FDI IN REAL ESTATE SECTOR

FEM (TRANSFER OR ISSUE OF SECURITY BY A PERSON RESIDENT OUTSIDE INDIA) (SIXTEENTH AMENDMENT) REGULATIONS, 2014 - AMENDMENT IN SCHEDULE 1
NOTIFICATION NO.FEMA.329/2014-RB/GSR 906(E), 2014- 12 -8
In exercise of the powers conferred by clause (b) of sub-section (3) of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank of India hereby makes the following amendments in the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (Notification No. FEMA. 20/2000-RB, dated 3rd May 2000), namely:—
1. Short title and Commencement
(i)   These Regulations may be called the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) (Sixteenth Amendment) Regulations, 2014.
(ii)   They shall be deemed to have come into force from December 3, 2014.@
2. Amendment of Schedule 1
In the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 (Notification No. FEMA 20/2000-RB, dated 3rd May 2000), in the existing Annex B, for the existing entry 11, 11.1 and 11.2, the following shall be substituted, namely:—
Sl. No. Sector/Activity % of Equity/ FDI Cap Entry Route
11 Construction Development: Townships, Housing, Built-up infrastructure
11.1 Construction-development projects (which would include development of townships, construction of residential/commercial premises, roads or bridges, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure, townships) 100% Automatic
11.2
Investment will be subject to the following conditions:
(A)   Minimum area to be developed under each project would be as under:
i.   In case of development of serviced plots, no minimum land area requirement.
ii.   in case of construction-development projects, a minimum floor area of 20,000 sq. meter.
(B)   Investee company will be required to bring minimum FDI of US$ 5 million within six months of commencement of the project. The commencement of the project will be the date of approval of the building plan/layout plan by the relevant statutory authority. Subsequent tranches of FDI can be brought till the period of ten years from the commencement of the project or before the completion of project, whichever expires earlier.
(C)   (i) The investor will be permitted to exit on completion of the project or after development of trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.
  (ii) The Government may, in view of facts and circumstances of a case, permit repatriation of FDI or transfer of stake by one non-resident investor to another non-resident investor, before the completion of project. These proposals will be considered by FIPB on case to case basis inter alia with specific reference to Note (i).
(D)   The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/Municipal/Local Body concerned.
(E)   The Indian investee company will be permitted to sell only developed plots. For the purposes of this policy "developed plots" will mean plots where trunk infrastructure i.e. roads, water supply, street lighting, drainage and sewerage, have been made available.
(F)   The Indian investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/bye-laws/regulations of the State Government/Municipal/Local Body concerned.
(G)   The State Government/Municipal/Local Body concerned, which approves the building/development plans, will monitor compliance of the above conditions by the developer.
Note:
(i)   It is clarified that FDI is not permitted in an entity which is engaged or proposes to engage in real estate business, construction of farm houses and trading in transferable development rights (TDRs).
  "Real estate business" will have the same meaning as provided in FEMA Notification No. 1/2000-RB dated May 03, 2000 read with RBI Master Circular i.e. dealing in land and immovable property with a view to earning profit or earning income there from and does not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city and regional level infrastructure, townships.
(ii)   The conditions at (A) to (C) above, will not apply to Hotels & Tourist resorts; Hospitals; Special Economic Zones (SEZs); Educational Institutions, Old Age Homes and Investment by NRls.
(iii)   The conditions at (A) and (B) above, will also not apply to investee/joint venture companies which commit at least 30 per cent of the total project cost for low cost affordable housing.
(iv)   An Indian company, which is the recipient of FDI, shall procure a certificate from an architect empanelled by any Authority, authorized to sanction/building plan to the effect that the minimum floor area requirement has been fulfilled.
(v)   'Floor area' will be defined as per the local laws/regulations of the respective State governments/Union territories.
(vi)   Completion of the project will be determined as per the local bye-laws/rules and other regulations of State Governments.
(vii)   Project using at least 40% of the FAR/FSI for dwelling unit of floor area of not more than 140 square meter will be considered as Affordable Housing Project for the purpose of FDI policy in Construction Development Sector. Out of the total FAR/FSI reserved for Affordable Housing, at least one-fourth should be for houses of floor area of not more than 60 square meter.
(viii)   It is clarified that 100% FDI under automatic route is permitted in completed projects for operation and management of townships, malls/shopping complexes and business centres.
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@ It is clarified that no person will be adversely affected as a result of the retrospective effect being given to these Regulations.

NGO incorporation

Section 8: with the approval of CG a company can be floated;

I). With an objective to promote commerce, art, science, education, religion, charity etc....
II). Should apply its profits in promoting its objects and
III). Prohibits in payment of divided.
1. A company registered under this section should not alter its MOA or AOA except with previous approval of CG.
2. In case of winding up surplus if any should be transferred to CG REHABILITATION AND INSOLVENY FUND ACCOUNT.
3. Amalgamation of such company only wit another company having similar objeects registered under this section. However, sec. 8 companies can covert itself to any other kind of companies after comply the conditions as may be prescribed.

