IABM Busine Blog - Recent changes in the Indian tax and regulatory landscape

IABM Business Blog - Recent changes in the Indian tax and regulatory landscape 12 February 2016

The Indian government has come up with substantial reforms in various policies relevant to foreign organizations doing business in India. Outlined below are the key highlights of the important amendments which have been introduced in the past few weeks:

Reforms in Foreign Direct Investment Policy

The government recently outlined significant reforms in India s Foreign Direct Investment ( FDI ) Policy. These reforms are an additional step towards increasing the ease of doing business in India. The major amendments include:

Sector-specific reforms cover construction & development, retail trading, wholesale cash & carry, single brand retail trading, defence, broadcasting, banking and plantation sectors and e-commerce.

Liberalization for investing in Limited Liability Partnerships ( LLPs ) in India. Now 100% FDI is freely permitted for LLPs operating under the automatic route. LLPs with foreign investment are also permitted to make downstream investment in another company or LLP in open sectors.

Prior to, non-resident Indians ( NRIs ) had special dispensations for investment in key Indian sectors. Now, investments by NRI-owned and controlled entities (outside India) have been taken to be on par with NRI investments for such relaxations.

Many other rationalization measures has been introduced, including allowance for the swap of shares without any prior approval and an increase in monetary limits for approval from the CCEA (Cabinet Committee for Economic Affairs) has been extended from INR 30 million (US$ 0.5 mn) to INR 50 million (US$ 0.75 mn).

Amendment in tax rules for furnishing information in respect of payment to foreign entities

The Indian tax authorities have come up with a notification to reduce the burden of compliance and information for making remittances outside India. Significant changes are as follows:

Prior to this amendment, Forms 15CA and 15CB were required in all cases of foreign remittances, whether the payment was chargeable to tax or not. Now, Form 15CA has been substantially amended to make it simpler for the remitter, especially in those cases where taxes are not applicable.

Further, requirements of furnishing an accountant certificate has been taken away, in case of non-taxable payments, or payments made to non-residents up to INR 5,00,000/- (US$ 7,500) in a year.

Other relaxations related to such compliances have also been introduced.

Internal financial controls

One of the significant implications of the new Companies Act, 2013 is the reporting responsibilities of the directors and auditors with regard to internal financial controls. Directors of a company are specifically required to include a statement in their annual board report stating that there are adequate internal controls and its effectiveness of operation.

The auditors, on their part, were already required to report the company adequate internal financial controls system in the company and the operating effectiveness of such controls. Until now, these reporting requirements were restricted to a few selected categories of companies only. Now, as per the recent amendments, these compliance requirements have been enhanced significantly, and extended to all classes of companies.

Draft guidelines for the determination of the Place of Effective Management (POEM) of a company

This concept of POEM was brought in by the Finance Bill 2015. A foreign company is said to be resident in India, if it has a Place of Effective Management in India, during the year. The Indian tax department has now released draft guidelines for these rules.

This will bring more clarity to multinational companies regarding their residency status in India. Note that these guidelines are only draft clauses released for public opinion, and the final rules will be released at a later stage.

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