Decoding the Finance Bill 2025: Tax Implications for NRIs, Trusts, and Businesses

The Finance Bill 2025 introduces several significant amendments aimed at refining India’s taxation framework. These changes impact non-residents, business trusts, and charitable institutions, aiming to provide clarity, ease of compliance, and strategic incentives for investments. Let’s break down these key changes analytically and illustrate their real-world implications.

1. Taxation of Non-Residents: Rationalization & Relief Measures

1.1. No Tax on Export-Related Transactions

Existing Position:

Income earned by a non-resident is taxable in India if it arises or is deemed to arise in India. However, ambiguity existed regarding income from procurement and export of goods from India, raising concerns about potential tax liabilities under significant economic presence (SEP) rules.

New Amendment:

A clarification under Section 9 ensures that non-residents engaged in purchasing goods from India for export will not be considered as having a taxable presence in India.

Impact & Illustration:

Example: A Singapore-based trading company procures textiles from India and exports them to the US. Under previous rules, there was uncertainty on whether it had a tax presence in India. With this amendment, such transactions will not create a tax liability in India, fostering a better environment for exporters.

1.2. Tax Benefits Extended for Sovereign Wealth & Pension Funds

Existing Position:

Foreign sovereign wealth funds (SWFs) and pension funds investing in Indian infrastructure projects enjoyed tax exemptions under Section 10(23FE) until March 31, 2025.

New Amendment:

The exemption period has been extended until March 31, 2030, offering long-term certainty to foreign investors.

Impact & Illustration:

Example: A Canadian pension fund investing in Indian highways now benefits from a five-year additional tax holiday, encouraging stable foreign investments in infrastructure.

1.3. Presumptive Taxation for Electronics Industry Service Providers

New Amendment:

A new Section 44BBD proposes that non-residents offering technical services for setting up electronics manufacturing in India can opt for a simplified presumptive tax scheme, where 25% of their revenue is deemed as taxable income.

Impact & Illustration:

Example: A Taiwanese company providing chip-manufacturing consultancy earns ₹10 crore in India. Instead of complex tax calculations, only ₹2.5 crore will be considered taxable, reducing compliance burdens and boosting ease of doing business.

1.4. Expansion of Tonnage Tax Benefits

New Amendment:

The tonnage tax scheme, which provides a simplified tax mechanism for shipping businesses, is now extended to inland vessels under the Inland Vessels Act, 2021.

Impact:

This move supports inland waterways development, making India’s logistics sector more cost-efficient.

2. Strengthening Block Assessments & Compliance Framework

2.1. Virtual Digital Assets (VDAs) as Undisclosed Income

New Amendment:

From February 1, 2025, cryptocurrencies, NFTs, and other VDAs will be considered part of undisclosed income if not reported correctly in tax filings.

Impact:

The move ensures stricter enforcement against crypto tax evasion.

2.2. Clear Process for Handling Multiple Searches

New Amendment:

If tax authorities conduct multiple searches on the same taxpayer, the first assessment must be completed before initiating the next one.

Impact:

This prevents unnecessary duplication and streamlines tax proceedings.

2.3. Time Limit for Completing Block Assessments Extended

New Amendment:

Currently, tax assessments must be completed within 12 months from the last search authorization. The revised rule extends this to 12 months from the end of the quarter when the last search was conducted.

Impact:

This provides tax authorities with better time management to handle complex investigations efficiently.

3. Taxation Changes for Business Trusts (REITs & InvITs)

3.1. Long-Term Capital Gains Relief

New Amendment:

Business trusts now qualify for pass-through taxation on long-term capital gains, allowing investors to claim a tax exemption on gains up to ₹1.25 lakh.

Impact & Illustration:

Example: An investor in an Infrastructure Investment Trust (InvIT) makes ₹2 lakh in capital gains. With this amendment, only ₹75,000 (₹2 lakh – ₹1.25 lakh) is taxed at 12.5%, reducing overall tax liability.

4. Simplification for Charitable & Religious Trusts

4.1. Longer Registration Validity for Smaller Trusts

New Amendment:

Trusts with annual income below ₹5 crore will receive a 10-year registration validity, instead of the existing 5-year renewal requirement.

