📘 What is a Gilt Fund?

A Gilt Fund is a type of debt mutual fund that primarily invests in government securities (G-secs). These are bonds issued by the central and/or state governments to borrow money. As such, gilt funds carry zero credit risk, since they are backed by sovereign guarantee, but they are sensitive to interest rate movements.

Key Features of Gilt Funds:

🔹 What is a Gilt Fund Account?

A Gilt Fund Account is a folio or investment account through which an investor can:

• Invest in one or more gilt funds

• Monitor NAV, holdings, and returns

• Redeem or switch between debt schemes

It may be referred to as a Mutual Fund Account with exposure specifically to Gilt Funds. Some platforms also offer direct gilt investments via RBI Retail Direct Gilt Account, allowing investors to buy G-Secs directly from RBI.

RBI Retail Direct’:

As part of continuing efforts to increase retail participation in government securities, ‘the RBI Retail Direct’ facility was announced in the Statement of Developmental and Regulatory Policies dated February 05, 2021 for improving ease of access by retail investors through online access to the government securities market – both primary and secondary – along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI.

In pursuance of this announcement, the ‘RBI Retail Direct’ scheme, which is a one-stop solution to facilitate investment in Government Securities by individual investors is being issued today. The highlights of the ‘RBI Retail Direct’ scheme are:

i. Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI.

ii. RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.

iii. The ‘Online portal’ will also give the registered users the following facilities:

1. Access to primary issuance of Government securities
2. Access to NDS-OM.

🔄 Gilt Funds vs Share Market – A Comparison

📈 Who Should Invest in Gilt Funds?

• Investors looking for safety of capital with moderate returns
• Suitable during falling interest rate cycles (bond prices rise)
• Ideal for diversification in low-risk portfolios

⚠️ Risks to Consider

• Interest Rate Risk: As rates rise, bond prices fall, affecting NAV.
• No Credit Risk, but duration risk is higher in long-term gilt funds.
• Not ideal for short-term parking due to volatility from rate changes.

📑 Source References:

1. SEBI – Mutual Funds Regulations: https://www.sebi.gov.in

2. RBI Retail Direct Scheme: https://rbiretaildirect.org.in

3. AMFI – Gilt Fund Details: https://www.amfiindia.com/investor-corner/knowledge-center/types-of-mutual-funds

Disclaimer: This article is solely for educational purpose and cannot be construed as legal and professional opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.

Form 10-IEA is required to fill by individuals or HUFs those want to continue with the old tax regime in the present financial year ie FY 2023-24. The Budget 2023 proposes that from FY 2023-24, the new tax regime will be considered the default tax regime. By filling Form 10-IEA, taxpayers can choose the old tax regime. They must file the form on or before the due date prescribed for filing an income tax return. Let’s start with the detailed analysis of Form 10-IEA and go through its important aspects.

What is Form 10-IEA

In FY 2022-23 the old tax regime was announced as the default tax regime. Those taxpayers willing to choose the New tax regime must have to file Form 10-IE electronically. But in FY 2023-24 the new tax regime was announced as the default tax regime. And now those taxpayers willing to choose the New tax regime must have to file Form 10-IEA electronically and this action make Form 10-IE which was earlier employed to opt for the new tax regime has now been discontinued

Purpose of Filing Form 10-IEA

let’s understand the purpose of Form 10IEA.

• Individuals and HUF’s having income from profession/business must file Form 10-IEA by adhering to the prescribed deadline under Section 139(1). Please note this revised procedure streamlines the process, enabling individuals without business or professional income to directly specify their preference while filing a tax return by selecting the preferred option.
• The corresponding choice determines the rules and regulations that would be applicable to the assessee.
• Filling Form 10-IEA requires individuals to provide all the necessary information like PAN number, assessment year, name, and current status. These details can be used to accurately categorise and identify taxpayer information.

How to File Form 10-IEA

Follow these steps for filing Form 10-IEA online:

Step 1: Login on the e-filing portal 

Step 2: On the dashboard, click ‘e-File’ > ‘Income tax forms’ > ‘File Income Tax Forms’

Step 3: Scroll down to select Form 10-IEA. Alternatively, enter Form 10-IEA in the search box. Click on ‘File now’ button to proceed.

