External Commercial Borrowings (ECB) for the low cost affordable housing projects is now under permissible end-use under Approval Route

External Commercial Borrowings (ECB) for the low cost affordable housing projects is now under permissible end-use under Approval Route

On a review of the policy related to ECB and keeping in view the announcement made in the Union Budget for the Year 2012-13, it has been decided to allow ECB for low cost affordable housing projects as a permissible end-use,under the approval route. ECB can be availed of by developers/builders for low cost affordable housing projects. Housing Finance Companies (HFCs)/National Housing Bank (NHB) can also avail of ECB for financing prospective owners of low cost affordable housing units.

3. Detailed guidelines on ECB for low cost affordable housing scheme are set out below:-

(I) Definition of eligible project

A low cost affordable housing project for the purpose of ECB would be a project in which at least 60 per cent of the permissible FSI would be for units having maximum carpet area up to 60 square meters.

Slum rehabilitation projects will also be eligible under the low cost affordable housing scheme. The eligibility of slum rehabilitation project for ECB will be based on the parameters to be set by the Central Sanctioning and Monitoring Committee of the Affordable Housing in Partnership Scheme (AHP) constituted under the Chairmanship of Secretary, Housing & Urban Poverty Alleviation (HUPA) which administers the slum rehabilitation projects.

(II) Eligible Borrowers :-

(a) Developers/builders:-

Developers/builders with proven financial track record based on the following criteria shall qualify for availing ECB for low cost affordable housing projects:

i) Developers/builders undertaking low cost affordable housing projects should be a company registered under the Companies Act, 1956;

ii) Such developers/builders should have minimum 5 years’ experience in undertaking residential projects, and should have good track record in terms of quality and delivery;

iii) The developers/builders should not have defaulted in any of their financial commitments to banks/ financial institutions or any other agencies;

iv) The project should not be a matter of litigation;

v) The project should be in conformity with the provisions of master plan/ development plan of the area. The layout should conform to the land use stipulated by the town and country planning department for housing projects; and

vi) All necessary clearances from various bodies including Revenue Department with respect to land usage/environment clearance, etc., are available on record.

(b) Housing Finance Companies (HFCs):-

HFCs, satisfying the following conditions, can avail of ECB for financing prospective owners of low cost affordable housing units: -

i) The HFC should be registered with the National Housing Bank (NHB) and operating in accordance with the regulatory directions and guidelines issued by NHB;

ii) The minimum paid-up capital, as per the latest audited balance sheet, shall not be less than INR 50 crore;

iii) The minimum Net Owned Funds (NOF) for the past three financial years shall not be less than INR 300 crore;

iv) Borrowing through the ECB should be within the HFC's overall borrowing limit of 16 times their Net Owned Funds (NOF);

v) The net non-performing assets (NNPA) shall not exceed 2.5 % of the net advances;

vi) The maximum loan amount sanctioned to the individual buyer will be capped at INR 25 lakh subject to the condition that the cost of the individual housing unit shall not exceed INR 30 lakh; and

vii) The ECB shall be swapped into Rupees for the entire maturity on fully hedged basis.

Besides HFCs meeting norms set at para above, NHB shall be eligible for raising of ECB for financing low cost affordable housing units of individual borrowers. Further, in the event a developer of low cost affordable housing project not being able to raise ECB directly as envisaged above, National Housing Bank shall be permitted to avail of ECB for on-lending to such developers who satisfy the conditions stated in para3 (II) (a) above subject to the interest rate spread set by RBI.

(III) End –use:

ECB proceeds shall be utilized only for low cost affordable housing projects and shall not be utilized for acquisition of land.

(IV) Nodal agency for deciding project’s eligibility for low cost affordable housing

Builders/developers meeting the eligibility criteria shall have to apply to the National Housing Bank (NHB) in the prescribed format. NHB shall act as the nodal agency for deciding a project’s eligibility as a low cost affordable housing project, and on being satisfied, forward the application to the Reserve Bank for consideration under the approval route. Once NHB decides to forward an application for consideration of RBI, the prospective borrower (builder/developer) will be advised by the NHB to approach RBI for availing ECB through his Authorised Dealer in the prescribed format. Guidelines with respect to the format of application, project monitoring, etc. are being separately issued by NHB.

4. Developers/builders/HFCs/ NHB will not be permitted to raise Foreign Currency Convertible Bonds (FCCBs) under this scheme.

5. For the financial year 2012-13, an aggregate limit of USD 1(one) billion is fixed for ECB under the low cost affordable housing scheme which includes ECBs to be raised by developers/builders and NHB/specified HFCs. This limit shall be subject to annual review.

6. All other ECB parameters, such as, recognized lender, minimum average maturity period, all-in-cost ceilings, restrictions on issuance of guarantee, choice of security, parking of ECB proceeds, prepayment, refinancing of ECB, reporting requirements remain unchanged and shall be complied with.

7. The amended policy will come into force with immediate effect and the scheme will be reviewed after a period of one year based on the experience gained in the implementation of the scheme.

8. Reserve Bank of India has since amended the Regulations and notified vide Notification No.FEMA.246/2012 dated November 27, 2012.

Ref- A.P. (DIR Series) Circular No. 61 dated 17 December 2012

Governmnet Announces Additonal Benefits to Exporters

The two-per cent interest subsidy on loans to exporters, which was to end on March 2013, has been extended for another year.

 More export goods have also been brought under the ambit of the scheme with engineering exports being the major beneficiary.

