doing business in india - rsm india publication (2012)

Doing BusinessIn India

In a world of different cultures, its goodto have advisors who are consistent everywhere.

DOING BUSINESS IN INDIA

India is one of the fastest growing economies of the world. The Indian economy grew by about 7% p.a. during 2011-12 on the background of tenuous global economic environment. The global economic environment turned sharply adverse in September 2011 owing to the turmoil in the Eurozone, and questions about the outlook on the US economy provoked by rating agencies. Despite this, India's economic growth remains encouraging when compared to the gloomy global economic scenario. The overall growth of the economy can directly be attributed to the manufacturing sector, infrastructure sector and growing contribution of the service sector.

Increased emphasis has been laid by the policy makers on further integration of the economy with the global markets, viz. adopting convergence of the financial reporting standards with International Financial Reporting Standards (IFRS), laying foundation for implementation of the Goods and Services Tax (GST) and the Direct Taxes Code (DTC).

India continues to remain the "outsourcing destination of choice" of the world in sectors such as Information Technology, Pharmaceuticals, Banking and Finance, Insurance, Gems and Jewellery, Manufacturing, etc. This is mainly due to the ample availability of competent and cost efficient workforce whereby setting up operations in India has become synonymous to efficient and cost effective operations. The growing Indian middle class population has placed India as "The market of the future". As a result of these factors, many of the leading companies all over the world have already set up operations in India or are planning to do so.

We have compiled this guide to provide an overview of various social, legal, tax and commercial aspects in India, which can have a material impact on decision about doing business in India.

Given the limitations in compiling a booklet of this size, our intention is to offer a broad outline of the areas we feel are relevant to undertake business activities in India.

This guide cannot serve as a substitute for specific legal, tax or accounting advice concerning a business undertaking in India. Therefore, when specific issues occur in practice, it will be necessary to refer to the specific laws and regulations. RSM International or RSM Astute Consulting Private Limited are not responsible for any action taken based on information contained in this guide and any liability arising from any statements or error contained in it.

RSM Astute Consulting Private Limited along with its affiliates is the sole Indian member of RSM International. RSM International is the world's 6th largest network of accounting and consulting firms, with world-wide fee income of US$ 3.9 billion and offices in 90 countries and can be contacted through any of RSM International's associated member firms around the world.

RSM Astute Consulting Private Limited. th13 Floor, Bakhtawar

229, Nariman Point, Mumbai - 400 021.Tel: (91-22) 6696 0644 Fax: (91-22) 2820 5685E [email protected] www.astuteconsulting.com

Compiled by:

Foreword

Economy

Tax Rates at a Glance (Financial Year 2012-13)

Foreign Investments

ØIndia's Gross Domestic Product (GDP) in terms of Purchasing Power Parity (PPP) is US$ th4.46 trillion making it the 4 largest economy in the world.

ØIndia witnessed a robust GDP growth in the last decade, averaging between 6-7% per annum and for the Financial Year 2012-13, the GDP growth rate of India is expected to be close to 7%.

ØFDI Inflows for FY 2011-12 was US$ 46.53 billion (34% growth over 2010-11)

ØExports for year ending on 31 March 2012 were US$ 304 billion and imports for the year ended on 31 March 2012 stood at US$ 489billion.

ØAccording to the World Fact Book, India is among the world's youngest nations with a median age of 25 years as compared to 43 in Japan and 36 in USA. Of the BRIC-Brazil, Russia, India and China-countries, India is projected to stay the youngest with its working-age population estimated to rise to 70% of the total demographic by 2030, the largest in the world. India will see 70 million new entrants to its workforce over the next 5 years.

ØIndia continues to be the most preferred destination-among 50 top countries-for companies looking to offshore their information technology (IT) and back-office functions, according to global management consultancy, AT Kearney.

ØForeign Direct Investment (FDI) is permitted under automatic route except in certain prohibited activities and in certain activities with sectoral caps.

ØReforms in the FDI policy by further liberalization has opened up more avenues for foreign investments in sectors such as telecommunications, power, civil aviation, retail, etc.

ØDividends and sale proceeds of shares are freely repatriable subject to payment of applicable taxes.

Income Tax Rates for Corporates, Firms:

1. Domestic Companies 32.445% 30.90%

2. Foreign Companies 42.024% 30.90%

3. Partnership Firms / Limited Liability Partnerships 30.90% 30.90%

Income Tax Rates for Individuals, HUF, BOI, AOP

4. As per Income Slabs (INR) 0% to 30.90%

Sr.No. Particulars Income

exceedingINR 10 mn

Incomeup to

INR 10 mn

Rate of Tax

India - A Business Perspective



India: Quotable Quotes by Thought Leaders"India is not simply emerging: India has already emerged”

Barack ObamaPresidentThe United States of America

"It (India) is a very important market not just for us but any company that wants to be successful”

Erik JohnsonHead - Sales (Asia-Pacific)Facebook

"India is already among our top five markets out of 31 globally... We will continue to invest strongly behind capabilities, people, technology and branch network here...We are very excited about the opportunity beyond Tier-1 cities. We have presence in 34 cities in India"

Foo Mee HarGlobal Head (Priority and International Banking)Standard Chartered Bank

"India is a fantastic resource for Dell's global growth"

Michael Saul Chairman of the Board of Directors and Chief Executive OfficerDell

“You can't be global without being in India - with its large number of highly skilled, motivated and knowledgeable people”

Tom EndersCEO and PresidentAirbus

“India is light years ahead in terms of the market potential and the potential for the company (Boeing) to come together as an enterprise and grow”

Q.R. ThomasPresidentBoeing India

RSM International is a worldwide network of independent accounting and consulting firms. RSM International and its member firms are separate and independent legal entities. RSM International does not itself provide accounting or consultancy services. All such services are provided by member firms practicing on their own account.

RSM is represented by independent members in 94 countries and brings together the talents of over 32,000 individuals in over 700 offices worldwide.

The network's total fee income of US$3.9bn places it amongst the top six international accounting organisations worldwide. Affiliate member firms are driven by a common vision of providing high quality professional services, both in their domestic markets and in serving the international professional service needs of their client base.

RSM International is a member of the Forum of Firms. The objective of the Forum of Firms is to promote consistent and high quality standards of financial and auditing practices worldwide.

RSM InternationalExecutive Office11 Old JewryLondon EC2R 8DUUnited KingdomTelephone: + 44 (0) 20 7601 1080Fax: + 44 (0) 20 7601 1090Email: [email protected]: www.rsmi.com

About RSM International


RSM Astute Consulting Pvt. Ltd. along with its affiliates (RSM Astute Consulting Group) is the Indian member of RSM International, the sixth largest network of independent accounting and consulting firms in the world with presence in over 90 countries.

RSM Astute Consulting Group is consistently ranked amongst India's top 6 accounting and consulting groups. (Source: International Accounting Bulletin, September 2010 and September 2011).

RSM Astute Consulting Group offers a wide range of specialized, multi-disciplinary professional services that meet the immediate as well as long-term needs of business. With a group personnel strength of about 950 and a pan-India presence, we provide an unique value proposition to our diverse clientele, which include several large Indian groups, multinational corporations and first generation entrepreneurs.

About RSM Astute Consulting


RSM Astute Consulting Group RSM International

www.astuteconsulting.com www.rsmi.com

6th largest network ofindependent accounting andconsulting firms in the world

Annual combined fee incomeof US$ 3.9 billion

700 offices across 94 countries

Indian member of RSM International

Personnel strength of over 950

Consistently ranked amongst India's top6 Accounting and Consulting Groups

(Source: International Accounting Bulletin,September 2010 and September 2011)

Nation-wide presence

International delivery capabilities

Golden Temple, Amritsar


CHAPTER 1 : INDIA A PROFILE

PHYSICAL FEATURESGeography .................................................................................... 1Climate .......................................................................................... 1

POPULATION AND SOCIAL PATTERNSPopulation .................................................................................... 1Language ...................................................................................... 2Religion.......................................................................................... 2Education ...................................................................................... 2

GOVERNMENT AND POLITICAL SYSTEMGovernment Structure............................................................... 2

LEGISLATIVE AND LEGAL ENVIRONMENTLegislation .................................................................................... 2Legal Environment ..................................................................... 3

INFRASTRUCTURETransport ...................................................................................... 3Communication ........................................................................... 4Education ...................................................................................... 4Medical Services.......................................................................... 4Housing ......................................................................................... 4

INTERNATIONAL RELATIONS AND ASSOCIATIONS........... 4

Contents


CERTAIN KEY INFORMATION FOR VISITORS TO INDIAIndian Currency........................................................................... 5Visitors' Visas............................................................................... 5Indian Standard Time................................................................. 5Business Hours ............................................................................ 5Public Holidays ............................................................................ 6Tourism.......................................................................................... 6Attire Code ................................................................................... 6

FRAMEWORK ............................................................................... 8

ECONOMIC TRENDS ................................................................... 9

ECONOMIC SECTORS ................................................................. 10

REGULATORY ENVIRONMENTInvestor Protection..................................................................... 10Price Controls .............................................................................. 11Registration of Intellectual Property ..................................... 11Competition Policy ..................................................................... 13Environmental Regulation ........................................................ 13

FINANCIAL SECTORBanking System........................................................................... 14Insurance Sector / Non Banking Finance Companies ........ 15Financial Market.......................................................................... 15Stock Exchanges ......................................................................... 16Investment Institutions.............................................................. 18Mutual Funds................................................................................ 18Credit Rating Agencies .............................................................. 18

INCENTIVES FOR INDUSTRIESConcessional Finance................................................................. 18Central Government Investment Study ................................. 19

CHAPTER 2 : INDIAN BUSINESS AND INVESTMENT ENVIRONMENT


State Government Incentives................................................... 19

INCENTIVES FOR EXPORTS ..................................................... 19

ENERGY, MINERALS AND OTHER

NATURAL RESOURCES.............................................................. 20

FOREIGN TRADE ......................................................................... 20

OTHER FACTORS

Language ...................................................................................... 20

Trained Manpower ...................................................................... 21

Low Research and Development Costs.................................. 21

Financial Reliability .................................................................... 21

FORMS OF BUSINESS ENTITIES

Companies .................................................................................... 23

Regulations .................................................................................. 23

Branches of Foreign Companies.............................................. 24

Liaison Offices ............................................................................. 25

Project Office ............................................................................... 26

Partnerships................................................................................. 27

Trusts ............................................................................................. 27

Limited Liability Partnerships (LLPs)..................................... 27

SETTING UP A COMPANY

Incorporation of a Company..................................................... 29

Initial Capital Requirements ..................................................... 32

Kinds of Shares ........................................................................... 32

Debentures ................................................................................... 33

Public Deposits ............................................................................ 33

CHAPTER 3 : BUSINESS ENTITIES


Directors........................................................................................ 34

Managing Director ...................................................................... 35

Secretary ...................................................................................... 36

STATUTORY REQUIREMENTS FOR COMPANIES

Annual Reports............................................................................ 36

Audit Requirements ................................................................... 36

Shareholders' Meetings............................................................. 37

Online Filing System................................................................... 38

Filing of Documents / Returns................................................. 38

Penalties for non compliance under the

Companies Act, 1956.................................................................. 39

SIGNIFICANT COMPANY LAW REGULATIONS

Loans and Guarantees to Companies .................................... 42

Loans and Guarantees to Directors........................................ 42

Disclosure of Interest by Directors ......................................... 42

Dividends ...................................................................................... 42

Mergers ......................................................................................... 43

Buy-back of shares ..................................................................... 43

Audit Committee ......................................................................... 44

Producer Companies.................................................................. 44

Takeovers...................................................................................... 44

Corporate Governance .............................................................. 46

Winding Up ................................................................................... 47

BACKGROUND ............................................................................. 50

LEGISLATIVE PROVISIONS

CHAPTER 4 : HUMAN RESOURCES


Mandatory Employee Benefits................................................. 50

Workers' Compensation ............................................................ 54

Industrial Employment Act....................................................... 54

Industrial Disputes Act .............................................................. 54

Equal Remuneration Act ........................................................... 55

Contract Labour Act .................................................................. 55

Trade Unions Act......................................................................... 55

Health and Safety ....................................................................... 55

ENGAGEMENT OF FOREIGN NATIONALS.............................. 57

INTRODUCTION ........................................................................... 59

EXCHANGE CONTROL REGULATIONS

Introduction.................................................................................. 59

Investment in India by a person resident outside India..... 60

Prohibition on investments ...................................................... 61

INVESTMENT UNDER VARIOUS FOREIGN INVESTMENT SCHEMES

Automatic Route of FDI ............................................................. 62

Investments in Sectors where 100% FDI Under Automatic

Route is not available................................................................. 62

Certain Important Aspects of the FDI Scheme.................... 62

Foreign Portfolio Investments.................................................. 63

Investments by Foreign Institutional Investors (FII) ........... 63

Investments by Non Resident Indians (NRI) ......................... 64

Investments by Qualified Foreign Investors (QFI) ............... 65

Investments by Venture Capital Fund .................................... 66

CHAPTER 5 : FOREIGN INVESTMENT IN INDIA


Purchase of Other Securities by FIIs...................................... 67

Purchase of Other Securities by NRIs.................................... 67

Foreign Investment in Tier I and Tier II instruments

issued by banks in India............................................................. 67

Issue of rights / bonus shares to erstwhile

Overseas Corporate Bodies (OCBs) ........................................ 68

Additional allocation of rights shares by

resident to non-residents.......................................................... 68

Issue and acquisition of shares after merger or de-merger

or amalgamation of Indian companies .................................. 68

Issue of shares under Employee Stock Options Scheme to

persons resident outside India ................................................ 69

Transfer of Securities of Indian Companies by a Person

Resident Outside India............................................................... 69

Transfer of Securities of Indian Companies by a Person

Resident in India.......................................................................... 70

Conversion of ECB/Lumpsum Fees / Royalty /

Import of Capital Goods by SEZ into equity ......................... 71

Issue of shares by Indian companies ADR / GDR............... 72

Investment in firm or proprietary concern in India ............ 72

Establishment of Place of Business........................................ 72

EXTERNAL COMMERCIAL BORROWINGS (ECB)

Automatic Route ......................................................................... 75

Approval Route............................................................................ 78

Foreign currency Exchangeable Bonds ................................. 84

ECB under the erstwhile US$ 5 Million Scheme.................. 86

Trade Credits for imports into India ....................................... 86

Time period for realization of Export payments ................. 88

Time period for payments towards Import obligations ..... 88


EXCHANGE CONTROL REGULATIONS FOREIGN TECHNOLOGY

TRANSFER AND ROYALTY PAYMENTS.................................. 88

Sectors Prohibited for FDI ........................................................ 89

Sector specific guidelines for FDI ........................................... 89

INTRODUCTION ........................................................................... 105

INCOME TAX ON CORPORATIONS

General Structure and Scope................................................... 105

Rates of Tax.................................................................................. 105

Minimum Alternate Tax ............................................................. 106

Dividend Distribution Tax.......................................................... 106

Taxable Income............................................................................ 109

Tax Benefits / Reliefs ................................................................. 112

Transfer Pricing Regulations.................................................... 126

Relief for Tax losses.................................................................... 127

Returns and Payment of Taxes................................................ 128

General Anti-Avoidance Rule (GAAR)..................................... 129

INCOME TAX ON NON-CORPORATES

Residential Status....................................................................... 129

Rates of Tax.................................................................................. 130

Taxable Income............................................................................ 131

ANNEXURE 1

ANNEXURE 2

CHAPTER 6 : TAXATION SYSTEM

Gross Income ............................................................................... 131

Capital Gains Tax......................................................................... 132

Deductions and Reliefs .............................................................. 133

Clubbing of Minor's Income...................................................... 133

Relief for Tax losses.................................................................... 133

Returns and Payments of Taxes .............................................. 133

Presumptive Scheme for Small Businesses.......................... 134

SPECIAL PROVISIONS FOR COMPUTATION OF

TAXABLE INCOME OF NON-RESIDENTS

Non-residents engaged in Specified Business ..................... 134

Income of Non-resident Indians .............................................. 134

Income of Foreign Institutional Investors.............................. 135

Income of Offshore Funds......................................................... 136

WITHHOLDING TAXES ............................................................... 136

DOUBLE TAX TREATIES ............................................................ 137

OTHER ADMINISTRATIVE ASPECTS

Audit Reports............................................................................... 137

Assessment Procedure.............................................................. 138

Advance Rulings.......................................................................... 138

OTHER DIRECT TAXES

Securities Transaction Tax........................................................ 139

Wealth Tax .................................................................................... 140

Gift Tax .......................................................................................... 140

Estate Duty................................................................................... 140

Interest Tax................................................................................... 140



INDIRECT TAXES

Goods and Services Tax ('GST') ............................................... 140

Central Value Added Tax ('CENVAT') / Excise Duty ............ 141

Customs Duty............................................................................... 141

Service Tax ................................................................................... 141

DIRECT TAX CODE ('DTC')......................................................... 143

INTERNATIONAL FINANCIAL REPORTING

STANDARDS ('IFRS') .................................................................. 143

Double Taxation Avoidance Agreements ('DTAA') Rates... 144

Tax Deduction At Source ('TDS') Rates ................................. 151

Direct Taxes Compliance Calender ......................................... 153

ANNEXURE I

ANNEXURE II

ANNEXURE III

Chapter 1India - A Profile

Himalayan Glacier

DOING BUSINESS IN INDIA 1

1 INDIA - A PROFILE

1.0 PHYSICAL FEATURES

1.1 Geography

1.2 Climate

2.0 POPULATION AND SOCIAL PATTERNS

2.1 Population

thIndia is situated in the Southern peninsula of the Asian continent and is the 7 largest country in the world, in terms of size. It lies entirely in the northern hemisphere and extends from the snow-covered Himalayan mountain ranges in the north to the tropical rain forests of the south. India shares its borders with Afghanistan and Pakistan to the north-west, China, Bhutan and Nepal to the north, and Myanmar and Bangladesh to the east. Sri Lanka lies to the south of India and is separated from India by a narrow sea channel formed by the Palk Strait and the Gulf of Mannar.

India lies between latitudes 8°4' and 37°6' north and longitudes 68°7' and 97°25' east. It measures about 3,214 kilometers from north to south between its extreme latitudes and 2,933 kilometers from east to west between the extreme longitudes. India covers an area of 3,287,263 square kilometers and has a land frontier of 15,200 kilometers. India has a coastline of 7,516 kilometers.

The main land comprises of four regions: the mountain zone in the north, the plains of the Ganges and the Indus rivers, a small desert region in the west and the southern peninsula which consists of the Deccan plateau, mountains and coastal strips.

India's climate is mainly tropical monsoon type and is affected by two seasonal winds: the north-east monsoon and the south-west monsoon. A year in India can be conveniently divided into four seasons viz. the winter (January and February), the summer (March through May), the rainy south-western monsoon (June through September) and the post-monsoon period (October through December), which is known as the north-east monsoon period in the southern Peninsula.

As per the data published for 2011 census, India's population as on March 2011 was 1.21 billion (623 million males and 586 million females), making India the second most populated country in the world after China. The population comprises of 833 million rural and 377 million urban population. The population comprises of 300 million people in the middle class bracket, which is a major consumer class in India. The population growth rate was around 2.22% in the 1980s, which decreased marginally to 2.14% in 1990s and further decreased to 1.76% in 2001-2011.

2.2 Language

2.3 Religion

2.4 Education

3.0 GOVERNMENT AND POLITICAL SYSTEM

3.1 Government Structure

4.0 LEGISLATIVE AND LEGAL ENVIRONMENT

4.1 Legislation

India is a land of many languages and dialects. Hindi is the official language of the Indian Federation or the Union, while English is commonly used business language. English language is acceptable for all the legal, commercial and business documentation and communications.

More than 80% of India's population is Hindus and around 13% are Muslims. The other major religious communities are Christian, Sikh, Buddhist and Jain.

Data published for 2011 census revealed that 74.04% of the total population are literate and consisted of 82.14% men and 65.46% women.

The Indian federation or union is organized into 28 states and 7 union territories with a single and uniform citizenship and a single judiciary. The capital of India is the state of Delhi.

India is a sovereign, socialist, democratic and secular republic with a parliamentary system of government, which is based on the U.K. parliamentary system. The parliament is headed by the President and consists of two houses - the Lok Sabha (the house of the people) and the Rajya Sabha (the council of states). Although the President is the constitutional head of the government, the real executive power resides with the Council of Ministers, with the Prime Minister as its head. The Council of Ministers is collectively responsible to the Lok Sabha.

The Indian Constitution provides for the independence of other government bodies for certain key areas like the judiciary, the Comptroller and Auditor General, the Public Service Commissions and the Election Commission.

Indian Constitution divides the various responsibilities into three categories: the Union list, the State list and the Concurrent list. Parliament can make laws on subjects in the Union list and the state legislature on subjects in the State list. Both, the Parliament and the State legislature can make laws on the subjects included in the Concurrent list. This division helps in regulating the relations between the Union and the States.

DOING BUSINESS IN INDIA2

4.2 Legal Environment

5.0 INFRASTRUCTURE

5.1 Transport

The main sources of law in India are the Constitution statutes, customary laws and case laws. The country's constitution provides for a single integrated system of courts to administer both Union and state laws. The judiciary in India is separated from the executives.

At the apex of the entire judicial system is the Supreme Court of India, which consists of the Chief Justice and other judges. The Supreme Court has original, appellate and advisory jurisdiction and its decisions are binding on all courts within the territory of India. Each state (or two or more states together) has a High Court, a Chief Justice of the High Court and other judges who are appointed by the President in consultation with the Governor of the state. There is a hierarchy of subordinate courts under the various High Courts, which extend to the local courts, which decide civil and criminal disputes of petty and local nature.

Internal public transportation in India is fairly well developed. The country is extensively covered by rail and road networks. This surface transport network is fairly supplemented by airline routes connecting the major cities.

The Indian Railways, which is the largest public sector undertaking in India, is the backbone of the Indian Economy. It caters to both freight and passenger traffics and has a vast network of 7,133 stations (2010-11) spread over route length of about 64,460 kilometers (2010-11). It is the world's 4th largest railway network after those of the United States, Russia and China. Based on 2009 figures, the network is the third largest to be managed by a single operator.

India has a road network of over 3.30 million kilometers in 2011, making it one of the third largest road networks in the world. It carries over 60 percent of India's total freight and about 87 percent of passenger traffic.

India has about 14,500 kms of navigable waterways which comprise rivers, canals, backwaters, creeks, etc. Inland water transport has not grown appreciably in the country because of poor port or landing infrastructure. However, the industry is now growing and the government is ambitiously developing coastal shipping.

India has bilateral air services agreements with 107 countries. Air India is India's official national carrier operating across both domestic and international routes. Upon the liberalization of the economy, an open sky policy was announced which has resulted in a number of private air taxi companies operating on some of the major trunk routes. Some of the major private air transport companies, operating on domestic and international routes are Jet Airways, Indigo, Spicejet, etc.


5.2 Communication

5.3 Education

5.4 Medical Services

5.5 Housing

6.0 INTERNATIONAL RELATIONS AND ASSOCIATIONS

The Indian telephone, telex and facsimile services both within India and to international locations are fair. The number of telephone subscribers in India stood at 960.90 million at the end of March 2012, as per the TRAI estimates. The share of Urban subscribers was 65.23% whereas share of Rural Subscribers was 34.77%. The total number of internet connections in India exceeds 14 million and the broadband subscribers are about 13.79 million. The number of internet users is estimated to be around 121 million in India.

Apart from the above services, India has a fairly well-developed postal services department. In fact, India has the highest number of post offices in any country (approx. 155,000 post offices). Major international courier service companies are also well represented in India.

Apart from schools, which provide education in the local language, India has good day schools and boarding schools that offer a high standard of education in English. In addition, special expatriate schools provide education for American, French, German and Japanese children.

Scholarships are available under grants from the Ministry of External Affairs for foreign students from select countries for graduate and postgraduate courses in engineering, technology, management, medicine, pharmacy and general courses.

India has a fairly widespread and reasonably developed network of medical facilities. However, private enterprises and trusts operate a well-developed infrastructure of hospitals and polyclinics in major metropolitan areas and medium-sized towns.

Adequate housing is available in most of the major metropolitan areas and in large and medium-size towns. The rates tend to be higher in areas closer to the central business district and lower in the suburbs. Apartments and houses are usually available for outright purchase or on rental basis. Deposits equivalent to 10 or 15 times a month's rent are generally required in case of premises to be rented and varies from state to state.

India has entered into bilateral agreements with a number of countries and is a member of several international organizations, such as the United Nations, the Commonwealth, the GSTP, UNCTAD, WTO, GATT and G20. India has always taken initiatives to develop friendly relations with its neighbors and has adopted a policy of non-alignment to promote co-operation amongst all the nations. India has had an


active role in the Non-Aligned Movement and is also an active member of the South Asian Association for Regional Cooperation (SAARC). India is a member of Multilateral Investment Guarantee Agency (MIGA). MIGA serves as an insurer of investments made in member countries against stipulated political risks in the host country and also offers assistance in attracting new investment. India is currently seeking a permanent seat in the UN Security Council, along with the G4 nations.

Apart from the Indo-EC Joint Commission, India has separate bilateral commissions with Belgium, Cyprus, Finland, France, Germany, Italy, Netherlands, Spain, Sweden, Switzerland, Turkey and the United Kingdom.

The Indian monetary unit is the Rupee (Rs. or INR). The Indian central bank viz. Reserve Bank of India (RBI) is the sole authority for issuing currency in India. Currency converting agencies have a reasonably spread network across all major cities, tourist destinations and airports, where all leading currencies can be converted to Indian rupees and vice versa.

From March 1993, the government has permitted a floating exchange rate for the rupee, which is expressed in terms of the US dollar. The exchange rate for the rupee as on 9th October 2012 was US $ 1 = INR 52.37 and Euro 1 = INR 67.98.

Every foreigner entering India is required to possess a passport and visa. Visas (tourist, business or entry) are issued on application to the Indian High Commission. The visas normally expire in 6 months from the date of issue. If the visa allows more than one entry into the country, it must be used for the first time within 6 months from the issue date.

Indian Standard Time (IST) is five and one-half hours ahead of Greenwich Mean Time (GMT).

The normal working week in India is usually Monday through Friday (9.30 a.m. to 5.30 p.m.). However, there are many organizations, which also work half day on Saturdays or work on alternate Saturdays. Sunday is a public holiday. Banking hours are generally between 10 a.m. and 3.00 p.m. on weekdays and 10 a.m. to 1.00 p.m. on all Saturdays, though some of the banks are now offering 24 hours banking services. Internet banking and telephone banking is also offered by most of the leading banks.

7.0 CERTAIN KEY INFORMATION FOR VISITORS TO INDIA

7.1 Indian Currency

7.2 Visitors’ Visas

7.3 Indian Standard Time

7.4 Business Hours


7.5 Public Holidays

7.6 Tourism

7.8 Attire Code

The statutory public holidays vary from state to state and number around 20 in a year. Holidays in private sector organizations generally vary from 10 to 15.

There are various historic sites available to visitors. Hundreds of ancient temples and mosques as well as other monuments provide a view not only of India's past but also its cultural heritage and trade connections with the rest of the world.

There are several wildlife and game sanctuaries, winter sports facilities in the northern region and water sports facilities in beach towns. The states of Maharashtra, Goa, Kerala, Tamil-nadu and Orissa have attractive beaches, which are popular destinations of visiting foreign tourists. Some of the world's large hotel chains as well as leading time-sharing leisure resort groups have a presence in India.

In an effort to promote tourism in the country, both the Indian Railways and Air India offer round trip passes to tourists making payment in foreign currency.

Being a tropical country, clothing is often light, including formal office wear. Suits and jackets are common in the cities but are usually restricted to senior corporate executives.


Bombay Stock Exchange, Mumbai

Chapter 2Indian Business AndInvestment Environment

2 INDIAN BUSINESS ANDINVESTMENT ENVIRONMENT

1.0 FRAMEWORK

India adopted a mixed economy after independence in the year 1947, resulting in the public and private sectors' co-existence in industrial activity. In the past, the public sector had a dominant role in the economy. However, with the liberalization of the government policies and consequent opening up of the Indian economy in 1991, the trend is clearly towards a larger role for the private sector. The government has restricted fresh public investments to only strategic and sensitive infrastructure areas. The government is also divesting its equity in public sector enterprises outside these areas.

The majority of business in India has been controlled by state-owned corporations, business families and groups under multinational control. However, this dominance is getting eroded with the entry of technocrats and successful first-generation entrepreneurs. In many substantial private sector companies, the promoters hold a minority stake but are able to retain control because of the widely dispersed holdings. The public financial institutions hold large chunks of equity in many major Indian private sector companies, but their involvement in the management decisions is very limited and neutral. India also has a huge base of closely held small and medium sized businesses, which cater to the local and regional markets.

The Indian government earlier exercised considerable control over the private sector through licensing of the setting up of manufacturing capacities; approval procedures for importing foreign capital, technology, capital goods, and raw materials and allocation procedures for basic raw materials. However, the new policies launched in the 1990s and continued thereafter in the new millennium by the Government are dismantling many of the regulations and restrictions that have previously made business operations in India difficult. Now, the Government has initiated steps for introducing second-generation structural reforms to keep pace with the global environment of competition after removal of trade barriers as per the agreement entered into with World Trade Organization and correct various distortions in the economy. The emerging economic environment is more competitive, dynamic and inviting to foreign investment and technology. Recently, the Government of India significantly liberalized the foreign direct investment policy for crucial sectors including retail, airlines, banks, pharmaceuticals, construction, arms and ammunitions and certain areas of telecommunication.

The Indian rupee has been made fully convertible on the trade and current account and full convertibility on the capital account has been recommended. This full convertibility will allow free convertibility of Indian financial assets to foreign financial assets and vice versa at market determined rates. In order to create a suitable legal framework for the implementation of full convertibility on capital account and to liberalize the movement of foreign capital, a new law called the


Foreign Exchange Management Act (FEMA) has come into effect from 1 June 2000.

In 2012-13, India's Gross Domestic Product (GDP) is expected to grow at around 7% which is quite encouraging considering the overall scenario across rest of the globe. Despite the slowdown in the growth rate, on a cross country comparison India remains among the front runners which find support in the GDP growth rate projection made by World Economic Outlook, 2012. India was able to sustain a respectable growth rate and is expected to bounce back quickly, as fiscal consolidation gets back on track, resulting in a rise in savings and capital formation.

The Inflation as measured by the Wholesale Price Index (WPI) for the year 2011-12 started with a headline inflation of 9.7%, which briefly touched double digits in September 2011 before declining to 7.55% in August 2012.

The major contributory factors to headline inflation during the current financial year include (a) higher primary articles prices driven by vegetables, eggs, meat, and fish due to changing dietary pattern of consumers; (b) increasing global commodity

prices especially metal and chemical prices which ultimately led to higher domestic manufactured prices; and (c) persistently high international crude petroleum prices in the last 2 years. In financial year 2010-11, foreign exchange reserves had increased by US$ 25.7 billion from US$ 279.1 billion at end March 2010 to US$ 304.8 billion at end March 2011. In 2011-12, the reserves increased to US$ 294.3 billion at end March 2012 and has remained constant at US $ 294.8 billion at the end of September 28, 2012.

The total exports for 2011-12 increased by 21% to US$ 304 billion. The total imports for 2011-12 were about US$ 489 billion wherein the growth in imports was 32%.

There has been a sharp decline in the Rupee exchange rates during 2011-12, wherein the currency depreciated by over 21% against the US$. The rupee's annual average exchange rate was forecasted at INR 50.7 to a dollar for the 2012 calendar year against 46.7 in 2011. However, the rupee has stagnated in the latter period and the exchange rate as on 10 October 2012 was INR 53.04 against 1 US$.

2.0 ECONOMIC TRENDS

7.8

8.2

8.5

6.9

4.14.1

3.8

3.3

2.7

1.9 1.71.3 2.2

1.21.1

0.9

0.90.2

-0.4

0.4

0.1

1.1

-0.4

China

Growth projection in real GDP World Economic Outlook, 2012

Latest report focused on higher-income nationsGrowth projections (%) 2012 2013 2017

India Brazil S. Africa Russia US UK France Euro Garmany Japan

2.1

2.2

3.8

3.73.0

2.6

4.0

1.5

6.0

4.0

1800

1600

1400

1200

1000

800

600

400

200

02008-09

GDP (US$ Billion)

2009-10 2010-11 2011-12


The fiscal deficit during the period 2011-12 was 5.9% of the GDP and for the 2012-13, the Budget forecasts the deficit to be 5.1%.

Indian stock markets experienced a downturn after having experienced a long spell of growth between 2005 to early 2008 which was directly attributable to the international crisis resulting in an immediate effect of withdrawal of FII investments. In 2009 the market was in a recovery mode and in 2010 it consolidated. It was expected in 2011 that prices will reflect the performance of the corporate sector and would respond less to the external shocks. The Bombay Stock Exchange benchmark index Sensex closed at 19,445.22 on 31st March 2011. However due to the economic scenario in view of Euro crisis the Sensex reached a 52 week low of 15,135.86 on 20 December 2011. Adding to this the retrospective tax amendments and the introduction of General Anti Avoidance Rules; introduced in the Finance Budget 2012 further dampened investors interest. The retrospective amendments are being revisited and a report in this context has been tabled by the Shome Committee, which proposes postponement and relaxation in these regulations. Nevertheless, the Sensex marginally regained some lost ground and closed on 30th March 2012 at 17,404.20. The Government of India has taken significantly bold steps to revive investor confidence and regain the momentum of growth. The policy measures announced for FDI in retail, insurance, airlines have seen renewed investor confidence taking the Benchmark Sensex to 18,670 as on 10th October 2012.

Although India was primarily an agricultural country, the service sector is rapidly increasing its share in the economy. The share of agriculture and allied sectors in GDP has declined gradually from 14.5% in 2010-11 to 13.9% in 2011-12. Whereas, the share of industry has remained the same at about 27%, the entire decline in share of agriculture has been balanced by an increase in share of the services sector showing upward trend from 57.7% to 59%.

The Indian Regulatory policy is driven by 3 objectives: to promote competition, to protect consumers and investors from restrictive and unfair trade practices, and to maintain the ecological balance and protect the environment. The major governing statutes for trading, commercial and industrial enterprises in the country are the Foreign Exchange Management Act, 1999 (FEMA); the Companies Act, 1956; Competition Act, 2002, Securities and Exchange Board of India Act, 1992 (SEBI) Regulations for Listed Companies and the Banking Regulation Act, 1949, which governs the operations of banks including foreign banks. Since, the FEMA regulates foreign investment in India; it has the greatest effect on foreign companies operating in India as well as the foreign investors investing into India through portfolio investment routes.

The legal framework for protecting the interests of investors is provided by the Companies Act, 1956 and the Securities Contracts (Regulation) Act, 1956. In order to

3.0 ECONOMIC SECTORS

4.0 REGULATORY ENVIRONMENT

4.1 Investor Protection


protect the interests of investors in the securities market and to develop the capital market, SEBI was established as the regulating authority. SEBI was constituted as a statutory body under the SEBI Act, with effect from 30 January 1992 to monitor the activities of stock exchanges, merchant bankers, mutual funds, brokers and other intermediaries involved in capital markets.

SEBI controls the securities market through its detailed guidelines issued to all the participants in the securities market. SEBI regulations have rendered insider trading a punishable offence in specified circumstances. The guidelines governing takeovers, public issues, capital adequacy requirements, disclosure norms, etc. are being increasingly streamlined. All applications for share issues must be vetted by SEBI to ensure that the offer documents disclose the required information. SEBI has also issued guidelines for disclosure and investor protection, monitoring the work of merchant bankers, grading of prospectus, responsibilities of lead managers, number of lead managers in every issue, etc.