Step 4: Select the Assessment Year for which you are filing the return. For eg: If you are filing taxes for the income earned in FY 2023-24, then select AY 2024-25. 

Step 5: After checking the documents required for filing the form click on ‘Let’s Get Started’.

Step 6: Select “Yes” if you have Income under the head “Profits and gains from business or profession” during the assessment year. Select the due date applicable for filing of return of income and click on continue.

Note: Use “help document” by clicking on help document hyperlink for the help for selecting the applicable due date.

Step 7: Click ‘Yes’ to confirm the selection of the regime.

 Step 8: Form 10-IEA has 3 sections. Verify and Confirm each section. They are as follows:

i. Basic Information: In Basic Information section, your basic information will be pre-filled. If you are filing form for the first time then opting out option will be auto-selected and if system has valid form with opting out option, then re-entering option will be auto-selected. Click on ‘Save’ button.

ii. Additional Information: Fill the necessary details in Additional information section related to IFSC unit (if any) and click on ‘Save’.

 If you are opting out of new Tax regime this Additional Information panel will be greyed off

iii. Declaration and Verification: Verification section contains self-declaration where you will be required to check the boxes and agree to the terms and conditions. Verify whether all the details are correct and save the information. Once done, click on ‘Preview’ to review Form 10-IEA.

Step 9: After reviewing all the information, ‘Proceed’ to e-verify’. You can e-verify either through:

• Aadhaar OTP
• Digital Signature Certificate (DSC)
• Electronic Verification Code (EVC)

Step 10: After verification Click on ‘Yes’ to submit the Form.

Step 11: After successful e-Verification, a success message is displayed along with a Transaction ID and an Acknowledgement Receipt Number. Please keep a note of the Transaction ID and Acknowledgement number for future reference. You can also download the form and locate the acknowledgment number. 
To download the filed form, go to ‘e-File’ → ‘Income Tax Forms’ → ‘View Filed Forms’.

Introduction:

The new section 43B(h) will be applicable from April 1, 2024 (AY 2024-25), Section 43B(h) of the Income Tax Act introduces significant changes concerning expenses related to purchases or services from Micro and Small Enterprises. Please note this section is not applicable on Medium Enterprises.

43B(h) has been inserted as a Socio-Economic Welfare Measure to ensure timely payments to micro and small enterprises.

We all know that section Section 43B of the Act provides for certain deductions to be allowed only on Actual Payment basis.

Finance Bill 2023 has newly inserted a clause to this section which is as under:

Section 43B (h) of Income Tax Act says:

“any sum payable by the assessee to a MICRO or SMALL enterprise beyond the time limit specified in 15 of the Micro, Small and Medium Enterprises Development Act, 2006,”

The above clause indicated that, in order to be eligible to claim deduction of the sum payable to micro and small enterprises, the payment shall be actually made within the time limit specified in 15 of the MSME Act, 2006.

Section 15 of MSME Development Act, 2006 says:

“Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day*:

Provided that in no case the period agreed upon between the supplier and the buyer in writing shall not exceed forty-five days from the day of acceptance or the day of deemed acceptance”

It is very clear that, the buyer shall make the payment to the supplier as agreed between them, however the same cannot exceed beyond 45 days from date of acceptance or the day of deemed acceptance i.e., from the day of acceptance of the goods/service.

Section 2(b) of the MSME Development Act, 2006 says:

“Appointed Day” means the day following immediately after the expiry of the period of fifteen (15) days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.

Explanation—For the purposes of this clause-

(i) “the day of acceptance” means-

(a) the day of the actual delivery of goods or the rendering of services; or

(b) where any objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier;

(ii) “the day of deemed acceptance” means, where no objection is made in writing by the buyer regarding acceptance of goods or services within fifteen days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services;

Section 16 of MSME Development Act, 2006 says:

“Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank”


Consequences upon Failure to make payment to Micro and Small Enterprises under Section 43B(h)

1. If the payment is made after 45 days or 15 days as specified – then expenses disallowed in the year and deduction will be available in the year in which the payment is made.

• If the payment is due for more than 45 days or 15 days as specified but the payment is made before the end of the Financial Year – then in such case, the deduction of the expense will be available in the same year itself.

