UPDATE

FINANCE BUDGET CHANGES W.E.F. 1st SEP, 2019

  1. TDS on additional payments made when purchasing immovable property:

While buying a property, you will have to include the payment made for other services or amenities such as club membership fee, car parking fee, electricity and water facility fee and so on when computing the amount paid for the property for the purpose of deducting TDS.                

  1. 2% TDS on cash withdrawals from bank account

Cash withdrawals exceeding Rs 1 crore on aggregate basis during the year from an account held with a bank, cooperative bank or post office will invite levy of TDS from September 1. The move is aimed at discouraging large cash transactions and also to promote a less cash economy. A new section 194N has been inserted in the Income Tax Act which defines that TDS will be levied at the rate of two per cent on cash withdrawals made from the account

  1. 5% TDS on payments made by individuals and HUFs to contractors and professionals

Individuals and HUFs making a payment to contractors and professionals exceeding Rs 50 lakh in aggregate per annum will also be required to deduct TDS at the rate of 5 per cent.

This would mean that individuals making payments over this limit for house renovation, wedding functions or for any other purpose to a single professional in a year would be required to deduct tax at the time of making the payment.

RECENT UPDATES -

Introduction of the Scheme

  • The Scheme shall be called the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019.
  • The scheme shall come into force on such date when notified in the Official Gazette.
  • The Scheme is probably last measure for resolving past disputes of Central Excise, Service Tax and 26 other indirect tax enactments.
  • Eligible persons will declare the unpaid tax dues and pay the same in accordance with the provisions of the Scheme.
  • Benefits of the scheme include concessions in basic tax, penalty, interest or any other proceedings including prosecutions.

Eligible Person who can avail benefit under Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019

All persons other than those mentioned below are eligible to opt for the scheme.

  • who have filed an appeal before the appellate forum and such appeal has been heard finally on or before the 30th day of June, 2019;
  • who have been convicted for any offence punishable for the matter for which he intends to file a declaration;
  • who have been issued a show cause notice and the final hearing has taken place on or before the 30th day of June, 2019;
  • who have been issued a show cause notice for an erroneous refund or refund;
  • who have been subjected to an enquiry or investigation or audit and the amount of duty involved in the said enquiry or investigation or audit has not been quantified on or before the 30th day of June, 2019;
  • a person making a voluntary disclosure after being subjected to any enquiry or investigation or audit; or
  • a person making a voluntary disclosure after having filed a return wherein he has indicated an amount of duty as payable, but has not paid it;
  • who have filed an application in the Settlement Commission for settlement of a case;
  • persons seeking to make declarations with respect to excisable goods set forth in the Fourth Schedule to theCentral Excise Act, 1944.

Quantum of Relief under the Scheme.

Sr. No

Particulars

Relief

Conditions

1

Total tax due <= 50 Lacs

Total tax due > 50 Lacs

70% of tax dues

50% of tax dues

·         where the tax due is related to a show cause notice or appeals arising out of such notice which is pending as on the 30th day of June, 2019 or;

·         where the tax dues are linked to an enquiry, investigation or audit against the declarant and the amount quantified on or before the 30th day of June, 2019.

2

Total tax due <= 50 Lacs

Total tax due > 50 Lacs

60% of tax dues

40% of tax dues

·         where the tax due is related to an amount in arrears in a return under the indirect tax enactment, wherein the declarant has indicated an amount of duty as payable but not paid it and the duty amount indicated.

3

Liability Pertaining to Late Fees and Penalty

100%

·         Where the tax dues are relatable to a show cause notice for late fee or penalty only, and the amount of duty in the said notice has been paid or is nil, then, the entire amount of late fee or penalty

4

Voluntary disclosure

 

·         No Relief from Tax Dues. However 100% relief from interest and penalty.

Key Features of the Scheme

  • All the schemes declared earlier under indirect taxes earlier where giving relief of interest and penalty only. However this scheme gives relief in tax payment also to the extent mentioned in above table.
  • Declarant can adjust any pre-deposit amount paid before filing of appeal. However if pre-deposit is more than the amount due then no refund would be granted in this scheme.
  • The payment of Tax dues cannot be made by utilizing input tax credit, which means tax will have to be paid in cash.
  • Tax Discharged under this scheme cannot be claimed as input tax credit.
  • Tax paid under this scheme will not be refundable in any circumstances.

