NASSCOM : Public Policy | Volume 2 | Issue 10

GST: Concerns of BPM/ ITeS industry on the scope of Intermediary services and export status of services provided to overseas affiliates addressed

On September 20, 2021, the Central Board of Indirect Taxes and Customs (CBIC) issued two much-awaited circulars providing clarity on the scope of 'Intermediary services' and the scope of 'export of services' under Good & Service Tax (GST) Law. NASSCOM has been advocating for these clarifications and expects the circulars to enable substantial ease of doing business by providing certainty on the tax treatment, enabling processing of input credit refunds, and bringing an end to various disputes with the tax authorities on account of these issues.

The Circular on Intermediary Services improves upon the draft approved in the 37th GST Council meeting. While the earlier draft was specific to the Information Technology (IT)/ IT enabled Services (ITeS) sector and relied on the definitions under the Income Tax Act, 1961, the new Circular is principle based and therefore be applied across the board. It would also address the emerging concerns around treatment of contract R&D and IT services being treated as intermediary services (read more).

The Circular on Export of Services clarifies that a company incorporated in India and a foreign company under the Companies Act, are separate persons under Central Goods and Services Tax Act, 2017 (CGST Act). Accordingly, these two separate legal entities will not be considered as "merely establishments of a distinct person in accordance with Explanation 1 in section 8". This clarification ensures that services provided by Global Capability Centres (GCCs) to their parent entities will not be denied their 'export status' (read more).

NASSCOM's webinar addresses industry queries on the circulars with respect to applicability, refunds and settlement of disputes

On September 22, 2021, NASSCOM, in association with Deloitte India, organised an interactive session with the industry to discuss implications of GST circulars referred above.Nearly 200 participants from the industry joined the session. The key principles and prerequisites elucidated in these Circulars were discussed in detail and queries received from members on various business fact patterns and the impact of the Circular on them vis-à-vis the illustrations were discussed.

Review of the Consumer Protection (e-Commerce) Rules

NASSCOM is engaging closely with the government on the review of the Consumer Protection (e-Commerce) Rules, 2020. Our recommendations emphasise that (1) consumer protection rules should focus on consumer protection issues and avoid overlaps with the FDI policy and the Competition Act; (2) obligations should be proportionate to the risk and should consider the uniqueness of different e-commerce models; (3) the rules should not prohibit or disincentivise legitimate business models; and (4) the rules should be unambiguous. For more information, kindly contact garima@nasscom.in.

Ministry of Power (MoP): Request to allow annual banking of Renewable Energy (RE)

NASSCOM has submitted suggestions to the MoP in response to the draft Electricity (Promoting renewable energy through Green Energy Open Access) Rules, 2021. Our suggestions included allowing annual banking of renewable energy without any cap on the quantum of consumption, removing restrictions on voluntary purchase of power, and reducing cross subsidies, among others. These suggestions, if implemented, can help the IT-BPM industry and data centre companies increase the use of RE in their operations.

GST: Need for an internal directive to departmental officers on the refund of excess balance of TCS in electronic cash ledgers

Under GST law, e-commerce operators are required to collect and deposit an amount of 1% TCS on sales made through the e-commerce platform, which is then credited to the supplier's electronic cash ledger. Earlier in Nov 2018, it was also clarified by the GST Council that refund of any excess balance lying in the electronic cash ledger can be claimed if the supplier is not able to use the amount of TCS to discharge its output tax liability. Despite this, GST officers have been increasingly rejecting TCS refunds. In this regard, NASSCOM made a submission to GST Policy Wing and GST Council on September 3, 2021 requesting them to issue clear and concise guidelines (as an internal directive to departmental officers) on the refund of excess balance of TCS in electronic cash ledgers.

RBI: Resolution of issues faced by Industry while filing forms through FIRMS portal

The Reserve Bank of India (RBI) recently introduced the Foreign Investment Reporting and Management System (FIRMS) portal to simplify foreign investment reporting by Indian entities. Based on feedback received from the industry, a company is not allowed to file more than one form at a given point of time, thereby resulting in delay in undertaking compliances. Moreover, in cases where RBI rejects a form for want of more information or for any other reasons, the business entity is required to rectify and re-submit the form on the portal. In such cases, the date of filing of the revised form is considered as the original date of filing, resulting in penal consequences. In this context, NASSCOM has made a submission to RBI on September 6, 2021 requesting them to resolve these issues to facilitate ease of doing business.