The classification of the enterprise as Micro, Small & Medium as defined in Micro, Small and Medium Enterprises Development Act, 2006 is hereby produced for your reference:

• Micro Enterprise
• Investment less than Rs. 1 crore
• Turnover less than Rs. 5 crore

• Small Enterprise
• Investment less than Rs. 10 crore
• Turnover less than Rs. 50 crore

• Medium Enterprise
• Investment less than Rs. 20 crore
• Turnover less than Rs. 100 crore

Overview:

Section 92 of the Income Tax Act, 1961, deals with regulations of transfer pricing in India. It is a practice of determining the price of the transactions between associate enterprises and computation of Income from International transaction at Arm’s Length Price. This section has significant implications for Multi National Enterprises (MNE) operating in India and also on Specified Domestic Transaction (SDT).

Section 92E (Audit under Transfer Pricing):

Every person who has entered into an international transaction (IT) or specified domestic transaction (SDT) during a previous year shall obtain a report from an accountant (Chartered Accountant) and furnish such report on or before the “specified date” in the prescribed form (3CBE) duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.

Prescribed form for report from accountant is Form No. 3CEB. Under proviso to rule 12(2) audit report shall be furnished electronically.

“Specified date” means the date one month prior to the due date for furnishing the return of income under sub-section (1) of section 139 for the relevant assessment year.[Section 92F(iv)] As due date for ITR in transfer pricing cases is 30th November of the relevant assessment year, specified date is 31St October. Report from accountant (CA) will have to be furnished on or before 31st October of relevant assessment year in Form 3CEB.

PENALTY ON ASSESSEE FOR FAILURE TO FURNISH REPORT UNDER SECTION 192E [SECTION 271BA]

If any person fails to furnish a report from an accountant as required by section 92E, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum of one hundred thousand rupees ie.Rs.1,00,000.

PENALTY ON AUDITOR FOR FURNISHING INCORRECT INFORMATION IN REPORTS OR CERTIFICATES

Section 271J of the Act provides for Penalty for furnishing incorrect information in reports or certificates. Section 271J provides that where the Assessing Officer or the Commissioner (Appeals), in the course of any proceedings under the Income Tax Act, 1961, finds that an accountant has furnished incorrect information in any report or certificate furnished under any provision of Income Tax Act or the rules made thereunder, the Assessing Officer or the Commissioner (Appeals) [or Joint Commissioner (Appeals) may direct that such accountant (CA), shall pay, by way of penalty, a sum of Rs. 10,000 for each such report or certificate.

HOW TO FILE FORM 3CEB:

Form 3CEB can be filed online by following these easy steps

Step 1: You need to avail the services of a Chartered Accountant (CA) who will audit the business transactions. For this log in to your e-Filling portal account, navigate to the ‘My Chartered Accountants’ page and add a CA authorised by you. 

Step 2: Once you select a CA from the list, you must assign Form 3CEB to him/her. You can assign the form by selecting the CA’s name, selecting the filing type and entering the assessment year.

Step 3: Once the form has been successfully assigned, the CA can find it in his/her work list in the ‘For Your Action’ section. He/she can either accept or reject the assignment. If the assigned CA rejects it, you must reassign the form.

Step 4: If the CA accepts the task, he will fill in all the necessary details in the form after proper assessment and auditing. 

Step 5: Once done, you can find the form uploaded by the CA in the Taxpayer’s work list. You can click the ‘For Your Action’ button and find the form marked ‘Pending for Acceptance’. You can either accept or reject it after reviewing the form. Once you approve it, Form 3CEB will be filed.

Form 3CEB comprises three parts – Part A, Part B and Part C. 

Part A contains basic details that need to be filled up. 

Part B have a lot of information related to international transactions must be provided. It includes information about associate enterprises, nature and particulars of transactions.

Part C of the form is solely dedicated to specified domestic transactions. While Part B focuses on international transactions, Part C is on engagements with domestic enterprises. 

Conclusion:

As per Section 92E of the Income Tax Act, which relates to international transactions and specified domestic transactions, filing Form 3CEB is mandatory for companies who are engaged in foreign or domestic business with associated enterprises. Taxpayers must strictly follow the requirements listed in Form 3CEB; otherwise, there are penalty rules which might be enforced.

