INSITE - INDIA - 31 Jan 2024
- sukhwinder21
- Jan 31, 2024
- 7 min read
PARLIAMENT PASSES PROVISIONAL COLLECTION OF TAXES BILL, 2023
Summary: The Parliament passed the Provisional Collection of Taxes Bill, 2023. This bill establishes a system for the temporary enforcement of changes in customs and excise duties outlined in the Budget. It not only authorises the provisional collection of newly imposed or increased duties but also includes a provision for refunding taxes collected that have not been incorporated into the Finance Bill.
In Detail: The Provisional Collection of Taxes Act allows the Central Government to make provisions in a Bill regarding customs or excise duties immediately and legally effective. Once a provision is declared, it becomes law upon the Bill's introduction and ends under specific conditions: upon enactment, government direction, or after 75 days from introduction. If a revised provision becomes law before the 75-day mark, refunds are provided for excess duties collected. Additionally, the Act repeals the Provisional Collection of Taxes Act, 1931.
Key Points
Immediate Implementation of Budget Changes: The approved bill grants the government the authority to promptly enforce adjustments in customs and excise duties as announced in the Budget. This strategic move facilitates the swift implementation of crucial fiscal adjustments outlined in the Budget for effective economic policies.
Provision for Tax Refunds: A noteworthy aspect of the Provisional Collection of Taxes Bill, 2023 is its provision for refunding taxes collected during the provisional period, especially those not included in the subsequent Finance Bill. This mechanism ensures accountability and correction for any unintended financial implications.
Repealing the 1931 Act: The newly passed bill signifies the repeal of The Provisional Collection of Taxes Act, of 1931, indicating a modernisation and streamlining of tax collection processes.
75-Day Provisional Levy Period: The bill seeks parliamentary authorisation for the provisional levy and collection of newly imposed or increased customs and excise duties for 75 days. This timeframe allows for assessing and potentially adjusting tax policies as necessary.
Distinction in Effective Dates: While modifications in income and corporate tax rates outlined in the February 1 Budget take effect from April 1 or a notified date, most changes in customs and excise duty rates become effective immediately.
RBI ISSUES MASTER DIRECTION ON COMMERCIAL PAPER & NON-CONVERTIBLE DEBENTURES 2024
Summary: The RBI has issued guidelines for commercial papers (CPs) and non-convertible debentures (NCDs) with an initial maturity of up to one year. A master direction has been issued accordingly, and these changes will be effective from April 1, 2024.
In Detail: The Reserve Bank of India (RBI) has recently issued the Master Direction – Reserve Bank of India (Commercial Paper and Non-Convertible Debentures of original or initial maturity up to one year) Directions, 2024, as per Notification No. FMRD.DIRD.10/14.02.001/2023-24 dated January 03, 2024. This directive is a result of a comprehensive review of money market directions outlined in the Statement on Developmental and Regulatory Policies from June 06, 2019.
This Master Direction is scheduled to take effect from April 01, 2024, and empowers the RBI to regulate CPs and NCDs issued by various entities. The guidelines encompass several crucial aspects, including eligibility criteria for issuers and investors, detailed terms for primary and secondary market transactions, credit enhancement, reporting requirements, and the roles of key participants like Issuing and Paying Agents, Debenture Trustees, and Credit Rating Agencies.
The Master Direction aims to bring transparency and efficiency to the issuance and trading of CPs and NCDs in the financial markets. The overall objective is to establish a well-regulated and secure environment for the issuance and trading of these financial instruments.
AMENDMENT TO THE MASTER DIRECTION ON KYC
Summary: The Reserve Bank of India (RBI) has made an important change to the Master Direction (MD) on Know Your Customer (KYC). This update is all about redefining Politically Exposed Persons (PEPs) in the rules. The goal is to make things clearer and simplify the process for Regulated Entities (REs) when they are checking their customers through Customer Due Diligence (CDD).
In Detail: In a recent communication (RBI/2023-24/107) to the Chairpersons/CEOs of all regulated entities, the RBI stresses the importance of defining PEPs precisely. The amendment includes an explanatory note in Section 41 of the MD to give a comprehensive understanding of PEPs. According to the update, PEPs are individuals with significant public roles in foreign countries, such as Heads of States/Governments, senior politicians, government/judicial/military officers, state-owned corporation executives, and key political party officials.
The earlier definition of PEPs in Section 3 has been removed for better clarity. The RBI highlights the significance of these changes for a stronger and more transparent KYC process. Regulated Entities are expected to promptly incorporate these amendments into their existing KYC processes. The refined definition aims to improve the identification of individuals with political exposure, reinforcing the integrity of the KYC framework.
In conclusion, the RBI's amendment to the Master Direction on KYC is a significant step in enhancing the precision of identifying PEPs. The detailed explanation in Section 41 provides a clearer understanding for Regulated Entities, ensuring a more effective implementation of CDD processes.
SEBI ISSUES GUIDELINES FOR AIFS ON HOLDING INVESTMENT IN DEMAT FORM AND CUSTODIAN APPOINTMENTS
Summary: The capital markets regulator established guidelines for Alternative Investment Funds (AIFs) regarding how they hold their investments and appoint custodians. According to the new rules, AIFs must hold their investments in dematerialized form unless the Securities and Exchange Board of India (SEBI) exempts them.
