FEBRUARY 2021

FOREIGN CONTRIBUTIONS – AN UNDERSTANDING

There is always this question as to whether Trusts in India can receive donations/ contributions from abroad. This Article and ___ will help us understand the regulations governing the same.

GOVERNING ACT:

Foreign Contribution Regulation Act 2010 governs the contributions that can be received by Individuals, Associations and Non-Profit Companiesin India. FCRA consolidates the law to regulate the acceptance and utilization of foreign contribution by certain individuals or associations or companies and to prohibit acceptance and utilization of foreign contribution for any activities detrimental to Nation’s interest and other incidental matters.

We will limit this Article to give an idea about two aspects:

• 1) What is a Foreign Contribution?
• 2) What is Foreign Source?

Foreign Contribution

Sec 2(1)(h) of FCRA defines contribution to be:
Donation, delivery or transfer made by any foreign source,

• 1) Of any article, not being an article given as gift to a person for his personal use, if the market value of such article in India on the date of such gift is not more than Rs 25,000/-
• 2) Of any currency, whether Indian or Foreign
• 3) Of any security as defined under clause (h) of Section 2 of Securities Contract Regulation Act 1956 and includes any foreign security as defined under clause (o) of Section 2 of Foreign Exchange Management Act 1999.

Deemed Foreign Contribution

It has to be noted that Donation, delivery or transfer of any article, currency or foreign security by any person who has received it from any foreign source, either directly or indirectly through one or more personsshall be deemed to be foreign contribution.
Interest accrual on foreign contribution received and deposited in a bank or any other Income derived from foreign contribution or interest on such income thereon shall all be deemed to be foreign contribution.

Exclusions

• a) Amount received as fees, including fees received by educational institutions in India from foreign student
• b) Amount received towards cost in lieu of goods or services rendered by such person in the ordinary course of business, trade or commerce whether in India or outside India or Amount received from an agent or a foreign source towards such fee or cost.

PERSON includes

• • Individual
• • Hindu Undivided Family
• • An Association
• • A company registered under Sec 25 of Companies Act 1956

Foreign Source

Sec 2(1)(j) of FCRA 2010 includes:

• (i) the Government of any foreign country or territory and any agency of such Government;
• (ii) any international agency, not being the United Nations or any of its specialized agencies, the World Bank, International Monetary Fund or such other agency as the Central Government may, by notification, specify in this behalf;
• (iii) a foreign company;
• (iv) a corporation, not being a foreign company, incorporated in a foreign country or territory;
• (v) a multi-national corporation referred to in sub-clause (iv) of clause (g);
• (vi) a company within the meaning of the Companies Act, 1956, and more than one-half of the nominal value of its share capital is held, either singly or in the aggregate, by one or more of the following, namely: -
  • (A) the Government of a foreign country or territory;
  • (B) the citizens of a foreign country or territory;
  • (C) corporations incorporated in a foreign country or territory;
  • (D) trusts, societies or other associations of individuals (whether incorporated or not), formed or registered in a foreign country or territory;
  • (E) Foreign company;
• (vii) a trade union in any foreign country or territory, whether or not registered in such foreign country or territory;
• (viii) a foreign trust or a foreign foundation, by whatever name called, or such trust or foundation mainly financed by a foreign country or territory;
• (ix) a society, club or other association or individuals formed or registered outside India;
• (x) a citizen of a foreign country

In the subsequent articles, we will see in detail about Who can receive foreign contribution, the mode of receiving the same, registration and approval process, validity of registration, reporting requirements etc.,

ONE PERSON COMPANY AND THE RELAXATIONS GIVEN IN BUDGET 2021

One Person Company (OPC) is a unique concept introduced in the Companies Act, to give the traditional sole proprietorship businesses run across the country a chance to obtain a separate legal status. Under OPC scheme, a company shall be incorporated with just one member and one director, thus paved way for all the single owner businesses to enjoy the benefit of limited liability available to a corporate. Whereas, certain conditions for incorporating a one person Company (OPC) were stringent. Such as limiting the capital infusion and the turnover of the Company, and requiring it to get mandatorily converted into a private or public limited company with minimum of 2 members when the capital or turnover crossed the threshold limit. Hence, the recent budget announced by the Hon’ble Finance Minister, removed certain conditions for ease of formation of OPC as well as ease of doing business for the OPCs.

