FDI in almost every sector.

Q2. Is FDI is allowed in any industry without restriction?

Ans. No, there is a restriction for FDI in some sectors not even with approval.

Q3.  Is there any compliance required to be made by Company receiving FDI?

Ans Yes, the company is required to file Form FCGPR for reporting FDI in India.

Q 4 Can anyone bring FDI under the Approval route without prior approval of the concerned authority?

AnsNo, the FDI must be brought into India after obtaining approval from the concerned authority.

Rajput Jain & Associates

Conclusion

In case of any issue or help, please email us at info@carajput.com

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

Decoding of Leave Travel Allowance (LTA)

Key takeaways of Rules, Exception with Calculation of Leave Travel Allowance (LTA)

www.carajput.com; Leave Travel Allowance

www.carajput.com; Leave Travel Allowance

Leave travel Concession

Leave Travel Concession is the part of the overall Cost of Company (CTC) of an employee. An employee may claim exemption U/S 10(5) of the Income Tax Act, 1961, also known as the Leave Travel Allowance (LTA), for expenses incurred for travel while on leave anywhere on behalf of the principal within the national region.

Terms & Conditions of application for Leave Travel Concession

  • Let’s go over the requirements and obligations necessary for the exemption to be obtained.
  • In order to qualify for the exemption, the applicant must cover the entire trip.
  • The trip should be within the borders of the country. International travel is also not required to be claimed or protected by the LTA.
  • In order to be eligible for an allowance, the employee or claimant must travel alone and with his or her spouse. The concept of the family involves the employee’s spouse, children, dependent parents, employees’ siblings. The exception is limited to only two children of the employee who are born on or after 1 October 1998. This means that children born before 1 October 1998 do not fall under the limits of 2 kids.

Leave Travel Concession is primarily split into two categories:

  • Any travel Allowance or help that the employee receives for himself and his family from his employer to offset costs sustained while travelling on leave.
  • Any travel Allowance or concession aid obtained by an employee for himself or his family from his last employer to offset costs resulting from travelling after the retirement or cessation of services.

What is the present new Leave Travel Concession Block Years?

Leave Travel Allowance block years are Four year periods established by the CBDT under the Income-tax regulations, where deductions can be obtained twice for each block cycle. The presently Ninth block year is on-going block year. i.e 2018, 2019, 2020 and 2021 years.

The employee can then claim two more journeys between the years 2023 and 2025. Also, the exemption is restricted for the expense incurred on domestic travels only.

List of Expenditure payments that have been exempted under the Leave Travel Concession/LTA

When travelling by Airplanes mode,

The national carrier’s economy class airfare is with the shortest route or the total actual amount paid on flying/ Spent on travel, whichever is less.

When travelling by train mode, Expenses covered by the LTA

Presently, the LTA exemption allows for the relevant travel expenses incurred by an employee:

www.carajput.com; Leave Travel Allowance TABLE

www.carajput.com; Leave Travel Allowance TABLE

  • The Aircondisanar (A.C) Ist class train fare is exempted from tax for the shortest path or the total amount paid on travel, whichever is less.
  • If the point of origin and destination of the journey are attached/linked by train, but the journey is carried out by other modes of transport, not by air or train.
  • The Aircondisanar (A.C) Ist class train fare is exempted from tax for the shortest path or the total amount paid on travel, whichever is less.
  • In case the origin point and destination point are not connected (fully/partly) by train or air but connected by other recognised Public transport system/ networks.
  • The AC first-class train fare is exempted from tax on the shortest path (if the trip is carried out by train) or the amount paid on fares, whichever is lower.
www.carajput.com; Leave Travel Allowance exemption

www.carajput.com; Leave Travel Allowance exemption

How to Carry Over LTA concession?

If the assessor is unable to use the Leave travel Concession offered by his employer within a block period of four years, either once or twice (the permissible limit), he can also assert the LTA exemption by using the LTA in the year immediately following the block period of Four YRs. That is referred to as the carry-over the concession of LTA.

KNOW THE PROCEDURE OF LTA CLAIM

The procedure for Leave travel Concession Claim is normally employer-specific. Each employer shall determine the due date by which the employee may Leave travel Concession Claim and must require the employee to have proof of travel, travel agency invoices, boarding passes, such as tickets etc., along with the necessary declaration with regard to LTA.

Although it is not mandatory for employers to gather documentation of travel, it is often advisable for workers to retain backups of their related records and to submit on LTA Claim documents to employers on the basis of the company’s Leave travel Concession policy/tax authority as per requirements.

Conclusion

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www.carajput.com; Leave Travel Allowance

Exemption from the LTA is accessible from your employer /workplace. The employee only has to apply along with proper supporting documents and the Business owner can add tax concession on Form 16. This is an authentic good tool to save taxes on holidays in the nation region.

The Benefit of tax exemption for the expenditure of cash equivalent of the LTC fare now made accessible to non-Central Government employees too though.

Non-Central Government Employees can now also benefit from the benefit of the tax exemption on payment of the cash equivalent of the LTC fare, in compliance with the benefit given to the Government Employees empty OM dated 12 October 2020.

Regards

Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

QUICK OVERVIEW ON INCOME TAX DEDUCTION U/S 80C-80U

INCOME TAX DEDUCTION UNDER SECTION80C-80U TO INDIVIDUALS, HUF

Income Tax Deduction

The income Tax deduction is a decrease in tax liability from the gross taxable income. Tax deductions are reduced from total income, also known as adjusted gross income. As per the provision of the income tax act, 1961 the amount of tax deductions varies as per different earnings are handled accordingly. An additional deduction of Rs. 1, 50,000 for home loan interest is given for the purchasing of affordable houses of up to Rs.45,00,000 for the current year ended on March 2020.

Section 80C

Section 80C is by far the most commonly used choice for income tax savings. In this case, a person or a HUF (Hindu Undivided Families) who invests or spends on fixed tax-saving schemes can claim a tax deduction of up to Rs. 1.5 lakh. With effect from 1st April 2016, the income tax abolished section 88 and introduced the new Section 80C in this place. This section analyzed the payment made under this provision. Eligible taxpayers are entitled to require gross deductions of up to Rs. 1,50,000 per year. The Indian Government also supports some of them as tax saving instruments (PPF, NPS, etc.) to enable individuals to save and accumulate in retirement. Spendings/investment u / s 80C is not approved as a deduction from profits resulting from capital gains. This ensures that if the individual’s income consists of capital gains on its own, Section 80C can not be used for the purposes of saving tax. Any of the investments mentioned below are eligible for exemption under Section 80C, 80CCC, and 80CCD(1) up to a limit of Rs 1.5 lakh. All the individuals and Hindu undivided families are eligible for deduction under section 80C of the income tax act, 1961.

