Government blocks China from acquiring stake in Indian Companies

Govt. tweaks FDI norms; bars automatic investment in Indian Cos. from neighboring countries

Covid - 19 and resultant turmoil in stock market has made the Government of India to think and act fast.

By Press Note No. 3 / 2020 Department for Promotion of Industry and Internal Trade amended the FDI policy to the effect that any investments from counties which shares land border with India can be made thought approval route.

Till now, a non-resident entity can invest in India, subject to the FDI Policy except in those sectors/activities which are prohibited. 

However, a citizen of Bangladesh or an entity incorporated in Bangladesh can invest only under the Government route. Further, a citizen of Pakistan or an entity incorporated in Pakistan can invest, only under the Government route, in sectors/activities other than defense, space, atomic energy and sectors/activities prohibited for foreign investment.

This policy has been tweaked to the effect that  an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route.

In the event of the transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in the beneficial ownership falling within the restriction/purview above, such subsequent change in beneficial ownership will also require Government approval.

This will effectively ban foreign investment from Pakistan, Nepal, Bhutan, China, Myanmar and Bangladesh and will put the proposals in Approval Route.

There were already restrictions on FDI from Bangladesh and Pakistan. Now this change is mainly targets China.

This is important as there is reports that Chinese Central Bank has acquired 1% stake in HDFC Bank. Further, there were widespread allegations that after the Covid-19 shake out of stock markets all over the world, China is aggressively buying out many foreign companies especially companies which may pose a threat to their Chinese counterparts.

Any way, we have to wait what retaliation China is going to take. Given the low investment of India in China, whatever steps taken by the China may not have much impact on Indian investments in that country.

Recent changes in residential status as per Income Tax Act - All you wanted to know

There is a change in the provisions for determining residential status, as per the amendment in Income tax act.

The general rule will remain as same i.e. any person who is in India for more than 182 days will be treated as resident in India.

OR, if he was in India for 60 days or more in the current FY and 365 days or more in the previous 4 FY, he will be treated as a resident in India.

However, the above rule had a benevolent provision, saying that in the case of an Indian Citizen or a Person of Indian Origin (PIO), who comes back to India can stay in India for 182 days instead of 60 days as above.

The new amendment has reduced this period of 182 days to 120 days. Please note that this reduced period of 120 days applicable only for persons already abroad who are coming to India for short visits. And there is another beneficial provision also newly introduced, that this will be applicable to those persons who has Indian income is more than Rs. 15 lakhs.

So, if you are an NRI and you have income in India more than Rs. 15 lakhs, then you have to restrict your stay in India to 120 days in a year.

Deemed Resident

Another important addition is the concept of Deemed Resident.

Case 1: If You are an Indian Citizen with Indian income more than Rs 15 lakhs

a.     Your income is NOT taxable in any other country by reason of your domicile or residence or any other criteria of similar nature. (This means you are not paying tax in any other country, because you are Non-Resident in that country, as per the rules of that country); OR

b.     your stay in India is more than 120 days

Then, you will be deemed as a NOT ORDINARILY RESIDENT.   

Case 2: If You are not an Indian Citizen, but a person of Indian origin (holder of passport of another country)

1.     Your Indian income is Rs. 15 lakhs or more; and

2.     Your stay in India is more than 120 days but less than 182 days

3.     Whether or not you pay tax in any other country

Then, you will be deemed as a NOT ORDINARILY RESIDENT.  

In the case of a Not Ordinarily Resident, your income earned outside India from Business controlled from India or profession set up in India will be taxable in India.

   

TO SUM UP:

For NRI’s – whether you are Indian citizen or not, the first thing you have to check is whether you have Indian income more than Rs. 15 lakhs – if not, then your taxation will be as before – No change at all.

For NRI’s holding Indian Passport, if your Indian income is more than Rs. 15 lakhs, then you have to ensure two things:

1.     that you restrict your stay in India to less than 120 days.

2.     that you pay tax for your whole income, in your country of residence. (But this is not applicable to residents of those countries like UAE where there is no income tax)

For an NRI holding a foreign passport, you have to make sure that your stay in India in a year is less than 120 days.

And, if you do not comply with any of the above conditions, your income earned outside India from a business controlled from India or a profession set up in India alone will be taxable in India and not all your foreign income.

If you have already paid tax on such income in any other country, you are eligible for a tax rebate as per the Double Taxation Avoidance Agreement between India and the other country.

 

Moratorium on account of Covid-19: What you should know

What is meant by the moratorium given by the government?

The moratorium is for payment of all instalments falling due between March 1, 2020 and May 31, 2020. According to the RBI, the deferred instalments under the moratorium will include the following payments falling due from March 1, 2020 to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) equated monthly instalments (EMIs); (iv) credit card dues.

So, if you have any repayment of loans – whether as interest or principal – it will be covered under the scheme

In the case of Working Capital limits like OD/CC, normally, you will have to pay the interest and the moratorium applies to that interest also.

How is this moratorium being given by Banks?

Each bank has published its own guidelines. Some banks have given a automatic moratorium for all borrowers. Eg. Central Bank of India, UCO Bank, IDBI Bank etc. But most of the banks have asked the customers whether they opt for moratorium or not.

Some banks informed customers that they will be eligible for moratorium, unless they opt out and some banks have said they will NOT be given moratorium unless they opt in. So you have to contact your bank to ascertain what action you have to take. Most of the banks have given the option facility in their portal. Some banks have given an SMS option also.

What will happen if you opt for moratorium?

Moratorium is only for repayment of loans. But most banks have informed that they will continue to charge interest on the loans. Only point is, you need not pay it immediately.

For example, ICICI Bank has said that interest will be debited and added to your principal outstanding. Similar is the case of HDFC Bank also.

It means, the interest will be added to the Principal. The fallout of this is, when the bank calculates the interest for next month, say April, your loan outstanding will be more by the interest charged for the month of March also. So, in effect, you will be paying interest on interest also.

What will happen to the tenure of your loans?

If you opt for the moratorium, your period of repayment will be further increased.  Considering the loan amount and interest rate, your period of repayment may extend even more than the moratorium period. In this case, your EMI will remain the same.

You have another option to approach the bank and refix the EMI so that your loan is closed within the original term. But your EMI will increase.

So should I opt for moratorium?

This is the most important question. If you have enough cash flows to pay the EMI/Interest, then best course is not to opt for the moratorium. In that way, you will pay lower interest and your loan will be closed as per your original term.

But, if you are struggling with cash flow, it will be better to opt for it. Otherwise, you will be forced to borrow at higher rates to pay the existing loans, which may drag you into a debt trap.

Ultimately, what is the benefit that the customer gets?

As I said earlier, if you have cash flow issues, opting for moratorium will be beneficial. Further, if you fails to pay the EMI/Interest for 3 months, your account will be classified as Non Performing Asset (NPA) and you will be forced to settle all the loans in one go. Further, your name will be reported to CIBIL which will affect your credit rating and future borrowing capacity.

What is the impact on Banks?

The biggest advantage for the banks is that they need not classify the loan accounts as NPA. This will in turn, save them from making provision in their Profit & Loss Account. Hence, their profitability will show a better figure and their Balance Sheet will show a better picture.

The bigger beneficiary in this scheme of moratorium is the banks themselves.