The government has clarified that exporters will not get service tax refund on services consumed for export of goods before October 6, 2007.

Developers of special economic zones (SEZ) and units inside can from now on claim refunds of taxes paid on all input services, regardless of whether the services are used inside or outside the tax-free zones, according to a change in rules notified by the government. The new rules means that developers and units inside SEZs will now have to first pay a tax on the services consumed and then claim a refund from the tax authorities. The refund can be claimed within six months from the date
of payment of taxes.

The central board of Direct taxes has made e-payment of taxes mandatory for all deductors effective 1st April, 2009. Accordingly, all categories of non-corporate taxpayers with turnover less than Rs.40 lakh or gross receipts less than Rs. 10 lakh will have to make electronic payment to the exchequer of the income-tax that they deduct at source. Already, e-payment of taxes is mandatory for corporates and assesses that are required to undertake tax audit.

The Supreme Court has confirmed the Delhi High Court pronouncement that penalty cannot be imposed on the various foreign companies, mainly Japanese, that had failed to deduct tax at source on the portion of salaries paid outside India to their expat executives who were working here during the nineties.

• The Government has issued a Notification dated March 25, 2009, specifying the new procedure to be adopted by Companies for effecting remittances to Non-Residents and Foreign Companies, under Section 195 of the Income tax Act, 1961 which will come into force from July 1, 2009.
• A new Rule 37BB has been added, as per which, the person effecting payment to a Non-Resident or a Foreign company should obtain a certificate from a Chartered Accountant in Form 15CB.
• The payer shall have to file the Form 15CA electronically to the website designated by the Income-tax Department and thereafter, a signed printout of the said form shall be submitted prior to remitting the payment.
• The Form 15CA would have to be signed by the person competent to sign the Return of Income.

These new procedures would make the whole process of effecting foreign remittances by Indian
Companies extremely procedural and cumbersome. Chartered Accountants who sign certificates in Form 15CB would now need to be extremely careful and vigilant in terms of the information required to be provided in the Certificates. Companies would need to plan well in advance, for the dates of the forex payments

TDS/TCS systems have undergone several changes with effect from FY 2009-2010. These include the changes in Challan Payment, TDS Certificates, Return Filing, etc. A glimpse is here on it.

Changes in Challan Payment

• Challan Format:
• New TDS Challan, Form 17 is introduced.
• Challan is section Independent. Deductor can prepare a single challan at the end of the month for all his TDS deductions (Including Salaries and Non Salaries).
• This additionally Contains, information of the Account No [or Card No] of the Deductor.
• The earlier fields Surcharge and Cess break-ups are not necessary.
• Information of Deductions paid under that challan has to be provided. This should contain PAN, NAME of the deductee and Total TDS.

The Central Board of Direct Taxes (CBDT) has instructed income-tax officials to allow export-oriented units (EOUs) approved by development commissioners to claim tax exemption, ending the uncertainty over tax benefits to EOUs. As per CBDT communique sent to income-tax officials
“It has been decided that an approval granted by the development commissioner in the case of an export-oriented unit set up in an export processing zone will be considered valid, once such an approval is ratified by the board of approvals (BoA) for EOU scheme,”.

Tax liability of expatriate employees responsible for operations of a company in India as well as other
countries in the region could go down substantially with a tax tribunal ruling that they need not pay tax on salary earned outside India for work unrelated to Indian operations. The Delhi bench of the Income tax Appellate Tribunal (ITAT) held that if the expat employee is able to substantiate that he has not performed any activity relating to Indian operations while working outside India, the salary for those days would not be taxable here.

There’s more tax trouble for non-resident companies and their expat employees working in India. The Supreme Court held that non-resident companies would be liable to deduct tax at source on overseas salaries paid to their expatriate employees, deputed to work in India. This would mean that foreign companies that have no establishments in India would now have to register with the Indian income tax department, obtain a TAN (or tax collection and tax deduction account number) and file returns like all resident companies

The Gujarat High Court has criticized the practice of government nominating members of political parties as non-official directors (NoDs) on boards of public sector banks, saying it sends a wrong signal.

Companies that have diverted working capital loans from Banks for other purposes such as acquiring fixed assets face stiff penalties, as banks prepare themselves to comply with the Basel II Banking guidelines from April 1, 2009. Public sector banks have already started blacklisting companies that are diverting Funds. In cases where companies are found diverting working capital loans for purchasing personal effects such as property and vehicles, banks may also inform the Central Bureau of Investigation and the Central Vigilance Commission for further action.

