A Brief Insight into the procedure of Initial Public Offering (IPO) in India.

Sourabh Agarwal
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A Brief Insight into the procedure of Initial Public Offering (IPO) in India.

With the current rainfall of IPOs by the companies in the Indian markets during current month or rather from last quarter, it will not be wrong to say that the with the onset of monsoon season in India there has been an onset of IPOs season for India. Hence, With this current trend, it is very imperative to get knowledge about how the whole mechanism of Inital Public Offering i.e. IPO functions in our country.

What is an Inital Public Offering (IPO)?

When an unlisted company makes either a fresh issue of shares or convertible securities or offers its existing shares or convertible securities for sale or both for the first time to the public, it is called an IPO. This paves way for listing and trading of the issuer’s shares or convertible securities on the Stock Exchanges.

What are the financial requirements for a company to issue an IPO?

SEBI has stipulated the eligibility norms for companies planning an IPO which are as follows:

Entry Norm I (Profitability Route)

  • Net tangible assets of at least Rs.3crore in each of the preceding three full years of which not more than 50% are held in monetary assets. However, the limit of 50% on monetary assets shall not be applicable in case the public offer is made entirely through offer for sale.
  • Minimum of Rs.15crore as average pre-tax operating profit in at least three years of the immediately preceding five years.
  • Net worth of at least Rs.1crore in each of the preceding three full years.
  • If there has been a change in the company’s name, at least 50% of the revenue for preceding one year should be from the new activity denoted by the new name
  • The issue size should not exceed 5 times the pre-issue net worth

Alternative routes

To provide sufficient flexibility and also to ensure that genuine companies are not limited from fund raising on account of strict parameters, SEBI has provided the alternative route to the companies not satisfying any of the above conditions, for accessing the primary market, as under:

Entry Norm II (QIB Route)

Issue shall be through book building route, with at least 75% of net offer to the public to be mandatory allotted to the Qualified Institutional Buyers (QIBs). The company shall refund the subscription money if the minimum subscription of QIBs is not attained.

Different Types of IPOs

  1. Book Building:- Compared to the developed countries, the concept of book building is new to India. In the book building issue, the price is discovered during the process of IPO. There is no fixed price, but there is a price band. The lowest price in the band is referred to as the ‘floor price’ and the highest price is referred to as the ‘cap price’. The price band is printed in the order document. And the investors can bid for the desired quantity of shares with the price which they would like to pay. Depending on the bids, the share price is decided. The securities are offered above or equal to the floor price. The demand is known everyday as the book is built
  2. Fixed Price offer:- In the fixed price IPO process, the Company along with their underwriters evaluate the companies’ assets, liabilities, and every financial aspect. Then they work with these figures to fix a price per issue to achieve the target funds. This price, which is fixed per issue, is printed in the order document. The order document justifies the price with qualitative and quantitative factors. The demand for securities is known only after the issue is closed. The oversubscription levels are high in the fixed price offerings, sometimes several hundred times.

What happens during the Process of IPO?

  • The company should file for an IPO with SEBI by submitting all the required documents and information, consisting of the number of shares being issued, the set price, track record of the company, and the plans to utilize the capital being raised through IPO.
  • Once the company receives the regulatory nod, it issues a red herring prospect, containing all the information regarding the IPO and its records.
  • The company approaches a broking firm or investment banker to manage its IPO. This entity is referred to as the lead manager.
  • The lead manager would then invite bids for the IPO from various investors. Here, investors can be both financial investors or retail investors.
  • When the IPO is LIVE, the general public can subscribe to it and receive its shares corresponding to their investment if shares got allotted to them.

Generally, the IPO of a company would be open for subscription for three days to 21 days.

What happens Post IPO?

Once the IPO closes, all bids (applications) are registered and checked online. The incorrectly submitted ones are removed or disqualified (reasons being incorrect details, wrong PAN, etc). In case the total number of qualified applications is less than or equal to the number of shares offered in the IPO, complete allotment of shares takes place, resulting in every applicant getting assigned their shares.

If the bids are much higher than the total number of shares being issued, the lucky-draw system is used to allot shares. Only those bids that were at the upper band of the price band are valid. The remaining bids are rejected, and the money is returned to the investors.

How to invest in an IPO?

  1. The applicant must have the following:
    • Demat account
    • Trading account
    • Mobile number linked to the bank account
    • UPI ID
  2. The application shall be made with the stock broker manually or on its website by selecting the IPO for which application is to be made and specifying the number of shares and bidding price for the shares along with the UPI details for the payment.
  3. Once the application is submitted the mandate request is sent on the UPI application for the approval. The applicant must log into the UPI application and accept the mandate request. Once it is accepted, the amount of IPO will be blocked in the bank account of the applicant.
  4. Upon allotment, if no shares are allotted, the entire blocked amount is unblocked. If there is part allotment, the requisite amount is debited from the bank account and remaining amount is unblocked. The entire amount will be debited if the applicant is allotted all the shares that were applied for.

Why Trademarks are important in today’s business world?

Pratik Jain
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Why Trademarks are important in today’s business world?

In today’s modern world, consumers are inundated and continuously exposed to trademarks in everyday life. Consider the terms Band-aid, Jacuzzi, Super-glue, Pampers, and Chapstick, to name but a few; consumers subconsciously regard these trademarks as the actual products rather than as their respective brands. So, how do you trademark a name, and what are the benefits of trademark?

Here are 7 reasons why trademarks are important for business:

1. They Create Brand Recognition

Trademarking grants startups security of their brand. By trademarking a company name, one makes its services and products distinctive in terms of their competitors, becoming their intellectual property. In doing so, it prevents rivals from copying or stealing their brand.

2. It’s an Incentive for Employees to Join

It’s important for startups to preserve a positive reputation when they have a trademark. If a business maintains good repute, people are inclined to work with and for them. This applies even more so when an expansion is concerned. As a startup, more employees are a must if a company intends to grow. This brings about the need for a budget, making the trademark a crucial asset when being granted a business loan

3. It Averts Legal Issues in the Future

Not registering a trademark leaves a business open to lawsuits from companies who did register one under the same name, sign, slogan, or design. If that does occur, a business will be forced to deal with altering all it came up with, such as the campaign, website material, and to a large extent, their brand identity. By registering a trademark, a startup would protect itself from another company using their name as well as from imitation of its products or services.

4. A Trademark is for Life

A trademark is permanent, with a need only for periodic renewal. Consider the aforementioned behemoth companies of Pampers and Jacuzzi; they have been power-houses in their respective domains for decades and will continue to thrive for decades to come. This brings about the importance of conducting thorough trademark research to ensure the governing body doesn’t deny a startup’s application.

Therefore, it is wise to use the services of a renowned Intellectual Property service provider with a good reputation.

5. It is A Company’s Greatest Asset

It can act as a catalyst for increasing value as a startup business matures, more so, if the startup continues to expand. Thus, it is important to use a trademark for marketing strategies to aid the enhancement of brand recognition and to draw in more consumers.

Once a startup has attained positive repute for its product or service, consumers will associate its trademark with how the business is running. Trademarks are significantly beneficial when a business wants to:

  • Diversify its products or services,
  • Branch into franchising through licensing, and
  • Attain more value by putting itself up for sale.

6. It Tells People That You Mean Business

It’s no secret that trademarks lend credence to a business’s name; take Disney, for example. Could you imagine Disney didn’t trademark their name or brand? Think of the legal carnage that would ensue; people would be fighting tooth and nail to be able to profit from the empire of success that surrounds their trademarked brand.

Moreover, if a business has a trademark attached to its brand, it informs the world and competitors alike that they have faith in the success of their business and that they have something worth stealing. Indeed, that sounds morbid, but it’s the truth.

Would you protect something that isn’t worth it? Going the extra mile by registering a trademark for your business shines a different light on you in the eyes of your target consumers.

7. It Gives a Sense of Autonomy

It’s no secret that the market is hugely saturated into a plethora of different niches, widely ranging in size and function. It’s a pretty brutal scene. Being even the littlest fish in the tiniest pond as a startup is super tough. In this respect, a trademark can act as a crutch; after a startup establishes itself, it’d want to maintain good standing.

Trademarking a brand allows for a newly budding firm to cushion the blows from the market by wearing a protective blanket; it both directly and indirectly informs others that the brains steering the business, mean business.

How RSA Consultants can help?

We are team of experienced Chartered Accountants, Company Secretaries and Business consultants and having rich experience of intellectual Property Rights and understands the needs of such organization. We will fill out the application and submit it on your behalf with the Controller General of Patents Design and Trademark and will give you absolute clarity on the process to set realistic expectations. You may explore more at https://www.itatorders.in/products/trademark-registration

PAM,TAM,SAM,SOM- Tools of Market Size Analysis

Priya kejriwal
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PAM,TAM,SAM,SOM- Tools of Market Size Analysis

Definition

PAM, TAM, SAM and SOM are acronyms that represents different subsets of a market.

  • PAM or Potential Addressable Market includes people not currently included in your target market, but potentially could be in future.
  • TAM or Total Available Market is the total market demand for a product or service.
  • SAM or Serviceable Available Market is the segment of the TAM targeted by your products and services which is within your geographical reach.
  • SOM or Serviceable Obtainable Market is the portion of SAM that you can capture.

Let’s take an example to understand better

Let’s say you are starting a Co-working Space. Your TAM would be the worldwide all small-big enterprises, freelancers, Startup teams etc. Potentially, if you were present in every country and had no competition you would generate TAM as revenues.

Let’s be more realistic. You are starting your Co-working Space in two cities where the demand for Co-working Space can be estimated based on: the population, their work culture, and the revenues generated by Co-working Space in other cities having similar demographics.

That is your Serviceable Available Market: the demand for your type of products/services within your reach. In other words if you were the only Co-working Space in city you would generate revenues of SAM.

Now, Suppose you are probably not the only Co-working Space in your city.

So realistically you can hope to capture only a fraction of your SAM. Most likely you will attract people living or working close to your Co-working Space and a fraction of the people located further away that are willing to give your Co-working Space a try due to extra features being provided by you. This is your SOM.

How to Calculate PAM, TAM, SAM,SOM?

PAM – (Total available Customers in Market + Total potential to be customers in market) * Average Revenue/customer

TAM- Total Customers in Market * Average Revenue/customer

SAM – Target Segemnt of TAM * Average Revenue/customer

SOM – Last year’s market size * This year’s SAM

Summary

While PAM and TAM reflect the enormous potential that can be captured, SAM and SOM help in giving a more realistic and actionable perspective. Data can usually be collected through secondary sources such as publications, government records and even through online surveys. Market analysis is important to give the business a direction and raise funds if enough potential is found.

Market sizing is indispensible for both, established businesses and startups. Especially, for startups, investors prefer an established model for estimating the market size, namely the TAM, SAM and SOM. Such standardization reduces the risk of misunderstanding, provides the data baseline for investors to evaluate a business opportunity, and articulates the short, mid and long-term growth potential. The SOM shows what can be achieved with the business idea in the short term. The SOM / SAM ratio describes the market share initially aimed for. Finally, the TAM shows the greatest possible market potential.

RSA Consultants is a team of Chartered Accountants and other Professionals, rendering services in the field of Income Tax, GST, Indirect Tax, International Taxation, Corporate Law Advisory, Accounts & Assurances and Consultancy related to Startup & Entrepreneurship since 2011.

Our team can help your Startup to make application under the SISFS. Kindly get in touch with us via WhatsApp at 9723400220

Guidelines for Assistance to Incubators under Startup India Seed Fund Scheme

Tithi Shah
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Guidelines for Assistance to Incubators under Startup India Seed Fund Scheme

The following are the guidelines for assistance to incubators under the Startup India Seed Fund Scheme

  • Experts Advisory Committee (EAC) shall evaluate incubators for grant assistance. A Grant of up to Rs. 5 (five) crore would be provided to a selected incubator in milestone-based three (or) more installments. The exact quantum of grant and instalments for each incubator will be decided by the Experts Advisory Committee (EAC) based on its evaluation.
  • Incubators shall use the grant only for disbursal to eligible startups and shall not use the grant for facility creation or any other expenses.
  • A component of Management Fee @ 5% of Seed Fund grant to the incubator will be provisioned (i.e. if an incubator is granted Rs. 1 crore of Seed Fund, then by including management fee @ 5%, the total assistance would be Rs. 1.050 crore)
  • The Management Fee provisioned for incubators shall not be used by the incubator for facility creation or any other administrative expenses. The Management Fee will be utilized for administrative expenditure, selection and due diligence of startups, and monitoring of progress of beneficiary startups
  • Installments shall be released to incubators upon submission of proofs of achievement of milestones as decided by EAC. Proportionate Management fee shall also be released with each installment
  • The quantum of first installment may be up to 40% of total approved commitment. When the cash-in-hand of the incubator goes below 10% of the total commitment by EAC, the Incubator may request for the next installment, which shall be released to incubator within 30 days of submission of proof of achievement of milestones
  • The grant should be utilized fully by the incubator within a period of three years from the date of receipt of the first installment of funds.
  • If the Incubator has not utilized at least 50% of the total commitment within the first 2 years, then the Incubator will not be eligible for any further drawdowns. It will return all unutilized funds along with interest.
  • Interest earned on all unutilized funds available with incubators shall be taken into account and adjusted at the time of next release.
  • The financing of beneficiaries will be done with efficiency and care. Selected incubators would be responsible for proper management and disbursement of the Seed Fund
  • Selected incubator shall maintain a transparent process of selection, monitoring, and disbursement mechanism for the fund. Seed Fund would be disbursed to selected startups after due diligence by the incubator
  • The incubators shall be responsible for providing physical infrastructure to the selected startups for regular functioning, support for testing and validating ideas, mentoring for prototype or product development or commercialization, and developing capacities in finance, human resources, legal compliances, and other functions. They are also expected to provide networking with investors and opportunities for showcasing in various national and international events. If the selected startup does not want to utilize the physical infrastructure of the incubator, the incubator shall offer all other resources and services to the startup
  • A startup selected by an incubator for assistance under this scheme shall not be charged any fees.

RSA Consultants is a team of Chartered Accountants and other Professionals, rendering services in the field of Income Tax, GST, Indirect Tax, International Taxation, Corporate Law Advisory, Accounts & Assurances and Consultancy related to Startup & Entrepreneurship since 2011.

Our team can help your Startup to make application under the SISFS. Kindly get in touch with us via WhatsApp at 97234 00220

AO not permitted to invoke the provisions of section 56(2)(vii)(b)(ii) in the absence of sub clause (ii) in the Act as on the date of agreement: Tribunal

Tithi Shah
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AO not permitted to invoke the provisions of section 56(2)(vii)(b)(ii) in the absence of sub clause (ii) in the Act as on the date of agreement: Tribunal

Parinda Borda vs. ITO [ITA No. 360/SRT/2018]

Where the assessee had entered into agreement to sale cum possession of immovable property and paid substantial consideration prior to the date of amendment of the section 56(2)(vii)(b)(ii) of the act (i.e., if the consideration paid is less than the stamp duty value, the difference consideration shall be taxable), the  AO is not permitted to invoke the provisions of section 56(2)(vii)(b)(ii) in the absence of sub clause (ii) in the Act as on the date of agreement although the final sale deed was executed and registered after the amendment in Section 56(2)(vii)

Facts of the case:

The assessee along with other co-owners has purchased immovable property for Rs.1.16 Crores as per executed Sale deed in AY 2014-15, although the consideration of Rs.87.99 lakh was paid on 28.12.2012. The assessee entered into agreement with the seller on 28.03.2013. The substantial part of the sale consideration was also paid to the seller, which is about 80% of the total sale consideration. Though, ultimately the sale deed was registered on 10.09.2013. The details of sale consideration is also mentioned in the registered sale deed, acknowledging the fact that substantial part of consideration was paid on the day of execution of the initial agreement. The assessee claimed that the possession of the land was also obtained by them at the time of agreement. The Stamp Valuation Authority (SVA) determined the stamp value of land at Rs.2.19 Crores on the basis of value determined by Stamp Valuation Authority. The assessee’s share is  Rs.21,95,918/- and this difference of Rs.10,35,918/- (21,95,918 – 11,60,000) was added to the income of assessee under section 56(2)(vii)(b)(ii) of the Income Tax Act, 1961 (‘the Act’).

Contention of the AR of the assessee

The AR of the assessee CA Mehul Shah contended that law cannot be amended in a retroactive manner so as to invalidate any transaction already done. When substantial purchase consideration is paid to the seller, it is very natural that the consideration is fixed between the buyer and the seller and hence even if the written agreement to sell is to be disbelieved, then the payment by account payee cheque itself shows the existence of oral agreement in place, which is also a valid agreement.

Held:

In absence of sub-clause (ii), in the statue book as on the date of agreement to sale of the property, the AO was not entitle to invoke the provisions of section 56(2)(vii)(b)(ii). As per the provisions of the Act from the A.Y.2014-15 sub clause (ii) has been introduced so as to enable the AO to tax the difference in consideration if the consideration paid is less than the stamp duty value. However, the AO is not permitted to invoke the provisions of section 56(2)(vii)(b)(ii) in the absence of sub clause (ii) in the Act as on the date of agreement.

Lead Cases:

Relying on the decision of

  • ACIT Vs. Anala  Anjibabu  (185  ITD  0001) (Visakhapatnam- Trib)
  • M Shiv Parvathi & other Vs ITO [129 TTJ 463 (Visakhapatnam- Trib)

the tribunal allowed the appeal in favour of the assessee.

Read the full judgment at ITATOrders.in

E-Rupi Digital Payment Platform- First step towards adoption of digital currency in India

Sourabh Agarwal
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E-Rupi Digital Payment Platform- First step towards adoption of digital currency in India

Introduction

On 2 August 2021, PM Narendra Modi launched a digital payment platform called e-RUPI Digital Platform. National Payments Corporation of India (NPCI) in association with Department of Financial Services (DFS), National Health Authority (NHA), Ministry of Health and Family Welfare (MoHFW), and partner banks, has launched an innovative digital solution – ‘e-RUPI’.

 This platform is a cashless and contactless instrument that will be used for making digital payments. It is a QR code or SMS string-based e-voucher which will be delivered to the mobile of the users. The users of this seamless one-time payment mechanism will be able to redeem the voucher without a card, digital payments app or internet banking access, at the merchants accepting e-RUPI. e-RUPI would be shared with the beneficiaries for a specific purpose or activity by organizations or Government via SMS or QR code. This contactless e-RUPI is easy, safe and secure as it keeps the details of the beneficiaries completely confidential. The entire transaction process through this voucher is relatively faster and at the same time reliable, as the required amount is already stored in the voucher.

Uses of E-Rupi

With the help of the e-RUPI platform, the payment of the service provider will be made only after the completion of a transaction. This payment platform will be prepaid in nature which does not require any kind of intermediary to make payment of the service provider. Other than that this platform can also be used for delivering services under schemes that are meant for providing drugs and nutritional support like mother and child welfare scheme, TB eradication program, drug and diagnostic under a scheme like Ayushmann Bharat Pradhan Mantri Jan Arogya Yojana, fertilizer subsidies, etc. The private sector can also leverage these digital vouchers for their employee welfare and corporate social responsibility programs. Leak-proof revolutionary delivery of welfare services will be ensured through this initiative.

Voucher Issuing Procedure

The e-RUPI digital payment system has been developed by the National Payment Corporation of India on its UPI platform. The national payment corporation of India has boarded banks that will be the issuing authority of the voucher. The corporate or government agency is required to approach the partner bank (private and public sector lenders) along with the details of the specific person and purpose for which the payment is required to be made. The identification of beneficiaries will be done by using their mobile number voucher allocated by the bank. This platform will be our revolutionary digital initiative which will improve the standard of living and make the procedure of payment simple.

Benefits for Corporates

  • Corporates can enable well-being of their employees
  • End to end digital transaction and doesn’t require any physical issuance hence leading to cost reduction
  • Voucher redemption can be tracked by the issuer
  • Quick, safe & contactless voucher distribution

Benefits for Hospitals

  • Easy & Secure – Voucher is authorized via a verification code
  • Hassle free & Contactless payment collection – Handling of cash or cards is not required
  • Quick redemption process – The voucher can be redeemed in a few steps and lesser decline due to pre-blocked amount.

Benefits to the Consumer

  • Contactless – Beneficiary should not carry a print out of the voucher
  • Easy redemption – 2 step redemption process
  • Safe and Secure – Beneficiary doesn’t need to share personal details while redemption hence privacy is maintained
  • No digital or bank presence required – Consumer redeeming the voucher need not have a digital payment app or a bank account

Partner Banks

  • Axis Bank
  • Bank of Baroda
  • Canara Bank
  • HDFC Bank
  • ICICI Bank
  • Indusind Bank
  • Indian Bank
  • Kotak Bank
  • Punjab National Bank
  • State Bank of India
  • Union Bank of India

A brief insight into the framework issued by SEBI for Operation of Gold Exchange in India

Sourabh Agarwal
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A brief insight into the framework issued by SEBI for Operation of Gold Exchange in India

Securities and Exchange Board of India on 10th Jan,2022 issued a circular providing the framework for operationalizing the Gold Exchange where the metal will be traded as Electronic Gold Receipts (EGRs). 

The Circular came after SEBI on September 28, 2021 approved the framework for Gold Exchange and SEBI (Vault Managers) Regulations, 2021 which was notified by the govt on 31.12.2021 and vide Gazette notification dated December 24, 2021 the Govt of India declared “electronic gold receipts” as ‘securities’ under Section 2(h)(iia)  of the  Securities  Contracts  (Regulation)  Act  1956 and this paved way for this circular providing framework for operationalization of Gold Exchange in India

The circular provides that the  instrument for  trading  in  Gold  Exchange  /Segment shall  be referred to as ‘Electronic Gold Receipts’ (EGR) which has been notified as  ‘securities’ under Section 2(h)(iia) of the Securities Contracts (Regulation) Act ,1956.

Further, the supply of the physical gold, to be converted into EGR, shall be the  fresh  deposit  of  gold,  coming  into  the  vaults – mentioned the circular.

The stock  exchange/s  desirous  of  trading  in electronic  gold  receipts (EGRs) may apply to SEBI for approval of trading of EGRs in new segment and the circular shall come into the force with immediate effect : said the regulator

It has also mentioned that a common interface will be developed by Depositories, which  will  be made accessible  to  all  the  entities  i.e. Vault Managers, Depositories, Stock Exchanges and Clearing Corporations.

The circular divides the entire transaction into three tranches which are named as follows:

  • First Tranche: Creation of EGR
  • Second Tranche: Trading of EGR on stock exchange/s
  • Third Tranche: Conversion of EGR into Physical Gold

In the first tranche 

The vault managers on  receipt  of  physical  gold  shall  record  the relevant information in the common interface and create the EGR. The EGR shall be created at the behest of the depositor (or owner of the gold) intending to convert physical gold into EGR. and he shall ensure that no EGR is created without the presence of corresponding physical gold in its vaults. The EGR will reflect in the demat account of the beneficial owner maintained with the Depository Participant. The   Depository   shall   take   necessary   action   to   make   EGR/s tradeable on the stock exchange/s.

In the second tranche 

The stock exchanges shall allow trading of the EGRs on a continuous basis. Further, the Depositories shall share information pertaining to the creation of EGR/s, with the stock exchanges and clearing corporations on a periodic basis. Further, the  Clearing  Corporation  shall  settle  the  trades  executed  on  the stock exchange/s, by way of transferring EGR/s and cash to the buyer and seller of EGR/s, respectively.

In the Third tranche 

Beneficial owner of  EGR intending to obtain physical gold against the EGR/s shall request the Depository for the same. The Depository, in turn shall forward such request/s to the Vault Manager. The Vault Manager after delivering the gold to the beneficial owner and simultaneously extinguishing such  EGR/s,  shall  share  the  required  data  with  the  Depository  for reconciliation. The Depository, in turn, shall send the information about the extinguished EGR/s,  to  the  stock  exchange/s  and  clearing  corporation/s  to  carry  out necessary revision in the records.

Further, the circular also provides for the Fungibility and the Inter- Operability of the EGR which are as follows :-

  1. Fungibility means , the EGR’s created by the Vault Manager/s, shall not be linked with the unique bar reference number of the physical gold, i.e., gold deposited against EGR1 can be delivered against conversion of EGR2 into gold (for the same contract specifications).
  2. “Inter-operability  between  Vault  Managers”  means the physical gold deposited  at  one  location of  a Vault  Manager,  can  be  withdrawn  from different  location  of  same  or  different  Vault  Manager (depending  on  the availability of physical gold).
  3. The  aforementioned  provisions would  allow  the  Depository  to  facilitate withdrawal of physical gold from the preferred vault location of the buyer, to  the  extent  possible,  and possibly, save upon the cost of  withdrawal of gold from the vaults.

In this way, the SEBI has proposed the operations of the New Gold Exchange. The above posts just mentions the highlights of the circular and the whole circular can be accessed at SEBI’s Website

No Income Tax Return required to be furnished u/s 139(1) by specified persons: CBDT

Tithi Shah
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No Income Tax Return required to be furnished u/s 139(1) by specified persons: CBDT

CBDT vide Notification No.119/2021/F. No. 225/76/2021-ITA.II. dated 11 October,2021 exempts the following class of persons subject to certain conditions specified from the requirement of furnishing a return of income under section 139(1) of the IT Act,1961 from assessment year 2021-2022 onwards :-

S.NoClass Of PersonConditions
1. (i) a non-resident, not being a company;
or
(ii) a foreign company
 (i) The said class of persons does not earn any income in India, during the previous year, other than the income from investment in the specified fund referred to in sub-clause (i) of clause (c) of Explanation to clause (4D) of section 10 of the said Act; and

(ii) The provisions of section 139A of the said Act are not applicable to the said class of persons subject to fulfillment of the conditions mentioned in sub-rule (1) of rule 114AAB of the Income-tax Rules, 1962 (hereinafter referred to as “said rules‟).
2. a non-resident, being an eligible foreign investor. (i) The said class of persons, during the previous year, has made transaction only in capital asset referred to in clause (viiab) of section 47 of the said Act, which are listed on a recognized stock exchange located in any International Financial Services Centre and the consideration on transfer of such capital asset is paid or payable in foreign currency;

(ii) The said class of persons does not earn any income in India, during the previous year, other than the income from transfer of capital asset referred to in clause (viiab) of section 47 of the said Act; and

(iii) The provisions of section 139A of the said Act are not applicable to the said class of persons subject to fulfillment of the conditions mentioned in sub-rule (2A) of rule 114AAB of the said rules

Explanation.-For the purposes of this Notification. –

(a)“eligible foreign investor” means a non-resident who operates in accordance with the Securities and Exchange Board of India, circular IMD/HO/FPIC/CIR/P/2017/003 dated 04thJanuary, 2017;

(b) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);

(c) “recognised stock exchange” shall have the meaning as assigned to it in clause (ii) of Explanation 1to sub-section (5) of section 43 of the said Act.

The above exemption from the requirement of furnishing a return of income shall not be available to the above mentioned class of persons where a notice under section 142(1) or section 148 or section 153A or section 153C of the said Act has been issued for filing a return of income for the assessment year specified therein.

Reforms in Taxability of ESOP’s (Equity Stock Option Plans)

Meghal D Thakker
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Reforms in Taxability of ESOP’s (Equity Stock Option Plans)

What is an Employee Stock Option Plan (ESOP)?

An employee stock ownership plan (ESOP) is basically a plan given to employee’s wherein subscription to the same gives employee(s) ownership interest in the company. ESOPs give the sponsoring company, the selling shareholder, and participants receive various tax benefits, making them qualified plans. Companies often use ESOPs as a corporate-finance strategy to align the interests of their employees with those of their shareholders. ESOP are generally issued at a discounted price than the fair value of the shares.

Head of Taxability

As ESOPs are generally issued in lieu of Remuneration/ Salary and thus can be categorized as a part of Salary, they are taxed under the head ‘Income from Salary’.

Prior taxation of ESOP

The Income tax Act through Section 17(2) has categorized the ESOPs compensation as ‘perquisites’ and the value of such perquisites is taxed as income from salary in the hands of employees. The value of such ESOPs is computed as per the Rule 3(8)(ii) of Income tax Rules. The value of ESOPs is determined as on the date of exercise of options and not on the date of allotment. However, the tax payment liability is relevant to the date of allotment of shares. For instance, Mr. Shinde was eligible for ESOP by his employer for allotment of 1000 shares at ₹50 apiece. He exercised the option in March-2021 (F.Y. 2020-21), however, the company allotted the shares to him in December 2021 (F.Y. 2021-22). The fair value of shares of company in March 2021 was Rs.100 and that in December 2021 was ₹150. The value of perquisites of Mr. Shinde is determined at ₹ 50000/- [(100-50) x 1000]. The employer is required to include this amount of ₹ 50000/- in his Form 16 as valuation of perquisites and deduct TDS. However, the employer is required to do this in next financial year 2021-22 when the shares were finally allotted and not in the year of exercise of option.


The second incidence of tax on ESOP arises when the allottee sells those shares. From the above example, suppose that Mr. Shinde sold 500 shares for a total amount of ₹200,000/- in February 2025. Then in FY 2024-25, he will have to pay tax on capital gains income on sale of such shares. This shall be computed by deducting the cost of such shares from the sale value. And such cost shall be the amount determined as perquisites plus the amount he paid. Mr. Shinde will accrue capital gains income of ₹150000 (₹200000-50000) in F Y 2024-25.


Thus, ESOPs give rise to tax outgo at two times, one at the time of allotment as income from salary and at the time of sale as income from capital gains.

What is the relief from F Y 2020-21?

This Budget has touched the first incidence of tax i.e. income from salary with TDS thereon and did not disturb the second incidence of tax i.e. income from capital gains. The changes brought in by Budget have implications for the employee as well as the employer company/LLP.

What are the impacts on employee and employer?

The employees are required to include the amount of taxable ESOP in their Income tax return (ITR) to be filed for assessment year 2021-22 and thereafter. This means they must plan their transactions in the current financial year. The tax amount on the income component related to ESOPs need not be paid by them while filing ITR nor the TDS needs to be deducted by the employer on this component. This Budget has deferred the payment of tax on such income. This has effectively eased the anxiety related to cash outgo on the unrealized income of the employees. So, from financial year 2020-21, the TDS shall not be deducted nor the tax on the said income be paid while filing ITR next year. However, relevant amount of tax needs to be paid within 14 days from any of the following events, whichever is earliest:

  1. after the expiry of 60 months (5 years) from the end of the relevant assessment year; or
  2. from the date of the sale of such ESOP shares by the assessee; or
  3. from the date of the taxpayer ceasing to be the employee of the ESOP allotting employer,

In case the employer did not deduct TDS and pay to the Government as per above deadlines, then the employee himself must pay the tax according to the same dates. The rates of tax and TDS in such cases shall be the one applicable for the year in which ESOP was allotted.

Illustration

Mr. Shinde in the example cited above does not sell his shares nor leaves the employment. In such case, for assessment year 2021-22, Mr. Shinde has to include the amount of ₹50,000/- in his ITR as income from salary but not pay the tax on the same. Since he is in continuous employment with his employer, he will have to pay tax in assessment year 2025-26. He does not need to include the said amount in his ITR but only in computation of tax and pay the tax as per the rates applicable for assessment year 2021-22. So, for assessment year 2025-26, his tax liability will be increased by the tax on ₹50,000/- which was deferred from assessment year 2021-22. This tax needs to be paid either by Mr. Shinde on or before 14/04/2026 or his employer must deposit his TDS on or before this date.

Who are benefited by this tax deferment ?

Not all the enterprises and companies giving out ESOPs are benefited by this move is beneficial to those start-ups which fulfill certain conditions-

  1. the start-up must be incorporated between 01/04/2016 and 31/03/2022
  2. the total turnover of the start-up must be less than ₹100 crores for the year in which benefit is sought
  3. It must be certified as eligible start-up by the Inter-Ministerial Board of the Government of India.

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