FAQ on NBFC by RBI

FAQ on NBFC (Non Banking Financial Company) Issued by RBI
(Updated as on January 10, 2017) A. Definitions
  1. What is a Non-Banking Financial Company (NBFC)? A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company).   2. What does conducting financial activity as “principal business” mean? Financial activity as principal business is when a company’s financial assets constitute more than 50 per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross income. A company which fulfils both these criteria will be registered as NBFC by RBI. The term 'principal business' is not defined by the Reserve Bank of India Act. The Reserve Bank has defined it so as to ensure that only companies predominantly engaged in financial activity get registered with it and are regulated and supervised by it. Hence if there are companies engaged in agricultural operations, industrial activity, purchase and sale of goods, providing services or purchase, sale or construction of immovable property as their principal business and are doing some financial business in a small way, they will not be regulated by the Reserve Bank. Interestingly, this test is popularly known as 50-50 test and is applied to determine whether or not a company is into financial business.   3. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs? NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below: i. NBFC cannot accept demand deposits; ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself; iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.   4. Is it necessary that every NBFC should be registered with RBI? In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence or carry on business of a non-banking financial institution without a) obtaining a certificate of registration from the Bank and without having a Net Owned Funds of ₹ 25 lakhs (₹ Two crore since April 1999). However, in terms of the powers given to the Bank, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982,Housing Finance Companies regulated by National Housing Bank, Stock Exchange or a Mutual Benefit company.   5. What are the requirements for registration with RBI? A company incorporated under the Companies Act, 1956 and desirous of commencing business of no

Article ID: 342 | Viwes: 13 | Posted By: TaxReply.com | Date: 2017-03-26

Sale of penny shares cannot be held as bogus merely because SEBI has initiated investigation against company and broker

* Case on Penny Stock / Income Tax litigation on Penny Stock
  Summary:
Assessee bought 30,000 shares of Ramkrishna Fincap Ltd. @ Rs3.10 per share in 2003 on the floor of Kolkata Stock Exchange, shares were received in demat a/c and payments were made by account payee cheque through a registered broker M/s Basant Periwal & Co. Assessee sold the same shares on Kolkata stock exchange @ Rs.155.04 per share in 2005 and claimed the entire long term capital gain as exempt u/s 10(38). Held that Sale of shares cannot be treated as bogus merely on the ground that SEBI has initiated investigation in respect of Ramkrishna Fincap Ltd. and the transaction through M/s Basant Periwal & Co. on the floor of Kolkata stock exchange was more than 83% of total trading of exchange. Held that as far as initiation of investigation of broker is concerned, the assessee is no way concerned with the activity of the broker. Held that the transaction is genuine and valid because all the documents are in place and all the required conditions of section 10(38) are being satisfied.

Detailed case law is as below   IN THE INCOME TAX APPELLATE TRIBUNAL “I”, BENCH MUMBAI   ITA No.4861/Mum/2014 Assessment Year 2005-06 ITO Vs. M/s Indravadan Jain HUF   ITA No.5168/Mum/2014 Assessment Year 2005-06 ACIT vs. M/s Indravadan Jain   Date of Hearing: 30/03/2016 Date of Pronouncement: 27/05/2016 O R D E R   These are the appeals filed by the revenue against the order of CIT(A)-34, Mumbai, for the assessment year 2005-2006, in the matter of order passed u/s.143(3) r.w.s.147 of the I.T.Act.
  2.            In both these appeals the revenue is aggrieved for deleting the addition by CIT(A) in respect of long term capital gains treated by AO as unexplained cash credit u/s.68 of the IT Act.   3.            Rival contentions have been heard and record perused. Facts in brief are that the assessee had shown sale proceeds of shares in the scrip “Ramkrishna Fincap Ltd.”as Long Term Capital Gain and claimed exemption under the Act. Further the assessee had claimed to have purchased this script at Rs.3.12 per share in the year 2003 and sold the same in the year 2005 for Rs.155.04 per share. Considering the above discussed facts and having regard to the investigation so done, these scrips were found to be penny stock and the capital gain declared was held to be only accommodation entries. Further, the broker M/s.Basamt Periwal and Co. through whom the transactions were effected had appeared as "DRI probing evasion by firms via jama kharchi" who was indulged in price manipulation through synchronized and cross deal in scrip of Ramkrishna Fincap P.ltd. Furthermore, it was also communicated that SEBI has passed an order dated 9.7.2009 regarding the irregularities and synchronized trades carried out in scrip of Ramkrishna Fincap Ltd. by the broker M/s.Basant Periwal & Co. In view of the above, the case was reopened after recording reasons by issue of notice u/s.148 dated 30.3.2012 which was duly served on the assessee.   4.                  In view of the above discussion, the AO did not accept assessee’s claim of long term capital gain and added the same in assessee’s income u/s.68 of the Act. By the impugned order the CIT(A) deleted the addition after having following observation :-

