Tag: Tax

Investing in India: An Overview of Legal Considerations – 2025 Checklist

Insights | February 5, 2025 | Practice Area: , , , , , , ,

Foreign investment continues to play a crucial role in India’s economic growth with India achieving the milestone of having received USD 1 trillion of foreign direct investment since April 2000. While the cumulative FDI received in the financial years ended March 31, 2023, and March 31, 2024 remained similar, there has been an increase in the FDI received between April 2024 to September 2024 in comparison to previous years.
This note examines certain key legal considerations for foreign investors investing in India and highlights key updates included in the legal framework during the calendar year 2024.

Carbon Border Adjustment Mechanism

Implementation of the EU’s Carbon Border Adjustment Mechanism and its Implications

Insights | January 9, 2025 | Practice Area: , , , , ,

The European Union’s Carbon Border Adjustment Mechanism (“CBAM”), applicable to imports from ‘third countries’ (i.e., non-EU countries), endeavors to impose a price on emissions in respect of the production and supply of carbon-intensive goods. By ensuring that a price is paid for such embedded emissions, the CBAM aims to make the carbon price of imports equivalent to that of domestic production, especially when third countries do not appropriately impose such price.
Although the CBAM has been mainly presented as a climate measure, it may also end up operating as a unilateral trade restriction designed to protect EU manufacturing. Several countries, including India, have labeled the CBAM as protectionist. While the global implications of the CBAM appear to be diverse, certain countries, including developing and newly industrialized nations, have claimed to be the worst hit, while developed countries are likely to have less carbon-intensive production processes.
The CBAM’s compliance requirements are expected to reduce the profits of Indian exporters in key sectors. Indian manufacturers from key trade-exposed industries (including those that are energy-intensive) are further poised to incur an increase in fuel costs, leading to a decrease in export earnings.
While India has discussed retaliatory measures, it is also pursuing the option of getting its Carbon Credit Trading Scheme, 2023 recognized by the EU and aligning it with the CBAM. Separately, the EU and India are engaged in talks on a proposed Free Trade Agreement, where India has raised concerns about the CBAM being similar to non-tariff barriers.
However, consistent with India’s own goals, the CBAM could also offer potential synergies, including in terms of green hydrogen partnerships and increased renewable energy deployment. Indian producers and exporters could view the CBAM as an opportunity to scale up sustainability-driven practices, including to enhance their positioning in a globally competitive market. Going forward, while carbon reporting and emissions monitoring will be essential, Indian companies should also consider investing in appropriate R&D, including with respect to emerging technologies.

corporate restructuring

Jurisdiction of the National Company Law Tribunal in Corporate Restructurings: Protecting Tax Revenue as Public Interest

Insights | December 23, 2024 | Practice Area: ,

In India, the National Company Law Tribunal (“NCLT”) has, on several occasions, rejected or scrutinized schemes of corporate restructurings based on objections raised by the Income Tax Department (“ITD”). These objections often focus on whether the scheme is structured primarily to avoid taxes, taking advantage of set-off of losses or avoidance of tax liabilities by overvaluation of assets. This note discusses case law where the NCLT has taken into account tax matters and evaluated the impact of the General Anti Avoidance Rules (“GAAR”) as a matter of ‘public interest’, thus setting important precedents in Indian corporate jurisprudence.

carbon taxes

Proactive Pathways to Navigate Emerging Carbon Taxes

Insights | December 11, 2024 | Practice Area: , ,

The global focus on mitigating climate change has spurred the swift development and implementation of policies aimed at curbing greenhouse gas emissions. Among these measures, carbon taxes and mechanisms such as the European Union’s Carbon Border Adjustment Mechanism (“EU CBAM”) have emerged as pivotal tools for integrating environmental accountability into global economic activities. These policies are poised to bring substantial changes to the dynamics of international trade.

For Indian exporters, particularly those in carbon-intensive sectors like iron and steel, cement, fertilizers, aluminum, electricity, and hydrogen, the EU CBAM represents both a challenge and an opportunity. While the regulation primarily imposes compliance obligations on EU importers, Indian businesses must act swiftly. The need to monitor evolving CBAM regulations, forecast financial impacts, optimize supply chains, and establish robust governance frameworks has never been more critical.