Clause 44 It was added w.e.f 20th August 2018 but Reporting under this clause was deferred till 31st March 2019 vide Circular No. 6/2018 dated 17th August 2018, So reporting in clause 44 is started from AY 2019-20.

The Objective for insertion of this Clause 44:

The main objective is to co-relate GST Data with Income Tax Data.

FAQ’s on CLAUSE 44

Q.1. Is reporting in this clause applicable only for Assessee who are GST registered?

Ans: No, Reporting is to be made by all assesses who are registered under GST or not.

Q.2. Interpretation of wordings “Breakup of total expenditure”? What expenditures are not Included?

Q.3. Tabular format for disclosure:

Q.4. Colum 2 says “Total amount of Expenditure incurred during the year” so shall we report head-wise / nature wise expenditure?

Q.5. What are the Expenditure relating to other registered entities (column 5)?

Ans: The value of all inward supplies from registered dealers, other than supplies from composition dealers and exempt supply from registered dealers, are to be mentioned in this column.

Q.6.  What is the meaning of “Total payment to registered entities (column 6)”?

Ans: The language used in sub-heading of column 6 is total’ payment’ to registered entities. The word ‘payment’ should harmoniously be interpreted as ‘expenditure’ as the combined heading of columns (3), (4), (5) is ‘Expenditure in respect of entities registered under GST’. Hence, the total expenditure in respect of registered entities i.e., sum total of values reported in columns (3), (4) and (5) should be reported in Column 6.

Q.7. Checks and Control while reporting?

Foreign Currency Exposure:

The Foreign Currency Exposure is a risk associated with the businesses and investors engaged in the activities (trade and investments) of dealing in foreign currency transactions. The entities involved in the activities of transactions in different foreign currency denominations and does not take steps to protect themselves from currency fluctuations.

This exposure arises when a company or individual holds assets, liabilities, or cash flows in a foreign currency without implementing any hedging mechanisms to mitigate potential adverse currency fluctuation.

Entities needs to hedge ourselves from foreign currency exposure in the market to avoid any risk of volatility in the exchange rates and Derivative hedging is the one of the best ways to hedge.

Unhedged foreign currency exposure (UFCE):

The RBI issues guidelines for banks to manage their foreign currency exposure either fund base or non-fund base, in an attempt to reduce the risk of unhedged exposure on the banking system during extreme volatility in forex markets.

Banks would be required to assess the unhedged foreign currency exposures of all entities to whom they have an exposure in any currency.

Accordingly, the banks were given advisory through the issuance of various directions, guidelines and circulars to develop a framework for regular monitoring of entities that do not have a hedge. Henceforth, the present directions dated 11th October 2022

Applicability of the Directions:

The provision pertaining to the current directions shall apply to all commercial Banks excluding Payments Bank and Regional Rural Banks along with the Overseas Branches and Subsidiaries of Banks incorporated in India.

These Directions shall come into effect from January 1, 2023.

Computation of UFCE:

Banks shall ascertain the Foreign Currency Exposure (FCE) of all entities at least on an annual basis. Banks shall compute the FCE following the relevant accounting standard applicable for the entity. For ascertaining the Foreign Currency Exposer, the banks shall also include all the sources of an entity’s exposure, including Foreign Currency Borrowings & External Commercial Borrowings.

UFCE shall be obtained from entities on a quarterly basis based on statutory audit, internal audit or self-declaration by the concerned entity. Moreover UFCE information shall be audited and certified by the statutory auditors of the entity, at least on an annual basis.

Provisioning and Capital Requirements:

The bank is required to calculate the total potential loss to the entity from Unhedged Foreign Currency Exposure. It shall be determined by using the data published by FEDAI on the annual volatility rate in the USD-INR exchange rate for the last 10 years and multiplying it with the UFCE of an entity.

The bank is required to ascertain the susceptibility of an entity towards adverse exchange rate movements. It shall be determined by computing the ratio of potential loss to the entity from UFCE and the entity EBID (Earnings before interest and depreciation).