Investors having grievances have the option of either applying to the Monopolies and Restrictive Trade Practices Commission or writing to the SEBI Investor Grievance Cell and informing the concerned stock exchange. They can also file complaints with various authorities under the Consumer Protection Act, 1986.

Prices of certain essential consumption goods, raw materials and intermediate products are directly regulated by the government. The government amended the Monopolies and Restrictive Trade Practices Act ('MRTP') in 1991 to increase protection for consumers. Further, the MRTP Act was scrapped and has been replaced by the Competition Act, 2002. In addition, the Consumer Protection Act, 1986 created quasi-judicial mechanisms at the district, state and national levels to settle consumer grievances. There is, however, a distinct trend towards reduction in pricing and distribution controls, and the government's policy is to do away with administered prices as far as possible. At present, the new free market has transferred economic power to the more aware and demanding consumer.

India being one of the signatories to Trade Related Aspects of Intellectual Property Rights (TRIPS) under the General Agreement on Tariffs and Trade (GATT) under the World Trade Organization (WTO) it has to comply with the provisions of TRIPS which aims to rationalize the laws of Intellectual Property Rights of all member countries which includes Trademarks, Patents, Industrial Designs, Copyrights, Geographical Indications, etc. In view of the above, India has amended its Intellectual Property Laws (IPR) namely, Trade Marks Act, Industrial Designs Act, Copyrights Act and Patents Act in line with TRIPS Agreement.

The Trade Marks Act 1999 allows registration of marks not only used in connection with goods but also in respect of marks in relation to services. Trademarks once

4.2 Price Controls

4.3 Registration of Intellectual Property

4.3.1 Trademarks


registered will be valid for a period of 10 years and the same can be renewed for successive periods of 10 years thereafter. Registration of trademarks confers on the registered proprietor of the trade mark the exclusive right to use the trademark in relation to its goods / services in respect of which the trademark is registered and to obtain relief in respect of infringement of the trademark by others. Infringement of trademarks is a cognizable and non-bailable offence. However, all infringement of trademarks are not treated as cognizable and non-bailable offence.

The Patents Act, 1970 as amended by the Patents (Amendment) Act, 2002 and Patent (Amendment) Act, 2005 provides for the grant of a patent for any “invention”. Invention means a new product or process involving an inventive step and capable of industrial application. Inventive step means a feature that makes the invention not obvious to a person skilled in the art. Protection under the Patents Act is available for a period of 20 years for every patent.

There is no distinction between Indian nationals and foreign nationals concerning the right to obtain patents. Every international application under the Patents Corporation Treaty for a patent, designating India shall be deemed to be an application under the Patents Act, 1970, provided a corresponding application is filed before the Controller in India. The government has the power to acquire patents for a public purpose. In the said event, the act preserves the patent holder's right to be compensated adequately.

After expiry of 3 years from the date of grant of the patent, any person may make a request for grant of license to work on the patented invention by making an application to the Controller of Patents alleging that reasonable requirements of the public with respect to the patented invention have not been satisfied or the patented invention is not available to the public at a reasonable price.

With a view to fulfill the requirements of any treaty, convention or arrangement between India and any other country, the Patents Act allows the Indian government to declare a country as a “convention country”. India has entered into bilateral arrangements with Canada, Ireland, Australia, New Zealand, Sri Lanka and the United Kingdom to accord their citizens' priority in respect of grant of patents and the protection of patent rights and on reciprocal basis similar privileges to Indian Citizens.

In line with TRIPS, the Patents Act, 1970 has been amended by Patent (Amendment) Act, 2002 and Patent (Amendment) Act, 2005. The Amendment provides the period of patent in all cases shall be for a term of 20 years instead of 14 years and 7 years.

The Designs Act, 2000 protects all features of shapes, configurations, patterns or ornaments in a design that appeal to the eye in the finished article. Registration of a design with the Controller General of Patents and Designs confers on the registered proprietor a right to take action against third parties if the design is used

4.3.2 Patents

4.3.3 Designs


fraudulently. The Act provides protection to a registered design for 10 years at first instance which can be further renewed for a period of 5 years (altogether for maximum 15 years) and thereafter it becomes public property.

Copyrights vest in authors on the creation of their works and require no registration. If registered, however, registration provides prima facie evidence of a copyright's validity. Copyright is regulated as per the provisions of The Copyright Act, 1957.

Copyrights subsist in the following classes of work:ØOriginal literary, dramatic, musical and artistic worksØCinematograph filmsØSound recordingØPhotographs.

Copyright also subsists in computer programs (which are defined as “programs recorded on any disc, tape, perforated media or other information storage device that is fed into or located in a computer or computer-based equipment capable of reproducing any information”).

The Copyrights Act, 1957 provides for copyright enforcement. A person whose copyright is infringed may sue for civil relief such as an injunction and damages, and may institute criminal proceedings for infringement in certain cases.

The Central Government by order may direct that all or any provisions of this Act shall apply to works of other countries. This means that any person who enjoys a copyright in one of the convention countries automatically enjoys a statutory protected copyright in India.

The newly enacted Competition Act, 2002, has constituted the Competition Commission of India ('CCI') which is empowered to ensure free and fair competition in the market. The Competition Act aims at preventing practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interest of consumers and to ensure freedom of trade carried on by the other participants in the markets in India. The main purposes of the Competition Act are (a) Prohibition of anti-competitive agreements, (b) Prohibition of abuse of dominant position, and (c) Regulation of combinations.

All proposed industrial units have to obtain environmental clearance from the relevant air and water pollution control boards, which operate under the Ministry of Environment and Forests.

4.3.4 Copyrights

4.4 Competition Policy

4.5 Environmental Regulation


5.0 FINANCIAL SECTOR

5.1 Banking System

5.1.1 Reserve Bank of India (RBI)

5.1.2 Commercial Banks

India has a vast network of about 89,622 bank branches that held deposits of about INR 35,127 billion as on 8 June 2012.

The Indian central bank is the Reserve Bank of India (RBI) and its primary function is to act as the banker and financial adviser to the government, securing monetary stability and to operate the currency and credit system in the country. It is the sole authority for the issue of bank notes and the supervisory body for all banking operations in the country. Its other functions include formulation and implementation of the monetary policy, regulating the money flow in the economy and acting as the custodian of India's foreign exchange reserves. It undertakes consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies.

The Banking Sector in India can be divided into Commercial Banks and Co-operative banks. The commercial banks may be classified into the following 4 categories:

ØPublic Sector BanksØPrivate sector BanksØRegional Rural Banks andØForeign Banks

The commercial banks transact all types of commercial banking business. They are also allowed to set up (with the prior approval of the RBI) subsidiaries to engage in non-banking finance activities viz. merchant banking, equipment leasing etc. The Commercial banks, apart from providing working capital facilities for various sectors of the economy, also provide capital market advisory services, foreign exchange services, investment consultancy and personal banking services.

Regional Rural Banks: The regional rural banks are set up to increase the flow of credit to smaller borrowers in the rural areas. They may be said to be special purpose banks catering primarily to the rural agricultural sector.

Foreign Banks: Most of the major banks from major countries are represented in India through branches, network offices, and representative office or agency arrangements. Foreign banks offer a variety of services including foreign-currency loan syndication, foreign exchange risk management and other innovative financial products. As per the RBI records 41 foreign banks operate through 323 branches in the major cities of India and 46 foreign banks operate through representative offices in India.

Private Sector Banks: Private sector banks have gained a strong foothold in the Indian banking scenario in the last decade. The private banks in India offer a wide


gamut of banking and financial services.

There are numbers of specialized financial institutions in India at the national as well as the state level. India has an integrated structure of financial institutions known as All India Financial Institutions (AFIs), which provide term finance and other assistance to industries. Some of the most important financial institutions, which play a very instrumental role in India's development, are the Industrial Development Bank of India (IDBI), the Industrial Finance Corporation of India (IFCI) and the Industrial Reconstruction Bank of India (IRBI).

India also has other financial institutions, which are set up for specific purposes. These include the National Bank for Agricultural and Rural Development (NABARD), the Shipping Credit Corporation of India, the National Housing Bank and the Discount and Finance House of India, which is a specialized institution to develop an active secondary market for money market instruments.

The Non Banking Finance Companies (NBFCs) form an integral part of the Indian financial system. They have to conform to the overall framework of the monetary and credit policy of the government. The government has permitted foreign direct investment in NBFCs in merchant banking, underwriting, portfolio management services, investment advisory services, financial consultancy, stock broking, asset management, venture capital, custodial services, factoring, credit rating agencies, leasing and finance(exclusively for finance leases and not operating leases) and housing finance. Foreign direct investment in the NBFC sector is put on automatic route subject to compliance with guidelines to be issued by Reserve Bank of India.

The primary legislation that deals with insurance business in India is Insurance Act, 1938 and Insurance Regulatory & Development Authority (IRDA) Act, 1999. The Government of India has opened up the sector to private participation in recent past. Details of permissible foreign investment in this sector are discussed separately. There are more than 20 companies in life insurance business including government corporation i.e. Life Insurance Corporation of India and almost equal number of companies in non-life insurance business including government corporation i.e. General Insurance Corporation of India.

The Financial Markets in India comprises of the Capital Market and the Money Market. The Capital market deals in finances of long term nature whereas money market deals in finances of short term nature.

The Indian capital market is very well-developed, and it is a very important source of finance to both public and private sector companies. The major developments in the

5.1.3 Specialized Financial Institutions

5.1.4 Non-Banking Finance Companies

5.2 Insurance Sector

5.3 Financial Markets



capital market include the following:

ØThe Securities and Exchange Board of India (SEBI) was empowered to oversee the operations of the exchanges, regulate the capital market and protect investors.

ØTrading introduced in derivative based on index and in stock options of the certain companies satisfying certain parameters.

ØTrading in listed company on stock exchanges in dematerialized form has been made mandatory to reduce the settlement cycle to 2 days.

ØThe interest rates on convertible and non-convertible debentures are allowed to be market determined.

ØFree-market pricing of share issues has increased activity on the stock exchanges.

ØThe concepts of book building and market making have been introduced.

ØUnder the Portfolio Investment Scheme, the RBI has permitted investment in shares and debentures of Indian companies by Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs).

ØVarious tax incentives have been offered to encourage foreign institutional investment.

ØThe government plans to offer upto 49% equity of many public sector companies to private investors.

ØA new takeover code has been introduced to protect the interests of the small investors and to strengthen the regulatory framework of takeovers.

ØDomestic shares are allowed to be reconverted to American Depository Receipt/ Global Depository Receipt.

ØThe Government of India (GOI) vide its press release dated January 1, 2012 has conveyed its decision to open up the Indian equity market to a wide range of foreign investors termed as Qualified Foreign Investor (QFI).

India currently has around 24.5 million investors and 23 recognized stock exchanges. The National Securities Depository Limited (NSDL) holds over 12.26 million demat accounts. It alone handles $1.22 trillion worth of assets in these accounts. The Central Depository Services Ltd (CDSL) has nearly 8 million accounts and handles over US$ 174 billion worth of assets.

The stock exchanges deal in securities issued by the central and state governments, public sector companies and public limited companies. Most activities on the stock exchanges occur in corporate securities. Gilt-edged securities consisting of securities issued by the central, state and other government bodies are also listed on recognized stock exchanges. Bombay Stock Exchange and National Stock

5.4 Stock Exchanges


Exchange account for more than 97% of the total turnover.

Foreign Institutional Investors and Qualified Foreign Investors are permitted to also invest in corporate and government debt subject to overall investment limits.SEBI is the regulatory authority for all the stock exchanges. In order to facilitate stock exchange transactions, India has been modernizing the operations of its stock exchanges by introducing screen based trading. The trading on stock exchange has been made mandatory in dematerialized form for all scrip commencing from April 2002.

SEBI has also laid down eligibility criteria for setting up dedicated stock exchanges for the Small and Medium Enterprises (SME) sector. Apart from fulfilling other criteria, the exchange should have a balance sheet net-worth of atleast INR 1000 million (about US$ 18.18 million).

Bombay Stock Exchange (BSE) is India's premier stock exchange. It lists over 5000 companies. BSE has trading terminals in about 417 cities. The market capitalization of the Bombay Stock Exchange in June 2012 was US$ 1.10 trillion. BSE introduced trading in derivative based on BSE Sensex from 9 June, 2000 and trading in stock options of certain companies from 9 July 2001.

National Stock Exchange (NSE) started operations in 1994 with a view to facilitating transparent trading. The NSE provides nation-wide trading facilities to investors through established network linkages in about 1500 cities and towns nationwide. The NSE has over 1646 listed companies as on June 2012 with a market capitalization of US$ 1.079 trillion) and average daily volume of INR 45 billion (US$ 1.03 billion). The NSE is India's primary exchange for wholesale debt segment. NSE introduced trading in derivative based on Nifty Index from 12 June 2000 and trading in stock options of certain companies from 2 July 2001.

MCX Stock Exchange Limited (MCX-SX), India's new stock exchange, commenced operations in the Currency Derivatives (CD) segment on October 7, 2008 under the regulatory framework of SEBI and RBI. The Exchange is recognised by SEBI under Section 4 of Securities Contracts (Regulation) Act, 1956. In line with global best practices and regulatory requirements, clearing and settlement is conducted through a separate clearing corporation, MCX-SX Clearing Corporation Ltd. (MCX-SX CCL). MCX-SX received permissions to deal in Interest Rate Derivatives, Equity, Futures & Options on Equity and Wholesale Debt Segment, vide SEBI's letter dated July 10, 2012.

There is no statutory requirement for public limited companies in India to have their shares listed on a recognized stock exchange. However, the companies have to be

5.4.1 Bombay Stock Exchange

5.4.2 National Stock Exchange

5.4.3 MCX Stock Exchange

5.4.4 Listing Requirements


listed if their shares or debentures are offered to the public for subscription by prospectus. Companies have to fulfill the stock exchange requirements in order to have their shares listed. In case the company does not satisfy the prescribed conditions of the stock exchange and is not admitted to the exchange, it has to refund the amounts paid by subscribers.

Most of the specialized investment institutions in India are in the public sector. These include the Unit Trust of India, the Life Insurance Corporation of India, General Insurance Corporation, mutual funds set up by subsidiaries of the State Bank of India and other nationalized banks and other financial institutions.

Mutual funds play a significant role in the capital market. They are established in the form of trusts under the Indian Trusts Act and are operated by separate asset management companies. The mutual fund market was dominated by public sector financial institutions and public sector banks till 1993, when the government opened up the sector to private participation. Notably, less than 10% of Indian households have invested in mutual funds, despite these instruments being available in the market for over two decades now with assets under management upto September 2012 equaling INR 7473.38 billion, (US$ 135.87 billion) (Source: Association of Mutual Funds, India). Mutual Funds are now permitted to make investment in short term as well as long term foreign debt securities with highest foreign currency credit rating by accredited / registered credit rating agencies in the countries with fully convertible currencies including government securities of the countries having AAA rating.

The credit rating agencies rate corporate debt and equity securities such as debentures, shares and commercial paper. They also rate the credit risk of companies, a factor often used by nationalized banks in evaluating loan applications. Credit ratings have become all the more necessary because it has become mandatory for companies to obtain a credit rating before issuing convertible and non-convertible debentures. The Credit Rating Information Services of India Limited (CRISIL), the first credit rating agency in India was established in January 1988 and the Investment Information and Credit Rating Agency of India (ICRA) was established in March 1991. Credit Analysis and Research Ltd. (CARE) is another leading credit rating agency and was set up in November 1993.

New and existing businesses established in specified backward areas of the country

5.5 Investment Institutions

5.6 Mutual Funds

5.7 Credit Rating Agencies

6.0 INCENTIVES FOR INDUSTRIES

6.1 Concessional Finance


are able to obtain finance for major expansion plans at below normal interest rates. Other benefits may include low commitment fees and extended repayment periods.

Industrial undertakings located in specified backward areas, which are largely the same as those where concessional finance is available, are eligible for a Central Government subsidy towards the cost of land, buildings, machinery and equipment.

In keeping with a federal structure, many State Governments operate their own incentive programmes to attract industrial investments. Details of incentive packages often vary from one state to another but would broadly include subsidized power, availability of low-cost land, assistance in feasibility studies, tax breaks and exemptions/ deferment of specific duties.

Exporters are eligible for a number of special incentives.

Duty Drawback: Exporters are entitled to drawback import duties and excise duties paid by them on material inputs of products exported at specified rates, depending upon the type of product exported.

Freight Concessions: Freight rate reductions and priority wagon booking facilities are made available on the railways for transport of raw material for export production and finished products for export.

Export Credit Guarantee: This guarantee is provided by the Export Credit Guarantee Corporation at low rates of premium to banks and other financial institutions to enable exporters to obtain better credit facilities.

Advance Licences: These are issued to exporters for import of raw materials for manufacture of finished products, without payment of custom duties. Duty free import of capital goods may also be permitted if the product to be manufactured is for export.

Special Import Licences: These licences for items in the negative list of imports are made available to specified categories of exporters.

Royalty Payment: There is no restriction on the payment of royalty from India and can be remitted without any approval of government or Reserve Bank of India. In addition, a commission on exports can also be paid to agents outside India subject to limits.

Special Incentives: These are available to units set up in Special Economic Zones (SEZs), Export Processing Zones (EPZs) and 100% Export Oriented Units (EOUs). While EOUs can be set up anywhere in the country, there are designated SEZs and EPZs which provide internationally competitive duty free environment for low cost

6.2 Central Government Investment Subsidy

6.3 State Government Incentives

7.0 INCENTIVES FOR EXPORTS


export production through basic infrastructure facilities like: developed land, standard design factory buildings, roads, power, water supply, drainage, customs clearance and telecommunications. Presently, these units are eligible to credit 100% of their eligible export receipts of foreign exchange to their Exchange Earners' Foreign Currency (EEFC) account. These tax incentives are discussed in details in chapter on Taxation System.

EOUs/EPZs have to achieve specified value addition norms. Apart from tax holidays, EOUs/EPZs can import capital goods and industrial inputs free of custom duty and are exempt from payment of Central and State sales tax. Supplies by domestic tariff area units to EOUs/EPZs are regarded as deemed exports and are exempt from excise duty.

Special Economic Zones: To create stimulating infrastructure facilities of international standards in export production, Special Economic Zones (SEZ) can now be set up in the private, public, joint sector or by state governments. Certain EPZ have now be been converted into SEZ. Units in SEZ have comparably better incentives from units in EPZ.

Energy is an essential input for economic development and improving the quality of life. The primary source of commercial energy in India is coal, which provides about 63% of India's commercial requirements. Nuclear and solar energy are developing, but still have a long way to go to be truly accepted in India as a major energy provider.

The government has announced various policies with the intention of reducing the protection of domestic industry. These policies included substantial reduction in import licensing, de-canalization of imports and exports, and lowering of tariffs. However, international trade has not been completely freed with the primary aim of avoiding a drain of foreign exchange reserves and to discourage the importing of non-essential and luxury items.

Major commodities exported from India are gems, jewellery, ready-made garments,

machinery, tools, transportation equipment, manufactured metal goods, electronics, software, cotton, leather, drugs, iron ore, marine products and tea. India's exports amounted to US $ 303.7billion during the financial year 2011-12. India's imports in the 2011-12 financial year were US $ 488.6 billion.

The government as well as the industry conducts their activities in English, India has

8.0 ENERGY, MINERALS AND OTHER NATURAL RESOURCES

9.0 FOREIGN TRADE

10.0 OTHER FACTORS

10.1 Language


the second largest English speaking population after the United States.

India has one of the largest pool of trained, scientific and technical manpower in the world. This manpower is available very cheap when compared to the manpower costs prevailing in developed countries.

Research and development costs in India are generally very low when compared to the costs that would be incurred in any major industrialized countries. In the present scenario, it is possible for the foreign companies to establish 100% foreign-owned research and development (R&D) companies in India, and import the laboratory equipments and other facilities required for R&D. To encourage R&D across all sectors of the economy, the Finance Act 2010 introduced by the Finance Ministry of the Government of India increased weighted deduction on expenditure incurred on approved in-house R&D from 150% to 200%. Further, the Finance Act 2012 extended the period of such deduction upto 31 March 2017.

Repatriation of capital or dividends for investments made in India is freely allowed. The fiscal deficit which was at 5.9% during the period 2011-12 is expected to reduce to 5.3% of the GDP during 2012-13. Foreign exchange reserves of India which were about US $ 304 billion on 31 March 2011 has remained constant at a reduced level of US$ 294.8 billion as on 28 September 2012.

India is a member of the convention of the Multilateral Investment Guarantee Agency, which provides insurance to foreign investors against political risks.

10.2 Trained Manpower

10.3 Low Research and Development Costs

10.4 Financial Reliability

Rajabai Tower, Mumbai

Chapter 3Business Entities

3 BUSINESS ENTITIES

1.0 FORMS OF BUSINESS ENTITIES

1.1 Companies

1.2 Regulations

The principal forms of business organizations in India, apart from government organizations and sole proprietorship firms are:ØCompanies - public and privateØ Branches of Foreign CompaniesØ Liaison/Project offices of foreign companiesØ PartnershipsØ TrustsØ Limited Liability Partnerships (LLP)

At present, the legislative provisions governing companies are contained in the Companies Act, 1956. Companies in India are broadly classified into public sector companies' viz. with predominant government shareholding and private sector companies' viz. with predominant private shareholding. Private sector companies may further be classified as public limited companies or private limited companies. Companies can also be classified into companies limited by shares, companies limited by guarantee and unlimited liability companies. However, for business purposes, generally companies limited by shares are used and consequently, the discussion regarding companies in this guide is pertaining to such companies. The shares of public companies may or may not be listed on stock exchanges in India. (e.g. NSE, BSE, etc.) The regulatory provisions for private limited companies are less stringent than those relating to public limited companies. Public limited companies whose shares are listed on stock exchanges are subject to the regulations of SEBI and the respective stock exchanges. Private companies that are subsidiaries of public companies (i.e. where shareholding of Public companies is more than 50%) are however treated at par with public companies.Shares of public limited companies are freely transferable, whereas it is subject to restrictions in case of private limited companies. However, transfer of shares to non-residents is regulated by Foreign Exchange Management Act, 1999.The system of depository has been introduced by the Depositories Act, 1996 and Securities Exchange Board of India (Depository & Participants) Regulations, 1996 which has smoothened the transfer of shares in case of listed companies.

The financial reporting environment in India is strictly regulated by the government, through various regulators and government agencies. There are a large number of mandatory compliances, the failure of which can lead to penalties and other more severe consequences.

The Indian legal system is constituted by a framework of various laws and enactments based on Common Law and include the following acts that contain


provisions and guidelines for the primary functioning of companies in India:

ØCompanies Act 1956; ØChartered Accountants Act 1949; ØReserve Bank of India Act 1934; ØIncome Tax Act 1961; ØSecurities and Exchange Board of India Act 1992; Ø Securities Contract (Regulation) Act 1956; ØBanking Regulation Act 1949; ØInsurance Act 1938.

The various regulators that influence financial reporting in India include:

ØMinistry of Corporate Affairs (Regulator for all corporate enterprises);ØSecurities and Exchange Board of India or SEBI (Regulator for all listed

companies);ØReserve Bank of India or RBI (Regulator for all Banking and Finance

entities);ØInsurance Regulatory and Development Authority or IRDA (Regulator for

all Insurance companies);ØInstitute of Chartered Accountants of India or ICAI (Regulator for

Chartered Accountants and auditors).

Foreign companies engaged in manufacturing and trading activities abroad have been allowed to set up branch offices in India. Permission for setting up branch offices is granted by RBI/FIPB on a case-to-case basis. Application for permission to set up branches is to be made with the Authorized Dealer Category –I bank (AD) along with the requisite documents, which would then be submitted with the RBI along with recommendations and suggestions of the AD. The essential parameters considered by RBI on such an application is the worldwide operating history of the foreign company, proposed activities in India, profit making track record of the foreign company in the home country and its net worth. The additional criteria to be satisfied for eligibility regarding track record and net worth are as under:

* Net worth includes total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name.

Foreign companies engaged in manufacturing and trading activities abroad have been allowed to open branch offices to carry on the following activities in India:I. To export / import goods.

1.3 Branches of Foreign Companies (Branch Office)


Sr. Criteria RequirementsNo.

1 Track Record A Profit making track record during the immediately preceding five financial years in the home country of the foreign company proposing to establish BO.

2 Net Worth* Not less than US $ 100,000 or its equivalent

ii. To render professional or consultancy services.iii. To carry out research work, in which the parent company is engaged.iv. To promote technical or financial collaborations between Indian

companies and parent or overseas group company.v. To represent the parent company in India and acting as buying / selling

agent in India.vi. To render services in Information Technology and development of

software in India.vii. To render technical support to the products supplied by parent / group

companies.viii. To act as branch of a foreign airline / shipping company.

A Branch office is not allowed to carry out manufacturing or processing activities in India, directly or indirectly. For establishing additional branches or undertaking additional activities, permission is required to be obtained. Foreign Companies are required to furnish certain specified information and comply with provisions of the Companies Act, 1956 on establishing a place of business in India.

One of the preferred routes for foreign companies to enter the Indian markets is setting up a liaison / representative office. Permission to set up such offices is granted for an initial period of 3 years, which may be extended from time to time.

The essential parameters considered by RBI on such an application is the worldwide operating history of the foreign company, proposed activities in India, profit making track record of the foreign company in the home country and its net worth. The additional criteria to be satisfied for eligibility regarding track record and net worth are as under:

* Net worth includes total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name.Application for grant of approval is to be made with the Authorized Dealer Category –I bank (AD) which would then forward it to the RBI along with suggestions and the requisite documents. RBI may grant approval for setting up a liaison office on receipt of such an application.

Foreign companies are permitted to establish an office or to post a representative in India for carrying on liaison activities, subject to the following conditions:

1.4 Liaison / Representative Offices


Sr. Criteria RequirementsNo.

1 Track Record A Profit making track record during the immediately preceding three financial years in the home country of the foreign company proposing to establish LO.

2 Net Worth* Not less than US$ 50,000 or its equivalent

No Commission or fee is charged or any other remuneration received by the Indian office of the foreign company for its liaison activities in India.Except for the liaison work, the office does not undertake any activity of a trading, commercial or industrial nature without the prior permission of the Reserve Bank of India.All expenses of the Indian office are met exclusively by remittances from abroad through normal banking channels.No borrowing or lending of any money from / to any person in India without the prior permission of RBI.The Indian office submits an annual statement to the AD and a copy to the Directorate General of Income Tax (International Taxation), New Delhi, giving details of remittances received from abroad, supported by bank certificates, together with a copy of the final accounts of the Indian office certified by a Chartered Accountant.The office in India will not have any signing / commitment powers except than those which are required for normal functioning of the office, on behalf of the head office.

Liaison offices are permitted to carry out the following activities in India:

To represent the parent company / group companies in India.To promote export / import from / to India.To promote technical / financial collaborations between parent / group companies and companies in India.To act as a communication channel between the parent company and Indian companies.

Foreign companies having only liaison offices and not engaged in any trading, manufacturing or other commercial activity in India, have to furnish certain mandatory information to the Registrar of Companies in India.

Foreign companies planning to execute specific projects in India can set up temporary project /site offices in India for such purpose. The standard conditions imposed for operating such offices are:

ØThe foreign company has secured from an Indian company a contract to execute a project in India.

ØThe project is funded by inward remittance from abroad; orØThe project is funded by a bilateral or multilateral International Finance

Agency; or ØThe project has been cleared by an appropriate authority; orØA company or entity in India awarding the contract has been granted Term

Loan by a Public Financial Institution or bank in India for the project.ØThe foreign company shall furnish a report to the concerned Regional

Office of the RBI under whose jurisdiction the project office is set up comprising the following details:

Name and address of the Foreign Company;Particulars of authority awarding the projects/contract;

Ø

Ø

Ø

Ø

Ø

Ø

ØØØ

Ø

1.5 Project Office

··


Total amount of contract;Address and tenure of Project Office;Nature of Project Undertaken.

Foreign companies having only project office and not engaged in any trading, manufacturing or other commercial activity in India, have to furnish certain mandatory information to the Registrar of Companies in India.

Partnerships are established by a partnership deed, which is registered with the Registrar of Firms. The Indian Partnership Act, 1932 lays down provisions regarding rights and obligations of partners, retirement and admission of partners, dissolution of firm and related aspects.Indian laws prohibit partnerships of more than 20 persons from carrying on any business and partnerships of more than 10 persons for carrying on the business of banking.

Trusts are generally established in India for business of mutual fund and for charitable, religious and other non-profitable purposes. There are special provisions relating to taxation of mutual funds and charitable trusts which provide for tax exemption under specified circumstances.

The concept of LLP is not old to India and the Limited Liability Partnership Act, 2008 has permitted setting up of LLPs with effect from 1 April 2009.

Some of the salient features of an LLP are as under:

ØLLP is a body corporate having a separate legal entity distinct from its members.

ØLLP has a perpetual succession and any change in partners of LLP will not affect the existence, rights or liabilities of the LLP.

ØAny individual, body corporate including foreign companies, LLP (including a foreign LLP) can be a partner in LLP.

ØLLP shall have at least two partners two designated partners who are individuals and at least one of them shall be resident in India.

ØIf all the partners of any LLP are a body corporate or LLP, they shall nominate their respective individuals to act as designated partners, of whom at least one shall be resident in India.

ØDesignated Partner's are liable for compliance under the Act and in the event of non-compliance will be liable for the penalties.

ØIn an LLP, there is no upper limit on maximum number of partners unlike an ordinary partnership firm where the maximum number of partners cannot exceed 20.

ØEvery partner of LLP is the agent of the LLP for the purpose of the

···

··

1.6 Partnerships

1.7 Trusts

1.8 Limited Liability Partnerships (LLPs)


business of the LLP, but not of other partners.ØEvery designated partner shall obtain a Designated Partner Identification

Number (DPIN) which is similar to Director Identification Number (DIN) as provided under the Companies Act, 1956.

ØAn obligation of the LLP whether arising in contract or otherwise, shall be solely the obligation of the LLP. The liabilities of the LLP shall be met out of the property of the LLP.

ØWhile the LLP is a separate legal entity, liable to the full extent of its assets, however, the liability of the partners is limited to their agreed contribution in the LLP which may be of tangible or intangible nature or of both tangible and intangible in nature.

ØNo partner is liable on account of the independent or unauthorized actions of other partners, thus, allowing individual partners to be shielded from joint liability created by another partner's wrongful business decisions or misconduct.

ØRegistering authority of LLP is the Registrar of Companies under the Companies Act, 1956.

ØThe name of an LLP must end with the words "limited liability partnership" or the acronym "LLP".

ØThe mutual rights and duties of partners of an LLP inter se and those of LLP and its partners shall be governed by an agreement between the partners or between LLP and the partners subject to the provisions of the proposed legislation. In the absence of any such agreement, the same shall be governed by Schedule I to the Act.

ØThe right of a partner to share profits and losses of the LLP are transferable either wholly or in part. The transfer in such a way shall not cause the disassociation of the partner or the dissolution and winding up of the LLP. Further, the transfer of right does not, by itself, entitle the transferee or assignee to participate in the management or conduct of the activities of the LLP or access information concerning the transactions of the LLP.

ØThe provisions of the Indian Partnership Act 1932 shall not apply to LLPs. ØOther entities such as firms, private companies and unlisted public

companies can get themselves converted into LLPs. However, an LLP cannot be converted into any other form of business entity. Upon conversion, all property of firm or company shall be transferred to and shall vest in the LLP and the firm or the company shall be deemed to be dissolved and removed from the records of the Registrar of firms or Registrar of Companies as the case may be.

ØThe payment of remuneration and interest to partners is deductible if conditions which are stipulated under the Limited Liability Partnership Act and Income Tax Act are satisfied.

ØLLPs shall be obliged to maintain annual accounts, file a statement of accounts and solvency and annual return with the Registrar of Companies every year and all these documents shall be open for public inspection at the office of the Registrar of Companies.

ØAudit of LLP is mandatory only if annual turnover exceeds INR 6 million or gross receipts exceed INR 1.5 million. From Financial Year 2012-13, the Finance Act 2012 has increased the annual turnover limit of INR 6 million


to INR 10 million and the limit of gross receipts from INR 1.5 million to INR 2.5 million.The financial year of an LLP has to compulsorily end at 31 March.

ØThe Central Government has the powers to investigate the affairs of an LLP.

ØLLP shall by its name, have the power of suing and being sued. ØLLP can acquire, own, hold, develop or dispose of property both movable

and immovable.ØThe winding up of LLP may be either voluntary or by the Tribunal to be

established under the Companies Act, 1956. Till the tribunal is established, the power in this regard shall vest with High Court.

ØCompromise or arrangement including merger and amalgamation can be made between LLP and it creditors and LLP and its partners and between LLPs.

ØForeign LLPs can establish a place of business in India and carry on their business by registering under the Act.

ØForeign Direct Investment is allowed in LLPs under the government approval route, in those sectors where 100% FDI is allowed, through automatic route, and there are no FDI-linked performance related conditions.

ØSome of the basic taxation aspects applicable to an LLP includes:

The steps involved in the incorporation of a company include availing a suitable name for the company, determining the location of the registered office of the company, determining the authorised share capital, drafting the Memorandum of Association and Articles of Association and thereafter submitting the necessary documents and returns to the Registrar of Companies (ROC). The Ministry of Corporate Affairs has introduced MCA-21 e-Governance programme with a view to providing all services relating to ROC offices on-line in e-Governance mode. Accordingly all filings with the ROC including compliances with respect to Incorporation of a Company have to be done electronically duly authenticated by digital signatures of the authorized persons.

A minimum of seven subscribers are required for incorporation of a public limited company (two in case of a private limited company). The procedure of incorporation

Ø

·The applicable tax rates would be 30.9%·Minimum Alternate Tax (MAT) provisions are not applicable in case of

LLPs, however they are subject to Alternate Minimum tax (AMT) of 19.055%

·No Dividend Distribution Tax (currently at an effective rate of 16.2225%) on profits distributed to the partners of LLP

·Remuneration receivable by partners of LLP will be taxed in the hands of the partners as “Income from Business & Profession”.

·The benefits of presumptive taxation are not applicable in case of LLPs.

2.0 SETTING UP A COMPANY

2.1 Incorporation of a Company


generally takes 4-6 weeks.

All documents pertaining to incorporation of a company having foreign individuals / foreign companies residing outside India as shareholders shall be certified by an official of the Government to whose custody the original is committed and be duly apostiled / notarized in accordance with Hague Convention.

Companies Act, 1956 governs the operations of a corporate enterprise. First step in incorporation of a company is to seek approval for the proposed name from the Registrar of Companies ('ROC') of the State/Union Territory, in which the registered office of the company is proposed to be situated. The promoters of the company have to apply to the ROC for availability of the proposed name of the company. The approval is granted subject to conditions namely; the name should not be ambiguous or similar to an existing company, etc. Further, the words 'Limited' and 'Private Limited' should form the last part of the name of a public or private company respectively. The compliances regarding application of name is to be made electronically through the portal of the ministry of corporate affairs (www.mca.gov.in).

The documents that are to be filed with the ROC for the purposes of incorporation of a company include, along with other forms, the Memorandum of Association ('MOA') and Articles of Association ('AOA'). After obtaining approval, the Memorandum and Articles of Association of the proposed company are filed with the Registrar of Companies for registration. On registration, a Certificate of Incorporation is issued which is conclusive evidence of the company having been incorporated. It usually takes 4–6 weeks to incorporate a company in India.

There is an office of the Registrar of Companies in each Indian State and in some cases, for a group of adjoining States. A company needs to be registered only once with the Registrar in the State based on the location of its registered office and can then do business all across the country.