Best Section 80C instruments Which can reduce your tax Burden  

 

www.carajput.com; Income Tax Deduction

www.carajput.com; Income Tax Deduction

The following investments and expenditures are included in this section:

Tax Saving Investment Options under section 80C

80C Investment Option Lock-In Period Return Risk Taxability
PPF 15 Years 7.9% Risk-Free Interest: Exempt Withdrawal: Exempt
SSY 21 Years 8.4% Risk-Free Interest: Exempt Withdrawal: Exempt
ELSS 3 Years 10-15% (approx) Risky Dividend is exempt
FD 5 Years 7-8% (approx) Risk-Free Interest is taxable
NSC 5 Years 7.9% Risk-Free Interest is taxable
SCSS 5 Years 8.6% Risk-Free Interest is Taxable
ULIP 5 Years 8-10% (approx) Risky Returns are taxfree subject to certain conditions taxable
NPS Till Retirement 8-10% (approx) Risk Return: Partially exempt
www.carajput.com; Income Tax Deduction

www.carajput.com; Income Tax Deduction

  • Investment in Public Provident Fund: You will claim a deduction for Rs. 1,50,000 per year for contributions made in the Public Provident Fund account. Receipts are tax-free on maturity and withdrawal.
  • Investment in National Savings Certificate: under section 80C, the National Savings Certificate is liable for deductions in the year of acquisition. Interest earned on such certificates is liable for tax deductions, but it becomes taxable at the date of retirement.
  • Fixed deposit investment: According to section 80C, interest received on fixed deposits for a period of not less than five years is eligible for a tax deduction. Tax-exemption on interest earnings on deposits with banks has been raised from 10,000 to 50,000 only for senior citizens. In addition, under section 194A, TDS is not required to be excluded and it has been applied to both FD and RD schemes.
  • The premium on a Life insurance policy: As per section 80C of the income tax act, 1961, You will claim a refund for the premium charged for a life insurance policy.
  • Contribution to Employee Provident Fund: You will demand a tax exemption for the payment made under section 80C to the Employee Provident Fund. The government will contribute 12% of the EPF contribution to new workers (with less than 3 years of employment) in all sectors. In contrast to the contribution made 12 percent earlier, for new women employers (with less than 3 years of employment) contribute just 8 percent of the wage as an EPF contribution.
  • Equity-oriented mutual funds: A tax-deductible can be claimed on contributions made in any mutual fund unit, whether or not it is listed on the stock exchange.
  • Repayment of the principal on the housing loan: You will demand a tax deduction under section 80C for the principal amount charged on the home loan.
  • Payments of Tuition fees: You can demand a tax deduction for the tuition fees charged under section 80C. The deduction for each individual is available for 2 children. Thus, a deduction can be requested for up to 4 children, 2 for each parent.

ADDITIONAL DEDUCTION CAN BE CLAIMS NOT COVERED U/S 80C

Section 80CCC and 80CCD : Tax deductions U/s 80CCC and 80CCD for investments in pension fund

www.carajput.com; Income Tax Deduction

www.carajput.com; Income Tax Deduction

 For the contribution made in Pension Funds, you can claim a tax deduction under Section 80CCC and 80CCD. If you have contributed any amount to earn a pension under any insurance plan, then you will demand a tax exemption under 80CCC. Even so, if you have paid up to 10 percent of your income to any pension fund launched by the Govt, such as the National Pension Scheme, then you can claim a tax deduction U/s 80CCD.

Note: According to the Income-tax act, 1961, a Total deduction that can be demanded under Sections 80C, 80CCC and 80CCD is Rs. 1, 50,000. Under section 80CCD, an exclusive tax advantage is available for NPS subscribers. As per the Income-tax act, 1961, Tier 1 account holders earn an extra savings allowance of up to Rs.50, 000 in NPS. This Tax deductions under Section 80CCC and 80CCD is over and above the deduction applicable U/s 80C i.e of Rs. 1, 50,000.

Section 80TTA: Interest on savings accounts

Under Section 80TTA, you will demand a tax deduction on interest received on a savings bank account. A maximum amount of Rs.10,000/- is entitled to the deduction. The income received will first be added under the head of income other sources, only after that, the deduction will be asserted.

Section 80CCF: Investment made in long-term infrastructure bonds

Under section 80CCF, you can claim a tax exemption on an investment made in government-notified long-term infrastructure bonds. An overall deduction of up to around Rs. 20,000 can be claimed.

Section 80CCG: Investment made in equity saving scheme

The deduction is also known as the Rajiv Gandhi Equity Saving Scheme. For an investment made in listed shares or mutual funds, you will demand a tax deduction. The amount of deduction is 50% of amt. invested in equity share. However, the maximum deduction permitted under the provision cannot exceed Rs. 25,000.

Income Tax Deduction under Section 80D

There could be Five various situations U/s 80D for claiming the deduction; these are:

  • If the individual and parents are both aged more than 60 years, the deduction available is Rs.25,000 each, i.e. a total of Rs.50,000.
  • If the individual, family, and parents all are aged more than 60 years, then the deduction available is of ₹50k each, i.e., a total of ₹1,00,000.
  • If the individual and family are aged less than 60years, but the parents are aged more than 60 years, then the deduction for self and family is Rs. 25000, in addition to Rs.50,000 for parents. The cumulative deduction is allowed is Rs.75k.
  • For HUF members, the total deduction is Rs. 25,000 each (self and family plus parents), i.e. a total of Rs. 50k.
  • The available deduction is also Rs. 25,000 each for non-resident individuals, i.e. a total of Rs. 50k.

Section 80D Payment for the medical insurance premium and health check-ups

Under this section, you can claim a tax deduction for the payment of medical insurance premiums for yourself,  spouse, or any child. In addition, tax exemptions that may not surpass Rs.5k can also be demanded on money spent on health check-ups.

Section 80E: Interest paid on the Education Loan

Under section 80E, you will claim a tax deduction on interest paid on the repayment of the Education Loan. The deduction may be demanded only on the interest paid on the repayment of the loan and not on the amount of the principal.

Section 80EE: Interest on loan taken for the purchase of residential property

Under section 80EE, you can demand a tax deduction for interest payable on a loan taken for the purchase of a residential property. The overall claimed deduction is Rs. 50k under the income tax Act.

Section 80G and Other: Deduction on made donations Under Section 80G, 80GGA, 80GGB and 80GGC

  • For a general contribution received within a financial year, you will demand a tax deduction under section 80G.
  • If a contribution is made for scientific research or rural development, deductions under section 80GGA may be demanded.
  • If contributions are made to any political party, deductions under sections 80GGB and 80GGC may be demanded

Section 80GG: Tax exemption for leases purchased in favors of FY-20-21

For the house rent expenses, you can demand a tax deduction under section 80GG. Nevertheless, in Section 80GG, you can only demand a deduction if you have not earned a house rent allowance. If you earn an HRA, you are not entitled to a deduction in this section. Under section 80 GG, you can demand a deduction, if

  • rent paid by you is greater than 10% of your total income subject to a maximum of Rs. 5,000 per month or
  • 25% of your total income, whichever is less.