Impact:

This significantly reduces administrative burdens for small trusts.

4.2. Higher Limits for Specified Donations

New Amendment:

Previously, a donation of ₹50,000 or more made a donor a “specified person”, imposing stricter tax compliance. This limit is now raised to ₹1 lakh annually or ₹10 lakh lifetime.

Impact:

Encourages larger charitable donations by reducing unnecessary compliance.

Conclusion: A Strategic Push Towards Clarity & Efficiency

The Finance Bill 2025 aims to simplify compliance, encourage foreign investment, and boost tax efficiency across key sectors. For non-residents, exporters, and institutional investors, these changes bring greater certainty and reduced tax burdens. Additionally, the reforms in tax assessments and business trust taxation create a more structured and investor-friendly regime.

Key Takeaways at a Glance:

Category	Key Change	Impact
Non-Residents	Export-related transactions not taxed	Boosts trade by reducing uncertainty
Pension & SWFs	Tax exemption extended to 2030	Encourages long-term infrastructure investments
Electronics Sector	New presumptive taxation (25%)	Simplifies tax for tech providers
VDAs (Crypto, NFTs)	Classified as undisclosed income	Strengthens compliance and tax enforcement
Business Trusts	Pass-through taxation for LTCG	Reduces investor tax burden
Charitable Trusts	10-year registration for smaller trusts	Simplifies compliance for small entities

As businesses and individuals adapt to these changes, it is advisable to assess how these amendments impact tax liabilities and investment strategies to optimize financial planning effectively

Budget 2025 Unveiled: Key Tax Reforms and Compliance Changes

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman on February 1, 2025, introduces significant reforms aimed at stimulating economic growth, supporting the middle class, and ensuring fiscal stability. The budget proposes crucial measures to provide relief to individuals and small businesses, focusing on tax rationalization and compliance simplification.

The Finance Bill 2025 includes amendments to tax and corporate laws, emphasizing:

• Personal Income Tax Reforms, particularly for the middle class.

• Rationalization of TDS/TCS provisions.

• Encouragement of voluntary compliance.

• Reduction in compliance burden.

• Enhancing Ease of Doing Business.

• Incentives for employment and investment.

Additionally, the new Income-tax Bill 2025 is set to be released next week. Below are the key tax and corporate law changes proposed in the budget.

Income Tax Act, 1961 - Key Proposals

1. Changes in Personal Income Tax

• No changes in tax rates for those opting for the old tax regime.

• No changes in surcharge and education cess rates.

• New tax regime (Section 115BAC) tax slabs revised as follows:

  Total Income (₹)	New Tax Rate (Assessment Year 2026-27)
  Upto ₹4,00,000	Nil
  ₹4,00,001 - ₹8,00,000	5%
  ₹8,00,001 - ₹12,00,000	10%
  ₹12,00,001 - ₹16,00,000	15%
  ₹16,00,001 - ₹20,00,000	20%
  ₹20,00,001 - ₹24,00,000	25%
  Above ₹24,00,000	30%

• Section 87A tax rebate limit increased from ₹7 lakh to ₹12 lakh.

• Maximum rebate under Section 87A increased from ₹25,000 to ₹60,000.

• Income from capital gains under Sections 111A and 112 excluded from 87A rebate calculation.

2. TDS/TCS Changes

• TDS rate under Section 194LBC reduced from 25%/30% to 10%.

• Increase in TDS threshold limits for various provisions:

  Section	Nature of Income	Current Threshold (₹)	Proposed Threshold (₹)
  193	Interest on securities	Nil	10,000
  194	Dividend	5,000	10,000
  194A	Interest on deposits	40,000	50,000
  194B	Lottery, Betting	10,000 aggregate	10,000 per transaction
  194D	Insurance Commission	15,000	20,000
  194H	Commission & Brokerage	15,000	20,000
  194-I	Rent	2,40,000 (Yearly)	50,000 per month
  194J	Professional Fees	30,000	50,000
  194LA	Compensation for land acquisition	2,50,000	5,00,000

• TCS on sale of goods (Section 206C(1H)) withdrawn from April 1, 2025.