Article ID: 341 | Viwes: 20 | Posted By: TaxReply.com | Date: 2017-03-21

Penny stock tax exemption held as bogus and sham : Purchase of penny shares in cash held as bogus and manipulated by assessee to claim tax exemption only

* Case on Penny Stock / Income Tax litigation on Penny Stock   Summary:
Assessee sold shares of M/s Shiv Om Investment & Consultancy Ltd. in 2006 at approx. Rs.197 per share, which were purchased in 2004 at Rs.4 per share, resulting in Long Term Capital Gain which was claimed to be exempt u/s 10(38). The said shares were purchased in off market transactions for which payment were made in cash.

In this case, specific information was received by Revenue from Add. DIT (Inv.), Unit-V, Mumbai that assessee is indulged in bogus / non-genuine long term capital gain. 

Held this purchase as bogus and sham transactions as it is alleged that brokers have manipulated and issued pre-dated contract notes for purchase of shares and payments were also made in cash by the assessee.

Detailed case law is as below.   IN THE INCOME TAX APPELLATE TRIBUNAL “D”  BENCH,  MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER I/.T.A. No.995/ M u m / 2 0 1 2 ( Assessment Year :  2006-07 ) Ratnakar M. Pujari v. Income Tax Officer  Date of Hearing: 09-05-2016 Date of Pronouncement: 03-08-2016 O R D E R    This appeal, filed by the assessee, being ITA No. 995/Mum/2012, is directed against the appellate order dated 25th November, 2011 passed by learned Commissioner of Income Tax (Appeals)- 35 Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2006-07, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 29th December, 2009 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) r.w.s. 147 of the Income Tax Act,1961 (Hereinafter called “the Act”).   2.            The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
  “Being aggrieved by the order passed by the learned Commissioner of Income-tax (Appeals) the Appellant prefers the Appeal on the following amongst other grounds which are without prejudice to one another;   1.            On the facts and circumstances of the case and in law, Hon. Commissioner of Income-tax(Appeals) has erred in confirming the re-opening the assessment based on the information from Addl. CIT(Inv), which was relevant to AY-2007-08 and not for the AY-2006-       2.            On the facts and circumstances of the case and in law, Hon. Commissioner of Income-tax (Appeals) has erred in confirming the computation of Appellant's Taxable Income at Rs.5,59,360/- as against Appellant's returned income of Rs.66,610/-.
  3.            On the facts and circumstances of the case and in law, Hon. Commissioner of Income-tax (Appeals) has erred in treatin

Article ID: 339 | Viwes: 32 | Posted By: TaxReply.com | Date: 2017-03-19

CBDT Press Release - ICDS deferred by 1 year

ICDS applicability has been deferred by 1 year. Earlier it was applicable from AY 2016-17, now it will be applicable from AY 2017-18.
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
PRESS RELEASE
New Delhi, 6th July, 2016 
Subject: Applicability of Income Computation and Disclosure Standards (ICDS) notified under section 145 (2) of the Income - tax Act, 1961.

Vide Notification No. SO 892 (E) dated 31st March, 2015, Central Government notified 10 Income Computation and Disclosure Standards (ICDS). These ICDS are applicable from 1.4.2015 i.e. previous year 2015-16 (Assessment Year 2016-17). Subsequent to notification of the ICDS, a number of representations were received which were examined by an Expert Committee. The Committee has recommended amendments to the notified ICDS and also issuance of clarification in respect of certain points raised by the stakeholders.

