Regulatory Updates_The PULSE_November 2023

MCA Updates

Designation of a person to report information to the Registrar wrt Beneficial Interest in Shares of the Company regulatory updates

As per this amendment, every company has to designate a person for the purpose of furnishing and providing information to the Registrar or any other authorised officer with respect to beneficial interest in shares of the company.         

The company may designate the following persons for this purpose:

• Company Secretary, if a company has the requirement under the Companies Act to appoint a CS;
• KMP other than a CS;
• Every Director if there is no CS or KMP.

Until a person is designated for this purpose, the above-mentioned persons shall be deemed to have been designated person for this purpose. The details of the designated person have to be reported in the Annual Report, ensuring transparency and compliance. If there is any change in the designated person at any time, the company has to intimate the same to the Registrar in e-Form GNL-2.

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Listing of Foreign Stock Exchanges regulatory updates

The provisions of section 5 of the Companies (Amendment) Act, 2020 shall be effective from October 30, 2023, according to the notification issued by the Ministry of Corporate Affairs (“MCA”). By virtue of this notification, the provisions of section 23 of the Companies Act, 2013 shall be amended.

This amendment is aimed at providing public companies with the flexibility to list their securities on foreign stock exchanges and includes provisions for exemptions by the Central Government.

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The Companies (Incorporation) Third Amendment Rules, 2023

As per this amendment, the discretionary power of the Regional Director (RD) to impose any cost upon shifting the registered office of the company from one state or Union Territory to another has been revoked.

Further, the Regional Director (RD) has been given the authority to allow the shifting of the registered office, if the management of the company has been taken over by new management, following the resolution plan mentioned under Section 31 of the Insolvency and Bankruptcy Code, 2016, and no appeal is pending in any Court or Tribunal and no inquiry, inspection, investigation is pending or initiated after the approval of the resolution plan.

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Integration with national Single Window System (NSWS) regulatory updates

MCA notified that it has integrated with the National Single Window System (NSWS) for the Incorporation of Companies and LLPs. The Incorporation services can now be availed from both the NSWS portal and the MCA21 portal.

The government has been bringing various regulatory services under a single platform for ease of doing business.

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Companies (Prospectus and Allotment and Securities) Second Amendment Rules, 2023

The key amendments are as follows:

• Every public company which issued share warrants prior to the commencement of the Companies Act, 2013 and not converted into shares has to inform the Registrar about the details of such share warrants in Form PAS-7 within a period of 3 months of the commencement of the amendment rules.
• The bearers of the share warrants have to surrender such warrants to the company and get the shares dematerialised in their account within a period of six months of the commencement of the amendment rules.
• For this purpose, the company has to place a notice for the bearers of share warrants in Form PAS-8 and also publish the same in a newspaper in the vernacular language which is in circulation in the district and in English language in an English newspaper, widely circulated in the State in which the registered office of the company is situated.
• In case any bearer of a share warrant does not surrender the share warrants within the said period, the company shall convert such share warrants into a dematerialised form and transfer the same to the Investor Education and Protection Fund established under section 125 of the Act.

Every private company, which is not a small company, has to comply with the following:

• issue the securities only in dematerialised form;
• facilitate the dematerialisation of all its securities,
• within a period of 18 months of closure of such financial year (i.e., before October 1, 2024).

Every such private company making any offer for the issue of any securities or buyback of securities or issue of bonus shares or rights offer has to ensure before making such offer that the entire holding of securities of its promoters, directors, and key managerial personnel has been dematerialised.

• All holders of securities who intend to transfer such securities or subscribe to any securities of the private company, by the way of private placement or bonus shares or rights offer, have to ensure that all the securities are held in dematerialised form before such transfer or subscription.

This amendment will ensure better transparency and mitigate fraud, risk of loss and theft.

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Limited Liability Partnership (Third Amendment) Rules, 2023

Through this amendment, the MCA has introduced the requirement for all limited liability partnerships (LLPs) to maintain a register of partners at their registered office. Additionally, in line with section 89 of the Companies Act, 2013 (CA 2013), all LLPs are now required to declare the names of persons holding an interest in the LLP (by way of contributions) through a nominee or registered holder-beneficial owner relationship.

