DIRECT TAX
1. Faceless Assessment (1st Amendment) Scheme, 2021. [Notification No. 6 of 2021 dated 17th February, 2021.]
COMPANIES ACT, 2013
(I) MCA amends Corporate Social Responsibility (CSR) Rules, 2014 Key amendments include changes in definitions. Terms such as Administrative Overheads, Ongoing Projects are now defined. Every entity undertaking CSR activity is required to register with the Central Government. CFO is required to certify that funds disbursed have been utilised for the purposes approved by the Board. Set-off of excess amount spent permitted subject to certain conditions. Unspent amount is required to be transferred to certain Funds. Revised format is prescribed for Annual Report on CSR activities to be included in Board’s Report. Amendments are effective 1st April, 2021; as such, few of them apply from the financial years commencing on or after 1st April, 2021. [MCA Notification G.S.R. 40 (E) dated 22nd January, 2021.]
(II) MCA notifies the commencement of specified sections in the Companies (Amendment) Act, 2019 and Companies (Amendment) Act, 2020 including provisions related to CSR, definition of listed entities, further issue of share capital, exemption related to any class of persons by the Central Government from complying with the requirements of declaration of beneficial interest if considered necessary in public interest. [MCA Notification S.O. 324 (E) dated 22nd January, 2021.]
(III) MCA amends criteria for a company to be classified as a Small Company w.e.f. 1st April, 2021 – A company other than a public company with paid-up capital and turnover as per profit and loss account for the immediately preceding financial year not greater than Rs. 2 crores (as against earlier threshold of Rs. 50 lakhs) and Rs. 20 crores (as against earlier threshold of Rs. 2 crores), respectively, shall be considered as a Small Company under the Companies Act, 2013 and its Rules. [MCA Notification G.S.R. 92 (E) dated 1st February, 2021.]
(IV) MCA allows merger of startups u/s 233 – MCA now allows a scheme of merger or amalgamation u/s 233 to be entered into between any of the following class of companies, namely:
i) two or more startup companies; or
ii) one or more startup company with one or more small company.
For the purpose of this amendment, ‘startup company’ shall mean a private company incorporated under the Companies Act, 2013 or the Companies Act, 1956 and recognised as such. [MCA Notification G.S.R. 93 (E) dated 1st February, 2021.]
(V) MCA eases norms for One Person Company (OPC) incorporated under the Companies Act, 2013 and its Rules with effect from 1st April, 2021 – Key highlights of the Companies (Incorporation) Second Amendment Rules, 2021 are:
1. Non-resident Indians can also incorporate OPCs and the minimum residency period has been brought down to 120 days from 180 days for Indian citizens.
2. Automatic cessation of the validity of the OPC upon exceeding paid-up capital of Rs. 50 lakhs and average annual turnover (during the relevant period) of Rs. 2 crores has been dispensed with. This implies that it can continue to grow and operate as an OPC forever.
3. An OPC can convert itself into a public or private company at any point of time subject to compliance with prescribed procedure. [MCA Notification G.S.R. 91 (E) dated 1st February, 2021.]
(VI) MCA notifies change in timeline for acceptance of rights issue offer w.e.f. 1st April, 2021 – The Notification clarifies that where rights issue of shares is proposed, the offer shall be made to the existing shareholders by notice specifying the number of shares offered and the time limit [not being less than seven days (as opposed to 15 days) and not exceeding 30 days from the date of the offer] within which the offer, if not accepted, shall be deemed to have been declined. This Notification will be effective from 1st April, 2021. [MCA Notification G.S.R. 113 (E) dated 11th February, 2021.]
(VII) MCA Advises LLPs, Partners and Designated Partners to take note of proposed changes in LLP Act – MCA has advised stakeholders that certain provisions of the Companies Act, 2013 will soon be extended to LLPs with modifications and adaptations. The sections which are to be extended to LLPs include:
* Investigation of beneficial ownership of shares,
* Disqualifications for appointment of directors,
* Provision relating to number of directorships,
* Power to direct inspection of books and papers of a company by an inspector, and
* Provisions which specify that offences under the Act will be non-cognizable. [MCA Notice dated 18th February, 2021.]