In case if the bank is unable to gather information on UFCE and EBID of an entity due to restrictions on disclosure of information, then, in that case, the bank can compute the susceptibility ratio by using data that is immediately preceding the last four quarters.

In case of Unlisted Company if the information on EBID and UFCE is not available due to the non-availability of the last audited results of the last quarter, then, in that case, the bank shall undertake the latest quarterly and annual result. However, the EBID figure shall be for the last financial year.

The direction has determined the figure for computing the incremental provisioning and capital requirements which are as follows:

Further, the bank is required to calculate the incremental requirements on quarterly basis. 

For projects under implementation and the new entities, banks shall calculate the incremental provisioning and capital requirements based on projected average annual EBID for the three years from the date of commencement of commercial operations.

In the case of consortium arrangements, the consortium leader / bank having the largest exposure shall have the lead role in monitoring the unhedged foreign exchange exposure of entities.

Exemption / Relaxation (a) Banks shall have the option to exclude the following exposures from the calculation of UFCE:

(i) Exposures to entities classified as sovereign, banks and individuals.

(ii) Exposures classified as Non-Performing Assets.

(iii) Intra-group foreign currency exposures of Multinational Corporations (MNCs) incorporated outside India.

Provided that the bank is satisfied that such foreign currency exposures are appropriately hedged or managed robustly by the parent. (iv) Exposures arising from derivative transactions and / or factoring transactions with entities, provided such entities have no other exposures to banks in India.

Assessment of Unhedged Foreign Currency Exposure (UFCE):

The banks are further required to ascertain the UFCE by obtaining such information from the concerned entity on quarterly basis. Further, the information on UFCE supplied to the bank must be audited and certified by a statutory auditor of the entity.

Nostro and Vostro accounts are two types of bank accounts used in international banking transactions. These terms originate from Latin, with Nostro meaning “our” and Vostro meaning “your”. In this article, we will discuss the meaning and differences between these two types of bank accounts.

What is a Nostro account?

A Nostro account is a bank account that a bank holds in a foreign currency in another bank. These accounts are maintained by banks to facilitate their foreign currency transactions. Nostro accounts are used by banks to hold funds that belong to their customers in other countries. These accounts are denominated in the currency of the foreign country where the account is held. Banks use Nostro accounts to receive and make payments in foreign currencies.

For example, if Bank A in the United States has a customer who wants to make a payment to a supplier in Japan, Bank A would use its Nostro account in Japan to make the payment in Japanese yen. The funds would be transferred from the customer’s account in Bank A to Bank A’s Nostro account in Japan, and then Bank A would use these funds to make the payment to the supplier in Japan.

What is a Vostro account?

A Vostro account is a bank account that is held by a foreign bank in the local currency of the country where the account is held. Vostro accounts are maintained by banks to facilitate transactions with their international customers. These accounts are used by banks to hold funds that belong to their customers in the local currency of the country where the account is held. Banks use Vostro accounts to receive and make payments in local currencies.

For example, if Bank A in the United States has a customer who wants to receive a payment from a supplier in Japan, Bank A would give its Japanese partner bank permission to open a Vostro account with Bank A. The supplier in Japan would transfer the payment in Japanese yen to Bank A’s Vostro account in Japan. Bank A would then credit the payment to its customer’s account in the United States in US dollars.

Differences between Nostro and Vostro accounts

The main difference between Nostro and Vostro accounts is that Nostro accounts are held by a bank in a foreign country, denominated in the currency of the foreign country, and used to facilitate its transactions in that country. On the other hand, Vostro accounts are held by a foreign bank in the local currency of the country where the account is held, used to facilitate transactions with the bank’s international customers.

Another difference between Nostro and Vostro accounts is the ownership of the account. A Nostro account is owned by the bank that holds the account, while a Vostro account is owned by the foreign bank that opened the account.