The SC has set aside the judgment of the Bombay High Court in which it upheld the Maharashtra Government’s prohibiting partners from approaching the courts to seek dissolution of their firms or recover property from the estranged partner.

The European Central Bank cut its key interest rate by a quarter point to an all-time low of 1.25% on 2nd April, 2009. According to an ECB spokesman, the bank had also reduced its two other reference rates – the deposit rate and the marginal lending rate – to 0.25% and 2.25% respectively. The deposit rate is the amount of interest the ECB pays to commercial banks that leave money with it overnight

The Department of Industrial Policy and Promotion (DIPP) is examining a proposal to allow real estate developers to buyback built-up area sold in software technology parks of India (STP) units and lease out the same to other businesses as the STPI benefits are expiring in 2010.

Raising funds could become difficult with new lending regulations for banks popularly known as Basel II norms, coming into practice from April 1, 2009. The worst affected would be the small and medium scale enterprises with shorter business cycles and limited means. All business units irrespective of size will need to take ratings for their enterprises to secure working capital, loans and other funds from banks.

The Bombay High Court has sought a reply from the Reserve Bank of India (RBI) on a petition which had demanded that banks should publish list of properties on which they have a mortgage, or a charge. The petitioner contends that in many cases buyers’ purchases/books a flat in housing schemes, not knowing that the land or the building is mortgaged to a bank, and the title is not with the builder.

India’s embattled textile industry has got a breather as the finance ministry has agreed to a one year moratorium on repayment of term loans under the technological term scheme (TUFS).

The Supreme Court has ruled in the case of Dhana Lakshmi Bank Limited that the rate of interest imposed by the debt tribunal should be reasonable, taking into account the inflation and bank rate of interest cuts. In this case, the debtor defaulted on the loan. The bank moved to the tribunal. It allowed the sale of the mortgaged properties by the bank which could charge interest at the rate 25 per cent. The appellate tribunal and the Madras High court dismissed the debtor’s appeals. However, the SC allowed his appealing citing Section 34 of the Code of Civil Procedure which says that rate of interest should be reasonable. The court reduced the rate to 9 per cent.

As per RBI Directive, banks have been prevented from charging any fee for cash withdrawals using ATMs and Debit Cards issued by other Bank’s from April 1 on wards. However, banks can still charge extra for services like cash withdrawal with use of credit cards and at ATMs located outside India

The Reserve Bank of India has extended the deadline for companies to complete the buyback of their foreign currency convertible bonds by nine months from march 31, 2009 to December 31, 2009

The International Monetary Fund foresees the world economy contracting by 1% in 2009. It has forecasts a gradual recovery in 2010. The US economy has shrunk by 6.3% in the last quarter of 2008 and the pain is still persisting in the 1st quarter of 2009. The European Union has committed more than US Dollar 1.5 trillion investments in the banking system and has pledged to spend Euro 200 billion to lift their economy. The US is spending $ 787 billion to revive its economy. G-20 Summit, a meeting of leaders of worlds’ 20 biggest economies has announced a clutch of big ticket stimulus measures. G-20 leaders agreed to pump in $ 1.1 trillion of extra financing to support IMF and lubricate world trade by providing “oxygen of confidence”. The G-20 committed $ 250 billion finance to ensure trade flow. IMF resources will support the countries in financial distress. The Indian economy on the other hand is expecting a slow down in growth in 2008-09 between 6% to 7%. According to RBI Governor, B. Subbarao, the next fiscal (2009-10) will be more challenging. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, also projected further reduction in growth in 2009-10. K.V. Kamath, ICICI MD and CEO expects 7 to 8% growth during 2009-10.Despite varying opinions on growth rate, there seems to be unanimity on positive growth rate in Indian economy higher than the world average. The index of industrial production (IIP) has dipped about 1.2 % in February, 2009, although the off-take in cement and steel sectors has significantly improved during last 2 months. The prices have also firmed up due to high demand of cement and steel and increased expenditure on infrastructure projects. The capital market has also reflected a recovery of 10% to 15% in major equity scrips. The financial stimulus provided by the Government of India, by release of about Rs.3 lakh crores through CRR and SLR cut, has not provided the much needed liquidity to the banking system, in view of an almost equal increase in government borrowings from banks especially at high rates. The government may not be able to provide any major relief to the banking system by providing additional liquidity for next 6 to 8 weeks, in view of the Lok Sabha Election.