Summary of Different type of Income-tax exemption as per the Income-tax Act, 1961

www.carajput.com; Income Tax Deduction

www.carajput.com; Income Tax Deduction

Section Permissible limit Type of investment, expense, or income Eligible claimants
80C Maximum ₹ 1,50,000 (aggregate of 80C, 80CCC and 80CCD) PPF, EPF, Bank FD’s, NSC, LIC premium, tuition fees Individuals, HUFs
80CCC Maximum ₹ 1,50,000 (aggregate of 80C, 80CCC and 80CCD) Pension funds Individuals
80CCD Maximum ₹ 1,50,000 (aggregate of 80C, 80CCC and 80CCD) Pension fund initiated by the central government Individuals
80TTA Up to ₹ 10,000 per year Interest on bank savings account Individuals and HUFs
80CCG 50% of amount invested subject maximum of ₹ 25,000 Equity saving schemes Individuals
80CCF Up to ₹ 20,000 Long term infrastructure bonds Individuals and HUFs
80D For individual taxpayers Premium up to ₹ 25,000 in case of individuals and up to ₹ 50,000 for senior citizens
For HUFs- Premium up to ₹ 25,000 and up to ₹ 50,000 in case the member insured is a senior citizen or super senior, citizen
Medical insurance premium and Health check-up Individuals and HUFs
80E No limit defined Interest on repayment of Education loan Individuals
80EE Maximum ₹ 50,000 Interest on loan payable for acquiring a residential house property Individuals
80G Differs with the amount of donation General donations of any recognized society Individuals, HUF’s, Companies, Firms
80GGA Depends on the quantum of donation Donations to Scientific Research or Rural development Those who do not have income from business or profession
80GGB Depends on the quantum of donation Donations to political parties Indian companies
80GG ₹ 5,000 per month or 25% of total income whichever is less Rent paid if HRA is not received Individuals not receiving HRA

Summary View on Tax Exemption on the bases of residence status 

www.carajput.com; Income Tax Deduction

www.carajput.com; Income Tax Deduction

This summarises the list of tax deductions under the India income tax law. Make the most of the tax deductions with careful tax planning. Decrease your tax liability and liabilities while you save on taxes.

https://carajput.com/learn/deductions-under-section-80ccd-of-income-tax-act.html

Regards

Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

Key takeaways on Taxable, Non-taxable & Partly Taxable Allowances

Key takeaways on Taxable, Non-taxable & Partly Taxable Allowances  

www.carajput.com; Income Tax

www.carajput.com; Income Tax

What is Allowances?

The allowance shall be the monetary benefit provided by the employer to the employee over and above the daily salary. These benefits are given to offset the costs that may be incurred in order to facilitate the discharge of the service, for example, the travel allowance shall be paid to the foot expenses incurred for going to the workplace.  An allowance is a defined amount of money that a salaried person earns from his employer to cover a certain form of expense over and above salary. for instance, Companies offer workers with overtime allowances if they work longer than fixed regular hours. Likewise, there are many other allowances that are granted to salaried people. Allowances are considered as part of the wages and are taxable, with the respect of those for which the various provisions of the Income Tax Act have given specific exemptions. Any of these deductions are taxable under the Head of Wages. Some of them may again be partially taxable and some others are non-taxable or entirely excluded from taxes. These allowances can be categorized into three buckets on the basis of their respective tax treatment-Taxable, Non-taxable & Partly Taxable under Income tax.

Basic Distinction between an allowance and a reimbursement: 

Allowance: Allowances are usually part of the pay package of an employee to cover expenses made or to be made that may occur in the course of his or her jobs. For eg, if a customer uses his own car to drive from home to work, then the employer would have to pay a transport allowance for the same. Likewise, for the good of employees, there are also such allowances provided by employers. Allowances are classified into three parts: allowances that are taxable, non-taxable, and partly taxable under the income tax act 1961.

Reimbursement: A reimbursement is a form of the cost incurred on behalf of the employer that is paid to the employee/worker. Reimbursements are typically related to company costs and do not add much to the employee’s salary. A reimbursement is, not taxable at all under the income tax Act 1961.

Partially-Taxable allowances

Taxable Allowances    

Non-Taxable allowances

  • Conveyance allowance above ₹ 19,200 per annum under section 10 (14) (ii) of the income tax act
  • Entertainment allowance – deduction of 1/5 of salary or ₹ 5,000 whichever is less under section 16 (ii) of the income tax act
  • Fixed medical allowance
  • Special allowance(including children education allowance, children hostel allowances)
  • HRA except when it qualified as exempt under Section 10

 

·          City compensatory allowance

·         Tiffin/meals allowance

·         Uniform allowance

·         Servant allowance.

·         Dearness allowance

·         Interim allowance

·         Project allowance

·         Entertainment allowance

·         Overtime allowance

·         Cash allowance

·         Non-practicing allowance

·         Warden allowance

·    Sumptuary allowance paid to judges of Supreme Court and High Courts

·    Compensatory allowance paid to judges of Supreme Court and High Courts

·    HRA up to 40% of basic salary (50% in case of employees staying in 4 metros – Delhi, Mumbai, Chennai, and Bangalore) subject to actual rent paid to be more than HRA plus 10% of basic

·         Conveyance allowance upto ₹ 1,600 per month or ₹ 19,200 per annum

·         Payments to government employees posted abroad

·         Allowance for UN employees

Income tax exemption as per the Income-tax Act, 1961

Income Tax Exemption

There is a provision for exemption from income tax in compliance with Chapter III of the Income Tax Act, 1961. There are only a few forms of stated income that can be exempted from paying tax. This means that certain income will not be added at the time of the income tax calculation. The most common incomes excluded from income tax are listed below:

www.carajput.com; Allowances

www.carajput.com; Allowances

Taxable Allowance

Taxable allowances are kind of remuneration which are considered as part of a wage and are not exempted in entirety or in part under any of the Income Tax sections. Few below of the common allowances that are part of this verity are:

www.carajput.com; Fully Taxable Allowances

www.carajput.com; Fully Taxable AllowancesDearness Allowance. City Compensatory. 3. Capital Compensatory Allowance. 4. Lunch Allowance. 5. Tiffin Allowance. 6. Marriage Allowance. 7. Family Allowance. 8. Deputation Allowance. 9. Wardenship Allowance. 10. Non-Practicing Allowance. 11. Project Allowance. 12. Overtime Allowance. 13. Fixed Medical Allowance. 14. Servant Allowance. 15. Entertainment Allowance for non- government employees. 16. Water and Electricity Allowance. 17. Holiday trip Allowance.

  • Entertainment Allowance: Entertainment allowance is the Remuneration of money given to an employee to make payments for customer meetings, hotels, drinks, meals, business outings, and more towards their customers’ hospitality. For all private-sector workers, the allowance is fully taxable. Moreover, Government workers may claim exemption from this tax, as alluded to in section16 (ii), and the amount of exemption is limited to the minimum of the following three;
  • 20% of gross salary (excluding all other deductions, rewards and benefits),
  • Real entertainment allowance, and
  • 5,000.
  • Allowance for overtime: Employees who tend to work longer than the operational hours determined by the company earn this payment. Because of immediate tasks and a firm schedule, that can happen. Any Overtime Allowance received by the workers is fully taxable remuneration under Income tax.
  • Dearness Allowance: As a cost of living change to neutralize the effect of inflation, the Dearness benefit is required to be charged to public sector workers and pensioners and the disparity is the cost of living for workers living in various cities and towns.
  • Meal Allowance: Meal allowances are provided to their staff for meals/refreshments / Tiffin facilities and are Fully taxed to be a levy on it under Income tax.
  • Compensatory City Allowance (CCA): Companies provide Compensatory City Allowance to their workers to compensate for comparatively high housing expenses in urban areas. This allowance is used in towns and communities where the cost of living is greater relative to workers working in other places to encourage and maintain staff.
  • Interim allowance: The interim allowance is an allowance given ahead of a final allowance by the employer. The interim allowance is solely subject to taxation under Income tax
  • Cash Allowance: Cash allowance for expenses such as vacation allowance, marriage allowance, and other similar employer-provided allowances, and it is wholly taxable under Income tax act 1961.
  • Servant Allowance: The allowance given to employers for the procurement of servant workers is always taxable.
  • Project Allowance: When a company gives workers with an allowance to liquidate the costs of a job, it is considered a job allowance that is entirely taxable.
  • Warden Allowance: If an employee pays tax to an employee who serves at every institute as a warden/keeper. This allowance is probably considered to be taxable.
  • Non-practicing allowance: Every non-practicing allowance paid to them is taxable when a practitioner is affiliated with clinics with different laboratories or medical institutes.