"Since 2008, the commerce ministry has given Rs 3,600 crore to RBI (Reserve Bank of India) to distribute among banks for carrying out the interest subvention scheme,"

 Merchandise shipments to the US, the European Union and the Asian markets will now qualify for additional concessions as exporters are facing a demand slump in these markets due to the economic slowdown.

Several countries, including New Zealand, Bulgaria, Taiwan and Thailand, were added under different export promotion schemes like Focus Market Scheme and Special Focus Market Scheme.

Courtesy - Business Today

Export of Goods and Software – Realisation and Repatriation of export proceeds – Liberalisation

Export of Goods and Software – Realisation and Repatriation of export proceeds – Liberalisation

In terms of A.P. (DIR Series) Circular No. 40 dated November 01, 2011 enhancing the period of realization and repatriation to India of the amount representing the full export value of goods or software exported, from six months to twelve months from the date of export. This relaxation was available up to September 30, 2012.
 
2. The issue has since been reviewed and it has been decided, in consultation with the Government of India, to extend the above relaxation w.e.f. October 01, 2012 till March 31, 2013.

3. The provisions in regard to period of realization and repatriation to India of the full export value of goods or software exported by a unit situated in a Special Economic Zone (SEZ) as well as exports made to warehouses established outside India remain unchanged.

Ref-A.P. (DIR Series) Circular No. 52 dated November 20, 2012

External Commercial Borrowings (ECB) Policy for 2G spectrum allocation

External Commercial Borrowings (ECB) Policy for 2G spectrum allocation

As per the extant policy, eligible borrowers in the telecommunication sector are permitted to avail of ECB for the purpose of payment for spectrum allocation, under the automatic route. Successful bidders of 3G auction were also permitted to make the payment for spectrum allocation initially out of Rupee resources to be refinanced with a long-term ECB under the approval route subject to certain conditions.

3. On a review of the ECB policy and keeping in view the large outlay of funds required to be paid directly to the Government within a limited period of time, the following relaxations are provided for the 2G spectrum auction:-

(i) Refinancing of Rupee resources

The successful bidders making the upfront payment for the award of 2G spectrum initially out of Rupee loans availed of from the domestic lenders would be eligible to refinance such Rupee loans with a long-term ECB, under the automatic route, subject to the following conditions:

1. the long term ECB shall be raised within a period of 18 months from the date of sanction of such Rupee loans for the stated purpose from the domestic lenders;
2. the designated AD Category I bank has evidenced the payment of upfront fees to GoI in the form of a receipt/challan from DoT; and
3. the designated AD - Category I bank shall monitor the end-use of funds.

(ii) Relaxation in ECB-liability ratio and percentage of shareholding

The successful bidders in the 2G auction will be allowed to avail of ECB under the ‘automatic route’ from their ultimate parent company without any maximum ECB liability-equity ratio subject to the condition that the lender holds minimum paid-up equity of 25 per cent in the borrower company, either directly or indirectly.

(iii) Bridge Finance facility

The successful bidders can avail of short term foreign currency loan in the nature of bridge finance under the ‘automatic route’ for the purpose of making upfront payment towards 2G spectrum allocation and replace the same with a long term ECB under the automatic route subject to the following conditions:-

1. the long term ECB is raised within a period of 18 months from the date of drawdown of bridge finance; and
2. the long term ECB is in compliance with all the extant guidelines on ECB.

4.The relaxations in respect of the ECB liability-equity ratio, percentage of shareholding by the ultimate parent, refinancing of Rupee loans and bridge finance are part of a special dispensation applicable only to the successful bidders in the upcoming 2G spectrum auction.

5. All other aspects of ECB policy, such as USD 750 million limit per company per financial year under the automatic route, eligible borrower, recognised lender, end-use, average maturity period, all-in-cost, prepayment, refinancing of existing ECB and reporting arrangements remain unchanged.

6. Reserve Bank has since amended the Regulations and notified vide Notification No.245 / 2012 RB dated November 12, 2012.


A.P. (DIR Series) Circular No. 54 dated November 26, 2012

Liaison Office (LO) / Branch Office (BO) in India by Foreign Entities – Reporting to Income Tax Authorities.

Liaison Office (LO) / Branch Office (BO) in India by Foreign Entities – Reporting to Income Tax Authorities.

In terms of A.P. (DIR Series) Circular No. 24 dated 30.12.2009 which LOs/BOs are required to furnish copy of the Annual Activity Certificate (AAC) to Director General of Income Tax (International Taxation), Drum Shaped Building, I.P. Estate, New Delhi 110002.

2. It is clarified that copies of the AACs submitted to the DGIT (International Taxation) should be accompanied by audited financial statements including receipt and payment account.

3. Further, at the time of renewal of permission of LOs by AD banks, they may note to endorse a copy of each such renewal to the office of the DGIT (international Taxation).

Ref -A.P. (DIR Series) Circular No. 55   dated November 26, 2012

ECB by Small Industries Development Bank of India (SIDBI) for Onlending to MSME Sector

ECB by Small Industries Development Bank of India (SIDBI) for Onlending to MSME Sector

On a review of the extant ECB policy, it has been decided to include SIDBI as an eligible borrower for availing of ECB for on-lending to MSME sector, as defined under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, subject to the following terms and conditions:-

 

(a) such on-lending by SIDBI shall be to the borrowers’ directly either in INR or in foreign currency (FCY);

1. the foreign currency risk shall be hedged by SIDBI in full in case of on-lending to MSME sector in INR; and
2. on-lending in foreign currency shall be subject to Regulation 5(5) of FEMA Notification No. 3/2000-RB dated May 03, 2000, as amended from time to time and shall only be to those beneficiaries which have natural hedge by way of foreign exchange earnings;

(b) availment of ECBs, including the outstanding ECBs, up to 50 per cent of their owned funds, for on-lending to MSME sector, will be under the automatic route and beyond 50 per cent of owned funds, will be under the approval route, subject to a ceiling of USD 500 million per financial year; and

(c) the proceeds of ECB availed by SIDBI, shall be used for on-lending to MSME sector only for the permissible end-uses as provided under the extant ECB policy.

