Proposed Rules for Computation of ALP for transactions undertaken on or after 01 April 2014

Concept of “Range” and Use of “Multiple Year Data” for computation of arm’s length price (‘ALP’)  are proposed to be introduced in Indian Transfer Pricing Regime for transactions undertaken by the person on or after 01 April 2014 by way of Amendment in Income Tax Rules, 1962. In this regards, Ministry of Finance has published Scheme_ALP_InternationalTran21052015 on www.finmin.nic.in for comments and suggestion of the stakeholders and general public.

Salient Features of the Draft Scheme for Computation of ALP is as under:

A) Adoption of Range Concept:

  • Concept of Range to be applicable in cases where ALP is determined by application of Transaction Net Margin Method (‘TNMM’), Resale Price Method (‘RPM’) or Cost Plus Method (‘CPM’);
  • Minimum 9 entities shall be required to be selected as comparable entities based on Functions, Assets and Risk Analysis (‘FAR Analysis’);
  • 3 years weighted average data 9 or more entities would be considered to construct the set and in certain circumstances such as Start-Up Operations in any of the previous two year or closure of operation in the current year, two years data could be used;
  • For Calculation of Weighted Average, the numerator and denominator of Chosen Profit Level Indicator (‘PLI’) would be aggregated for all the years for every comparable entity and margin would be computed accordingly;
  • Data points lying between the 40th to 60th Percentile shall be of the series shall constitute the arm’s length range; If the transfer price falls outside the range, median of the of the range would be taken as ALP and no range adjustment shall be allowed. Further, there shall not be two different sets for testing and making adjustment

Transfer Pricing

B) Use of Multiple Year Data:

  • Concept of Use of Multiple Year Data to be applicable in cases where ALP is determined by application of Transaction Net Margin Method (‘TNMM’), Resale Price Method (‘RPM’) or Cost Plus Method (‘CPM’);
  • Three years shall comprise of the year in which the International Transaction or Specified Domestic Transaction has been undertaken and two preceding years.
  • In case off non-availability of data for three years i.e. data for current year not available at the time of filing of Transfer Pricing Audit Report in Form 3CEB or a comparable may fail to clear quantitative filter in one of the three years or comparable has commence operations in the last two years or comparable has closed down its business operations in the current year, then use of two years data of the relevant three years shall be allowed.
  • Data for current year can be used by the tax-payer as well as the department at the time of transfer pricing scrutiny

C) Continued used of Arithmetic Mean

  • Where the range concept does not apply, the arithmetic mean concept shall continue to be applied in the same manner as it applied before amendment to Section 92C of the Income Tax Act, 1961 by Finance (No.2) Bill 2014 along with benefit of tolerance range.
  • Further, in cases where multiple year data is to be used, the arithmetic mean of the multiple year data of comparable shall be considered for computation of ALP.

 

Service Tax Rate @ 14 % (Subsuming EC and SHEC) applicable w.e.f. 01 June 2015

Since Finance Bill 2015 has received the assent of the Honorable President and has been notified. In the Budget, 2015, certain amendments in the Finance Act, 1994 have been incorporated through the Finance Act, 2015, which will come into effect from 01 June 2015.

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Circular as well as notification for applicability of the same w.e.f. 01 June 2015 can be downloaded by clicking here -> do-letter-dof-no-334-5-2015 st14-2015

New format for disclosure of securities held by promoter, KMP and directors under Insider trading norms prescribed by SEBI

New format for disclosure of securities held by Promoters, KMPs and Directors under insider trading norms prescribed by SEBI. The circular and the format can be downloaded by clicking –> Disclosure Format for Insider Trading SEBI Circular for Disclosure on Insider Trading

CBDT Doubles Exemption Limit Conveyance Allowance

Vide Notification No. 39/2015/F. No.142/02/2015-TPL, CBDT doubled conveyance allowance from Rs. 800 per month to Rs. 1600 per month for employees to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty.

The Exemption limit for person who is blind or orthopaedically handicapped with disability of lower extremities, the said limits is doubled from Rs. 1600 per month to Rs. 3200 per month.

The said notification can be downloaded by clicking here –> cbdt-doubles-exemption-limit-of-conveyance-allowance-revised-limit-notified

Companies (Auditor’s Report) Order 2015

Two days after ICAI Announcement on Applicability of CARO 2003 & Additional Reporting Under Companies Act 2013, Ministry of Corporate Affairs has notified Companies (Auditor’s Report) Order 2015.

The said Order can be downloaded by clicking here –>> Companies_Auditors_Report_Order_2015

ICAI Announcement on Applicability of CARO 2003 & Additional Reporting Under Companies Act 2013

ICAI in its Announcement said that the Companies Act, 1956 has ceased to have effect from 01st April, 2014. As a corollary, even the Companies (Auditor’s Report) Order, 2003 issued under section 227(4A) of the said Act also ceases to have effect from the said date.