• Higher TDS/TCS for non-filers (Section 206AB & 206CCA) omitted.

• TCS rate on timber reduced from 2.5% to 2%.

• Liberalised Remittance Scheme (LRS) TCS threshold increased from ₹7 lakh to ₹10 lakh.

• No TCS on foreign education loans (under Section 80E(3)(b)).

3. Salary and House Property Income

• Perquisite limits for employer-provided benefits (like gas, electricity, medical travel) to be revised.

• Self-occupied house property valuation remains nil for up to two properties.

4. Income Tax Return (ITR) Updates

• Deadline to file updated tax returns extended from 24 months to 48 months.

• New penalties for late tax filings:

  Updated Return Filing Timeline	Additional Tax Payable
  Within 12 months	25% of tax + interest
  12-24 months	50% of tax + interest
  24-36 months	60% of tax + interest
  36-48 months	70% of tax + interest

5. Capital Gains Taxation

• ULIPs (Unit Linked Insurance Plans) now classified as capital assets if Section 10(10D) exemption does not apply.

• ULIPs included in the definition of Equity-Oriented Funds.

• Long-term capital gains tax for non-residents revised to 12.5% (from 10%).

• Securities held by investment funds will now be treated as capital assets.

6. Deductions and Incentives

• NPS Vatsalya Scheme introduced, allowing tax benefits on contributions made for minors:

  • Deduction of ₹50,000 under Section 80CCD(1B).

  • Taxable on withdrawal, except in case of death.

  • Partial withdrawals up to 25% exempt.

Final Thoughts

The Union Budget 2025 brings strategic tax reforms focused on reducing the compliance burden, encouraging voluntary tax compliance, and providing relief to middle-class taxpayers. The revisions in TDS/TCS thresholds, tax slabs, and rebates will have a positive impact on disposable incomes and investment decisions. Businesses and individual taxpayers should analyze these changes carefully to plan their finances efficiently.

This budget signifies a progressive shift towards simplification and economic growth, ensuring better ease of doing business and tax compliance in the years ahead

The New Income Tax Bill, 2025: Simplification for Non-Profit Organisations

The New Income Tax Bill, 2025, simplifies and consolidates the income tax provisions for non-profit organisations. It merges scattered provisions into Part B of Chapter XVII, covering registration, income, commercial activities, compliances, violations, eligibility for donations, and interpretations.

Key Highlights:

• The term ‘registration’ replaces ‘approval’ to simplify compliance.

• ‘Registered non-profit organisation’ refers to entities with valid registration under Sections 12A, 12AA, 12AB, or 10(23C) of the Income-tax Act, 1961.

• Simplified accumulation of income provisions.

• Removal of redundant provisions and reduction of cross-references.

1. Meaning of Non-Profit Organisation

Previously, organisations engaged in charitable activities were categorized differently, such as Educational Institutions, Universities, and Hospitals. Now, all such entities will be classified as Non-Profit Organisations (NPOs).

Example:

• Earlier, a hospital operating as a charitable trust was referred to as a ‘Charitable Trust’ under Section 2(15).

• Now, it will simply be called an NPO, making legal references more straightforward.

2. Existing Number of Taxpayers (Charitable Trusts)

As per Income Tax Department data:

Year	Number of NPOs Filed	Amount Spent on Charitable & Religious Activities
2023-24	2,50,682	₹10.01 lakh crores

3. Reasons for Simplification

The current Act has provisions related to charitable trusts scattered across multiple chapters, leading to complexity. The new Bill:

• Consolidates all provisions into Part B of Chapter XVII.

• Simplifies provisions by removing redundant clauses and multiple cross-references.

Example:

• Earlier: Section 11 had 13 explanations and 16 provisos, making it difficult to interpret.

• Now: A structured and simplified framework is provided for easier compliance.

4. Arrangement of New Sections/Clauses

Clause	Key Topic
332	Registration & tax exemption conditions
333	Taxability of income for NPOs
334	Taxability in case of violations
335	Rules for income accumulation
336	Taxability of specified income
337	Rules for income application
338	Taxability of accreted income

5. Registration of Charitable Trusts

• The term ‘registration’ replaces ‘approval’ for clarity.