Non-Taxable Income

Non-taxable allowances are such allowances which are entirely excluded from taxation and are part of an individual’s salary. Here is the collection of totally non-taxable deductions.

www.carajput.com; Other Allowances

www.carajput.com;  Allowances

  • Allowances owed to government employees overseas: This payment is deemed to be non-taxable as Indian government servants are paying when completing their job term in other countries.
  • Allowances paid to employees of UNO: Allowances given to workers of UNO are totally non-taxable.
  • Allowances paid to HC & SC Judges: The allowances paid to the judges of the High Court and the Supreme Court are fully tax-free. Such allowances are referred to as sumptuary allowances.
  • Compensatory Allowances: If any compensatory allowances are earned by the Judges of the High Court and the Supreme Court, these allowances are fully exempted under income tax.

Allowances which are partially taxable

As defined in Income-tax Rule & regulation, partially taxable allowances are those allowances which, may be exempted from tax to a certain extent. Here is some allowances which are partially taxable;

www.carajput.com; Allowances

www.carajput.com; Allowances

  • Limit on Conveyance Allowance Exemption: This kind of allowance is given to workers every day for traveling from home to their office. With compliances of Income Tax Act, 1961, if allowances is received up to Rs. 1600, then it is fully exempt but If a conveyance allowance is received in excess of Rs. 1,600, it will be declared as Taxable.
  • Leave Travel Assistance – LTA tax exemption

    Leave travel assistance (LTA) obtained from the employer for the expense of domestic travel to the home town or for holidays once every two years by train or air may be reported as excluded income for self-employed and family members.

    This deduction can be asserted explicitly by an individual from the employer only. The LTA is entitled to argue twice in the four-year block. 2018-21 is the new block. Employees, however, are now permitted to carry one unclaimed LTA until next year.

  • Limit on House Rent Allowance (HRA) Exemption: Salaried individuals receive house rent allowance (HRA) from their employer. If the employee lives in rental accommodation and pays rent to the owner, an exemption from HRA under Chapter 10 of the Income Tax Act is possible. It is also possible to claim an HRA exemption by submitting proof of rent paid to the employer or at the time of filing the ITR. After adjusting the exemption, the taxpayer just needs to find out how much exemption he can take advantage of and then recalculate the total taxable income.House rent allowance is given by an organization to workers to support them with helping with their housing costs. But this allowance is completely taxable if a person does not live in a rented space. employees can demand a deduction under section 10 (13A) for the  house rent allowance if:
  • www.carajput.com; House Rent Allowance

    www.carajput.com; House Rent Allowance

  1. Actual HRA received
  2. The actual rent paid should be up to 50% of the basic salary,If the worker stays in metro cities such as Delhi, Mumbai, Chennai, or Bangalore,
  3. 40% of basic salary, if the worker stays in non-metro cities
  4. Excess rent charged annually exceeding 10% of the basic salary + DA

    www.carajput.com; House Rent Allowance

    www.carajput.com; House Rent Allowance

You need the PAN of Landlord When do you need to pay rent More than 1 lakhs to Landlord: If you really have taken a rented house and pay more than Rs 1 lakh annually – remember to provide the landlord with a PAN.  Otherwise, you can miss out on the HRA exemption. Landlords without a PAN must be able to send you a  declaration by reference to Circular No. 8/2013 of 10 October 2013.

Requirements for the use of HRA exemptions: The eligibility requirements for the HRA exemption are as follows:

  • The individual is to be a salaried employee.
  • In his salary structure, he has the HRA part.
  • He’s going to be staying in rented accommodation.

The list of metropolitan areas for HRA exemption needs to be revised

www.carajput.com; House Rent Allowance

www.carajput.com; House Rent Allowance

Renters paying rent to NRI owners must note to subtract TDS by 30% before paying for rent.: If you really have taken a rented house and pay more than Rs 1 lakh annually – remember to provide the landlord with a PAN. Otherwise, you can miss out on the HRA exemption. Landlords without a PAN must be able to send you a declaration by reference to Circular No. 8/2013 of 10 October 2013. Renters paying rent to NRI owners must note to subtract TDS by 30% before paying for rent.

  • Exemption from Medical Allowance: This is an allowance provided by an employer if the worker or any of the members of his family becomes ill and needs extended medical attention. Moreover, If the treatment bill is up to Rs. 15000 than it is fully exempt but if the bill is more than Rs. 15,000 it becomes taxable. But For the FY 2019-20 Medical Allowance is removed from the exemption list from the income tax act. In addition, the budget also proposed to enhance the allowance from Rs. 30,000 to Rs. 50,000 for health insurance premiums under Section 80D of the Income Tax Act. This often comes to the people as a great relief. And, in the case of senior citizens suffering from serious illnesses, the deduction would now be a huge Rs.1 lakh. The benefits of the new standard deduction implemented in the 2018 budget of the Union will be enjoyed by an unprecedented 2,5 crore people made up of salaried workers and pensioners.

            Special allowance: As per section 14(i), a special allowance is given to an individual for the execution of his duty. This allowance does not come under the prerequisite range and it is partially taxable under the income tax act.

Nine salary elements that will help workers reduce their tax pressure

  • Children education allowance
  • Phone bill reimbursement
  • Food coupons
  • House Rent Allowance (HRA)
  • Gift voucher
  • Employees’ Provident Fund (EPF)
  • Leave Travel Allowance (LTA)
  • Car maintenance allowance
  • Hostel expenditure allowance

Regards

Rajput Jain & Associates 

Brief latest for extension of Due date in the month of Nov 2020

1.GSTR9 & 9C of 18-19-31.12.20
2.Tax Audit etc – 31.12.20
3.ITR (NON AUDIT) – 31.12.20
4. ITR (AUDIT) – to 31.1.21.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

COMPLETE UNDERSTANDING OF FOREIGN INWARD REMITTANCE CERTIFICATE

COMPLETE UNDERSTANDING OF FOREIGN INWARD REMITTANCE CERTIFICATE

www.carajput.com; Foreign Inward Remittance Certificate

www.carajput.com; Foreign Inward Remittance Certificate

Foreign Inward Remittance Certificate is details of information Documents that behaves as a recommendation for all the inward remittances entered in India.  This document form is used by the majority of statutory authorities as confirmation that a person has received a payment in the foreign currency from outside India. When an individual collects any sum of money from a foreign country, it is credited to his account by an authorized broker, usually approved by the Reserve Bank of India to do so by these banks. If the receiver does not have a bank account with an authorized bank, then he is unable to move his money to his bank account.

Foreign Inward Remittance Certificate is considered a very valuable form and the same includes various purposes,. If shares are distributed on behalf of a person or business that operates outside an India, then Foreign Inward Remittance Certificate serves as a confirmation of the money obtained in place of the order for shares/ otherwise. The Foreign Inward Remittance Certificate is an important proof of the export of the services and remittances received instead of those services. FIRC testifies that the resident seller has received the share purchase consideration when a resident Indian sells or transfers his shares to some non-resident Indian or foreign identity. In the case of EPCG and Advance License, Foreign Inward Remittance Certificate is a very important Documents that are sent to DGFC, RBI, and Bank Documentation and related Compliances with subsidiary Claims in various Govt department scheme.