2. The revision of ICDS/issue of clarifications as recommended by the Committee, is under consideration. The revision of the Tax Audit Report is also being made for ensuring the compliance with the provisions of ICDS and for capturing the disclosures mandated by the ICDS.

3. Some of the tax payers might have filed their return of income and obtained Tax Audit Report without incorporating the compliance with the ICDS and related disclosures in the absence of the revised Tax Audit Report. Considering these facts, it has been decided that the ICDS shall be applicable from 1.4.2016 i.e. previous year 2016-17 (Assessment Year 2017- 18). The notification to this effect will be issued shortly. (Dr. B. K. Sinha)
Commissioner of Income Tax
(Media and Technical Policy)
Official Spokesperson, CBDT.   Download the copy of Press Release  

Article ID: 337 | Viwes: 144 | Posted By: TaxReply.com | Date: 2016-07-06

Summary of TCS on sale of motor vehicle after amendment in section 206C

Dear Member,

Based on the many queries received from our members, we have prepared below summary on new provisions for TCS on sale of motor vehicle u/s 206C(1D) & 206C(1F). 

Hope you find the same useful.
  TCS on Sale of Car / other motor vehicle?   Cases Total Value of Car Sold Payment by Cash Payment by Cheque Whether TCS will be applicable?   Case 1 500,000 300,000 200,000 Yes, TCS will be collected @ 1% on Rs.300,000 u/s 206C(1D).   Case 2 1,200,000 300,000 900,000 Yes, TCS will be collected @ 1% on Rs.1,200,000 u/s 206C(1F).   Case 3 1,200,000 Nil 1,200,000 Yes, TCS will be collected @ 1% on Rs.1,200,000 u/s 206C(1F).   Case 4 500,000 Nil 500,000 No, TCS is not applicable.   Case 5 500,000 100,000 400,000 No, TCS is not applicable  

Query 1: Whether TCS will be applicable on sale of car for Rs.500,000. Out of which Rs.300,000 is paid in cash and Rs.200,000 by cheque?   Reply:  Yes, TCS will be collected @ 1% on Rs.300,000 u/s 206C(1D).
Reasoning: 1.    Since total sale consideration is below Rs.1,000,000 therefore section 206C(1F) is not applicable.   2.    Since payment made in cash is exceeding Rs.200,000, therefore section 206C(1D) is applicable and TCS u/s 206C(1D) will be collected only on cash component i.e. Rs.300,000.
  Query 2: Whether TCS will be applicable on sale of car for Rs.1,200,000. Out of which Rs.300,000 is paid in cash and Rs.900,000 by cheque?   Reply:  Yes, TCS will be collected @ 1% on Rs.1,200,000 u/s 206C(1F).
Reasoning: 1.    Since total sale consideration is above Rs.1,000,000 therefore section 206C(1F) is applicable and TCS u/s 206C(1F) will be collected on Total sale consideration i.e. 1,200,000. Mode of payment is irrelevant u/s 206C(1F).   2.    Since TCS has been collected u/s 206C(1F) therefore section 206C(1D) is not applicable.
  Query 3: Whether TCS will be applicable on sale of car for Rs.1,200,000. Entire payment is made by cheque?   Reply:  Yes, TCS will be collected @ 1% on Rs.1,200,000 u/s 206C(1F).
Reasoning: 1.    Since total sale consideration is above Rs.1,000,000 therefore section 206C(1F) is applicable and TCS u/s 206C(1F) will be collected on Total sale consideration i.e. 1,200,000. Mode of payment is irrelevant u/s 206C(1F).   2.    Section 206C(1D) is not applicable in this case.   Query 4: Whether TCS will be applicable on sale of car for Rs.500,000. Entire payment is made by cheque?   Reply:  No, TCS is not applicable.   Reasoning: 1.    Since total sale consideration is below Rs.1,000,000 therefore section 206C(1F) is not applicable.   2.    Since