• Example:

  • Earlier, registration under Section 10(23C) and 12AB had different terms and procedures.

  • Now, all registrations follow a unified structure under Clause 332.

• The Bill provides a clear tabular format for application deadlines, order passing, and validity.

6. Structure of Part XVII-B

The Bill divides provisions into seven sub-parts:

Sub-Part	Topics Covered
i	Registration process for NPOs
ii	Taxability of regular & specified income
iii	Commercial activities & public utility rules
iv	Compliances: Accounts, Audit, Returns
v	Violations: Taxation of accreted income
vi	Approval for donations (Old 80G)
vii	Interpretations

7. Condition: 85% Income Application

• No change in taxability if an NPO applies 85% of its regular income for charitable purposes.

• Example:

  • If an NPO earns ₹10 crores, it must apply at least ₹8.5 crores towards charitable activities to remain tax-exempt.

  • If it applies only ₹7 crores, the shortfall of ₹1.5 crores will be taxed unless properly accumulated.

8. Taxability of Capital Gains

• Major Change: Exemptions for reinvestment of capital gains are no longer available.

• Example:

  • Earlier: If an NPO sold land worth ₹5 crores and reinvested the amount in another capital asset, capital gains tax was exempt.

  • Now: The entire sale amount is considered income, and the NPO must apply 85% of ₹5 crores towards its objectives to claim exemption.

  • If 85% is not applied, the remaining portion is taxable as per normal tax rates.

  • Accumulation of capital gains is allowed only under prescribed conditions, requiring an official declaration and utilization plan within a specified period.

9. Provision for Accumulation of Income

• Earlier, two types of accumulations were allowed:

  1. Section 11(2): Allowed accumulation for up to 5 years.

  2. Explanation 1(2) to Section 11(1): Allowed 1-year deemed application.

• New Bill: Simplifies accumulation under Clause 342, reducing litigation risks.

Example:

• If an NPO receives ₹1 crore but doesn’t use it immediately, it can accumulate it for future use by filing a prescribed form with clear utilization intent.

• Accumulated income must be utilized within the permitted timeframe, or it becomes taxable.

10. Concept of Tax Year & Financial Year

• ‘Previous year’ and ‘assessment year’ are replaced with ‘tax year’.

• Example:

  • Earlier: The assessment year for FY 2024-25 was called AY 2025-26.

  • Now: It is simply referred to as ‘Tax Year 2025’.

  • The new law applies from April 1, 2026, meaning FY 2026-27 is the first applicable year.

Conclusion: The Income Tax Bill, 2025, aims to make compliance simpler and clearer for NPOs. The changes include consolidation of rules, streamlined registration, simplified tax treatments, and reduced cross-references. Understanding these changes will help NPOs comply effectively and plan their finances better.

Outstanding Tax Demands Notices : Reasons, Response Strategies, and Payment Options

The Income Tax Department may issue a demand notice if they determine that additional tax is due under your PAN. This could be due to various reasons such as discrepancies in tax filings, errors in tax credit claims, or adjustments post-assessment. It is essential to understand why you have received such a notice and how you can respond effectively.

Why Should You Respond to an Outstanding Demand?

Ignoring an outstanding demand can lead to the automatic confirmation of the liability. This may result in the adjustment of the demand against any refunds due or it being reflected as a pending liability in your tax records. Responding in a timely manner helps in either clearing or rectifying the demand based on its accuracy.

How to Check for an Outstanding Demand

To verify any pending demand:

1. Log in to the e-Filing portal.

2. Navigate to Pending Actions > Response to Outstanding Demand.

3. The outstanding demand page will display details of past and existing demands, allowing you to either pay now or submit a response.