Kind of Foreign Inward Remittance Certificate (FIRC)

Usually, there are two types of FIRC

  1. Physical Foreign Inward Remittance Certificate (FIRC)

As of 2016, Physical Foreign Inward Remittance Certificate (FIRC) officially withdrawn, remitter banks issue an alternate form called an advisory, a declaration, or a NOC for your home bank to complete the e-FIRC process from 2016 onwards.

  1. e-FIRC Foreign Inward Remittance Certificate (FIRC)

Your home bank completes this procedure when they obtain advice, declaration, or NOC from the remitter bank and when, as explained below, they gather additional necessary documentation. Usually, the home bank produces an Inward Remittance (IRM) on the government export portal (EDPMS) when satisfied with the papers, and the IRM number is further referred to as an e-FIRC number.

What is the process for requesting a Foreign Inward Remittance Certificate (FIRC)?

Your transaction is valid for an e-FIRC if your transaction comes under EDPMS reporting. You will have to comply with RBI regulations and the bank where the remittance was issued in India.

In most situations, in order to obtain a Foreign Inward Remittance Certificate (FIRC), a letter with the following account information would have to be sent to the bank:

  • Account number
  • Transfer Amount
  • Day on which the transfer took place
  • Purpose of transfer
  • UTR Number details
  • Receiver Details

The beneficiary must then pay for the Foreign Inward Remittance Certificate’s issuance, which will be provided either physically or electronically.

What is the information contains in Format from FIRC?

www.carajput.com; Foreign Inward Remittance Certificate

www.carajput.com; Foreign Inward Remittance Certificate

Usually, a Foreign Inward Remittance Certificate document includes the following information:

  • Name and address of the first bank handling the foreign transaction
  • Name of Beneficiary
  • Indicating whether the amount is paid in cash or to the bank account of the person
  • Name and address of the person who sent the money
  • Draft Demand (DD) or Telegraphic Transfer (TT) number or Number of Cheque
  • The sum denominated in that foreign currency
  • The same amount denominated in rupees (both completely written out and using only numerals)
  • Name of the beneficiary of the funds
  • The rate of exchange which was added to the transaction
  • The object of the remittance

Issuance of e-FIRC

www.carajput.com; Foreign Inward Remittance Certificate

www.carajput.com; Foreign Inward Remittance Certificate

In case the export Receipt for an receiving from the export of Goods and Services is received by a Financial Institution other than the bank through which papers are submitted, the Coorspending recipient bank issues an e-FIRC to connect the two. Usually, an Inward Remittance on the Government Export Portal is created when the home bank is pleased with the papers and documents, and the Inward remittance (IRM) number is further referred to as the E-FIRC number.

How to get an E-FIRC Online?

Within 7-15 days after receiving an order payment, you will receive your E- FIRCs directly through your respective account, It is fully free of charge, and if anything goes well, it will be ready to download. No more requests for manuals, high fees, or long waiting periods!

Whenever your first digital FIRCs Received, You will get an email with a password and directions to use it. Take the following steps:

  1. Go and log on to www.payoneer.com
  2. Click the notification icon and find the message.
  3. To retrieve the password protected text, open the message and click on the attached link.

You will get a message straight to your account each time a document is available for you.

Issuance of FIRC by Authorized Bank

We refer to the receipt of transfers of Foreign Fund Transactions from Foreign entities as authorized under the FEMA 1999 and the FEMA (Current Account) Rules, 2000 and as amended from time to time allowed, in respect of the sale of goods and services and under Miscellaneous remittances to India and other types of Foreign Currency Inward remittances.

In order to enhance the mechanism of issuing FIRCs with a view to further improving the FIRC Mechanism, The Foreign Exchange Dealers Association of India (hereinafter referred to as FEDAI) has further amended the Guidelines for the issuance of FIRC for Inward Remittances received by Authorized Bank.

With reference to the Modified guidelines, FIRCs can now only be given unique/Distinctive serial numbers for the inward remittances on the protected documents as per Form BCI.

  • Inward remittances covering Foreign Direct Investment / Foreign Institutional Investment
  • Receipt of the export proceeds By bank otherwise than the one Handling export records. Such a FIRC will be issued on the basis of a submission to the receiver bank and would be addressed directly to the export documents owned by the bank.

Subsequently,

  • No fires will now be issued for Export Advance Payments.
  • One Year duration validity will remain for FIRCs.

These guidelines are applicable to affected from 1 May 2016, the said.

Foreign Inward Remittance Certificate Requirement in the case of exports of services in the view of GST Perspective

One of several circumstances for a service to qualify as an export of a service is that, in convertible foreign exchange, the consideration of the service should be received. FIRS / FIRA / NOC is then considered to be appropriate for the substantiation of that existence. For more details, please check with your chartered accountant Firm in India.

CA Rajput provides our clients with a free method of getting their FIRS / FIRA / NOC.

We are using many banking partners to process and send funds to our Indian customers. Please contact our client care dept to obtain these documents. They will be able to direct and give you lots of knowledge about which bank has been used for the collection and distribution of your funds.

  • You will obtain a soft copy of the E-FIRS for transactions performed through ICICI from December 2018, which is accessible on demand.
  • We will request a FIRA (hard copy) for transactions conducted through IndusInd. For these, the ETA is three to four weeks.
  • For transactions carried out by Deutsche Bank, includes all the transaction information submitted on the bank letterhead by the customer’s bank to Deutsche Bank. Deutsche stocks the FIRA and mails it to the bank of the vendor or seller.

Below Notifications released by any regulatory body concerning recent improvements to the procedure for issuing FIRCs

The list of circulars issued by FEDAI and RBI, you can be found below:

  • FEDAI circular Dated 21st April 2016, FEDAI Circular SPL-04/2016.
  • RBI Circular RBI/2015-16/414 RBI A.P. Circular number 74, dated 26th May 2016 (DIR Series).
  • FEDAI circular SPL-09/2016 dated 8th June 2016.
  • FEDAI circular 17th Oct, 2016, FEDAI circular Letter no 16/2016.

What are the differences between FIRC VS BRC?

BRS VS. FIRC

I have received several inquiries asking about the differentiation between the Bank Realization Certificate and the Foreign Inward Remittance Certificate. Someone wondered what the Bank Realization Certificate and others were, what the Foreign Inward Remittance Certificate was, and the distinction between the BRC and the FIRC.

Both are, exclusively speaking, certificates issued to customers by the authorized dealer bank for receiving amounts from foreign countries. Let us have a detailed discussion:

FIRC is provided against any receipt of the sum from foreign countries by a bank to its customers. It can be an advance payment for export, ocean or air freight proceeds, or remuneration or salaries for advisory fees or for some other reason.

BRC means the Bank Realization Certificate given to its customers by the bank against certain particular documents. Bank Realization Certificate is usually issued by a bank to its customers who, have been in the export business and on each export shipment. Multiple export promotion agencies provide rewards, import duty exemptions, and other financial assistance to the exporter. Export proof must be presented to these agencies by exporters in order to claim such an advantage. One of the evidence of exports other than the export promotion copy of the shipping bill (EP copy of the shipping bill), the Mate Receipt issued by the carrier and/or the customs approved ARE-1 (for central excise products only) is the Bank Realization Certificate issued by the respective bank receiving the exporters’ foreign amt.

Thus, after the amount received under each shipment, the exporter contacts their bank and submits the export proof and FIRC details to get the BRC under each shipment. This BRC is provided as evidence of shipment or evidence of export to the various authorities along with the customs legal record of the EP copy of the shipping bill, the Mate receipt Provided by the merchandise carrier, and, where appropriate, the central excise record of ARE-1 where ever applicable.

