InCorp Advisory

Company Registration In India

Business Enquiry: +91 7738066622
Career Enquiry: +91 8655857164
Home » Blogs » Taxation » Page 2

GST on Renewable Energy Sector

by InCorp Advisory

Reading Time: 5 minutes

As per the latest statistics made available by the Ministry of New and Renewable Energy (MNRE), India has a total installed renewable energy capacity of 103.05 Gigawatt as of 31st October 2021. Ministry themselves have set an ambitious target of expanding the capacity to 175-Gigawatt capacity by 2022. Prime Minister Narendra Modi has set the national target of non-fossil energy capacity agreed at COP26 Climate Summit in Glasgow from 450 Gigawatt to 500 Gigawatt of renewable energy to be achieved by 2030. The various sources of renewable energy that contribute to this are:

Type 2021 (existing) 2022 (proposed) 2030 (proposed)
Solar energy 47.66 GW 100 GW 500 GW
Wind energy 39.99 GW 60 GW
Biopower 10.58 GW 10 GW
Small hydro 4.82 GW 5 GW
Total 103.05 GW 175 GW
Source: Economic Times

What do you mean by supplies of Renewable Energy devices?

Renewable energy supplies can be classified as either a supply of renewable energy devices and parts for their manufacture or a composite supply of these goods and their installation services. 

The renewable energy devices refer to the following:

Goods under Chapter 84, 85 or 94 Services under Chapter 99
Biogas plant Construction services, 

Engineering services, 

Installation services and Other technical services provided in relation to these goods.

It also includes maintenance services 
Solar power-based devices
Solar power generator
Windmills, Wind Operated Electricity Generator (WOEG)
Waste to energy plants/devices
Solar lantern / solar lamp
Ocean waves/tidal waves energy devices/plants
Photovoltaic cells, whether or not assembled in modules or made up into panels
Such other goods that may be used
Renewable Energy Certificates

What are the GST rates applicable for Renewable Energy devices?

GST on such renewable energy devices is applicable as below:

Type of supply 01/07/2017 – 31/12/2018 01/01/2019 – 30/09/2021 01/10/2021 – till date
Goods falling under Chapters 84, 85 or 94 5% 5% 12%
Any other goods Applicable GST rates
Pure Services 18%
Composite Supply (except maintenance services) 8.90%*

(70% of 5% + 30% of 18%)

 8.90%

(70% of 5% + 30% of 18%)

 13.80%

(70% of 12% + 30% of 18%)
Renewable Energy Certificates 12% 18%
Composite Supply (maintenance services / AMC) 18%
*Note 1: The GST rates for the period 01/07/2017 to 31/12/2018 are applicable in terms of the Composite Supply provisions i.e., the GST rate of the principal supply which in this case is the supply of renewable energy devices or parts which is taxed at 5%. However, the 45th GST Council meeting held on 17th September 2021 has explained that it shall be taxed in the 70:30 ratio though the relevant notification is applicable from 01st January 2019. And Circular No. 163/19/2021-GST dated 06/10/2021 states that if the GST paid for this period is higher than the 70:30 ratio then no refunds will be given for the excess tax payment made.

Can you claim Input Tax Credit (ITC) on the above supplies?

Main CriteriaManufacturers of Renewable Energy goods:

Businesses that manufacture Renewable Energy goods will be eligible to claim the ITC as available to subject to fulfillment of conditions in Section 16 and restrictions in Section 17. Usually, these manufacturers are solely indulged in the manufacture and sale of complete units such as Solar Panels, Wind turbine fans, etc.

Main CriteriaDealers /Contractors of Renewable Energy goods and services:

Businesses engaged in the procurement and installation of Renewable Energy goods and services shall be eligible for claim of ITC. There is a possibility of inversion of input goods and services in this regard, as the effective GST rate for supply is currently 13.80% whereas the procurement of goods not falling under 84, 85, or 94 and individual services may attract higher GST rates.

Optional CriteriaEnd customers of Renewable energy goods:
Businesses that obtain or procure renewable energy-related goods or services for their business will be eligible to claim ITC as follows:

A. Factories / Commercial buildings:

In the case of renewable energy units, set-up in factories or commercial buildings for captive generation of electricity, then the restriction of Section 17(5)(c) & (d) of CGST Act, 2017 for construction of buildings will not be attracted as such units can be treated on par with ‘Plant and Machinery’ and not ‘Building’.

B. Sale of captively generated electricity: 

In case the captively generated electricity is more than the requirement of the business entity, then any supply of such electrical energy goods is exempt under GST. Hence, common input tax credit incurred for such electricity generation including the ITC on the Renewable Energy units should be reversed in terms of Rule 42 for input goods and services and Rule 43 for capital goods.

C. Generation and sale of electricity:

In the case of businesses involved only in the generation and sale of electricity in the market, then the sale of electrical energy will be considered as the sale of goods as per notification no. 02/2017 dated 28/06/2017. Therefore, in Section 17(3) and Rule 42/43, the input tax credit incurred for such exempt sale shall be reversed accordingly. Hence, such input tax credit incurred will effectively be the cost of the project and will impact the pricing of the electrical energy as well. With the increase in GST rates by 4.9% on composite supply of renewable energy goods, the cost to such businesses for setting up the project has increased further.