The key amendments are as follows:

1.Register of partners:

• Every Limited Liability Partnership (‘LLP’), from the date of its incorporation, has to maintain a register of partners in Form 4A.
• In the case where LLP exists on 27-10-2023, it will have to maintain the register within 30 days from the commencement of these rules.
• In case of a change of name and details of partner, change in contribution amount or cessation of partnership interest, entries have to be made within 7 days of such change.

2.Declaration with respect to a beneficial interest in any contribution:

• In the case where a person’s name is entered in the register, but he does not hold any beneficial interest in contribution, then he has to file a Declaration in Form 4-B, within 30 days from the date on which his name is entered in the register of partners, specifying the name and other particulars of the person who actually holds any beneficial interest in such contributions.
• In case of any change in the beneficial interest in contribution, the beneficial partner will have to make a declaration on Form 4C, within 30 days of the date of such change. In the case where the beneficial interest of the registered partner is limited to the contribution stated against his name, but he does not hold beneficial interest in contribution against any other registered partner, then, he will not be required to file such a declaration.

The LLP has to record any declaration in the register of partners within 30 days from the date of receipt of the declaration.

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SEBI Updates

The centralised mechanism for reporting the demise of an Investor through KYC Registration Agencies (KRA)

To implement a centralized mechanism for reporting and verification in the event of an investor’s death, and therefore to smooth the process of transmission in the securities market, the Securities and Exchange Board of India (SEBI) issued a circular on October 3, 2023, outlining the operational rules for intermediaries, effective from January 1, 2024, that will apply to investors who are Natural person.

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Limited relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

According to Regulation 58(1) (b) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a listed entity that has listed its non-convertible securities is required to provide a hard copy of the statement containing the salient features of all the documents, as specified in Section 136 of the Companies Act, 2013 and the rules made thereunder, to holders of non-convertible securities who have not registered.

However, the Ministry of Corporate Affairs, vide its circular issued on September 25, 2023, extended the deadline for sending physical copies of financial statements (including the Board’s report, Auditor’s report, and any other documents required to be attached thereto) until September 30, 2024.

In view of the above, the Securities and Exchange Board of India (SEBI) has offered a similar relaxation from the above-mentioned requirement vide its circular dated October 6, 2023.

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Relaxation from compliance with certain provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

The Securities and Exchange Board of India (SEBI) extended the time frame for listed entities to hold Annual General Meetings (AGM) in electronic mode until September 30, 2024, vide its Circular dated October 7, 2023, and inter-alia relaxed the provisions mentioned in Regulation 36(1)(b) and Regulation 44(4) of the LODR (Listing Obligations and Disclosure Requirements) Regulations, 2015.

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Ease of Doing Business and Development of Corporate Bond Markets – Revision in the framework for Fund-raising by issuance of Debt Securities by large Corporations (LCS)

Taking into consideration the prevailing market conditions and the representations from the market participants, the Securities and Exchange Board of India (SEBI) issued a Circular on 19th October 2023 with immediate effect, revising the applicability of Regulation 50B of SEBI (Issue and Listing of Non-Convertible Securities)  Regulations, 2021 (NCS  Regulations) read with Chapter XII  of the NCS Master Circular on Large Corporates (LC) raising a minimum of 25% of their incremental borrowings in a Financial Year through issuance of debt securities which were to be met over a contiguous block of three years from the Financial Year 2022 onwards.

The revised applicability is as follows:

With effect from FY 2025, this circular will replace the current Chapter XII of the NCS Master Circular.

The detailed revised framework or fundraising by the issuance of debt securities by LCs can be accessed through the following link.

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Income Tax Updates

CBDT amends Rule 114B, Rule 114BA, Rule 114BB & Form No.60

The Central Board of Direct Taxation (CBDT), in a notification, has said that Permanent Account Number (PAN) will not be required for non-resident individuals and foreign companies opening bank accounts in GIFT IFSC. Such non-residents must not have any other taxable income in India. Non-residents can now file Form 10F without PAN. Form 10F is a self-declaratory statement required from non-resident taxpayers to cover the Tax Residency Certificate and get relief on TDS on income accruing from India. They can instead provide Form 60 to the banks for their transactions.

A new option of ‘Non-Residents not holding and not required to have PAN’ is now available on the income tax portal’s registration tab. A one-time password is required for registration and the user shall be required to provide his details and the details of key persons in India.