It is expected that the Indian economy will stage a smarter recovery during July 2009 – March 2010 in view of –

• Inflation being at its lowest ebb of near 0% (wholesale price index).
• The fiscal deficit for 2008-09 is expected to increase from the budgeted figure of 3% to more than 6%, thereby providing necessary push in the government expenditure. This trend is expected to gain further momentum in the coming month, in view of lower risk of inflation.
• The agricultural production has been quite encouraging in the current fiscal.
• The lending rates by banks are expected to reduce by about 2% to 4% by March, 2010, thereby providing much needed push to the Indian economy, industrial sector as well as to the real estate sector.
• The lending rate to housing sector is also expected to reduce by about 1% to 2% during this period.

As the Securities and Exchange Board of India, and the Institute of Chartered Accountants of India tighten the supervision of auditors, those that fail to obtain a peer review certificate may be barred from auditing listed companies. According to officials of ICAI, which regulates the profession of Chartered Accountancy, the plan is to include all listed companies in this system. In a few years, the scope of the review may be expanded to companies that intend to list, once they file the Draft
Red Herring Prospectus with SEBI.

Auditors may get power to refuse signing a company’s account if these are not found to be in proper order. A special group constituted by Institute of Chartered Accountants of India (ICAI) is veering round to view that the institute should push for statutory backing to such move. The government has asked ICAI to suggest ways to strengthen reporting norms following Satyam. Currently, auditors may only qualify accounts if managements are unwilling to accept the discrepancies they point out. ‘If
the law mandates that the management has to incorporate the effects of qualifications, the situation will be completely different.

• Additional Provisions for NPAs at higher than prescribed rates:

The Foreign Investment Promotion Board (FIPB) has said that Foreign Investors in Indian real estate cannot sell their stakes to another foreign investor before three years. With this, FIPB has overruled a provision in FDI policy that exempts foreign players from the rule in cases where fund transfer is from one non-resident to another. Till now, this three year lock-in was applicable only on foreign investment in real estate and not on investors.

SEBI has made it mandatory for asset management companies to disclose the portfolio of debt oriented close-ended and interval schemes at the end of every month.

• The Government of India reviewed the External Commercial Borrowing policy and increased the cumulative debt investment limit by USD 9 billion (from USD 6 billion to USD 15 billion) for FII investments in Corporate Debt.
• As per SEBI circular No. IMD/FII & C/37/2009 dated February 06, 2009 USD 8 billion shall be allocated to the FIIs/ sub-accounts in an open bidding platform.
• The remaining limit for investment in corporate debt shall be allocated among the FIIs/sub-accounts on a ‘first come first served’ basis in terms of SEBI circular dated January 31, 2008, subject to a ceiling of Rs.249 cr. per registered entity.

Stock Trading can now be done on BSE’s online trading platform using NSE’s software, free of cost till 2011. As per the deal between the two principal bourses, BSE’s online trading platform (BOLT) would be available on NSE’s software neat-on-web (NOW) one month from now, for free, till 2011.

The National Stock Exchange will now use the free float market capitalization methodology to calculate its benchmark indices S&P CNX and Defty to be calculated using free float method from June 26 and Nifty Junior to be included from May 4.Under Free Float method, the index is calculated on the basis of the floating stock or the open market shares of the company as against the method of full float based on the market capitalization method.

The New Pension Scheme (NPS) will finally be opened up to the organized and un-organized sectors from May1 this year. The launch of the scheme, originally scheduled for April 1, had been put on hold till the pension regulator, PFRDA, availed a clarification from Election Commission.

The Supreme Court has set aside the Rajasthan High Court order and rejected a govt. stand on arbitration. The government stated that the arbitration could not be invoked as the government had issued a circular regarding certain tenders. According to the circular, arbitration could be instituted only if the claim was over 20 percent of the total cost of work.

It has been decided to make the GR Forms available on-line on the Reserve Bank’s website www.rbi.org.in. Accordingly, the exporters have the option to use the GR Forms available on-line as well. While downloading the GR-Forms, the exporter may ensure to use ‘Legal’ size paper i.e. 8.5 × 14 inches.