D. In all other cases, ITC is eligible for claim as per Section 16 and Section 17 of the CGST Act, 2017.

Therefore, businesses engaged in Renewable Energy can claim input tax credit subject to such restrictions or reversals.

Let us look at the important judgments / rulings on Renewable Energy in GST

  • ITC claim and treatment of capitalized Solar Power Plant in the factory:

The ARA held that the solar power plant has to be fastened to the rooftop of the building and would require construction/erection of pillars for the same. Hence, it is ‘permanently fastened to anything attached to the earth’. Further, as per Section 17(5)(d) of the CGST Act, 2017, the solar power plant will be considered an immovable property but would qualify as a ‘Plant and Machinery’ and hence, is eligible for ITC claim under GST.

M/s. Pristine Industries Limited – Rajasthan AAR (No.- RAJ/AAR/2021-22/16 dated 13/09/2021)

  • Applicability of GST on supply of materials for the manufacture of Wind Operated Electricity Generator (WOEG): 

The ARA held that as seen from the Purchase Orders for the purchase of Stator Coil from the buyer and the Generator Supply agreement between their buyer and the end customer are needed to prove that the supply is for the manufacture of WOEG as per Para 11.3 of Circular No.80/54/2018 GST dated 31.12.2018. The onus is also on the Applicant to satisfy themselves that the supply is in the nature of WOEG supply. 

Comment: This AAR showcases that sufficient proof that the supply is intended for the purpose of WOEG is needed to classify the supply as WOEG and charge a concessional GST rate of 12%.

M/s. Coral Coil India Private Limited – Tamil Nadu AAR (No.- TN/40/ARA/2021 dated 30/11/2021)

  • Applicability of concessional rates to sub-contractors of solar power generation system:

The Advance Ruling Authority (ARA) of Karnataka had held that the benefit of concessional rates is available to sub-contractors as the notification does not distinguish between contractors and sub-contractors.’ Hence, the concessional rates are applicable to sub-contractors as well provided they are supplying for a solar power generation system.

Comment: This ARA’s ruling states that even sub-contractors can avail the benefit of concessional rates. However, proper care and precaution has to be taken in drafting of the contracts. Sub-contractors may also exercise additional safe-guards to ensure that the goods they supply are for construction of solar power generation system only.

M/s. Solarsys Non-Conventional Energy Private Limited – Karnataka AAR (KAR ADRG 120/2019 dated 30/09/2019)

  • Classification of a Waste To Energy Plant (WTEP) is based on the technical specification and not just the name of the product:

The Advance Ruling Authority (ARA) of Gujrat has held that to classify a product as a WTEP liable to a GST rate of 5% should be based on the technical specifications. Merely because the product has been presented as a WTEP does not qualify it for concessional rates. The product in question uses coal as fuel as stated in their website and the same has been deliberately withheld by the Applicant. Therefore, the applicable GST rate 18%.

Comment: The AAR shows that classifying supplies as Renewable Energy devices has to be backed by proper proof and even details such as technical specifications and details disclosed on the websites or other sources which is available to the public will be considered before providing concessional benefit. 

M/s. Isotex Corporation Private Limited – Gujrat AAR (GUJ/GAAR/R/74/2020 dated 17/09/2020)

Need assistance with GST Compliances?

Contact our experts today!

An Overview on Composition Scheme under GST

by InCorp Advisory

Reading Time: 4 minutes

Goods and Services Tax GST applies to all service providers, retailers, wholesalers, and producers who are doing business in India. The registration of any business organization under the GST Law is done under two categories which are as under:  

  • Normal scheme registration
  • Composite Scheme registration

In this article we will take a look at eligibility, benefits, disadvantages as well as the compliances involved under the GST Composition Scheme.

What Is the GST Composition Scheme?

Composition Scheme is an optional scheme to pay GST at a lower rate than the normal rate. Small taxpayers who are burdened to comply with GST formalities can opt for composition scheme to reduce compliance and pay GST at a fixed rate on turnover.

Related Read: Your Self-Help Guide For GST Registration

CLICK HERE

Eligibility Criteria For Opting Composition Scheme Under GST?

As per the GST Composition Scheme rules, eligibility depends upon:

Main CriteriaMain criteria:

The main condition to opt for the GST composition scheme is that the taxable person should have aggregate turnover in the preceding financial year not exceeding Rs.1.5 Crore. Further, a person who opts for GST composition scheme rate, may supply services, of value not exceeding ten per cent of turnover in the preceding financial year or five lakh rupees, whichever is higher.

