SEBI marks lien on demat account
As per the new mechanism, upon finalization of the entitlement, only accepted quantity of shares will be debited from the demat account of the shareholders. This revised mechanism will be applicable to all the tender offers for which public announcement will be made on or after October 15, 2021. SEBI has decided that a lien shall be marked against the shares of the shareholders participating in the following offers:
- Tender offers made after open offers; Buy back offers; and Delisting of securities
Under the existing mechanism, the shares tendered by shareholders are required to be directly transferred to the account maintained by the clearing corporation. Such transfer involves systematic risk, substantial time, and cost. As per the new framework, only accepted quantity of shares shall be debited from the account holder's demat account and the lien marked against unaccepted shares shall be released. SEBI said that lien will be marked in the depository system by the depositories in the beneficial owner's demat account for the shares offered in tender offers.
The details of shares marked as lien in clients' demat account will be provided by respective depositories to clearing corporations (CC). Further, details regarding shareholder's entitlement for tender offer process will be provided to CCs by issue/registrar and share transfer agent handling respective tender offer.
The new mechanism will reduce the systemic risk and risks associated with the movement of securities from the demat account of shareholders to clearing corporation account and vice-versa and make the process more investor friendly, in addition to saving time and reducing the cost involved.
RBI modifies current norms on round-tripping
Some of the largest Indian companies, start-ups and multinationals with an India presence have put their outbound investment, fundraising, and restructuring plans on hold as the RBI looks to introduce fresh regulations around 'roundtripping'. Round-tripping refers to money that leaves the country though various channels and makes its way back into the country, often as foreign investment. This mostly involves black money and is allegedly used for stock price manipulation.
RBI aims to tweak the existing regulations and has come up with draft rules around round-tripping. With a view to liberalize regulatory framework and promote ease of doing business, it has been decided to rationalize the existing provisions governing overseas investment. According to the draft rules, any entity making an any investment outside India, in turn, invests in India will be treated as round-tripping if the purpose is to escape tax. This is as the same rationale used by the tax department under General Anti-Avoidance Rule.
White goods get PLI push
Government issued a corrigendum in relation to the PLI Scheme for white goods. The Department for Promotion of Industry and Internal Trade (DPIIT) offered specific relaxations as part of its revised guidelines to turn India into an integral part of the global supply chain initiative. Incentives worth INR 6283 crore will be provided over 5 years for manufacturing of white goods.
- The scheme will offer an incentive of 4-6% on incremental sales of goods manufactured in India to companies engaged in manufacturing of ACs and LED Lights
- Inclusion of more LED components such as resistors, fusers, LED transformers, among others, in the target segments and eligible products
- Pre-qualification criteria can be met based on audited financials for FY2020-21; however, for applicants meeting the pre-qualification criteria, the computation of net incremental sale of eligible product shall be done based on net sales turnover of eligible products in the base year of FY21, whichever is higher
- If a company availing benefits under scheme, fails to meet the committed investment and exits midway, the bank guarantee will also be invoked and the company will have to refund the incentives taken, including the interest
Online gaming industry to be kept under 18% GST
According to a report launched by EY - All India Gaming Federation, the Indian online gaming sector reached USD1.027 billion (approximately INR 7500 crore) in 2020. The report recommended setting the Goods and Services Tax (GST) rate for this sector at 18% and sought clarity on tax applicability on platform fee.
In India, the classification of whether a game comprises a 'game of skill' or a 'game of chance' has wide consequences for legal implications. Among other aspects, a game of chance attracts a higher GST compared to a game of skill. Online games operate either on the 'rake fee' model wherein the gaming platform charges for facilitating games or 'freemium' model wherein the gameplay is free but additional features may require users to purchase specific items for a monetary price.
Key mechanisms for rational levy of GST
- GST on rake fee value: This suggests a levy of GST only on the rake fee which is the consideration received by the gaming platform. It is presently being followed across the industry and aligned with existing GST mechanism to levy tax on consideration only.
- Deemed credit model: This has only two data metrics to be considered, stake and pay - outs. This mechanism makes it easier for the government to verify and audit entities. However, businesses would be required to undertake a change in their ERP systems to compute GS
- GST on entire stake value at a nominal rate of 1.8%: This is simpler to calculate as it has only one data metric to be tracked by business for stake value. However, the mechanism would be discriminatory for industry players having low rake since GST outflow would be high whereas margins are lower. This method is also prone to manipulation where 'platform fee only' players without any prize - winning model may offer nominal winnings to lower tax outflow. The report recommends 18% GST to be levied to mitigate any risks of misclassification of the online gaming industry as betting or gambling. The tax rate should not exceed 20% as it could result in the gaming operators as well as consumers entering the grey market.
India is the fifth largest market globally for online gaming, a billiondollar industry that could double to USD 2 billion (INR 14500 crore) by 2023. Strengthening the GST mechanism will put this sector at par with global practices.
Trading in US stocks: NSE IFSC to break a new path
On August 9, 2021, NSE International Financial Services Centre (NSE IFSC) announced that it is now possible for Indian investors to trade in select US stocks. NSE IFSC, a wholly owned subsidiary of the National Stock Exchange of India Ltd (NSE), proposed to make the offering in the form of unsponsored depository receipts. These receipts are issued without approval of the issuer of underlying permissible securities. They simplify investment as Rupee is not required to be converted to Dollar.
- Liberalised Remittance Scheme (LRS): Indian retail investors will now be allowed to freely transact under the LRS as directed by RBI. Each financial year, LRS permits certain current or capital account transaction up to USD 2,50,000. This scheme excludes corporates, partnership firms, HUF, and trusts.
- Regulatory Sandbox: The International Financial Services Centres Authority (IFSCA), a unified regulator promoting ease of doing business in IFSC, will facilitate the trading, clearing, settlement and holding of US stocks under the Regulatory Sandbox, wherein certain regulatory relaxations may be permitted for testing of new products or services and containing their risks. Regulatory Sandbox refers to such live testing of new products or services in a controlled/test regulatory environment.
- Operational details:
- You can trade through NSE IFSC platform
- Once you have zeroed in on an international brokerage account, you can register online by filling basic information
- When your account is ready, you can start adding funds, which you will later invest in US stocks
- Before you start trading, please ensure that documentation concerning LRS has been considered
- Exchange rates are crucial especially when you are planning to invest in US stocks - ask your brokerage firm if it has a tie-up with any bank and could help you secure a low rate; if not, your bank can directly transfer money to your brokerage account
- Depository Receipts will be held by the investors in their own Demat accounts opened in the GIFT City, which will also entitle them to receive corporate action benefits pertaining to the underlying stock
The model offered by NSE IFSC provides an additional investment opportunity to the Indian investors. The everincreasing connectivity of the global financial markets makes this move a step further towards portfolio diversification for Indian investors, in an environment where companies predominantly aim at diversification of fund-raising operations.
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