Tag: finance

Survey on Foreign Collaboration in Indian Industry: 2023–2025 – Data Release

by Pushkar Mer

Reserve Bank released the results of the fifteenth round of its biennial survey on foreign collaboration in Indian industry (FCS) covering the financial years 2023-24 and 2024-25. This survey captures information on financial parameters and operations of the Indian companies having technical collaboration with foreign companies.

Highlights:

  • Foreign technical collaboration (FTC) agreements were primarily present in the foreign direct investment (FDI) companies, which were either foreign subsidiaries (i.e., single foreign investor holding more than 50 per cent of total equity) or foreign associate companies (i.e., foreign investors’ equity holding ranging between 10 to 50 per cent), with 68 per cent and 21 per cent share of the total FTCs, respectively.
  • The FTCs in the manufacturing sector entities accounted for 78.4 per cent of the total reported FTCs, of which, machinery and motor vehicles together accounted for 30.6 per cent; while FTCs in the services sector constituted 16.6 per cent.
  • Japan, the United States of America (USA) and Germany remained the top three countries contributing to the technical collaborations in the Indian entities.
  • Around 61 per cent of FTCs involved technology know-how transfer by the foreign collaborators and 8 per cent FTCs were for use of trademarks / brand names.
  • Royalty payments, inclusive both royalty and lump sum technical fees, was the payment mode for around two-thirds of FTCs.
  • Of the 601 reported FTC agreements, 187 had export restriction clauses and 188 FTC had provision for exclusive rights on assets transferred.
  • Manufacturing sector had the highest share in value of production among the FTC companies. Within manufacturing, motor vehicles sector had the largest share.
  • The exports of the FTC reporting entities grew at a faster pace (20.3 per cent) as compared to the imports (4.6 per cent) in 2024-25 – they had 17.7 per cent and 18.6 per cent shares, respectively, in the total value of production.
  • Average profitability of FTC reporting companies, measured by the ratio of gross profit to capital employed, stood at 14.4 per cent in the current survey round.

Amendments to Directions – Compounding of Contraventions under FEMA 1999

by Pushkar Mer

Reserve Bank of India’s (RBI) updated Master Directions on Compounding of Contraventions under the Foreign Exchange Management Act, 1999 (FEMA), issued on April 22, 2025, vide Notification No. RBI/FED/2025-26/135, FED Master Direction No.04/2025-26) and amended via RBI/FED/2025-26/32, A.P. (DIR Series) Circular No. 04/2025-26 dated April 24, 2025. The said guidelines aim to streamline the compounding process, promote voluntary compliance, and enhance transparency in handling FEMA violations.

Below is a summary of the key aspects in reference to the Master Directions:

1. What is Compounding?


Compounding is a process that allows individuals or entities to voluntarily admit breaches of FEMA provisions, plead guilty, and seek redressal by paying a penalty.

This simplifies resolution, minimizes legal proceedings, and ensures compliance.

2. Key Updates in the Master Direction:

• Revised Compounding Rules: The Foreign Exchange (Compounding Proceedings) Rules, 2024, notified on September 12, 2024, have replaced the Foreign Exchange (Compounding Proceedings) Rules, 2000,

introducing higher monetary limits for compounding authorities and modernized payment methods.
• Application Process: Applications for compounding can be submitted physically or via the RBI’s PRAVAAH Portal with a fee of ₹10,000 plus GST. The application must include details such as foreign direct investment, external commercial borrowings, or branch/liaison office activities, along with an undertaking that the applicant is not under investigation by the Directorate of Enforcement (DoE).
• Compounding Authorities: The RBI’s Regional Offices and the Foreign Exchange Department (FED), CO Cell in New Delhi, are authorized to handle compounding applications.

• Non-Compoundable Cases: Contraventions involving unquantifiable amounts, serious offenses like money laundering, terror financing, or those already adjudicated by the DoE are not eligible for compounding.

Repeated contraventions within three years or cases under DoE investigation may also be ineligible.
• Payment of Penalty: The compounding amount, as specified in the order, must be paid within 15 days via demand draft or NEFT or RTGS or other permissible electronic modes in favor of the RBI. Failure to pay deems the application invalid, potentially leading to DoE referral.
• Compounding Matrix: A refined matrix provides transparency in calculating penalties, considering factors like undue gains, loss caused, and the contravener’s conduct. For non-reporting contraventions, the compounding authority may cap the penalty at ₹2,00,000 per contravention in exceptional cases, promoting a less punitive approach for technical lapses.
• Certificate of Compliance: Upon payment, the RBI issues a certificate confirming compliance with the compounding order.