Optional CriteriaOther Eligibility Criteria:
As per the GST Act, the registered person shall be eligible to opt for composite scheme, if— 
  • He is not engaged in the supply of services (apart from limit mentioned in main criteria above);
  • He is not engaged in making any supply of goods which are not taxable under this Act;
  • He is not making any inter-State outward supplies of goods or services;
  • He is not supplying goods or services through an e-commerce operator who is required to collect tax at source under section 52of CGST Act 2017;
  • He is not a manufacturer of ice cream, pan masala, or tobacco; and
  • He is neither a casual taxable person nor a non-resident taxable person.

What Is The GST Rate Under Composition Scheme?

The rate of tax applicable for composition scheme is as under- 

S.No  Type of dealer  CGST  SGST 
1  Manufacturers, other than manufacturers of such goods as may be notified by the Government (Ice cream, Pan Masala, Tobacco products etc.)  0.5%  0.5% 
2   Restaurant services not supplying alcohol  2.5%  2.5% 
3  Traders or any other supplier eligible for composition levy  3%  3% 

What Are Various Conditions To Be Fulfilled By Composite Dealers?

There are various rules to be fulfilled once the dealer has opted for the GST composition scheme, namely:

  • The dealer cannot claim ITC on inputs nor can he collect any taxes from the recipient of the supplies made by him. 
  • The dealer has to issue ‘Bill of Supply’ as it cannot issue Tax Invoice. Also, the dealer has to mention ‘Composition taxable person’ on top of every bill of supply issued by him. 
  • The dealer has to mention ‘Composition taxable person’ on every signboard in the premise of the business or notice issued. 
  • The dealer has to pay tax under Reverse Charge Mechanism at normal rate of tax. 
  • The dealer shall not be eligible to opt for the composition scheme if he is registered for more than one business having the same Permanent Account Number (PAN) [issued under the Income-tax Act, 1961 (43 of 1961)]. However, he can do so only if all such businesses opt to pay tax under composition scheme.
  • The dealer cannot make Inter-state supplies but it can make Inter-state purchases. 

Related Read: What Are The GST Compliances In E-Commerce?

CLICK HERE

What are GST compliances in Composition Scheme?

In order to get a lower GST rate, eligible entities have to follow the following compliances under the Composition Scheme:

  • The registered taxpayer will have to file FORM GST CMP-02, before commencement of the financial year, on the portal to opt for the composition scheme. Once opted, the taxpayer is by default considered under composition scheme for subsequent years to discharge his liability.
  • Other than filing an application to opt for composition scheme, the taxpayer will have to file FORM CMP-03 (Stock Intimation) to declare details of the stock including those purchased from unregistered dealers for reversal of ITC.
  • If the registered taxpayer in the subsequent year wants to withdraw from the scheme, he has to file FORM GST CMP-04. Post opting out the taxpayer will discharge his liability at normal rates and issue ‘Tax Invoice’.
  • Other than filing an application to opt for composition scheme the taxpayer will have to file FORM CMP-03.
  • The taxpayer under composition scheme will pay taxes and furnish the details for every quarter in the FORM GST CMP-08 by 18th of the subsequent month of the quarter.
  • The taxpayer will file their return in the FORM GSTR-4 by 30th April of the subsequent financial year for which the return is filled.

Related Read: What Happens When GST Return Is Not Filed?

CLICK HERE

Conclusion

There are several advantages of opting for GST composition scheme to small taxpayers such as

  • The taxpayers do not have to maintain proper records which reduces a huge burden especially on small dealers and they can allocate more time for business development.
  • Lesser GST liability as the dealer has to pay taxes at lower rates.
  • Lesser tax payment also increases liquidity of funds at hand for small taxpayers.
  • The taxpayer has lesser compliances to adhere to as liability is discharged quarterly by filing a simple form

While there are several pros for opting composition scheme, there are few cons too which are as under: 

  • The taxpayer cannot avail ITC. 
  • The dealer cannot widen the territory of business as he can’t make interstate sales. 
  • The dealer cannot supply through e-commerce portal. 

Why Choose Incorp?

At InCorp, our team has extensive expertise and experience that can assist you in complying with GST requirements and managing your taxes in a timely manner.

Our service scope includes: 

  • GST Compliances 
  • GST Operational Assistance 
  • GST Audit Services 
  • GST updates on recent notifications 
  • GST Representation and Litigation Support 
  • Other Indirect Taxes Advisory and Litigation

FAQs

What is the eligibility to opt for a composition scheme?

You can opt for the Composition Levy under GST if you are a regular taxpayer with an aggregate annual domestic PAN-based turnover as specified from time to time.

What are the restrictions on availing of Input Tax Credit (ITC) under the Composition Scheme?

ITC can be availed only on goods and services for business purposes. If they are used for non-business (personal) purposes, or for making exempt supplies ITC cannot be claimed.

What are the GST rates applicable under the Composition Scheme?

An eligible person engaged in making supplies mentioned in clause (b) of para 6 of Schedule II of the CGST Act (supplier of restaurant Service) must pay 5% (2.5% CGST and 2.5% SGST/UTGST) of turnover in a state or Union Territory, as the case may be.

Can I switch from the Composition Scheme to the Regular Scheme under GST?

Yes, you can switch from the Composition Scheme to the Regular Scheme under GST. Once the taxpayer opts out of the Composition Scheme, they enter the regular scheme of taxation under GST.

Stay compliant with all GST regulations!

Get in touch with us right away!

Benefits For Stock Brokers Registered in IFSC GIFT City

by InCorp Advisory

Reading Time: 3 minutes

In January 2017, India’s first international exchange was launched in the International Financial Service Centre (IFSC) in Gift City. This exchange includes trading across all asset classes such as equities, currencies, commodities, and fixed-income securities. Securities can be dealt with in the exchanges operating in the IFSC with a specified trading lot size on their trading platform subject to prior approval of SEBI. Further, in December 2020, regulations have been made to set up India’s first International Bullion Spot Exchange. In this article, we discuss the registration process for stock brokers in Gift city – IFSC and its benefits.

An Overview

An International Financial Service Centre (IFSC) is a special jurisdiction where global financial service providers offer financial services/ products to global customers in foreign currencies. In India, an IFSC is to undertake financial services transactions currently carried out outside India by overseas financial institutions and overseas branches/ subsidiaries of Indian financial institutions. The key institutions permitted to set up an IFSC unit are the Banking sector, Insurance sector, and Capital Markets. A stock broker is an eligible participant in the Capital Markets of IFSC.

Related read: A Complete Overview of IFSC Gift City and Tax Benefits in Gift City

CLICK HERE

What is the operational flow of stock brokers in Gift City – IFSC?

Operational Flow Of Stock Brokers In Gift City

What is the process flow for registering a stock broker in Gift City – IFSC?

Process flow for registering a stock broker in Gift City

 

Related read: Everything You Need to Know About
Portfolio Management Services in GIFT City (IFSC)

CLICK HERE


What are the benefits for stock brokers registered in GIFT City- IFSC?

Stock brokers registered under GIFT city were provided with various benefits as compared to general stock brokers registered elsewhere. Few benefits are listed below:

Investment Opportunities1. Investment Opportunities
  • India’s two largest exchanges, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), have set up international exchanges and clearing corporations at GIFT IFSC. 
  • The exchanges provide more than 140 products for trading, allowing international investors and Non-Residents Indians to trade from anywhere across the globe.
  • Stock brokers can target the following type of investors:-
    • A person resident outside India (Mainly Foreign Portfolio Investors and Eligible Foreign Investors
    • Non-Resident Indian
    • Financial institution resident in India / Resident in India eligible to invest funds offshore, to the extent permitted under FEMA/RBI guidelines.
Taxation benefits2. Taxation benefits
  • Business income 10 years out of the first 15 years earn a tax holiday u/s 80LA of Income Tax Act, 1961. However, business income is taxable for brokers registered elsewhere in India since no specific exemption is provided.
  • Minimum Alternate Tax (MAT)/ Alternate Minimum Tax (AMT) is applicable @9% of book profits. However, the same applies only to companies opting for the old tax regime.
  • Exemption from STT, CTT, stamp duty in respect of transactions carried out on IFSC exchanges by registered brokers.
  • No GST on services received by a unit in IFSC or provided to IFSC units, offshore clients.
Operational Benefits3. Operational Benefits:
Apart from the above tax and compliance benefits, brokers registered in IFSC have some operational benefits too, which are as under:
  • Lower operating costs due to subsidies granted by the Gujarat Government,
  • Availability of skilled labor,
  • Proximity to the onshore market,
  • World-class infrastructure, unparalleled connectivity, and transportation access,
  • Access to multiple markets from IFSC.

Related read: How To Incorporate AIF In GIFT City- IFSC?

CLICK HERE

Conclusion

While worldwide financial hubs such as London, New York, Hong Kong, Singapore, and Dubai have grown in popularity, the moment has come to enhance capital flows through India’s GIFT City. Compared to other major IFCs, the Indian government and its regulatory authorities have enabled GIFT City to provide a commercial and regulatory environment.  The IFSC strengthens India’s strategic position as a global financial services business hub. The city benefits from several economic and financial advantages.

How Can InCorp Help You?

Our Advisory and Taxation Team at Incorp offers seamless assistance in the incorporation of entity in Gift City with related compliance and advisory services. We shall evaluate and assist in analyzing GIFT City related operational, commercial, taxation benefits, ensuring smooth setting up and assistance in regular compliance with all applicable rules and regulations in Gift City.

FAQs on Stock brokers Registered in GIFT City – IFSC

1. Are stockbrokers registered in GIFT City -IFSC only regulated by the GIFT City Regulations?
Stockbrokers registered in GIFT City- IFSC are regulated by both GIFT City Regulations and SEBI (Stockbrokers) Regulations 1992.
2. Are stockbrokers registered in GIFT City -IFSC required to comply with regular Income tax compliances?
Yes, stockbrokers registered in GIFT City -IFSC are required to comply with all the Income tax compliances as mandatory for general stockbrokers.
3. During registering in GIFT City- IFSC, is approval required from only authority?
Yes, approval is required from following authorities:
  • IFSC authorities
  • SEZ authorities 
  • SEBI (Stockbrokers) Regulations, 1992
4. What Is the process flow for registering a stock broker In Gift City – IFSC?
The process flow for registering a stock broker in gift city- ifsc are as follows:
  • Identification of office space in Gift City
  • Obtaining NOC
  • Apply for Company/LLP Incorporation
  • Obtain certificate of Incorporation
  • Applying to the development commissioner
  • Obtain letter of Approval
  • Obtain SEBI Approval

Need help with navigating the rules and regulations in Gift city?

Get in touch with us right away!

What is the Place Of Effective Management (POEM) under the Income Tax Act?

by InCorp Advisory

Reading Time: 3 minutes

The Finance Bill, 2015 introduced the concept “Place of Effective Management” (POEM) to determine foreign companies’ residential status. This resulted in an amendment in the Income Tax Act, the word “control and management” was replaced with “POEM.”

Accordingly, Indian companies started setting-up subsidiaries in tax havens jurisdictions and vested superficial control of their international operations to continue paying taxes only on Indian operations and avoid paying taxes on overseas operations. To curb such malpractices and avoid erosion of profits from India, the concept of Place of Effective Management (POEM) was introduced by Finance Act, 2015 w.e.f. 1st April 2016.

What is POEM?

POEM refers to a place where the key management and commercial decisions necessary for conducting a company’s business activities are made. Since the residential status of any entity is to be determined every year, POEM is also required to be determined yearly. Under Income Tax law, the residential status of a company shall be determined as follows:

  • It is an Indian company; Or
  • Its POEM is in India.

Determine your residential status by using our Residential Status tax calculator!

CLICK HERE

How to determine POEM?

There are primary and secondary tests that help determine the POEM of any entity. Both the tests have been explained in the table below:


 

What is Active Business Outside India (ABOI)?


 

Key terms which help to determine ABOI:

Passive Income1. What is Passive Income?
  • Passive income of a company shall be aggregate of-
    • Income from the transaction where both the purchases and sale of goods is from/to its associated enterprise, and
    • Income by way of royalty interest capital gains dividend or rental income

Note: If an entity is engaged in the business of banking or is a public financial institution, income by way of interest shall not be considered passive income.

How to compute the Value of Assets for tax purposes2. How to compute the Value of Assets for tax purposes?
  • It shall be the average of the value of the assets in the country of incorporation of the company at the beginning and the end of each year.
Number of Employees in an entity3. How to determine the number of Employees in an entity?
  • The number of employees shall be the average of the number of employees of the entity at the beginning and the end of the financial year.
Payroll4. What does the term ‘Payroll’ mean?
  • The term ‘payroll’ has been defined inclusively to include the cost of salaries, wages, bonuses, and all other employee compensation, including the employer’s related pension and social cost.
exemption for the applicability of POEM to any entity5. Is there any exemption for the applicability of POEM to any entity?
  • Provision of POEM does not apply to a company whose turnover is less than or equal to INR 50 Crores.

What are the key points which help to determine POEM of any entity?

 

What are the implications of POEM in India for any Foreign company?

 

Conclusion

POEM is a dual-purpose concept. From the perspective of domestic laws, it may be used to determine the residential status. The principles established by Circular No 6 dated 24th January 2017  for the determination of POEM are not decisive in themselves. 

Thus, the lack of any definite established legal factors for the determination of POEM may lead to several tax disputes. If POEM exists in India for any company, it would be a subject matter of litigation in various other cases and tax laws. 

Moreover, the appointment of Indian directors on the board of foreign companies and participation of directors residing in India in meetings via telephone or video facility would be susceptible to the applicability of POEM in India.

How Can InCorp Help You?

At Incorp, we have a team of professionals and experts who expertise and have the skills to guide and assist through the entire Domestic and International tax planning and structuring for any company that may attract provisions of POEM. We are here to assist you in setting up your company either in India or outside India, managing related compliances, and filing your taxes on time with ease.

Frequently Asked Questions (FAQs) on Place Of Effective Management(POEM)

1. What Is POEM?

POEM refers to a place where the key management and commercial decisions necessary for conducting a company’s business activities are made.

2. Will POEM be applicable to foreign companies?
  • Any foreign company whose place of effective management is in India would be treated as a resident for tax purposes and liable for all income tax compliances in India.
  • However, from a global point of view, POEM for the foreign companies will be the country where such key managerial decision necessary for conducting business activity as a whole are taken. Then the foreign company is liable for tax compliances of the jurisdiction where POEM is established.
3. Is there any interest or penalty for non-payment of taxes whenever POEM of foreign company is deemed to be in India?
Foreign companies or entities whose POEM is deemed to be in India may not have complied with all tax compliance requirements like Income tax, TDS, GST etc under Indian tax law, hence, penalty & interest provisions may be applicable.
4. What does the term ‘Payroll’ mean?

The term ‘payroll’ has been defined inclusively to include the cost of salaries, wages, bonuses, and all other employee compensation, including the employer’s related pension and social cost.

Need help with navigating the rules and regulations in POEM?

Get in touch with us right away!

Everything You Need to Know About Portfolio Management Services in GIFT City (IFSC)

by InCorp Advisory

Reading Time: 5 minutes

In April 2015, the Government of India (GoI) opened India’s first International Financial Service Centre (IFSC) at GIFT City in Gujarat. An IFSC provides the very competitive cost of operations with various tax benefits, single-window clearance,  and relief under various company law provisions. SEBI announced that asset managers can offer portfolio management services (PMS) in IFSC. In this article we discuss the criteria for establishing a PMS in IFSC. Continue reading to know more about the benefits of registering a PMS in IFSC.

An Overview

A portfolio manager (PM) is a legal entity that, under the terms of a contract with a client, advises, directs, or conducts the management or administration of the client’s portfolio of securities, assets, or funds (whether as a discretionary portfolio manager or otherwise). The above mentioned services are known as portfolio management services (PMS). The Indian government publishes various guidelines to promote these services and regulate the PMS in IFSC. These include permissible investors, permissible investments, and costs for IFSC registration.

What is the operational flow of Portfolio Management Services  in IFSC?

*LRS – Liberalised Remittance Scheme

What is the process flow for registering an Portfolio Management Services in IFSC?

 

What is the framework of Portfolio Management Services in IFSC?

We have detailed the framework of PMS below:

Regulatory Framework1. Regulatory Framework
  • PMS Regulations apply as it is to all IFSC portfolio managers (IFSC PM) subject to SEBI (IFSC) Guidelines, 2015.
Structuring2. Structuring
  • SEBI-registered intermediaries or international associates (by establishing a branch) may function as PM in IFSC with SEBI’s prior approval.
  • If the PM is formed up as a subsidiary, the subsidiary must meet the net worth requirements.
  • If the subsidiary fails to meet the standards, the parent company’s net value will be taken into account.
Net Worth3. Net Worth
  • In the IFSC, the minimum net worth for a PM is USD 750,000. In the case of a branch, the parent must meet the required net worth.
Certification4. Certificate requirement
  • Non-resident principal officers and employees with decision-making capacity must be certified by organisations recognised by the Financial Markets.
Regulator in foreign jurisdiction5. Regulator in foreign jurisdiction
  • In the Indian securities market, NISM (National Institute of Securities Markets) certification is required.
Manpower requirement6. Manpower requirement
  • In case of IFSC PM, exclusive manpower shall be allocated for providing portfolio management services from an IFSC branch.
Ring-fencing7. Ring-fencing
  • Legally, financially, operationally, and technologically, the parent corporation must separate its domestic operations from its IFSC branch operations.
  • The parent company is responsible for ensuring that the branch – PM entity in the IFSC complies with the applicable law.
Qualification requirements8. Qualification requirement
  • Any other organisation, institution, association, or stock exchange recognised or authorised by a financial market regulator in that foreign jurisdiction must certify principal officers and decision-making personnel who are based outside of India.
Certification Requirement9. Certification Requirement
  • A NISM certification is mandatory in case of the above deal in Indian securities markets.
Segregation of funds10. Segregation of funds
  • PM operating in IFSC shall keep the funds of all clients in a separate account to be maintained by them in the IFSC Banking Unit (IBU) as permitted by RBI.
Registration fees11. Registration fees
  • The application fee is USD 1,500, while you do have to pay an one-time registration fee of USD 15,000 for your new registration
  • There is a fee of USD 10,000 every five years for post registration for all registered entities.

Related read: How To Incorporate AIF In GIFT City- IFSC?

CLICK HERE

What are the advantages for Portfolio Management Services registered in GIFT City- IFSC?

In comparison to regular PMS registered elsewhere, PMS registered under GIFT city received a variety of privileges. The following are a few advantages:

Investment OpportunitiesInvestment Opportunities

  • PMS in IFSC can provide services only to:
    • Non-resident Indian.
    • Person resident outside India.
    • Resident financial institution resident eligible under FEMA to invest funds offshore,
    • Person resident in India, to invest funds offshore as per criteria laid down under FEMA regulations.
      Note: PMS operating in the IFSC must accept funds or securities worth at least USD 70,000 from the client.
    • The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), India’s two main stock exchanges, have established international exchange and clearing organisations at the GIFT IFSC. The exchanges offer over 140 trading goods, allowing international investors and non-resident Indians to trade from anywhere in the world.
  • PMS incorporated in GIFT City IFSC is allowed to invest in following securities:
    • Securities Listed in GIFT City- IFSC
    • Securities issued by Companies incorporated in GIFT City – IFSC
    • Securities issued by Companies incorporated in India or foreign jurisdiction
  • PMS registered in IFSC of GIFT City can invest in India using the following methods:
    • Foreign venture capital investment (“FVCI”) route
    • Foreign portfolio investor (“FPI”) route
    • Foreign direct investment (“FDI”) route.

Taxation benefitsTaxation benefits

  • Business income for the first ten years of the first fifteen years of the tax vacation u/s 80LA of the Income Tax Act of 1961. Business revenue earned by PMS registered elsewhere in India, on the other hand, is taxable.
  • At 9% of book earnings, the Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT) is applied. However, only companies opting for the previous tax scheme are subject to the same rules.
  • Transactions carried out on IFSC exchanges by registered PMS are exempt from STT, CTT, and stamp duty.
  • There is no GST on services received by IFSC units or supplied to IFSC units, or on services provided to offshore clients.

Operational BenefitsOperational Benefits:

  • Lower operational costs as a result of Gujarat government’s subsidies
  • Abundance of skilled labor,
  • Easy access to onshore market,
  • Infrastructure of the highest quality, unmatched connection, and transportation accessibility
  • IFSC provides access to a variety of markets.

Exempt from compliance under Companies actExempt from compliance under Companies act:

  • For the first five years after the start of business in Gift City IFSC, CSR (corporate social responsibility) rules are not applied.
  • Resident director is required only after the first year of incorporation.
  • Internal audit provisions are only applicable if they are included in the company’s AOA (Articles of Association).
  • There is no need to form an Audit Committee, Nominations Committee, or Remuneration Committee.
  • Managerial compensation is not subject to any restrictions.
  • There is no requirement for an IFSC company to follow the same fiscal year as its holding company.

Related read: GIFT City – An Overview and Tax Incentives Announced In The Budget 2021

CLICK HERE

Conclusion

The Indian government and all the regulatory agencies have been working to enable GIFT City to offer a business and regulatory environment that is comparable to other leading IFCs. While the world has witnessed the growth of international financial hubs such as London, New York, Hong Kong, Singapore and Dubai, the time is now ripe to enhance capital flows through the GIFT City in India. The IFSC in GIFT City provides numerous benefits to the entities setting up operations there, some of the benefits include, a state-of-the-art infrastructure at par with other leading global financial centres, a liberal tax regime and a strong regulatory and legal environment.

How Can InCorp Help You?

Incorp’s Advisory and Taxation Team provides seamless support with entity incorporation in Gift City, and related compliance and advisory services. We shall ensure an efficient company incorporation and timely compliance with all applicable Gift City rules and regulations. We shall provide customised solutions after analyzing applicable operational, commercial, and taxation benefits in GIFT City.

FAQs

1. What does a portfolio management service do?

Portfolio Management Services (PMS) is a professional financial service in which a portfolio of stocks is managed by qualified portfolio managers and stock market professionals with the support of a research team.

2. Are PMS registered in GIFT City -IFSC only regulated by the GIFT City Regulations?
PMS registered in GIFT City- IFSC are regulated by both GIFT City Regulations and SEBI (Portfolio Managers) Regulations 2020.
3. Are PMS registered in GIFT City -IFSC required to comply with regular Income tax compliances?
Yes, PMS registered in GIFT City -IFSC are required to comply with all the Income tax compliances as mandatory for general PMS.
4. During registering PMS in GIFT City- IFSC, is approval required from only authority?
Yes, approval is required from following authorities:
  • IFSC authorities
  • SEZ authorities
  • SEBI (PMS) Regulations, 2020

Need help with navigating the rules and regulations in Gift city?

Get in touch with us right away!

How To Incorporate AIF In GIFT City- IFSC?

by InCorp Advisory

Reading Time: 4 minutes

The Gujarat International Finance Tec-City (GIFT City), located in Gandhi Nagar, Gujarat, is India’s sole certified IFSC. In April 2015, the Government of India (GoI) opened India’s first International Financial Service Centre (IFSC) at GIFT City in Gujarat. The Government of India has been working along with various regulators to make it a global financial hub. It has been planned to lure foreign investors to relocate their business in India. In this article, we discuss how to incorporate an AIF unit in IFSC Gift city and its benefits.

What is IFSC?

  • An IFSC is a special jurisdiction where global financial service providers offer financial services/products in foreign currencies to worldwide customers. 
  • An IFSC’s role in India is to carry out financial services transactions that are currently carried out outside of India by foreign financial institutions and Indian financial institutions’ overseas branches / subsidiaries.
  • In light of the AIF regime’s success in the domestic market, and in order to encourage the fund regime in the IFSC. Various government guidelines were released in 2015 to help enable and regulate the securities market in India’s first IFSC, GIFT City. These principles established the foundation for AIFs, including permissible investors, permissible investments, and so on.
  • AIFs can be set up as a trust, corporation, limited liability partnership, or body corporate.

Related Read: GIFT City: An Overview and Tax Incentives Announced In The Budget 2021

CLICK HERE

What is the framework of AIF in IFSC Gift City?

Framework of Aif in Ifsc Gift City

What are the minimum requirements for AIF in Gift City?

Minimum

Requirements

 Particulars Amount
Minimum corpus requirement for each scheme of the AIF USD 3,000,000
Minimum investment by an investor in AIF:

• For employees or directors of the AIF or its Manager

• For other investors

 USD 40,000

USD 150,000
Minimum continuing interest requirement for manager or sponsor of the AIF (not through waiver of fees)

• For Category I and Category II AIF

• For Category III AIF

 Lower of the following:

2.5% of corpus or USD 750,000

5% of corpus or USD 1,500,000
Angel Funds Minimum Corpus- USD 750,000

• Criteria for Angel Investor

–  Individual – Net tangible assets [excluding principal residence] > USD 3,00,000

–  Body corporate – Net worth > USD 1,500,000

– Minimum investment of USD 40,000 from every investor for a maximum period of 5 years

• Angel Funds can invest in VCUs which

– Have turnover < USD 3,750,000

– Are not promoted by/related to any industrial group whose group turnover > USD 45,000,000

• Minimum investment in VCU – USD 40,000 subject to a cap of USD 1,500,000

• Manager/sponsor should have a continuing interest of 2.5% of the corpus or USD 80,000, whichever is lower


What is the process flow for registering an AIF in IFSC Gift city?

process flow for registering an AIF in IFSC Gift city

What Are The Benefits For AIFs Registered in GIFT City- IFSC?

The AIFs registered under GIFT city were provided with various benefits as compared to general AIFs registered elsewhere. Few benefits are listed below:

Investment Opportunities in IFSC GIft CItyInvestment Opportunities

The investment flow of AIFs is as follows:

AIF Structure in IFSC Gift City


AIF incorporated in GIFT City IFSC is permitted to invest in following securities:

  • Securities Listed in GIFT City- IFSC
  • Securities issued by Companies incorporated in GIFT City – IFSC
  • Securities issued by Companies incorporated in India or foreign jurisdiction
  • Units of other AIFs
  • Other permissible investments as per AIF Regulations (like LLP, REIT, InvIT, Derivatives, SPV etc.)
  • Overseas entities (without adhering to restriction applicable for domestic AIFs)

AIF registered in GIFT City IFSC can invest in India through the following modes: 

  • Foreign venture capital investment (“FVCI”) route 
  • Foreign portfolio investor (“FPI”) route
  • Foreign direct investment (“FDI”) route.

Taxation Benefits in IFSC GIft CityTaxation Benefits

  • AIF – Category I and II
    • Business income 10 years out of first 15 years tax holiday u/s 80LA of Income Tax Act, 1961. However, for AIF’s registered elsewhere in India, business income is taxable since no specific exemption is provided.
    • Other income like capital gains, Income from other sources are exempt for AIF irrespective of their registration location. However, the same is taxable in the hands of investors.
  • AIF – Category III
    • Any income earned by AIF III except capital gains is taxable in the hands of AIF. Therefore, no income is taxable for the investors as AIF III has not received pass through status yet as compared to AIF I and AIF II. However, there is no clarity on taxability of dividend income.
  • Minimum Alternate Tax (MAT)/ Alternate Minimum Tax (AMT) is applicable at 9% of book profits. However, the same is applicable only to companies opting for the old tax regime.
  • Exemption from STT, CTT, stamp duty in respect of transactions carried out on IFSC exchanges by registered AIFs.
  • Supply of services by the Manager to AIFs registered in IFSC is exempt from GST.
  • Income accruing to or received by non-resident investors from offshore investments made by a GIFT City AIF would not be taxable in India.

 

Operational Benefits

Apart from the above tax and compliance benefits, AIFs registered in IFSC have some operational benefits too which are as under:

  • Lower operating costs due to subsidies granted by the Gujarat Government,
  • Availability of skilled labor,
  • Proximity to the onshore market,
  • World class infrastructure, unparalleled connectivity and transportation access,
  • Access to multiple markets from IFSC.

How can Incorp help?

Our Advisory and Taxation Team at Incorp offers seamless assistance in incorporation of entity in Gift City with related compliance and advisory services. We shall evaluate and assist in analyzing GIFT City related operational, commercial, taxation benefits, ensuring smooth setting up and assistance in regular compliance with all applicable rules and regulations in Gift City.

FAQs

Are AIFs registered in GIFT City -IFSC only regulated by the GIFT City Regulations?
AIF’s registered in GIFT City- IFSC are regulated by both GIFT City Regulations and SEBI (AIF) Regulations 2012
Are AIFs registered in GIFT City -IFSC required to comply with regular Income tax compliances?
Yes, AIFs registered in GIFT City -IFSC are required to comply with all the Income tax compliances as mandatory for general AIFs.
During registering AIFs in GIFT City- IFSC, is approval required from only authority?
Yes, approval is required from following authorities:
  • IFSC authorities
  • SEZ authorities
  • SEBI (AIF) Regulations, 2012
Phone

For Business Enquiry

+91 7738066622

For Career Enquiry

+91 8655857164

Envelope

Contact Us

info@incorpadvisory.in

Location

Visit us

2nd floor, Gita Building,
Sion Circle, Sion (East),
Mumbai - 400022