A Nostro Account of one country can be a Vostro Account for another country, and vice versa

SEBI has been notified as the regulator of gold exchanges in the country. SEBI has come up with the ‘Framework for operationalizing the Gold Exchange in India’ vide Circular dated January 10, 2022 and has also declared the instrument for trading in Gold Exchange ,i.e., EGRs as ‘securities’ under Section 2(h)(iia) of the Securities Contracts (Regulation) Act 1956 dated December 24, 2021 vide Gazette notification. The SEBI Regulations, 2021’ provides that any person willing to carry on the business of providing vaulting services in relation to gold, i.e., storage and safekeeping of physical gold deposited by the depositor for the purpose of trading in EGRs may apply to SEBI and obtain registration to act as a Vault Manager. The Framework provides that stock exchanges willing to trade in EGRs may apply to SEBI and begin trading in EGRs in new segment. A structure of the transactions in respect of creation, trading and conversion of EGR into Physical Gold has also been defined.

PROPOSED AMENDMENTS

In line with these new developments, it is proposed to bring following amendments in the ITA to make the conversion of physical gold into EGR and vice versa tax neutral:

• New provision, S. 47(viid), is proposed where under the conversion of physical gold (held as capital asset) into EGRs issued by a Vault Manager and vice versa, shall not be considered as ‘transfer’ within the meaning of S. 47 of the ITA. Hence, there would be no capital gain arising at the time of mere conversion.
• Further, S. 2(42A) is proposed to be amended to include the period of holding of the converting asset in the period of holding of the converted asset. In other words, the period of holding of EGRs would include even the period for which the physical gold was held by the assessee prior to conversion into EGRs and vice versa. (Clause (hi) to Explanation 1 of S. 2(42A)).
• Lastly, it is proposed that the Cost of Acquisition of EGRs shall be deemed to be the cost of gold in the hands of the person in whose name EGRs is issued. Similarly, where gold is released against an EGRs, the COA of the gold shall be deemed to be the cost of the EGRs in the hands of such person. (S. 49(10)).

These amendments will become effective from April 1, 2024 and shall accordingly, apply in relation to the AY 2024-25 and subsequent AYs.

CLARIFICATION REQUIRED

There is an ambiguity in relation to the indexation benefit. A clarification is also needed with regard to the classification of Electronic Gold Receipts (ECRs) as Short term or Long term, whether EGRs must be considered as a Capital Asset (36months/ 3 years) or as a Security (12 months/1 year).

The Securities and Exchange Board of India (SEBI) on Tuesday, 20^th December,2022 amended the buyback rules to gradually phase out the Open Market Route in favor of the Tender Route. SEBI has improvised the present share buyback norms for listed companies and has tightened the disclosure rules to increase the transparency and credibility of the market.

Over a period, buyback regulations have also evolved with the growth and complexity of the market. Initially, buyback was allowed only from the open market through stock exchanges. Subsequently, the tender method for buyback was also introduced. It was felt that the stock exchange route is less efficient as it may be difficult to buyback through this route the full quantity without affecting the share price. Also, it may take a long time to complete it. Further, there is a possibility of one shareholder’s entire trade getting matched with the purchase order placed by the company, thus depriving other shareholders to avail the benefit of the buyback. Therefore, a time-bound program under the tender route was considered a superior method.

Few of the major changes made by SEBI are:

Increase in the limit of utilization of proceeds:

The regulator has amended the rules on the way of using of the funds which are kept for buyback. The buyback norms at present require companies to utilize at least 50 per cent of the amount earmarked for this purpose. On Tuesday, SEBI has raised the minimum threshold of 50 per cent to 75 per cent for the purpose of utilization. In case of failure to use the minimum proceeds by the company, SEBI can direct the merchant banker to forfeit the amount deposited in an Escrow account.  

Reduction in time for the process of buyback:

In buyback under the Tender route, SEBI has reduced the timeline for completion by 18 days. It has dropped the requirement to file the draft letter of offer.

Advertisement for buyback to increase awareness/knowledge:

SEBI has made it mandatory to place the relevant advertisements/ documents with respect to buyback, such as, copy of the public announcement, letter of offer etc. on the respective website of the stock exchange(s), merchant banker and the company for better dissemination of information to shareholders.

Revision of price for Buyback:

SEBI has permitted the upward revision of the buyback price until one working day prior to the record date.

Additional Points:

• SEBI has also decided to create a separate window on stock exchanges for undertaking buyback till the time tender offers are fully in effect.
• SEBI has proposed to reduce the timeline for completion of process of buyback to 66 days with effect from 1^st April, 2023 and to 22 working days from 1^st April, 2024.
• It has also been proposed that Open Market Route will be completely closed by 1^st April, 2025.