SEBI
(VIII) No separate registration is required to render investment advice to general investors under Investment Advisers Regulations (IA) – SEBI in an informal guidance scheme has clarified that no separate registration is required to render investment advice to general investors under IA regulations. In addition, a portfolio manager registered under PMS regulations is also exempted from seeking registration as an investment adviser when it provides any incidental investment advice to its clients. [Circular No. SEBI/HO/IMD/DF1/OW/P/2021/3186/1 dated 6th February, 2021.]
(IX) SEBI notifies revised disclosure formats by specified persons under Regulation 7 of the Prohibition of Insider Trading (PIT) Regulations, 2015 – Further to the amendments made to Regulation 7 of the PIT Regulations, 2015 requiring that a member of the promoter group and designated person (in place of ‘employee’) submit disclosures under the said Regulation, SEBI has prescribed the revised formats for Initial Disclosures, Continual Disclosures and Disclosures by Connected Persons. [Circular No. SEBI/HO/ISD/ISD/CIR/P/2021/19 dated 9th February, 2021.]
ACCOUNTS AND AUDIT
(A) SAE 3410, Assurance Engagements on Greenhouse Gas Statements – The ICAI has issued a Standard on Assurance Engagement (SAE 3410) that deals with assurance engagements to report on an entity’s Greenhouse Gas (GHG) statement. [ICAI Release dated 27th January, 2021.]
(B) Risk-Based Internal Audit (RBIA) Framework for NBFCs and UCBs – The RBI has issued a Notification mandating an RBIA Framework for: (a) all deposit-taking NBFCs, irrespective of their size, (b) all non-deposit-taking NBFCs (including CICs) with asset size of Rs. 5,000 crores and above, and (c) all UCBs having asset size of Rs. 5,000 crores and above. The Framework needs to be implemented by 31st March, 2022 in accordance with the Guidelines framed. [Notification No. RBI/2020-21/88 Ref. No. DoS.CO.PPG./SEC.05/11.01.005/2020-21 dated 3rd February, 2021.]
(C) Guidance Note on Accounting by E-Commerce Entities – The ICAI has revised the ‘Guidance Note on Dot-com Companies’ as the ‘Guidance Note on Accounting by E-Commerce Entities’ applicable to companies preparing financial statements under the Companies (Accounting Standard) Rules, 2006, LLPs and Partnership firms, and deals with accounting by e-commerce entities in respect of certain issues relating to revenue and expense recognition. [ICAI Guidance Note released on 16th February, 2021.]
(D) Guidance Note on Accrual Basis of Accounting – The ICAI has revised this Guidance Note originally issued in 1988 that highlights the need for accrual basis of accounting, provides guidance in respect of transition from cash basis to accrual basis of accounting, and further states the benefits associated with the accrual accounting system. [ICAI Guidance Note released on 16th February, 2021.]
FEMA
(i) RBI had issued a Notification in October, 2020 (please refer to the December, 2020 issue of the BCAJ) allowing only authorised dealers in India to post and collect margins in and outside India on their own and their customers’ behalf, for permitted derivative contracts entered into with a person resident outside India in the form and manner that was to be specified by RBI. RBI has now specified that AD Category I banks can post and collect such margins in India in the form of:
a) Indian currency;
b) Freely convertible foreign currency;
c) Debt securities issued by Indian Central Government and State Governments;
d) Rupee bonds issued by persons resident in India which are:
1. Listed on a recognised stock exchange in India; and
2. Assigned a credit rating of AAA issued by a rating agency registered with the Securities and Exchange Board of India. If different ratings are accorded by two or more credit rating agencies, then the lowest rating shall be reckoned.
