In this edition, we bring to you certain important articles. The article on ‘Foreign Portfolio Investors – SEBI and FEMA Perspective’ will throw light on the regulations concerned with investments by personswho are residents outside India, where the investment size is less than 10% of the post issue share capital. The article on ‘Re-Initiation of Proceedings by IO – Validity’ under the Prohibition of Benami Transactions Act deals with analysis of recent High Court judgment of Delhi High Court, wherein the IO is allowed to issue a fresh notice in a situation where the earlier notice was quashed in light of certain technical gaps. The journal also covers an article on ‘TReDS for MSMEs – Treading the path to quick payments’, which is going to make MSME space more vibrant.

The article on ‘Gift of Immovable Property which is not a Capital Asset - Taxability Thereof’ deals with question of chargeability of tax under Section 56 in case where an immovable property is not a capital asset’. The article on ‘Corporate Governance and Role of Internal Audit’ places emphasis on the role of internal audit in improving the corporate governance by companies. The presentation on ‘CGST Amendment (Act) 2018’ deals with the various amendments brought to Central Goods & Services Tax Act, 2017 which is going to be effective from 01.02.2019 subject to notification being issued.

Read more: SBS Wiki E Journal Jan 2019

Introduction 

• As discussed in my previous article, currently there are 18 Standards on Internal Audit (SIA’s) issued by Institute of Chartered Accountants of India (ICAI). One among these standards is SIA 220 “Conducting overall Internal Audit Planning”. It is rightly said that “By failing to prepare, you are preparing to fail”, hence planning plays an important role in accomplishing the audit. 

• SIA 220 is not yet notified by Institute of Chartered Accountants of India (ICAI), hence it is voluntary in nature. 

• Before going into SIA 220 let’s learn the definition of Internal Audit which forms the crux of the standard. The definition is defined by ICAI in framework governing internal Audit. 

• “Internal Audit” provides independent assurance on the effectiveness of internal controls and risk management processes to enhance governance and achieve organizational objectives. 

• Institute of Internal Auditors (IIA) also defined “Internal Audit”. According to IIA Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. 

• To conduct an Internal Audit, a plan is to be formulated. Internal audit planning is conducted at two levels:
  • An overall internal audit plan for the entire entity is prepared for a given period (usually a year) and presented to the highest governing body responsible for internal audits, normally, the Board of Directors, or the Audit Committee.
  • Several specific internal audit plans are prepared for individual assignments to be undertaken covering some part of the entity and presented to the Chief Internal Auditor. Planning of the same is covered under SIA 310.
• In the case of Companies under Companies Act, 2013, which are subject to internal Audit as per section 138. it is a legal requirement for the Audit Committee or its Board of Directors to formulate the overall internal audit plan of the company. 

  Read more: SIA 220 - Conducting an Overall Internal Audit Planning

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1. Background:

India was one among the foremost Asian countries who have considered the idea of setting up an Export Processing Zone (EPZ) model to promote country’s exports in early 1970’s. In order to attract more foreign investment and provide an internationally competitive and hassle-free environment for export promotion in India, the concept of Special Economic Zone (SEZ) was introduced to replace EPZ.

In the year 2000, the SEZ policy was initially introduced under Foreign Trade Policy 2000. The policy was implemented through piecemeal and ad hoc amendments to different laws, besides executive orders from time to time. In order to overcome these drawbacks and to give a stable long-term policy framework with minimum regulation, the Special Economic Zone Act, 2005 (hereby referred to be” Act”) was introduced. The Act provided broad legal framework, covering all important legal and regulatory aspects of SEZ development as well as for Units operating in SEZs.

SEZ is a specific duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations, duties and tariffs. In other words, SEZ is a geographical region that has economic laws different from the country’s economic laws.

Read more: Overview on Procedure for Setting up a Unit in Special Economic Zone (SEZ)

Introduction

The Reserve Bank of India (RBI) is responsible for issuing currency, managing foreign exchange and regulating the financial system of the economy. It plays a key role in managing the flow of money in and out of the country. This is because for two reasons:

• The government wants to ensure that the source of such money being sent into or out of the country does not come from crime or end up being used for an illegal purpose
• To protect the local currency market from being destabilized due to the excessive outflow of the rupees.

What is LRS??

The Liberalised Remittance Scheme (LRS), introduced vide AP (Dir Series) Circular number 64, dated February 4, 2004, is one of the steps taken by the government towards easing the controls on foreign exchange movements in and out of the country in the process of liberalisation.

A remittance can be inward (i.e. when the amount comes into India from abroad) and outward (i.e. when the amount is sent from India to abroad). LRS is applicable only for the outward remittances made. This scheme is described as ‘liberalised’ because till the introduction of this scheme, the individuals were allowed to remit the amount abroad subject to compliances under FEM (Current Account Transactions) Rules, 2000 and with specific permission from RBI wherever required.

Read more: Liberalised Remittance Scheme (LRS)