3. All other conditions of ECB, such as recognized lender, all- in-cost, average maturity, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged.

4. The amended ECB policy shall come into force with immediate effect and is subject to review based on the experience gained in this regard.

 

REF:A.P. (DIR Series) Circular No. 48 dated 6/11/2012

RBI Asks NBFCs to replace " post dated cheques" with 'CTS 2010' standard Cheques by December 31, 2012.

RBI Asks NBFCs to replace " post dated cheques" with 'CTS 2010' standard Cheques by December 31, 2012.

The Reserve Bank of India (RBI) today asked non-banking financial companies (NBFCs) to replace post-dated cheques issued to them by customers with new standardised cheques with improved security features.

NBFCs accept post-dated cheques from their customers for future monthly installment payments. For the purpose of standardisation and enhanced security features, the banks have been told by RBI to migrate to the 'CTS 2010' standard by December 31, 2012.

The non-CTS cheques would be out of circulation from December 31, 2012 and will not be acceptable at clearing system of the banks as well.

"NBFCs are, therefore, required to ensure the replacement of Non-CTS-2010 standard compliant cheques with CTS-2010 standard compliant cheques before December 31, 2012," RBI said in a notification.

'CTS 2010' standard is a set of benchmarks towards achieving standardisation of cheques issued by banks across the country.

These include provision of mandatory minimum security features on cheque forms like quality of paper, watermark, bank's logo in invisible ink, void pantograph and standardisation of field placements on cheques.

RBI further asked NBFCs to confirm to the regional office of the bank that a plan has been put in place for implementing the CTS 2010 standard within the prescribed timeline.

Source- Indian Express

Now , FIIs to approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India

Now , FIIs to approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India

As per the extant guidelines, only designated branches of AD Category I banks maintaining accounts of FIIs are allowed to act as market makers to FIIs for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date.

 

It has now been decided to allow FIIs to approach any AD Category I bank for hedging their currency risk on the market value of entire investment in equity and/or debt in India as on a particular date subject to the following conditions:

 

The eligibility for cover may be determined on the basis of a valuation certificate provided by the designated AD category bank along with a declaration by the FII to the effect that its global outstanding hedges plus the derivatives contracts cancelled across all AD category banks is within the market value of its investments.

The FII should also provide a quarterly declaration to the custodian bank that the total amount of derivatives contract booked across AD Category banks are within the market value of its investments.

 

The hedges taken with AD banks other than designated AD banks, have to be settled through the Special Non-Resident Rupee A/c maintained with the designated bank through RTGS/NEFT.

Ref_ AP DIR Circular 45 dated 22 October 2012

Further Liberalisation for the Supply of Goods and Services by Special Economic Zones (SEZs) to Units

Supply of Goods and Services by Special Economic Zones (SEZs) to Units
in Domestic Tariff Areas (DTAs) against payment in foreign exchange

 

Attention of the Authorised Dealer (AD) Category - I banks is invited to A.P. (Dir Series) Circular No.105 dated June 16, 2003, in terms of which units in the Domestic Tariff Areas (DTAs) have been permitted to purchase foreign exchange from ADs for making payment towards goods supplied to them by units in the Special Economic Zones (SEZs).

The matter has since been reviewed in consultation with the Ministry of Commerce and Industry, Government of India and it has been decided to allow ADs to sell foreign exchange to a unit in the DTA for making payment in foreign exchange to a unit in the SEZ for the services rendered by it (i.e. a unit in SEZ) to a DTA unit. It may, however, be ensured that there is an enabling provision of supplying these goods/services by the SEZ unit to the DTA unit and for payment in foreign exchange for such goods/ services to the SEZ unit, in the Letter of Approval (LoA) issued to the SEZ unit by the Development Commissioner(DC) of the SEZ.
Ref _ AP DIR 46 dated 23 October 2012

Further Simplification and Revision of Softex Procedure

Simplification and Revision of Softex Procedure

A software exporter from any part of India , whose annual turnover is at least Rs.1000 crore or who files at least 600 SOFTEX forms annually on all India basis, will be eligible to submit a statement in excel format

Attention of the Authorised Dealers is invited to Regulation 6 of the Notification No. FEMA 23/2000-RB dated May 3, 2000 viz. Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, as amended by the Notification No.FEMA.36/2001-RB dated February 27, 2001, in terms of which designated officials of the Ministry of Information Technology, Government of India at the Software Technology Parks of India (STPIs) or at Free Trade Zones (FTZs) or Export Processing Zones (EPZs) or Special Economic Zones (SEZs), had been authorized to certify exports declared through SOFTEX Forms.

2. Considering the spurt in the volume of software exports from India in recent times, the complexity of work contracts involved, the voluminous nature of contract agreements and the duration involved in execution of each contract as well as the time-consuming process involved in the certification of SOFTEX forms, simplified and revised Softex procedure was introduced vide A.P. (DIR Series) Circular No.80 dated February 15, 2012. Initially the revised procedure was applicable in STPI at Bangalore, Hyderabad, Chennai, Pune and Mumbai with effect from April 01, 2012.

3. Since the revised procedure is running successfully at the 5 designated centres, it has been decided to implement the revised procedure in all the STPIs in India with immediate effect.