It is aimed at boosting the liability and deposits segment and the retail business segment of banks in IFSC. Summarily, it will benefit overseas firms wanting to set up treasury management operations, global institutional investors as well as non-residents who want to set up investment funds and other financial structures at GIFT IFSC.   

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CBDT Introduces Form No. 56F for Assessees Seeking Deduction u/s 10AA of IT Act

The Central Board of Direct Taxes (CBDT) issued Notification No. 91/2023, introducing a new Rule 16D into the Income-Tax Rules,1962. This new rule requires that the report of an accountant, which is required to be submitted by the taxpayer under Section 10AA (8) of the Income Tax Act, 1961, in conjunction with Section 10A (5) of the Act, must now be filed using the newly introduced Form No.56F.  

This form is required to be filed before the specified date prescribed under section 44AB.

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Order under Section 119 of the Income-tax Act 1961

The CBDT issued Circular No. 17/2023 on October 9, 2023, under section 119 of the Income-tax Act,1961. This circular provides crucial clarifications regarding trust audit reports for various entities, including funds, trusts, institutions, universities, educational institutions, hospitals and medical institutions.

The CBDT Circular focuses on audit reports concerning funds, trusts, institutions, universities, educational institutions, hospitals and medical institutions. These reports are required under specific sections of the Income-tax Act, namely clause (b) of the tenth proviso to clause (23C) of section 10, or sub-clause (ii) of clause (b) of subsection (1) of section 12A of Income-tax Act,1961.

The circular acknowledges that difficulties have arisen when providing details about individuals who have made ‘substantial contributions’ to the trust or institution. These contributions refer to any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees, as mentioned in section 13(3)(b) of the Income-tax Act.

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CBDT Extends due date of Filing Audit report – Section 10AA (8)

The Central Board of Direct Taxes (CBDT) issued Circular No. 18 of 2023 on Income Tax. This circular, dated 20^th October 2023, discusses the extension of the filing deadline for Income Tax reports. The order was made under section 119 of the Income-tax Act,1961.

The circular addresses the difficulties faced by taxpayers and other stakeholders in meeting the timely filing requirements of the report of the accountant, as mandated under clause (8) of section 10AA, read with clause (5) of section 10A of the Income-tax Act, 1961. These challenges arose due to the notification of the relevant Form 56F on 19^th October 2023.

The circular announces an extension of the due date for filing the accountant’s report. The extended due date for Assessment year 2023-24 has been moved from the specified date under section 44AB to 31^st December 2023.

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CBDT Grants Condonation for AY 2021-22 Form 10-IC filing Until 31 January 2024

In a recent development, the Central Board of Direct Taxes (CBDT) has provided relief to domestic companies by extending the deadline for filing Form No.10-IC for Assessment year (AY) 2021-22. This move aims to address issues related to the submission of this crucial document, helping companies avoid undue hardship.

The CBDT’s decision is outlined in Circular No. 19/2023, dated October 23, 2023. This circular invokes the powers conferred under section 119(2)(b) of the Income-tax Act, 1961. To comprehend the significance of this extension, it’s essential to consider the following points:

1. The circular primarily focuses on condoning the delay in filing Form No.10-IC for AY 2021-22.
2. To provide context, Circular No. 6/2022, issued on March 17, 2022, previously allowed for the condonation of delays in filing Form No. 10-IC for the previous year relevant to AY 2020-21. This relief was provided if specific conditions were met.
3. In response to the earlier circular, CBDT received representations from various stakeholders. These representations highlighted the challenges faced in filing Form No. 10-IC for AY 2021-22 within the prescribed due date or the extended due date.
4. The CBDT’s objective is to prevent genuine hardship faced by domestic companies that wish to exercise the option under section 115BAA of the Income-tax Act.
5. For the delay in filing Form No. 10-IC to be condoned, the following conditions must be satisfied:

• The return of income for the relevant assessment year must have been filed on or before the due date specified under section 139(1) of the Income-tax Act.
• The assessee company has opted for taxation under section 115BAA of the Act by selecting item (e) of “Filing Status” in “PART A-GEN” of the Form of Return of Income ITR-6.
• Form No. 10-IC is filed electronically on or before January 31, 2024, or within three months from the end of the month in which Circular No. 19/2023 is issued, whichever date is later.