MoF: Uniform Pricing Norms for Unlisted Equity

NASSCOM has submitted suggestions to the Arun Jaitley National Institute of Financial Management (AJNIFM), an autonomous institute under Ministry of Finance (MoF), which is working on the topic of uniform pricing norms for unlisted equity in India. Our submissions highlighted the need for valuation and the challenges faced by early-stage companies in getting business valuation. Given the uniqueness of business ideas & models and lack of precedence while valuing start-ups, we have pointed out that one fixed method of valuation may not be suitable in every possible situation. The goal in selecting valuation approaches and methods should be to consider the various factors involved and select the most appropriate method under the particular circumstances of the company being evaluated.

MoF: Request for clarity on eligibility to claim exemption under S.10AA of Income Tax Act, 1961

Units in Special Economic Zones (SEZs) are eligible for tax holiday for undertaking manufacturing or production or for rendering services. To avail this benefit, services should be exported from a SEZ. Considering these provisions, in situations where employees of SEZ unit are working from a place outside a SEZ, an issue may arise regarding the eligibility of units to claim this deduction. In order to avoid litigation, we have again requested the MoF to issue a clarification that the place of providing the services ought not to matter and that, as long as there exists a direct nexus between the SEZ unit and the work done outside the SEZ unit, this should be sufficient for that unit to claim the deduction in compliance with the provisions of S. 10AA of Income Tax Act.

RBI and NITI Aayog: RBI's directive on processing of e-mandate on cards for recurring transactions effective from October 1, 2021

As per industry feedback, only the top banks had complied with the above directive as on September 30, 2021. Anticipating disruptions in processing of recurring mandates, NASSCOM reiterated the need for the RBI to publish the compliance status of the banks and the card networks and consider extending the due date for a smooth implementation. NASSCOM also requested the NITI Aayog to urge the RBI to grant more time for compliance.

UK - India Cross-Border Data Flows: Way forward towards data adequacy

We, together with the UKIBC and techUK, held a virtual event for the industry to discuss the policy priorities on cross-border data transfers between UK and India. More than 60 participants from the industry joined the discussion. A recent NASSCOM study on the review of the Indian law in the context of the July 2020 Schrems II judgment, where the Court of Justice of the European Union (CJEU) had declared the European Commission's Privacy Shield Decision invalid on account of invasive US surveillance programmes was presented. The study of over 270 laws indicated that the Indian Law broadly fared better than the US laws, as it treated the data of foreign citizens on par with the data of Indian Citizens. A few areas of concerns were discussed in detail. The participants also discussed the need for a dedicated chapter on digital trade under the proposed UK-India Free Trade Agreement (FTA) and the need for the FTA to enable cross-border data transfers. For more information, kindly contact varun@nasscom.in (Public Policy) or nidhi@nasscom.in (Global Trade Development).

Start-ups: Suggestions to the Karnataka Government on the State's Start-up Policy

We discussed the revision of the state's start-up policy with the Karnataka Digital Economy Mission (KDEM) of the Government of Karnataka. In addition to the benefits provided under the existing policy of Karnataka, we suggested removing or lowering the eligibility criterion relating to at least 50% of total qualified workforce to be in Karnataka, creating a repository of all compliances applicable to a start-up at the state level, exempting start-ups from the criterion requiring prior experience and/or turnover, waiver of tender cost for government procurement, assisting start-ups to avail benefits under other relevant schemes of the Karnataka Government and creating awareness among start-ups on the intellectual property rights, among others. For more information, kindly contact garima@nasscom.in.

Meeting with GST officials for addressing e-Commerce issues

We, along with industry representatives, met with GST officials to highlight the disparity between online and offline sellers arising from the existing mandatory registration requirements under GST law. While offline suppliers of goods or services have been given a turnover-based exemption up to INR 40 Lakhs and INR 20 Lakhs respectively, this exemption is not available to suppliers selling goods through e-commerce operators. We reiterated the importance of the e-commerce sector in India and the need for resolving the disparity to enable ease of doing business for small sellers. We will also engage with the Group of Ministers recently formed by MoF for addressing GST issues. For more information, kindly contact tejasvi@nasscom.in.