4. Notifications are also sent via email and SMS to your registered contact details.

Common Reasons for Outstanding Tax Demands and Corrective Measures

Reason for Demand	Cause	Corrective Action
Mathematical or Clerical Errors	Discrepancies in return calculations leading to underpayment of tax.	Cross-verify the figures in your return and rectify errors by filing a revised return or rectification request.
Disallowed Deductions	Claims for deductions or exemptions not supported by proper documentation.	Provide necessary supporting documents or amend the return to remove the disallowed deduction.
Mismatch in Tax Credit (TDS/TCS)	Differences between the reported TDS and the credit available in Form 26AS.	Cross-check Form 26AS and rectify errors in the return or request rectification from the deductor.
Non-filing or Late Filing of Return	Failure to file returns on time can lead to interest and penalties.	File the pending return with applicable late fees and penalties.
Assessment Adjustments	Post-processing modifications by the Income Tax Department after scrutiny.	Review the adjustments and file a rectification request if errors exist.
Interest and Penalties Imposed	Delay in payment of taxes or short payment of advance tax.	Ensure timely payment of advance tax and clear any outstanding liabilities.

What to Do If You Disagree with the Demand

If you find discrepancies in the demand, you can choose Disagree with Demand (Full or Part) and provide relevant details. Steps include:

1. Selecting a valid reason for disagreement from the provided list.

2. Submitting supporting evidence to justify your claim.

3. If only a part of the demand is disputed, paying the undisputed amount.

4. For reasons not listed, selecting Others and detailing the explanation.

How to Pay the Outstanding Demand

If the demand is correct, you can pay through the e-Filing portal using:

• Online Methods: Net Banking, Debit Card, UPI, or Payment Gateway.

• Offline Methods: NEFT/RTGS or Over-the-counter payment at designated banks.

Accessing Past Responses and Notices

To track past responses:

1. Log in to the e-Filing portal.

2. Navigate to Pending Actions > Response to Outstanding Demand.

3. Click View against any previously submitted responses.

4. Download notices, including Section 245 adjustment notifications, for reference.

Step-by-Step Guide to Submitting a Response

If Demand is Correct and Unpaid:

1. Select Demand is Correct and confirm.

2. Choose Not Paid Yet and proceed to make the payment.

3. Upon payment, a success message with a Transaction ID will be displayed.

If Demand is Correct and Already Paid:

1. Select Demand is Correct and confirm.

2. Choose Already Paid and Challan has CIN.

3. Enter details of the tax payment, attach proof, and submit.

If Disagreeing with Demand:

1. Select Disagree with Demand (Full or Part) and choose a reason.

2. Provide supporting evidence for the disagreement.

3. If partially agreeing, pay the undisputed portion before submission.

4. Confirm the submission and note the Transaction ID for tracking.

Final Thoughts

Handling an income tax demand notice promptly and correctly ensures compliance and prevents unnecessary liabilities. Whether you agree with the demand or need to dispute it, following the correct process will help resolve issues efficiently. Keep track of all communications and maintain copies of tax payments and responses for future reference.

SNRR Accounts: A Smart Move for Foreign Transactions or a Regulatory Burden

As India continues to expand its global trade and investment ecosystem, Special Non-Resident Rupee (SNRR) accounts have emerged as a key banking tool for non-resident businesses and investors. But while these accounts offer significant benefits in cross-border transactions, they also come with regulatory complexities and restrictions.

Is an SNRR account truly an efficient financial instrument, or is it just another layer of compliance that non-residents must navigate? Let’s break it down with a critical, analytical, and comparative approach.

Understanding the SNRR Account: Purpose & Mechanism

Unlike regular non-resident accounts (NRE or NRO), which serve primarily personal banking needs, an SNRR account is tailored for business transactions in INR. This makes it a preferred choice for foreign investors, businesses, and trade partners engaging in rupee-based operations in India.

Key Functionalities of an SNRR Account

✔ Designed exclusively for business transactions (not personal use).
✔ Funds are held in INR, reducing forex risks for businesses.
✔ No interest earnings, as the account is transactional.
✔ Freely repatriable, ensuring flexibility for international transactions.
✔ Regulated under FEMA (Foreign Exchange Management Act), ensuring legal clarity.

But how does it compare to other non-resident banking options?

