Ministry of Finance

Income Tax Department conducts search & survey operations on Share Brokers/Traders across India

Dated: 07 DEC 2019

On 3rd December 2019, the Income Tax Department carried out search and survey operations on certain share-brokers/traders who were involved in facilitating accommodation of profits/loss through reversal trades in illiquid stock optionsin Equity Derivative Segment and alsoCurrency Derivative Segment on Bombay Stock Exchange (BSE).  Over 39 locations spread across Mumbai, Kolkata, Kanpur, Delhi, NOIDA, Gurugram, Hyderabad andGhaziabad were covered.

The search/survey action has unravelled the entire modus-operandi which has been adopted by the share-brokers/traders to trade into the illiquid stock options in Equity Derivative Segment and thereby generate artificial losses/profit by executing reversal trades in a very short span of time. By this contrived methodology, the unscrupulous entities have secured desired profits/losses, which is estimated to be more than Rs. 3500 Crore. The search/survey action has also resulted into identification of the wrongful long-term capital gains taken in at least 3 penny stocks listed on the BSE, where the manipulated profits utilized by the beneficiaries aggregate to around Rs. 2000 Crore.

The search action has resulted into seizure of unaccounted cash of Rs. 1.20 Crore. The number of beneficiaries who have been benefitted by these manipulated transactions could be to the tune of a few thousand scattered across India and efforts are being made to identify them as also the corresponding quantum of income evaded. Incriminating evidence recovered during the course of actions is also being examined for determination of contravention of the various direct tax laws.

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RM/ KMN

(Release ID: 1595426)

Government of India

Ministry of Finance

Department of Revenue

Central Board of Direct Taxes

Dated: 5th December, 2019

PRESS RELEASE

CBDT issues draft notification seeking inputs for framing of rules with respect to Fund Manager Regime under Section 9A of the I.T. Act, 1961

          Section 9A of the Income-tax Act, 1961 (the Act) provides for a special taxation regime in respect of certain offshore funds in the context of their fund managers being located in India. It is provided that in case of an eligible investment fund, the fund management activity carried out through an eligible fund manager acting on behalf of such fund shall not constitute business connection in India of the said fund. Further, it is provided that an eligible investment fund shall not be said to be resident in India merely because the eligible fund manager undertaking fund management activities on its behalf is located in India subject to the conditions mentioned in sub-section (3) of section 9A, one of which [clause (m) of said sub-section] provides that the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the arm's length price of the said activity.

            Accordingly, Income-tax Rules, 1962 (the Rules) were amended by way of insertion of rules 10V to 10VB and Forms 3CEJ and 3CEK vide notification No 14/2016 with SO 1101 (E) dated 15.03.2016. Rule 10V was further amended vide notification No 106/2016 with SO 3498(E) dated 21.11.2016.

            Sub-rule (5) to (10) of rule 10V of the Rules contains the provisions relating to determination of the arm's length price in respect of any remuneration paid by the eligible investment fund to an eligible fund manager as referred to in clause (m) of sub-section (5) of section 9A.

            Finance (No 2) Act, 2019 with effect from 1st April, 2019, inter alia, amended clause (m) of sub-section (5) of section 9A so as to provide that the remuneration paid by the fund to an eligible fund manager in respect of fund management activity undertaken by him on its behalf is not less than the amount calculated in such manner as may be prescribed.

            Accordingly, the manner for calculation of the amount, compared to which the remuneration paid to the eligible fund manager should not be less, is required to be prescribed.

            The draft notification proposing the above amendments has been uploaded on www.incometaxindia.gov.in for inputs from stakeholders and general public. The inputs on the draft rules may be sent electronically at the email address, ustpl1@nic.in, latest by 19th December, 2019.

 

(Surabhi Ahluwalia)

Commissioner of Income Tax

(Media & Technical Policy)

Official Spokesperson, CBDT.

 

Ministry of Finance

Cabinet approves launch of Bharat Bond Exchange Traded Fund

Fund to provide additional money for CPSUs, CPSEs & other Government organizations

Dated: 04 DEC 2019

The Cabinet Committee on Economic Affairs, chaired by Prime Minister Shri Narendra Modi has given its approval for creation and launch of Bharat Bond Exchange Traded Fund (ETF) to create an additional source of funding for Central Public Sector Undertakings (CPSUs) Central Public Sector Enterprises (CPSEs), Central Public Financial Institutions (CPFIs) and other Government organizations.  Bharat Bond ETF would be the first corporate Bond ETF in the country. 

Features of Bharat Bond ETF:

ETF will be a basket of bonds issued by CPSE/CPSU/CPFI/any other Government organization Bonds (Initially, all AAA rated bonds)

•       Tradable on exchange

•       Small unit size Rs 1,000    

•       Transparent NAV (Periodic live NAV during the day)

•       Transparent Portfolio (Daily disclosure on website)

•       Low cost (0.0005%)

 

Bharat Bond ETF Structure:

•     Each ETF will have a fixed maturity date

•     The ETF will track the underlying Index on risk replication basis, i.e. matching Credit Quality and Average Maturity of the Index

•     Will invest in a portfolio of bonds of CPSE, CPSU, CPFI or any other Government organizations that matures on or before the maturity date of the ETF

•    As of now, it will have 2 maturity series - 3 and 10 years. Each series will have a separate index of the same maturity series.

 

Index Methodology:

•      Index will be constructed by an independent index provider – National Sock Exchange

•      Different indices tracking specific maturity years - 3 and 10 years

 

Benefits of Bharat Bond ETF to investors:

•      Bond ETF will provide safety (underlying bonds are issued by CPSEs and other Government owned entities), liquidity (tradability on exchange) and predictable tax efficient returns (target maturity structure).

•      It will also provide access to retail investors to invest in bonds with smaller amount (as low as Rs. 1,000) thereby providing easy and low-cost access to bond markets.

•      This will increase participation of retail investors who are currently not participating in bond markets due to liquidity and accessibility constraints.

•      Tax efficiency compared to Bonds as coupons from the Bonds are taxed at marginal rates. Bond ETFs are taxed with the benefit of indexation which significantly reduces the tax on capital gains for investor.

 

Bharat Bond ETF Benefits for CPSEs:

•        Bond ETF would offer CPSEs, CPSUs, CPFIs and other Government organizations an additional source of meeting their borrowing requirements apart from bank financing.

•        It will expand their investor base through retail and HNI participation which can increase demand for their bonds. With increase in demand for their bonds, these issuers may be able to borrow at reduced cost thereby reducing their cost of borrowing over a period of time.

•        Further, Bond ETF trading on the exchange will help in better price discovery of the underlying bonds.

•        Since a broad debt calendar to assess the borrowing needs of the CPSEs would be prepared and approved each year, it would inculcate borrowing discipline in the CPSEs at least to the extent of this investment.

Developmental impact on Bond Markets:

•        Target Maturity Bond ETF is expected to create a yield curve and a ladder of Bond ETFs with different maturities across calendar years.

•        ETF is expected to create new eco-system - Market Makers, index providers and awareness amongst investors - for launching new Bond ETFs in India.

•        This is expected to eventually increase the size of bond ETFs in India leading to achieving key objectives at a larger scale - deepening bond markets, enhancing retail participation and reducing borrowing costs.

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VRK/SC/PK/SH

(Release ID: 1594816) 

 

Click here to read and download HC Judgment copy reported in [TS-5849-HC-2019(Kerala)-O]

 

Click here to read and download ITAT order reported in [TS-8212-ITAT-2019(Ahmedabad)-O]