It may be ensured that intimation of payment of application fee, to respective Regional Office, CO Cell, or Central Office, as the case may be. The compounding application must be accompanied by the payment details including the UTR number evidencing the payment of the application fee.

Please refer to the RBI’s official guidelines at https://www.rbi.org.in or contact the RBI’s Foreign Exchange Department for further details.

Disclaimer: This is for informational purposes only and does not constitute legal advice.

Key Highlights of the Budget 2024-25 dated July 23,2024

by Pushkar Mer
  1. FISCAL DEFICIT REDUCTION

FY25 fiscal deficit have been projected at 4.9% of GDP as against 5.1% in Interim Budget. Further,

government is committed to reduce deficit below 4.5%.

* Expenditure for FY25 seen at 48.21 lakh crore and Receipts for FY25 32.07 lakh crore.

* FY25 Fiscal Deficit projected at 4.9% of GDP versus 5.1% in Interim Budget with a aim to

reach a fiscal deficit of below 4.5% next year.

2. SUPPORT TO MSMEs

New mechanism for facilitating continuation of bank credit to MSMEs during their stress

period. Further, Limit of Mudra loans increased from ₹10 lakh to ₹20 lakh.

* Turnover threshold of buyers for mandatory onboarding on TReDS platform to be reduced

from ₹500 crore to ₹250 crore.

* Financial support for 50 multi-product food irradiation units in MSME sector.

* E-Commerce Export Hubs to be set up in PPP mode to enable MSMEs and traditional artisans

to sell their products in international markets.

3. DEVELOPMENT OF INDUSTRIAL PARKS

* Investment-ready “plug and play” industrial parks to be developed in or near 100 cities.

* 12 industrial parks sanctioned under National Industrial Corridor Development

Programme.

* Critical Mineral Mission to be set up for domestic production, recycling of critical minerals,

& overseas acquisition of critical mineral assets

4. SKILLING AND INTERNSHIP PROGRAMMES

* 1,000 ITIs to be upgraded in hub & spoke arrangements in 5 years with focus on outcome

and quality in collaboration with states and industry.

* 1 crore youth to be skilled by India’s top companies in five years. Further, 12-month Prime

Minister’s Internship with monthly allowance of ₹5,000 to be spend by companies from their

CSR funds.

5. TAXES ON CAPITAL GAIN AND TDS/TCS REFORMS

* Short term gains tax on specified financial assets raised to 20% from 15%, while that on all

other financial assets and non-financial assets shall continue to attract the applicable tax rate.

Further, Long term gains tax on all financial and non-financial assets raised to 12.5%. Also,

the limit of exemption of capital gains on certain listed financial assets has been increased

from ₹1 lakh to ₹1.25 lakh per year.

* TDS rate on e-commerce operators reduced to 0.1% from 1%. Delays in payments of TDS to

be decriminalized upto their filing due date and the process of reassessment and reopening

of returns to be simplified.

* Payments made by a firm to its partner shall be subject to TDS at 10% for aggregate amounts

more than ₹20,000 in a financial year.

* TCS Levy of 1% on notified luxury goods of value exceeding ₹10 lakhs.

* TDS levy on interest exceeding ₹10,000 on Floating Rate Savings (Taxable) Bonds (FRSB)

2020 or any other notified security of the Central or State Governments

6. EMPLOYEE LINKED INCENTIVE SCHEMES

* First-time enrolments in EPFO to receive one month’s wage upon entering the workforce

in all formal sectors. A direct benefit transfer (DBT) of one month’s salary up to ₹15,000

will be provided in 3 instalments.

* Incentives to be provided to both employees and employers as per their EPFO

contributions for the first 4 years of employment.

* Reimbursement to employers up to ₹3,000 per month for 2 years towards their EPFO

contribution for each additional employee. The eligibility limit for this will be a salary of ₹1

lakh per month.

7. REDUCTION/EXEMPTION IN CUSTOM DUTIES

* Customs duties on gold, silver reduced to 6%, platinum to 6.4% and Lithium, Copper, Cobalt

have been exempted from Custom Duty. Duty has also been exempted on manufacturing of

connectors and Oxygen-fused copper.