SOFTEX: Meeting with MEITY for addressing SOFTEX certification issues

We continued to engage with the Ministry of Electronics and Information Technology (MEITY) to review the applicability of the SOFTEX form for software products to strengthen ease of doing business for the industry. We reiterated the need for aligning the SOFTEX Codes with the relevant GST Codes and making the certification process completely paperless. For more information, kindly contact garima@nasscom.in.

Start-ups: Policy paper on strengthening the start-up ecosystem

NASSCOM in partnership with TiE Delhi-NCR and Grant Thornton Bharat, is finalising a policy paper to highlight the concerns faced by start-ups, founders, and investors at various stages of a start-up's growth journey. The paper will also present the findings of the survey conducted by us in August 2021. This paper will be used to provide recommendations to the government on issues such as access to domestic and international capital, innovative ways of raising capital, streamlining the process for foreign investments etc. For more information, kindly contact garima@nasscom.in.

Exports: Policy paper on encryption export controls

NASSCOM is finalising a policy paper to explore how India's export control regime is applicable to items with encryption functionality, i.e., falling under Category 8A502 of the SCOMET list. The paper will highlight the concerns of the industry in classifying items under this category and will suggest ways for improving the existing export licensing regime. This paper will form the basis for our advocacy with the Government on this issue. For more information, kindly contact garima@nasscom.in.

Call for Inputs: Haryana State Labour Codes Rules

As part of the implementation process related to upcoming labour reforms, the Department of Labour, Haryana has recently published the draft rules under all four labour codes, that is, (1) The Haryana Occupational Safety, Health and Working Conditions Rules, 2021; (2) The Industrial Relations (Haryana) Rules, 2021; (3) The Code on Social Security (Haryana) Rules, 2021; and (4) The Code on Wages (Haryana) Rules, 2021. Given their significance for the industry, we request your feedback/inputs on the drafts rules. Kindly send your suggestions to deepak@nasscom.in latest by October 15, 2021.

Call for Inputs: Telangana State Labour Rules

The Department of Labour, Telangana has recently published the draft of the Industrial Relations (Telangana State) Rules, 2021 and the Telangana Code on Wages Rules, 2021 for stakeholders' inputs/ suggestions. We request you to kindly send your inputs to deepak@nasscom.in latest by October 20, 2021.

Call for Inputs: United Kingdom (UK) International Data Transfer Agreement

The UK Information Commissioner's Office (ICO) has released a draft of the UK's version of standard contractual clauses for the purposes of enabling cross-border data flows in and out of the UK. This document - the international data transfer agreement (IDTA) - is accompanied by a regulatory tool and a guidance document for companies to assess the risks associated with such cross-border data transfers. Given the significance of the IDTA for the industry, we have requested industry feedback/inputs on the IDTA. Kindly contact varun@nasscom.in to engage on this topic.

DoT: Survey on impact of OSP reforms on the IT Industry

The Department of Telecommunications (DoT) introduced transformative reforms for the Other Service Providers (OSPs) through issuance of new OSP guidelines last year on November 5, 2020. These guidelines were further liberalized by DoT by issuance of revised OSP guidelines earlier this year on June 23, to further simplify the OSP regime. Given the significance of the guidelines, NASSCOM is now rolling out a survey to get industry feedback to understand the impact of these reforms on the businesses. We therefore solicit your participation in the survey. The questionnaire is available here.

Public Procurement: Interaction with DPIIT & MEITY planned

We are engaged with MEITY and Department of Industry and Internal Trade (DPIIT) to enable a solution to the issue of mandated local value addition in public procurement for software products and Cloud Service Providers (CSPs). An industry meeting with both DPIIT and MEITY is being planned this month. In this context, an industry interaction was organised to discuss the alternate mechanism for determining local content and the amendments to the existing order to be suggested to the government. For more information, kindly contact jayakumar@nasscom.in.

GST: Status of issues raised by NASSCOM during Karnataka Grievance Redressal Committee (GRC) meeting

The Karnataka GRC meeting for the quarter ending December 2020 and March 2021 was held on July 27, 2021. NASSCOM participated and raised some of the key issues highlighted by the industry. Pursuant to the meeting, the GRC has shared its response with NASSCOM on the recommendations. It was clarified by the GRC that necessary directions have been given to field formations to expeditiously process refunds of taxpayers and exercise utmost care while issuing notices. Issues relating to reporting summaries (net of credit/ debit notes) of supplies in GST returns have been forwarded to GST Policy Wing for examination.