The MOA sets out the constitution of the company. The MOA of every company should state the following:

ØThe name of the company with 'Limited' as the last word of the name in the case of a public company and with 'Private Limited' as the last words of the name in the case of a private company;

ØThe State in which the registered office of the company is situated;ØThe main objects to be pursued by the company on its incorporation along

with objects incidental or ancillary to attainment of the main objects;ØOther objects of the company;ØThe liability of its members,ØThe authorised share capital (i.e. the amount of share capital with which

the company is to be registered) and division thereof into shares of a fixed amount.

2.1.1 APPROVAL OF NAME

2.1.2 Memorandum of Association (MOA)


The minimum paid-up capital.

The objects clause is generally comprehensive in nature but the same can be amended by a special resolution of the shareholders.

There should be at least seven (7) subscribers to the MOA in case of a public company and at least two (2) subscribers to the MOA in case of a private company.

The AOA contain the rules and regulations for managing the internal affairs of the company and achieving the objects set out in the MOA. This document is subordinate to the MOA.

The AOA sets out the internal rules of the company. They contain provisions relating to share capital, the rights of members, procedure for the conduct of various general meetings of members, rights of members at general meetings, constitution of the Board of Directors, powers of Board and other similar matters regarding internal regulations of a company. A company need not register its own individual articles, but may adopt the model articles provided under the Companies Act, 1956. It is essential for a private company to have its own AOA, whereas there is no such essential requirement for a public company. If a public company does not register its AOA, the standard model of AOA as provided in the Companies Act, 1956 applies.

Draft copies of the memorandum, articles and prospectus should be submitted to the stock exchange for approval in case the company wishes to list its shares by offering the same to the members of the public.

The costs for formation of company includes drafting and printing of the MOA and AOA, stamp duty and company registration fee which is linked to the quantum of authorized capital.

Registration fee is calculated on a specified scale based on the company's authorized share capital. The minimum fee of INR 4,800 (about US$ 91) applies to companies with authorized share capital upto INR 100,000 (about US$ 1885). The maximum amount of registration fee payable is INR 20 million (about US$ 377074). Stamp duty is payable on the basis of authorized share capital which varies from state to state. (1 US$ = INR 53.04)

The Registrar of Companies on being satisfied that all the requirements pertaining to incorporation have been met and the objectives of the company being considered are lawful, issues the Certificate of Incorporation. The Company thereafter comes into existence as a legal person distinct from its members. A private limited company can commence business upon obtaining the Certificate of Incorporation. A public limited company on the other hand has to further obtain a Certificate of Commencement of Business from the Registrar after filing the prospectus / statement in lieu of prospectus before commencing business or

Ø

2.1.3 Articles of Association (AOA)

2.1.4 Registration Fees and Stamp Duty

2.1.5 Certificate of Incorporation


exercise any borrowing powers.

Where a company has issued a prospectus inviting the public to subscribe to its shares, the company cannot commence business until the amount of minimum subscription stated therein has been received.

The minimum paid-up capital required for a private limited company is INR 100,000 (about US$ 1885) and for a public limited company is INR 500,000 (about US$ 9427). The minimum paid up equity capital for a public limited company to get its shares listed on the stock exchange is INR 100 million (about US$ 1.89 million), and at least 25% of the issued capital must be offered to the public for subscription. 10% of the issued capital can be offered to the public for subscription in case the size of the offer to the public is INR 1 billion (about US$ 18.85 million) or more and the offer is through book building method. However, the minimum equity capital is much lesser for listing on the Over the Counter Exchange of India. For listing on the BSE and NSE, the minimum paid up equity capital should be INR 100 million and the market capitalization of the applicant's equity shall not be less than INR 250 million (about US$ 4.71 million) provided however that the paid up equity capital can be less than INR 100 million (about US$ 1.89 million), if the market capitalization of the applicant's equity is not less than INR 1 billion (about US$ 18.85 million). However, in any case the paid up equity capital of the company shall not be less than INR 50 million (about US$ 0.94 million). A public limited company cannot make any allotment of shares unless a minimum subscription of 90% of the issue amount has been subscribed. For continuation of listing all listed companies should have non-promoter holding to the extent of 10% of the post issue capital (for an existing company which had in the past offered shares to the extent of 10% pursuant to the relevant regulations) or 25% for a new company.

A public limited company is allowed to have only two classes of share capital equity and preference shares.

2.3.1 Equity shares are further divided into shares with

Øvoting rightsØwith different rights as to dividend, voting or otherwise as per the rules

prescribed.

As per the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001, only such companies fulfilling certain basic criteria are allowed to issue shares with differential voting rights viz., three year track record of distributable profits, non default inter alia in respect of filing of accounts, annual returns, repayment of deposits, redemption of debentures, payment of dividend. Approval of the shareholders for issuing such shares should be obtained at a General Body Meeting of the shareholders and in case of listed companies through system of postal ballot. Such shares, however, can be issued to the extent of 25% of the company's total issued share capital only. So far as private limited company is concerned, there is no

2.2 Initial Capital Requirements

2.3 Kinds of Shares


restriction on issue of shares of only two kinds as mentioned above and also there is no restriction of issue of shares with disproportionate rights.

2.3.2 Preference shares, which carry a pre-determined coupon rate for payment of dividend each year can be of different types i.e. Cumulative, Non-cumulative, Convertible and Non-convertible. Only redeemable preference shares can be issued and the maximum period within which shares should be redeemed should not exceed twenty years. Preference shareholders have voting rights only under certain given conditions like non-payment of dividends:

Øin case of cumulative Preference shares, for an aggregate period of not less than two years and

Øin case of non-cumulative Preference shares, either for a period of two years immediately preceding the commencement of meeting of the shareholders or for an aggregate period of not less than three years.

On winding up, preference shareholders receive first priority for repayment of capital, with the equity shareholders being entitled to the remaining surplus, if any.

2.3.3 A company may issue shares at a premium, which can be utilized only for specified purposes provided under the Companies Act, 1956.

A company may issue shares at a discount i.e. price less than the par value of shares, subject to the approval of the members of the general body meeting and approval of Company Law Board.

Companies may also issue debentures. A debenture is an acknowledgement of debt given under the common seal of the company. They are normally secured by a charge on the company's assets, bearing a fixed rate of interest and are redeemable at a future date. Debentures may be wholly or partially convertible into shares at a stated date. The money raised through debentures forms a part of company's capital structure though it does not form part of the company's share capital.

Public limited listed companies are allowed to issue debentures as per the guidelines framed by SEBI. SEBI now permits companies to issue convertible or non-convertible debentures. Every listed Company desirous of issuance of debentures must list all debentures with the stock exchange irrespective of the mode of issuance i.e. whether issued on private placement basis or through public/rights issue, and it shall be done through a separate Listing Agreement on Debentures. Some of the important conditions are compulsory credit rating, appointment of Trustees and creation of Debenture Redemption Reserve. Debentures issued by unlisted companies also need to be secured. Listed Companies are now permitted to make a combined offering of Non Convertible Debentures with warrants.

Acceptance of deposits from the public is another major source of raising funds. The Government in consultation with RBI has prescribed the upper limits, the manner

2.4 Debentures

2.5 Public Deposits


and the conditions subject to which, deposits may be invited or accepted by a company from the public/ members of that company. Only a Public Limited Company can raise such public deposits. However, limits are prescribed for acceptance of deposits by companies as 10% from shareholders and/or 25% from public of the aggregate of the Company's paid-up capital and free reserves for Public Companies and 35% of the aggregate of its paid-up capital and free reserves for Government Companies.

A company primarily acts through two (2) agencies, a general body of shareholders and the Board of Directors. The Board of Directors is a managerial body and its accountability to shareholders must be assured.

The requirements for public and private companies are as follows:Particulars Public Private

Minimum numbers of subscribers/shareholders/members 7 2Maximum number of subscribers/shareholders/members No limit 50Minimum number of directors 3 2

Therefore even if a foreign company wants to incorporate its 100% subsidiary in India, it will need one other shareholder, which could be another foreign body corporate or foreign resident individual or a Indian resident individual, who would hold at least one share, as a nominee of the foreign company or in his own name. The third option is for the second shareholder to be an Indian resident or Foreign resident individual who could hold one share jointly with the foreign company in order to satisfy the requirement of a minimum of two shareholders. The first arrangement is, however, preferable in case of private companies in order to retain the character of the Indian company as a “pure” private company.

Directors are responsible for management of the day to day affairs of the company. Unless otherwise required by the company's articles, directors need not be shareholders. The directors should meet periodically by convening Board Meetings. There should be at least one board meeting in each quarter and four board meetings in a year. Decisions taken are resolved by passing appropriate Board Resolutions. The directors can pass resolution by circulation in certain circumstances without holding a Board Meeting. In case of every public company (and a private company, which is a subsidiary of a public company) at least two-thirds (2/3) of the total number of directors are liable to retire by rotation (one-third of such directors shall retire at every AGM). The remaining one-third (1/3) directors (non-rotational) may be appointed as provided in the company's AOA.

In the case of a private company, which is not a subsidiary of a public company, the appointment of directors may be as per the procedure specified in its AOA. Where the AOA do not provide otherwise, the directors are to be appointed in a General meeting. The provisions relating to rotational retirement of directors do not apply in case of a private company, which is not a subsidiary of a public company.A person cannot be a director in more than 15 public limited companies. Alternate

2.6 Directors


directorships, directorships in private companies which are neither subsidiaries nor holding companies of a public company and directorships in unlimited liability companies are not considered for the above purpose. Every public limited company should have at least 3 directors, but not more than 12 (unless it has received approval of the Ministry of Corporate Affairs). On other hand, a private limited company must have at least 2 directors. An alternate director may be appointed by the Board of Directors when a director is expected to remain outside the state in which meetings of the Board are ordinarily held for a continuous period of three months.Directors can be appointed by the shareholders in the annual general meeting, by the board of directors and also by the central government. Directors may also be nominated by financial institutions and debenture holders where terms of grant of loan or issue of debentures so provide.

Small shareholders i.e. shareholders holding shares of nominal value of INR 20,000 (about US$ 377) or less may elect a director to represent the interest of small shareholders.The day to day management of the company resides with the board of directors, although some of the specified matters require approval of the shareholders.

Only individuals can be appointed as a Director of a company. Every individual intending to be appointed as a Director of a company or who is already being appointed as a Director of a company before the commencement of the Companies (Amendment) Act, 2006, must obtain Director Identification Number (DIN) from Ministry of Corporate Affairs, Government of India. Every existing Director to whom DIN has been allotted, shall intimate the DIN within one month from the date of its receipt to the company(s) where he is Director. Every company shall in-turn intimate the DIN to Registrar of Companies with one week of the receipt of intimation from the Director.

The company is managed by the Board of Directors who may delegate any of its powers, except where any transaction requires approval of the Board of Directors under the Companies Act, to any director or managing director. Only individual can be appointed as a Director of a company.

Every public limited company and a private limited company, which is a subsidiary of a public limited company having paid-up capital of INR 50 million (about US$ 0.94 million) or more, must have a managing or whole time director or a manager. Appointment and compensation of a managing director do not require approval of the Department of Corporate Affairs if the appointment is made within the guidelines and subject to the remuneration ceiling prescribed. In case of public limited companies, certain limits have been specified for maximum remuneration that can be paid to managing or whole time directors. The total remuneration to all directors shall not exceed 11% of the net profits of the company. There are no restrictions on the appointment and remuneration of managing directors or whole time directors or managers of private limited companies.

2.7 Managing Director


2.8 Secretary

3.0. STATUTORY REQUIREMENTS FOR COMPANIES

3.1 Annual Reports

Every company with paid-up capital of INR 50 million (about US$ 0.94 million) or more must have a full time secretary who should be a member of the Institute of Company Secretaries of India (ICSI), who is responsible for the compliance of company law, SEBI regulations and other allied laws. The companies which are not required to have wholetime secretary and are having paid up capital of INR 1 million or more (about US$ 18,854) and above and less than INR 50 million should file with the Registrar of Companies a certificate from a secretary in whole time practice as to whether the company has complied with all provisions of the Companies Act, 1956.

All corporate entities in India irrespective of their size are required to prepare and file audited financial statements in accordance with Accounting Standards (“AS”) issued by the Institute of Chartered Accountants of India (“ICAI”) and their governing statute which may include:

ØCompanies Act for all incorporated entities;ØReserve Bank of India (RBI) Guidelines and Prudential Norms, and the

Banking Regulation Act, for banking companies;ØThe Insurance Act and the Insurance Regulatory and Development

Authority Act for insurance companies;ØElectricity Acts for power companies, etc.ØListing Agreement entered between the listed Companies and Stock

Exchange with which they are listed.

A set of financial statements in India generally includes:

Øbalance sheet;Øprofit and loss account;Øcash flow statement;Øexplanatory notes to the financial statements and supplementary

schedules.

Financial statements do not, however, include such items as reports by directors, statements by the chairman, discussion and analysis by management and similar items that may be included in a financial or annual report, which all form part of overall financial reporting.

Financial Statements should be presented to the shareholders for their approval in annual general meeting. The board of directors' report should also include a Directors Responsibility Statement. Directors' Responsibility Statement basically aims at highlighting the accountability of Directors in good corporate governance. The financial statements of a holding company should also include a copy of the financial statements of its subsidiary company and a statement showing the holding company's interest in the subsidiary. Listed public limited companies should


circulate the cash flow statements along with annual financial statements among its members.

Every company is required to get its accounts audited under the Companies Act, 1956. The auditor should be a member of the Institute of Chartered Accountants of India (ICAI) holding a Certificate of Practice. There are mandatory audit requirements under certain other laws as well. In case of certain specified industries, in addition to the regular audits, an audit of cost accounts is required by a qualified cost accountant who is a member of the Institute of Cost & Works Accountants of India (ICWAI) holding a certificate of practice.

Every company must hold an Annual General Meeting (AGM). The time limit between two AGMs should not exceed 15 months. The matters considered at an AGM (which are known as ordinary business) normally include:

ØThe consideration of the accounts, balance sheet and the reports of the Board of Directors and auditor.

ØThe declaration of dividend.ØThe appointment of directors in place of those retiring by rotation.ØThe appointment of and the fixing of the remuneration of the auditor.

Any other business in the AGM or in case of any other meetings is referred to as special business. Every member entitled to vote at the AGM must receive a written notice of the meeting at least 21 days in advance. (A private company may prescribe shorter time frame for notice period as per its Articles).

The AGM should be held on or before the earliest of the three relevant dates as prescribed under:

Ø6 months from the closure of the financial year;Ø15 months from the previous AGM;Ø last day of the next calendar year.

The date of the profit and loss account should not precede 6 months from the date of the meeting, however, in the case of first accounts this period of 6 months can extend to 9 months.

In addition to the statutory meeting (to be held within six months of commencement of business by a public limited company only) and the AGM, the Companies Act also provides for extraordinary general meetings (EGMs). The board of directors may call EGMs at their discretion. The directors must call an EGM, however, on a request from members with at least 10% of the voting rights.A simple majority of votes carries an ordinary resolution but special resolutions must be supported by the votes of at least 75% of the members voting. Special resolutions are generally those with constitutional significance for the company such as, a resolution to alter the memorandum of association or articles of association or the registration of a

3.2 Audit Requirements

3.3 Shareholders Meetings


private company as a public company or vice versa and reduction of share capital.

Ministry of Corporate Affairs (MCA) has vide Notification dated 10/02/2006 amended the Companies (Central Government) General Rules and Forms, 1956, wherein all the forms and returns as mentioned in the notification are required to filed electronically through internet with Registrar of Companies (ROC).

Director Identification Number (DIN) is a unique identification number for an existing director or a person intending to become the director of a proposed company. In the scenario of e-filing, obtaining DIN for every director is a pre-requisite for filing certain company related documents.

A Digital Signature is the electronic signature duly issued by the Certifying Authority that shows the authenticity of the person signing the same. Every user i.e. Director or Authorised Representative of a Foreign Company who is required to sign an e-Form for submission with MCA (i.e. through internet) requires a Digital Signature Certificate.

Every company must file its annual accounts with the Registrar of Companies ('ROC') within 60 days from the date of the annual general meeting. (which is required to be held within 6 months of the financial year end and once in every year) containing the following:

ØDirector’s report;ØAuditor’s report;ØFinancial statements.

Further in addition, listed companies are also required to send copies of the annual report, cash flow report, unaudited quarterly results to the stock exchange also.

Filing of applications, documents, inspections etc. through electronic form

Any applications, balance sheet, prospectus, annual returns, forms, declarations, memorandum or articles of associations, particulars of charges, notices or any communications, intimations, as may be required to be filed or delivered under the Companies Act or any rules made thereunder shall be filed through electronic form and authenticated in such manner as may be specified in the rules. Registrar shall maintain all the applications, documents filed under this Act in the electronic form and registered or authenticated in such manner as may be specified in the rules. Inspection of these documents can be made by any person through electronic form. All fees, charges or other sums shall be paid though the electronic form. Registrar shall register these documents filed or delivered under this Act or rules made

3.4 Online Filing System

3.4.1 Directors Identification Number (DIN)

3.4.2 Digital Signature Certificate (DSC)

3.5 Filing of Documents / Returns


thereunder and issue such certificates or perform duties or discharge functions or exercise power under this act or rules made thereunder.

3.6 Penalties for non compliance under the Companies Act, 1956


PenaltyNature of defaultSection

11 C o n t r a v e n t i o n o f t h e p rov i s i o n s re l a t i n g to formation of associations and partnerships exceeding certain number

Every member is liable for penalty which may extend to INR 10,000

77A C o n t r a v e n t i o n o f t h e p rov i s i o n s re l a t i n g to purchase of own securities

The company or every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years or with fine which may extend to INR 50,000 or with both

80 Contravention of provisions related to issue of redeemable preference

The company and every officer of the company who is in default shall be punishable with fine which may extend to INR 10,000

84 Issue of share certificate with fraudulent intention

The company shall be punishable with fine which may extend to INR 10,000 and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with a fine which may extend to INR 100,000 or with both

142 Not getting registered the charge created on the assets of the company

The company and every officer of the company or other person who is in default shall be punishable with fine which may extend to INR 5,000 for every day during which default continues

150 Failure to maintain register of member in the prescribed manner

The company and every officer of the company who is in default shall be punishable with fine which may extend to INR 500 for every day during which the default continues

162 Failure to file annual return within prescribed time in accordance with section 159

The company and every officer of the company who is in default shall be punishable with fine which may extend to INR 500 for every day during which the default continues


168 Default in holding Annual G e n e r a l M e e t i n g i n accordance with section 166

The company and every officer of the company who is in default shall be punishable with fine which may extend to INR 50,000 and in case of a continuing default with a further fine which may extend to INR 2,500 for every day during which default continues


211 Fai lure to prepare the f inancial statements in a c c o r d a n c e w i t h t h e requirements of Sch VI

The person who was responsible for the compliance shall be punishable with imprisonment for a term which may extend to six months or with fine which may extend to INR 10,000 or with both

212 Failure to include prescribed particulars of the subsidiaries company along with the financial statements of the parent company


217 Failure to prepare or attach directors report in the prescribed manner


188 Default in circulating any resolution that a member want to put at general meetings

Every officer of the company who is in default shall be punishable with fine which may extend to INR 50,000

205A If the unpaid dividend is not transferred to special account within the prescribed time

The company and every officer of the company who is in default shall be punishable with fine which may extend to INR 5,000 for every day during which the failure continues

209 Failure to maintain books of account in the prescribed manner


210 Failure to lay accounts before annual general meetings



233B Failure to get cost accounts audited

The company shall be liable to be punished with fine which may extend to INR 5000 and every officer of the company who is in default shall be l i a b l e t o b e p u n i s h e d w i t h imprisonment for a term which may extend to three years or with fine which may extend to INR 50,000 or with both

266A Failure to make application for a l l o t m e n t o f D i r e c t o r Identification Number.

Punishment may extend to INR 5,000 and where contravention is continuing further fine of INR 5,000 for every day a f te r t h e f i rs t d u r i n g w h i c h contravention continues.

266C Obtaining more than one D i re c to r I d e n t i f i ca t i o n Number by same individual



266D Failure to intimate Director Identification Number to concerned Companies


266E Failure to intimate Director Identification Number to Registrar of Companies


295 Loan, etc, to director in contravention of section 295

Every person who is knowingly a party to the contravention shal l be punishable either with fine which may extend to INR 50,000 or with simple imprisonment for a term which may extend to six months

372A Inter-corporate loans and investments exceeding the limit prescribed

The company and every officer of the company who is in default shall be punishable with imprisonment which may extend to two years or with fine which may extend to INR 50,000

4.0 SIGNIFICANT COMPANY LAW REGULATIONS

4.1 Loans and Guarantees to Companies

4.2 Loans and Guarantees to Directors

4.3 Disclosure of Interest by Directors

4.4 Dividends

The Directors of Public Companies can make investment, give loan and guarantees to other body corporates upto 60% of its paid up capital and free reserves or 100% of its free reserves whichever is higher. If the above limit is exceeded then the approval of the shareholders at a general body meeting by way of special resolution is required. In case any term loan taken from any financial institution is outstanding and there is a default in repayment of loan installments in that event for making investment, giving loan and guarantees prior approval of the financial institution should be obtained. The above restrictions are however not applicable to insurance companies, banking companies, financial institutions, investment in subsidiary companies and private companies.

No public company can without the prior approval of the Department of Corporate Affairs give any loan to, or any guarantee or provide any security in connection with a loan made by any other person to or to any other person by a director of the lending company or its holding company, his relatives and associated enterprises.

Every director of the company who is any way directly or indirectly concerned or interested in a contract or proposed contract to be entered into by or on behalf of the company should disclose his concern or interest at a meeting of the Board of Directors.

A general notice at a meeting of the Board at the end of each financial year stating that he is a director or a member of such body corporate and as such is deemed to be interested in case of any contract which may be entered into by the company after the date of the said notice is also a sufficient disclosure of interest.

A company must pay dividends only out of its undistributed profits after providing for depreciation on fixed assets and after minimum transfers to reserves, in the manner prescribed in the Companies Act, 1956 and in rules applicable to the declaration of dividends. The Board of directors recommends the declaration of dividend based on which the shareholders decide the rate of dividends to be declared. A tax of 16.2225% is payable on the amount of profits to be distributed as dividends in addition to the corporate tax by the company. Simultaneously, dividends have been exempted from tax in the hands of the recipients. The dividends declared must be paid within 30 days of the general meeting and the unpaid amount, if any, needs to be transferred to a separate bank account.


4.5 Mergers

4.6 Buy-Back of Shares

The trend towards globalization has increased the intensity of mergers, in a bid to create more focused, competitive, viable large players in each industry. The recent liberalization of the earlier state controlled, sluggish Indian economy has made mergers necessary and acceptable.

basic regulations covering mergers are governed by the Companies Act, 1956 while the procedural aspects are covered by the Company Court Rules, 1959.

In India, most mergers involve the transfer of undertaking of an existing company or several existing companies to another existing company of which all the members of the transferor company or companies become or have the right to become the members and the subsequent dissolution of the transferor company or companies. However, it is also possible to effect amalgamations by transfer of undertaking of two or more existing companies to a new company formed to takeover the same, of which all the members of the transferor companies become or have the right to become members and the subsequent dissolution of the transferor companies. The merger is effected only after obtaining confirmation from the shareholders, creditors, and the High Courts of the respective states of the companies. The power of sanctioning mergers has been transferred from the High Court to the National Company Law Tribunal (NCLT). NCLT will be an exclusive body dealing in matters pertaining to mergers, liquidation, rehabilitation of sick companies and other corporate matters previously handled by the Company Law Board. However, NCLT is yet to be constituted and on its constitution it will be in a position to dispose of matters pertaining to corporate restructuring, in a far more efficient manner in comparison to High Courts, since it will be an exclusive body dealing with the said matters.

Further, the Listing Agreement has been amended in order to safeguard the interest of the shareholders, whereby the listed company as well as unlisted company which are getting merged shall be required to appoint independent merchant bankers for giving a fairness opinion on the valuation done by valuers for the company and unlisted company.

The Companies can buy-back their own shares or other specified securities from their free reserves, share premium account or proceeds of any issue made specifically for buy-back purpose upto a limit of 25% of the total paid up capital and free reserves. However, the buy-back of equity shares in any financial year shall not exceed 25% of its total paid-up equity capital and free reserves in that financial year. The buy-back of shares should be authorized by a special resolution passed in general meeting of the company. In case the buy-back is or less than 10% of the total paid up equity capital and free reserves then the buy-back can be by means of a resolution of the Board of Directors. In case of listed companies, the buy back is regulated by the regulations framed by Securities Exchange Board of India (SEBI), through SEBI (Buy-Back of Securities) Regulations, 1998 which provides for detailed and stringent disclosure norms. In case of unlisted companies, the buy-


back is regulated by Department of Company Affairs through Private Limited Company and Unlisted Public Limited Company (Buy-Back of Securities) Rules, 1999. The said rules, similar to the SEBI Rules provide for detailed disclosure norms.

For better corporate governance constitution of an audit committee in case public companies (listed and unlisted) having paid-up capital of not less than INR 50 million (US$ 0.94 million) has been prescribed. Audit Committee should consist of not less than three directors and such number of other directors as the Board may determine. Two-thirds of the total number of the members of the committee should be directors, other than managing or whole-time director. The recommendations of the Audit Committee on any matter relating to financial management including the audit report, are binding on the Board of Directors. In case the Board of Directors do not accept the recommendation of the Audit Committee, it shall record the reasons thereof and communicate such reasons to the shareholders.

A new concept has been introduced in the Companies Act, 1956 enabling incorporation of co-operative societies as producer companies and conversion of existing cooperatives into companies, on optional basis.

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 popularly known as the Takeover code, contains the guidance to be followed by the acquirers of controlling stakes in a listed company.

SEBI in its Board Meeting held on 28 July 2011, approved certain recommendations of Takeover Regulation Advisory Committee (TRAC). Accordingly, the new SEBI (Substantial Acquisition Of Shares and Takeover) Regulations, 2011 have been notified vide Notification F.NO. LAD - NRO/GN/2011- 12/24/30181, dated 23 September 2011.

Key provisions of SAST 2011 are summarized below:

Increase in Minimum Takeover Threshold Limit from 15% to 25%

ØNo acquirer, either himself or with 'person acting in concert' (PAC) shall acquire shares or voting rights in a target company which (along with already held shares and voting rights by them) entitle them to exercise 25% or more of the voting rights in such target company unless the acquirer makes a public announcement of an open offer of such acquisition.

ØAn acquirer and PAC, having more than 25% and upto 75% of voting rights in the target company, shall not acquire more than 5% of additional voting rights in the target company in one financial year, unless the acquirer makes a public announcement of such open offer for the proposed acquisition.

4.7 Audit Committees

4.8 Producer Companies

4.9 Takeovers


ØFurther, the requirement of open offer applies to individual shareholding threshold, irrespective of whether the combined shareholding (i.e. acquirer and PAC together) exceeds the stipulated threshold limit.

ØThe person holding 25% of the voting power would be in a position to stall a special resolution at shareholders' meeting or by postal ballot.

Increase in Minimum Offer Size from 20% to 26%

ØThe open offer made by the acquirer and PAC shall be for a minimum 26% of the total shares of the target company as of tenth working day from the closure of the tendering period. Upon completion of open offer, the acquirer along with PAC becomes entitled to 51% shareholding.

ØThe acquirer along with PAC holding majority shares would be in a superior position by which any shareholders' resolution by simple majority can be passed with his consent alone.

Scope of Indirect Acquisition Widened

ØWhile considering indirect acquisition, new parameters such as 80% of net asset value, 80% of sales turnover or 80% of market capitalization has been prescribed. Any indirect acquisition which would result in Target Company forming part of 80% of any of the three criteria of the acquirer would trigger an open offer irrespective of the effective shareholding. This is over and above the shareholding criteria.

Voluntary Open Offer Introduced

ØAn acquirer can make a voluntary open offer without triggering the open offer regulations of atleast 10% subject to meeting eligibility criteria by the acquirer.

Change in Pricing of Open Offer

ØNew volume weighted average price and volume weighted average market price is introduced to make open offer price more reflective of trading in the shares. The pricing formula of 2 weeks high and low is replaced by 60 trading days volume weighted average market price. Similar formula with certain modifications is introduced for indirect acquisition.

Dispensing With the Provision for Non-Compete Fees

ØAs per the new regulations, any price paid for acquiring the shares / voting rights / control in the target company would qualify as offer price. This would mean that price for open offer would go up as non-compete fee would also form part of consideration paid by acquirers to acquire triggering shareholding.

ØAlso, it has now been mandatory for the Board of Directors of the target company to recommend the open offer.



Other Amendments

ØOnce the acquirer's shareholding exceeds 75% limit, no voluntary delisting can be made for 12 months from completion of offer period.

ØAcquirer along with PAC holding shares in excess of minimum prescribed non-public shareholding is required to dilute his shareholding to meet public shareholding criteria within the manner and time as provided under Securities Contract (Regulation) Act, 1956.

ØDefinition of Promoter and Promoter Group has been brought in line with that of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. Now a person would be deemed to be a promoter who has been instrumental to formation of a plan for issue of securities of the Company as well as all persons whose shareholding has been grouped as Promoter Group in the prospectus. This would mean that the person would be regarded as promoter if covered by any of the two definitions irrespective of his shareholding.

The Companies Act and the listing agreement executed between the company and the stock exchange contain several requirements relating to corporate governance. The main requirements are:

ØAt least 50% of the board of director should be non-executive. ØOne third of the board or one half should be of independent directors

depending upon the position of the chairman. ØAll fees/compensation, if any paid to non-executive directors, including

independent directors is required to be fixed by the board and approved by the shareholders.

ØThe meetings of the board are required to be held at least four times a year, with a maximum time gap of four months.

ØA director shall not be a member in more than 10 committees or act as Chairman of more than 5 committees across all companies in which he is a director. Furthermore it should be a mandatory annual requirement for every director to inform the company about the committee positions he occupies in other companies and notify changes as and when they take place.

ØThe board is required to lay down a code of conduct for all board members and senior management of the company and the annual report is required to contain a declaration of its compliances duly signed by CEO.

ØThe Board of Directors should set up two mandatory committees to be called Audit Committee and Shareholders Grievance Committee.

ØAudit committee is required to be set up with minimum 3 directors as members and two thirds of the members of audit committee should be independent directors and chairman of the audit committee is necessarily required to be an independent director. The Chairman of the Audit Committee shall be present at Annual General Meeting to answer shareholder queries.

ØThe audit committee should meet at least four times in a year and not

5.0 Corporate Governance


more than four months should elapse between two meetings. Broad term of reference has been set out for the working of the audit committee.

ØAt least one independent director on the Board of Directors of the holding company is required to be director on the board of directors of a material non listed Indian subsidiary company.

ØA summary of transactions with related parties in the ordinary course of business is required to be placed periodically before the audit committee.

ØWhere in the preparation of financial statements, a treatment different from that prescribed in an Accounting Standard has been followed, the fact shall be disclosed in the financial statements, together with the management's explanation as to why it believes such alternative treatment is more representative of the true and fair view.

ØThe company is required to lay down risk assessment and minimization procedures.

ØRemuneration paid to directors and all other pecuniary relationship of director with the company is required to be disclosed in the corporate governance section of the annual report.

ØCorporate governance section has to include a section of management perception and analysis of the threats, opportunities, risks, concerns, outlook, etc.

ØA board committee under the chairmanship of a non-executive director shall be formed to specifically look into the redressal of shareholder and investors complaints like transfer of shares, non-receipt of balance sheet, non-receipt of declared dividends etc. This Committee shall be designated as 'Shareholders/Investors Grievance Committee'.

ØThe CEO i.e. the Managing Director or Manager appointed in terms of the Companies Act, Chief Finance Officer has to certify that they have reviewed financial statements and these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading and these statements present a true and fair view of the company's affairs and are in compliance with the existing accounting standards, applicable laws and regulation.

ØThe company has to obtain a certificate from either the auditors or practicing company secretaries regarding compliances of conditions of corporate governance as stipulated in the listing agreements and annex the same to the director's report which is sent annually to all the shareholders. The same shall also be filed with the stock exchange along with the annual report filed by the company.

ØThe company shall submit a quarterly compliance report on corporate governance to the stock exchanges within 15 days from the close of the quarter.

Companies registered under the Companies Act, 1956 can be dissolved in the following manner:

ØWinding up;ØBeing declared a defunct company.

5.1 Winding Up


A company may be wound up in the following manner:

ØVoluntarily (by the shareholders/ by the creditors) by passing a special resolution and with the approval of High Court;

ØVoluntarily by the High Court.

Winding up is a means by which a company is dissolved and its assets are realized and applied to payment of its debts. Once the debts are satisfied, the balance amount is paid back to the members in proportion to their contribution to the capital of the company.

In case the ROC is of the view that a company is not carrying on business or is not in operation, he may strike off the company's name from the ROC, only after providing the company with an opportunity to be heard

Where a body corporate incorporated outside India (which has been carrying on business in India) ceases to carry on business in India, it may be wound up as an unregistered company.

Ajanta Caves, Aurangabad

Chapter 4Human Resources

4 HUMAN RESOURCES

1.0 BACKGROUND

2.0 LEGISLATIVE PROVISIONS

2.1 Mandatory Employee Benefits

The working population of India consists of 3 categories: organized work force, unorganized work force and self-employed individuals. The organized sector accounts for only one-tenth of India's labour force but earns one-fourth of the nation's total wages and income.

India's pool of trained workers, one of the largest in the world includes scientists, computer software and electronics professionals, finance professionals, accountants, advertising and marketing experts. The government encourages new investment in regions with high unemployment and setting up of small-scale units.

The State or Central Governments are empowered to fix minimum wages based on the cost-of living index for employees working in scheduled employment. The government may appoint inspectors to ensure that the provisions of the act are observed. However, India continues to be very cheap source of labour.

The laws governing labour in India are very complex in nature and favour the employees. Employers are required to provide most employees with a written statement of the terms and conditions of their employment. The statement must have details about salary, hours of work, disciplinary rules and complaint procedures, the notice period for termination, holidays, the provident fund, pensions, gratuities and other terms of employment. Violation of labour law is viewed with strictness and severe punishment is imposed on errant employers if violations are observed. Prosecution under most of the Labour Laws are subject to criminal proceedings having serious implications.

By law, employees are entitled to a minimum period of notice of termination (subject to Employment Standing Order Act) and terms of employment. Legislation protects employees from unfair dismissal. Law addressing industrial disputes between employer and employee requires prior approval of government for lay-off of employees (in case of the employer employing more than 100 workmen during preceding 12 months.)

Certain mandatory employee benefits required to be made by an employer in India (including social security schemes) are as follows, please note that the regulations are applicable to all employees employed in India:


ApplicabilityOther details- likecost to employerWhat is it?

Employeebenefit

Provident fund (PF)

It is a social security program introduced by the government, where- e m p l oye rs a re

required to deduct contributions at a specif ied rate* from the salary p aya b l e to a n employee.

- In addition, the employer must c o n t r i b u t e a n amount equal* to the employee's contribution,

- The aggregate amount is then deposited in a fund called Provident Fund.

* currently 12% of Basic + DA

(Dearness Allowance)

ØApplicable to every b u s i n e s s organization in India employing 20 or more persons in t h e s c h e d u l e d Industry.

ØM a n d a to r y fo r employees earning monthly wages lesser than Rs 6,500 per month (US $ 123).

ØThe current rate of interest on PF deposits is 9.5%

ØThe Fund primarily aims at providing income to the e m p l o y e e , o n his/her retirement and there are some restr ict ions on withdrawal

ØL i m i t e d withdrawals from t h e f u n d a r e a l l o w e d f o r housing, medical expenses etc.

ØWithdrawals are also permitted on r e s i g n a t i o n , termination and retirement.

ØC o s t t o t h e employer is 12% of the Basic + DA, and 1 . 6 1 % t o wa rd s a d m i n i s t ra t i o n charges which is g e n e r a l l y negotiated as cost to company.

Gratuity Employees who have rendered continuous service of not less than 5 years are entitled to Gratuity at the time of retirement / r e s i g n a t i o n / superannuat ion / death / disablement.