This note delves into the framework of the EU CBAM, examines its implications for Indian exporters, and highlights practical strategies businesses can adopt to navigate this shift towards a carbon-conscious trade landscape.

share swaps

Cross-Border Share Swaps: Amendments to Regulatory Framework

Insights | September 12, 2024 | Practice Area: , ,

In order to simplify cross-border share swaps and address certain challenges under the existing regulatory framework, the Government of India has recently amended the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. The amendment became effective on August 16, 2024. Previously, permissible share swaps were restricted to issue of equity instruments by an Indian entity to foreign residents in exchange for equity instruments of another Indian company. The amendment now allows secondary share swaps and exchanges of equity instruments for equity capital of foreign companies. However, certain ambiguities persist, such as limitations on swaps involving Indian resident individuals and lack of guidance on downstream investments by Foreign Owned Controlled Companies (“FOCCs”) using share swaps. Further, Indian tax laws do not grant tax neutrality to swap structures unless conducted via merger or demerger, making such transactions taxable unless covered by a tax treaty benefit.

Direct Tax Vivad se Vishwas Scheme

Direct Tax Vivad se Vishwas Scheme, 2024

Insights | August 9, 2024 | Practice Area:

The pendency of litigation under the Income-tax Act, 1961 has been rising due to two key factors: increasing number of appeals and slow disposal of such appeals. To address this growing backlog and to build on the success of the previous Vivad se Vishwas Scheme, 2020, the government has proposed the Direct Tax Vivad se Vishwas Scheme, 2024 (“VSV Scheme, 2024”). This note provides an overview of the VSV Scheme 2024.

slump sale

Smooth Transitions: Navigating Succession in Business Transfers on Slump Sale Basis!

Insights | July 11, 2024 | Practice Area: ,

Succession of a business, in simple words, implies a change in ownership of a business from one person (“the predecessor”) to another (“the successor”). Section 170 of the Act deals with the provisions relating to income tax liability in the case of succession of business pursuant to any business restructuring – transfer of business, amalgamation, demerger, etc. This note discusses the tax implications that may arise pursuant to succession of a business by way of slump sale.

Indo-Pacific Economic Framework

The Indo-Pacific Economic Framework for Prosperity: Opportunities for Indian Companies

Insights | June 25, 2024 | Practice Area: , , , , ,

Along with 13 other countries (including the US, Japan, Singapore, South Korea and Australia), India has joined the Indo-Pacific Economic Framework for Prosperity (“IPEF”). Representing 40% of global GDP and almost 30% of international trade in goods and services, the IPEF is expected to promote economic activity, investment, and sustainable growth in the Indo-Pacific region. It also aims to address emerging economic challenges – such as those related to trade, supply chains, clean energy (including green infrastructure), taxation and anti-corruption.
While agreements in respect of a clean economy and a fair economy, respectively, were reached in June 2024 at the IPEF Ministerial meeting held in Singapore, the IPEF agreement on supply chains, signed in November 2023, came into force earlier this year (February 2024).
The IPEF presents a unique opportunity for Indian companies to enhance competitiveness and expand their markets. By actively engaging with the framework, businesses in India can position themselves as key players in the dynamic Indo-Pacific landscape. Further, the IPEF presents an opportunity for India to strengthen economic cooperation with the US – which relationship, in turn, is likely to prove valuable for both Indian and American companies.

Payments to Micro and Small Enterprises

Payments to Micro and Small Enterprises (MSEs): Implications under Section 43B(h) of Income-tax Act, 1961

Insights | March 27, 2024 | Practice Area: , ,

To encourage prompt payment of dues to micro and small enterprises (“MSEs”), the Government of India introduced clause (h) in Section 43B of the Income Tax Act, 1961 with effect from financial year 2023-24. As per clause (h) of Section 43B, if an assessee makes payment to MSE after the time specified under the Micro, Small and Medium Enterprises Development Act, 2006, then deduction for such payment will be allowed in the year of actual payment. In this note we examine the stipulations outlined in Section 43B(h) of the IT Act and delve into its implications on the taxpayers.