What is a Derivative? 

A Derivative is a (financial) security or instrument, the value of which depends on underlying asset or group of assets or a benchmark.   It is a contract between two or more parties, and its price is determined by fluctuations in the underlying asset.  Examples of underlying assets in case of derivatives are shares /stocks, bonds, indexes, currencies, interest rates and commodities. 

Derivatives are most commonly used to hedge the risk of abnormal fluctuations, be it price of share or interest rate or exchange rates of currencies. At the same time, derivatives are also used as a speculation tool where the speculators engage in trading them with an objective to gain (arbitrage) from such abnormal fluctuations.  Most commonly used derivative contracts as Forward Contracts, Exchange Traded Futures and Options (in stocks and currencies), Interest Rate Swaps, Currency Swaps, etc.

Read more: Derivatives Under Fema

In this edition, we bring to you certain important articles on various aspects.

We have summarised the proposals of paper released by CBDT on Rule 10 of Income Tax Rules which deals with attribution of profit to PE. This is a welcome paper by CBDT which would lead to tax certainty. We request all of you to kindly read the summary and share your comments to CBDT at the earliest.

The next article is on ‘Derivates under FEMA’. In this article, we bring to you the basic concepts of derivates and the FEMA regulations applicable to such derivatives. My team also wrote a piece on the global data protection regulations.

Read more: SBS Wiki E Journal May 2019

Key Topis:

AUDIT

• AUDIT CONSIDERATIONS FOR BANK GUARANTEE

INDIRECT TAX

• COMPOSITION SCHEME ON SERVICES

DIRECT TAX

• SECTION 79 OF INCOME TAX ACT, 1961

UPDATES

COMPANIES ACT, 2013

• RULES, CIRCULARS, NOTIFICATIONS AND ORDERS ISSUED DURING THE MONTH OF APRIL, 2019

In this edition, we bring to you certain important articles on various aspects. 

The article on ‘Changes to Real Estate Sector – GST Perspective’ deals with the recent notifications issued in the context bringing changes to taxation aspects in real estate sector dealing with residential apartments. The rate of tax of 5% which is applicable for new projects which commences on or after 01.04.19 is coming without credit. Even though the new rate appears to be lower than old rate of 12%, the customer would be paying more tax because the credit which was erstwhile allowed and now not being allowed would sit in the cost of project on which customer would be asked to pay 5%. However, under the erstwhile scheme certain builders were collecting 12% and also not passing the benefit of input tax credit which has put the customer in highly disadvantageous position. Now that the builder is not allowed to avail credit, the question of passing of such benefit would not arise and accordingly the customer is benefitted to such an extent. 

Read more: SBS Wiki E Journal Aprl 2019