ØApplicable to every b u s i n e s s organization in India employing 10 or more persons.

ØP a y a b l e u p o n terminat ion to e m p l o y e e completing 5 years o f c o n t i n u o u s service.

ØIf termination is due to death or d i s a b l e m e n t , c o m p l e t i o n o f continuous period of 5 year shall not be necessary

ØGratuity has to be paid at the rate of 15 days wages for each completed year of service s u b j e c t t o a maximum of INR 10,00,000 (US$ 18,854).

Ø15 days wages are calculated as [15 / 26 * (wages of




Employeebenefit

Employees’ State Insurance

ØIt provides workers with medical relief, sick pay, maternity b e n e f i t s a n d compensation for e m p l o y m e n t injuries, including e m p l o y m e n t related fatalities.

ØContributions by the employer and the employee are p a i d t o t h e Employee State Insurance Scheme.

ØApplicable to every b u s i n e s s organization in I n d i a ( n o n -s e a s o n a l ) employing 10 or more persons.

ØMandatory only for employees earning monthly wages lesser than Rs 15,000 per month (US $ 283).

l a s t m o n t h o f employment)]

ØEmployee can be entitled to better terms of gratuity.

ØThe employer and e m p l o y e e a r e r e q u i r e d t o contribute 4.75% a n d 1 . 7 5 % respectively of the wages

ØC o s t t o t h e employer is 4.75% of the wages

Bonus Annual payment of a lump-sum bonus to employees, which is l i n k e d t o t h e e m p l o y e r ' s profitability.

ØApplicable to every b u s i n e s s organization in India employing 20 or more persons.

ØMandatory only for employees earning monthly salary or wages lesser than INR 10,000 per month (US$ 189).

ØEmployers must pay a bonus of 6 0 % o f t h e allocable surplus, which is calculated after deducting a r e t u r n o n investment from profits after tax, limited to 20% of a n e m p l oye e 's salary.

ØT h e a c t a l s o provides for a minimum bonus of 8 . 3 3 % o f a n employee's salary, which is payable e v e n i f t h e employer is in losses.

ØThe bonus must be paid within eight months after the c l o s e o f t h e accounting year.

ØThe cost to the employer can vary from 8.33% of the



Employeebenefit

D e p o s i t L i n k e d Insurance Scheme

Add i t iona l soc ia l security in the form of life insurance to the f a m i l y o f t h e deceased employee ( m e m b e r o f t h e scheme). The scheme is linked with amount of accumulation in the p r o v i d e n t f u n d account

Appl icable to a l l establishments to which Employees' Provident scheme applies.

salary to 20 % of salary

Employee does not contribute anything, but the employer contributes 0.5% of the total wages.

Maternity Benefit

A welfare legislation t o r e g u l a t e t h e e m p l o y m e n t o f women in certain establishments for certain period before and after Child birth, miscarriage and to provide maternity benefit.

A p p l i c a b l e t o factories covered under the Factories Act , 1948 , m ine, plantation, and also to S h o p s & Establishments in which ten or more w o r k e r s a r e employed, but do not apply to any factory or estab l i shment to which the provisions of Employee State Insurance Act, 1948 apply

ØMaternity benefit at the rate of the average daily wage for the period of the employees' actual absence i m m e d i a t e l y preceding the day of her delivery and for the six weeks i m m e d i a t e l y following that day.

ØI n c a s e o f miscarriage, leave with wages at the rate of maternity benefit for a period o f s i x w e e k s i m m e d i a t e l y following the day of her miscarriage.

ØI n c a s e o f t u b e c t o m y operation, leave with wages at the rate of maternity benefit for a period o f t w o w e e k s i m m e d i a t e l y f o l l o w i n g t h e t u b e c t o m y operation.


The term wages is defined differently for calculation of above benefits under various laws.

The Workmen's Compensation Act, 1923 provides employees with a convenient and easy method to claim compensation for personal injury from an employment related accident.

The object of the Industrial Employment (Standing orders) Act, 1946 is to require the employers in industrial establishments formally to define conditions of employment of workmen employed by them. 'Standing order' means the rules of conduct for workmen employed in industrial establishment relating to matters like attendance, leave, misconduct, etc enumerated in the schedule of the Act. It applies to every industrial establishment wherein one hundred or more workmen (in Maharashtra it is 50 workmen by virtue of a state amendment) are employed on any day of the preceding twelve months. The standing orders are to be certified by a certifying officer appointed under the Act. The rules provide for model standing orders.

Industrial Disputes Act 1947 is aimed to resolve or reduce the difference between employers and the workmen with a view to bring industrial peace and thereby increasing industrial production in the country. Matters related to change of service conditions, retrenchment, lay off and closures of industrial units are regulated under this Act.

2.2 Workers’ Compensation

2.3 Industrial Employment (Standing orders) Act, 1946

2.4 Industrial Disputes Act, 1947


Employeebenefit

The Minimum Wages Act 1948 provides minimum wages to employees in certain employments in order t o p r e v e n t t h e exploitation of the unorganized labour.

A p p l i c a b l e t o employees employed as casual, daily rated, t e m p o r a r y o r permanent working in t h e i n d u s t r i e s s p e c i f i e d i n t h e schedule to the Act. Many states in India have included Shops a n d C o m m e r c i a l establishment in the schedule and as such the Act is applicable to shops and commercial establishments

The employers have t o e n s u r e t h e compliance of the M i n i m u m w a g e s notifications issued by the Central / State Government from time to time.

Minimum Wages


2.5 The Equal Remuneration Act, 1976

2.6 The Contract Labour (Regulation and Abolition )Act, 1970

2.7 Trade Unions Act , 1926

2.8 Health and Safety

2.8.1 Cleanliness

The equal remuneration Act provides for payment of equal remuneration to men and women workers for the same work or work of a similar nature and for the prevention of discrimination on the ground of sex against women in the matter of employment.

The Contract labour (Regulation and Abolition) Act, 1970 is aimed to regulate the employment of contract labour in certain establishment and provides for its abolition in certain circumstances. The Act mandates registration of principal employer and the contractor who are covered under the Act. However the Act is not applicable to establishments performing work only of an intermittent or casual nature.

The Trade Unions Act provides for registration of Trade unions and to confer on the registered trade unions certain protection and privileges.

Employers have a legal duty to take reasonable care of their employees. An employee who is injured at work may be able to claim compensation for the employer's negligence.

Generally regulations relating to working conditions in commercial establishments as per the relevant state legislations cover the following aspects

ØDaily and weekly hours of workØHolidays in a weekØOpening and closing hours for women, intervals for meal, etc.ØMinimum leave days and leave with wages ØWages for overtime work

The Factories Act, 1948 specifically covers the health and safety of workers. The main objectives of the Act are to regulate the working conditions in factories and to ensure that employers meet basic minimum requirements of health, safety and welfare for factory workers. In addition, the Act regulates working hours, leave, holidays, overtime, and the employment of women and children.

Some of the key working condition requirements as per the Factories Act, 1948 are as follows

ØDaily removal of dirtØFloor to be washed once a weekØEffective drainage of the effluentsØRepainting of the factory walls once in five years


ØIf painted in the washable paints, repaint once in three years and washed once in six months

ØCheck relevant washing rules according to the paint used.ØRegister of these dates to be maintained.

ØThe company shall make effective arrangements for the treatment of wastes and effluents resulting from the manufacturing process.

ØThe company should maintain the prescribed measuring instruments and records.

ØIf dust or fume given off due to manufacturing activities, effective measures to be taken to prevent inhalation and accumulation in work room.

ØMethods and tests for determining the humidity of the air to be carried out and recorded.

ØWater from public supply/drinking water/purified water

ØNo room in any factory shall be overcrowded to an extent injurious to the health of the workers employed therein.

Ø14.2 cubic meters per workman employed in each workroom is the space specified in the Act.

ØIn all places of works passage sufficient lighting is required.ØWindows/skylights shall be kept clean on inner and outer sides.

Arrangement of drinking water points at convenient locations within the factory premises should be ensured.

ØAll points drinking water points shall be marked legiblyØIn cases where more than 250 workers are ordinarily employed in a

factory, arrangement for appropriate cooling of water (during hot weather) and distribution thereof should be ensured.

The Factories Act safeguards against the use and handling of hazardous substances. Employers have a duty to provide a clean and safe working environment. In addition, they must ensure that any member of the public who might be affected by their working practices is similarly protected.

2.8.2 Disposal of wastes and effluents

2.8.3 Ventilation and temperature

2.8.4 Artificial humidification:

2.8.5 Over crowding

2.8.6 Lighting

2.8.7 Drinking water


3.0 ENGAGEMENT OF FOREIGN NATIONALS

Indian firms / companies may engage the services of foreign nationals (including non-resident persons of Indian nationality / origin) without prior approval of Reserve Bank of India having an Employment Visa. A foreign national coming for executing projects / contracts will also have to come only on an Employment Visa.

Foreign national can remit abroad income earned from employment subject to deduction of applicable withholding tax thereon. The foreign nationals who are resident but not permanently resident in India can avail facility of recurring remittance for family maintenance, etc. of their net salary (i.e., after deduction of contribution to provident funds and taxes payable).

All foreigners including foreigners of Indian origin visiting India on long term (more than 180 days) vide Employment Visa will be required to get themselves registered with the appropriate Foreigner's Regional Registration Office (FRRO) within 14 days of arrival in India, irrespective of the duration of their stay.

Charminar, Hyderabad

Chapter 5Foreign Investment In India

5 FOREIGN INVESTMENT IN INDIA

1.0 INTRODUCTION

2.0 EXCHANGE CONTROL REGULATIONS – FOREIGN INVESTMENTS

2.1 Introduction

1.1 The liberalization process started in India in 1991 and second-generation reforms started in the first decade of 21st century has virtually opened up the Indian economy for foreign investment in most of the sectors, barring few sensitive sectors. The liberalization process has thrown open opportunities for inbound investment (foreign companies investing in India) as well as outbound investment (Indian companies investing out of India) in almost every field of business from the consumer durables sector to core infrastructure sector. The World Bank has appreciated the Indian liberalization reforms in one of its Annual Report stating “India is moving rapidly towards closer integration with the global economy and the reform process, which has been brought about in such a short time, represents an irreversible movement towards a vibrant economy.” In this process of liberalization, India has taken various measures like de-licensing, permitting foreign institutions to invest in shares and securities under portfolio investment, current account convertibility, liberalizing exchange control regulations, drastically reducing the rates of customs duty and direct taxes, permitting Indian companies to list on foreign stock exchanges and set up overseas operations, permitting resident Indians to buy shares and securities listed abroad etc.

1.2 Accordingly, foreign investment in India is still regulated among other legislations, by the foreign exchange regulations although under new regulations, the focus has been shifted on promoting and managing foreign exchange markets instead of regulating the same. In this note, we have restricted our discussion on Foreign Investments in India.

In India, till 31 May 2000, foreign exchange transactions were regulated by Foreign Exchange Regulation Act, 1973 ('FERA'). FERA has been repealed by the Foreign Exchange Management Act, 1999 ('FEMA'), which has come into force with effect from 1 June 2000. The provisions under FEMA are liberal compared to provisions under FERA. The analysis of FEMA provisions contained herein is updated as on 30 September, 2012.


2.2 Investment in India by a person resident outside India / Eligibility for investing in India

2.2.1 A person resident outside India or an entity incorporated outside India can invest in India, subject to the FDI Policy of the Government of India. A person who is a citizen of Bangladesh or an entity incorporated in Bangladesh can invest in India under the FDI Scheme, with prior approval of FIPB. According to the press release issued by Ministry of Commerce and Industry, a citizen of Pakistan or an entity incorporated in Pakistan can invest only under the government route, in sectors/activities other than defence, space and atomic energy.

NRIs, resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are permitted to invest in shares and convertible debentures of Indian companies under FDI Scheme on repatriation basis, subject to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal banking channels.

2.2.2 Overseas Corporate Body (OCB) means a company, partnership firm, society and other corporate body owned directly or indirectly to the extent of at least 60% by Non-Resident Indians and includes overseas trust in which not less than 60% beneficial interest is held by Non-resident Indians, directly or indirectly, but irrevocably. OCBs have been de-recognized as a class of investors in India with effect from September 16, 2003. Erstwhile OCBs which are incorporated outside India and are not under adverse notice of Reserve Bank can make fresh investments under the FDI scheme as incorporated non-resident entities, with the prior approval

Foreign Investments

Foreign DirectInvestments

AutomaticRoute

Govt.Route

Foreign PortfolioInvestments

Other Investments(G-sec, NCDs etc.)

Foreign VentureCapital

investments

Investment on non-repatriable

basis

PersonsResident

Outside India

Flls FllsNRIs, PIO,

QFIsNRIs, PIO,

QFIsNRIs, PIO,

QFIsSEBI regd.

FVCIs

VCF,IVCUs

Foreign Investment in India-Schematic Representation:


of Government of India if the investment is through Government Route; and with the prior approval of Reserve Bank if the investment is through Automatic Route. A one time certification shall be required to be obtained from the RBI through the AD Bank.

2.3.1 Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern or any entity, whether incorporated or not (such as, Trusts) which is engaged or proposes to engage in the following activities:

ØBusiness of chit fund, orØNidhi Company , orØAgricultural or plantation activities orØReal estate business, or construction of farm housesØTrading in Transferable Development Rights (TDRs).

“Real Estate Business" means dealing in land and immoveable property with a view to earning profit or earning income therefrom and does not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.

It is further clarified that partnership firms / proprietorship concerns having investments as per FEMA regulations are not allowed to engage in print media sector.

2.3.2 In addition to the above, investment in the form of FDI is also prohibited in certain sectors such as:

ØAtomic EnergyØLottery Business including any kind of foreign technology collaborationØGambling and Betting including casinos including any kind of foreign

technology collaborationØBusiness of chit fundsØNidhi companyØTrading in Transferable Development Rights(TDRs)ØReal estate business of construction of farm housesØActivities / sectors not opened to private sector investment like railway

transport (other than mass rapid transportation systems)ØAgriculture (excluding Floriculture, Horticulture, Development of seeds,

Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations (other than Tea Plantations).

ØManufacture of Cigars, Cheroots, Cigarillos & Cigarettes, of Tobacco or of Tobacco substitutes.

Note: FDI in Retail Trading which was earlier in the list of prohibited sector has been liberalized and w.e.f. 20 September 2012, the Government of India has permitted FDI in multi-brand product retailing, subject to certain conditions. (Refer Annexure 2, Sr. No. 16)

2.3 Prohibition on investments


2.4 Investment under Foreign Direct Investment ('FDI') Scheme

2.4.1 Automatic route of FDI

2.4.2 Investments in sectors where 100% FDI under automatic route is not available

2.4.3 Certain important aspects of the FDI scheme

Entry routes for investments in India

Foreign investment is freely permitted in almost all sectors. Under Foreign Direct Investments (FDI) Scheme, investments can be made by non-residents in the shares / compulsory convertible debentures of an Indian Company under two routes; Automatic Route and Approval / Government Route. Under the Automatic Route, the foreign investor or the Indian company does not require any approval from the Reserve Bank or Government of India for the investment. Under the Approval / Government Route, prior approval of the Government of India, Ministry of Finance, Foreign Investment Promotion Board (FIPB) is required. Entry route for non-resident investors in India as well as sector specific investment limits in India are given in Annexure -2.

The Government of India has substantially expanded the scope of foreign investment under the Automatic Route to include all items/ activities, except certain items, for investment under FDI. FDI up to 100% is allowed under the automatic route from foreign/NRI investors without prior approval in most of the sectors including the services sector. FDI in sectors/activities under automatic route does not require any prior approval either by the Government or RBI.

An Indian company receiving investments from outside India for issuing equity shares / convertible debentures / convertible preference shares under the FDI scheme, should report the details of the amount of consideration to the RBI within 30 days from the date of receipt of inward remittances.

Foreign investment coming as fully convertible preference shares would be treated as part of share capital. This would be included in calculating foreign equity for purposes of sectoral caps on foreign equity, where such caps have been prescribed.

Foreign investment coming as any other type of preference shares (non-convertible, optionally convertible or partially convertible) would be considered as debt and shall require conforming to External Commercial Borrowings (ECB) guidelines / ECB caps.

RBI's Automatic Route is not available for foreign investment in Indian Company which is engaged in any activity, or in manufacturing of item included in is given in Annexure 1 hereto. An Indian company which is not engaged in the activity or manufacture of items listed in Annexure 1 is permitted to issue shares or convertible debentures to a person resident outside India upto the extent specified in Annexure 2 on repatriation basis, subject to compliance with the prescribed provisions.

i. Price of shares issued to persons resident outside India under the FDI


Scheme, shall be on the basis of SEBI guidelines in case of companies listed on any recognized stock exchange in India. In case of companies not listed on any recognized stock exchange in India, valuation of shares has to be done on fair valuation basis by a Registered Category I Merchant Banker or a Chartered Accountant as per Discounted Cash Flow method. However, it has been decided that in cases, where non-residents (including NRIs) make investment in an Indian company in compliance with the provisions of the Companies Act, 1956, by way of subscription to Memorandum of Association, such investments may be made at face value subject to their eligibility to invest under the FDI scheme.

ii. The rate of dividend on preference shares issued by an Indian company to a person resident outside India should not exceed 300 basis points over the Prime Lending Rate of State Bank of India prevailing as on the date of the Board meeting of the company in which issue of such shares is recommended.

iii. Indian companies which are eligible to issue shares to persons resident outside India under the FDI Scheme will be allowed to retain the share subscription amount in a foreign currency account with the prior approval of RBI in order to meet any bonafide business purposes.

iv. It is worth noting that there are no separate schemes for Non-Resident Indians ('NRIs') for direct investment in India on repatriation basis. NRIs are now on par with any other foreign investor and they may invest in the shares/ fully convertible debentures issued by an Indian company under the FDI Scheme through foreign inward remittances or out of funds held in NRE/FCNR account maintained by non-residents.

v. Issue of shares by an Indian company to a person resident outside India which are not covered by above provisions would require approval of Secretariat for Industrial Assistance ('SIA')/ Foreign Investment Promotion Board ('FIPB').

Foreign Institutional Investors (FIIs) registered with SEBI, Non-resident Indians (NRIs) and SEBI approved sub-accounts of FIIs are eligible to purchase shares and convertible debentures issued by Indian companies under the Portfolio Investment Scheme (PIS).

Reserve Bank has given general permission to SEBI registered FIIs / sub-accounts to invest under the PIS.i. Total shareholding of each FII/sub-account under this Scheme shall not

exceed 10 % of the total paid up capital or 10 % of the paid up value of each series of convertible debentures issued by the Indian company.

ii. Total holdings of all FIIs/sub-accounts put together shall not exceed 24 %

2.5 Foreign Portfolio Investments

2.5.1 Investment by FIIs under Portfolio Investment Scheme (PIS)


of the paid-up capital or paid-up value of each series of convertible debentures. This limit of 24 % can be increased to the sectoral cap / statutory limit, as applicable to the Indian company concerned, by passing a resolution of its Board of Directors followed by a special resolution to that effect by its General Body and subject to prior approval from the Reserve Bank.

iii. A domestic asset management company or portfolio manager, who is registered with SEBI as an FII for managing the fund of a sub-account can make investments under the Scheme on behalf of a. a person resident outside India who is a citizen of a foreign state,

or b. a body corporate registered outside India;

Provided such investment is made out of funds raised or collected or brought from outside through normal banking channel. Investments by such entities shall not exceed 5 % of the total paid-up equity capital or 5 % of the paid-up value of each series of convertible debentures issued by an Indian company, and shall also not exceed the overall ceiling specified for FIIs.

SEBI registered FIIs have been permitted to purchase shares / convertible debentures of an Indian company through offer/private placement, subject to the ceilings prescribed, i.e. individual FII/sub account -10% and all FIIs/sub-accounts put together -24% of the paid-up capital of the Indian company and to the sectoral limits, as applicable. Indian company is permitted to issue such shares provided that:

I. in the case of public offer, the price of shares to be issued is not less than the price at which shares are issued to residents; and

ii. in the case of issue by private placement, the issue price should be determined as per the pricing guidelines stipulated under the FDI Scheme.

I. NRIs are allowed to invest in shares of listed Indian companies in recognized Stock Exchanges under the PIS. NRIs can invest through designated ADs, on repatriation and non-repatriation basis under PIS route up to 5% of the paid up capital / paid up value of each series of debentures of listed Indian companies. The aggregate paid-up value of shares / convertible debentures purchased by all NRIs cannot exceed 10% of the paid-up capital of the company / paid-up value of each series of debentures of the company. The aggregate ceiling of 10% can be raised to 24%, if the General Body of the Indian company passes a special resolution to that effect and subject to prior approval of Reserve Bank.

ii. The NRI investor has to take delivery of the shares purchased and give delivery of shares sold. Short Selling is not permitted.

iii. Payment for purchase of shares and/or debentures on repatriation basis

2.5.2 Investments by Non –Resident Indians (NRIs)


has to be made by way of inward remittance of foreign exchange through normal banking channels or out of funds held in NRE/FCNR account maintained in India. If the shares are purchased on non-repatriation basis, the NRIs can also utilise their funds in NRO account in addition to the above.

iv. Shares purchased by NRIs on the stock exchange under PIS cannot be transferred by way of sale under private arrangement or by way of gift to a person resident in India or outside India without prior approval of RBI.

v. NRIs are allowed to invest in Exchange Traded Derivative Contracts approved by SEBI from time to time out of Rupee funds held in India on non-repatriation basis subject to the limits prescribed by SEBI.

When the total holdings of FIIs/NRIs under the Scheme reach the trigger limit, which is 2 % below the applicable limit (for companies with paid-up capital of INR 10,000 million and above, the trigger limit is 0.5% below the applicable limit), Reserve Bank will issue a notice to all designated branches of AD Category - I banks cautioning that any further purchases of shares of the particular Indian company will require prior approval of Reserve Bank. Reserve Bank gives case-by-case approvals to FIIs for purchase of shares of companies included in the Caution List. This is done on a first-come-first-served basis.

Once the shareholding by FIIs/NRIs reaches the overall ceiling / sectoral cap / statutory limit, Reserve Bank puts the company on the Ban List. Once a company is placed on the Ban List, no FII or NRI can purchase the shares of the company under the Portfolio Investment Scheme.

i. Qualified Foreign Investors (QFIs as defined therein to mean non-resident investors, other than SEBI registered FIIs and SEBI registered FVCIs, who meet the KYC requirements of SEBI) are allowed to purchase on repatriation basis equity shares of Indian companies subject to specified conditions.

ii. QFIs shall be permitted to invest through SEBI registered Depository Participants (DPs) only in equity shares of listed Indian companies through recognized brokers on recognized stock exchanges in India as well as in equity shares of Indian companies which are offered to public in India in terms of the relevant and applicable SEBI guidelines/regulations.

iii. QFIs shall be allowed to sell the equity shares so acquired by way of sale.a. Through recognized brokers on recognized stock exchanges in

India; or b. In an open offer in accordance with the SEBI (Substantial

Acquisition of Shares and Takeovers) Regulations, 2011; orc. In an open offer in accordance with the SEBI (Delisting of

Securities) Guidelines, 2009; or d. Through buyback of shares by a listed Indian company in

2.5.3 Investment by Qualified Foreign Investors (QFIs) in listed equity shares


accordance with the SEBI (Buyback) Regulations, 1998

iv. For QFI investments under this scheme a noninterest bearing separate single rupee pool bank account would be maintained by the DP with an AD Category- I bank in India for QFI investments under this scheme.

v. Limits - The individual and aggregate investment limits for the QFIs shall be 5% and 10% respectively of the paid up capital of an Indian company. These limits shall be over and above the FII and NRI investment ceilings prescribed under the Portfolio Investment Scheme for foreign investment in India.

vi. Eligibility - Only QFIs from jurisdictions which are FATF compliant and with which SEBI has signed MOUs under the IOSCO framework will be eligible to invest in equity shares under this scheme.

i. A SEBI registered Foreign Venture Capital Investor (FVCI) with specific approval from RBI under FEMA Regulations can invest in Indian Venture Capital Undertaking (IVCU) or Indian Venture Capital Fund (IVCF) or in a Scheme floated by such IVCFs subject to the condition that the VCF should also be registered with SEBI.

An IVCU is defined as a company incorporated in India whose shares are not listed on a recognized stock exchange in India and which is not engaged in an activity under the negative list specified by SEBI.

A VCF is defined as a fund established in the form of a trust, a company including a body corporate and registered under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 which has a dedicated pool of capita raised in a manner specified under the said Regulations and which invests in Venture Capital Undertakings in accordance with the said Regulations.

ii. FVCIs can purchase equity / equity linked instruments / debt / debt instruments, debentures of an IVCU or of a VCF through initial public offer or private placement in units of schemes / funds set up by a VCF. At the time of granting approval, RBI permits the FVCI to open a foreign currency account or rupee account with a designated branch of an AD Category – I bank.

iii. The purchase / sale of shares, debentures and units can be at a price that is mutually acceptable to the buyer and the seller.

iv. AD Category – I banks can offer forward cover to FVCIs to the extent of total inward remittance. In case the FVCI has made any remittance by liquidating some investments, original cost of the investments has to be deducted from the eligible cover to arrive at the actual cover that can be offered.

2.6 Investment by Venture Capital Fund


2.7 Purchase of other securities by FIIs

2.8 Purchase of other securities by NRIs

2.9 Foreign Investment in Tier I and Tier II instruments issued by banks in India

Foreign Institutional Investors (FIIs) can buy Government securities / treasury bills, listed non-convertible debentures / bonds issued by Indian companies and units of domestic mutual funds either directly from the issuer of such securities or through a registered stock broker on a recognized stock exchange in India. Purchase of debt instruments by FIIs are subject to limits notified by SEBI.

i. On non-repatriation basis

a. NRIs can purchase shares / convertible debentures issued by an Indian company on non-repatriation basis without any limit. Amount of consideration for such purchase shall be paid by way of inward remittance through normal banking channels from abroad or out of funds held in NRE / FCNR(B) / NRO account maintained with the AD Category - I bank.

b. NRI can also, without any limit, purchase on non-repatriation basis dated Government securities, treasury bills, units of domestic mutual funds, units of Money Market Mutual Funds. Government of India has notified that NRIs are not permitted to make Investments in Small Savings Schemes including PPF. In case of investment on non-repatriation basis, the sale proceeds shall be credited to NRO account. The amount invested under the scheme and the capital appreciation thereon will not be allowed to be repatriated abroad.

ii. On repatriation basis

An NRI can purchase on repatriation basis, without limit, Government dated securities (other than bearer securities) or treasury bills or units of domestic mutual funds; bonds issued by a public sector undertaking (PSU) in India and shares in Public Sector Enterprises being disinvested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.

FIIs registered with SEBI and NRIs have been permitted to subscribe to the Perpetual Debt instruments (eligible for inclusion as Tier I capital) and Debt Capital instruments (eligible for inclusion as upper Tier II capital), issued by banks in India and denominated in Indian Rupees, subject to the following conditions:

i. Investment by all FIIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 49 % of each issue, and investment by individual FII should not exceed the limit of 10 % of each


issue.

ii. Investments by all NRIs in Rupee denominated Perpetual Debt instruments (Tier I) should not exceed an aggregate ceiling of 24 % of each issue and investments by a single NRI should not exceed 5 % of the issue.

iii. Investment by FIIs in Rupee denominated Debt capital instruments (Tier II) shall be within the limits stipulated by SEBI for FII investment in corporate debt instruments.

iv. Investment by NRIs in Rupee denominated Debt Capital instruments (Tier II) shall be in accordance with the extant policy for investment by NRIs in other debt instruments.

FEMA provisions allow Indian companies to freely issue Rights / Bonus shares to existing non-resident shareholders, subject to adherence to sectoral cap, if any. However, such issue of bonus/rights shares have to be in accordance with other laws/statutes like the Companies Act, 1956, SEBI (Disclosure and Investor Protection) Guidelines (in case of listed companies), etc. The price of shares offered on rights basis by the Indian company to non-resident shareholders shall not be lower than the price at which such shares are offered to resident shareholders.

OCBs have been de-recognized as a class of investors with effect from 16 September 2003. Therefore, companies desiring to issue rights shares to such erstwhile OCBs will have to take specific prior permission from the Reserve Bank. As such, entitlement of rights shares is not automatically available to OCBs. However, bonus shares can be issued to erstwhile OCBs without RBI approval.

Existing non-resident shareholders are allowed to apply for issue of additional shares / convertible debentures / preference shares over and above their rights share entitlements. The investee company can allot the additional rights shares out of unsubscribed portion, subject to the condition that the overall issue of shares to non residents in the total paid-up capital of the company does not exceed the sectoral cap.

Mergers and amalgamations of companies in India are usually governed by an order issued by a competent Court on the basis of the Scheme submitted by the companies undergoing merger/amalgamation. Once the scheme of merger or amalgamation of two or more Indian companies has been approved by a Court in

2.10 Issue of rights / bonus shares to erstwhile Overseas Corporate Bodies (OCBs)

2.11 Additional allocation of rights shares by resident to non-residents

2.12 Issue and acquisition of shares after merger or de-merger or amalgamation of Indian companies


India, the transferee company or new company is allowed to issue shares to the shareholders of the transferor company resident outside India subject to the conditions that :

I. The percentage of shareholding of persons resident outside India in the transferee or new company does not exceed the sectoral cap.

ii. The transferor company or the transferee or the new company is not engaged in activities which are prohibited in terms of FDI policy

2.13.1 Listed Indian companies are allowed to issue shares under the Employees Stock Option Scheme (ESOPs), to its employees or employees of its joint venture or wholly owned subsidiary abroad who are resident outside India, other than to the citizens of Pakistan. Citizens of Bangladesh can invest with the prior approval of FIPB. Shares under ESOPs can be issued directly or through a Trust subject to the condition that:

I. The scheme has been drawn in terms of relevant regulations issued by the Securities and Exchange Board of India; and

ii. The face value of the shares to be allotted under the scheme to the non-resident employees does not exceed 5 % of the paid-up capital of the issuing company.

2.13.2 Unlisted companies have to follow the provisions of the Companies Act, 1956. The Indian company can issue ESOPs to employees who are resident outside India, other than to the citizens of Pakistan. ESOPs can be issued to the citizens of Bangladesh with the prior FIPB approval. The issuing company is required to report the details of such issues to the concerned Regional Office of the Reserve Bank, within 30 days from the date of issue of shares.

Foreign investors can also invest in Indian companies by purchasing / acquiring existing shares from Indian shareholders or from other non-resident shareholders. General permission has been granted to non-residents / NRIs for acquisition of shares by way of transfer subject to the following:-

i. A person resident outside India (Other than NRI and OCB) may transfer by way of sale or gift the shares or convertible debentures to any person resident outside India (including NRIs).

ii. NRIs and erstwhile OCBs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.

2.13 Issue of shares under Employee Stock Options Scheme to persons resident outside India

2.14 Transfer of shares and convertible debentures of an Indian company by a person resident outside India


iii. A person resident outside India can transfer any security to a person resident in India by way of gift.

iv. A person resident outside India can sell the shares and convertible debentures of an Indian company on a recognized Stock Exchange in India through a registered broker.

v. A person resident in India can transfer by way of sale, shares / convertible debentures (including transfer of subscriber's shares), of an Indian company in sectors other than financial service sector (i.e. Banks, NBFC, Insurance, ARCs and infrastructure companies in the securities market viz. Stock Exchanges, Clearing Corporations and Depositories) under private arrangement to a person resident outside India, subject to the prescribed guidelines.

vi. General permission is also available for transfer of shares / convertible debentures, by way of sale under private arrangement by a person resident outside India to a person resident in India, subject to the prescribed guidelines.

vii. The above General Permission also covers transfer by a resident to a non-resident of shares / convertible debentures of an Indian company, engaged in an activity earlier covered under the Government Route but now falling under Automatic Route of RBI, as well as transfer of shares by a non-resident to an Indian company under buy-back and / or capital reduction scheme of the company. However, this General Permission is not available for transfer of shares / debentures of an entity engaged in any activity in the financial service sector (i.e. Banks, NBFCs, ARCs, Insurance and infrastructure providers in the securities market such as Stock Exchanges, Clearing Corporations, etc.).

i. A person resident in India who proposes to transfer to a person resident outside India (not being erstwhile OCBs) any security by way of gift, shall make an application to the RBI in the prescribed form.

ii. Transfer of existing shares/convertible debentures of an Indian company other than private sector bank, non-banking financial company (NBFC) and insurance company, by a resident to a non-resident not being erstwhile OCBs, by way of sale, can be effected, subject to the specified sectoral limits, without prior approval of Government and RBI subject to the following:

a. such company is not engaged in rendering any financial services

2.15 Transfer of shares/convertible debentures by a person resident in India


i.e. service rendered by banking and non-banking companies regulated by RBI, insurance companies regulated by Insurance Regulatory and Development Authority (IRDA) other companies regulated by any other financial regulator;

b. the transfer does not fall within the purview of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; and

c. that the concerned parties adhere to pricing guidelines, documentation and reporting requirements specified by RBI.

2.16.1 An Indian company have been granted general permission for conversion of External Commercial Borrowings (ECB) into shares/preference shares, subject to the following conditions and reporting requirements -

i. The activity of the company is covered under the Automatic Route for FDI or the company has obtained Government approval for foreign equity in the company.

ii. The foreign equity after conversion of ECB into equity is within the sectoral cap, if any,

iii. Pricing of shares is as per SEBI regulations or guidelines issued under FEMA, 1999 in the case of listed or unlisted companies respectively.

iv. Compliance with the requirements prescribed under any other statute and regulation in force.

2.16.2 The conversion facility is available for ECBs availed under the Automatic or Approval Route. This would also be applicable to ECBs, due for payment or not, as well as secured / unsecured loans availed from non-resident collaborators. General permission is also available for issue of shares/preference shares against lump-sum technical know-how fee, royalty, under automatic route or SIA / FIPB route, subject to pricing guidelines of SEBI/CCI and compliance with applicable tax laws.

2.16.3 Units in Special Economic Zones (SEZs) are permitted to issue equity shares to non-residents against import of capital goods subject to the valuation done by a Committee consisting of Development Commissioner and the appropriate Customs officials.

2.16 Conversion of ECB / Lumpsum Fee/Royalty/ Import of capital goods by SEZs into Equity


2.17 Issue of shares by Indian companies - ADR/GDR

2.18 Investment in firm or proprietary concern in India

2.19 Establishment in India of a Branch or Liaison office or project offices in India

2.19.1 Activities permitted in India to Liaison office

2.19.2 Activities permitted in India to Branch office of a Foreign Company

2.17.1 Depositary Receipts (DRs) are negotiable securities issued outside India by a Depository Bank, on behalf of an Indian company, which represent the local Rupee denominated equity shares of the company held as deposit by a Custodian bank in India. DRs are traded in Stock Exchanges in the US, Singapore, Luxembourg, etc. DRs listed and traded in the US markets are known as American Depository Receipts (ADRs) and those listed and traded elsewhere are known as Global Depository Receipts (GDRs). In the Indian context, DRs are treated as FDI.

2.17.2 Indian companies can raise foreign currency resources abroad through the issue of ADRs/GDRs, in accordance with the Scheme for issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and guidelines issued by the Government of India thereunder from time to time.

A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside India can invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided :

i. Amount is invested by inward remittance or out of NRE / FCNR / NRO account maintained with Authorized Dealers / Authorized banks.

ii. The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business (i.e. dealing in land and immovable property with a view to earning profit or earning income there from) or print media sector.

iii. Amount invested shall not be eligible for repatriation outside India.

