Indian start-ups: raised funds? - don’t miss - deadline 31st May’18

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Specified Financial Transaction

Every Indian Startup (Unlisted Indian Company) which has raised funds in the FY 2017-18 need to ensure compliance and report the same as a Specified Financial Transaction under section 285BA of the Income Tax Act, 1961 read with Rule 114E.

Transactions covered:

1. Debenture or Bond Issue - Receipt of Rs.10 Lakh or more from each Person

2. Issue of Shares ((Including Share Application Money)) - Receipt of Rs.10 Lakh or more from each Person

Forms to be filed & Content:

• Form 61A – Due Date 31st May 2018

• Name, Address, type, PAN, DOB / DOI, Phone, Email, Transaction Value etc.

Section 139A read with Rules 114B to 114D

Every person is required to quote his PAN in case of specified transactions, relevant clause given below:

1. Sale or Purchase of Shares of an Unlisted Company – Rs.1Lakh and above

2. Payment for acquiring Debenture or Bond of any company - Rs.50K and above

If the said person (investor), does not have PAN, one can make a declaration in Form 60 to such Company. The Company is mandated to verify the PAN or Form 60 (as the case may be).

The said Form 60 (wherever applicable) is required to be filed in Form 61 with the Income Tax Authorities and the Company needs to retain Form 60 for 6 years from end of Financial Year. The acknowledgement number of Form 61 filed is a requirement while filing of Form 61A.

Consequences of Non-Filing

Penalty (S.271FA) of Rs.100 per day of default or on receiving notice, Rs.500 per day of default

Issue & Challenges:

Proviso to Rule 114B says, any person not holding PAN can submit Form 60, however, the format for Form 60 states, the form is applicable for Individual and Persons (not being a company or firm) only. The question arises, if a Non-Resident LP/Company invests in the Indian Company and does not hold PAN, what should be the solution? The Rules do allow to obtain Form 60, however, the Form 60 itself does not allow the same.

Note:

The above article is written with a limited scope to sensitize Startup companies which have raised funds from Resident or Non-resident Investors. The above is not exhaustive and there are other list of transactions, that may also be applicable to the company. It is advised to read the law before acting upon.