Corporate and Professional Updates on 9th August 2019

Direct Tax Updates:

• The Income tax (I-T) department has relaxed its assessment and scrutiny norms for start-ups. In a circular it directed its officers not to raise additional tax demands for start-ups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT). This will be done in cases where scrutiny is limited to Section 56 (2) (viib) of the Income Tax Act, or what is called in popular parlance angel tax. Angel tax refers to income tax payable on capital raised by unlisted firms by issuing shares where the share price is considered more than the fair market value. “No verification on such issues will be done by the AOs (assessing officers) during the proceedings and the contention of such recognised start-up companies on the issue will be summarily accepted,” the circular said. In cases where start-ups are recognised by the DPIIT but scrutiny involves wider issues, the I-T Department has asked its field formations not to pursue the issue of the angel tax during the assessment proceedings.
• “This clarification will help start-ups that are facing questioning and will also give a clear direction to assessing officers on what to do in such cases,” Amit Maheshwari, partner Ashok Maheshwary & Associates, said. Rakesh Nangia, managing partner at Nangia Advisors (Andersen Global), said while the recognised start-ups were relieved, the DPIIT might still have to face inquiries from tax officers and the procedure to be followed by tax officers would be crucial. After protests by start-ups, the government had raised the threshold for availing of angel tax exemption for these companies, besides widening their definition. Consideration of shares issued or proposed by start-ups has been hiked to Rs 25 crore from Rs 10 crore for getting exemption from the angel tax. Also, consideration received by eligible start-ups for shares issued or proposed to be issued to a listed company having a net worth of Rs 100 crore, or a turnover of at least Rs 250 crore, was also exempted.

RBI Updates:

• The Reserve Bank of India (RBI) will cut interest rates again at its October meeting, making it the fifth in a row, according to economists in a Reuters poll who said the central bank’s decision to ease by 35 basis points on Wednesday was right. While a survey taken ahead of August’s meeting showed a 25 basis points rate cut was a done deal, the RBI was expected to keep rates unchanged for the rest of this year.  However, a more recent Reuters poll, conducted Aug 7-8, predicted the RBI would ease its benchmark lending rate by 25 basis points to 5.15% in October.

• The central bank cut rates by 35 basis points to 5.40% this week but maintained its “accommodative” policy stance, signalling further easing on concerns about weak economic growth and subdued inflation. If the RBI does cut rates in October and early next year it will be the most aggressive amongst major central banks in easing policy.  The RBI lowered its economic growth forecast for the current fiscal year on Wednesday and said inflation would not breach its medium-term target of 4% in the near-term. However, the benefits of the RBI’s easing this year have not been completely transmitted to borrowers.

SEBI Updates:

• With an aim to safeguard mutual fund investors from high-risk assets, regulator SEBI wants fund houses to shift all their investments to listed or to-be-listed equity and debt securities in a phased manner and reduce their exposure to unrated debt instruments from 25 per cent to only 5 per cent. Exposure to risky debt securities has emerged as a major risk for the capital market investors, including those coming through the mutual fund space, and the regulator has been making efforts to enhance its regulatory safety net against such risks. Taking forward certain decisions approved by SEBI’s board earlier in June, the regulator has now finalised the draft amendments to the prudential norms for mutual fund schemes for investment in debt and money market instruments.
• However, the official said these proposed limits may need to be reviewed periodically by SEBI after taking into account the market dynamics and participation of mutual funds in unrated debt securities from time to time. Among other decisions which have been in-principle already approved by the SEBI board and need to be incorporated in the amended regulations, the valuation of debt and money market instruments based on amortisation would be dispensed with and would shift completely to mark-to-market valuation with effect from April 1, 2020.
• The existing regulations allow a mutual fund scheme to invest a maximum of 10 per cent of its net asset value in unrated debt instruments issued by a single issuer while the total investment in such instruments is capped at 25 per cent. However, pursuant to SEBI’s decision to allow mutual funds to invest only in listed securities, very limited number of instruments that are unrated would be eligible for investment by the mutual funds, as all listed debt instruments are mandatorily rated. After excluding debentures, government securities, interest rate swaps, interest rate futures, repo on G-Sec and T-bills, the mutual funds’ investments in unrated debt instruments are mostly in fixed deposits, bills re-discounting (BRDS), mutual fund units, repo on corporate bonds, units of REITs/InvITs (Real Estate and Infrastructure Investment Trusts), etc.
• Excluding all these instruments, the total exposure of mutual funds in the remaining unrated debt instruments is mostly in BRDS, amounting to about Rs 2,870 crore as on March 31, 2019. Besides, this investment is limited to just four mutual fund schemes and the average value of investments as percentage of the respective scheme’s asset under management was just about 3 per cent. As a result, SEBI is of the view that the existing limit of 25 per cent for investment in unrated debt instruments would be too high as the residual investment permitted in this category might be relevant only for few instruments including BRDS.

Key Due Dates:

• STATUTORY COMPLIANCE CALENDAR FOR AUGUST 2019: 07 Augus: TDS/TCS LIABILITY DEPOSIT – Due date of depositing TDS/TCS liabilities for previous month.
• 7 August: EQUALIZATION LEVY DEPOSIT- Equalization Levy is a direct tax, which is withheld at the time of payment by the service recipient where the annual payment made to one service provider (Non  Residents only) exceeds Rs. 1,00,000 in one financial year for the specified and notified services.
• 10 August: GSTR-7 RETURN FILLING DUE DATE – Due Date for filing GSTR-7 by person liable to deduct TDS under GST for previous   quarter.
• 10 August: GSTR-8 RETURN FILLING DUE DATE – GSTR-8 is a return to be filed by e-commerce operators who are required to deduct TCS (Tax collected at source) under GST.
• 11 August: GSTR-1 RETURN FILLING DUE DATE – GST Filing of returns by registered person with aggregate turnover more than 1.50 crores.
• 13 August:  GSTR-6 RETURN FILLING DUE DATE- Due Date for filing return by Input Service Distributors for previous month.
• 15 August:  PROVIDEND FUND / ESI DUE DATES- Due date for payment of Provident fund and ESI contribution for the previous month.
• 20 August: GSTR-5 RETURN FILLING DUE DATE- Due date of GSTR-5 (for Non-resident Taxable person) for the Previous month.
• 20 August: GSTR-5A RETURN FILLING DUE DATE- Return by person providing online information and database access or retrieval services by a person located outside India made to Non-Taxable persons in India for the previous month.
• 20 August: GSTR-3B RETURN FILLING DUE DATE – Due date for filling GSTR – 3B return for Previous month.
• 31 August: INCOME TAX RETURN EXTENDED- Filing income tax for individual and non-corporates [who are not subject to tax audit].
• 31 August: GSTR-9 RETURN FILLING DUE DATE – Annual Return to be filed by Regular Taxpayers filing GSTR 1, GSTR 2, and GSTR 3. It needs to be filed electronically on the GST portal directly or through a facilitation center.
• 31 August: GSTR-9A RETURN FILLING DUE DATE – Taxable Persons paying tax under Section 10 of CGST Act, the composition scheme, are required to submit their annual returns in Form GSTR 9A.
• 31 August: GSTR-9B RETURN FILLING DUE DATE- Annual Return to be filed by e-commerce operators who have filed GSTR 8 during the financial year.
• 31 August: GSTR-9C RETURN FILLING DUE DATE- Taxpayers whose annual turnover exceeds INR 2 crores in a Financial Year are required to get their accounts audited by a practicing Chartered Accountant or Cost Accountant before filing returns in Form GSTR 9C.