Companies incorporated outside India, desirous of opening a Liaison/Branch Office or project office in India shall apply to the Authorized Dealer –Category I Bank subject to the conditions prescribed by Reserve Bank of India.

i. Representing in India the parent company/group companies.ii. Promoting export import from/to India.iii. Promoting technical/financial collaborations between parent/group

companies and companies in India.iv. Acting as a communication channel between the parent company and

Indian companies

i. Export/Import of goods.


ii. Rendering professional or consultancy services.iii. Carrying out research work, in areas in which the parent company is

engaged.iv. Promoting technical or financial collaborations between Indian companies

and parent or overseas group company.v. Representing the parent company in India and acting as buying/selling

agent in India.vi. Rendering services in Information Technology and development of

software in India.vii. Rendering technical support to the products supplied by parent/group

companies.viii. Foreign airline/shipping company.

i. Retail trading activities of any nature is not allowed for a Branch Office in India.

ii. A Branch Office is not allowed to carry out manufacturing, processing activities in India, directly or indirectly.

iii. Branch Offices are permitted to acquire property for their own use and to carry out the permitted /incidental activities but not for leasing or renting out the property. However, entities from Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China are not allowed to acquire immovable property in India even for a Branch Office. These entities are allowed to lease such property for a period not exceeding five years.

iv. Entities from Nepal are allowed to establish only Liaison Offices in India.v. Profits earned by the Branch Offices are freely remittable from India,

subject to payment of applicable taxes.vi. Branch Offices have to submit Annual Activity Certificates from Chartered

Accountants to the Authorized Dealer - category 1 bank.

i. RBI has given general permission to foreign companies for establishing branch/unit in Special Economic Zones (SEZs) to undertake manufacturing and service activities. The general permission is subject to the following conditions:a. such units are functioning in those sectors where 100 % FDI is

permitted;b. such units comply with part XI of the Companies Act (Section 592

to 602);c. such units function on a stand-alone basis.

ii. In the event of winding-up of business and for remittance of winding up proceeds, the branch shall approach an AD Category – I bank with the documents prescribed.

Foreign Banks do not require approval under FEMA, if such Bank has obtained necessary approval under the provisions of the Banking Regulation Act, 1949 from

2.19.3 Other key points regarding Branch office

2.19.4 Branch Office in Special Economic Zones (SEZs)

2.19.5 Branches of banks


the Reserve Bank.

Reserve Bank has granted general permission to foreign companies to establish Project Offices in India, provided they have secured a contract from an Indian company to execute a project in India, and

i. the project is funded directly by inward remittance from abroad; orii. the project is funded by a bilateral or multilateral International Financing

Agency; oriii. the project has been cleared by an appropriate authority; oriv. the company or entity in India awarding the contract has been granted

Term Loan by a Public Financial Institution or a bank in India for the project.

However, if the above criteria are not met, the foreign entity has to approach the Reserve Bank for approval.

i. LO/BO/PO shall submit a report containing prescribed information within five working days of becoming functional to the Director General of Police (DGP) of the state concerned in which LO/BO/PO has established its office; if there are more than one office of such a foreign entity, in such cases to each of the DGP concerned of the state where it has established office in India

ii. LO/BO/PO shall submit a copy of the report with the DGP concerned on annual basis along with a copy of the Annual Activity Certificate/Annual report required to be submitted by LO/BO/PO concerned, as the case may be.

iii. A copy of report thus filed as above shall also be filed with AD by LO/BO/PO concerned

Remittance of profit by a branch or remittance of surplus after completion of the project by the project office will be allowed by the authorized dealer on submission of documents specified in the regulation issued by RBI.

External Commercial Borrowings (ECB) refer to commercial loans in the form of bank loans, buyers' credit, suppliers' credit, securitized instruments such as floating rate notes and fixed rate bonds availed from non-resident lenders with minimum average maturity of 3 years.

ECB can be accessed under two routes, viz., (i) Automatic Route and (ii) Approval Route.

2.19.6 Project Offices

2.19.7 New conditions with respect to LO/BO/PO

2.19.8 Remittance of profit

3.0 EXTERNAL COMMERCIAL BORROWINGS (ECB)


3.1 Automatic Route

3.1.1 Eligible Borrowers

3.1.2 Recognized lenders

3.1.3 ECB Amount and Maturity

i. Corporates (registered under the Companies Act except financial intermediaries such as banks, financial institutions, housing finance companies and NBFCs) are eligible to raise ECB.

ii. Units in Special Economic Zones (SEZ) are allowed to raise ECB for their own requirement. However, they cannot transfer or on-lend ECB funds to sister concerns or any unit in the Domestic Tariff Area.

iii. Infrastructure Finance Corporations.

iv. NGOs Engaged in micro finance activities.

Individuals, Trusts and Non-Profit making Organizations are not eligible to raise ECB.

ECB can be raised from internationally recognized sources such as

i. international banks;ii. international capital markets; iii. multilateral financial institutions (such as IFC, ADB, CDC, etc.); iv. export credit agencies; v. suppliers of equipment; vi. foreign collaborators and; vii. foreign equity holders (other than erstwhile OCBs).

“Foreign equity holder" to be eligible as “recognized lender” under the automatic route would require minimum holding of equity in the borrower company as set out below:

i. For ECB up to US$ 5 million - minimum equity of 25 % held directly by the lender,

ii. For ECB more than US$ 5 million - minimum equity of 25 % held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB not exceeding four times the direct foreign equity holding).

i. The maximum amount of ECB which can be raised by a corporate other than those in the Hospital, hotel and software sector is US$ 750 million or equivalent during a financial year.

ii. ECB upto US$ 20 million or equivalent in a financial year with minimum average maturity of three years.

iii. ECB above US$ 20 million and up to US$ 750 million or equivalent with a minimum average maturity of five years. ECB up to US$ 20 million can have call/put option provided the minimum average maturity of three years is complied with before exercising call/put option.


iv. ECB upto US$ 200 million per financial year has been permitted to the corporates in the Hotels, Hospitals and Software sectors, for foreign currency and / or Rupee capital expenditure for permissible end-use. However, the proceeds of the ECBs should not be used for acquisition of land.

Average Maturity Period All-in-cost Ceilings over 6 month LIBOR*

Three years and up to five years 350 basis points

More than five years 500 basis points

* for the respective currency of borrowing or applicable benchmark

i. ECB can be raised for investment such as import of capital goods (as classified by DGFT in the Foreign Trade Policy), new projects, modernization/expansion of existing production units] in real sector - industrial sector including small and medium enterprises (SME), infrastructure sector and specified service sectors, namely, hotel, hospital, software in India. Infrastructure sector is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

ii. Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad.

iii. Utilization of ECB proceeds is permitted for first stage acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government's disinvestment programme of PSU shares.

iv. Interest During Construction (IDC) for Indian companies which are in the infrastructure sector, where “infrastructure” is defined as per the extant ECB guidelines, subject to IDC being capitalized and forming part of the project cost.

v. For lending to self-help groups or for micro-credit or for bonafide micro finance activity including capacity building by NGOs engaged in micro finance activities.

vi. Payment for obtaining license/permit for 3G Spectrum.

vii. Infrastructure Finance Companies (IFCs) i.e. Non Banking Financial

3.1.4 All-in-cost

3.1.5 End-use


Companies (NBFCs) categorized as IFCs by the Reserve Bank, are permitted to avail of ECBs, including the outstanding ECBs, up to 50 per cent of their owned funds, for on-lending to the infrastructure sector as defined under the ECB policy, subject to their complying with the prescribed conditions.

viii. Maintenance and operations of toll systems for roads and highways for capital expenditure provided they form part of the original project.

Utilization of ECB proceeds is not permitted :

i. for on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate,

ii. in real estate sector, iii. for working capital, general corporate purpose and repayment of existing

Rupee loans.

Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, Financial Institutions and Non-Banking Financial Companies (NBFCs) relating to ECB is not permitted.

The choice of security to be provided to the lender/supplier is left to the borrower. However, creation of charge over immoveable assets and financial securities, such as shares, in favour of the overseas lender is subject to FEMA Regulations as amended from time to time.

Borrowers are permitted to utilise ECB proceeds for foreign currency or rupee expenditure permissible. However, currently the borrowers are required to provide bifurcation of rupee and foreign exchange expenditure in Form no. 83 prior to availing ECB. ECB proceeds parked overseas can be invested in the following liquid assets (a)deposits or Certificate of Deposit or other products offered by banks rated not less than AA(-) by Standard and Poor/Fitch IBCA or Aa3 by Moody's; (b)deposits with overseas branch of an Authorized Dealer in India; and (c)Treasury bills and other monetary instruments of one year maturity having minimum rating as indicated above. The funds should be invested in such a way that the investments can be liquidated as and when funds are required by the borrower in India.

ECB funds may also be remitted to India for credit to the borrowers' Rupee accounts with AD Category - I banks in India, pending utilization for permissible end-uses.

Prepayment of ECB up to US$ 500 million may be allowed by AD banks without prior

3.1.6 End-uses not permitted

3.1.7 Guarantees

3.1.8 Security

3.1.9 Parking of ECB proceeds

3.1.10 Prepayment


approval of RBI subject to compliance with the stipulated minimum average maturity period as applicable to the loan.

The existing ECB may be refinanced by raising a fresh ECB subject to the condition that the fresh ECB is raised at a lower all-in-cost and the outstanding maturity of the original ECB is maintained. Fresh ECB can be raised at a higher all in cost ceiling subject to the overall all in cost ceiling and RBI approval.

The designated Authorised Dealer (AD bank) has the general permission to make remittances of installments of principal, interest and other charges in conformity with ECB guidelines issued by Government / Reserve Bank of India from time to time.

Borrowers may enter into loan agreement complying with ECB guidelines for raising ECB from recognized lender under Automatic Route without prior approval of RBI. The borrower must obtain a Loan Registration Number (LRN) from the Reserve Bank of India before drawing down the ECB.

The following types of proposals for ECB are covered under the Approval Route:

i. On lending by the EXIM Bank for specific purposes will be considered on a case by case basis.

ii. Banks and financial institutions which had participated in the textile or steel sector restructuring package as approved by the Government are also permitted to the extent of their investment in the package and assessment by the Reserve Bank based on prudential norms.

iii. ECB with minimum average maturity of 5 years by Non-Banking Financial Companies (NBFCs) from multilateral financial institutions, reputable regional financial institutions, official export credit agencies and international banks to finance import of infrastructure equipment for leasing to infrastructure projects.

iv. Infrastructure Finance Companies (IFCs) i.e. Non-Banking Financial Companies (NBFCs), categorized as IFCs, by the Reserve Bank, are permitted to avail of ECBs, including the outstanding ECBs, beyond 50 per cent of their owned funds, for on-lending to the infrastructure sector as defined under the ECB policy, subject to their complying with the prescribed conditions.

3.1.11 Refinancing of an existing ECB

3.1.12 Debt Servicing

3.1.13 Procedure

3.2 Approval Route

3.2.1 Eligible Borrowers


v. Foreign Currency Convertible Bonds (FCCBs) by Housing Finance Companies satisfying the following minimum criteria: (i) the minimum net worth of the financial intermediary during the previous three years shall not be less than Rs. 500 crore, (ii) a listing on the BSE or NSE, (iii) minimum size of FCCB is USD 100 million and (iv) the applicant should submit the purpose / plan of utilization of funds.

vi. Special Purpose Vehicles, or any other entity notified by the Reserve Bank, set up to finance infrastructure companies / projects exclusively, will be treated as Financial Institutions and ECB by such entities will be considered under the Approval Route.

vii. Multi-State Co-operative Societies engaged in manufacturing activity and satisfying the following criteria i) the Co-operative Society is financially solvent and ii) the Co-operative Society submits its up-to-date audited balance sheet.

viii. SEZ developers can avail of ECBs for providing infrastructure facilities within SEZ, as defined in the extant ECB policy like (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

ix. Developers of National Manufacturing Investment Zones (NMIZs) can avail of ECB for providing infrastructure facilities within SEZ, as defined in the extant ECB policy like (i) power, (ii) telecommunication, (iii) railways, (iv) roads including bridges, (v) sea port and airport, (vi) industrial parks, (vii) urban infrastructure (water supply, sanitation and sewage projects), (viii) mining, exploration and refining and (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

x. Eligible borrowers under the automatic route other than corporates in the services sector viz. hotel, hospital and software can avail of ECB beyond USD 750 million or equivalent per financial year.

xi. Corporates in the services sector viz. hotels, hospitals and software sector can avail of ECB beyond USD 200 million or equivalent per financial year.

xii. Service sector units, other than those in hotels, hospitals and software, subject to the condition that the loan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R &D, miscellaneous service companies, etc.

xiii. Corporates which have violated the extant ECB policy and are under investigation by the Reserve Bank and / or Directorate of Enforcement are


allowed to avail of ECB only under the approval route.

xiv. Cases falling outside the purview of the automatic route limits and more than maturity period indicated.

Borrowers can raise ECB from internationally recognized sources such as

a. international banks, b. international capital markets, c. multilateral financial institutions (such as IFC, ADB, CDC etc.), d. export credit agencies, e. suppliers' of equipment, f. foreign collaborators, and g. foreign equity holders (other than erstwhile OCBs). h. FCEB subscribers. i. ECB from indirect equity holders provided the indirect equity holding by

the lender in the Indian company is atleast 51%. j. ECB upto US$ 5 million - minimum paid-up equity of 25% held directly by

lender and ECB liability-equity ratio not exceeding 7:1. k. For ECB greater than US$ 5 million- Minimum paid-up equity of 25% held

by the lender and Liability: Equity ratio not exceeding 7:1.l. ECB from a Group company provided both, the borrower and the lender

are subsidiaries of the same parent.

Corporates can avail of ECB of an additional amount of US$ 250 million with average maturity of more than 10 years under the approval route, over and above the existing limit of US$ 750 million under the automatic route, during a financial year. Other ECB criteria, such as end-use, recognized lender, etc. need to be complied with. Prepayment and call/put options, however, would not be permissible for such ECB up to a period of 10 years.

All-in-cost includes rate of interest, other fees and expenses in foreign currency except commitment fee, pre-payment fee, and fees payable in Indian Rupees. Moreover, the payment of withholding tax in Indian Rupees is excluded for calculating the all-in-cost.The current all-in-cost ceilings are as under :

The following ceilings are valid till reviewed:

Average Maturity Period All-in-cost Ceilings over 6 month LIBOR*

Three years and up to five years 350 basis points

More than five years 500 basis points

* for the respective currency of borrowing or applicable benchmark.

3.2.2 Recognized Lenders

3.2.3 Amount and Maturity

3.2.4 All-in-cost ceilings


The all-in-cost ceiling for ECBs with average maturity of three and up to five years was enhanced to 6 months Libor + 350 bps with effect from November 23, 2011 and is reinstated upto 30 September 2012 on 31 March, 2012. Accordingly, eligible borrowers, proposing to avail of ECB beyond the permissible all-in-cost ceilings specified above may approach the Reserve Bank under the Approval Route.

i. Investment [such as import of capital goods (as classified by DGFT in the

Foreign Trade Pol icy) , implementat ion of new projects, modernization/expansion of existing production units] in real sector - industrial sector including small and medium enterprises (SME) and infrastructure sector - in India. Infrastructure sector is defined as (i) power, (ii) telecommunication, (iii) railways, (iv) road including bridges, (v) sea port and airport (vi) industrial parks and (vii) urban infrastructure (water supply, sanitation and sewage projects) and (viii) mining, exploration and refining (ix) cold storage or cold room facility, including for farm level pre-cooling, for preservation or storage of agricultural and allied produce, marine products and meat.

ii. Overseas direct investment in Joint Ventures (JV)/Wholly Owned Subsidiaries (WOS) subject to the existing guidelines on Indian Direct Investment in JV/WOS abroad.

iii. Interest During Construction (IDC) for Indian companies which are in the infrastructure sector, where “infrastructure” is defined as per the extant ECB guidelines, subject to IDC being capitalized and forming part of the project cost.

iv. Import of capital goods by corporate in the service sector (beyond US$ 100million), viz., hotels, hospitals and software companies.

v. Payment for obtaining license/permit for 3G Spectrum met out of rupee resources can be refinanced with a Long term ECB.

vi. Acquisition of shares in the disinvestment process and also in the mandatory second stage offer to the public under the Government's disinvestment programme of PSU shares.

vii. Repayment of Rupee loans availed of from domestic banking system subject to certain conditions.

viii. Indian companies which are in the infrastructure sector, as defined under the extant ECB policy are permitted to import capital goods by availing of short term credit (including buyers' / suppliers' credit) in the nature of 'bridge finance' subject to certain conditions.

ix. ECB for working capital for civil aviation sector subject to prescribed conditions.

i. Utilization of ECB proceeds is not permitted for on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate except specified banks and financial institutions.

ii. Utilization of ECB proceeds is not permitted in real estate excluding development of integrated township.

3.2.5 End Use

3.2.6 End Use not permitted


iii. Utilization of ECB proceeds is not permitted for working capital, general corporate purpose and repayment of existing Rupee loans.

Issuance of guarantee, standby letter of credit, letter of undertaking or letter of comfort by banks, financial institutions and NBFCs relating to ECB is not normally permitted. Applications for providing guarantee/standby letter of credit or letter of comfort by banks, financial institutions relating to ECB in the case of SME will be considered on merit subject to prudential norms.

With a view to facilitating capacity expansion and technological up-gradation in Indian Textile industry, issue of guarantees, standby letters of credit, letters of undertaking and letters of comfort by banks in respect of ECB by textile companies for modernization or expansion of textile units will be considered under the Approval Route subject to prudential norms.

The 'no objection' for creation of charge on immovable assets may be conveyed under FEMA, 1999 either in favour of the lender or the security trustee, subject to the prescribed conditions.

i. Prepayment of ECB up to US$ 500 million may be allowed by the AD bank without prior approval of Reserve Bank subject to compliance with the stipulated minimum average maturity period as applicable to the loan.

ii. Pre-payment of ECB for amounts exceeding US$ 500 million would be considered by the Reserve Bank under the Approval Route.

Existing ECB may be refinanced by raising a fresh ECB at a higher all in cost subject to the overall all-in-cost ceiling and the outstanding maturity of the original ECB is maintained.

An existing ECB can be rescheduled at a higher all-in-cost subject to the condition that the enhanced all-in-cost does not exceed the all-in-cost ceiling prescribed as per the extant guidelines.

Any changes in the terms and conditions of the ECB after obtaining LRN, required prior approval of RBI. The following powers have been delegated to the AD category I banks to approve the following requests from the ECB borrowers subject to specified conditions:

i. Changes/modifications in drawdown/ repayment schedule;ii. Changes in the currency of borrowingiii. Change of the AD Bank

3.2.7 Guarantee

3.2.8 Creation of charge on immovable assets

3.2.9 Prepayment

3.2.10 Refinancing/rescheduling of existing ECB

3.2.11 Rationalization of Procedures


iv. Changes in the name of the Borrower company

i. Civil Aviation Sector:ECB for working capital as a permissible end-use for the civil aviation sector, under the approval route, subject to the following conditions:

a. Airline companies registered under the Companies Act, 1956 and possessing scheduled operator permit license from DGCA for passenger transportation are eligible to avail of ECB for working capital;

b. ECB will be allowed to the airline companies based on the cash flow, foreign exchange earnings and its capability to service the debt;

c. ECB can be raised for working capital purposes by Airline companies possessing scheduled operator permit license from DGCA for passenger transportation upto 24 April 2013.

d. The ECB can be raised with a minimum average maturity period of three years; and.

e. The overall ECB ceiling for the entire civil aviation sector would be USD one billion and the maximum permissible ECB that can be availed by an individual airline company will be USD 300 million. This limit can be utilized for working capital as well as refinancing of the outstanding working capital Rupee loan(s) availed of from the domestic banking system. Airline companies desirous of availing of such ECBs for refinancing their working capital Rupee loans may submit the necessary certification from the domestic lender/s regarding the outstanding Rupee loan/s.

f. ECB availed for working capital/refinancing of working capital as above will not be allowed to be rolled over.

ii. Manufacturing and Infrastructure Sector (having forex earnings):Indian companies can avail ECBs for repayment of Rupee loan(s) availed of from the domestic banking system and / or for fresh Rupee capital expenditure, under the approval route, subject to them satisfying the following conditions:

a. Only companies in the manufacturing and infrastructure sector will be eligible to avail of such ECBs;

b. Such companies shall be a consistent foreign exchange earner during the past three financial years;

c. Such companies are not in the default list/caution list of the Reserve Bank of India; and

d. Such ECBs shall only be utilized for repayment of the Rupee loan(s) availed of for 'capital expenditure' incurred earlier and are still outstanding in the books of the domestic banking system and / or for fresh Rupee capital expenditure

e. The maximum permissible ECB that can be availed of by an

3.2.12 ECB End use Liberalization for working capital purpose/rupee loans for specified sectors

·

·


individual company will be limited to 75 per cent of the average annual export earnings realised during the past three financial years.

f. in case of Special Purpose Vehicles (SPVs), which have completed at least one year of existence from the date of incorporation and do not have sufficient track record/past performance for three financial years, the maximum permissible ECB that can be availed of will be limited to 50 per cent of the annual export earnings realized during the past financial year; and

g. The maximum ECB that can be availed by an individual company or group, as a whole, under this scheme will be restricted to USD 3 billion.

iii. Infrastructure Sector (Other Cases):Take-out financing arrangement through ECB, under the approval route, has been permitted for refinancing of Rupee loans availed of from the domestic banks by eligible borrowers in the sea port and airport, roads including bridges and power sectors for the development of new projects, subject to the following conditions:

a. The corporate developing the infrastructure project should have a tripartite agreement with domestic banks and overseas recognized lenders for either a conditional or unconditional take-out of the loan within three years of the scheduled Commercial Operation Date (COD). The scheduled date of occurrence of the take-out should be clearly mentioned in the agreement.

b. The loan should have a minimum average maturity period of seven years.

c. The domestic bank financing the infrastructure project should comply with the extant prudential norms relating to take-out financing.

d. The fee payable, if any, to the overseas lender until the take-out shall not exceed 100 bps per annum.

e. On take-out, the residual loan agreed to be taken out by the overseas lender would be considered as ECB and the loan should be designated in a convertible foreign currency and all the extant norms relating to ECB should be complied with.

f. Domestic banks / Financial Institutions will not be permitted to guarantee the take-out finance.

g. The domestic bank will not be allowed to carry any obligation on its balance sheet after the occurrence of the take-out event.

h. Reporting arrangement as prescribed under the ECB policy should be adhered to.

3.3.1 Foreign Currency Exchangeable Bond (FCEB) means a bond expressed in foreign

·

3.3 Foreign Currency Exchangeable Bonds


currency, the principal and interest in respect of which is payable in foreign currency, issued by an Issuing Company and subscribed to by a person who is a resident outside India, in foreign currency and exchangeable into equity share of another company, to be called the Offered Company, in any manner, either wholly, or partly or on the basis of any equity related warrants attached to debt instruments. The FCEB may be denominated in any freely convertible foreign currency.

3.3.2 Eligible Issuer: The Issuing Company shall be part of the promoter group of the Offered Company and shall hold the equity share/s being offered at the time of issuance of FCEB.

3.3.3 Offered Company: The Offered Company shall be a listed company, which is engaged in a sector eligible to receive Foreign Direct Investment and eligible to issue or avail of Foreign Currency Convertible Bond (FCCB) or External Commercial Borrowings (ECB).

3.3.4 Entities not eligible to issue FCEB: An Indian company, which is not eligible to raise funds from the Indian securities market, including a company which has been restrained from accessing the securities market by the SEBI shall not be eligible to issue FCEB.

3.3.5 Eligible subscriber: Entities complying with the Foreign Direct Investment policy and adhering to the sectoral caps at the time of issue of FCEB can subscribe to FCEB. Prior approval of the Foreign Investment Promotion Board, wherever required under the Foreign Direct Investment policy, should be obtained.

3.3.6 Entities not eligible to subscribe to FCEB: Entities prohibited to buy, sell or deal in securities by the SEBI will not be eligible to subscribe to FCEB.

3.3.7 End-use of FCEB proceeds:

Issuing Company:a. The proceeds of FCEB may be invested by the issuing company overseas

by way of direct investment including in Joint Ventures or Wholly Owned Subsidiaries abroad, subject to the existing guidelines on overseas investment in Joint Ventures / Wholly Owned Subsidiaries.

b. The proceeds of FCEB may be invested by the issuing company in the promoter group companies.

3.3.8 Promoter Group Companies: Promoter group companies receiving investments out of the FCEB proceeds may utilize the amount in accordance with end-uses prescribed under the ECB policy.

3.3.9 End-uses not permitted: The promoter group company receiving such investments will not be permitted to utilise the proceeds for investments in the capital market or in real estate in India.

3.3.10 All-in-cost: The rate of interest payable on FCEB and the issue expenses incurred in foreign currency shall be within the all-in-cost ceiling as specified by Reserve Bank under the ECB policy.


3.3.11 Pricing of FCEB: At the time of issuance of FCEB the exchange price of the offered listed equity shares shall not be less than the higher of the following two.

I. The average of the weekly high and low of the closing prices of the shares of the offered company quoted on the stock exchange during the six months preceding the relevant date; and

ii. The average of the weekly high and low of the closing prices of the shares of the offered company quoted on a stock exchange during the two week preceding the relevant date.

3.3.12 Average Maturity: Minimum maturity of FCEB shall be five years. The exchange option can be exercised at any time before redemption. While exercising the exchange option, the holder of the FCEB shall take delivery of the offered shares. Cash (Net) settlement of FCEB shall not be permissible.

3.3.13 Parking of FCEB proceeds abroad: The proceeds of FCEB may be retained and / or deployed overseas by the issuing / promoter group companies in accordance with the policy for the ECB or repatriated to India for credit to the borrowers' Rupee accounts with AD Category I banks in India pending utilization for permissible end-uses. It shall be the responsibility of the issuing company to ensure that the proceeds of FCEB are used by the promoter group company only for the permitted end-uses prescribed under the ECB policy. The issuing company should also submit audit trail of the end-use of the proceeds by the issuing company / promoter group companies to the Reserve Bank duly certified by the designated AD bank.

3.3.14 Operational Procedure: Issuance of FCEB shall require prior approval of the Reserve Bank under the Approval Route for raising ECB. The Reporting arrangement for FCEB shall be as per the extant ECB policy.

Designated AD banks are permitted to approve elongation of repayment period for loans raised under the erstwhile US$ 5 Million Scheme, provided there is a consent letter from the overseas lender for such reschedulement without any additional cost. Such approval with existing and revised repayment schedule along with the Loan Key/Loan Registration Number should be initially communicated to the Chief General Manager-in-Charge, Foreign Exchange Department, Reserve Bank of India, Central Office, ECB Division, Mumbai within seven days of approval and subsequently in ECB - 2.

Trade Credits' (TC) refer to credits extended for imports directly by the overseas supplier, bank and financial institution for maturity of less than three years. Depending on the source of finance, such trade credits include suppliers' credit or buyers' credit. Suppliers' credit relates to credit for imports in to India extended by the overseas supplier, while buyers' credit refers to loans for payment of imports in to India arranged by the importer from a bank or financial institution outside India

3.4 ECB under the erstwhile US$ 5 Million Scheme

3.5 Trade Credits for imports into India


for maturity of less than 3 years. It may be noted that buyers' credit and suppliers' credit for 3 years and above come under the category of ECB governed by ECB guidelines.

AD banks are permitted to approve trade credits for imports into India up to US$ 20 million per import transaction for imports permissible under the current Foreign Trade Policy of the Directorate General of Foreign Trade (DGFT) with a maturity period up to one year (from the date of shipment). For import of capital goods as classified by DGFT, AD banks may approve trade credits up to US$ 20 million per import transaction with a maturity period of more than one year and less than three years. No roll-over/extension will be permitted beyond the permissible period. AD banks shall not approve trade credit exceeding US$ 20 million per import transaction.

Companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB) can avail of trade credit up to a maximum period of five years for import of capital goods as classified by DGFT subject to the following conditions:

I. the trade credit must be abinitio contracted for a period not less than fifteen months and should not be in the nature of short-term roll overs; and

ii. AD banks are not permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution for the extended period beyond three years.

The current all-in-cost ceilings are as under:

Maturity period All-in-cost ceilings over 6 months LIBOR*

Up to three years

More than one year 350 bpsbut less than three years

More than three years upto five years#

* for the respective currency of credit or applicable benchmark.# Applicable only for infrastructure sector.

The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling / processing charges, out of pocket and legal expenses, if any.

AD banks are permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial

3.5.1 Amount and Maturity

3.5.2 All-in-cost ceilings

3.5.3 Guarantee


institution, up to US$ 20 million per transaction for a period up to one year for import of all non-capital goods permissible under Foreign Trade Policy (except gold) and up to three years for import of capital goods, subject to prudential guidelines issued by Reserve Bank from time to time. The period of such Letters of credit / guarantees / LoU / LoC has to be co-terminus with the period of credit, reckoned from the date of shipment.

The present period of realization and repatriation of the amount to India of export value of goods or software exported is 12 months.

However, no specific time period for realization and repatriation of the amount to India of export value of goods or software exported by a unit situated in Special Economic Zone (SEZ) has been specified. In case of exports made to warehouses established outside India as soon as it is realized or in any case within 15 months from the date of shipment of goods.

Remittances of payments against imports should be completed not later than six months from the date of shipment, except in cases where amounts are withheld towards guarantee of performance.

A foreign investment is now no longer linked with the technical assistance. As such, now, it is possible for foreign investor to either do equity investment or enter into technology transfer agreement. It is also possible to do foreign investment as well as technical collaboration. Technology transfer can take place in many forms and methods. It comprises of various species of intellectual property like copy right, patents, trade marks, designs, know how etc. Technology transfer agreement may involve a one-time payment of fees or it may involve longer-term arrangements with periodic royalty payments.

The remittance under technical agreements is a current account transaction and as such is freely remittable. The Government of India permits the payments for royalty, lump sum fee for transfer of technology and payments for use of trademark/brand name on the automatic route i.e. without any approval of the Government of India. In other words, there shall be no restriction on limits of royalty payments from India and can be remitted without any approval of Government or Reserve Bank of India.

However, all such payments will be subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 as amended from time to time. A suitable post-reporting system for technology transfer/ collaborations and use of trade mark/ brand name will be notified by the Government separately soon.

3.6 Time period for realization of Export payments

3.7 Time period for payment towards Import obligations

4.0 EXCHANGE CONTROL REGULATIONS - FOREIGN TECHNOLOGY TRANSFER AND ROYALTY PAYMENTS



ANNEXURE - 1

ANNEXURE - 2

I. Atomic Energy ii. Lottery Businessiii. Gambling and Bettingiv. Business of chit fundv. Nidhi Company vi. Trading in Transferable Development Rights (TDRs)vii. Activities/sector not opened to private sector investmentviii. Agriculture (excluding Floriculture, Horticulture, Development of seeds, Animal

Husbandary, Pisciculture and cultivation of vegetables, mushrooms etc. under

controlled conditions and services related to agro and allied sectors) and

Plantations (Other than Tea Plantations) ix. Real estate business, or construction of farm housesx. FDI in manufacturing of 'cigars, cheroots, cigarillos and cigarettes, of tobacco or of

tobacco substitutes'

Sr.No.

Sector/Activity Remarks % of FDI

Cap / EquityEntryRoute

Automatic100%(a) F l o r i c u l t u r e , H o r t i c u l t u r e , A p i c u l t u r e a n d C u l t i v a t i o n o f V e g e t a b l e s & Mushrooms under controlled conditions

(b) Deve lopment and production of Seeds and planting material;

© Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, under controlled conditions; and

(d) services related to agro and allied sectors

NB: Besides the above, FDI is not allowed in any o t h e r a g r i c u l t u ra l sector/activity

Subject to1. S a fe ty re q u i re m e n t s

prescribed under the Environment (Protection) Act on the genetically modified organisms

2. F o r e i g n T r a d e ( D e v e l o p m e n t a n d Regulation) Act, 1992.

3. Import of materials to be in accordance w i th the National Seeds Policy and

4. Approvals from Genetic Engineering Approval Committee (GEAC) and Review Committee on Genet ic Manipulat ion (RCGM).

I AGRICULTURE

1. Agriculture & Animal Husbandry

Sr.No.



Government100%Tea sector including tea plantations

NB: Besides the above, FDI is not allowed in any o t h e r p l a n t a t i o n sector/activity

(I) Compulsory divestment of 26% equity of the company in favour of an Indian partner/ Indian public within a period of 5 years

(ii) Prior approval of the State Government concerned in case of any future land use change.

Automatic100%Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious o re s b u t exc l u d i n g titanium bearing minerals and its ores; subject to the Mines and Minera ls ( D e v e l o p m e n t & Regulation) Act, 1957.

Subject to Mines and Minerals (Development & Regulation) Act, 1957.

Automatic

Automatic

100%

100%

(1) Coal & Lignite mining f o r c a p t i v e consumption by power projects, iron & steel and cement units and o t h e r e l i g i b l e activities permitted under and subject to the provisions of Coal M i n e s (Nationalization) Act, 1973

(2) S e t t i n g u p c o a l processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and s h a l l s u p p l y t h e washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.

Subject to the provisions of Coal Mines (Nationalization) Act, 1973www.coal.nic.in

Subject to the provisions of Coal Mines (Nationalization) Act, 1973www.coal.nic.in


2. Tea Plantation

3. MINING

Coal and Lignite

Sr.No.

Sector/Activity Remarks EntryRoute


Government100%Min ing and minera l separation of titanium bearing minerals & ores, its value addition and integrated act iv it ies s u b j e c t to se c to ra l regulations and the Mines a n d M i n e r a l s ( D e v e l o p m e n t a n d Regulation Act, 1957).

Subject to Sectoral regulations and the Mines and Minerals (Development and Regulation Act, 1957)

The objective is to ensure that the raw material available in the country is utilized for se t t i n g u p d ow n st re a m industries and the technology available internationally is also made available for setting up such industries within the country. Thus, if with the technology transfer, the objective of the FDI Policy can be achieved, the conditions prescribed at (i) (A) above shall be deemed to be fulfilled.

Subject to 1. D i r e c t i o n s o f t h e

Department of Atomic Energy

2. Regulations for “prescribed substances” under the Atomic Energy Act, 1962

3. Atomic Energy (Control of Production and Use) Order, 1953

4. Atomic Energy Regulatory Board such as Atomic E n e r g y ( R a d i a t i o n Protection) Rules, 2004 and the Atomic Energy ( S a f e D i s p o s a l o f Radioactive Wastes) Rules, 1987.

Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities

Automatic100%Exploration activities of oil and natural gas fields, infrastructure related to marketing of petroleum products and natural gas, marketing of natural gas and petroleum products, p e t r o l e u m p r o d u c t p i p e l i n e s , n a t u r a l g a s /p i p e l i n e s , L N G R e g a s i f i c a t i o n infrastructure, market study and formulation and Petroleum refining in the private sector, subject

Subject to the existing sectoral p o l i c y a n d r e g u l a t o r y framework in the oil marketing sector and the policy of the G ove r n m e nt o n p r i va te participation

4. Petroleum & Natural Gas

% of FDICap / Equity


Sr.No.


to the existing sectoral policy and regulatory framework in the oil marketing sector and the policy of the Government on private participation in exploration of oil and the discovered f ie lds of national oil companies

Government49%Petroleum refining by the P u b l i c S e c t o r Undertakings (PSU) , w i t h o u t a n y disinvestment or dilution of domestic equity in the existing PSUs

MANUFACTURING

5. Manufacture of items reserved for production in Micro and Small Enterprises (MSEs)

FDI in MSEs (as defined under Micro, Small And Medium Enterprises Development Act, 2006 (MSMED, Act 2006)) will be subject to the sectoral caps, entry routes and other relevant sectoral regulations. Any industrial undertaking which is not a Micro or Small Scale Enterprise, but manufactures items reserved for the MSE sector would require Government route where foreign investment is more than 24% in the capital. Such an undertaking would also require an Industrial License under the Industries (Development & Regulation) Act 1951, for such manufacture. The issue of Industrial License is subject to a few general conditions and the specific condition that the Industrial Undertaking shall undertake to export a minimum of 50% of the new or additional annual production of the MSE reserved items to be achieved within a maximum period of three years. The export obligation would be applicable from the date of commencement of commercial production and in accordance with the provisions of section 11 of the Industries (Development & Regulation) Act 1951.