Significance of CERTIFIED TRUE COPY

Section 76 of Indian Evidence Act, 1872
Explanation for "Certified True Copy":

1. Any person has right to inspect public documents available with every public officer of Government authority.

2. A person can demand a copy of public docs along with payment of fee. Based on that a public officer should issue a copy of document with a foot note of "TRUE COPY" and it should be wax sealed and signed by such public officer.

3. Such public officer is deemed to be custody of such documents under this section.

Note:
*** Based on this section only we are obtaining CERTIFIED TRUE COPY with ROC.

***Whenever u want TRUE COPY from any Govt department just ensure above section is complied. (i.e., wax sealed,  sign of authorized person etc.,)

Licence fee paid to foreign holding company

1. Compliance under Companies Act, 2013 :

Section 188:

License fee paid by subsidiary co to its foreign holding company falls under Sec. 188(1) (d) of Companies Act, 2013.
- availing or rendering of any service.

Section 188 need to be complied.

Whether transaction with foreign holding company falls under section 188??

- Though sec. 2(20) company means company registered under this act or under any previous company law.

- sec. 2(76) definition for Related party transaction (RPT) is wider and it covers Body Corporate( Body corporate includes company incorporated outside india).

Section 188 to be complied.

Important Note:
You need to check whether value of transaction actually needs Board resolution or special resolution u/s. 188.

In case of listed co:
- comply clause 49 (revised) listing agreement.
- policy of RPT Should be attached in annual report nd published in their website.

FURTHER INFORMATION:
check whether Foreign Holding company falls under definition of sec. 379 of Companies Act, 2013 - Application of Act to Foreign companies incorporated outside India.

If yes, Foreign holding company should disclose RPT defined u/s 2(76) in their Financial statement and filed with ROC u/s. 381 read with Rule 4(2)(a)(i)  of Companies (Registration of Foreign companies) Rules, 2014
. Compliance under Income Tax act, 1961:

Section 9: Income deemed to accrue or arise in India

Fees for technical services falls under section 9(1)(vii) :
- Income by way of fees for technical services payable by resident (subsidiary company) for the services utilized in india.

Tax Incidence of Foreign Holding company: 
-Income deemed to be accrue or arise in india is taxable in their hands.

However such income is exempted under sec. 10(6A) in the hands of foreign company if tax is paid by subsidiary co in relating to fees for technical services.

Rate of Tax to foreign co:
Based on agreement entered date and permanent establishment(PE) Section 44DA or section 115A shall be applied.
: 3. Compliance under Accounting standards:

As per As-18 issued by ICAI :
- RPT and Nature of Relation should be disclosed in annual report.
[3:29am, 09/01/2015] Ranjith Cs: 6. From the point of TRANSFER PRICING:

Price of fees for technical service shall be accounted by using methodology of Transfer pricing @ arms length price.

Transfer pricing should be calculated by registered valuer.

Your transaction falls under section 92A and 92B of Income tax act.

-various methodology for Transfer pricing is given under sec. 92
: 5. From the point of DTAA:

Central Govt has power to enter agreement with foreign countries u/s 90 of Income Tax act, 1961 to avoid double taxation etc.,

Check any agreement entered with foreign country where your FOREIGN HOLDING COMPANY IS RESIDENT.

If DTAA exists, then normal provisions of Income Tax act shall apply to the assessee to the extend they are more beneficial to him.

Goods & Service Tax Act 2015

GST Highlights

Highlights of New Proposed Goods & Service Tax (GST)

1. The basic principal governing behind GST is to have single Taxation System for Goods and Services
across the country. Currently Indian economy has various taxes on Goods and services such as VAT,
Service Tax, Excise, Entertainment Tax, Luxury Tax Etc. now in the new Proposal of GST; we will be
having only two taxes on all goods and Services as follows:
a. State Level GST(SGST)
b. Central Level GST (CGST)
2. In case of Central GST, following Taxes will be subsumed with CGST which are at presently levied
separately on goods and services by Central government:
a. Central Excise Duty
b. Additional Excise Duty
c. The Excise Duty levied under Medicinal and toiletries preparation Act
d. Service Tax
e. Additional Custom Duty (CVD)
f. Special Additional Duty
g. Surcharge
h. Education Cess and Secondary and Higher Secondary education Cess
3. In case of State GST, following taxes will be subsumed with SGST; which are priestly levied on goods
and services by State Governments :
a. VAT/ Sales Tax
b. Entertainment Tax (unless it is levied by local bodies)
c. Luxury Tax
d. Tax on lottery
e. State Cess and Surcharge to the extend related to supply of goods and services.
4. The basic principal for subsuming of taxes in GST is provided as follows:
a. Those taxes which commences with import / manufacture /production of goods or provision
of services at one end and the consumption of goods and services o other end.
b. The taxes, levies and fees which are not related to supply of goods & services should not be
subsumed under GST.
5. Taxes on items containing alcohol and petroleum product are kept out of GST. They will continue to
be taxed as per existing practices.
6. Tax on Tobacco products will be subject to GST. But government can levy the extra Excise duty over
and above GST.
7. The Small Taxpayer: The small taxpayers whose gross annual turnover is less than 1.5 Crore are (yet to be finalised)
exempted from CGST and SGST.
8. Input Tax Credit (ITC): Taxes Paid against CGST allowed as ITC against CGST. Taxes paid against SGST
allowed as ITC against SGST. 
9. Cross utilization of ITC between the Central GST and State GST would not be allowed. Exception: Inter
State Supply of goods and services.
10. PAN based identification number will be allowed to each taxpayer to have integration of GST with
Direct Tax.
11. IGST Model and ITC:
a. Center would levy IGST levy ( CGST + SGST)
b. The ITC will be allowed in this transaction will be SGST, IGST, CGST as applicable.
c. Appropriate provision will be provided for consignment or Stock transfer.
12. GST Rate Structure:
a. Two Rate Structure
b. A lower rate for necessary items and goods of basic importance
c. Standard rate for goods in General
d. Special Rate
13. Exports are fully exempted with Zero rates.