4. As per the revised procedure, a software exporter, whose annual turnover is at least Rs.1000 crore or who files at least 600 SOFTEX forms annually on all India basis, will be eligible to submit a statement in excel format as detailed in our A.P. (DIR Series) Circular No.80 dated February 15, 2012

Ref- AP DIR- 47 dated 23 October 2012

Loans to Non Residents / third parties against security of Non Resident (External) Rupee Accounts [NR (E) RA] / Foreign Currency Non Resident (Bank) Accounts [FCNR (B)] Deposits

Loans to Non Residents / third parties against security of Non Resident (External) Rupee Accounts [NR (E) RA] / Foreign Currency Non Resident (Bank) Accounts [FCNR (B)] Deposits

The Committee to review the facilities for individuals under FEMA, 1999 (Chairperson: Smt. K.J.Udeshi) has recommended that the banks may sanction Rupee loans in India or foreign currency loans outside India to either the account holder or a third party to the extent of the balance in the NRE/FCNR (B) account subject to margin requirements. The existing position in this regard has been reviewed and it has been decided, in exercise of powers under paragraph 6(d) of Schedule-1 read with para 9(1) of Schedule-2 of the Foreign Exchange Management (Deposit) Regulations, 2000, that the banks may now grant loans against NR(E)RA and FCNR(B) deposits either to the depositors or the third parties as under:-

	Existing provision	Proposed provision
Rupee loans* in India
Loans against NRE/FCNR(B) Fixed Deposits	Rs. 100 lakhs ceiling applicable	Rupee loans to be allowed to depositor/third party without any ceiling subject to usual margin requirements**
Foreign Currency loan* in India/ outside India
Loans against NRE/FCNR(B) Fixed Deposits	Rs. 100 lakhs ceiling applicable	Foreign Currency loans to be allowed to depositor/third party without any ceiling subject to usual margin requirements **

* The term ‘loan’ shall include all types of fund based/non-fund based facilities.

** In case of FCNR deposits, the margin requirement shall be notionally calculated on the rupee equivalent of the deposits in accordance with para 9(2) of Schedule-2 of Foreign Exchange Management (Deposit) Regulations, 2000.

Further, the facility of premature withdrawal of NRE/FCNR deposits shall not be available where loans against such deposits are to be availed of. This requirement may specifically be brought to the notice of the deposit holder at the time of sanction of the loan. The existing loans which are not in conformity with the above instructions shall continue for their existing term and shall not be rolled over/renewed. Other conditions as regards grant of loan against NRE/FCNR deposits shall remain unchanged

Foreign investment in NBFC Sector - Further Liberalisation for establishing step down subsidiaries by NBFCs with FDI

Foreign investment in NBFC Sector - Further Liberalisation for establishing step down subsidiaries by NBFCs with FDI

Ref: RBI AP DIR 41 dated October 10, 2012


RBI has revised the conditions for the establishing step down subsidiraries by NBFCs with FDI as per details below

No. 137 dated June 28, 2012	Earlier Condition	Revised condition
Sr.No.24.2 (1) (iv)	10 100% foreign owned NBFCs 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 by para 3.10.4.1, therefore, shall not apply to downstream subsidiaries.	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 by para 3.10.4.1 of DIPP Circular 1of 2012 dated April 10, 2012 on Consolidated FDI Policy, therefore, shall not apply to downstre am subsidiaries

External Commercial Borrowings (ECB) Policy – Review of all-in-cost ceiling

External Commercial Borrowings (ECB) Policy – Review of all-in-cost ceiling

 

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to A.P. (DIR Series) Circular No. 99 dated March 30, 2012 relating to ECB.

2. It has been decided that the all-in-cost ceiling as specified in A.P. (DIR Series) Circular No. 99 dated March 30, 2012 will continue to be applicable until further review.


:

Average Maturity Period	All-in-cost over 6 month LIBOR*
Three years and up to five years	350 bps
More than five years	500 bps
* for the respective currency of borrowing or applicable benchmark

3. All other aspects of ECB policy remain unchanged and AD Category – I banks may bring the contents of this circular to the notice of their constituents and customers.

Reference A.P. (DIR Series) Circular No. 40 dated October 09, 2012

NRIs beat FDI, keep the money coming, In Last Three Years ,NRI has sent more money than receipts through FDIs

Remittances or private money transfers from non-resident Indians (NRIs) have been rising steadily despite a slowdown of the global economy and have become a more reliable source of funds for many Indian families compared with the tangible volume and benefits of foreign direct investment

(FDI).

Official data for the past three years show that while FDI inflows fluctuated and even dipped, inward remittances were upwardly mobile.

In 2011-12, NRI remittances were $66.13 billion ( Rs. 3,42,884.05 crore), against an FDI inflow of $46.84 billion into the country. Inward remittances have been on an upswing over the past three years, unaffected by factors, such as a fragile global economy and boosted by a falling rupee, of late.

The Gulf countries (West Asia) and North America are the two top sources of remittances to India, with Europe placed a distant third.

A Reserve Bank of India study finds that 30.8% of total foreign remittances came from West Asia, while 29.4% came from North America and 19.5% came from Europe.

The study also said that 40% of all such remittances were used for household expenses.

These remittances now account for around 4% of gross domestic product (GDP).

Kerala, Tamil Nadu, Punjab and Uttar Pradesh are among the top remittance-receiving states in India.

In 2011, remittances to Kerala clocked R49,965 crore, accounting for 31.2% of its GDP, according a Kerala Migration Survey, conducted by the Centre for Development Studies (CDS) for the ministry of overseas Indian affairs.