1. Residential Status requirement:

Prior to the budget announcement, OPCs shall be incorporated only by an Indian Citizen who is also a resident in India and further to be a resident in India, he must have stayed in India for at least 182 days in the country.
Post budget scenario: With effect from 1st April 2021, even a Non-resident Indian is allowed to incorporate an OPC in India. And further, an individual for the purpose of Incorporating OPC will be considered as resident if he has stayed in India for not less than 120 days instead of 182 days. I.e, for an individual to incorporate an OPC as a resident Indian, it would be sufficient if he has stayed in India for not less than 120 days in a year.

2. Threshold limits:

Prior to the budget, an OPC shall operate only with a maximum turnover of Rs.2 crores or a paid up capital of maximum of Rs. 50 lakhs. When a OPC crosses the threshold limit, it was mandatorily required to be converted into a private or public limited company. Thus, it restricted the growth of a one person company incorporated and existing proprietary concerns with higher turnover potential or maximum capital requirements continued to operate as sole proprietorship firm and chose not to convert it into a corporate firm.
Post budget scenario: With effect from 1st April 2021, the threshold limits are withdrawn and hence, an OPC can continue to run its operations as OPC itself when it crosses the 2 crore turnover limit or introduced more capital into its business without having to convert itself into a private or public limited company by adding more members.

3. Voluntary Conversion of OPC:

Prior to the budget, an OPC is allowed to voluntarily convert into a private or public limited company only after two years have passed post its incorporation.
Post budget scenario: With effect from 1st April 2021, an OPC is permitted to be converted into a private or public limited company anytime and no two years have to be waited out to add additional members and directors into the Company.
Thus, business owners who want to run their business as a single owner and also want to enjoy the benefit of limited liability are encouraged to incorporate an OPC as the stringent rules restricting the growth of an OPC are removed and also the amendments are expected to attract NRIs who wants to invest in India without many restrictions.

Direct tax proposal

• 1. No filing of ITR for senior citizen who are aged 75 and above with income of pension and interest income. TDS will be deducted by the bank at necessary rates.


• 2. Time limit for opening income tax proceeding has been reduced from 6 years to 3 years for re-opening assessment. (Sec 148 and Sec 149). In case of serious fraud cases where the concealment of income exceed 50 lakhs or more in a year, assessment can be re-opened up to 10 years with the approval of Principal chief Commissioner.


• 3. Dispute resolution committee – faceless litigation for small taxpayer with a taxable income upto 50 lakhs and disputed income up to 10 lakhs shall be eligible to approach the committee. Settlement commission shall be discontinued from 1 Feb 2021.


• 4. Faceless ITAT by establishing National Faceless Income tax appellate Tribunal Centre and all communication being electronic. For personal hearing shall be done through Video Conferencing


• 5. Relaxation to NRI – removing the hardship of double taxation in availing credit from foreign jurisdiction.


• 6. Exemption from audit – Turnover limit increased in Feb 2020 budget is 5 Crores with 95% of digital transaction. In Feb 2021 budget, the limit has been increased to 10 crores with the same condition for tax audit. (Sec 44AB).


• 7. Relief for dividend – In Feb 2020 Budget, DDT was abolished with taxability of Dividend in hands of shareholders. In Feb 2021 Budget, Dividend from REIT/InvIT is exempt from TDS. Advance tax on dividend shall arise after declaration of dividend. And foreign portfolio investors shall be enable to deduct tax at a lower treaty rate on dividend, if the MAT rate is more than the applicable rate, then such dividend is exempt from levy of MAT.


• 8. Attracting foreign investment into infrastructure sector by relaxing some of the condition to relating to prohibition on private funding, restricting on commercial activities and direct investment in infrastructure. Infrastructure debt funds are eligible to raise fund by issuing efficient Zero Coupon Bonds.