Related Party Under Companies Act 2013

Related party is defined  u/s. 2(76) Companies act, 2013:

The following persons are related parties to the company:

- a director
- a relative of such director

- a KMP
- a relative of such KMP.

- a firm where such director is a parter.
- a firm where relatives of such director is a partner.

- a private limited co where such director is a director.
- a private limited co where such director is a member.

- a public limited co where such director is a director.

- a public limited co where such director along with relatives holds more than 2% of its paid-up capital.

- any body corporate acts in according to the direction of board of directors/director.

- its holding company, a subsidiary company or associate company.

- any other subsidiary company of its holding company, if any.

Note:

** based on above definition the following companies are not related parties:

- a public company where relative of such director is a director.

- a public company where relatives of such directors holds any % of paid up capital. (Provided such director should not hold any share/directorship).

** though JV is not mentioned in the definition. JVs may fall under the term ssociate company or management control. So JV is also a related party.

Non-government /Non -profit organisation under Companies Act 2013

Non Government Organisation / Non Profit organisation

Section 8 of Companies act, 2013:

1. The central govt allows certain persons to get registered under this section as Limited company:

- if its object is promoting commerce, art, science, sports, religion etc.,

- aiming to apply its profits to promote its objects.

- intent to prohibit payment of divided.

2. No addition of word  "limited" r "private limited" as  last word in its name.

3. A FIRM/PARTNRRSHIP CAN BE ADMITTED AS A MEMBER of section 8 company.

4. Alternation MOA/AOA require Central Govt approval. (Powers delegated to ROC).

5.  Section 8 company can be amalgamated only  with another section 8 company having SIMILAR OBJECTS.

6. In case of winding up, surplus if any should be transferred to "REHABILITATION AND INSOLVENCY FUND".

Note:

** section 8 companies get benefits similar to NGOs registered under Trust act, societies registration act.,

** partnership firm can become a member. This is not possible in any other type of company registered under companies act, 2013.

** Amalgamation is possible only with similar objects and not any other objective though it falls under section category.

** On winding up surplus should be deposited with CG and not distributed among members. However, remaining assets can be transferred to another sec. 8 co with CG approval.

Key benefits of SECTION 8 COMPANY:

1. Certain Privilege under companies act, 2013.

2. Non- application of CARO REPORT, 2003.

3. REGISTER firm can be a member.

4. Tax deduction for donars to the company under 80G of Income  tax act, 1961 with certain restrictions.

5. Section 8 companies are not chargeable under wealth act, 1957.

Note:
please send me other benefits if you know.

**section 8 Companies are not required to have minimum paid - up capital. ( this point i do not hav a legality to prove, if you knows kindly quote a section).

COMMENCEMENT OF BUSINESS

Section 11 of Companies Act, 2013

COMMENCEMENT OF BUSINESS:

1. A company having share Capital shall commence its business nd borrowing powers only:

- after filing declaration by the director in Form INC- 21.

- Directors should ensure that subscribers of MOA has paid the value of shares agreed to be taken by him.

- further ensure that the company has filed Form INC-22 within prescribed time of its Incorporation.(i.e., filing verfication of registered office)

- if company requiring registration from regulators like RBI, SEBI, IRDA etc., such approval should be obtained.

2. Such declaration in Form INC - 21 should be filed within 180 days from the date of incorporation.

3. In case of default in filing, Registrar can take action under sec. 248 of companies act, 2013 to remove the name of the company (striking off)  from the Register of Companies.

Note:

** section 11 applies both public and private limited companies having share capital.

** Registrar can take action to remove name of the company u/s.248:

- when company fails to commence its business within one yr of its incorporation, or

- does not compiled sec. 11(1)  (i.e., default in filing INC- 21 within 180 days of its incorporation)