In other words, remittances were more than six times the money Kerala gets in Union government assistance.

According to World Bank estimates, in 2011, the other major inward remittance beneficiary countries were China ($57 billion), Mexico ($24 billion), the Philippines ($23 billion), and Pakistan and Bangladesh ($12 billion each).

However, compared with the Indian official figure, the World Bank's figure for India was $58 billion.

Although, the amounts are different in the two estimates, India tops the chart for top remittance-receivers in the word.

The Indian official figure states that remittance to the country was $55.62 billion in 2010-11, which rose from $53.64 billion in 2009-10.

When compared with remittance figures, there was no great cheer on the FDI front in 2010-11.

That year, India received an FDI of $34.84 billion, which was lower than the corresponding figure of $37.74 billion in 2009-10, according to data from the industrial policy and planning department.

Government officials also say a depreciating rupee and higher interest rate for deposits are driving NRIs to park more of their money in the country.

"The interest rates our banks offer are more than that of developed countries and even the Gulf countries, where over six million Indians work," an official said.

 "This trend of rise in remittances is here to stay. Indians prefer to park their money back home, which they find a very safe option. The falling rupee has also been a windfall for them."

Courtesy - Mr.Jayanth Jacom , Hindustan Times , 8th October 2012

ANNUAL STATEMENT IN FORM 49C MUST BE FILED BY FOREIGN REPRESENTATIVE OR LIAISON OFFICE IN INDIA TO INCOME TAX COMPULSORILY HENCEFORTH

ANNUAL STATEMENT IN FORM 49C MUST BE FILED BY FOREIGN REPRESENTATIVE OR LIAISON OFFICE IN INDIA TO INCOME TAX COMPULSORILY HENCEFORTH

Central Board of Direct Taxes (CBDT) in a recent notification has provided detailed information that foreign companies with representative or liaison offices must provide to tax authorities in accordance to a 2011 tax law amendment.

The new reporting requirements allow the government greater access to information about Liaison Offices. The highlights are;

 

§ The annual statement must be signed and verified by a chartered accountant or a signatory duly authorized by the Liaison Office parent

 

§ The annual statement must be provided via an electronic form with a digital signature

 

§ The following information that must be provided:

 

§ All details for the financial year that relate to India. This includes receipts, income and expenses of the nonresident from or in India (this is not information related to the Liaison Office only);

 

§ Details of all purchases, sales of materials and services from or to Indian parties during the year by the nonresident parent (not just transactions entered into by the Liaison Office);

 

§ Salary or compensation details where the salary or compensation is paid or is payable outside India to any employee working in India or for services rendered in India;

 

§ Total count of employees working at the Liaison Office for the current year

 

§ Complete details about the representatives, distributors and agents of the nonresident parent in India and details of the top five parties in India with whom the Liaison Office has liaised;

 

§ Complete information about the product or service for which research or preparatory activity is carried out by the Liaison Office along with details of any other entity for which liaising activity is carried out by the Liaison Office;

 

§ Information about group entities that maybe present in India e.g. branch office, company, limited liability partnership, etc., established in India

 

§ Details of other Liaison Offices of group entities in India; and

 

§ Information regarding other group entities operating from the same premises as the office of the Liaison Office.

 

Non-resident companies with Liaison Offices in India must file an annual statement. The latest CBDT notification provides details on the specific form for the statement (Form No. 49C) and the rules that are effective since April 1, 2012.

 

[Income tax Rule for Furnishing of Annual Statement by a non-resident having Liaison Office in India.
 

114DA.

 

(1) The annual statement as provided under section 285 for every financial year, shall be furnished in Form No. 49C.

 

(2) The annual statement referred to in sub-rule (1) shall be duly verified by the Chartered Accountant or the person authorized in this behalf by the non-resident person, who shall be known as the Authorized Signatory.

 

(3) The annual statement referred to in sub-rule (1) shall be furnished in electronic form along with digital signature.

 

(4) The Director General of Income-tax (Systems) shall specify the procedure for filing of annual statement referred to in sub-rule (1) and shall also be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to statements so furnished.

Extension of Deadline for the year 2011-2012

The Income tax authority of India has extended the due date for filing 49C form for particular categories of assessees having a Liaison Office in India. On account of technical difficulties in providing appropriate facility for electronic filing, the due date has been extended up to September 30, 2012, for the financial year 2011-12.
 

Formerly, the assessees were directed to file Form 49C electronically, within 60 days from the end of financial year. However to ensure compliance, Indian tax authorities have allowed assessees to file Form 49C in ‘paper mode’ instead of filing it electronically. The Form 49C (Paper Mode) should be sent to the following address by 'Registered Post' or 'Speed Post':

 

The Director General of Income Tax (International Taxation),
4th Floor, Drum Shaped Building,
I.P. Estate, New Delhi-11002.

 

 

This annual statement must be submitted within 60 days from the close of the Liaison Office’s financial year.

These reporting requirements are in addition to a separate guideline that requires a Liaison Office to submit an Annual Activity Certificate to the designated authorized bank in India with a copy to jurisdictional Directorate General of Income Tax under FEMA.

Relaxation in Capitalization norms for subsidiaries of Foreign owned NBFCs

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company).

Chapter 6 of Consolidated FDI Policy of the Government of India (effective from 10.04.2012) provides about the Sector Specific Conditions on FDI. Para. 6.1 enumerates the prohibited sectors for FDI and 6.2 states the permitted sectors for FDI. In terms of Para. 6.2.24 of the Government Policy, NBFCs are permitted to have 100% FDI under the Automatic Route subject to minimum capitalization norms.

Uptil now, 100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million could set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital. In such cases the minimum capitalization condition did not apply.