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Direct Tax Collections for F.Y. 2023-24 up to 9 October 2023

The Ministry of Finance recently released data on Direct Tax collections for the fiscal year 2023-24 up to October 9, 2023. The figures indicate substantial growth in tax collections, which is a positive sign for the country’s economic health.

The provisional data reveals that gross direct tax collections up to October 9, 2023, amount to Rs. 11.07 lakh crore. This figure is noteworthy because it represents a substantial increase of 17.95% compared to the gross collections during the same period in the previous fiscal year. Such growth in tax collections is indicative of economic stability and increased tax compliance.

Even more impressively, the net direct tax collection, after adjusting for refunds, stands at Rs. 9.57 lakh crore, making a remarkable increase of 21.82% over the net collections during the corresponding period in the previous year. This growth in net collections is a strong indicator of higher tax efficiency and reduced tax evasion.

The data also reveals that during the period from April 1, 2023, to October 9, 2023, refunds amounting to Rs. 1.50 lakh crore were issued. This is a significant part of the overall tax collection process, ensuring that taxpayers receive returns on their excess payments. It’s important to note that while refunds reduce the net collection figure, they are an essential component of a fair tax system.

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GST Updates

Central Goods and Services Tax (Fourth Amendment) Rules,2023

CBIC issued Notification No.52/2023-Central Tax on October 26, 2023. This notification introduces important amendments to the Central Goods and Service Tax Rules, 2017 & amends Rule 28, Rule 142, Rule 159, FORM GST REG-01, FORM GST REG-08, FORM GSTR-8, FORM GST PCT-01 and FORM GST DRC-22.

1. The notification formally names the rules as the Central Goods and Services Tax (Fourth Amendment) Rules, 2023. These rules will come into effect from 26^th October,2023.
2. Rule 28 of the Central Goods and Services Tax Rules is renumbered as subrule (1). Additionally, a new sub-rule (2) is introduced. This sub-rule addresses the value of the supply of services by a supplier to a related person, involving the provision of a corporate guarantee to a banking company or financial institution on behalf of the recipient. The value of this supply shall be deemed as one per cent of the amount of the guarantee offered or the actual consideration, whichever is higher.
3. In Rule 142, Sub-rule (3) is updated. The term “Order” is replaced with “intimation,” indicating a shift in the nature of communication from the proper officer.
4. Rule 159, Sub-rule (2) is amended to include that the period for seeking a refund of excess balance in the electronic cash ledger is within one year from the date of issuance of the order under Sub-rule (1) or earlier, whichever applies.
5. In FORM GST REG-01, PART-B, a new clause (xiva) is added to include “One Person Company” as a type of business entity registering under GST.
6. FORM GST REG-08 is substantially updated to cover the order of cancellation of registration as a Tax Deductor at source or Tax collector at source. The form outlines the reasons for cancellation and emphasizes the liability to pay tax and other dues even after registration cancellation for the prior period.
7. In FORM GSTR-8, serial number 5 is omitted. The section pertaining to interest and late fees payable and paid is revised, with separate entries for interest on TCS and late fees for Central Tax and State/UT Tax. Debit entries in the cash ledger for TCS, interest and late fee payments are included.
8. FORM GST PCT-01, PART-B, the list of enrolment sought is updated to include additional qualifications, including Chartered Accountants, Company Secretaries, Cost and Management Accountants and more.
9. A Paragraph is added to FORM GST DRC-22, indicating that the order shall cease to have effect either on the date of issuance of an order in FORM GST DRC-23 by the commissioner or after one year from the date of issuance, whichever is earlier.

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CGST clarifies conditions for the export of services under the IGST Act 2017

The circular clarifies the conditions specified in sub-clause (iv) of section 2(6) of the IGST Act, which states that for a supply of services to qualify as an export of services, the payment must be received by the supplier of services in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India (RBI).