Article ID: 336 | Viwes: 262 | Posted By: TaxReply.com | Date: 2016-06-30

How to rectify Form 26QB online

How to rectify Form 26QB / Challan 26QB online

SECTION 194-IA OF THE INCOME-TAX ACT, 1961

PAYMENT ON TRANSFER OF CERTAIN IMMOVABLE PROPERTY OTHER THAN AGRICULTURAL LAND
 
CORRECTION OF STATEMENT CUM CHALLAN RELATING TO TDS ON SALE OF PROPERTY UNDER SECTION 194-IA 
LETTER F.NO.DIT(S)-2/FORM 26QB/100/2015DATED 22-3-2016 Kindly refer to the above.
  2. Section 194-IA of the IT Act relates to TDS on Sale of property. Form 26QB is an online statement-cum-challan to be filled and submitted by the buyer of the property for making TDS payment on sale of property. It contains details of buyer, seller, property being sold, sale consideration, tax deposit details etc. Being an internet challan, no correction can be made by the bank branches through the existing RT18 mechanism.
3. Keeping in view various representations received, SOP vide F.No.DIT(S)-2/Form 26QB/100/2015 dtd. 20-4-15 was issued for processing the requests of change in form 26QB, on case to case basis, as per defined rules, till such time that an alternative online approach was finalised. Accordingly, the office of the ADGIT(S)-2 has been processing applications requesting for correction in form 26QB.
4. Now, CPC-TDS has enabled functionality for online correction in form 26QB from 29-2-2016. Communication No. CIT/CPC-TDS/15-16 dtd. 2-3-2016 on 'Enablement of 26QB correction facility and role of TDS officers' from CPC-TDS is enclosed.
5. In view of the online functionality being made available, the SOP dated 20-4-2015 for correction in form 26QB challan is being withdrawn with immediate effect. The field formations and taxpayers may be advised to use the functionality made available by CPC- TDS.
Enablement of 26QB correction facility and role of TDS officers-Reg.
Letter F.No. CIT/CPC-TDS/20l5-16, Dated 2-3-2016
With kind reference to the above, I am directed to inform you that the functionality for correction of Form 26QB has been made available online from 29th of Feb. 2016 to the deductors/buyers. Hence, the buyer, whose PAN exists in Form 26QB,can log in to www.tdscpc.gov.in and make the correction request for the following fields.

  S. No. Field which can be changed With Digital Signature Without Digital Signature 1. Buyer's PAN (When buyer's PAN AAAPA1111A is to be changed to PANBBBPB1111B) Once request is raised by Buyer with digital signature(AAAPA1111A), the same will be pushed to the Seller and the new Buyer (BBBPB1111B). As soon as both of them approve the PAN will be updated. Once request is raised by Buyer without digital signature(AAAPA1111A) the same will be pushed to Seller and the new Buyer (BBBPB1111B) for approval. As soon as both of them approve the correction, by logging into TRACES, the ticket will be sent to TDS AO for physical verification of the facts and the genuineness of the buyer. TDS AO, if satisfied, can then approve the same from his inbox. Please note whenever PAN of buyer is updated, the same may impact Major Head and category of PAN. This will be taken care of by the system itself before the request is raised. 2. Seller's PAN (When Seller's PAN is to be updated fromCCCPC1111C toDDDPD1111D) Once request is raised by Buyer with digital signature the same will be pushed to the existing Seller (CCCPC1111C) for approval. As soon as he/she approves the same, the PAN will be updated. Once request is raised by Buyer

Article ID: 335 | Viwes: 273 | Posted By: TaxReply.com | Date: 2016-06-19

Procedure to file TDS Return online at Income Tax Website for free

Dear Member,

As committed by us in the previous email, today we are describing below the procedure to file your TDS Return at Income Tax Website for free.

Step 1) Go to Income Tax website http://incometaxindiaefiling.gov.in/
  Step 2) Click " Register Yourself " button.

Step 3) Select " Tax Deductor and Collector"  option and click continue.

Step 4) Enter your TAN click continue.

Step 5) Click on Traces link provided on the next screen.

Step 6) You will be automatically re-directed to the TRACES website.

Step 7) If your TAN is already registered on TRACES, then login into the website. OR if your TAN is not yet registered on TRACES, then first you have to register it and login the same.

Step 8) After Login into TRACES, click the link " Register with E-Filing ".

Step 9) You will redirected to E-filing TAN Registration Page.

Step 10) Fill out the complete Form and Submit..................
 