• 9. Tax neutrality of conversion of Urban Cooperative Bank (UCB) into small finance bank (SFB) – UCB is not required to pay Capital gains for the assets transferred to SFB


• 10. Relaxation to NRI for income of retirement benefit accounts – Mismatch of income accrued due to taxation, notified to propose ruling to align such mismatch


• 11. Relaxation for disinvestments – Carry forward of loss for disinvestment, to promote disinvestment of PSUs. Tax neutral demerger for disinvestment – transfer of assets by the PSUs.


• 12. Affordable housing/ rental housing –Additional deduction of 1.5 Lakhs for loans taken for an affordable house has been extended up to 31 March 2022. Affordable housing projects can avail tax holiday of one year till 31 March 2022. Tax exemption for notified affordable rental housing project is allowed.


• 13. Tax incentives to IFSC – In addition to the incentives already provided to IFSC the following has been included, tax holiday for Capital gain for aircraft leasing companies, tax exemption for aircraft lease rental paid to foreign lessors, tax incentive for relocating foreign funds in IFSC and allow tax exemption to investment decision of foreign banks located in IFSC.


• 14. Pre-filling of returns – to make e-filing more at ease, the following fields are pre-filled similar to salary details, tax payments, TDS, etc., like, details of capital gains from listed securities, dividend income, and interest from bank, post office, etc will be pre-filled.


• 15. Relief to small trusts – the blanket exemption to such trust has been increased from 1 crore, to 5 crores.


• 16. Labour welfare funds – to ensure that employee’s contribution has been remitted on time, the late deposit of such contribution by employer will not be allowed as deduction to the employer.


• 17. Incentives for start-ups – the eligibility to avail the tax holiday for start-ups has been extended by one year till 31 March 2022. Further the capital gains exemption for investment in start-ups has been extended till 31 March 2022.


• 18. Rationalisation of taxation for unit linked insurance plan (ULIP) – tax exemption for maturity proceed of the ULIP having annual premium up to 2.5 Lakhs, and no limit in case of death premium. This cap is applicable only policy taken on or after 1 Feb 2021.


• 19. Rationalisation of tax free income on PFs –restrict tax exemption for the interest income earned on employee’s contribution to various PF to annual contribution of 2.5 lakhs. Applicability for the contribution made on or after 1 April 2021.


• 20. Taxability of surplus amount received by partners – any amount received by partners from partnership in excess of capital contribution is taxable.


• 21. Clarification on depreciation on goodwill and slump sale – No depreciation on goodwill, but the deduction of the amount paid for acquisiton of goodwill is allowed on sale of goodwill. Slump sale shall include all types of transfers.


• 22. Fake invoices/ Sham transaction – penalty proceeding initiated for fake invoices/ sham transaction of more than 2 crores shall be eligible for provisional attachement of assets.


• 22. Carry forward of loss by charitable organisation – Charitable organisation are not permitted to claim carry forward loss. Loan repayment and replenishment of corpus shall be allowed as application.


• 23. Clarification for equalisation levy – transaction taxable under income-tax are not liable for equalisation levy.


• 24. Non – filing of return by deductee/ Collectee – a person in whose case TDS/TCS of Rs. 50000 or more has been made for the past two years and who has not filed return of income, the rate of TDS/TCS shall be at the double of the specified rate or 5% whichever is higher. This is not applicable in case where full amount of tax is required to be deducted (e.g. salary, lottery income, etc.)


• 25. Levy of TDS on purchase of goods – TDS of 0.1% n purchase transaction exceeding Rs. 50 lakhs in a year. This is applicable to asseseewhose turnover exceed Rs. 10 crore.


• 26. Substitution of Authority for AR with Board for AR for faster disposal of cases. Appeal against Board to High Court.


• 27. Alignment of MAT for Advanced Pricing (APA) and secondary adjustment – where MAT liability has arisen in the year of repatriation on account of APA or secondary adjustment relief is provided for such cases.


• 28. Increase in Safe harbour limit for primary sale of residential units from 10% to 20% for specified primary sale of residential units.

