NRIs may have a higher stake in equity shareholding

NRIs may have a higher stake in equity shareholding

By H. P. Ranina

Published: Sun 25 Aug 2019, 6:57 PM

Last updated: Sun 25 Aug 2019, 10:29 PM

Question: I have been told that NRIs can now have a larger share of investment in equities of Indian companies. I am not able to understand what this means and how NRIs will now be able to have a higher stake in equity shareholding.
Answer: The Finance Minister in her budget speech last month stated that she proposes to merge the portfolio investment scheme applicable to NRIs with the foreign portfolio investment scheme. This, according to her, will provide non-resident Indians with seamless access to Indian equities. Under the current framework, NRIs have to assign one designated bank for the purpose of routing transactions under the portfolio investment scheme. As a result, they are finding it operationally difficult to invest in multiple products.
At present, market intermediaries are required to report NRI investments to the Reserve Bank of India, which ensures that these are within the permissible limit which is 10 per cent of the paid-up equity capital of a company. Therefore, where the limit for NRIs is exhausted, fresh investments in equity of a particular company cannot be made. By merging the NRI scheme with foreign portfolio investment scheme, NRIs will be able to invest more than 10 per cent where there is lower investment by foreigners in that company. This proposal will be effective after the Securities & Exchange Board of India provides the revised framework for equity investments.
Q: I have a small ancestral farm in Kerala. Currently it is not being used for agricultural purposes as my brothers and I have been doing jobs in and outside India. I am planning to return to India after retirement later this year. I want to know how best I can use the land to get maximum income which will sustain me in my old age. My land is treated as a wetland.
A: Many farmers in Kerala have started the activity of paddy-shrimp farming. This is known as One Paddy, One Fish farming. In this business, alternate cropping of fish and paddy is done in wetlands. Paddy is cultivated for four months in a year during the monsoon season and shrimp cultivation is done in the remaining eight months. This ensures regular income even if the paddy farming does not bring the desired results due to shortfall in rain.
The government of India has now put great emphasis on aquaculture. The Agency for Development of Aquaculture grants a one-time subsidy. The Marine Products Export Development Authority will supply the farmer with tiger shrimp seeds. This assures a steady income from shrimp farming. At the end of the season for shrimp farming, the ponds are drained and cultivation is done for Pokkali paddy which is a saline resistant rice variety. If your land falls in a notified Special Economic Zone, you will get tax exemption in respect of the profits derived from export of shrimps provided you start this activity before 1st April, 2021.
Q: I and my brother-in-law are in partnership for carrying on construction business in India. He runs the business entirely as I am a dormant partner, being based in the UAE. The tax department has levied a penalty on the firm which has been upheld by the appellate authorities. Hence, prosecution proceedings have now been launched against my brother-in-law on ground of concealment of income. He has been advised by his accountant that he can go for compounding of the offence by paying a compounding fee. I want to know the meaning of compounding and whether my brother-in-law can go in for the same.
A: Compounding of an offence under the tax law means that a tax payer would not be proceeded against for an offence involving concealment of income and willful attempt to evade tax if he makes an application under section 279(2) of the Income-tax Act and the application is accepted by the Chief Commissioner of Income Tax or the Director General. It has now been clarified that the compounding of an offence is not to be allowed as a matter of right and the tax department can provide this relief only in certain cases having regard to the conduct of the person, the nature and magnitude of the offence in the context of the facts of each case.
Certain offences cannot be compounded if the person has been found to be involved in any offence under the Prevention of Money Laundering Act, Prevention of Corruption Act, etc. Further, those who have abetted in the tax evasion by a tax payer would not be entitled to the benefit of compounding. In other words, a person who has abetted by setting up entities used for money laundering or generating bogus invoices of sale or purchase without such actual business being transacted or by providing accommodation entries in any other manner will be liable for prosecution and would not be eligible for compounding of such offence.
H. P. Ranina is a practicing lawyer, specializing in tax and exchange management laws of India.

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