Government26%Defence Industry subject to Industrial license under t h e I n d u s t r i e s ( D e v e l o p m e n t & Regulation) Act, 1951

Subject to1. Consultation with the

Ministry of Defence2. Applicant to be only an

I n d i a n C o m p a n y o r p a r t n e r s h i p f i r m , management and control to be in the hands of resident

3. The Government reserves the right to verify the antecedents of the foreign collaborators and domestic promoters

4. There would be a three-year lock-in period for transfer of equity from one non-resident investor to another non-res ident investor (including NRIs & erstwhile OCBs with 60% or more NRI stake) and such transfer would be subject to prior

6. DEFENCE



Sr.No.


INFORMATION SERVICES

SERVICES SECTOR

7. Broadcasting www.mib.nic.in

a p p r o v a l o f t h e Government.

5. The Ministry of Defence is not in a position to give purchase guarantee for p r o d u c t s t o b e manufactured. However, the planned acquisition p ro g ra m m e fo r s u c h equipment and overall requirements would be made available to the extent possible.


Automatic up to 49%

Government route

beyond 49% and up

to 74%

74%(1) Teleports (setting up o f u p - l i n k i n g HUBs/Teleports);

(2) Direct to Home (DTH);(3) Cable Networks (Multi

System Operators (MSOs) operating at National or State or District level and u n d e r t a k i n g u p g r a d a t i o n o f networks towards d ig ita l izat ion and addressability);

(4) Mobile TV;(5)Headend-in-the Sky

Broadcasting Service (HITS)

Subject to conditions of the Ministry of Information and Broadcasting

Broadcasting Carriage Services

Broadcasting Content Services

Automatic49%Cable Networks [Other MSOs not undertaking upgradation of networks towards digitalization and addressability and Local Cable Operators (LCOs)]

Government26%Terrestrial Broadcasting FM (FM Radio), subject to s u c h t e r m s a n d conditions, as specified from time to time, by Ministry of Information & Broadcasting, for grant of permission for setting up of FM Radio stations

Subject to conditions of the Ministry of Information and Broadcasting


Sr.No.



Government

Government

Government

Government

26%

26% (FDI and investment by NRIs/PIOs/FII)

26% (FDI and investment by NRIs/PIOs/FII)

Up-linking of 'News & Current Affa i rs' TV Channels

Publishing of Newspaper and periodicals dealing with news and current affairs.

Subject to1. Compl iance w i th the

relevant Up-linking/Down-linking Policy notified by the Ministry of Information & Broadcasting.

2. Mandatory requirements for Key executives of the Co m pa ny & Se cu r i ty Clearance of Personnel.

3. P r i o r a p p r o v a l s f o r appointment and change of k e y e x e c u t i v e s a n d directors.

4. Infrastructure / Network / S o f t w a r e r e l a t e d requirement to be fulfilled apart from some other conditions.

100%Up-linking of Non-'News & Current Affa i rs' TV Channels/Down-linking of TV Channels.

Publication of Indian e d i t i o n s o f fo re i g n magazines dealing with news and current affairs.

8. Print Media

Subject to guidelines of Ministry of Information & Broadcasting

Government

Government

100%

100%

Publishing/printing of Scientific and Technical M a g a z i n es/s p e c i a l ty journa ls/per iod ica ls , subject to compliance with the legal framework a s a p p l i c a b l e a n d guidelines issued in this regard from time to time by Ministry of Information and Broadcasting.

Publication of facsimile e d i t i o n o f f o r e i g n newspapers

Subject to guidelines of Ministry of Information & Broadcasting

FDI should be made by the owner of the original foreign newspapers and subject to guidelines issued by Ministry of Information & Broadcasting


Sr.No.



Government100%The Civil Aviation sector i n c l u d e s A i r p o r t s , Scheduled and Non-Schedu led domest ic p a s s e n g e r a i r l i n e s , H e l i c o p t e r s e r v i c e s / S e a p l a n e services, Ground Handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions. For the purposes of the Civil Aviation sector.

Subject to1. Aircraft Act, 19342. C i v i l A v i a t i o n

Requirements issued by the Ministry of Civil Aviation;

www.civilaviations.nic.in

Automatic

Automatic up to 49%

Automatic

Automatic

Automatic up to 49%

Government route

beyond 49% and up

to 74%

Automatic up to 74%

Government route

beyond 74%

Government route

beyond 49% and up to

74%

100%

74% FDI (100% for

NRIs)

49% FDI(100% for NRIs)

100%

74% FDI(l00% for NRIs)

100%

(a) Greenfield projects

(1) G ro u n d H a n d l i n g Services subject to sectoral regulations and security clearance

(1) S c h e d u l e d A i r T r a n s p o r t S e r v i ce/ D o m est i c Scheduled Passenger Airline

(3) H e l i c o p t e r serv ices/seap lane services requiring DGCA approval

(2) Non-Scheduled Air Transport Service

(b) Existing projects

9. Civil Aviation

Airports

Other services under Civil Aviation sector

Air Transport Services


Sr.No.



100% Automatic

Automatic

(2) M a i n te n a n ce a n d Repair organizations; f l y i n g t r a i n i n g i n s t i t u t e s ; a n d technical training institutions

Government100%

100%

Courier services for c a r r y i n g p a c k a g e s , parcels and other items which do not come within the ambit of the Indian Post Office Act, 1898 and excluding the activity r e l a t i n g t o t h e distribution of letters

10 Subject to existing laws and exclusion of activity relating to distribution of letters, which is exclusively reserved for the Statewww.indiapost.gov.in

Townships, housing, built-up infrastructure and c o n s t r u c t i o n -development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure)

11. Construction Development: Townships, Housing, Built-up infrastructure

Refer Conditions below:

(1) The following conditions shall be required to be fulfilled:(i) In case of development of serviced housing plots, a minimum land area of 10 hectares

(ii) In case of construction-development projects, a minimum built-up area of 50,000 sq. mts

(iii) In case of a combination project, any one of the above two conditions would suffice

(2) Minimum capitalization of US$10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company.

(3) Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. Original investment means the entire amount brought in as FDI. The lock-in period of three years will be applied from the date of receipt of each installment/tranche of FDI or from the date of completion of minimum capitalization, whichever is later. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB.

(4) At least 50% of each such project must be developed within a period of five years from the date of obtaining all statutory clearances. The investor/investee company would not be permitted to sell undeveloped plots.

(5) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/Municipal/Local Body concerned.


Sr.No.



Government

Government

Automatic100%

49%

74%

Industrial Parks – new and existing

Private Security Agencies

12

14

15

S u b j e c t t o c o n d i t i o n s inclusions and exclusions with respect to Industrial and infrastructure activities

Satellites – Establishment and operation, subject to the sectoral guidelines of D e p a r t m e n t o f Space/ISRO

13. Satellites – Establishment and operation

(6) The investor/investee company shall be responsible for obtaining all necessary approvals

(7) The State Government/Municipal/Local Body concerned, which approves the building/development plans, would monitor compliance of the above conditions by the developer.

Note:(i) The conditions at (1) to (4) above would not apply to Hotels & Tourism, Hospitals, Special Economic Zones (SEZs), Education Sector, Old age Homes and investment by NRIs.

Note: FDI is not allowed in Real Estate Business.

Te l e c o m S e r v i c e s Investment caps and other conditions for specified services are given below

Subject to1. Compl iance w i th the

relevant Up-linking/Down-linking Policy notified by the Ministry of Information & Broadcasting.

2. Mandatory requirements for Key executives of the Co m pa ny & Se cu r i ty Clearance of Personnel.

3. P r i o r a p p r o v a l s f o r appointment and change of k e y e x e c u t i v e s a n d directors.

4. Infrastructure / Network / S o f t w a r e r e l a t e d requirement to be fulfilled apart from some other conditions.

74%

74%

Telecom services

(a) ISP with gateways(b)ISP's not providing gateways i.e. without gate-ways (both for satell ite and marine cables)Note: The new guidelines of August 24, 2007 Department of Te l e co m m u n i ca t i o n s provide for new ISP licenses with FDI up to 74%(c) Radio paging(d) End-to-End bandwidth

Automatic up to 74%

Government route


74%

Automatic up to

49%Government route


74%


Sr.No.



100%

100%

100%

100%

Cash & Carry Wholesale Tr a d i n g / W h o l e s a l e Tr a d i n g ( i n c l u d i n g sourcing from MSEs)

Test marketing of such i t e m s f o r w h i c h a company has approval for manufacture, provided

Single Brand product retail trading

E-commerce activities

E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform

16. TRADING

Automatic

Government

Government

Automatic

Subject tolicenses/registration/permits, as specified under the relevant Acts/Regulations/Rules/Orders of the State Government / G o v e r n m e n t B o d y / G o v e r n m e n t A u t h o r i t y / L o c a l S e l f -Government Body

Full records indicating all the details of such sales like name of entity, kind of entity, registration/license/permit etc. number, amount of sale etc. should be maintained on a day to day basis.WT of goods wou ld be permitted among companies of the same group.

However, such WT to group companies taken together should not exceed 25% of the total turnover of the wholesale venture

Such test marketing facility will be for a period of two years, and investment in setting up m a n u f a c t u r i n g f a c i l i t y commences simultaneously with test marketing

Certain Conditions hereunder

Such companies would engage only in Business to Business (B2B) e-commerce and not in retai l trading, inter-a l ia i m p l y i n g t h a t e x i s t i n g restrictions on FDI in domestic trading would be applicable to e-commerce as wel l . E-commerce for retail trading prohibited

(a) Products to be sold should be of a 'Single Brand' only.

(b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.

(c) 'Single Brand' product-retail trading would cover only products which are branded during manufacturing.


Sr.No.



(d) Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country

(e) In respect of proposals involving FDI beyond 51%, sourcing of 30% of the value of goods purchased will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the goods purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

(f) Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of single-brand retail trading.

Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for Government approval.

FDI in multi brand retail trading, in all products, will be permitted, subject to the following conditions:(i) Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded.

(ii) Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.

(iii) At least 50% of total FDI brought in shall be invested in 'back-end infrastructure' within three years of the first tranche of FDI, where 'back-end infrastructure' will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of back-end infrastructure

(iv) At least 30% of the value of procurement of manufactured/processed products purchased shall be sourced from Indian 'small industries' which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the manufactured/processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

(v) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking. In States/Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.

51%Multi Brand Retail Trading Government

Sr.No.



(vi) The above policy is an enabling policy only and the State Governments/Union Territories would be free to take their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in those States/Union Territories which have agreed, or agree in future, to allow FDI in MBRT under this policy.

(vii) Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading.

(viii) Applications would be processed in the Department of Industrial Policy & Promotion, to determine whether the proposed investment satisfies the notified guidelines, before being considered by the FIPB for Government approval.

List of States/Union Territories include: Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu and Dadra and Nagar Haveli (Union Territories)

Government

Government

49% of paid-up

capital of ARC

20% (FDI and

Portfolio Investment)

(iii) Any individual investment of more than 10% would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Subject to caps and restrictions on individual holdings

Subject to Forward Contracts (Regulation) Act, 1952

Subject to caps and restrictions on individual holdings

'Asset Reconstruction Company' (ARC) means a company registered with the Reserve Bank of India under Section 3 of the S e c u r i t i s a t i o n a n d R e c o n s t r u c t i o n o f Financial Assets and Enforcement of Security I n t e re s t A c t , 2 0 0 2 (SARFAESI Act)

Banking- Public Sector s u b j e c t to B a n k i n g Companies (Acquisition & Transfer of Undertakings) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks.

Banking - Private sector

17. Asset Reconstruction Companies

19. Banking- Public Sector

18. Banking -Private sector

20. Commodity Exchanges

Automatic up to 49%

Government route


74%

74% including

investment by FIIs


Sr.No.



Government

Government (For FDI)

Government (For FDI)

Automatic

Automatic

49% (FDI & FII)

49% (FDI & FII) [Investment by Registered FII

under Portfolio Investment

Scheme (PIS) will be limited to 23% and Investment under FDI

Scheme limited to 26%]

26%

100%

Subject to 1. C r e d i t I n f o r m a t i o n

Companies (Regulation) Act, 2005

2. Caps and restrictions on individual and overal l holdings

3. Reporting to RBI in case of exceeding certain limits

(I) FII purchases shall be restricted to secondary market only and(ii) No non-resident investor/entity, including persons acting in concert, will hold more than 5% of the equity in these companies.

FII can invest only through purchases in the secondary market

Subject to Insurance Act, 1938 and IRDAwww.irda.gov.in

C r e d i t I n f o r m a t i o n Companies

P o l i c y f o r F D I i n Commodity Exchange

Insurance

Foreign investment in NBFC is allowed under the automatic route in only the following activities:

(I) Merchant Banking

(ii) Under Writing

(iii) Portfolio Management Services

Infrastructure companies in Securities Markets, namely, stock exchanges, depositories and clearing c o r p o r a t i o n s , i n compliance with SEBI Regulations.

21. Credit Information Companies (CIC)

23. Insurance

24. Non-Banking Finance Companies (NBFC)

22. Infrastructure Company in the Securities Market

49% (FDI & FII) [FDI limit

of 26 per cent and an FII limit of 23 per cent of the paid-up

capital]


Sr.No.



(iv) Investment Advisory Services

(v) Financial Consultancy

(vi) Stock Broking

(vii) Asset Management

(viii) Venture Capital

(ix) Custodian Services

(x) Factoring

(xi) Credit Rating Agencies

(xii) Leasing & Finance

(xiii) Housing Finance

(xiv) Forex Broking

(xv) Credit Card Business

(xvi) Money Changing Business

(xvii) Micro Credit

(xviii) Rural Credit

Investment would be subject to the following minimum capitalization norms:(i) US $0.5 million for foreign capital up to 51% to be brought upfront

(ii) US $ 5 million for foreign capital more than 51% and up to 75% to be brought upfront

(iii) US $ 50 million for foreign capital more than 75% out of which US$ 7.5 million to be brought upfront and the balance in 24 months.

(iv) NBFCs (i) having foreign investment more than 75% and up to 100%, and (ii) with a minimum capitalisation of US$ 50 million can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. The minimum capitalization condition as mandated shall not apply to downstream subsidiaries.

(v) Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned in (i), (ii) and (iii) above and (vi) below.

(vi) Non- Fund based activities : US $0.5 million to be brought upfront for all permitted non-fund based NBFCs irrespective of the level of foreign investment subject to the following condition:


Sr.No.



It would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of an NBFC holding/operating company.

Note: The following activities would be classified as Non-Fund Based activities:(a)Investment Advisory Services(b)Financial Consultancy(c)Forex Broking(d)Money Changing Business(e)Credit Rating Agencies

Leasing & Finance covers only financial leases and not operating leases.

NBFCs will have to comply with the guidelines of the relevant regulator/s, as applicable

Automatic

Government

100%

100%

(I) Such foreign investment would be subject to an FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital; (ii) FII investments would be permitted under the automatic route and FDI would be permitted under the government approval route;

Greenfield

Existing Companies

P o w e r E x c h a n g e s registered under the C e n t r a l E l e c t r i c i t y Regulatory Commission ( P o w e r M a r k e t ) Regulations, 2010

25. Pharmaceuticals

26. Power Exchanges

Government (for FDI)

49% (FDI & FII)


Chapter 6Taxation System

India Gate, New Delhi


6 TAXATION SYSTEM

1.0 INTRODUCTION

2.0 INCOME TAX ON CORPORATIONS

2.1 General Structure and Scope

2.2 Rates of Tax

The Income-tax Act, 1961 contains the law relating to Indian income tax and The Wealth Tax Act, 1957 contains the law relating to taxation of certain specified wealth (assets). Revisions in the tax rates and other duties are made through the annual Finance Act or through specific amendments. The tax administrators are not authorized to make changes in the tax legislation but are empowered by the statutes to make rules to carry out the provisions of law. The Ministry of Finance (Department of Revenue) through the Central Board of Direct Taxes (CBDT), an apex tax authority, implements and administers the direct tax laws in India.

The companies are classified into ‘domestic companies’ and ‘foreign companies’ for tax purposes. The term ‘domestic company’ means an Indian company or any other company, which in respect of its income liable to tax under the Income-tax Act, has made the prescribed arrangement for the declaration and payment within India of the dividends (including dividends on preference shares) payable out of such income. The term ‘foreign company’ means a company, which is not a domestic company.

A company is treated as ‘resident’ in India in any financial year, if:i. it is an Indian company i.e. a company formed and registered in India under the

Companies Act, 1956 orii. during that year, the control and management of its affairs is situated wholly

in India.

In view of the above, an Indian company is always an Indian resident. Consequently, an Indian company that is wholly owned by a foreign entity and managed from India by foreign individuals or companies is also considered as a resident Indian company. A foreign company is treated as resident only if it is wholly controlled and managed from India during the relevant financial year.

2.2.1 The rates of tax for financial year 2011-12 and 2012-13 are inclusive of surcharge and education cess applicable thereon, as such the tax rates given herein below are the effective tax rates.

2.2.2 The corporate tax year is the year ending 31 March and income of the same is taxed in the assessment year commencing on the succeeding 1 April. The rates of tax for the assessment year 2012-13 (financial year 2011-12) and for the assessment year 2013-14 (financial year 2012-13) in respect of taxable income (other than long term capital gains & short term capital gains u/s 111A) are:


2.2.3 Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT)

2.2.4 Dividend Distribution Tax (DDT)

If the income-tax payable as computed under the provisions of the Income Tax Act is less than a certain specified percentage of the book profits as referred in the table below, a special tax is levied on certain companies known as the Minimum Alternate Tax (MAT). The applicable rates of MAT for FY 2011-12 & FY 2012-13 are as below:

MAT is not applicable to non-corporate entities. MAT paid can be set-off in any of the subsequent 10 assessment years against the normal tax liability in excess of MAT payable under section 115JB of the Act. Export oriented units, units set up in Free Trade Zones / Software Technology Parks and Electronic Hardware Technology Parks are also liable to MAT. Further, MAT is also leviable on units operating in SEZ & SEZ developers.

From F.Y. 2012-13 AMT is levied on business organizations such as partnership firm, sole proprietorship, AOPs, HUFs BOIs etc. claiming profit linked tax incentive @ 19.055% on adjusted total income, if the regular income tax payable by such person is less than AMT. AMT paid can be set-off in any of the subsequent 10 assessment years.

DDT is a tax payable on the dividend declared, distributed or paid. Dividends paid by an Indian company are currently exempt from income tax in the hands of the recipient shareholders. However, the company paying the dividends is required to

Entity

Effective Tax RatesCompanies having

total incomeabove Rs. 1,00,00,000

Companies havingtotal income

up to Rs. 1,00,00,000

Domestic Company

Financial year 2011-12


Foreign Company



32.445%

32.445%

42.024%

42.024%

30.90%

30.90%

41.20%

41.20%

Entity

Effective Tax RatesCompanies having

total incomeabove Rs. 1,00,00,000

Companies havingtotal income

up to Rs. 1,00,00,000

Domestic Company



Foreign Company



20.008%

20.008%

19.4361%

19.4361%

19.055%

19.055%

19.055%

19.055%


* Chargeable on net basis at normal tax rate specified for corporates above if royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by a non-resident (not being a company) or a foreign company with Government or the Indian concern after 31 March 2003 where such non-resident or a foreign company carries on a business in India through a permanent establishment situated therein or performs professional services from a fixed place of profession situated therein and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of business as the case may be.

* * Effective in respect of royalty or fees for technical services under agreements entered into on or after 1 June 2005. The rate of 20% (Plus surcharge as applicable) would apply in respect of agreement entered into between 1 June 1997 and 1 June 2005 (30% (Plus surcharge as applicable)

pay DDT on the amount of dividends, at the rate of 16.2225%. Specified mutual funds are also liable to dividend distribution tax at specified rates. For the financial year 2012-13, the DDT rate in case of a domestic company is 16.2225%

In case a domestic company declares, distributes or pays dividend whether out of current or accumulated profits, deduction will be available from the amount of any dividend received by it from its subsidiary. The subsidiary, however, is required to pay DDT on such dividend.

Income of a foreign company or non-resident (not being a company) from royalty, technical fees, dividends, interest and income from units is taxed at the following rates (in the absence of lower rates under Double Taxation Avoidance Agreement):

2.2.5 Income of a Foreign Company or Non-resident

Type of Income

% of Gross Amount in case of payment to foreign company more than Rs . 1,00,00,000 during the FY

% o f G r o s s Amount in case of payment to foreign company less than Rs. 1,00,00,000 during the FY

Royalty and fees for technical services payable under an agreement approved by the Government of India or in accordance with new Industrial Policy *

10.506%** 10.30%**

Dividends Nil *** Nil ***

Interest received from an infrastructure debt fund

5.253% 5.15%

Interest received from Indian company on monies borrowed in foreign currency****

Income from units of notified Mutual Fund purchased in foreign currency

5.253%

Nil *****

5.15%

Nil *****


for agreement entered into prior to 1 June 1997).

*** Domestic companies are liable to pay additional DDT on the amount of dividend distributed, paid or declared.

**** Loan should be borrowed in foreign currency between 1 July 2012 and 1 July 2015 and it should be approved by the Central Government.

***** Mutual funds, other than equity oriented funds, are liable to DDT on the amount of dividend distributed, paid or declared.

2.2.6 Capital gain may arise on transfer of a capital asset. The expression “capital asset” means property of any kind. There are certain properties, which are excluded from the definition of the capital assets such as stock in trade, personal effects (except specified art works, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art), agricultural land and certain other investments.

There are two types of capital assets-long term capital assets and short-term capital assets. “Short term capital asset” means a capital asset held by an assessee for not more than 36 months, immediately prior to its date of transfer. In other words, if an assessee holds a capital asset for more than 36 months, then it is known as “long term capital asset”. However, in case of shares in a company or listed securities or units of notified mutual funds if they are held for more than 12 months immediately prior to the date of their transfer then such assets shall be classified as long-term capital assets. The gain arising on transfer of “Long term capital asset” is called Long Term Capital Gain and gain arising on transfer of “Short term capital asset” is called “Short Term Capital Gain”. Long-term capital gain is generally taxable at lower rates as compared to short-term capital gain.

Short-term capital gains are taxed at normal tax rates, except as stated in paragraph below:

2.2.7 The long-term capital gains, after indexation of cost (indexation available only to residents), are subject to tax at the rate of 20% (plus surcharge plus education cess). However, in the case of listed shares, listed securities and listed/unlisted units of mutual funds on which securities transaction tax is not payable, tax payable on long term capital gains computed without indexation of cost shall not exceed 10% (plus surcharge plus education cess).

Any long term capital gain on transfer of unlisted securities shall be taxable at 10%(plus surcharge plus education cess) in the hands of non-resident (without giving benefit of currency fluctuations and indexation).

Long-term capital gains arising from transfer on or after 1 October 2004 of equity shares of a company on a recognized stock exchange in India or a unit of an equity oriented scheme of a specified mutual fund are exempt from tax provided that sale of such shares or units are chargeable to Securities Transaction Tax (discussed separately).

The gains in respect of depreciable assets shall be taxed as short-term capital gain.


Short term capital gain arising from transfer of shares of a company on a recognized stock exchange in India or a unit of an equity oriented scheme of a specified mutual fund are taxable at 15% (plus surcharge plus education cess) provided that sale of such shares or units are chargeable to Securities Transaction Tax. Other short-term capital gains are chargeable at normal income tax rates plus surcharge and education cess at applicable rates.

An Indian company is taxed on income accruing or arising either in or outside India and on income deemed to accrue or arise in India. The term 'India' to mean the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, Continental shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 and the air space above its territory and territorial waters. A non-resident company is taxed only on income accruing or arising in India or income which is deemed to accrue or arise in India. Actual receipt of income in India is taxable in either of the cases. Income from foreign branches is taxable in India. Double taxation of foreign income of either of the entities is avoided by means of double taxation treaties which also provide for tax relief in the appropriate situation. Income of a subsidiary company is taxed separately as an independent entity.

The following categories of income are deemed to accrue or arise in India for which taxpayers in all categories (including companies) are liable to Indian tax:

ØAll income accruing or arising, whether directly or indirectly, through or from any business connection, property, asset or source of income in India or through the transfer of a capital asset situated in India.

ØIncome by way of interest payable by the government or in respect of any debt incurred, or monies loaned and used for the purposes of a business or a profession carried on in India.

ØIncome by way of royalty payable by the government or in respect of any right, property or information used or services utilized for the purposes of a business or profession carried on in India. Royalty includes any lump sum consideration received but excludes any consideration which would result to be the income of the recipient which is chargeable under the head Capital Gains.

ØIncome by way of fees payable in respect of technical services by the government or utilized in a business or profession carried on in India.

Taxation on income other than agricultural income is the province of the Central Government. Taxation of agricultural income is determined by the states and different rates are levied on such income by different states.

In order to compute the income of the company, first one has to ascertain the gross total income under each head (ignoring the incomes which are exempted from the tax) viz. rental income of property, income from business or profession, capital gains and income from other sources such as interest, dividend etc. Then the admissible deductions under Chapter VIA viz. donations, income from new industrial undertakings, income from small-scale industries, export profits of units set up in special economic zones, income from infrastructure undertakings etc.

2.3 Taxable Income


have to be made to arrive at the taxable income.

The annual value of property, consisting of any buildings or lands appurtenant thereto, of which the assessee is owner, is chargeable to tax. If, however, a house property is occupied by the assessee for the purpose of his business or profession, carried on by him, annual value of such property is not chargeable to tax. Assessee is allowed deduction of municipal taxes paid and also statutory deduction at the rate of 30% is allowed of such net annual value of the property irrespective of the actual amount spent. In addition to above, deduction is allowed for interest paid on borrowed capital. However, the amount of interest deductible is restricted to INR 150,000/- (INR 30,000/- in respect of specified cases) in case of self-occupied residential house.

Net profit as shown in Profit and Loss account prepared in accordance with the provisions of Parts II and III of the Sixth Schedule to the Companies Act, 1956 is the starting point for computing taxable income. Net profit as above is to be increased by the expenditure disallowable and is to be reduced by the expenditure allowable as per the provisions of the Income-tax Act.

Capital gains on corporate entities are taxed at the rates specified in Rates of Tax section above. Capital gains are calculated by deducting the cost of acquisition or indexed cost of acquisition, the cost of any improvement or indexed cost of improvement to the asset and transfer expenditure from the consideration received on transfer.

In case of a capital asset acquired before 1 April 1981 the cost of acquisition may be taken as the fair market value of the asset as on 1 April 1981. In case of long-term capital gains the indexed cost of acquisition and the indexed cost of improvement would be deductible from the value of consideration for determining taxable capital gains earned by residents.

Capital gains earned by non-residents on transfer of shares in or debentures of an Indian company will be computed by converting the cost of acquisition, improvement, or other expenses incurred on transfer and the sale price into the same foreign currency as was initially utilized in the purchase of the shares or debentures and reconverting the capital gain so determined in foreign currency to Indian currency. In such a case, the benefit of indexation is not available to the non-residents.

Long-term capital gains arising from transfer of equity shares of a company on a recognized stock exchange in India or a unit of an equity oriented scheme of a specified mutual fund are exempt from tax provided that sale of such shares or units are chargeable to Securities Transaction Tax.

Short term capital gain arising from transfer of equity shares of a company on a

2.3.1 Income from House Property

2.3.2 Income from Business or Profession

2.3.3 Capital Gains


recognized stock exchange in India or a unit of an equity oriented scheme of a specified mutual fund are taxable at 15% (plus surcharge plus education cess) provided that sale of such shares or units are chargeable to Securities Transaction Tax. Gains arising on transfer of capital assets by a company are exempt from tax under the following circumstances:

i. transfer by a parent company to a wholly owned Indian subsidiary company;

ii. transfer by a wholly owned subsidiary company to its Indian holding company;

iii. transfer, in a scheme of amalgamation, by an amalgamating company to the amalgamated company if the latter is an Indian company;

iv. distribution by a company of its assets to its shareholders in a liquidation; in the hands of company.

v. transfer, in a scheme of amalgamation of shares held in an Indian company by the amalgamating foreign company, to the amalgamated foreign company if;a. at least 25% of the shareholders of the amalgamating foreign

company remain shareholders of the amalgamated foreign company; and

b. such transfer does not attract tax on capital gains in the country in which the amalgamating company is incorporated.

vi. any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company;

vii. Any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the demerged foreign company to the resulting foreign company, if-a. the shareholders holding not less than three-fourths in value of the

shares of the demerged foreign company continue to remain shareholders of the resulting foreign company; and

b. such transfer does not attract tax on capital gains in the country, in which the demerged foreign company is incorporated;

viii. any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking; and

ix. transfer of capital assets or intangible assets by a partnership firm to a company or by a sole proprietary concern to a company, in the event of succession of business subject to fulfillment of specified conditions.

x. any transfer of a capital asset or intangible asset by a private company or unlisted public company (hereinafter in this clause referred to as the company) to a limited liability partnership or any transfer of a share or shares held in the company by a shareholder as a result of conversion of the company into a limited liability partnership subject to the fulfilment of specified conditions. However, in cases (i) and (ii), if the transferee company converts such capital assets into stock in trade or if the holding company or its nominees cease to hold the whole of the share capital of the subsidiary company within eight years from the date of such transfer, the capital gains exempted on the transfer will be taxed as income of the year of transfer

A source of income, which does not specifically fall under any one of the other heads of income, is to be computed and brought to charge under this head of income. Its an last and residual head of charge of income.

2.3.4 Income from Other Sources


2.4 Tax Relief

2.4.1 Tax Benefits

In order to encourage industrial growth and development, the Government of India offers several tax incentives to industrial units and foreign exchange earners in the country. These incentives reduce the tax incidence substantially and are subject to fulfillment of specified conditions.

The Income tax Act, 1961 provides for far reaching tax holidays and other tax incentives for businesses. We have enumerated, in brief, the significant tax holidays and incentives available to businesses along with the nature of deductions, eligibility criteria, quantum of deduction and period for which the deductions are available. The tax holidays and incentives are subject to fulfillment of specified conditions and those are available to enterprises engaged in certain specified activities. The below table has been updated to cover the amendments as per the Finance Act 2012 ('The Act') which shall be effective from financial year 2012-13. These are summarized below:

Quantumof Deduction

PeriodDetails of Exemption / DeductionSection

10A /10B

First 10 years uptofinancial year2010-11.First 5 yearsNext 2 yearsNext 3 years*

100%50%50%

ØFor newly established undertakings in Free Trade Zones or 100% Export Oriented Undertakings.

ØFor any eligible undertaking set up in a Special Economic Zone ('SEZ') after 1 April 2002 but before 31 March 2005.

ØExemption is available for profits from export of certain articles or things or computer software, manufactured or produced by an eligible undertaking.

ØThe term 'computer software' includes notified 'information technology enabled services'.

ØThe benefit is available to units engaged in cutting and polishing of precious and semi-precious stones.

ØThe export proceeds must be realized within specified time.

ØNo deduction under these sections will be allowed unless the assessee files the return of income within prescribed time limit.

ØThe benefit under this section will be available if.

the unit is not formed by splitting up or reconstruction of a business already in ex i stence sub ject to cer ta in exceptionsthe unit is not formed by transfer of machinery and plant previously used for any purpose to the new business subject to certain exceptions

ØThe unit availing these deductions will be subject to MAT @20.008% [(tax rate 18.5% plus surcharge 5%) plus education cess 3% thereon] having book profit exceeding INR 1,00,00,000 or 19.055% (in other cases).

·

·

PeriodDetails of Exemption / DeductionSection Quantumof Deduction

ØThe tax holiday available under sections 10A/10B to units in STPI, EHTP, FTZ and EOU will be available up to 31 March 2011. The Act has not extended such tax holidays beyond 31 March 2011.

* The deduction is allowed only on creation of a specified reserve, which is utilized for specified purposes.

10AA First 5 yearsNext 5 yearsNext 5 years+

100%50%50%

ØFor any new eligible unit set up in a Special Economic Zone ('SEZ') on or after 1 April 2005.

ØExemption is available to the entrepreneur as referred to in Section (2j) of SEZ Act, 2005 for profits derived from export of a r t i c l e s o r t h i n g s o r s e r v i ce s , manufactured, or produced or provided any services by an eligible unit.

ØThere is no restriction on realization of the export proceeds within a particular time frame for the purpose of claiming the deduction.

ØThe profits and gains derived from on-site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India.

ØThe term manufacturing includes processing such as cutting, polishing and as such cutting, polishing of precious and semi-precious stones can be entitled to this exemption.

ØThe deduction under this section is to be computed in the same proportion , which the export turnover of the eligible unit bears with the total turnover of the said unit.

ØThe benefit under this section will be available if :

the unit is not formed by splitting up or reconstruction of a business already in ex i stence sub ject to cer ta in exceptions.the unit is not formed by transfer of machinery and plant previously used for any purpose to the new business subject to certain exceptions.

ØThe unit availing these deductions will be subject to MAT @20.008% [(tax rate 18.5% plus surcharge 5%) plus education cess 3% thereon] having book profit exceeding INR 1,00,00,000 or 19.055% (in other cases).

* The deduction is allowed only on creation of a specified reserve, which is required to be utilized for specified purposes.

·

·



PeriodDetails of Exemption / DeductionSection Quantumof Deduction

Expenditure on Scientific ResearchØWhere any expenditure (other than capital expenditure on land and building)

is incurred on scientific research related to the business carried on by the assessee, 100% of such expenditure can be claimed as deduction.

ØWhere any expenditure (other than expenditure on cost of land and building), on in-house research and development facility, as approved by the prescribed authority, incurred by the assessee, engaged in the business of manufacture or production of article or thing except those specified in the Eleventh Schedule, the deduction shall be 200%) of the expenditure incurred up to 31 March 2012. The benefit of weighted deduction of 200% is extended for a further period of 5 years.

ØWhere amount is paid to a scientific research association, which has its object of undertaking scientific research or to a university, college or other institution to be used for scientific research, the deduction shall be 175% of the amount paid provided that such association, university, college or institution is approved by the Central Government. Further, amount paid to approved university, college or other institution to be used for research in social science or statistical research is eligible for 125% deduction

ØWhere the amount paid by a person to a company to be used for scientific research, provided that the company complies with the specified conditions, the weighted deduction shall be one and one-forth times (125%).. A company approved under the provisions of the said section will not be entitled to claim weighted deduction of 125% under section 35(2AB). However, deduction to the extent of 100% of the sum spent as revenue expenditure on scientific research, which is available under section 35(1)(ii) will continue to be allowed.

35/35(2AB)

Additional DepreciationØGeneral rate of depreciation for plant and machinery is 15% from financial year

2005-2006.ØAdditional depreciation of 20% is allowed for new plant and machinery (other

than ships & aircraft) acquired and installed after 31 March 2005. Additional Depreciation is available only in the year in which such machinery is first put to use.

ØAs amended by Finance Act, 2012, the allowance of additional depreciation is also extended to the assesses engaged in the business of generation and/or distribution of power.

32

Eligibility Criteria, Quantum and Period of DeductionSection

Tea / Rubber/ Coffee development allowance ØDeduction is available to assessee

engaged in the business of growing and manufacturing tea, coffee or rubber in India.

ØDeduction equal to an amount deposited in a special account with the National Bank for Agriculture and Rural Development ('NABARD') or any Deposit Account opened by the assessee and approved by the Tea Board or Coffee Board or Rubber Board from the profits is allowed.

ØThe amount has to be deposited within specified period from the end of the financial year or before furnishing the return of income, whichever is earlier.