In Detail: SEBI has recently mandated that all AIFs adhere to Regulation 15(1)(i) of AIF Regulations, requiring them to hold investments in dematerialised form. Effective from October 1, 2024, any new investments made by AIFs must be dematerialised, regardless of whether they are acquired directly from the investee company or another entity.
However, there are certain exemptions for investments made before October 1, 2024, under certain conditions. Specifically, the exemptions apply if the investee company is legally obligated to facilitate dematerialization or if the AIF, either independently or in conjunction with other SEBI registered entities, exercises control over the investee company.
AIFs must ensure that investments falling under these exemptions are converted to dematerialised form by January 31, 2025. It is important to note that some AIF schemes are excluded from this requirement, particularly those whose tenure ends or is extended by January 31, 2025.
Furthermore, the amendments underscore the critical role of custodians in safeguarding AIF securities. AIFs are now required to appoint a SEBI registered custodian to safely keep their securities by January 31, 2025. This requirement is especially significant for existing Category I and II AIFs with a corpus of up to INR 500 crore. Additionally, AIFs utilizing custodians associated with their managers or sponsors must ensure compliance with specific regulations by January 2025.
Moreover, the amendments introduce stringent reporting standards for investments under custody. The Standard Setting Forum for AIFs (SFA), in collaboration with SEBI, will establish reporting standards for AIF investments under custody to ensure aconsistency and clarity. Both AIF managers and custodians must adhere to these standards, which will be integrated into regular compliance reports to SEBI by the trustee or sponsor of an AIF.
STREAMLINING OF REGULATORY REPORTING BY DESIGNATED DEPOSITORY PARTICIPANTS (DDPS) AND CUSTODIANS
Summary: The Securities and Exchange Board of India (SEBI) simplified the reporting requirements for DDPS and custodians. This decision comes after reviewing the reports submitted by these participants to establish consistent compliance standards, making reporting easier and more uniform for regulatory purposes.
In Detail: In a recent circular, SEBI has introduced updated reporting requirements pertaining to Foreign Portfolio Investors (FPIs). The circular specifically mandates the submission of reports on FPIs found non-compliant with legal entity identifier requirements and those failing to provide granular beneficial ownership details. These reports are to be submitted on a quarterly basis.
Moreover, SEBI has outlined additional reporting obligations to be fulfilled by market participants. The circular delineates the types of reports required and their corresponding periodicity. These reports are to be submitted on a monthly, quarterly, half-yearly, or annual basis, depending on the nature of the report and its relevance to regulatory oversight.
Importantly, the circular specifies the timeline for submitting these reports. Monthly and quarterly reports must be uploaded within 15 calendar days from the conclusion of each respective reporting period. This deadline is crucial for ensuring timely and comprehensive reporting to SEBI.
Notably, these new reporting provisions are to take effect starting from the month ending February. This allows market participants adequate time to familiarize themselves with the updated requirements and ensure compliance with the regulatory framework established by SEBI.
COMPANIES PROMOTERS CAN OFFER SHARES TO STAFF VIA STOCK EXCHANGE MECHANISM
Summary: To make compliance easier and reduce expenses, the Securities and Exchange Board of India (SEBI) announced on Tuesday that the promoters of the companies can now offer shares to their employees through the Offer For Sale (OFS) using the stock exchange platform. Previously, shares under OFS were offered to employees outside the stock exchange system.
In Detail: SEBI has issued a circular dated January 23, 2024, introducing a new framework for companies to offer shares to employees through the stock exchange mechanism. This aims to simplify the process, improve efficiency, and lower costs compared to the current method.
Background and Existing Framework: SEBI’s Master Circular No. SEBI/HO/MRD2/PoD-2/CIR/P/2023/171 specified the comprehensive framework for the OFS of shares. Promoters were allowed to sell shares to employees within two weeks from the OFS transaction.
After the feedback from stakeholders, SEBI found that the existing procedure is very time consuming, expensive, and involves multiple steps. In response to this SEBI has decided to introduce an additional system alongside the existing one for OFS to employees of companies.
Under the new system, OFS to employees will happen on the day after the trade date (T+1) and will be categorized separately as 'Employee,' alongside the retail category.
SEBI aims to enhance efficiency and reduce costs and decided that company promoters can offer shares to employees through the stock exchange mechanism. According to SEBI, for employee OFS, a certain number of shares should be reserved for the staff and the same should be mentioned in the OFS notice to the stock exchanges by the promoters. There is another requirement which includes a maximum bid amount of Rs 5,00,000, and employees must pay 100% of the order value upfront in cash or equivalents. The bidding process for the 'Employee' category will be separate from the retail category for allotment.
This new procedure is an additional option to the existing one where shares are offered to employees outside the exchange mechanism. The circular's provisions will be effective from the 30th day after issuance.
Key Links: SEBI | Framework for Offer for Sale (OFS) of Shares to Employees through Stock Exchange Mechanism
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