* 3 medicines also fully exempted from custom duty for cancer patients.

8. REVISION IN TAX STRUCTURE UNDER THE NEW REGIME AND INCOME TAX REFORMS

Income Slab Applicable Tax Rate

₹Upto 3 lakh                      Nil

₹3-7 lakh                              5%

₹7-10 lakh                           10%

₹10-12 lakh                         15%

₹15 lakh and above         30%

* Withdrawal of the 2% equalisation levy. Further, standard deduction for salaried

employees will be hiked to ₹75,000, from ₹50,000 under new income tax regime in FY25.

* Similarly, deduction for family pension for pensioners will be enhanced from ₹15,000 to

₹25,000

* The deduction limit increased to 14% from 10% for employers’ contribution for the

National Pension System (NPS).

* Reduction in the rate of income-tax chargeable on income of foreign company (other than

that chargeable at special rates) from 40% to 35%.

9. TAXES ON BUYBACK OF SHARES, STT ON F&O

The income from buy-back of shares by companies be chargeable in the hands of the

recipient investor as dividend, instead of the current regime of additional income-tax in the

hands of the company. Further, the cost of such shares shall be treated as a capital loss to

the investor.

* An increase in the rates of STT on sale of an option in securities from 0.0625% to 0.1%

of the option premium, and on sale of a futures in securities from 0.0125% to 0.02% of the

price at which such futures are traded.

10. LABOUR RELATED REFORMS

    * Open architecture databases for the widely changing job market, and connecting potential

    employees with industry will be covered in the reforms.

    Shram Suvidha and Samadhan portal will be revamped to enhance ease of compliance for

    industry and trade.

    11. Abolishing angel tax

      In addition to the angel tax abolition, the Finance Minister extended the definition of “eligible startup” under the Startup India scheme to include entities incorporated between April 1, 2016, and March 31, 2025. This extension allows more startups to benefits from the tax holiday offered under the scheme.

      *Disallowances of expenses due to non-payment to MSMEs [Section 43B(h)]

      by Pushkar Mer

      Section 43B(h) is introduced by the Finance Act, 2023 and applicable from FY 2023-2024. The Government wants to ensure timely payments to Micro & Small Enterprises. As per MSMED Act, 2006, the definition of MSME enterprises is as under:

      *Particulars*                                    *Micro*     *Small*   *Medium*

      Turnover                                         <=5 crore <=50 crore <=250 crore

      Investment in Plant & Machinery <=1 crore <=10 crore <=50 crore

      As per MSMED Act, 2006, *the time limit for making payments* is as under:

      (a) Where written agreement does not exist – within 15 days from the date of acceptance

      (b) Where written agreement exist – Agreed date or within 45 days from the date of acceptance, whichever is earlier

      Section 43B(h) says that if payment is not made to MSME enterprises within the specified time limit, then the expenses will not be allowed as deduction under Income Tax Act and shall be added back to the total income. 

      Thus, if the payment is made in subsequent year or payment is made before the due date of income tax return or filing of income tax return in the subsequent year, then the same shall not be allowed as expense in the previous financial year, however the same shall be allowed as expense in the financial year in which the payment has been made.

      *Key points of Section 43B(h):*

      (a) This Clause is not applicable to Medium category enterprises. It is applicable only on Micro and Small category enterprises.

      (b) This Clause is not applicable on Capital expenditure (CAPEX) items, it is applicable on goods & services.

      (c) This Clause is not applicable on Traders, it is applicable on manufacturing & services sector

      (d) This Clause is not applicable on buyers who are filing their income tax return u/s 44AD/44ADA/44AE of the Income Tax Act;

      (e) This Clause is not applicable on those vendors who are not registered under MSMED Act, 2006

      (f) This Clause is not applicable on those payables for invoices dated on or before 31/03/2023

      Introduction of Section 43B(h) in the Income Tax Act.

      by Pushkar Mer

      As per the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006,the buyer is required to make payment within 45 days of the acceptance of goods or services rendered. If payment not made within 45 days, interest liability arises.

      To support MSMEs government seems to be very serious.

      The MSME Return form was introduced by the Ministry of Corporate Affairs (MCA) on 22 January 2019 to strengthen the provisions of the MSME Development Act, 2006 (MSMED). In half yearly MEME Return, every company is required to file outstanding details of MSMEs.

      Now government has decided to disallow such expenses in case of violation of payment condition as per MSMED Act (means payment must have to be released to MSMEs within 45 days.