AD Cat-I banks shall maintain a separate account in the name of persons resident outside India for the purpose of posting and collecting cash margin in India, and transactions incidental thereto.
Further, AD Category I banks can post and collect such margins outside India in the form of:
a) Freely convertible foreign currency; and
b) Debt securities issued by foreign sovereigns with a credit rating of AA- and above issued by S&P Global Ratings / Fitch Ratings or Aa3 and above issued by Moody’s Investors Service.
AD Cat-I banks may also receive and pay interest on margin posted and collected on their own account or on behalf of their customers for a permitted derivative contract entered into with a person resident outside India. [A.P. (DIR Series 2020-21) Circular No. 10, dated 15th February, 2021.]
(ii) Indian residents are now permitted under LRS to make remittances to IFSCs set up in India for investment purposes. The following conditions have been prescribed:
a) Such investments shall be only in securities other than those issued by entities or companies resident in India (outside the IFSC).
b) Resident individuals can also open a non-interest-bearing Foreign Currency Account (FCA) in IFSCs for making the above permissible investments under LRS. However, any funds lying idle in the account for a period up to 15 days from the date of receipt into the account shall be immediately repatriated to the domestic INR account of the investor in India. Resident individuals cannot settle any domestic transactions with other residents through these FCAs held in IFSC. [A.P. (DIR Series 2020-21) Circular No. 11, dated 16th February, 2021.]
(iii) RBI had broadened the scope of Special Non-Resident Rupee (SNRR) accounts last year by allowing them to be used for specified transactions in trade, foreign investments, ECBs, etc. RBI has now issued FAQs for SNRR Accounts on 19th November, 2020. The FAQs provide clarifications on processes, responsibility for undertaking compliances, reporting, permitted transactions and transfers with respect to SNRR accounts. The FAQs have clarified that remittances or transactions under LRS cannot be routed through the SNRR account. These FAQs would not apply to FPIs, FVCIs and Depository Accounts or FCCB Conversion Accounts which are operated by custodians. The FAQs can be accessed at: https://m.rbi.org.in/Scripts/FAQView.aspx?Id=138.
ICAI MATERIAL
Accounts and Audit* Educational material on
Ind AS 23, Borrowing Costs. [27th January, 2021.]
* Internal Control System in
State-Owned Universities: A Study to Formulate
Internal Control Manual. [16th February, 2021.]
Valuation
* Technical Guide on Valuation (Revised Edition 2021). [11th February, 2021.]
* Valuation: Professionals’ Insight (Series 5). [11th February, 2021.]
* Educational material: ICAI Valuation Standard 103 – Valuation Approaches and Methods. [11th February, 2021.]
* Educational material: ICAI Valuation Standard 301 – Business Valuation. [18th February, 2021.]
Corporate and Other Laws
* Handbook on Role of Women Directors. [11th February, 2021.]
* FAQs on SEBI (LODR) Regulations, 2015. [11th February, 2021.]
* Background material on Business Responsibility and Sustainability Reporting. [15th February, 2021.]
* Money Laundering and Scams ‘Through’ Multi-State Urban Co-operative Credit Societies in India – Cash Deposits. [16th February, 2021.]
* Money Laundering and Scams ‘Through’ Multi-State Urban Co-operative Credit Societies, Angadias and Banks in India / Abroad – Gems and Jewellery Industry. [16th February, 2021.]
Taxation
* Inching towards Tax Certainty: Neoteric Domestic Dispute Mechanism for Cross-Border Taxation. [16th February, 2021.]
Others
* Analysis and Evaluation of Indian Startups in Non-Metropolitan Areas and Selected Metropolitan Areas – An Untold Story. [16th February, 2021.]
* Impact of Digital Transformation Strategies on Performance of Manufacturing Companies in India. [16th February, 2021.]
* How Indian Companies can play a pivotal role in the Supply Chain to Australia? [16th February, 2021.]