ØThe amount has to be utilized by the assessee for specified purposes.

33AB Available for every assessment year

Upto 40% of profits

or amount deposited in special account,

whichever is less

Specified Year ofCommencement

Specified BusinessSr. No.

1*

2*

4*

5*

8*

9*

10*

11*

6*

7*

3*

From 1 April 2009 onwards












Setting up and operating a warehousing facility for storing agricultural produce

Building and operating a hotel of two star or above category

Building and operating a hospital with at least 100 beds for patients anywhere in India

Production of fertilizers in India through a new plant or a newly installed capacity in an existing plant

Setting up and operating an inland container depot or a container freight station notified or approved under the Customs Act, 1962

Bee-keeping and production of honey and beeswax

Setting up and operating a warehousing facility for storage of sugar

Developing and building a housing project under a scheme for slum redevelopment or rehabilitation framed by the Central or State Government

The business of developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government

Laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, including storage facilities being an integral part of such network

Expenditure on specified businessesØAny expenditure of capital nature incurred (other than expenditure incurred

on acquisition of any land or goodwill or financial instrument), wholly and exclusively, during the year for specified business.

* For specified business referred to at Sr. No. 1, 2, 5, 7 and 8, the deduction is available @ 150% of the capital expenditure. In respect of Sr. No. 3, 4, 6, 9, 10 and 11 the deduction is available @ 100% of the capital expenditure.Ø100% deduction is allowed in respect of any capital expenditure incurred

(other than expenditure incurred on the acquisition of any land or goodwill or financial instrument), during the year by the specified business subject to the specified provisions contained in this section.

Ø100% deduction is allowed in respect of any capital expenditure incurred (other than expenditure incurred on the acquisition of any land or goodwill or

35AD




Any expenditure incurred by way of payment of any sum to employee in connection with his voluntary retirement is eligible for amortization over 5 years, subject to specified conditions. It is proposed that in case of conversion of private company or unlisted public company to an LLP, unabsorbed expenditure incurred under voluntary retirement scheme by the private company or unlisted public company will be amortized for the remaining period by the LLP.

35DDA

Finance Act 2012, has inserted a new section for business entities for allowing weighted deduction of 150% of the expenditure incurred on agricultural extension project. The agricultural extension project eligible for this weighted deduction of 150% shall be notified by the CBDT in accordance with the prescribed guidelines.

Finance Act 2012, has inserted a new section for companies in manufacturing sector to allow weighted deduction of 150% of the expenditure (not being expenditure in the nature of cost of any land or building) incurred on skill development project. The skill development project eligible for this weighted deduction of 150% shall be notified by the CBDT in accordance with the prescribed guidelines.

35CCC

35CCD


financial instrument), during the year by the specified business subject to the specified provisions contained in this section.

Capital gains arising on transfer of plant, machinery, land, building or any rights in land / building effected in course of or in consequence of the shifting of an industrial undertaking situated in an urban area to any Special Economic Zone, shall be exempt to the extent of the amount of capital gains utilized within a period of 1 year before or 3 years after the date of transfer of the above assets, for purchase of new plant and machinery, land and building and for shifting expenses, subject to specified conditions.

Finance Act 2012, has inserted a new section to provide exemption from long term capital gain tax to an individual or an HUF on sale of a residential property (house or plot of land) in case of re-investment of the net consideration in the equity of a new start up SME company in the manufacturing sector and the SME company utilizes the said funds for purchase of new plant and machinery, subject to certain conditions.

54GA

54GB

Capital gains arising on transfer of plant, machinery, land, building or any rights in land / building effected in course of or in consequence of the shifting of an industrial undertaking situated in an urban area to any area (other than an urban area), shall be exempt to the extent of the amount of capital gains utilized within a period of 1 year before or 3 years after the date of transfer of the above assets, for purchase of new plant and machinery, land and building and for shifting expenses, subject to specified conditions.

54G

Long-term capital gains shall be exempt from tax, if an assessee invests, within a period of 6 months from the date of transfer of a long-term capital asset, the capital gains in the specified assets. The specified asset must be held for a period of 3 years from the date of its acquisition. This exemption is restricted to investment in specified assets viz. bonds issued by National Highway Authority of India and the Rural Electrification Corporation Ltd. The investment is restricted upto INR 50,00,000 per assessee per financial year for investment made on or after 1 April 2007.

54EC

Nature of activity and location Type oforganization

Quantum ofexemption

Number ofyears

Sr.No.

ØUndertaking set up in any part of India for the generation or generation and distribution, of power, which has commenced operations during 1 April 1993 to 31 March 2012*

ØU n d e r t a k i n g w h i c h s t a r t s transmission or distribution by l a y i n g a n e t wo r k o f n ew transmission or distribution lines between 1 April 1999 and 31 March 2012*

ØUndertaking which undertakes substantial renovation and modernization of the existing network of transmission or distribution lines between 1 April 2004 and 31 March 2012*

*It is extended for a further period of 1 year i.e. upto 31 March 2013

i.(b) All 100% Any 10 consecutive years out of first 15 years

Others 100% 25%

First 5 yearsNext 5 years

Company 100%30%


Co-operativeSociety

100% 25%


ØIndustrial undertaking located in notified industrially backward states.

ØManufacturing or producing any articles or things or operating cold s to ra g e p l a n t , w h i c h h a s commenced operations during 1 April 1993 to 31 March 2004 (In case of state of Jammu and Kashmir ,the commencement of operations during 1 April 1993 to 31 March 2012 ).

ØIndustrial undertaking deriving profit from the business of setting up and operating cold chain facility for agricultural produce which has begun to operate such facility on or after 1 April 1999 but before 31 March 2004.

Deductions of Profits derived by Newly Established Industrial Undertakings / Infrastructure Projects / Facilities / Developers of SEZs / Banking units, etc.

80 IA / 80 IB / 80 IC / 80 IAB / 80 ID / 80 IE / 80LA

i.(a)


Dividend referred to in section 115-O shall not be included in the total income of assessee.

10(34)


Capital gain arising from transfer of long term capital asset being an equity share in a company or a unit of an equity oriented fund, on which securities transaction tax is charged, is exempt from tax. However, this exemption is not available for computation of MAT.

10(38)



Quantum ofexemption

Number ofyears

Sr.No.

Undertaking owned by Indian Company (formed before 30 November 2005 and notified before 31 December 2005) set up for reconstruction or revival of a power generating unit, which has commenced operations in power before 31 March 2011Deduction shall not be available to person executing the above referred activities as a works contract

The renovation / modernization should result in increase in plant and machinery by at least 50% of the book value of such plant and machinery as on 1 April 2004.Deduction shall not be available to person executing the above referred activities as a works contract.

i.(c) 100% Any 10 consecutive years out of first 15 years

Indian Company

ii. Company 30% First 10 yearsA small scale industrial undertaking manufacturing and producing any article or thing and commencing manufacturing operations or operating cold storage plant from 1 April 1995 to 31 March 2002 is also eligible

Industrial undertaking located in industrially backward districts of categories A and B notified by the Central Government, manufacturing or producing articles or things (except specified low priority items) or to operate its cold storage plant or plants which has commenced operations during 1 October 1994 to 31 March 2004.

i.(d)

100%30%

100%30%



Company

Company

100%25%

100%25%

25%

100%25%

100%25%

25%



First 12 years



First 10 years

Co-operative Society



Others

Others

Others

A. Set up in category 'A' districts for all the assesses:

B. Set up in category 'B' districts for all the assesses:


Quantum ofexemption

Number ofyears

Sr.No.

Enterpr ise be ing company or consortium of companies registered in India or any authority or board or a corporation or any other body established or constituted under any Central or State Act, for carrying on business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining of a new infrastructure facility like road including toll road, bridge, rail system, highway project, water supply project, water treatment system, irrigation project, sanitation and sewage system or solid waste management system, airport, port, inland waterways and inland ports or navigational channel in the sea, commencing its operations on or after 1 April 1995. Widening of an exist ing road by construct ing additional lanes as a part of highway project is also regarded as a new infrastructure facility which is eligible for deduction as per Circular No. 4/2010 dated 18 May 2010.Deduction shall not be available to person executing above referred activities as a works contract.

iii. Company / any other body established or constituted under any Central or State Act

100%

For 10 consecutive years out of first 15 years(20 years for road, bridge, rail system, highway project, water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system)

Any company registered in India with its main object being scientific and industrial research and development which is for the time being approved by the DSIR at any time after 31 March 2000 but before 1 April 2007.

iv. Company 100%

For first 10 years (5 years if approved before 1 April 1999)

Any undertaking which starts providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service or network of trunking, broadband network and internet services on or after 1 April 1995 but before 31 March 2005.

v. All 100%30%

First 5 years Next 5 years

The above 10 years shall be consecutive AYs out of first 15 years.Deduction shall not be available to

person executing the above referred services as a works contract.

Any undertaking which begins to develop or develops and operates or maintains and operates an industrial park or SEZ notified by the Central Government which has commenced

vi. All 100%

10 years out of first 15 years.




Quantum ofexemption

Number ofyears

Sr.No.

operations during 1 April 1997 to 31 March 2011## As per amendments by the SEZ Act 2005, the exemption for SEZs notified after 1 April 2005 will now be available under section 80IAB.Deduction shall not be available to person executing the above referred services as a works contract

Any undertaking, which is engaged in refining of mineral oil on or after 1 October 1998 but not later than 31 March 2012 subject to specified conditions.Any undertaking located in any part of India and has begun or begins commercial production of mineral oil on or after 1 April 1997 is eligible for tax holiday. However, the deduction will not be available for blocks licensed under a contract awarded after 31 March 2011 under the New Exploration Licensing Policy announced by Government of India.The tax holiday is also available in respect of profits arising from the commercial production of natural gas from blocks which are licensed under the VIII Round of bidding for award of exploration contracts under the New E x p l o ra t i o n L i ce n s i n g Po l i c y announced by the Government of India and IV Round for the Coal Bed Methane and begins commercial production of natural gas on or after 1 April 2009.

Any assessee being developer of a SEZ notified by the Central Government after 1 April 2005 can claim deduction under section 80-IAB.

First 7 yearsviii. All 100%

vii. All 100% 10 years out of first 15 years

ix. All 100%

Not applicableØAny undertaking engaged in developing and building housing projects approved by a local authority before 31 March 2008.

ØIn case of projects approved during FY 2004-05, i t should be completed within 4 years from the end of the FY in which it is approved.

ØIn case of projects approved on or after 1 April 2005, it should be completed within 5 years from the end of the FY in which it is approved.

ØIn other cases it should be


Quantum ofexemption

Number ofyears

Sr.No.

completed before 31 March 2008.ØThe deduction is allowed subject to

fulfillment of various other conditions like minimum area of the land, maximum built-up area of residential and commercial units, etc.

ØIn case of multiple approvals from the local authority, the date of first approval will be considered for the calculation of time limit of completion.

ØDeduction shall not be available to a person executing the housing project as a works contract.

ØThe deduction is subject to a condition that not more than one residential unit is allotted to any person not being an individual and in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons:I. The individual or the spouse or minor children of such individual,ii. the HUF in which such

individual is the karta,iii. any person representing such

individual, the spouse or the minor chi ldren of such individual or the HUF in which such individual is the karta.


ØAn undertaking deriving profit from the integrated business of h a n d l i n g , s t o r a g e a n d transportation of food grains subject to such business beginning its operations on or after 1 April 2001.

ØThe benefit is extended to undertakings engaged in the b u s i n e s s o f p r o c e s s i n g , preservation and packaging of fruits and vegetables.

ØFurther, the benefit is extended to the undertakings engaged in the business of meat and meat products or poultry or marine or dairy products which begin to operate such business on or after 1 April 2009.

x Company 100% 30%


Others 100% 25%




Quantum ofexemption

Number ofyears

Sr.No.

xi. All 100% First 5 yearsØAny undertaking engaged in the business of operat ing and maintaining a hospital in a rural area.

ØThe undertaking shall be eligible for the deduction if such hospital is constructed in accordance with the local regulations in force, and has at least 100 beds for patients.

ØThe hospital should be constructed during the period beginning on 1 October 2004 and ended on 31 March 2008.

ØThe deduction is also available to hospitals located anywhere in India other than specified excluded areas.

ØThe said tax benefit is available to a hospital, which is constructed and has started or starts functioning at any time during the period beginning 1 April 2008 and ending on 31 March 2013.

All 100%

First 10 years

Others 100%25%


a) Undertakings and enterprises, which begins to manufacture or produce any article or thing which is not specified in 13th Schedule and / or undertake substantial expansion of existing undertakings during the period beginning fromb) Undertakings and enterprises, which begins to manufacture or produce any articles or things which is specified in 14th Schedule or commences any operation specified and / or undertake substantial expansion; during the period beginning from: ØIf located in Sikkim, from 23

December 2002 to 31 March 2007.ØIf located in Himachal Pradesh and

Uttaranchal, from 7 January 2003 to 31 March 2012.

ØIf located in North Eastern States*, from 24 December 1997 to 31 March 2007.

* States of Assam, Tr ipura , Meghalaya, Mizoram, Nagaland, Manipur and Arunachal Pradesh

xii

All 100%

First 10 years

Company 100%30%




Quantum ofexemption

Number ofyears

Sr.No.

ØOffshore banking unit in SEZ. ØFrom the business referred to in

section 6(1) of the Banking Regulation Act, 1949.

ØFrom any unit of the International Financial Services Center from approved business.

xiv Scheduled Bank or any bank incorporated by or under the law of a country outside India Or a unit of an International Financial Services Center.

100% First 5 years (beginning with the year in which prescribed permissions are obtained)

50% Next 5 years

Any undertaking engaged in business of convention centers or hotels in specified area of the National Capital Territory subject to fulfillment of certain conditions. a) engaged in the business of hotel located in specified area or b) engaged in the business of building / owning an operating an convention centre located in specified are, which has started its operations from 1 April 2007 to 31 July 2010.The aforesaid deduction has been extended to new 2 star, 3 star or 4 star

xv All 100% First 5 years

New undertakings and enterprises, which begin to manufacture or produce any eligible article or thing or provide any services or undertake substantial expansion or carry on any eligible business in any of the Northern Eastern states beginning from 1 April 2007 to 31 March 2017.The eligible businesses for this purpose are hotel (not below 2 star category), adventure and leisure sports including ropeways, providing medical and health services in the nature of nursing home with a minimum capacity of 25 beds; running an old-age home; operating vocational training institute for hotel management, catering and fo o d c ra f t , e n t re p re n e u rs h i p development, nursing and para-medical, civil aviation related training, fashion designing and industrial t ra in ing ; runn ing informat ion technology related training centre; manufactur ing of informat ion technology hardware; and bio-technology.

xiii All 100% First 10 years



Quantum ofexemption

Number ofyears

Sr.No.

hotels located in specified districts having 'World Heritage Sites'. Such hotels are required to be constructed and start during the period beginning 1 April 2008 and ending on 31 March 2013

Significant Conditions for Eligibility for Deduction under section 80IA / 80IB / 80IAB / 80IC / 80ID / 80IE / 80LA

ØFor the purpose of sections 80-IA, 80-IB and 80-IC, an eligible industrial undertaking is one, which fulfils all of the following conditions:

I. It manufactures or produces any article or thing (other than any non-priority article or thing as specified in the Eleventh Schedule) or operates one or more cold storage plant or plants in any part of India. However, restriction regarding manufacture of non-priority article specified in eleventh schedule is not applicable to small-scale industrial undertakings and industrial undertakings located in backward states (applicable in case of section 80-IB and 80-IC.

ii. It employs (a) 10 or more workers in a manufacturing process carried on with the aid of power or (b) 20 or more workers in a manufacturing process carried on without the aid of power (applicable in case of section 80-IB).

iii. It is not formed by splitting up, or reconstruction, of a business already in existence or by transfer to a new business of machinery previously used for any purpose (except under certain circumstances).

iv. The benefit of section 80-IA shall not be available to an amalgamated or demerged entity after 1 April 2007.

ØThe profits and gains of an eligible business for the purpose of determining the quantum of deduction is to be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the AY for which the deduction is to be made.

ØAn eligible enterprise engaged in development, operation and maintenance of any infrastructure facility should have entered into an agreement with the Central Government / State Government / local authority / other statutory body for developing or operating and maintaining or developing, operating and maintaining a new infrastructure facility.

ØThe exemption is also available to profits and gains derived from ships and approved hotels subject to fulfillment of certain conditions. In the case of a hotel, a significant condition is that the business of the hotel should be owned and carried on by a company registered in India with a paid up capital of Rs. 5,00,000 or more.


ØFor the enterprise where, housing or other activities are an integral part of the highway project, then the exemption is available to profits and gains derived from such project subject to condition that the profit has been transferred to a special reserve account and the same is actually utilised for the highway project excluding housing and other activities before the expiry of 3 years following the year in which such amount was transferred to the reserve account and the amount remaining unutilised shall be chargeable to tax as income of the year in which transfer to reserve account took place.

ØWhere any amount of profits and gains of an industrial undertaking or of a hotel in the case of an assessee is claimed and allowed under this section for any AY, deduction to the extent of such profits and gains shall not be allowed under any other provision of the IT Act and shall in no case exceed the profits and gains of the undertaking or hotel as the case may be.

ØAny undertaking claiming deduction under this section must furnish a report of audit in the prescribed form duly signed and verified by an accountant.

ØNo deduction under 80-IA, 80-IB, 80-IAB, 80-IC, 80-ID, 80-IE will be allowed unless the assessee files return of income within the due date specified under section 139(1).

ØWith retrospective effect from FY 2002-03

deduction in respect of profits and gains shall not be allowed under any provisions of section 10A or section 10AA or section 10B of the IT Act or under any provisions of Chapter VI-A under the heading 'C.-Deductions in respect of certain incomes' in any AY, if a deduction in respect of same amount is claimed and allowed under the various provisions referred above in such AY;the aggregate of the deductions under the various provisions referred above, shall not exceed the profits and gains of the undertaking or unit or enterprise or eligible business, as the case may be;no deductions under the various provisions referred above, shall be allowed if the deduction has not been claimed in the return of income.

ØThe transfer price of goods and services between the undertaking or unit or enterprise or eligible business and any other undertaking or unit or enterprise or business of the assessee shall be determined at the market value of such goods or services as on the date of transfer.

ØWhere a deduction under any provision of Chapter VI A under the heading “C-Deductions in respect of certain incomes” is claimed and allowed in respect of profits of any of the specified business referred to in 35AD(8)(c) for any AY, no deduction shall be allowed under the provision of section 35AD in relation to such specified business for the same or any other AY.

·

·

·


2.4.2 Tonnage tax on shipping companies

2.5 Transfer Pricing Regulations

2.5.1 Transfer Pricing regulations on Certain Domestic Transactions

Indian shipping companies are taxed on a presumptive basis. Tax is levied on the notional income of the shipping company arising from the operation of ships at normal corporate tax rates. The notional income is determined in a prescribed manner on the basis of the tonnage of the ship. Tax is payable even in the case of loss. The scheme is applicable to the shipping companies that are incorporated under the Indian Companies Act (with its effective place of management in India) with at least one ship with minimum tonnage of 15 tonnes and holding a valid certificate under the Merchant Shipping Act, 1959. Shipping companies have an option to opt for the scheme or for taxation under normal income-tax provisions. Once the scheme has been opted for, it would apply for a mandatory period of ten years and other income-tax provisions would not apply.

The Finance Act, 2001 (effective from 1st April 2001) has inserted new sections 92 to 92F in the Income-tax Act, 1961 to facilitate determination of the proper taxation methodology of the international transactions between 'associated enterprises' having regard to arm's length principles. As per the transfer pricing regulations, it is required that any income arising from an international transaction is to be computed at the arm's length price. It is also provided that to arrive at such income, the deductible expenses or interest is also to be computed at the Arm's Length Price (ALP). Further, it is provided that when any allocation or apportionment of or any contribution to any cost or expenses between two or more associated enterprises, in international transaction, is required, in connection with a benefit, service or facility provided by one or more enterprise, then the same is to be determined at arm's length price.

Arm's length price means a price that would be obtainable had the transaction taken place between independent parties in uncontrolled conditions. The methods prescribed for computing arm's length price in transfer pricing regulations are as follows:I. Comparable uncontrolled price method;ii. Resale price method;iii. Cost plus method;iv. Profit split method;v. Transactional net margin method;vi. Such other method as may be prescribed by the Board.

Further, transfer pricing regulations provide for the record keeping regarding international transactions with associated enterprises and obtaining of certificate from the Chartered Accountant. The penalties for non-disclosure of the international transactions could be 2% of the transaction value apart from penalties for concealment which range from 100% to 300% of the tax sought to be evaded.

Finance Act 2012 has extended the transfer pricing regulations to transactions

between related resident parties (i.e. domestic transaction) for the purposes of computation of income, disallowance of expenses, etc. as required under provisions of sections 40A, 80-IA, 10AA, 80A or to transactions as may be prescribed by CBDT, if aggregate amount of all such domestic transactions exceed INR 500 Lakhs in a year. This provision is applicable from FY 2012-13 onwards.

To bring down transfer pricing disputes and provide tax certainty, the Finance Act, 2012 has introduced the provisions of APA with effect from 1 July 2012.

The salient features of the APA are as follows:

ØAPA is an agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future not exceeding 5 consecutive years.

ØAPAs shall include determination of the ALP or specify the manner in which ALP shall be determined, in relation to an international transaction which the person undertakes.

ØThe APA shall be binding only on the person and the income-tax authorities in respect of the transaction in relation to which the agreement has been entered into. The APA shall not be binding if there is any change in law or facts having bearing on such APA.

In this regard, the CBDT has recently notified the APA scheme effective from 30 August 2012 laying down the procedures for constitution of APA team, procedure for filing the application for APA, terms and conditions, filing fees, relevant forms, annual compliance report, revision/cancellation/renewal of APA.

Business loss incurred in a tax year and not adjusted against other income can be carried forward for 8 years, and set off against future business profit provided the income tax return for the year of loss is filed timely. Losses from a speculation business (as defined) can be set off only against gains from speculation business for a maximum of four years. For private companies, a 51% continuity of ownership test must also be satisfied. Carry back of losses is not permitted. Further, the benefit of carry forward of losses and unabsorbed depreciation is allowed in cases of amalgamation of a company owing an 'industrial undertaking' or a ship, with another company or an amalgamation of a banking company with a banking institution sanctioned and bought into force by the central government under the Banking Regulation Act.

Unabsorbed depreciation can be carried forward indefinitely and can be set off against any income under any head of subsequent years. Short-term capital loss also can be carried forward for eight years, and set off against future capital gains only. However, long-term capital gain can be set-off only against long-term capital

2.5.2 Advance Pricing Agreements (APA)

2.6 Relief for Tax Losses



gain. No carry forward of losses will be allowed unless the assessee files return of income within the due date specified under section 139(1).

Companies are liable to submit their tax returns of the relevant financial year (i.e. year ending 31 March) on or before 30 September every year. However, for companies covered under transfer pricing regulations, the due date would be 30 November.

Tax is payable in advance on income, including capital gains, if the tax computed as payable for any year is INR 10,000/- or more. Advance tax is payable on specified dates during the financial year in the manner set out below. The advance tax payable is determined by estimating the total income (including capital gains) for the year. Tax is to be calculated at the rates applicable for the financial year and is to be reduced by the amount of withholding tax deductible or collectible in terms of any provision of the Act. While shortfalls or excess payments, consequent upon errors in estimation, may be adjusted in subsequent installments, shortfalls vis-à-vis specified percentages would attract interest. All taxes must be paid before filing return of income.

The due dates for payment of advance tax (for corporates) and the amounts payable are:

Due Date Amount Payable

On or before 15 June Not less than 15% of advance tax payable

On or before 15 September Not less than 45% of advance tax payableless earlier installment

On or before 15 December Not less than 75% of advance tax payableless earlier installments

On or before 15 March Whole of advance tax payable lessearlier installments

In case of non-payment of specified percentages of advance tax by specified dates, interest @ 1% per month or part thereof is payable on the shortfall.

The unpaid balance of tax is payable before filing the return of income with interest thereon @ 1% per month. Further, interest @ 1% per month or part thereof is payable on such balance tax, if the return is not filed within the specified time.

2.7 Returns and Payment of Taxes

2.8 General Anti-Avoidance Rule (GAAR)

3.0 INCOME TAX ON NON-CORPORATES

3.1 Residential Status

3.1.1 Individuals

Finance Act, 2012 has introduced the provisions of GAAR in the IT Act. The question of substance over form has been consistently arising in the implementation of taxation laws. In view of the aggressive tax planning with the use of sophisticated structures and other aspects, the statutory provisions are required to codify the doctrine of 'substance over form' where the real intention of the parties and effect of transactions and purpose of an arrangement is taken into account for determining the tax consequences, irrespective of the legal structure that has been superimposed to camouflage the real intent and purpose.

The implementation of GAAR has been deferred by 1 year i.e. it is applicable from FY 2013-14. Further to have more clarity on various issues relating to GAAR, an Expert Committee on GAAR has been constituted to undertake stakeholder consultations to finalize the guidelines for GAAR.

Individuals are classified into 'residents', 'non-residents' and 'residents but not ordinarily residents'. The gamut of income subject to tax is dependent on the residential status irrespective of the nationality of the individual. The residential status of an individual can be determined using the given below chart:

IDENTIFYING THE RESIDENTIAL STATUS OF AN INDIVIDUAL

Individual

StayIn India for 182 days or more in a financial year; orIn India for 60* days or more in a financial year and 365 days or more in

ØØ

ØØ

Has been a non-resident in India in 9 out of 10 preceding years ; orHas been in India for 729 days or lesser in the preceding 7 years

No Yes

ROR RNOR

No

NR

Yes

Resident

* 182 days for an individual who leaves India as a member of the crew of an Indian Ship or for the purposes of employment outside India.


For FY 2011-12

Tax Rates*Income Slabs(Rs.)

Nil0 - 1,80,000#

10.30% of income exceeding INR 1,80,000

1,80,001# - 5,00,000

INR 32,960 plus 20.60% of income exceeding INR 5,00,000

5,00,001 - 8,00,000


8,00,001 and above

For FY 2012-13

Tax Rates*Income Slabs(Rs.)

Nil0 - 2,00,000#

10.30% of income exceeding INR 2,00,000

2,00,001# -5,00,000


5,00,001 - 10,00,000

INR 1,33,900 plus 30.90% of income exceeding INR 10,00,000

10,00,001and above

3.1.2 Other Non-corporate Entities

3.2 Rates of Tax

There are certain other non-corporate entities recognized by the Income-tax law viz partnerships, trusts, Hindu Undivided Families (HUFs) etc. These entities are treated as 'resident' in India in any financial year, unless the control and management of their affairs are situated wholly outside India, during the year. The Limited Liability Partnership (LLP) is introduced as a form of entity and has been accorded the same tax treatment as a general partnership firm.

Income-tax rates for individuals and HUFs regardless of their residential status are as follows:

* The tax rates are inclusive of education cess of 3%.

# In case of a resident individual of the age of 65 years or more but less than 80 years (senior citizen) at any time during the previous year, the basic exemption income slab is INR 2,50,000 for FY 2012-13 and in case of a resident individual of the age of more than 80 years (very senior citizen) at any time during the previous year, the basic exemption income slab is INR 5,00,000 for FY 2012-13. The tax for other slabs will change accordingly. In case of a resident woman below 65 years of age at any time during the previous year, the basic exemption income slab is INR 1,90,000.


3.2.1 Tax incidence

The incidence of income tax for individuals, women and senior citizens, for FY 2012-13, having different income levels can be exemplified as follows :

Income (Rs.) Tax Liability (Rs.)

Individuals(including women)*

Very Senior Citizens(Age: 80 years or more)

Senior Citizens(Age: 60 – 80 years)

* The tax incidence for HUFs, AOPs and BOIs will be same as that of individuals.

The provisions relating to determination of taxable income are as follows:

i. Residents are liable to tax on their worldwide income.ii. Non-residents are liable to tax on income, which accrues or arises or is

deemed to accrue or arise in India as well as income, which is received or deemed to be received in India.

iii. ‘'Resident but not ordinarily resident' persons are liable to tax on income specified in (b) above and income derived from a business controlled from or profession set up in India.

iv. In respect of income earned by non-residents in the form of interest, royalty and fees for technical services, such income shall be deemed to accrue or arise in India whether or not, the non-resident has a residence or place of business or business connection in India or whether the services are rendered in India or not.

An individual's gross income includes salary, income from house property, profits and gains of business or profession, capital gains and income from other sources.

Any sum of money received on or after 1 September 2004 exceeding INR 50,000 (about US$ 1,082)* in a financial year without consideration by an individual or Hindu Undivided Families shall be included in the total income of such individual or Hindu Undivided Family. The purview of the provision has been extended with effect from 1 October 2009 to include any sum of money as well as specified properties.

3.3 Taxable Income

3.4 Gross Income

3.4.1 Gift received liable to income tax


2,00,000 Nil Nil Nil2,50,000 5,150 Nil Nil3,00,000 10,300 5,150 Nil4,00,000 20,600 15,450 Nil5,00,000 30,900 25,750 Nil8,00,000 92,700 87,550 61,800

10,00,000 1,33,900 1.28,750 1,0,300015,00,000 2,88,400 2,83,250 2,57,500

20,00,000 4,42,900 4,37,750 4,12,00025,00,000 5,97,400 5,92,250 5,66,500


The term property includes immovable properties, shares and securities, jewellery, bullion, drawings, painting, sculptures, archaeological collections, and any other work of art.

Further, it covers within its ambit, transactions undertaken in respect of shares of closely held company either for inadequate consideration or without consideration where the recipient is a firm or a closely held company.

However in case of movable / immovable property has been received without consideration than fair market value / stamp duty value exceeding INR 50,000/- will be chargeable to tax

However, the following gifts shall continue to be excluded:

i. Received from Relatives as defined in the explanation to the above provisions in the Income-tax Act.

ii. Received on the occasion of marriage of the individual.iii. Received under a will or by an inheritance or in contemplation of death of the

payer.iv. Received from any local authority as defined in the Explanation to clause (20)

of section 10 or from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to clause (23C) of section 10.

v. Received from any trust or institution registered under section 12AA.

The provisions relating to computation of capital gains tax applicable to corporate entities are equally applicable to non-corporate entities. In addition to that following exemptions are available.

Long term Capital Gains - Exemptions

Individuals and Hindu undivided families are also entitled to claim exemption from long-term capital gains under the following circumstances in accordance with the relevant provisions:i. Reinvestment of long term capital gain arising from sale of residential house

for acquisition of another residential house.ii. Reinvestment of sale proceeds arising from sale of a capital asset (other than

a residential house) for acquisition of a residential house subject to fulfillment of certain conditions.

iii. Reinvestment of capital gain arising from sale of a capital asset for investment in specified bonds.

iv. Reinvestment of capital gains arising from sale of residential property, if sale consideration is used for subscription in equity of new start up SMEs in the manufacturing sector, for purchase of new plant and machinery.

v. Reinvestment of capital gains arising from sale of a agriculture land for acquisition of another agriculture land subject to fulfillment of certain conditions.

3.5 Capital Gains Tax

3.6 Deductions and Reliefs

3.7 Deductions/ Tax Relief

3.8 Clubbing of Minor’s Income

3.9 Relief for Tax Losses

3.10 Returns and Payments of Taxes

Donations within limits, to approved charities qualify for deduction of 100% or 50%. Cash donation exceeding Rs.10,000 is not allowed as deduction.

The reliefs available to corporate entities discussed above are generally available to non-corporate entities unless specifically excluded.

For the financial year 2012-13, individuals and HUFs are entitled to deduction in respect of certain specified savings/investments/expenditure.

Income of minor children, other than income earned through personal endeavours is generally attributable to the parent that has the higher income for tax purposes. However, income of a minor child suffering from a prescribed disability is not aggregated but is taxable separately.

The provisions relating to carry forward of losses and depreciation applicable to corporate are equally applicable to non-corporate entities.

The due dates for furnishing of tax returns in case of non corporate entities are as follows:

The due dates for payment of advance tax are as follows

The employee at his option can submit return of income to his employer in accordance with the notified scheme and such employer shall furnish all return of income received on or before due date in such form as may be prescribed in the scheme.

The method of computation of advance tax is discussed in the earlier part of this chapter.

In a case where the accounts of the assessee are required to be audited or report of an accountant is required to be submitted under specified provisions

30 September

In other cases 31 July

Due Date Amount Payable

On or before 15 September Not less than 30% of advance tax payable

On or before 15 December Not less than 60% of advance tax payable less earlier installment

On or before 15 March Whole of advance tax less earlier installment



3.11 Presumptive tax scheme for small businesses

4.0 SPECIAL PROVISIONS FOR COMPUTATION OF TAXABLE INCOME OF NON-RESIDENTS

4.1 Non-residents Engaged in Specified Business

4.2 Others

4.3 Income of Non Resident Indians

A new presumptive taxation scheme has been introduced with effect from financial year 2012-13 for any business having a maximum turnover / gross receipts up to INR 1,00,00,000. The scheme is applicable to individuals, HUFs, Partnership firms excluding LLPs. The presumptive rate of tax is prescribed at 8% of turnover / gross receipts. The assessee opting for the above scheme shall be exempted from payment of advance tax and maintaining books of accounts. An assessee with turnover up to INR 1,00,00,000 (about US$ 1,84,196), who shows an income below the presumptive rate prescribed under these provisions, will, in case his total income exceeds the taxable limit, be required to maintain books of accounts and also get them audited. However, this scheme is not applicable for a person carrying on profession or earring income in the nature of commission/brokerage or from agency business.

Taxable income of non-resident individuals and foreign companies is computed at a flat rate varying from 5% to 10% of the amount paid or payable (whether in or outside India) or an amount received or deemed to be received in India by or on behalf of the taxpayer on account of the following:

ØBusiness of Exploration for Mineral OilsØBusiness of Operations of AircraftØShipping BusinessØBusiness of Civil Construction for Turnkey Power Projects

Income from prospecting for Mineral Oils is, subject to certain conditions, eligible for special allowances in addition to permissible deductions available under the Act.

Interest income on specified securities / bonds is exempt from tax in case of non-residents.

Non-Resident Indians (NRIs) have been offered a separate concessional tax of 20% (10% for long term capital gains) plus surcharge at applicable rates in respect of investment income. Also, specific provision is there in the Income-tax Act to safeguard interest of non-residents against devaluation of rupee in computing capital gains from the specified assets acquired out of convertible foreign exchange. However, the benefit of cost inflation index is not available to NRIs.

4.4 Income of Foreign Institutional Investors

The taxation of FIIs is governed by Section 115AD of the Income tax Act, 1961 ('the Act'). The significant provisions of this section are discussed below. The tax rates discussed below are exclusive of surcharge and cess.

4.4.1 Interest earned by a registered FII or sub-account from its investments in debt securities of Indian companies will be taxed at the rate of 20%.

4.4.2 The tax on dividend income is nil. However, the company declaring dividend is liable to pay Dividend Distribution Tax ('DDT') @ 15% (plus surcharge and cess).

4.4.3 Long-term capital gains earned by registered FII or sub-account from sale of listed debt securities of Indian Companies would be taxed at the rate of 10% and short-term capital gain would be taxed at the rate of 30% in terms of section 115AD of the Act.

4.4.4 Long-term capital gains earned by registered FII or sub-account from sale of listed equity or a unit of an equity oriented fund would be exempt from tax and short-term capital gain would be taxed at the rate of 15%, provided that such transaction is chargeable to Securities Transaction Tax (STT).

4.4.5 To summarize, Registered FIIs / sub accounts registered with the SEBI are subject to tax, as per beneficial regime, as under:

Particulars

Tax Rates Excluding Surcharge and Cess(Refer Note 1)

Dividend Interest

On Long Term Capital Gains (Refer Note 2)

On Short Term Capital Gains (Refer Note 2)

On Other Income ***

Listed Securities*

Unlisted Securities

0% 20%

0%

10%**

15%**

30%**

40% for corporates 30% for other entities

* - Tax benefits for capital gains are available only if such transaction is chargeable to STT.