      The Finance Act, 2023, introduced Section 43B(h) in the Income Tax Act to ensure timely payments are made to MSMEs and to maintain uninterrupted cash flow. This rule will be applicable w.e.f. 1st April, 2024. However, industries is requesting government to postpone this rule for 1 year.

      Unlike Section 37(1), the deductibility under Section 43B is not linked to the distinction between capital expenditure and revenue expenditure. Section 43B applies to sums payable in respect of which a deduction is otherwise allowable under this Act.

      Therefore, Section 43B(h) would apply to amounts payable to micro or small enterprises with respect to the purchase of capital goods for which a 100% deduction is admissible under Sections 30 to 36. For example, the deduction of 100% of capital expenditure under Section 35AD and the deduction of 100% of capital expenditure on scientific research under Section.

      If a 100% deduction of capital expenditure is not allowable, there would be no disallowance with respect to depreciation on capital goods purchased if the MSE supplier of capital goods is not paid in time. This is because depreciation is not a “sum payable in respect of which deduction is otherwise allowable”. What can be disallowed under Section 43B(h) must have the character of a sum payable in respect of which deduction is otherwise allowable.

      The Courts had taken the view that depreciation cannot be disallowed on the cost of the asset which was capitalized in books of account, but tax thereon was not deducted under Section 40(a)(i)/(ia) of the Act.

      Storage of Payment System Data

      by Pushkar Mer

      The entire payment data shall be stored in systems located only in India, except in cases clarified herein.

      The data should include end-to-end transaction details and information pertaining to payment or settlement transaction that is gathered / transmitted / processed as part of a payment message / instruction. This may, interalia, include – Customer data (Name, Mobile Number, email, Aadhaar Number, PAN number, etc. as applicable); Payment sensitive data (customer and beneficiary account details); Payment Credentials (OTP, PIN, Passwords, etc.); and, Transaction data (originating & destination system information, transaction reference, timestamp, amount, etc.).

      • There is no bar on processing of payment transactions outside India if so desired by the PSOs. However, the data shall be stored only in India after the processing. The complete end-to-end transaction details should be part of the data.
      • In case the processing is done abroad, the data should be deleted from the systems abroad and brought back to India not later than the one business day or 24 hours from payment processing, whichever is earlier. The same should be stored only in India.
      • However, any subsequent activity such as settlement processing after payment processing, if done outside India, shall also be undertaken / performed on a near real time basis. The data should be stored only in India.
      • In case of any other related processing activity, such as chargeback, etc., the data can be accessed, at any time, from India where it is stored.

      Banks having server outside India have been strictly directed by RBI for not sharing customer account sensitive data in bank statement

      In order to be in adherence to the Reserve Bank of India (RBI) Directive, the below listed information will not be available in the periodic banks statement/s for RTGS and NEFT transactions undertaken at your end (in cases if banks are storing data outside India):-

      • Serial Number of the Transaction
      • Message to Beneficiary
      • Beneficiary IFSC Number
      • Remitting IFSC Number
      • Address of the Remitter
      • Remarks
      • Debit Account Number
      • Beneficiary Account Number
      • Remitter Account Number
      • Reject Reason Description
      • Sender to Receiver Information

      Mercedes-Benz get stay order against demand for GST on Expat Salary

      by Pushkar Mer

      In a relief for the auto major Mercedes-Benz, Bombay High court has granted an interim-stay of order demanding GST dues on expat-salary payment by the company. Last year, honorable Supreme Court has held that the salary of overseas employees (deputed to Indian company) that is reimbursement to the overseas entities will be subject to service tax. This decision shakes companies. Based on this decision GST department aggressively started issuing notices to companies demanding GST on reimbursement of expat salary. Directorate General of GST Intelligence (DGGI) recovers INR 2,500 Crores GST dues not paid on expat salaries. Many companies deposited GST on reimbursement of expat salaries. Some companies decided to challenge GST notices. However, rules are not yet clarified and companies are advices to analyze Supreme Court (SC) decision made in case of Northern operating Systems Pvt Ltd and check facts. If facts are matching with NOS arrangements, then GST need to be deposited, if company can differentiate facts, it can decide to challenge GST demand notice in court. This decision will be huge impact on company’s cash flow because GST demand will be calculated w.e.f. 01.07.2027 and interest and penalty will also be required to be deposited under section 73/74 of CGST Act.