DGFT: Extension of Foreign Trade Policy till March 2022

On September 28, 2021, Directorate General of Foreign Trade (DGFT) notified the extension of Foreign Trade Policy 2015 - 2020 (FTP) by 6 months, i.e., till March 31, 2022. Earlier, the FTP was extended for 6 months, from April 1, 2021 to September 30, 2021.

DGFT: Services Exports from India Scheme (SEIS) for FY 2019-20 with revisions in categories and rates has been notified

On September 23, 2021, the DGFT notified the rates and eligible service categories for claiming benefits under the SEIS, for services exports rendered in the year 2019-20. A cap of INR 5 crores has been imposed on the entitlement per exporter. In an earlier press release, it was informed that a total amount of INR 10,002 crores has been allocated to SEIS and that export claims for previous years need to be filed by December 31, 2021.

Labour: EPFO extends deadline for Aadhaar-UAN linkage

The Employee Provident Fund Organisation (EPFO) vide Notification No. BKG-27/5/2021, dated September 11, 2021, has extended the last date for linking Aadhaar with the Universal Account Number (UAN) till December 31, 2021 for certain classes of establishments and establishments present in the North EastZone. For other establishments, the EPFO has clarified that a delay in filings of Electronic Challan cum Return (ECR) for the months of August and September caused due to non-linkage of Aadhaar will not be presumed as a default by the employer for the purposes of the levy of penal damages under the Provident Fund Act.

GST: Extension of time limit to file revocation of cancellation applications

CBIC recently issued Notification No 34/2021- Central Tax dated August 29,2021 for extending the timelines for filing applications for revocation of cancellation of registration, to September 30, 2021. This benefit has been extended to all cases where cancellation of registration has been done under S. 29(2)(b) or S. 29(2)(c) of CGST Act and the due date of filing of application for revocation of cancellation of registration falls between March 1,2020 to August 31, 2021. The benefit of the notification would also be available in those cases which are pending with, or have been rejected by, the appellate authority. The scope of the above notification has been further clarified by the CBIC vide Circular No 158/14/2021 GST dated September 6, 2021.

Fintech: Account Aggregator (AA) network goes live

The much-awaited AA network went live on September 2, 2021. The AA framework is based on the Data Empowerment and Protection Architecture (DEPA). It allows users to share their data through an independent consent management entity. The AA framework aims at making financial data more usable and accessible by allowing licensed participants to facilitate customers’ financial data transfer between the providers and users of such information. The objective of the AA network is to assist data sharing in a safe and secure manner and to provide greater autonomy to users over their own data.

Drone manufacturing: Ministry of Civil Aviation (MoCA) launches Production Linked Incentive (PLI) Scheme

To provide a boost to the drone industry, the MoCA launched the PLI scheme for manufacturers of drones and drone components. The scheme has been allocated INR 120 crores spread over three financial years. The government has carved out an exception for the drone industry and has kept the PLI rate constant at 20% for all three years.

RBI modifies guidelines on tokenisation of card transactions

The RBI after reviewing the tokenisation framework, on September 7, 2021 issued a directive with certain enhancements to its extant framework on card tokenisation services. Prior to this, on August 25, 2021 the RBI had extended the scope of permitted devices for card tokenisation transactions to all consumer devices enabling compliance for the industry with the Guidelines on Regulation of Payment Aggregators and Payment Gateways (PA/PG Guidelines). In line with NASSCOM’s recommendations, the applicability of the framework is being extended to Card on File. Once implemented, the actual card number would be replaced by with a payment token (randomly generated numbers) to bolster the security of the payment system.

Singapore Exchange allows listing of Special Purpose Acquisition Companies (SPAC) on its mainboard

Singapore Exchange (SGX) recently announced new rules that will enable SPACs to list on the Mainboard of the Singapore Exchange Securities Trading Limited fromSeptember 3, 2021. A SPAC, commonly referred to as a “blank cheque company”, is a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company. The SPAC framework covers the broad admission criteria for a SPAC listing: conditions for founding shareholders, the management team, and controlling shareholders and the business combination requirements. This will enable companies to raise capital from an alternative source with greater certainty on price and execution.

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