1. Clause (6) of section 2 of the IGST Act defines “export of services”. To qualify as an export of services, the supply of services must meet five conditions, including the one related to payment mentioned above.
2. The circular refers to RBI’s A.P. (DIR Series) Circular No.10 dated 11^th July, 2022 which clarifies the use of INR for international trade transactions. The RBI’s circular emphasizes the promotion of global trade and the support for using INR for trade transactions. It allows for the settlement of trade transactions in INR through Special Rupee Vostro Accounts. This means that Indian Importers can make payments in INR for goods or services supplied by overseas sellers, while Indian exporters can receive export proceeds in INR.
3. The Foreign Trade Policy 2023, which came into effect on 1^st April 2023, explicitly permits invoicing, payment and settlement of exports and imports in INR. This is subject to compliance with RBI’s A.P. (DIR Series) Circular No.10 dated 11^th July 2022. It emphasizes the use of Special Rupee Vostro Accounts for this purpose.
4. The circular concludes that when Indian exporters of services are paid in INR from the Special Rupee Vostro Accounts of the correspondent bank(s) of the partner trading country, as per the RBI’s circular and the Foreign Trade Policy, they are considered to meet the conditions of sub-clause (iv) of clause (6) of section 2 of the IGST Act. This clarification is made without prejudice to any other permissions or approvals required under other laws.

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Clarification regarding the determination of place of supply in various cases

The CBIC recently issued Circular No.203/15/2023-GST on 27^th October,2023. This circular addresses critical concerns related to the determination of the place of supply in various cases under the Goods and Services Tax (GST) framework in India.

1.Place of Supply in case of service of transportation of goods, including through mail and courier

This section addresses the doubts raised due to the amendment in the Integrated Goods and Services Tax Act,2017 (IGST Act). It explains that after the amendment, the place of supply of services of transportation of goods will be determined by the default rule under section 13(2) of the IGST Act. The location of the recipient of services plays a crucial role in determining the place of supply. If the recipient’s location is available, the place of supply will be at their location. If the recipient’s location is not available in the ordinary course of business, the place of supply will be at the Supplier’s location.

Moreover, it specifies that service of transportation of goods by mail or courier will also follow the same principles and the place of supply will be determined in the same manner.

2.Place of supply in case of services in the advertising sector

 This section clarifies the place of supply for services related to advertising. It distinguishes two cases:

• Supply (sale) of space on an immovable property for advertising.
• Services are provided by a vendor who arranges hoardings/ billboards for advertising but does not supply or sell space on immovable property.

For the first case, the place of supply is determined as per section 12(3)(a) of the IGST Act, which is the location where the hoarding/ structure is located. In the second case, where no sale of space is involved, the place of supply is governed by section 12(2) of the IGST Act.

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Clarification on issues pertaining to the taxability of personal guarantee and corporate guarantee in GST

This circular addresses key concerns related to the taxability of personal guarantees and corporate guarantees under the Goods and Services Tax (GST) regime.

1.Taxability of personal Guarantee by Directors

This section deals with the taxability of personal guarantees provided by directors to banks for securing credit facilities for the company, especially when provided without any consideration. According to the CGST Act, directors and companies are considered related persons. The circular explains that even when provided without consideration, this activity is treated as a supply of service as per the CGST Act.

To determine the taxable value, Rule 28 of the Central Goods and Services Tax Rules 2017, is invoked. However, it mentions that if the RBI mandates that no consideration, including commission or fees, can be paid to directors for providing personal guarantees, the open market value is effectively zero. Therefore, no GST is payable on such supplies when no consideration can be paid.

In exceptional cases where directors or guarantors are paid remuneration, the taxable value of the supply of service is the remuneration or consideration provided by the company, directly or indirectly.

2.Taxability of Corporate Guarantee

This section addresses the taxability of corporate guarantees provided by one company on behalf of another related company or a holding company to secure credit facilities, even when provided without consideration. In both cases, the activities are treated as supplies of service between related parties as per Schedule I of the CGST Act.

To determine the taxable value, Rule 28 of the CGST Rules is employed. However, recognizing the variations in practices followed by field formations and taxpayers in determining the taxable value, a new sub-rule (2) has been added to Rule 28 of the CGST Rules. This sub-rule, introduced through Notification No. 52/2023 dated 26^th October 2023, provides a standardized method for determining the taxable value of such supplies between related persons.

This circular emphasizes that the new sub-rule (2) will apply to all cases of supply of services involving the provision of corporate guarantees between related persons, regardless of the availability of Input Tax Credit (ITC) to the recipient of services.

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