The Department of Industrial Policy and Promotion has now reviewed their policy in this regard and have decided to permit NBFCs (i) having foreign investment above 75% and below 100% and (ii) with a minimum capitalisation of US$ 50 million, to set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital.

This means that the Indian investing company registered as NBFC and having minimum 75% and up to 100% FDI can now set up any number of step down subsidiaries with minimum capitalization of US$ 50 million.     Ref: Press Note No.9 (2012 Series) dated 03.10.2012 of DIPP

LIBERALISATION OF FDI IN SINGLE-RETAIL , MULTI-BRAND RETAIL , CIVIL AVIATION, POWER EXCHANGES , BROADCASTINGS

UPTO 1OO% FDI IS ALLOWED UNDER SINGLE-BRAND RETAIL TRADING

UPTO 51% FDI IS ALLOWED UNDER MULTI-BRAND RETAIL TRADING

UPTO 49% FDI IS ALLOWED IN  CIVIL AVIAITION

UPTO 49% FDI IS ALLOWED   in Power Exchanges

UPTO 49% FDI IS ALLOWED IN  BROADCASTING CARRIAGE SERVICES UNDER AUTOMATIC ROUTE AND FROM 49% TO 74% UNDER GOVERNMENT APPROVAL ROUTE

Liberalisation under FEMA is now announced by the Govement

a) FDI up to 100 per cent is now permitted in Single–Brand Product Retail Trading by only one non-resident entity, whether owner of the brand or otherwise, under the Government route subject to the terms and conditions as stipulated in Press Note No. 4 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

b) FDI up to 51 per cent is now permitted in Multi-Brand Retail Trading under the Government route, subject to the terms and conditions as stipulated in Press Note No. 5 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

c) Foreign airlines are permitted FDI up to 49% in the capital of Indian companies in Civil Aviation Sector, operating scheduled and non-scheduled air transport, under the automatic/Government route subject to the terms and conditions as stipulated in Press Note No. 6 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

d) FDI limits in companies engaged in providing Broadcasting Carriage Services under the automatic/Government route have been reviewed and the same would be subject to the terms and conditions as stipulated in Press Note No. 7 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

e) FDI up to 49% is permitted in Power Exchanges registered under the Central Electricity Regulatory Commission (Power Market) Regulations, 2010, under the Government route, subject to the terms and conditions as stipulated in Press Note No. 8 (2012 Series) dated September 20, 2012 issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India.

 

Ref: RBI/2012-13/217 -A. P. (DIR Series) Circular No. 32 dated September 21, 2012

Now , Shares of an Indian company can be issued to subscribers to MOA (NRI ,PIO ,Foreign citizen) at Par -

Allotment of Shares to person resident outside India under Memorandum of Association (MoA) of an Indian company - Pricing guidelines- can be issued at Par value-

Attention of Authorised Dealers Category-I (AD Category - I) banks is invited to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 notified vide Notification No. FEMA 20 / 2000 -RB dated May 3, 2000 (hereinafter referred to as Notification No. FEMA 20), as amended from time to time.

2. In terms of sub-regulation (1) of Regulation 5 of the Notification ibid, a person resident outside India or an entity incorporated outside India may purchase shares or convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to compliance with the issue price specified in para 5 of Schedule 1 of the Notification ibid.

3. 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.

Ref:

RBI/2012-13/223-A.P. (DIR Series) Circular No. 36 dated September 26, 2012

NEW REPORTING FORMALITIES FOR Establishment of Liaison Offices (LO) /Branch Offices (BO) / Project Offices

Establishment of Liaison Offices (LO) /Branch Offices (BO) / Project Offices (PO) in India by Foreign Entities – Reporting requirement

 

 

All the new entities setting up LO/BO/PO shall henceforth file :

1. submit a report containing information as per Annex within five working days of the LO/BO/PO becoming functional to the 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;
2. a copy of the report as per Annex shall also be filed 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.
3. A copy of report thus filed as above shall also be filed with AD by LO/BO/PO concerned.

 The existing LO/BO/PO shall henceforth report the information as per Annex along with the copy of Annual Activity Certificate/Annual report to DGP of state concerned and also file a copy of the same with AD bank.

 

 

 

Ref _ RBI/2012-13/222-A. P. (DIR Series) Circular No. 35 dated September 25, 2012

Establishment of Liaison , branch ,Project offices, in India by foreign Non-Government Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments under Government Approval Route henceforth

Establishment of Liaison , branch ,Project offices, in India by foreign Non-Government Organisations/Non-ProfitOrganisations/Foreign Government Bodies/Departments under Government Approval Route henceforth

 

In terms of Notification No FEMA 95/2000-RB dated July 02, 2003 general permission is granted to a foreign company to open project office in India provided it has secured from an Indian company, a contract to execute a project in India, and subject to satisfying certain other criteria.

It is clarified that permission to establish offices, in India by foreign Non-Government Organisations/Non-Profit Organisations/Foreign Government Bodies/Departments, by whatever name called, are under the Government Route as specified in A. P. (DIR Series) Circular No. 23 dated December 30, 2009. Accordingly, such entities are required to apply to the Reserve Bank for prior permission to establish an office in India, whether Project Office or otherwise.

Ref-

RBI/2012-13/211- A. P. (DIR Series) Circular No. 31 dated September 17, 2012

 

If the activities of the LO not restricted to purchase of goods in India for the purpose of export, then, the Liaison Office (LO) of non-resident taxpayer would qualify as business connection PE in India for tax purpose.