Process of Application

  • The declaration forms for application under this scheme are yet to be notified.
  • If there is any dispute in the application filed, the designated authority will issue details of amount payable to the declarant within 30 days of filing of application and a hearing would be granted to the declarant before final statement is accorded.
  • Designated authority will verify the details (except in case of voluntary declaration) and issue a statement of amount payable to the declarant within 60 days from the date of filing of declaration.
  • Within 30 days of the receipt of the Statement, declarant will have to pay the amount of tax dues as per statement.
  • Designated authority shall issue a discharge certificate in electronic form, within 30 days of payment and submission of proof of withdrawal of appeal.

Post Receipt of Discharge Certificate

Issuance of discharge certificate will mean the following;

  • The declarant shall not be liable to pay any further duty, interest or penalty with respect to the matter and time period covered in the declaration.
  • The declarant shall not be prosecuted under the indirect tax enactment with respect to the matter and time period covered in the declaration.
  • No matter and time period covered by the declaration shall be reopened in any other indirect enactment.

For any additional information, please reach out to your relationship manager or write in to consultants@bsmart.org.in

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Note on issuing Convertible Notes

We are in the phase of Startup financing; Venture Capital financing, angel investments.

Earlier the companies were raising funds by way of Issuing equity and preference shares, debentures, commercial papers etc.

The Reserve Bank of India (RBI) has issued a Notification No. 377 dated 10 January, 2017 wherein it has introduced a new instrument in case of startups of convertible note.

What is a convertible Note:

‘Convertible Note’ means an instrument issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.

What is a Startup Company:

A ‘startup company’ means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognized as such in accordance with notification1 issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

Convertible Notes by an Indian startup company may be issued to:

  1. A person resident outside India (other than an individual who is citizen of Pakistan or Bangladesh or an entity which is registered/ incorporated in Pakistan or Bangladesh), may purchase convertible notes issued by an Indian startup company for an amount of twenty five lakh rupees or more in a single tranche.
  1. A startup company, engaged in a sector where investment by a person resident outside India requires Government approval, may issue convertible notes to a person resident outside India only with such approval.
  1. Further, issue of equity shares against such convertible notes shall be in compliance with the entry route, sectoral caps, pricing guidelines and other attendant conditions for foreign investment.
  1. A startup company issuing convertible notes to a person resident outside India shall receive the amount of consideration by inward remittance through banking channels or by debit to the NRE/ FCNR (B)/ Escrow account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016. Repayment or sale proceeds may be remitted outside India or credited to NRE/ FCNR (B) account maintained by the person concerned in accordance with the Foreign Exchange Management (Deposit) Regulations, 2016.
  1. A NRI or an OCI may acquire convertible notes on non-repatriation basis in accordance with Schedule 4of these Regulations.
  1. A person resident outside India may acquire or transfer by way of sale, convertible notes, from or to, a person resident in or outside India, provided the transfer takes place in accordance with the entry routes and pricing guidelines as prescribed for capital instruments.

 

Advantages of Convertible Note

  1. Primarily in case of a new startup, there may not be any valuation base and hence difficult to determine the valuation for issuing equity shares. Moreover the tax authorities are also questioning the startups on premium received on equity shares based on DCF method of valuation. Hence convertible note serves the purpose of fund raising in simple and faster way.
  1. No control is diluted in the company as there are no voting rights attached to the note.

Form Convertible Notes (CN):

  • The Indian startup company issuing Convertible Notes to a person resident outside India shall report such inflows to the Authorized Dealer bank in Form CN within 30 days of such issue.
  • A person resident in India, who may be a transferor or transferee of Convertible Notes issued by an Indian startup company shall report such transfers to or from a person resident outside India, as the case may be, in Form CN to the Authorized Dealer bank within 30 days of such transfer.
  • The Authorized Dealer bank shall submit consolidated statements to the Reserve Bank.

More and more startups have been using convertible notes for raising funds as the deals are closed in much shorter time. Startups can give different prices to different investors and thereby close the deals faster.

The ease of issuing convertible notes is the reason for its popularity among startup companies. However, it is important to note that the convertible notes can be issued by only recognized Startup companies.

For any additional information, please reach out to your relationship manager or write in to consultants@bsmart.org.in

 

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