You need to note here that whenever you receive amounts from foreign countries, a FIRC can be obtained. That may be an amount in advance toward exports or services.

Until the Electronic Data Interchange system is implemented, exporters must submit a GR form along with a shipping bill to customs for completion of export procedures and formalities. A copy of the shipping bill is printed on the GR form. GR form is an export document to be submitted to the Reserve Bank of India for foreign inward remittance regulation. In order to secure the BRC, the exporter must request a copy of the GR form to show the account from which the foreign amount was obtained.

There is currently No FIRC or BRC required for government export promotion agencies such as the Customs Department Or DGFT or where applicable in the EDI facility, as the said foreign receipt is explicitly electronically linked to customs and DGFT through the exporter’s authorized dealer bank.

Therefore, FIRC (foreign inward remittance certificate) or BRC (BRC) need not be received by exporters. Consequently, exporters do not need to receive their bank’s FIRC or BRC to demand any export benefits from the DGFT or customs agency.

Concluding

As mentioned above, the FIRC is also of great significance when it comes to remittances obtained from banks that are abroad and not in India. It is therefore essential and necessary for the recipients to make it a matter and priority for them to follow up with the banks and obtain their FIRC issued as soon as possible after the inward remittance has been credited. Specific information and attention must also be given to foreign direct investment, as any mistake in mentioning this has significant ramifications and repercussions when it comes to remittances, their use, and their accounting.

Regards

Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

Taxation on Income from Equity and Debt Mutual Fund

Taxation on Income from Equity and Debt Mutual Fund Under section 10(35) of the Income Tax Act, 1961

www.carajput.com; taxation on mutual fund

www.carajput.com; taxation on mutual fund

1.Equity Mutual Fund

The equity mutual fund is a kind of mutual fund scheme in which a substantial proportion of the assets under administration is primarily invested in stocks including the equity stock market. They come under the class of “Stock Mutual Funds” which is defined as funds with at least 65% of the portfolio is invested in equity and equity-related securities. Every mutual fund is known as equity mutual funds or stock mutual funds, including equity mutual funds, balanced funds, sectoral funds, large-cap funds, mid-cap funds, and small-cap funds, etc.

www.carajput.com; Equity mutual fund

www.carajput.com; Equity mutual fund

A.Chargeability of DDT(Dividend Distribution Tax)

In the hands of the investor, and distribution of income on equity mutual funds is totally tax-free. In addition, no dividend distribution tax is imposed on equity mutual funds, which means the house of the mutual fund is also not liable to deduct the dividend tax declared on an equity mutual fund scheme.

Note: DDT is the abbreviation for ‘Dividend Distribution Tax’ which refers to the tax deducted or charged by the fund house (mutual fund company), on any divided declared and distributed to its investors.

B. Calculation of capital gains on Equity mutual Fund?

Capital gains generated from the selling of equity mutual funds would only be liable to capital gains tax if the retention period has been longer than one year. Equity Mutual Funds are excluded from paying long-term capital gains tax, meaning you would not be allowed to pay any capital gains tax on those transactions if you sell your equity mutual fund after 1 year of holding.

Under section 10(38) of the Income Tax Act, equity mutual funds are excluded from paying long-term capital gains tax, which ensures that if you sell your investment in equity mutual funds after 12 months of holding, you are not allowed to pay any capital gains tax on those transactions.

C. Calculation of Tax Liability of Equity Mutual funds

Based on whether the gain on sale is known as short-term or long-term capital gains, equity mutual funds are subject to capital gains tax. Tax rates on capital gains are the same for both resident Indians and non-resident Indians.

There is no dividend distribution tax on the payment of dividend income into equity mutual funds, unlike debt mutual funds. 

Type of Tax Tax rate
Short Term Capital Gains Tax (under section 111A)
Resident Indian 15%
Non-Resident Indian 15%
Long Term Capital Gains Tax ( under section 112 (A)]
Resident Indian 10% ( Capital gains exceeding ₹ 1 Lakh)
Non-Resident Indian 10%( Capital gains exceeding ₹ 1 Lakh)
Dividend Distribution Tax Nil (as per section 115R)

2. Debt Mutual Fund

The debt mutual fund is a kind of mutual fund scheme in which a substantial proportion of the assets under administration are invested mainly in fixed income instruments, including bonds and debentures. They come under the ‘Non-Equity Mutual Funds’ group, which is classified as funds with less than 65% of their portfolio invested in equity and equity instruments. All mutual funds, including debt mutual funds, gold funds, money market funds, balanced funds, etc. are Classified as non-equity mutual funds.

www.carajput.com; Debt mutual fund

www.carajput.com; Debt mutual fund

A. Chargeability of Dividend Distribution Tax

For individuals and HUF investors, the allocation of income on debt mutual funds is subject to a dividend distribution tax at the rate of 28.33 percent (including surcharge and cessation). Asset management companies subtract DDT from the dividend in the debt mutual fund holder’s portfolio prior to crediting the dividend.

B. Calculation of capital gains on Equity mutual Fund?

Capital gains generated from the selling of Debt mutual funds incur capital gains tax. Depending on the retention time, the sale may incur short term capital gain tax or long term capital gain tax.

Long-term capital gains- If, after 3 years of holding time, you sell your investment in a debt mutual fund, capital gains resulting from that sale are known as a long-term capital gain (LTCG) and will be charged at the tax rate on long-term capital gains. Long term capital gains are eligible for an indexation advantage in which the cost of purchasing an asset over the retention period is adjusted for variations in the cost inflation index. In the event of an increase in the index, the purchase rate is changed upwards, thus decreasing the value of the capital gain and, thus, the tax on capital gains. The price indexes used for the adjustment are maintained and issued by the Department of Income Tax.

Short-term capital gains- If you sell your investment in less than 36 months (3 years) in a debt mutual fund, the capital gains resulting from the sale are known as a short-term capital gain (STCG) and are charged at the tax rate on short-term capital gains.

C. Calculation of Tax Liability on Debt mutual Fund?

For debt mutual funds, there are two types of taxes applied:

  • capital gains tax Based on which the gain on sale is classified as short-term or long-term capital gains, For resident Indians and non-resident Indians, capital gains tax rates are different.
  • Dividend Revenue or dividend tax reported on the debt investment mutual fund
Type of Tax Tax rate
Short Term Capital Gains Tax
Resident Indian As per individual’s income tax bracket
Non-Resident Indian As per individual’s income tax bracket
Long Term Capital Gains Tax (under section 112)
Resident Indian 20% (with indexation benefit)
Non-Resident Indian On listed funds- 20% (with indexation benefit) On unlisted funds- 10% (without indexation benefit)
Dividend Distribution Tax (DDT) At the rate of 28.84% (including surcharge and cess) for individuals and HUF(under section 115R)

Regards

Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

Key points of 42th GST council Meeting headed By FM N. Sitharaman

Key points of 42nd GST council Meeting by video conferencing

www.carajput.com; council meeting

www.carajput.com; council meeting

The 42nd GST Council met by video conference under the directorship of Union Finance & Corporate Affairs Minister Smt NirmalaSitharaman. Union Minister of State for Finance & Corporate Affairs Shri Anurag Thakur, along with State & UT Finance Ministers and senior officers of the Ministry of Finance & States / UTs, also attended the conference. The result of the 42nd GST Council meeting by video conferencing is proposed as follows:

  • The cessation of compensation is expanded beyond a transitional duration of 5 years. As specified in the GST(CS) Act, 2017, ending in June 2022. The act is updated accordingly.
  • The existing GSTR-1/3B return filing procedure will be extended to 31st Mar 2021.
  • Taxpayers with aggregate turnover less than 5 crores are permitted from 1st January 2021 onwards to file returns (both FORM GSTR-1 and FORM GSTR-3B) on a quarterly basis in an approved bank account connected with the registrant’s PAN & Aadhaar. Even so, in the first two months of the year, these taxpayers would have to pay at least 35 percent of the last quarter’s net cash tax liability by using the auto-generated challan and adjustment should be made for the balance in the third month of the year while filing the return.
  • For the submission of refund claims, Refund to be paid/disbursed on an approved bank account connected with the registrant’s PAN & Aadhaar with effect from 1st Jan 2021. DSC is no longer compulsory. It can also be signed through Aadhaar authentication.
  • To promote satellite launching services by new start-ups, the ISRO  provided satellite launch service, Antrix corporation ltd. and NSIL will be excluded.
  • With effect from 1st April 2021, the provision for disclosing HSN codes / SAC in tax invoices and Type GSTR-1 has been updated as follows-
Aggregate turnover more than or equal to Rs. 5 Crore 4 digit of HSN/SAC
Aggregate Turnover less than Rs. 5 Crore 6 digit of HSN/SAC
For other categories of suppliers notified soon 8 digit of HSN/SAC
www.carajput.com; 42 GST council meeting

www.carajput.com; 42 GST council meeting

  • The CG will disburse to the States tonight the reimbursement cess collection, amounting to Rs. 20,000 crores, against the tax shortfall for FY 2020-21. In addition, the state’s share of the FY 2017-18 IGST collection, amounting to approximately. 25,000 crores, to be disbursed by next week as well.
  • Another conference to reach the official notice will be held on 12 October 2020 in regard to payments to States with a revenue deficit.
  • The existing form GSTR-1/3B system is to be expanded till 31 March 2021 and the GST regulation is to be changed to make this system the default return filing system. Additionally, payment of tax will be made monthly through challan.

With effect from 1st Jan 2021

  1. FORM GSTR-3B output tax obligation is auto-populated on the basis of FORM GSTR-1 filed by the taxpayer.
  2. FORM GSTR-3B input tax credits are auto-populated on the basis of FORM GSTR-2B filed by monthly filers’.

With effect from 1st April 2021

  1. FORM GSTR-3B ‘ input tax credit is auto-populated on the basis of FORM GSTR-2B filed by quarterly filers.
  2. FORM GSTR-1 is compulsory to be filed before FORM GSTR-3B in order to ensure the auto-population system as stated earlier.
  • Amendment to the CGST Rules: Multiple amendments to the CGST Rules and FORMS, including requirements for the provision of Nil FORMCMP-08 via SMS, have been proposed.

Note:- In this notice, the decisions of the GST Council were submitted in simple language for easier interpretation. The same effect will be granted to notifications/circulars from the Gazette that alone has the force of law.

You may like a few other posts 

GST Return compliances calendar- Nov 2020

SALIENT FEATURES OF NEW GST SYSTEM IN INDIA

Key points of 42nd GST council Meeting headed By FM N. Sitharaman

GSTN enable auto-populated in the E-invoice information into GST Return -1

Regards

Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

Key Takeaways about the TCS on LRS Applicability

Key Takeaways About the  TCS On Liberalized Remittance scheme (LSR) Applicability 

www.carajput.com; LRS

www.carajput.com; LRS

Information about the concept of Liberalized Remittance scheme as per RBI Regulation is described below:

  • AD’s Liberalized Remittance/ Transfer Scheme may openly allow Remittance/ Transfer s of up to USD 2,50,000 (April-March) per Financial Year to resident individuals for any approved current or capital account transaction or a combination of both.
  • The Liberalized Remittance/ Transfer Scheme is not applicable to corporations, partnership businesses, HUFs, trusts, etc.
  • Remittance/ Transfer s under the Scheme may be accumulated in respect of members of the family required to comply with its terms and conditions by individual members of the family.
  • Fortunately, for capital account activities such as opening a bank account/investment/purchase of property, clubbing is not allowed by other family members if They are not the co-owners / co-partners in foreign bank accounts/investment/property.
www.carajput.com; RBI guidelines

www.carajput.com; RBI guidelines

Activities that are prohibited in compliance with rule 3 of the foreign exchange management act, 1999:

  1. Remittance/ Transfer from winnings of lotteries.
  2. Remittance/ Transfer of revenue or some other pleasure from racing/riding etc.
  3. Remittance/ Transfer for lottery ticket purchases prohibited/proscribed magazines, football games, sweepstakes, etc.
  4. Payment of the export commission for equity investment in joint ventures / wholly owned subsidiaries of Indian companies abroad.
  5. Remittance/ Transfer of dividends from any company to whom a dividend balancing provision applies.
  6. Payment of commissions for exports under the Rupee State Credit Route, with the exception of commissions of up to 10% of the invoice value of tea and tobacco exports.
  7. Payment for telephones connected to ‘Call Back Systems.’
  8. Remittance/ Transfer of interest income on funds deposited in the Non-Resident Special Rupee (Account)  Scheme.

Activities that require prior approval by the central government (see Schedule II Rule 4)

  1. Cultural trips
  2. Advertisement in global print media by the State Government and its Public Sector Undertakings for objectives other than development of tourism, foreign investment, and international bidding (exceeding USD 10,000)
  3. Remittance/ Transfer of freight chartered by a PSU vessel
  4. Import payment by Govt. Department or PSU on the basis of c.i.f. (i.e. not based on f.o.b. and f.a.s.)
  5. Multi-modal transport operators that transfer Remittance/ Transfer s to their agents In abroad
  6. Remittance/ Transfer of transponder hiring charges by (a) TV networks (b) Internet Service Providers
  7. Remittance/ Transfer of charges for the detention of containers in excess of the rate stated by the Director-General of Shipping
  8. Technical partnership deal Remittance/ Transfer s where royalty payments exceed 5% on local revenues and 8% on exports and lumpsum payments exceed USD 2 million
  9. Remittance/ Transfer for P & I Club membership
  10. Remittance/ Transfer by a person of prize money/sponsorship for sports activities in abroad other than International / National / State Level sports bodies of prize money/sponsorship of sports operation overseas, if the sum concerned reaches USD 100,000.

In addition, a resident cannot give a foreign currency as a gift to another resident for the credit of a foreign currency account kept abroad by the latter under the LRS.

The scheme should not be used to make remittances/transfers for any prohibited or immoral activities such as margin lending, lotteries, etc.

Prohibition on the drawing of foreign exchange —- Prohibition on the drawing of foreign exchange by any person for the following purposes:

  1. The transaction specified in Schedule I;
  2. Travel to Bhutan and/or Nepal;
  3. The transaction with a person who is resident in Nepal or Bhutan.

Such that the prohibition referred to in clause (c) may be excluded by the RBI, pursuant to such terms and conditions as may be considered appropriate by special or general order.