Indirect tax proposal

• 1. Few measures GST has been made simplifiers –
• • Nil return through SMS
• • Quarterly return and monthly payment for small taxpayers
• • Electronic invoice system
• • Validated input tax statement
• • Pre-filled editable GST return
• • Staggering of returns filing
• 2. Customs duty rationalisation – from October 2021, a revised customs duty structure and free of distortions. Any customs duty exemption will be valid up to 31 March following two years from the date of issue.


• 3. Amendments in Customs tariff Act: First schedule of customs tariff is being revised in accordance with HSN 2022 amendments, effects of these changes is from 1 Jan 2022. Few of the changes is as follows, remaining refer the table attached.
  • • Electronic and mobile phone industry – some parts of mobile will be moved from ‘nil’ rate to moderate rate of 2.5%.
  • • Iron and Steel – Reduction of customs duty uniformly to 7.5% on semis, flat, and long product of non – alloy, alloy, and stainless steel. Exemption of steel scrap for a period up to 31 March 2022. Reduction of duty on copper scrap from 5% to 2.5%.
  • • Textile – Reduction of BCD rates on caprolactam, nylon chips and fiber& yarn to 5%.
• 4. Amendments in provision relating to Anti – dumping Duty(ADD), CVD, and safeguard measures:
• • Imposition of duty from the date of initiation of anti – circumvention investigation
• • Anti – absorption provisions
• • Imposition of these duties on review for a period up to 5 years at a time
• • Uniform provision for imposition ADD/CVD on account of input used by EoUs and SEZs for manufacture of goods that are cleared to DTA.
• • Whenever ADD/CVD is revoked such temporary revocation shall not exceed one year at a time.
• • Final finding are to be issued in ADD/CVD in investigation in review proceeding by the designated authority at least 3 months prior to expiry of ADD under review (w.e.f. 1 July 2021).
• 5. Imposition of agriculture infrastructure and development cess on specified goods (from 2 February 2021:
• A. Customs goods:

Items	Cess (customs)
Gold, silver, and dore bars	2.5%
Alcoholic beverages (chapter 22)	100%
Crude palm oil	17.5%
Crude soyabean and sunflower oil	20%
Apples	35%
Coal, lignite and peat	1.5%
Specified fertilizers (urea, etc)	5%
Peas	40%
Kabuli chana	30%
Bengal gram/ Chick peas	50%
Lentil (mosur)	20%
Cotton (not carded or combed)	5%

• B. Excise goods: Agricultural infrastructure and development cess (AIDC) of Rs.2.5 per liter of petrol and Rs. 4 per liter of diesel.
• 6. Social welfare Surcharge (SWS): SWS rate of 10% for all goods. SWS on AIDC is being exempted for Gold and silver.


• 7. Legislative changes in provision of CGST Act, 2017 and IGST Act, 2017 – to be notified concurrently with the similar acts:
• • Facilitating taxpayers, such as remove the mandatory requirement of getting annual accounts audited and reconciliation statement, filing of the annual return on self – certification basis and charging interest on cash liability with effect from 1 July 2017.
• • Improving compliance, such as availment of ITC only when the details have been furnished by the supplier in the statement of outward supplies, validity of provisional attachment for a period, zero rating on payment of the IGST only in specified cases and linking it to the receipt of foreign remittances.
• • Changes relating to seizure and confiscation, filing of appeal only on payment of a sum equal to 25% of penalty imposed.

Agricultural Infrastructure Development Cess (AIDC)

In Union Budget 2021, agricultural infrastructure development cess (AIDC) has been introduced on few of the import items as follows, fuels (petrol & diesel), gold, silver, alcoholic beverages and other commodities.

What is AIDC?

AID cess is a tax on where the government has imposed on commercial production of agricultural products. This cess is collected to fund the infrastructure development in the agricultural sector across the country. As per the budget documents, it will ensure remuneration to the farmers.

Impact of AIDC?

AIDC is in addition to the Basic customs duty (BCD), Special Additional excise duty (SAED), and other duties usually charged for these products. But to ensure that the additional burden is not added to the ultimate customer, equivalent impact is given to BCD, SAED, other duties with more reduction of rate. It has led to reduced revenue from Customs and other duties to State government, as the AIDC is wholly taken to Central arena.

Products under AIDC and change in BCD on such products: