SEBI issues detailed ESOP disclosure norms

The Securities and Exchange Board of India (SEBI) has come out with detailed disclosure norms for listed firms while exercising employee stock options programmes (ESOP) to address concerns regarding potential market abuse.

  • As per the norms, the compensation committee constituted by companies for ESOP schemes will be required to formulate detailed terms and conditions.
  • In addition, they have to disclose information about the trust, powers and duties of trustee. These disclosures are part of SEBI’s efforts to improve governance and transparency of such schemes.

About SEBI:

The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 12 April 1992 through the SEBI Act, 1992.

Composition:

SEBI is composed of-

  • The chairman who is nominated by Union Government of India.
  • Two members, i.e., Officers from Union Finance Ministry.
  • One member from the Reserve Bank of India.
  • The remaining five members are nominated by Union Government of India, out of them at least three shall be whole-time members.

For the discharge of its functions efficiently, SEBI has been vested with the following powers:

  • To approve by−laws of stock exchanges.
  • To require the stock exchange to amend their by−laws.
  • Inspect the books of accounts and call for periodical returns from recognized stock exchanges.
  • Inspect the books of accounts of financial intermediaries.
  • Compel certain companies to list their shares in one or more stock exchanges.
  • Registration of brokers.

Sources: The Hindu, Wiki.

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Ordinance to help litigants in cheque bounce cases

The Union cabinet recently cleared an ordinance which would help lakhs of persons battling cheque bounce cases far away from their place.

  • This is the 14th ordinance of the Modi government in a little over a year.

In view of the urgency to create a suitable legal framework for determination of the place of jurisdiction for trying cases of dishonour of cheques under section 138 of the Negotiable Instruments Act, the Government has decided to amend the law through the Negotiable instruments (Amendment) Ordinance, 2015.

The Negotiable Instruments (Amendment) Ordinance, 2015:

  • The ordinance will amend the Negotiable Instruments Act, 1881.
  • It will enable filing of cheque bounce cases in the place where the cheque was presented for clearance or payment and not the place of issue. It provides for filing of cases only by a court within whose local jurisdiction the bank branch of the payee, where the payee delivers the cheque for payment is situated.
  • It has been provided that if more than one prosecution is filed against the same drawer of cheques before different courts, upon the said fact having been brought to the notice of the court, the court shall transfer the case to the court having jurisdiction as per the new scheme of jurisdiction.
  • The main objective of the ordinance is to ensure that a fair trial is conducted keeping in view the interests of the complainant by clarifying the territorial jurisdiction for trying the cases for dishonour of cheques.

The Supreme Court, in 2014, had passed a judgment that if a cheque was received from someone and it bounces, then the jurisdiction for initiating action lies in the State where it was issued. However, this judgment was not payee-friendly and hence the government had to come out with this solution.

Benefits:

  • The clarification of jurisdictional issues may be desirable from the equity point of view as this would be in the interests of the complainant and would also ensure a fair trial.
  • The clarity on jurisdictional issue for trying the cases of cheque bouncing would increase the credibility of the cheque as a financial instrument.
  • This would help the trade and commerce in general and allow the lending institution, including banks, to continue to extend financing to the economy, without the apprehension of the loan default on account of bouncing of a cheque.

Section 138 of the NI Act:

  • The Section 138 of the NI Act deals with the offence pertaining to dishonour of cheque for insufficiency, etc., of funds in the drawers account on which the cheque is drawn for the discharge of any legally enforceable debt or other liability.
  • It provides for penalties in case of dishonour of cheques due to insufficiency of funds in the account of the drawer of the cheque.

The object of the NI Act is to encourage the usage of cheque and enhancing the credibility of the instrument so that the normal business transactions and settlement of liabilities could be ensured.

The Negotiable Instruments (Amendment) Bill, 2015 was introduced in Lok Sabha in May, 2015 and was passed by Lok Sabha. However, since the Rajya Sabha was adjourned sine die on 13th May, 2015, the Bill could not be discussed and passed by that House and the Bill could not be enacted.

Sources: The Hindu, PIB, BS.

New demand by States could hit GST rollout

The States have demanded that the Centre compensate them fully for any loss of revenue during the first five years of transition to the new GST tax regime. This is a setback to the government’s plan of rolling out the Goods and Services Tax (GST) by April 1, 2016.

  • While, the Centre has proposed to compensate the States, fully for the first three years, followed by three-fourths of the losses in the fourth year and half during the fifth.

Other demands by the states:

  • They want the power to levy additional sales tax over and above the GST on tobacco and tobacco products.
  • Some States want the purchase tax be not subsumed in the GST. However, if it were to be merged, then they should be awarded compensation for 15 years.
  • The States have also raised concerns over the proposed provision of an additional 1% tax over and above the GST, which the Centre offered as an assurance against apprehensions of loss of revenue.

GST:

The goods and services tax (GST) is a comprehensive value-added tax (VAT) on goods and services. It is an indirect tax levied on manufacture, sale and consumption of goods as well as services at a national level.

  • Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.
  • The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.
  • Experts say that GST is likely to improve tax collections and boost India’s economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

What are the benefits of GST?

  • Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.
  • It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).
  • Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies?

