22 October, 2019
DPIIT issues press note 4 approving reforms in FDI policy
On September 18, 2019 the Department for Promotion of Industry and Internal Trade (“DPIIT”) issued press note 4 of the 2019 series approving the Cabinet proposal (announced in the meeting, held on August 28, 2019), for review of the FDI policy in relation to a various reforms. The reforms include opening new sectors to FDI and liberalizing FDI related norms in sectors already open for foreign investment. The reforms announced vide the press note no. 4 are:
(a)permitting 100% FDI, under the automatic route, in
(i) contract manufacturing and
(ii) 100% FDI under automatic route for sale of coal, for coal mining activities including associated processing infrastructure.
The term “associated processing infrastructure” is defined to include coal washery, crushing, coal handling and separation (magnetic and non-magnetic).
(b)26% FDI, under government route, is now permitted for uploading/ streaming of News & Current Affairs through Digital Media.
(c) easing of FDI related norms in single brand retail trading (SBRT). The following relaxations / amendments have been
announced to the policy relating to FDI in SBRT sector:
(i) all procurements made from India by the SBRT entity for
the relevant single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only shall be removed,
(ii) the 'sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement,
(iii) the entire sourcing from India, and not just the year on year incremental value, for global operations shall be considered towards local sourcing requirement, and
(iv)retail trading through online trading can be undertaken prior to opening of brick and mortar stores, subject to the condition that the SBRT entity opens brick and mortar stores within two (2) years from date of start of online retail.
The press note no. 4 shall come into effect from the date of the relevant foreign exchange management (FEMA) notification.
Corporate tax rates slashed
On September 20, 2019, the Finance Minister (FM) Ms. Nirmala Sitharaman slashed corporate tax by almost 10% points to pull the economy out of a 6 year low growth and a 45- year high unemployment rate by reviving private investments with an INR 1.45 lakh crore (approx. USD 21.1 billion) tax break. This is the biggest reduction in 28 years done with an objective to bring corporate tax rates at par with other Asian countries such as China and South Korea.
Highlights
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Corporate tax rate has been slashed to 22% for domestic companies not availing any incentives/ exemptions; earlier rate 30%. Effective tax rate for such companies now stands at 25.17% including cess and surcharge; earlier it was 34.94%. Also, such companies shall not be required to pay Minimum Alternate Tax (MAT).
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New domestic companies incorporated on or after October 1, 2019, making fresh investment in manufacturing can pay income-tax at a rate of 15%; the earlier rate was 25%. This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before March 31, 2023. Their effective tax rate will be 17.01% inclusive of surcharge and cess; earlier the rate was 29.12%.These companies, too, will not be required to pay MAT.
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A company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. However, these companies can opt for the concessional tax regime after expiry of their tax holiday/exemption period. After the exercise of the option they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5% to 15%.
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In order to stabilise the flow of funds into the capital market, it is provided that enhanced surcharge introduced by the Finance (No.2) Act, 2019 shall not apply on capital gains arising on sale of equity share in a company or a unit of an equity oriented fund or a unit of a business trust liable for securities transaction tax (STT), in the hands of an individual, Hindu Undivided Family (HUF), Association of Persons (AOP), Body of Individuals (BOI) and Artificial Juridical Person (AJP).
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The enhanced surcharge shall also not apply to capital gains arising on sale of any security including derivatives, in the hands of Foreign Portfolio Investors (FPIs).
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In order to provide relief to listed companies which have already made a public announcement of buy-back before July 5, 2019, it is provided that tax on buy-back of shares in case of such companies shall not be charged.
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The Government has also decided to expand the scope of CSR 2% spending. Now CSR 2% fund can be spent on incubators funded by Central or State Government or any agency or Public Sector Undertaking of Central or State Government, and, making contributions to public funded Universities, IITs, national laboratories and autonomous bodies engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
For further information, please contact:
Vineet Aneja, Partner, Clasis Law
vineet.aneja@clasislaw.com