Section 143(11) of the Companies Act, 2013 which came into force from 01st April, 2014 provides that “the Central Government may, in consultation with the National Financial Reporting Authority, by general or special order, direct, in respect of such class or description of companies, as may be specified in the order, that the auditor’s report shall also include a statement on such matters as may be specified therein.”

Accordingly, it may be noted that as when an Order is notified by the Central Government under section 143(11) of the Companies Act, 2013, the members would be required to report thereon as a part of their statutory audit reports.

Until the aforesaid Order is issued, no additional reporting under section 143(11) of the Companies Act, 2013 is required by the Auditors for the financial year 2014-15.

The ICAI Announcement can be downloaded by clicking here –> ICAI – Announcement on CARO Reporting

RBI notifies hike in FDI cap in insurance sector

The Reserve Bank of India (RBI) on Wednesday notified government’s decision to raise foreign direct investment (FDI) limit in the insurance sector to 49 per cent.

“The extant FDI policy for insurance sector has since been reviewed and further liberalised. Accordingly, with immediate effect, FDI in insurance sector shall be permitted up to 49 per cent subject to the revised conditions,” RBI said in a notification.

RBI has also included a new term ‘Other Insurance Intermediaries appointed under the provisions of Insurance Regulatory and Development Authority Act, 1999’ under the definition of ‘Insurance’.

The RBI notification follows Department of Industrial Policy and Promotion (DIPP), Commerce Ministry’s press note in March regarding operationalisation of increased FDI limit of up to 49 per cent in the insurance sector.

“…consolidated FDI policy, effective from April 17, 2014 is amended,” said the Press Note from the DIPP.

Press notes are official documents issued by DIPP through which new FDI policies or changes in existing ones come into effect.

As per the guidelines, FDI of up to 26 per cent come under automatic route and beyond 26 per cent and up to 49 per cent government approval is needed.

“An Indian insurance company shall ensure that its ownership and control remains at all times in the hands of resident Indian entities. Any increase of foreign investment of an Indian insurance company shall be in accordance with the pricing guidelines specified by Reserve Bank under the Foreign Exchange Management Act, 1999,” RBI added.

The FDI cap in the sector has been hiked to 49 per cent and that includes foreign investment in the forms of FPI, FII, QFI, FVCI, NRI and DR.

A foreign player can now invest in insurance company, insurance brokers, third party administrators, surveyors and loss assessors and other insurance intermediaries appointed under the provisions of IRDA Act 1999.

RBI/2014-15/545 A. P. (DIR Series) Circular No.94 can be downloaded by clicking here –>RBI Increases FDI in Insurance

Interest rate of Sukanaya Scheme and 5 Year Senior Citizen Saving Scheme increased by 0.1% w.e.f. April 1, 2015

Government of India increased the interest rate on Sukanaya Scheme & 5 year Senior Citizen Saving Scheme by 0.1% w.e.f. 01 April 2015.

 

Source: PRESS RELEASE, DATED 31-3-2015

The Press Release can be downloaded by clicking here –> Sukanya Samriddhi Scheme & Senior Citizen Saving Scheme

MCA clarifies that Amounts received by Private Companies as loan from Members, Directors or Relatives prior to 01 April 2014 shall not be treated as Deposit

Much awaited relief is granted by the Ministry of Corporate Affairs vide its General Circular No. 05/2015, wherein it has clarified that amounts received by the Private Limited Companies from their members, directors or their relatives prior to 1st April 2014 shall not be treated as deposits in terms of Section 58A of the Companies Act 2013 and Companies (Acceptance of Deposits) Rules, 2014.

However the relief is subject to the condition that the financial statement for the financial year commencing on or after 1st April 2014 shall disclose, in its notes to financial statement, the figure of such amounts and the accounting head in which such amounts have been shown in the financial statements.

Further, any renewal or acceptance of the fresh deposits on or after 1st April 2014 shall be in accordance with the provisions of Section 58A of the Companies Act 2013 and the rules made thereunder.

The General Circular can be downloaded by clicking here –>General_Circular_5-2015 – Clarification on Deposits of Private Companies

Draft Circular – Section 234A – INTEREST FOR DEFAULTS IN FURNISHING RETURN OF INCOME

DRAFT CIRCULAR NO. 2/2015 [F.NO.385/03/2015-IT(B), DATED 10-2-2015

Based on the Suprement Court Ruling in case of CIT v. Prannoy Roy, 309 ITR 231 (2009), CBDT has decided that interest under Section 234A shall not be levied on the Self Assessment Tax paid by the assessee before the due date of filing return of income.

The circular can be downloaded by clicking –> Interest under Section 234A