DIRECT TAX - Nangia & Co

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Tax & Regulatory Newsletter Issue 05 – AUGUST, 2010 NANGIA & CO. Chartered Accountants New Delhi – Mumbai - Dehradun Rates In the first year of implementation, the lower rate for goods shall be 6% and the standard rate would be 10% under CGST and SGST. Services would be charged at 8% under both CGST and SGST. These rates would ensure a single rate for CGST and SGST in the range of 12% to 20% in the first year of implementation; During the second year of GST implementation the lower rate on goods would be maintained at 6% and the standard rate would be reduced to 9% under both CGST and SGST though such reduction would be subject to the revenue receipt of the Center and the State; During the third year of GST implementation, the lower rate for goods would be increased to 8% and the standard rate reduced to 8% for both CGST and SGST. The rate for services under both CGST and SGST would also continue to be 8%. FEMA/RBI & FDI POLICY [Source: PIB press release dated July 21, 2010] External Commercial Borrowing Policy – Take-out Finance Existing norms do not permit refinancing of domestic Rupee loans with External Commercial Borrowing *“ECB”+. However, keeping in view the special funding needs of the infrastructure sector the ECB policy has been reviewed and a scheme of take-out finance has been introduced wherein take-out financing arrangements have been permitted through ECB, under the approval route, for refinancing of Rupee loans availed of from the domestic banks by eligible borrowers in the sea port and airport, roads including bridges and power sectors for the development of new projects. The following conditions were mandated to be complied with - : The Corporate developing the infrastructure project is to have a tripartite agreement with domestic banks and overseas recognized lenders for either a conditional or unconditional takeout of the loan within three years of the scheduled Commercial Operation Date. The scheduled date of occurrence of the take-out is to be clearly mentioned in the agreement; The loan is to have a minimum average maturity period of seven years; The domestic bank financing the infrastructure project is to comply with the extant prudential norms relating to take-out financing; The fee payable, if any, to the overseas lender until the take-out is not to exceed 100 bps per annum; Page | 13
Tax & Regulatory Newsletter Issue 05 – AUGUST, 2010 NANGIA & CO. Chartered Accountants New Delhi – Mumbai - Dehradun On take-out, the residual loan agreed to be taken out by the overseas lender would be considered as ECB and the loan is to be designated in a convertible foreign currency and all extant norms relating to ECB are be complied with; Domestic Banks / Financial Institutions are not permitted to guarantee the take-out finance; The domestic bank will not be allowed to carry any obligation on its balance sheet after the occurrence of the take-out event; Reporting arrangement as prescribed under the ECB policy is to be adhered to. [Source: A. P. (DIR Series) Circular No. 4 dated July 22, 2010] Export of Goods and Services – Write off of unrealized export bills and surrender of export incentives As per existing norms AD Category I banks were permitted to accede to the requests for ‘write-off’ made by the exporters, subject to the conditions, inter alia, that the exporter had to surrender proportionate export incentives, if availed of, in respect of the relative shipments. It has since been announced in the Foreign Trade Policy (FTP) 2009-14 that realisation of export proceeds shall not be insisted upon, under any of the Export Promotion Schemes under the Foreign Trade Policy, subject to the following conditions:- The write-off on the basis of merit shall be allowed by the Reserve Bank or by the AD Category – I banks on behalf of the Reserve Bank, as per the extant guidelines; The exporter has to produce a certificate from the Foreign Mission of India concerned, about the fact of non-recovery of export proceeds from the buyer; and This would not be applicable in self-write-off cases. The above relaxation is applicable for the exports made with effect from August 27, 2009. It has also been clarified that since the Drawback Scheme was governed by the provisions of the Customs Act, 1962, the aforementioned provisions would not be applicable to the Duty Drawback scheme. Therefore, the drawback amount shall have to be recovered even if the claim is settled by the ECGC or the write–off is allowed by the Reserve Bank. Page | 14
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DIRECT TAX - Nangia & Co

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