These amendments aim to streamline the process of buyback, create a level-playing field for investors and promote the ease of doing business. We hope that the new regime to choose tender route for buyback with a shorter timeline and ability to revise the price upwards until the late stage will make the buy-back scheme much more robust, market friendly as well as investor friendly.

WHAT IS A BUSINESS TRUST?

Section 2(13A) of Income Tax Act defines Business Trust as below: “Business trust” means a trust registered as, —

 (i)  an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); or

 (ii)  a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992)

Business Trust act like a mutual fund that invest into real estate projects or infrastructure projects by raising resources from different investors. These trusts can raise capital by way of issue of units which are listed on a recognized stock exchange. Business trusts can also raise debt from people – both residents and non-residents. It is not necessary that the business trust must be listed, however it is mandatory for it to be registered with SEBI with effect from 1^st April, 2020.

REAL ESTATE INVESTMENT TRUST (REITs)

REITs are companies which owns, manages and finance few income-generating real estate and offers its units to public investors. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands.

Globally, REITs invest primarily in completed, revenue generating real estate assets and distribute major part of the earning among their investors. Typically, most of such investments are in completed properties which provide regular income to the investors from the rentals received from such properties.

REITs are principally expected to invest in completed assets. Income would consist of rental income, interest income or capital gains arising from sale of real assets / shares of SPV. They are managed by professional managers which usually have diverse skill bases in property development, redevelopment, acquisitions, leasing and management etc. Listed REITs provide liquidity and therefore provide easy exit to the investors.

INFRASTRUCTURE INVESTMENT TRUSTS (InvITs)

Infrastructure Investment Trusts make direct investment in infrastructure facilities which are yielding income e.g., Toll Road, Railways, Inland waterways, Airport, Urban public transport. InvITs will allow infrastructure developers to monetize specific assets, helping them use proceeds for completing projects of theirs stalled for want of funds.

Structure of InvITs is quite similar to REITs. The main difference is InvITs make investment into infrastructure facilities whereas REITs make investment in commercial real estate properties.

TAXABILITY UNDER SECTION 115 UA:

1. IN THE HANDS OF THE UNIT HOLDERS:

The income of unit holders of Business Trust can be categorized into two parts.

Tax on Income Distributed by Business Trust:

There is a special taxation regime for taxability of income distributed by such business trusts in the hands of the unit holders. The income distributed by a business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holders, as it had been received by, or accrued to the business trust. The person distributing the income on behalf of the business trust is required to furnish the statement of income distributed to the unitholder in Form No. 64B by the 30th June. Example Mr. Saurabh, a resident individual, has received the following ‘Form 64B – Statement of income distributed by a business trust to the unit holders’ for the Financial Year 2017-18.

Let’s see how taxability of each of such income will be determined in the hands of Mr. Saurabh

• Income in the nature of Interest: The income in the nature of interest referred to in sub clause (a) of Section 10(23FC) is chargeable to tax in the hands of the unit holders. If the unit holder is non-resident the rate of tax on such income is 5% and for resident unit holders, it is chargeable to tax at slab rates. This income is exempt in the hands of the business trust. This interest received or receivable from a special purpose vehicle by the business trust is accorded a pass-through treatment and is taxable directly in the hands of the unit holders. The business trust is liable to deduct TDS on this interest income at the rate of 10% in the case of a resident unit holder and 5% in the case of Non-resident unit holders. Example Mr. Saurabh has to include the income of Rs.30,000 distributed by the business trust on 25/10/2017 as an interest income in his Income Tax Return.

• Rental Income: The rental income referred to in Section 10(23FCA) is taxable income in the hands of the unit holders. Any income of a business trust, being a real estate investment trust, by way of renting or leasing or letting out any real estate asset owned directly by such business trust is exempt in the hands of the business trust. This income is chargeable to tax in the hands of the unit holders as rental income. The REIT is liable to deduct TDS on such distributed income at the rate of 10% for resident unit holders and at the rates in force for non-resident unit holders. Example Mr. Saurabh has to show the income of Rs.25,000 distributed on 16/11/2017 by the business trust as rental income in his Income Tax Return.