If the activities of the LO not restricted to purchase of goods in India for the purpose of export, then, the Liaison Office (LO) of non-resident taxpayer would qualify as business connection PE in India for tax purpose.

The Case law - Columbia Sportswear Company Vs. DIT (International Taxation), Bangalore – (Advance Ruling Authority) –

The Liaison Office of appellant was carrying out various activities such as ensuring the choice of quality material, occasional quality testing, conveying of requisite design, picking out competitive sellers, etc, in addition to the activities relating to the purchase of goods. . Moreover, the Liaison Office assisted the business of the applicant in Bangladesh and Egypt from India. It will be unrealistic that all the activities other than the actual sale of the goods are not integral part of the business of the applicant and have no role in the profit being made by the applicant on the sale of its branded products. Further, all its profits cannot be said to have accrued outside India since the sales are made outside India. Considering the nature of the activities carried by the Liaison Office in India, and that the activities supported the business in Egypt and Bangladesh, the operations of the applicant in India cannot be said to be confined to the purchase of goods only in India for the purpose of export. Hence the purchase/ sourcing exemption under the Income-Tax Act is not available to the applicant.

The Liaison Office constitutes a fixed place PE of the applicant in India under Article 5(1) of the DTAA, since the applicant was carrying at least a part of its business through such office (except the selling activity). With respect to the PE exclusion clause under Article 5(3)(d) of the DTAA, it was held that this exclusion is not applicable since the activities of the Liaison Office are not limited only to purchase of goods or merchandise or for collection of information for the enterprise. Further, as the Liaison Office is engaged in conducting a substantial part of the business of the applicant, its activities cannot be classified as preparatory or auxiliary as understood under the exclusionary clause 3(e) of Article 5 of the DTAA.

Accordingly, the applicant shall be taxable in India but only in respect of the income which can be attributed to the operations carried out by the Liaison Office in India

Indian Government has opened the gates for FDI in Multi-brand retail but state governments to decide whether to allow FDI or not in their State

Indian Government has opened the gates for FDI in Multi-brand retail but state governments to decide whether to allow FDI or not in their State

In a huge signal that it is shrugging off its policy paralysis, the government has pushed through the move to allow foreign direct investment in multi-brand retail.

Overriding huge opposition from allies like Mamata Banerjee and friendly parties like Mulayam Singh Yadav, the government, in a surprise move, has opened its retail sector to foreign supermarkets. This will allow global retail giants like WalMart to set up deep-discount stores in India. The decision is bound to create a much bigger political storm than what the hike in diesel prices has.

Importantly - and the government has underscored this provision - the policy allows state governments to decide whether to allow FDI in multi-brand retail or not. So, the government says, if opposition parties don't want the FDI, they can make that choice.

Multinational retailers like WalMart, Carrefour of France and Metro of Germany already have stores, but they are not allowed to sell to walk-in customers. They deal with smaller retailers, like the family-run shops in most localilities. The government had last year cleared 51 per cent FDI in multi-brand retailers for cities with populations of more than a million. But it had to rollback that decision after huge protests led by allies of the UPA government and the opposition, broke out across the country.

The decision set off fears that multinational giants will put small retailers and local shops that service households will be wiped out. Those in favour of FDI say that this unlikely since local mom-and-pop shops give personalised services like home delivery that these huge deep-discount stores won't. They also say that most of these stores, because of their size will be far fewer that local establishments.

FDI in multi-brand retail has many pre-conditions, though. The minimum FDI limit has been set at $100 million. Half of any investment has to made in infrastructure like cold-storage chains and warehouses. This is designed to help the agricultural sector and India has a severe shortage of these.
The most problematic condition, from the point of view of investors, wil be that at least 30 per cent of the good to be sold will have to sourced from local producers. Analysts say that MNCs might have a problem of quality control and supply.

FDI is single-brand retail is permitted, but that too with several conditions, including the 30 per cent local procurement. Household goods giant IKEA of Sweden wants to invest more than Rs. 10,000 crore to set up stores, but wants this rule to be relaxed. There is split within the government over this.

The government argues that FDI in multi-brand will give consumers the best deals possible on goods and also get it much-needed money.

It also says that farming sector will get a boost, since big retailers will not only source directly from them, cutting out middlemen, but also invest in cold-storages and other technology that India lacks. Those opposed to FDI in multi-brand retail say that it will be exactly the opposite: MNCs will control prices and squeeze the producers.

These MNCs are also expected to generate jobs in the areas where they set up stores as well as along the procurement chain. The government sees this as a big advantage

Courtesy : NDTV

Repayment period for Trade Credits for Import into India now extended up to 5 years

 As per A.P. (DIR Series) Circular No. 87 dated April 17, 2004 and A.P. (DIR Series) Circular No. 24 dated November 01, 2004. , for import of capital goods as classified by DGFT, AD banks may approve trade credits up to USD 20 million per import transaction with a maturity period of more than one year and less than three years (from the date of shipment). No roll-over/extension is permitted beyond the permissible period. AD banks are also permitted to issue Letters of Credit/guarantees/Letter of Undertaking (LoU) /Letter of Comfort (LoC) in favour of overseas supplier, bank and financial institution, up to USD 20 million per transaction for a period up to three years for import of capital goods, subject to prudential guidelines issued by the 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. AD banks shall not, however, approve trade credit exceeding USD 20 million per import transaction.

3. On a review, it has been decided to allow companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB) to 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.

4. The all-in-cost ceilings of trade credit will be as under:

Maturity period	All-in-cost ceilings over 6 months LIBOR*
Up to one year	350 basis points
More than one year and up to three years
More than three years and up to five years
* for the respective currency of credit or applicable benchmark

The all-in-cost ceilings include arranger fee, upfront fee, management fee, handling/ processing charges, out of pocket and legal expenses, if any.