  • All such transactions not otherwise permitted under FEMA and those of a margin or margin call Remittance/ Transfer form to overseas exchanges / overseas counterparties are not permitted under the Liberalized Remittance/ Transfer scheme.
  • Allowable Current account transactions: The cap of USD 2.50,000 per Financial Year (FY) under the Scheme also contains/subsumes Remittance/ Transfer s for current account transactions (i.e. private visits; gifts/donations; work from abroad; emigration; preservation of close relatives abroad; business trips; medical care in abroad; studies abroad) available to the resident individual in India foreign exchange not more than USD 250,000 by getting prior approval from RBI.
  • Private visits
  • Gift / donation
  • Moving abroad for jobs/employment
  • Emigration
  • Maintenance of  close relatives in Abroad
  • Business trip
  • Medical care in abroad
  • Resources for students to complete their studies abroad.

Permitted transactions of the capital account: The permitted transactions of the capital account by an individual under the LRS are

www.carajput.com; Permissible capital Account

www.carajput.com; Permissible Capital Account

  • New Opening a bank account for foreign currency account abroad.
  • Investment in abroad: purchase and retention of stock in both listed and unlisted foreign companies or debt instruments; purchase in qualified stock of a foreign company for hold the position of director; purchase of stocks of a foreign company for professional services rendered or in exchange of remuneration of the Director; investment in Mutual Funds units; Venture Capital Funds; promissory note, unrated debt securities;
  • Setting up of Wholly Owned Subsidiaries and Joint Ventures (w.e.f. 5th Aug 2013) for the bonafide industry outside India, according to the RBI terms and conditions.
  • Extending loans to non-resident Indians (NRIs) who are relatives, including loans in Indian Rupees as specified in the Companies Act, 2013
  • To encourage capital account Remittance/ Transfer s under the Liberalized Remittance Scheme, banks do not provide any kind of credit facilities to resident individuals.

TCS on an Amount for remittances transactions under LRS Scheme.

TCS on a sum for remittance transactions under the Liberalized Remittance Scheme.: According to the amendment pursuant to section 206C of the Finance Act 2020, an approved dealer who collects a sum for remittances under the Liberalized Remittance Scheme shall be liable for TCS transactions under the Liberalized Remittance Scheme.

  • tax collection at source will be effective 1 October 2020 for all Liberalized Remittance Scheme transactions, including international debit card transactions.
  • Underpayments are within the limits of the tax collection at source applicability-
  • Liberalized Remittance Scheme forwarding transactions via the Bank branch or bank Online.
  • Foreign Currency Demand Draft or cash issuance from a domestic resident account for the purpose of the Liberalized Remittance Scheme.
  • International transactions on Debit Card Transactions (including transactions on international traders or platforms providing Dynamic Currency Conversion-DCC Transactions)
  • Transfers from domestic resident customers to Liberalized Remittance Scheme NGO account (Loan to NRI or Gift to NRI)

Below is the tax collection at source charging grid for Liberalized Remittance Scheme remittances and transactions 

www.carajput.com; LRS

www.carajput.com; LRS

Liberalized Remittance Scheme Purpose/Type of transaction Applicable of Tax collected at source
1. Remittances under Liberalized Remittance Scheme Purpose S0306 –
2. International transactions on Debit Cards (including Dynamic Currency Conversion – DCC transactions) and
3. Other travel including holiday trips and payments for settling international credit card transactions.
5% of the transaction/remittance amount
Liberalized Remittance Scheme Purpose S1107 Studies abroad and S0305 Travel for education, where the source of funds is Education loan 0.5% of the remittance amount above INR 7 lacs during the financial year.
Any Other Liberalized Remittance Scheme purposes 5% of the remittance amount, above INR 7 lacs during the financial year.

Note:- It is to ensure that the account is properly financed to cover the cost of the remittance, the Tax collected at source cost, the remittance charges, the related bank fees as well as other taxes/charges as applicable. In the case of insufficient balances, payments will not be processed.

Changes have been made to the Source Tax Collection (TCS) provision for international remittances made during the Union Budget 2020-21. Please find below the list of the amended provision;

  • The TCS clause will now be effective from 1 October 2020 instead of 1 April 2020.
  • On the basis of the recent clarification, TCS shall refer to sums greater than INR 7 lakh in the financial year and not to the total sum.
  • In situations where the sum is charged for continuing education through a loan from any financial institution, the rate of TCS shall be 0.5 percent above the sum of INR 7 lakh.

 Frequently Asked on TCS on Liberalized Remittance Scheme.

Questions: 1. what is the effective date of introduction of the tax implications?

Answer: Effectiveness of the Tax collected at the source clause on international remittances is updated from 1 April 2020 to 1 October 2020.

Question:2. What all transactions will be affected by this Tax collected at source requirement?

Answer: All remittances in excess of INR 7 lakh in the financial year under the LRS will be liable for 5 percent of TCS, except where the remittance is for education paid out through a loan from any financial institution. The rate would then be decreased from 5% to 0.5%. The exclusion from TCS for remittances abroad under LRS for sums just under INR 7 lakh in the financial year would not apply if the sum is charged for the purchase of the overseas tour program kit.

Questions: 3. Can GST be applied to the 5% TCS collected?

Answer: No GST would refer to the tax collected by the TCS. However, GST will refer to the conversion & remittance service fee of the currency.

Questions: 4. what are the various reasons for which the tax collection applies?

Answer: The tax would apply to all remittances from India that come under the Liberalized Remittance Scheme (LRS) of RBI.

Questions: 5. what are the various Purpose for purposes permitted under LRS?

Answer: The following are the purposes permitted under LRS.

  • Private visits to any country (excluding Nepal and Bhutan)
  • Donation or charity;
  • Study abroad
  • Moving overseas to work
  • Emigration:
  • Maintenance of loyal family members abroad
  • Travel for business, or attending a conference or advanced training, or meeting expenses for meeting medical expenses, or checking abroad, or accompanying a patient going abroad for medical treatment/check-up;
  • Expenditures for medical care overseas
  • Any other current account transaction not protected in FEMA 1999.

Questions: 6. what are the various permissible capital account transactions by an individual for purposes permitted under LRS?

Answer: The permissible capital account transactions by an individual under LRS are:

  • Investments abroad – acquisition and holding of shares in both listed and unlisted foreign companies or debt instruments; 5 acquisition in qualified shares of a foreign company for the role of the director; acquisition of shares of a foreign company for professional services rendered or in lieu of remuneration of the director; investment in units of mutual funds, venture capital funds;
  • Establishment of wholly-owned subsidiaries and joint ventures (with effect from 05 August 2013) outside India for bonafide company subject to the terms and conditions set out in Notification No FEMA.263 / RB-2013 of 5 March 2013;
  • to extend loans, namely loans in Indian Rupees, to non-resident Indians (NRIs) who are relatives.
  • the opening of foreign currency accounts with a bank abroad;
  • purchase of foreign property;

Questions: 7. What’s Dynamic Currency Conversion (DCC)?

Answer: Many international traders offer the ‘Dynamic Currency Conversion’ facility – which enables customers to make purchase payments directly in their home currency (i.e. Indian Rupees for cards issued in India). This service is provided by selected international merchants or websites. The final transaction amount (as determined by the merchant / DCC service provider) must be checked by you before the payment is made. Depending on the sum given by the merchant, Citi will charge you the final amount (Indian Rupees). The conversion procedure, the exchange rate and any markup applied in such cases shall be decided, as the case may be, by the applicable merchant or DCC service provider.

If we do not opt for DCC, you will be billed in local currency by the merchant. If the local currency is not USD, then the transaction is translated first from the local currency to $ then from $ to INR.

Regards

Rajput Jain & Associates

Disclaimer: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)