  • In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

The bill on GST, which will be the biggest tax reform after 1947, was introduced in the Lok Sabha in December last year. A single rate of GST will replace central excise, state VAT, entertainment tax, octroi, entry tax, luxury tax and purchase tax on goods and services to ensure seamless transfer of goods and services.

Sources: The Hindu, gstindia.com.

India Signs Legal Agreement with the World Bank

The Loan and Project Agreements for World Bank (IBRD) assistance of US$ 400 million for Tamil Nadu Sustainable Urban Development Project were signed between the Government of India/ Government of Tamil Nadu and World Bank recently.

  • The objective of the project is to improve urban services in participating Urban Local Bodies (ULBs) in a financially sustainable manner and to pilot improved urban management practices in selected cities.
  • The total project size is US$ 600 million, out of which World Bank support is US$ 400 million.

The project consists of following three main components:

  • Investment in Urban Services: The project will support improvement in range of urban services, including water, sewerage, municipal solid waste, urban transportation, sewerage management and storm water drainage. The project also envisages creation of a reserve fund to provide credit enhancements for municipal bonds and other market based Loan instruments issued by ULBs.
  • Result Based Grants for Urban Governance: The project will provide results-based grants to eligible ULBs to implement new urban-management models that strengthen governance and financial sustainability.
  • Urban Sector Technical Assistance: The project will support strengthening the capacity of ULBs and urban sector officials.

Sources: PIB.

India signs pact on automatic exchange of tax information

India has finally signed the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information. The declaration to comply with the provisions of the agreement was signed in Paris.

  • 54 countries have already joined the MCAA.
  • India is among six countries that joined this pact in Paris, taking the number to 60.
  • The target is to reach 94 countries by 2017.

Details:

  • The new system, also known as the Common Reporting Standards (CRS) on Automatic Exchange of Information (AEOI), is very wide in scope and obliges the treaty partners to exchange a wide range of financial information, including that about the ultimate controlling persons and beneficial owners of entities.
  • To be able to comply with the new system, amendments have been made to section 285BA of the Income Tax Act, 1961. Necessary rules and guidelines are being formulated in consultation with financial institutions.
  • Previously, information was exchanged between countries on the basis of specific requests relating to cases of tax evasion and other financial crimes.
  • AEOI, when fully implemented, sets up a system wherein bulk taxpayer information will periodically be sent by the source country of income to the country of residence of the taxpayer.

Benefits of the Agreement:

  • This would be the key to prevent international tax evasion and avoidance and would be instrumental in getting information about assets of Indians held abroad including through entities in which Indians are beneficial owners.
  • This will help the Government to curb tax evasion and deal with the problem of black money.

Sources: PIB, BS.

Khoya Paya web portal

The government of India recently launched the Khoya Paya web portal.

About the Portal:

  • The Khoya Paya portal is a citizen based website to exchange information on missing and found children.
  • It has been developed by the Ministry of Women and Child Development and the Department of Electronics and Information Technology (DeitY).
  • The Khoya Paya website is an enabling platform, where citizens can report missing children, as well as sightings of their whereabouts without wasting much time.
  • The ‘Found’ children can also be reported on this web portal. The reporting can be done through text, photographs, videos and other means of transmitting and uploading information to the KhoyaPaya site.
  • Information about missing and sighted children can be uploaded at Khoyapaya.gov.in.

The missing children are a cause of deep concern not only for the Government but also for the child protection institutions, society and above all for the parents. These children are vulnerable to the mental and physical assault which leads to mental trauma for these children. Most of the missing children are trafficked for labour, for sexual exploitation, abducted, or kidnapped, or due to crimes against children. They could be runaways from home, or simply be lost. This is the reason that it is not only important to get the information related to these missing children, but it is equally important that the information is exchanged speedily to locate the children. The Khoyapaya web portal will facilitate in the speedy reporting of missing and found children.

Jharkhand tops the list of states which see cases of missing children and those of child trafficking. These children mostly end up working as child labour in big cities or are thrown into sex trade. In almost all these cases, the families of such children are extremely poor, illiterate and can’t even afford three meals a day.

Sources: PIB.

RBI lowers repo rate to 7.25 per cent

The Reserve Bank of India in its second bi-monthly policy, announced recently, has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5% to 7.25% with immediate effect. It has also lowered its growth estimate for this fiscal to 7.6% flagging the risks of a below-par monsoon and higher inflation by early next year.

Key rates:

  • Repo Rate- 7.25%
  • Cash reserve ratio (CRR): 4.0% of net demand and time liabilities (NDTL)
  • Reverse repo rate: 6.25%
  • Marginal standing facility (MSF): 8.25%

Key terms:

Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with the RBI. If the central bank decides to increase the CRR, the available amount with the banks comes down. The RBI uses the CRR to drain out excessive money from the system.

Repo Rate is the rate at which the RBI lends money to commercial banks. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI. A reduction in the repo rate helps banks get money at a cheaper rate and vice versa. The repo rate in India is similar to the discount rate in the US.

Reverse Repo rate is the rate at which the RBI borrows money from commercial banks. An increase in reverse repo rate can prompt banks to park more funds with the RBI to earn higher returns on idle cash. It is also a tool which can be used by the RBI to drain excess money out of the banking system.

Marginal standing facility (MSF) rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities.

Sources: The Hindu, RBI.