Click to download one time Registration Procedure.
Click to download TDS Return upload Procedure   Points to remember to avoid error in the Digital signature upload :-
  1) Signature file generated by ITD utility is valid only for one transaction. So a new signature file has to be generated every time for TDS return upload.   2) First of all, you have to generate digital signature file using the ITD utility tab " Register / Reset Password using DSC ". Update this file into the Profile section -> Register DSC on the ITD portal. This is one time process only.

3) Then you have to generate signature file using the ITD utility tab " Bulk Upload " and use this signature file for uploading TDS return.

4) Further, Pl note that ITD portal & ITD utility does not accept .fvu file directly, so you have to convert the same into .zip file and then upload. ZIP utility is easily available on the internet for free. 

If you still face any error, please feel free to write us.
 

Article ID: 334 | Viwes: 313 | Posted By: TaxReply.com | Date: 2016-05-06

Due date for filing TDS Returns extended w.e.f.01-June-2016

Dear Member,   This is to update you that CBDT has extended the due dates for filing TDS Return w.e.f. 01 June 2016 as below.  Existing Rule [Applicable upto 31 May 2016] Quarter Ending…. Due Date for filing TDS Return Due Date for issuing Form 16A Due Date for issuing Form 16 30 June 15 July 31 July NA 30 September 15 October 31 October NA 31 December 15 January 31 January NA 31 March 15 May 31 May 31 May
Revised Rule [ Applicable w.e.f. 01 June 2016] Quarter Ending…. Due Date for filing TDS Return Due Date for issuing Form 16A Due Date for issuing Form 16 30 June 31 July 15 Aug NA 30 September 31 October 15 Nov NA 31 December 31 January 15 Feb NA 31 March 31 May 15 June 31 May   After this amendment, the due dates are same for Government Deductors as well as Non-Government Deductors.

Please note that the above change is effective from 01 June 2016. Therefore it does not have any impact on the filing of TDS return for Financial Year 2015-16 or earlier.
  Click here to download CBDT Circular   Issue related to issuance of Form-16 (For Salary Income):
However this amendment might create a practical difficulty in case of issuance of Form-16 (Salary Income), because now the due date for filing Q4 Salary TDS Return and due date for issuing Form-16 is same i,.e. 31 May. Therefore if return is filed in the last 3-4 days of extended due dates, then it shall not be possible for the system to process and generate the Form-16 before the due date. But as the amendment is effective from 01 June 2016, so the effect can be seen in next year only.

Article ID: 333 | Viwes: 209 | Posted By: TaxReply.com | Date: 2016-05-03

Online facility for filing TDS Returns to be shifted from NSDL to ITD

Dear Member,

As you are already aware that currently, TDS returns can be filed online at NSDL website free of cost. However, w.e.f. May-2016 this facility is going to be discontinued and in lieu of the same, now users can file their TDS Returns online at Income Tax Department website itself.

Below is the copy of communication received from NSDL in this regard. Hope you find the same useful. Our team have been using this facility for last 4 years and its pretty good and free of cost as well. 
  Benefit of this Facility:-

1) No need to visit NSDL office every time for filing TDS Return.

2) Faster processing by Tax Department.

3) No fee is required to e-file.
  Click here to read our previous article on  - How to file TDS return free on NSDL?
Below is copy of communication received from NSDL in this regard. If you have any query, please feel free to post. We shall keep you updated on the same.
  " Dear Online Upload user,   As you are aware, currently online upload of e-TDS/TCS statement(s) and Annual Information return (AIR) facility is provided by NSDL e-Governance Infrastructure Limited (NSDL e-Gov) on behalf of Income Tax Department (ITD).   We hereby inform that from May 1, 2016, the functionality of Online Upload of e-TDS/TCS statement(s) will be available on e-filing portal of ITD. You may visit e-filing portal of ITD. For queries, kindly contact e-filing Helpdesk at 1800 4250 0025 / 91 80 2650 0025.     Otherwise, the users who are desirous to file e-TDS/TCS statements/AIR can file the same through our TIN-FC agents. To know the nearest TIN-FC, please visit at the TIN website at https://www.tin-nsdl.com/tin-facilities.php.     Thanks and Regards   Online Upload Team "    

Article ID: 332 | Viwes: 515 | Posted By: TaxReply.com | Date: 2016-04-28