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