SNRR vs. NRE vs. NRO: Which Account Serves You Best

The choice between SNRR, NRE, and NRO accounts depends on the nature of the financial transactions involved. Below is a structured comparison:

Feature	SNRR Account	NRE Account	NRO Account
Purpose	Business transactions	Personal savings & investments	Managing Indian earnings (rent, pension, etc.)
Currency	INR only	INR, with repatriation	INR, with limited repatriation
Interest Earnings	No	Yes	Yes
Taxability	No tax on principal	No tax on interest	TDS applicable
Repatriation	Fully repatriable	Fully repatriable	Limited (subject to RBI approval)
Best For	Foreign businesses, trade, & investments	NRIs managing foreign earnings	NRIs earning income in India

Key Takeaways from the Comparison

✅ SNRR is best for businesses engaging in rupee transactions.
✅ NRE is ideal for NRIs looking for tax-free interest on savings.
✅ NRO is necessary for NRIs earning money in India but with repatriation restrictions.

While the SNRR account serves a unique commercial purpose, it may not always be the most flexible option, especially for NRIs with broader financial needs.

Critical Evaluation: Benefits vs. Limitations

Advantages of SNRR Accounts

✅ Avoids Foreign Exchange Volatility
By transacting directly in INR, businesses eliminate currency conversion risks, ensuring cost predictability.

✅ Seamless Repatriation of Funds
Unlike NRO accounts, where RBI approval is required for fund repatriation, SNRR accounts allow unrestricted outward remittances.

✅ Regulatory Clarity for Foreign Investors
Foreign companies investing in Indian stock markets, bonds, or joint ventures find SNRR accounts aligned with FEMA norms, reducing compliance risks.

✅ Enhanced Ease of Doing Business
For multinational companies and export-import (EXIM) traders, INR-based transactions reduce the complexity of forex hedging.

Limitations and Hidden Challenges

❌ No Interest on Deposits
Unlike NRE and NRO accounts, which earn interest, SNRR accounts generate zero returns—making them unsuitable for passive capital parking.

❌ Restricted to Business Transactions
Individuals looking to hold INR funds for personal use cannot use SNRR accounts, unlike the more flexible NRE/NRO options.

❌ Compliance Burden Under FEMA
Transactions must be strictly documented to ensure compliance with FEMA, increasing regulatory complexity for non-residents unfamiliar with Indian banking laws.

❌ Non-Convertible to Other Accounts
An SNRR account cannot be converted into an NRE or NRO account, forcing account holders to close and open new accounts if their financial needs change.

Potential Regulatory Risks

The RBI periodically updates FEMA rules, which could impact fund flow regulations, taxation policies, or repatriation conditions for SNRR accounts. Businesses must stay updated on regulatory changes to avoid compliance issues.

Is an SNRR Account Right for You- A Strategic Decision Matrix

Scenario	Best Option	Reason
Foreign business trading with Indian entities	SNRR	Simplifies INR-based transactions
NRI earning rental income in India	NRO	Allows INR deposits, but repatriation is restricted
NRI with foreign earnings looking for savings	NRE	Tax-free interest and full repatriation
Foreign investor in Indian stock markets	SNRR	Aligned with FEMA guidelines for rupee transactions
NRI looking to invest in Indian FD schemes	NRE	Earns interest with repatriation benefits

Is an SNRR Account a Boon or a Regulatory Trap

SNRR accounts offer targeted advantages for businesses and investors dealing with INR transactions. The absence of forex risks, ease of repatriation, and regulatory clarity under FEMA make them an essential financial instrument for foreign businesses in India.

However, they are not a one-size-fits-all solution. The lack of interest earnings, strict business-use restrictions, and non-convertibility to other account types make them less suitable for individual NRIs looking for flexible banking solutions.

Who Should Choose an SNRR Account?

✔ Foreign businesses transacting in INR.
✔ Investors in Indian stock markets, bonds, and securities.
✔ Export-import traders looking to simplify payment settlements.

Who Should Avoid It?

❌ NRIs looking for interest-earning accounts (NRE is better).
❌ Individuals needing savings & personal remittance flexibility (NRE/NRO is better).
❌ Passive investors who may not need business-related transactions.

Bottom Line

🔹 If your goal is business efficiency, low forex risk, and seamless repatriation, SNRR is a great choice.
🔹 But if you need interest earnings, personal fund flexibility, or currency diversification, NRE/NRO accounts are better suited.