• Dividend Income: Earlier, the dividend component of the income distributed by the business trust is exempt in the hands of the unit holder. The business trust was also provided an exemption in respect of such income. However, with effect from April 1, 2020, there has been an overhaul of India’s dividend tax regime. Until now Indian companies were required to pay DDT and shareholders (except non-corporate residents) were exempt. Going forward, the tax incidence will shift from the company to the shareholders.

• Any Other Income: Any distributed income, referred to in section 115UA, received by a unit holder from the business trust is exempt in the hands of the unit holder as per Section 10(23FD). Example The income of Rs.20,000 received on 25/10/2017 and Rs.23,000 received on 16/11/2017 is exempt in the hands of Mr. Saurabh.

Tax on Income on Sale of Units

The profit from the sale of the units of the business trust is chargeable to tax under the head capital gains. The tax treatment will differ for the Short-term capital gains and long-term Capital gains. The period of holding of units of the business trust to qualify as a long-term capital asset is more than 36 months.

• Short-Term Capital Gain: The short-term capital gains on which STT is paid is chargeable to tax at the rate of 15% as per section 111A. The deductions under Chapter VI-A are not allowed from such capital gains.
• Long-Term Capital Gain: The long-term capital gains on which STT is paid were exempt in the hands of the Unit holders under Section 10(38) till the A.Y 2018-19. Exemption for long-term capital gains arising from the transfer of units of business trust has been withdrawn by the Finance Act, 2018 with effect from Assessment Year 2019-20 and a new section 112A is introduced in the Income-tax Act. As per Section 112A, long-term capital gains arising from the transfer of a unit of a business trust shall be taxed at 10% (without giving the benefit of indexation). The tax on capital gains shall be levied in excess of Rs.1 lakh. The deductions under Chapter VI-A are not allowed from such capital gains.

2. IN THE HANDS OF THE BUSINESS TRUST: 

REITs have been conferred as hybrid pass-through status for income tax purposes, meaning that the onward distribution of income by a REIT to its unit holders retains the same character as the underlying income stream received by the REIT. Interest income and rental income from property held directly by the trust, is not taxable in the hands of the REIT. However, any capital gains on the sale of assets/ shares of an SPV are taxable in the hands of the trust, depending on the period of holding whereas dividend income is not liable to tax. Further, any other income earned by a REIT shall be subject to tax at the maximum marginal rate. Business trust is compulsorily required to file return as per section 139(4E)

STATEMENT UNDER SUB-SECTION (4) OF SECTION 115UA:

(1) The statement of income distributed by a business trust to its unit holder shall be furnished to the Principal Commissioner or the Commissioner of Income-tax within whose jurisdiction the principal office of the business trust is situated, by the 30th November of the financial year following the previous year during which such income is distributed;

Provided that the statement of income distributed shall also be furnished to the unit holder by the 30th June of the financial year following the previous year during which the income is distributed.

(2) The statement of income distributed shall be furnished under sub-section (4) of section 115UA by the business trust to –

• the Principal Commissioner or the Commissioner of Income tax referred to in sub-rule (1), in Form No. 64A, duly verified by an accountant in the manner indicated therein and shall be furnished electronically under digital signature;
• the unit holder in Form No. 64B, duly verified by the person distributing the income on behalf of the business trust in the manner indicated therein.

FORM 64A

This form will comprise of the statement of income paid or credited by a venture capital company under section 115U of the Income Tax Act 1961. Any individual who is responsible of making payment of the income distributed on behalf of a business trust to a unit holder is required to furnish a statement to the authority within the prescribed time. This form can be submitted at the post offices and banks designated for this purpose. Form 64A can be found online on the official Income Tax filing website and can be downloaded from Forms download section or Directly download Form 64A. The form contains several details which need to be filled out before submission. It is important to fill out the correct details before submitting the form. Copy of certificate of registration under SEBI, copy of trust deed registered under the provisions of the registration act, 1908, Audited accounts including balance sheet, annual report and certifies copies of income shall be enclosed with the form 64A at the time of submission.

FORM 64B

The person distributing the income on behalf of the business trust is required to furnish the statement of income distributed to the unitholder in Form No. 64B by the 30th June.