Ref-RBI/2012-13/202-A.P. (DIR Series) Circular No. 28 dated September 11, 2012

 

External Commercial Borrowings through Bridge Finance for Infrastructure companies henceforth will be under Automatic Route

Indian companies in the infrastructure sector, where “infrastructure” is as defined under the extant guidelines on External Commercial Borrowings (ECB), have been allowed to import capital goods by availing of short term credit (including buyers’ / suppliers’ credit) in the nature of 'bridge finance', under the approval route, subject to the following conditions:-
(i) the bridge finance shall be replaced with a long term ECB;

(ii) the long term ECB shall comply with all the extant ECB norms; and

(iii) prior approval shall be sought from the Reserve Bank for replacing the bridge finance with a long term ECB.

3. On a review, it has been decided to allow refinancing of such bridge finance (if in the nature of buyers’/suppliers’ credit) availed of, with an ECB under the automatic route subject to the following conditions:-

(i) the buyers’/suppliers’ credit is refinanced through an ECB before the maximum permissible period of trade credit;

(ii) the AD evidences the import of capital goods by verifying the Bill of Entry;

(iii) the buyers’/suppliers’ credit availed of is compliant with the extant guidelines on trade credit and the goods imported conform to the DGFT policy on imports; and

(iv) the proposed ECB is compliant with all the other extant guidelines relating to availment of ECB.

4. The borrowers will, therefore, approach the Reserve Bank under the approval route only at the time of availing of bridge finance which will be examined subject to conditions mentioned in para 2(i) and (ii).

Ref:-RBI/2012-13/201-A.P. (DIR Series) Circular No. 27 dated September 11, 2012

 

Repayment of Rupee loans and/or fresh Rupee capital expenditure by Availing External Commercial Borrowings (ECB)

External Commercial Borrowings (ECB) Policy – Repayment of Rupee loans and/or fresh Rupee capital expenditure – USD 10 billion scheme

 

 

Earlier under A.P. (DIR Series) Circular No. 134 dated June 25, 2012, RBI

 allowed  Indian companies to avail of 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:-

1. Only companies in the manufacturing and infrastructure sector will be eligible to avail of such ECBs;
2. Such companies shall be a consistent foreign exchange earner during the past three financial years;
3. Such companies are not in the default list/caution list of the Reserve Bank of India; and
4. 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

Cap on ECB that can be availed of by an individual company under the scheme is limited to 50 per cent of the average annual export earnings realised during the past three financial years.

3. On a review, it has been decided:

(a) to enhance the maximum permissible limit of ECB that can be availed of to 75 per cent of the average foreign exchange earnings realized during the immediate past three financial years or 50 per cent of the highest foreign exchange earnings realized in any of the immediate past three financial years, whichever is higher;

(b) 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

(c) 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.

Ref- RBI circular -RBI/2012-13/200-A.P. (DIR Series) Circular No. 26
dated September 11, 201

Overseas Investment by Indian Parties in Pakistan under Approval Route

Attention of the Authorised Dealer (AD - Category I) banks is invited to the Notification No. FEMA 120/RB-2004 dated July 7, 2004 [Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004] (the Notification), as amended from time to time.

2. In terms of Regulation 6 (2) of the Notification ibid, “Notwithstanding anything contained in these Regulations, investment in Pakistan shall not be permitted.” It has now been decided that the overseas direct investment by Indian Parties in Pakistan shall henceforth be considered under the approval route under Regulation 9 of the Notification, ibid.

3. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Any Foreign Security), Regulations, 2004 are being issued separately.

Ref- RBI/2012-13/198-A. P. (DIR Series) Circular No. 25 dated September 7, 2012

 

Foreign investment by Qualified Foreign Investors (QFIs) – Hedging facilities

Foreign investment by Qualified Foreign Investors (QFIs) – Hedging facilities

Attention of Authorized Dealers Category – I (AD Category – I) banks is invited to the Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 dated May 3, 2000 [Notification No. FEMA/25/RB-2000 dated May 3, 2000] and A.P. (DIR Series) Circular No.32 dated December 28, 2010, as amended from time to time.

2. In terms of A.P. (DIR Series) Circular No.8 dated August 9, 2011, A.P. (DIR Series) Circular No. 42 dated November 3, 2011, A.P. (DIR Series) Circular No. 66 dated January 13, 2012 and A.P. (DIR Series) Circular No. 89 dated March 1, 2012, Qualified Foreign Investors (QFI) are allowed to invest in rupee denominated units of domestic Mutual Funds and listed equity shares and allowing SEBI registered FIIs to invest in to be listed debt securities subject to the terms and conditions mentioned therein.

Further, in terms of A.P. (DIR Series) Circular No. 7 dated July 16, 2012, Qualified Foreign Investors (QFIs) have been permitted to purchase on repatriation basis debt securities subject to the various terms and conditions. As per para 2(x) of the circular, QFIs would be permitted to hedge their currency risk on account of their permissible investments (in equity and debt instruments) in terms of the guidelines issued by the Reserve Bank from time to time.

3. It has now been decided to allow QFIs to hedge their currency risk on account of their permissible investments (in equity and debt instruments), as per the details given in the Annex.

4. Necessary amendments to the Notification No. FEMA.25/RB-2000 dated May 3, 2000 [Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000] are being notified separately.

5. AD Category - I banks may bring the contents of this circular to the notice of their constituents .

Ref- RBI/2012-13/185-A. P. (DIR Series) Circular No. 21 dated 31st August 2012