Before choosing an SNRR account, carefully evaluate whether your financial needs align with its regulatory framework. A well-planned banking approach can help you maximize benefits while staying compliant with Indian banking regulations.

SNRR accounts may not be the right fit for every non-resident, but they are an indispensable tool for businesses engaged in Indian trade and investments. Understanding their benefits, limitations, and alternatives is key to making an informed decision.

Reclaim Your Forgotten Investments with SEBI’s MITRA Platform

Introduction

In a landmark move to safeguard investor interests and improve financial transparency, the Securities and Exchange Board of India (SEBI) has launched the MITRA platform. Introduced through a circular dated February 12, 2025, this innovative initiative is designed to assist investors in tracking and reclaiming their inactive and unclaimed Mutual Fund folios. Developed by Computer Age Management Services (CAMS) and KFIN Technologies, MITRA acts as a centralized search tool, enabling investors, nominees, and legal heirs to trace forgotten investments and update KYC details efficiently.

1. Background and Rationale

Many investors inadvertently lose track of their Mutual Fund investments, particularly those held in physical form with incomplete KYC details. Missing credentials such as PAN, email ID, or a valid address often result in folios being excluded from the Consolidated Account Statement (CAS), increasing the risk of fraudulent redemptions and mismanagement.

Challenges Faced by Investors

Issue	Root Cause
Forgotten Investments	Long-term holdings without periodic monitoring
Incomplete KYC	Missing essential details like PAN, email, or address
Unclaimed Folios	No investor-initiated transactions over extended periods
Fraud Vulnerability	Lack of up-to-date verification mechanisms

MITRA addresses these concerns by offering a centralized, user-friendly search mechanism to assist investors in reclaiming their rightful holdings.

2. Overview of the MITRA Platform

MITRA (Mutual Fund Investment Tracing and Retrieval Assistant) is a specialized digital platform that facilitates the recovery of inactive and unclaimed Mutual Fund folios. It serves as a valuable tool for:

• Investors seeking to reclaim forgotten investments.

• Nominees and legal heirs looking to trace inherited holdings.

• Regulators and fund houses aiming to enhance industry transparency.

The platform ensures secure and efficient access to unclaimed investments while minimizing the risk of fraud and unauthorized redemptions.

3. Key Features of MITRA

Feature	Description
Centralized Search Facility	Enables investors to track lost or unclaimed investments.
Encouragement for KYC Updates	Urges investors to update KYC details in compliance with SEBI norms.
Reduction of Unclaimed Folios	Aims to minimize the number of unclaimed Mutual Fund folios.
Enhanced Transparency	Strengthens financial system integrity through better investor awareness.
Fraud Mitigation Measures	Implements safeguards against unauthorized redemptions.

4. Classification of Inactive Mutual Fund Folios

A Mutual Fund folio is categorized as inactive if:

• There have been no investor-initiated transactions (financial or non-financial) for 10 years.

• The folio retains an unclaimed unit balance.

MITRA will proactively identify such folios and encourage rightful investors to update their KYC records and reclaim their investments.

5. Hosting and Cybersecurity Framework

The MITRA platform is jointly managed by two Qualified Registrar and Transfer Agents (QRTAs):

• CAMS

• KFIN Technologies

Access Points for MITRA

Platform

MF Central

AMC Websites

Association of Mutual Funds in India (AMFI)

CAMS & KFIN Platforms

SEBI’s Official Website

Cybersecurity Compliance Measures

Security Protocol	Implementation
SEBI’s Cyber Resilience Framework	Ensures compliance with industry cybersecurity standards.
Regular System & Cybersecurity Audits	Conducted by QRTAs to prevent data breaches.
Business Continuity & Disaster Recovery (BCP/DR)	Implements protocols to maintain uninterrupted operations.