** - Nil if an FII is registered in Mauritius and is a tax resident of Mauritius, as per the Double Taxation Avoidance Agreement (DTAA) entered into between India and Mauritius. The Capital Gain provisions may need to be analysed based on the treaty between India and the country of residence of FII/sub-accounts.

***- Nil if the income of an FII is not taxable in India under a tax treaty and if that FII does not have a Permanent Establishment (PE) in India.

Notes –

1. Surcharge and education cess as discussed in para on Rates of Tax will be applicable.

2. Capital gains earned by an FII are not subject to withholding tax in India.



4.4.6 In Finance Act 2012, important amendments have been made for non-residents which are enumerated as below:ØThe transfer of any assets situated in India directly or indirectly held

through overseas entities shall be taxed in India with retrospective effect. Similar amendments have been made in definition of capital asset.

ØObligation to deduct tax at source under section 195 cast on non-resident before making payments to a non-resident if the income of such nonresident is chargeable to tax in India.

ØDefinition of royalty being clarified retrospectively to cover use or right to use of computer software, transmission by satellite and consideration in respect of any right, property or information.

ØAny interest paid by a specified company to a non-resident in respect of borrowing made in foreign currency from sources outside India between 1 July 2012 and 1 July 2015, under an agreement, including rate of the interest payable shall be taxable @ 5% (plus applicable surcharge and cess).

ØIncome arising to a non-citizen, non-resident entertainer (such as theatre, radio or television artists and musicians) from performance in India shall be taxable at the rate of 20% of gross receipts. Further, it has increased the taxation rate, in case of non-citizen, non-resident sportsmen and nonresident sports association, from 10% to 20% of the gross receipts.

ØAny long term capital gain on transfer of unlisted securities shall be taxable at 10% (without giving benefit of currency fluctuations and indexation).

Income of approved offshore funds from units of specified mutual funds and long term capital gains on their transfer are taxed @ 10% plus surcharge at applicable rates if the units are purchased in foreign currency.

Every person, other than an individual and Hindu Undivided Family whose turnover is below INR 1,00,00,000 in case of business entities and INR 25,00,000 in case of profession, making certain specified payments including, interest, rent, fees for professional and technical services rendered, brokerage and commission, contract payments is required to deduct tax at source (TDS) at prescribed rates. From salary payment, every person is required to deduct tax at source. In the case of non-residents, tax is required to be withheld as per the provisions of income-tax law as modified by applicable double tax treaty provisions.

Withholding taxes are normally payable within seven days of the end of the month in which the tax is deducted / collected. However, tax on salary is payable within seven days of payment of salary.

The person responsible for deducting tax at source is required to file quarterly return of TDS before the specified dates. The non-filing of annual return of TDS or failure to issue certificate within the prescribed period will attract penalty as

4.5 Income of Offshore Funds

5.0 WITHHOLDING TAXES

specified in the Act.

In case the income of a non-resident is not chargeable to tax in India or is taxable at rates lower than that prescribed for withholding taxes, an application can be made to the tax authorities for permission to deduct withholding taxes at a lower rate than those prescribed under the Act.

With effect from 1 April 2010, furnishing of Permanent Account Number (PAN) by the deductee is mandatory and in the absence of PAN, tax shall be withheld at the higher of the following rates: (i) 20% (ii) rate in force (iii) rate specified in the relevant provisions of the income tax Act.

The domestic rate of Tax Deduction at Source (TDS) for financial year 2012-13 as proposed by the Finance Act 2012 is as per Annexure II.

The Government of India has entered into comprehensive Double Tax Avoidance Agreements (DTAA) with about 86 countries to avoid double taxation of income. Certain other limited agreements are entered into by India to avoid double taxation of income only from shipping and air transport.

For countries with no DTAAs with India, a unilateral tax credit for tax paid in foreign countries is available under Indian domestic law to a resident tax payer. This relief is by way of deduction from the Indian income tax of a sum which is calculated on the double taxed income at the lower of Indian rate of tax or the rate of tax of the other country where tax has been paid. The list of the countries with which India has entered into Double Tax Treaties and the rates applicable under the treaties is given in below table in the Annexure I.

Tax Residency Certificate Mandatory for Claiming DTAA benefits

With effect from FY 2012-13, submission of Tax Residency Certificate ('TRC') containing particulars such as name, status, address, country of incorporation, tax identification number, residential status, and the period for which certificate is valid, is mandatory if DTAA benefit is to be claimed.

7.1.1 In addition to get the accounts audited, as per Companies Act for corporate entities, all entities are required to get their accounts audited for tax purposes in case of following:i. A person carrying on business, if total sales, turnover or gross receipt in

business for the accounting year or years relevant to the assessment year exceed or exceeds INR 1,00,00,000 (about US$ 1,84,196).

ii. A person carrying on profession, if his gross receipts in profession for an accounting year or years relevant to any of the assessment year exceeds INR 25,00,000 (about US$ 46,049).

6.0 DOUBLE TAX TREATIES

7.0 OTHER ADMINISTRATIVE ASPECTS

7.1 Audit Reports



The tax audit reports in cases referred above are to be obtained and filed with the Income-tax authorities within a specified due date for filing return of income.

7.1.2 For claiming deductions from certain export incomes, it is compulsory to obtain audit reports with effect to the same. One of the conditions for claiming exemption on export profits is that within specified period from the close of the accounting year, exchange earnings must be remitted to India.

For claiming deductions by newly established industrial undertakings / infrastructure projects, such entities are required to obtain specific audit report relevant for deduction.

As per the provision of the Income-tax Act, the assessee has to self assess his income and pay taxes accordingly and file proof of payment of tax along with the return of income. If any interest is due for deferment of advance tax or non payment of advance tax or for late filing of return of income then the same also has to be paid with the self-assessment tax. Concealment of income and furnishing of inaccurate particulars may result in imposition of penalty of upto 3 times the tax sought to be evaded.

The assessing officer may select the return of income for scrutiny in which case an assessment order is passed. In cases where the returns of income are not selected for scrutiny, intimation is sent after adjusting the apparent errors, omissions and mathematical errors. An appeal may be preferred if the assessee does not agree with the assessment made. Special provisions apply for rectification of mistakes, revision of orders and income escaping assessment.

The government has constituted an “Authority for Advance Ruling”. Non-resident taxpayers can obtain rulings in advance from the said authority on questions of law or fact, in relation to a transaction undertaken or proposed. A time limit of six months has been provided for the pronouncement of an advance ruling. The advance ruling once pronounced is binding on the applicant and on the income tax authorities in respect of the specific transaction for which advance ruling was sought. The advance ruling is not appealable.

From 1 October 1998, the concept of advance ruling is extended to a resident in India falling within such class or category of persons as the Central government may by notification in the Official Gazette, specify in this behalf. The authority shall give a decision in relation to an assessment which is pending before any income-tax authority, or the Tribunal in case of resident applicant. The decision shall include the decision on question of law or fact arising out of the orders of assessment in respect of which application has been made by resident applicant

7.2 Assessment Procedure

7.3 Advance Rulings

4. a. Sale of an option in securities

b. Sale of an option in securities, where option is exercised

c. Sale of futures in securities

5. Sale of units of an equity oriented fund to the mutual fund

Seller

Purchaser

Seller

Seller

0.017% on option premium0.125% onthe settle-mentprice0.017%

0.25%

Type of transactions Payable by buyer / seller

STT rate

1. Delivery based purchase of an equity share in a company or a unit of an equity oriented fund, entered into through a recognised stock exchange

Purchaser 0.1%

2. Delivery based sale of an equity share in a company or a unit of an equity oriented fund, entered into through a recognised stock exchange

3. Non-delivery based on sale of an equity share in a company or a unit of an equity oriented fund entered in a recognised stock exchange

6. Sale of un-listed equity shares under an offer for sale to public

Seller

Seller

Seller

0.1%

0.025%

0.2%

Sr.No.

“Taxable securities transaction” means a transaction of (a) purchase or sale of an equity share in a company or a derivative or a unit of an equity oriented fund, entered into in a recognized stock exchange; or (b) sale of a unit of an equity oriented fund of specified mutual fund. The value of taxable securities transaction shall be:I. the aggregate of the strike price and the option premium, in case of taxable

securities transaction relating to derivative being “option in securities”;ii. the price at which “futures” is traded, in case of taxable securities transaction

relating to derivative being “futures”; and iii. the price at which securities are purchased or sold, in case of any other taxable

securities transaction.

Every recognized stock exchange shall collect the securities transaction tax from every person being a purchaser or a seller who enters into a taxable securities transaction in that stock exchange.


8.0 OTHER DIRECT TAXES

8.1 Securities Transaction Tax (STT)

STT shall apply to taxable securities transactions entered into on or after 1 October 2004 entered into through recognised stock exchanges in India. The taxable securities transaction shall attract STT with effect from 1 July 2012 at the rates specified below


8.2 Wealth Tax

8.3 Gift Tax

8.4 Estate Duty

8.5 Interest Tax

9.0 INDIRECT TAXES

9.1 Goods and Services Tax ('GST')

Wealth-tax in India under the Wealth-tax Act is payable each year on the taxable wealth and depends upon residential status and on citizenship.

Taxable wealth includes residential house (other than residential house let out for a minimum period of 300 days during the year) and farm houses, motor cars, jewellery, bullion, yachts, aircrafts, urban land, cash exceeding specified limits as reduced by debts owed and incurred in relation to such assets.

However, exemption is available to individuals and HUFs for one house or part of a house or plot of a land comprising an area of five hundred square meters or less.

A resident Indian citizen pays tax on his global wealth. If he is a “resident but not ordinarily resident” or a non-resident or a foreign citizen, then his Indian wealth is charged to tax at normal rates and foreign wealth is totally exempt.

Wealth-tax in case of individual and companies for the FY 2012-13 will be charged @ 1% of the net taxable wealth exceeding INR 30,00,000.

The due dates for filing wealth-tax returns are same as for filing Income-tax returns.

Gift tax has been abolished with effect from 1st October 1998.

Estate duty has been abolished since March 16, 1985.

Interest-tax has been abolished with effect from 1st April 2000.

Goods and Services Tax is a comprehensive indirect tax operating on the principle of tax on economic value addition involved in the provision of economic activities consisting both goods and services. After the introduction and successful implementation of Value Added Tax (VAT), introduction of Goods and Services Tax (GST) would further be a logical step towards reforming the existing Indirect tax structures governed by various regulations.

The proposed GST model would be a dual model and the charge of GST would consist of two components namely CGST (levied by the Centre) and SGST (levied by the states). GST would subsume several central taxes namely Central Excise duty, Additional Excise duty, Service Tax, Additional Customs Duty, Special Additional duty of Customs, etc and also several state taxes namely Vat / Sales tax,

Entertainment Tax, Luxury tax etc.

The implementation of GST with effect from 1 April 2013 is doubtful as the Constitutional Amendment Bill for GST is yet to be passed.

9.2 Central Value Added Tax (’CENVAT’) / Excise Duty

9.3 Customs Duty

9.4 Service Tax

9.4.1 Rate of Service Tax

Excise duty is levied, mainly on an ad valorem basis, on the manufacture of excisable goods within India, and is payable by the manufacturer. For the purpose of levying excise duty, manufacture has been interpreted to mean any process, which brings into existence a new commodity having a distinct name, character, use and marketability.

Peak rate of excise duty is 10% (plus applicable Education Cess and Higher Secondary Education Cess) on most of the items. CENVAT credit is allowed against CENVAT payable in respect of certain inputs and capital goods purchased. The assessee is required to maintain prescribed records for availing of CENVAT credit.

Excise duty is levied on specified goods with reference to maximum retail price.

The provision for cost auditing of accounts is provided in CENVAT Law in case of misuse of CENVAT credit scheme.

Customs duty at varying rates is charged on goods imported into India. The general peak rate of customs duty has been reduced to 10%.

Further, countervailing customs duty is levied which is equivalent to the excise duty which would have been chargeable had the item been manufactured in India. In respect of such countervailing duty paid, equivalent CENVAT credit is available in certain cases. The customs duties are generally chargeable on ad valorem basis i.e. based on value of imported goods.

In addition to the above, additional duty of customs not exceeding 4% is also levied in order to counter balance various internal taxes like sales tax/value added tax and to provide a level playing field to indigenous goods which have to bear these taxes.

The Central Government can also impose anti-dumping duty if manufacturers from abroad export goods in India at very low prices compared to prices in their domestic market.

Service tax rate has been increased from 10% to 12% and accordingly levied @ 12.36% (service tax @ 12% plus education cess @ 2% and secondary and higher education cess @1% thereon).



9.4.2 Taxation of Services Based on Negative List with effect from 1 July 2012

9.4.3 Place of Provision of Services Rules, 2012, ('PPS Rules')

9.4.4 Reverse Charge Mechanism Extended

9.4.5 Refund of Service Tax Paid on Specified Services

9.4.6 Threshold Limits

The Service Tax Regime has undergone a sea change wherein the positive list based taxation of services has been shifted to negative list based taxation. Under the erstwhile regulations which were applicable up to 30 June 2012, only certain specified services were liable to Service Tax. Under the negative list based taxation of services, all services except certain services which are either covered under the negative list or are covered within the exemption notification/s, are liable to Service Tax.

As per the provisions of service tax law, generally services provided or to be provided in the taxable territory would liable to Service Tax. The fact, whether the services have been provided in the taxable territory or outside the taxable territory, needs to be determined on the basis of Place of Provision of Services Rules, 2012, ('PPS Rules') which have been notified in this regard.

Accordingly, cross-border transactions which were hitherto governed by the Export of Services Rules and Import of Services Regulations would now by governed by said PPS Rules.

Further, the PPS Rules, would also be applicable to organization those who have operations with suppliers or customers in the State of Jammu and Kashmir, service providers operating within India from multiple locations without having centralized registration and also for determining services that are wholly consumed within a SEZ, to avail the outright exemption.

The existing provisions of service tax payable under the reverse charge mechanism have been further extended / amended, wherein few more types of transactions / activities have been included wherein the receiver of the said services shall be liable (either fully or partially) to pay service tax under reverse charge mechanism subject to certain conditions as provided.

With effect from 1 July 2012, the refund of service tax paid on the specified services used for export of goods is available subject to fulfillment of certain conditions.

Small service providers whose aggregate value of taxable services provided during the preceding financial year does not exceed INR 10,00,000 have been given an option to claim exemption from service tax up to an aggregate value of taxable services of INR 10,00,000 in a financial year, subject to certain conditions as prescribed. Benefit of this exemption scheme is not available wherever service tax is payable by a person other than the service provider or the taxable services are provided by a person under a brand name or trade name, whether registered or not,


of another person. Threshold limit for obtaining service tax registration is INR 9,00,000.

The Finance Minister of India had issued the draft Direct Tax Code Bill, 2010 ('DTC') along with the discussion paper for public comments on June 2010.

The basic purpose of the Direct Tax Code is to completely overhaul the complexities of the existing Income Tax Act, 1961 and to make the tax structure simple and also to provide a fair ground for collection and levy of taxes which would be light not only on the individual tax payers, but also corporate houses and also foreign residents.

The standing committee on finance submitted its report on DTC on 9th March 2012. The report recommends various changes. Till now, the time line for implementation of DTC is not clear.

10.0 DIRECT TAX CODE ('DTC')

11.0 INTERNATIONAL FINANCIAL REPORTINGSTANDARD ('IFRS')

With the growth of Indian Economy and increasing integration with the global economies, Indian corporates are raising capital globally. Under the circumstances, it would be imperative for Indian corporates to adopt IFRS for their financial reporting.

The Core Group of Ministry of Corporate Affairs (MCA) had recommended convergence to IFRS in a phased manner from 1 April, 2011. However, the Government has deferred the implementation of IFRS for various reasons.

ANNEXURE I: DOUBLE TAXATIONAVOIDANCE AGREEMENTS ('DTAA') RATESList of countries with which India has entered into Double Tax Treaties

Sr.No.

Country Dividend[Note 1]

Interest Royalty Fees forTechnicalService('FTS')

Remarks

Tax rate Tax rate Tax rateTax rate

Armenia

Australia

Austria

Bangladesh

Belarus

Belgium

Cyprus

China

Botswana

Brazil

Bulgaria

Canada

10%

15%

10%

10% / 15%

10% / 15%

15%

10% / 15%

10%

7.5%/ 10%

15%

15%

15% / 25%

10% [Note 4]

15%

10% [Note 4]

10% [Note 4]

10% [Note 4]

15% / 10%

10% [Note 4]

10% [Note 4]

10% [Note 4]

15% [Note 4]

15% [Note 4]

15% [Note 4]

10%

Note 5

10%

10%

15%

10%

15%

10%

10%

15% (25%for

trademark)

15%/20%

Note 5

10%

10%

15%

10%

15%/10%

10%

10%

10%

Note 5

Coveredunder

Article forRoyalty

No separateprovision

Coveredunder

Article forRoyalty10%

10% tax on dividends if at least 10%of the capital is owned by company;in other cases 15%.

10% tax on dividends if at least 25% of the capital is owned by company; in other cases 15%

1. Interest taxable at 10% if recipient is bank; in other cases 15%

2. MFN clause with respect to Royalty and FTS

1. 10% tax on dividends if at least 10% of the capital is owned by company; in other cases 15%

2. Technical fees are taxable @ 10% under article 13 and fees for included services is chargeable @ 15% under Article 12

7.5% tax on dividends if at least 25% of the capital is owned by company; in other cases 10%

15% tax on dividends if paid to a company; otherwise as per local tax laws

15% tax on royalties if relating to copyrights of literary, artistic or s c i e n t i f i c w o r k s , o t h e r t h a n cinematograph films or films or tapes u s e d fo r ra d i o o r te l ev i s i o n broadcasting; in any other case 20%

15% tax on dividends if at least 10% of the capital is owned by company; in any other cases 25%

1.

2.

3.

4.

5.

6.

12.

11.

7.

8.

9.

10.

Czech Republic 10% 10% [Note 4] 10% 10%13.


Sr.No.



Remarks


Denmark

Estonia

Finland

France

Georgia

Germany

Greece

Hungary

Iceland

Israel

Ireland

Indonesia

15% / 25%

10%

10%

10%

10%

10%

10%

10%

10%

10%

10% / 15%

15% / 10% [Note 4]

10%[Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

20%

10%

10%

10%

10%

10%

10%

10%

10%

10%

15%

10%

10%

10%

10%

No separateprovisions

10%

10%

10%

10%



10%

20% 1. 15% tax on dividends if at least 25% of the capital is owned by company;

in any other cases 25%.2. Interest taxable at 10% if recipient

is bank; in other cases 15%

MFN clause with respect to dividend, royalty, interest and FTS


Notified on 6 January 2012


10% tax on dividends if at least 25% of the capital is owned by company; in other cases 15%.


14.

15.

16.

17.

18.

19.

20.

21.

24.

25.

23.

22.

Taxable as per domestic laws

Italy

Jordan

Kazakhstan

Japan

Kenya

Korea

15% / 25%

10%

10%

10%

15%

15% / 20%.

15% [Note 4]

10%[Note 4]

10%[Note 4]

10%[Note 4]

15% [Note 4]

15% / 10%[Note 4]

20%

20%

10%

10%

20%

15%

20%

15%

20%

10%

10%

15% tax on dividends if at least 10% of the capital is owned by company; in any other cases 25%.

17.5% tax in case of Management and professional fees


1. 15% tax on dividends if at least 20% of the capital is owned by company; in any other cases 20%.2. Interest taxable at 10% if recipient is bank,; in other cases 15%

26.

28.

29.

27.

30.

31.

Kuwait 10% 10% [Note 4] 10% 10%32.

Kyrgyz Republic 10% 10% [Note 4] 15% 15%33.


Sr.No.



Remarks


Lithuania

Luxembourg

Malaysia

Malta

Mauritius

5%/15%5%/15%

10%

10% / 15%

5%/15%

10%

10% [Note 4]

10% [Note 4]

10%

10% [Note 4]

Taxable as perdomestic

laws [Note 4]

10%

10%

10%

15%

15%

10%

10%

10%

15%/10%

No separate provision

1. 10% tax on dividends if at least 25% of the capital is owned by company; in other cases 15%.

2. FTS, ancilliary and subsidiary to Royalty under Article 12, are taxable @ 10% under Article 13 and Fees for Included Services is chargeable @15% under Article 12.


35.

36.

37.

38.

39.

Mongolia

Morocco

Montenegro

Mozambique

Myanmar

Namibia

Nepal

Netherlands

New Zealand

15%

10%

5% / 15%

7.50%

5%

10%

10% / 15%

10%

15%

15% [Note 4]

10%[Note 4]

10% [Note 4]

10% [Note 4

10% [Note 4]

10% [Note 4]

15% / 10%[Note 4]

10% [Note 4]

10% [Note 4]

15%

10%

10%

10%

10%

10%

15%

10%

10%

15%




10%

10%

10%

10%

10% 5% tax on dividends if at least 25% of the capital is owned by company (other than a partnership); in other cases 15%.

1. 10% tax on dividends if at least 10% of the capital is owned by company; in other cases 15%.2. Interest taxable at 10% if recipient is

bank,; in other cases 15%.


40.

42.

41.

43..

44.

45.

46.

47.

48.

Libya No Separate Provision

34. Taxable as per domestic laws

Norway 15% [Note 4]15% / 25% 10% 10% 1. 15% tax on dividends if at least 25% of the capi ta l i s owned by company(other than a partnership); in any other cases 25%.

2. MFN clause with respect to royalty and FTS

3. The tax rate for dividend and interest is reduced to 10% .

49.


Sr.No.



Remarks


Oman

Philippines

10% / 12.5%.

15% / 20%.

10% [Note 4]

15% / 10%[Note 4]

15%

15%

15%


10% tax on dividends if at least 10% of the capital is owned by company; in any other cases 12.5%.

1. 15% tax on dividends if at least 10% of the capital is owned by company; in any other cases 20%.

2. Interest taxable @ 10% if recipient is Financial Institution (including an insurance company) and where the interest is payable by a company resident of Philippines to a resident of India in respect of public issues of bonds, debentures or similar obligations. In any other case 15%.

3. Royalty taxable @ 15% if it is payable in pursuance of any collaboration agreement approved by the Government of India. No rates prescribed in other cases.

50.

51.

Poland

Portuguese Republic

Qatar

Romania

Russian Federation

Saudi Arabia

15%

10% / 15%

5% / 10%.

15% / 20%.

10%

15% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

15% [Note 4]

5%

22.5%

10% 10%

10%

10%

22.5%

10%

22.5%

10%

10%

22.5%



10% tax on dividends if at least 25% of the capital stock is owned by company for an uninterrupted period of 2 years prior to the payment of divided; in other cases 15%.


52..

53..

54.

55.

56.

57.

Serbia 10% [Note 4]5%/ 15% 10% 10% 5% tax on dividends if at least 25% of the capital is owned by company(other than partnership); in other cases 15%.

58.

Singapore

Slovenia

10% / 15%

5%/15%

10% [Note 4]

10% [Note 4]

10%

10%

10%

10%

1. 10% tax on dividends if at least 25% of the capital is owned by company; in other cases 15%.

2. Interest taxable at 10% if recipient is bank, insurance company or similar financial institution; in other cases 15%


59.

60.


Sr.No.



Remarks


South Africa 10% 10% [Note 4] 10% 10%61.

Spain 15% 15% [Note 4] 10% 10% 1. 10% tax on dividends if at least 25% of the capital stock is owned by company for a1. 10% tax on royalties if paid for industrial, c o m m e r c i a l o r s c i e n t i f i c equipment; in any other case 20%.

2. MFN clause with respect to royalty and FTS

62.

Sri Lanka

Sudan

Swiss Confederation

Sweden

Syria

15%

10%

10%

10%

5% / 10%

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10%

10% 10%

10%

10%

10%

No SeparateProvision

10%

10%




5% tax on dividends if at least 10% of the capital is owned by company (other than a partnership); in other cases 10%.

63.

64.

66.

65.

67.

Tanzania 10% / 15%[5%/10%]

12.5%[Note 4]

20%[10%] No separateprovision

1. 10% [5%] tax on dividends if at least 10% [25%] of the shares are owned by company during a period of 6 months immediately preceding the date of payment of dividend; in any other case 15% [10%]. Condition of 6 months has been removed in revised DTAA.

2. Rates provided in bracket are applicable from 1 April 2012.

3. Upto 31 March 2012, management or professional fees is taxable @ 20%, w.e.f. 1 April 2012, this clause shall be deleted.

68.

Thailand 15% / 20% 25% / 10% [Note 4]

15% No separateprovision

1. 15% tax on dividends if at least 10% of the voting shares are owned by payee company and payer is industrial company; 20% if company paying dividend is engaged in industrial undertaking or company owns 25% of the voting shares; and in any other case as per the domestic laws of the payer company..

2. Interest taxable at 10% if recipient is insurance company or similar financial institution; in other cases 25%

69.


Sr.No.



Remarks


Trinidad and Tobago

Turkey

Tajikistan

Turkmenistan

Uganda

Ukraine

United Arab Emirates

United Arab Republic (Egypt)

10%

15%

5% / 10%.

10%

10%

10% / 15%

10%

As per domestic

law

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

10% [Note 4]

12.5% / 5%

As per domestic law

10% [Note 4]

10%

15%

10%

15%

10%

10%

10%

10%

Taxable in source country as per

domestic tax rate

10%


10%

10%



10%

5% tax on dividends if at least 25% of the capital is owned by company(other than partnership); in other cases 10%.

Interest taxable at 10% if recipient is bank, insurance company or similar financial institution; in other cases 15%

10% tax on dividends if at least 25% of the capital is owned by company(other than partnership); in other cases 15%.

Interest taxable at 5% if recipient is bank or similar financial institution; in other cases 12.5%

70.

71.

73.

72.

74.

75.

76.

77.

United Kingdom 15% 15% / 10%[Note 4]

Note 5 Note 5 Interest taxable at 10% if recipient is bank; in other cases 15%

78.

United Mexican States

10% 10% [Note 4]79. 10% 10%

United States of America

15% / 25% 10%/15% [Note 4]

Note 5 Note 5 1. 15% tax on dividends if at least 10% of the voting stock is owned by company; in any other cases 25%.

2. Interest taxable at 10% if recipient is bona fide bank or financial institution, in other

80.

Uzbekistan

Vietnam

15%

10%

15% [Note 4]

10% [Note 4]

15%

10%

15%

10%

Interest received from transaction approved by source country's government will be exempt. In any other case, normal provisions of domestic law will apply.

81.

82.

Zambia 5%/15% 10% [Note 4] 10% 10% 5% tax on dividends if at least 25% of the capital is owned by company during 6 months immediately preceding the date of payment of dividend ; in other cases 15%.

83.


Sr.No.



Remarks


Colombia

Ethiopia

Uruguay

5%

7.50%

5%

10%

10%

10%

10%

10%

10%

10%



Press release dated 27 May 2011.

Press release dated 13 May 2011.

Press release dated 8 September 2011.

84.

85.

86.

Notes

1. As per section 115-O of the Income Tax Act, 1961, subject to certain exceptions, any amount declared, distributed or paid by a domestic company by way of dividend shall be chargeable to Dividend Distribution Tax ('DDT') @ 16.2225%. In such cases, dividend distributed (which is subject to DDT) is not subject to any withholding tax. The rates mentioned in the Table are limited to dividend other than the dividend declared, distributed or paid by Indian companies (such as deemed dividend etc.).

2. Unless otherwise provided in 'Remarks' Column of DTAA, both countries have right to tax.

3. In case of Agreements made after 1 June 2005, the rate of tax under the Act on Royalty and/or Fees for Technical Services receivable by a non-resident is reduced to 10% (plus Surcharge and Education Cess) by the Finance Act, 2005. As per section 90(2) of the Act, rate as per the provisions of DTAA or the Act, whichever is beneficial, shall apply.

4. Interest derived and beneficially owned by the Government, a political sub-division or a local authority or certain institutions like the RBI or Central Bank of other State or any other institution as may be agreed upon, is exempt from taxation in the country of source.

5. In Tax rate is 10% in case of Royalties for equipment rental and fees for services ancillary or subsidiary thereto. For other cases, the tax rate is 15%. However, for first 5 years of the agreement, the rate is 20% in case of payer other than Government or specified institution and 15% for the subsequent years.

6. In case the payee is not able to furnish his PAN to the payer, tax shall be deducted @ 20%. This higher rate of 20% shall apply even if rate prescribed under DTAA is lower. As such, to this extent, the provision of IT Act will override the provision of DTAA.

New DTAAs not yet notified


The domestic rates of TDS for financial year 2012-13 as per the Finance Act 2012 are as under

ANNEXURE II:TAX DEDUCTION AT SOURCE ('TDS') RATES

Notes

1. Time of deduction of tax: Except in case of salary (wherein tax is to be deducted at the time of payment), tax is to be deducted at the time of payment or credit, whichever is earlier.

2. Time of deposit of tax: All sums deducted shall be deposited with the government within 7 days from the end of the month in which the deduction is made. However, where the amount is credited or paid to the account of the payee in the month of March, the tax is required to be deposited with the government on or before 30 April.

Sr.No.

Nature of Payment Section Existing Threshold

for Deduction

Rate at which Tax

is to be Deducted [Note7]

Proposed Threshold

for Deduction

w.e.f. 1 April 2012

Proposed Rate at

which tax is to be

Deducted

1

2

3

4

6

7

8a

9

8b

5

Salary

Interest other thaninterest on securities[Notes-8 and 9]

Winning from lottery orcrossword puzzle or cardgame or other game

Winnings from horse race

Insurance commission

Commission or brokerage[Note-9]

Rent of Land / Building / Furniture [Note-9]

Fees for professional and technical services /royalty [Note-9 and 11]

Rent of Plant, Machineryor Equipment [Note 9]

Payments to contractors[Note -9]

Payment in excessof INR 5,000/INR 10,000 p.a.

Payment in excessof INR 10,000



Payment in excessof INR 5,000 p.a.

Payment in excessof INR 1,80,000 p.a.



Payment in excessof INR 5,000/INR 10,000 p.a.








10%

30%

30%

10%

10%

10%

10%

2%

2% (1% forindividualand HUFs)

2% (1% forindividualand HUFs)

10%

30%

30%

10%

10%

10%

10%

2%

192

194A

194B

194BB

194D

194H

194I

194J

194I

194C

As per slab rates prescribed for women, senior citizens (includes very senior citizen w.e.f. 1 April 2011) and other individuals.

Payment in excessof INR 30,000 per

contract or INR 75,000 p.a. in

aggregate

Payment in excessof INR 30,000 per

contract or INR 75,000 p.a. in

aggregate


3. Mode of making payment of tax: For payment of tax, challan no. ITNS 281 is to be used. All companies and deductors who are liable to tax audit have to make payment of tax by electronic mode, others can make payment of tax either physically or by electronic mode at their option.

4. TDS return: Person deducting the tax is required to file quarterly statements for the quarter ending on 30 June, 30 September, 31 December and 31 March in each financial year, in Form 26Q (Form 24Q for Salary) along with Form 27A, on or before 15 July, 15 October, 15 January and 15 May respectively. Form 26Q and Form 24Q are to be filed electronically while Form 27A is to be filed in physical form.

5. Certificate for tax deduction in case of non-salary payments: TDS Certificate in Form 16A is required to be issued on quarterly basis within 15 days from the due date of furnishing the statement of TDS / TCS (Quarterly basis) i.e. on or before 30 July, 30 October, 30 January and 30 May for quarters ended 30 June, 30 September, 31 December and 31 March respectively.

6. Certificate for tax deduction in case of salary payments: TDS Certificate in Form 16 is required to be issued on annual basis by 31 May of the financial year immediately following the financial year in which the income was paid and tax deducted.

7. Higher TDS rate of 20% for not furnishing correct PAN: In case the payee is not able to furnish the his / her PAN to the payer, tax shall be deducted w.e.f. 1 April 2010 at higher of the rates specified in the relevant provision of the IT Act, at the rates in force or 20%.

8. Under Section 194A, the threshold limit is INR10,000 where the payer is a banking company or a co-operative society engaged in banking business, or in case of deposits with post office under a scheme notified by Central Government and INR 5,000 in any other cases. Further, tax is not to be deducted, if the payee furnishes to the payer a declaration in writing in duplicate in Form No.15G or 15H, as the case may be.

9. An individual or HUF is not liable to deduct tax. However, an individual or HUF, who is liable to tax audit under section 44AB during the financial year immediately preceding the financial year in which sum is credited or paid, shall be liable to deduct tax under sections 194A, 194C, 194H, 194I and 194J, as the case may be.

10. Above rates are not applicable in case of payments made to foreign companies and non-residents except in case of Sections 192, 194B, 194BB which are also applicable to non-residents.

11. Tax is required to be deducted on remuneration paid to a director which is not in the nature of salary.


Overview of the various direct tax compliances from the perspective of Company, Partnership Firm (including LLP), Individual and HUF:

ANNEXURE III:Direct Taxes Compliance Calendar

Nature of Compliances Individual and HUF

Individual and HUF

Individual and HUF

I. Due date for obtaining Tax Audit report

Person covered under tax audit

TDS Quarterly statement for quarter ended June

Issue of Form 16 annually

TDS Quarterly statement for quarter ended September

Issue of Form 16A / 27D for quarter ended June

TDS Quarterly statement for quarter ended December

Issue of Form 16A / 27D for quarter ended September

TDS Quarterly statement for quarter ended March

Issue of Form 16A / 27D for quarter ended December

Issue of Form 16A / 27D for quarter ended March

Other persons

1st Installment - on or before 15 June

Tax collected must be deposited within one week fromthe end of month of tax collection

Tax must be deducted at the time of payment, in case of salary

In case of payments other than salary, at the time ofmaking payment or credit, whichever is earlier

Tax deducted must be deposited in the bank by 7th day offollowing month except tax deducted for payment orcredit made in March must be deposited by 30th April

2nd Installment - on or before 15 September

3rd Installment - on or before 15 December

4th Installment – on or before 15 March

Person covered under transfer pricing (For furnishing of Transfer Pricing Report in Form 3CE same due date is applicable)

II. Due dates for filing of Return of Income ('ROI') and Return of Wealth ('ROW')(Note 1)

III. Advance Tax Payments for Income Tax(Note 3)

V. Tax Collected at Source (TCS)

VI. Due dates for filing of TDS / TCS Returns

VII. Due dates for issue of Form 16 (for Salaries) / Form 16A (for other than Salaries) andForm 27D (for TCS) (Note 4)

IV. Tax Deducted at Source (TDS)

30 September

30 September

15 July

31 May

15 October

30 July

15 January

30 October

15 May

30 January

30 May

31 July

Not Applicable

Applicable

30%

60%

100%

31 July (Note 2)

Not Applicable

30%

60%

100%

30 September

15%

Applicable

Applicable, only ifperson is coveredunder tax audit in

the precedingprevious year

45%

75%

100%

30 September

Person


Notes

1. Only Companies, Individuals and HUF's are required to file ROW.

2. In case of working partner of a partnership firm, whose accounts are required to be audited under section 44AB of the IT Act, the date of filing ROI is 30 September.

3. Advance tax payment for income-tax is applicable to every person where the amount of income-tax payable is INR 10,000 or more. Senior citizens having no business income are not required to pay advance tax.

4..

5. Every person, being a non-resident having Liaison Office in India shall, in respect of its activities in a financial year, file a statement in Form No. 49C within 60 days from the end of the financial year i.e. 30 May to the Assessing Officer.

From 1 April 2011 (FY 2011-12) onwards, it is mandatory for Companies and Banks to issue Form 16A, which is to be downloaded from the NSDL website (www.tin-nsdl.com)


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