6. Awareness and Implementation Strategy

SEBI has mandated a structured awareness campaign to ensure the widespread adoption of MITRA. The following key stakeholders are responsible for promoting the platform:

• Asset Management Companies (AMCs)

• Qualified RTAs (QRTAs)

• Registered Investment Advisors (RIAs)

• Mutual Fund Distributors

Implementation Timeline

Phase	Timeline
Operational Launch	Within 15 working days from the circular issuance
Beta Testing Period	Two-month testing and refinement phase

7. Role of the Unit Holder Protection Committee (UHPC)

To bolster investor protection, SEBI has expanded the responsibilities of the Unit Holder Protection Committee (UHPC) to include:

• Reviewing inactive folios and unclaimed dividends/redemptions.

• Ensuring AMCs take proactive measures to reduce unclaimed funds.

• Facilitating MITRA’s adoption to help investors reclaim their holdings.

8. Conclusion

The MITRA platform represents a transformative step in the Mutual Fund industry, reinforcing investor protection and financial transparency. By enabling investors to recover unclaimed folios and update their KYC details, SEBI ensures:

• Fraud prevention through enhanced verification processes.

• Greater transparency in fund management.

• Seamless access to rightful investments for all stakeholders.

With SEBI’s proactive regulatory framework and industry-wide collaboration, MITRA is set to streamline the investment recovery process, strengthening investor confidence in the Mutual Fund ecosystem.

Taxation of Debt Mutual Funds Made Simple: Key Updates and Examples

Debt mutual funds are investment options that primarily invest in debt and money market instruments. These include funds like Liquid Funds, Corporate Debt Funds, Credit Risk Funds, and more. However, the taxation rules for these funds have changed, especially from April 1, 2023. In this article, we will break down these changes and explain how they affect taxpayers, in a way that’s easy to understand.

1. What Are Debt Mutual Funds?

Debt mutual funds invest at least 65% of their assets in debt and money market instruments. These funds are considered safer compared to equity funds and offer steady returns. However, the taxation of these funds has seen frequent changes, leaving many investors confused about how to calculate tax when they sell (redeem) their units.

2. How is Tax on Debt Mutual Funds Calculated?

The tax treatment of debt mutual funds depends on the purchase date. Let’s break it down based on the changes made from April 1, 2023:

• Debt Mutual Funds Purchased on or After April 1, 2023:
  These funds are taxed at the income tax slab rate of the investor, regardless of how long the investment is held. If the investor's income is low, they may also be eligible for a rebate under Section 87A.

• Debt Mutual Funds Purchased Before April 1, 2023:
  The tax treatment for these funds depends on the redemption date. Let’s look at these scenarios.

3. Tax on Debt Mutual Funds Purchased After April 1, 2023

• Tax Rate:
  If you buy debt mutual funds on or after April 1, 2023, your capital gains (profits from selling the units) will be taxed according to the income tax slab that applies to you. This means if your income is in a lower tax bracket, you’ll pay less tax.

• Tax Rebate under Section 87A:
  For investments made after April 1, 2023, you can qualify for a tax rebate under Section 87A, provided your income is below a certain limit. This rebate reduces the tax you need to pay on your capital gains.

Example:

• Mr. Arvind bought debt mutual fund units in June 2023 for Rs. 5,00,000 and sold them in April 2025, making a profit of Rs. 1,00,000. If his total taxable income for FY 2025-26 is Rs. 6,00,000, he would pay tax on the Rs. 1,00,000 capital gain according to the income tax slab applicable to him. Additionally, he would get a Rs. 60,000 rebate under Section 87A, meaning his tax liability would be zero.

If Mr. Arvind sold the units before April 1, 2025, his rebate would be Rs. 25,000 instead, as per the slab rate for FY 2024-25.

4. Tax on Debt Mutual Funds Purchased Before April 1, 2023

• Redemption Before July 23, 2024:
  If you bought debt mutual funds before April 1, 2023, and sold them before July 23, 2024, long-term capital gains were taxed at 20% with indexation (adjusting the purchase price for inflation). You could take advantage of this benefit if the units were held for more than 36 months.

Example:

• Mrs. Priya bought debt mutual fund units in 2020 for Rs. 1,00,000 and sold them in 2023 for Rs. 3,50,000. The capital gains tax would be calculated as:

  • Indexed cost of acquisition: Rs. 1,20,000 (adjusted for inflation)
  • Capital gain = Rs. 3,50,000 – Rs. 1,20,000 = Rs. 2,30,000
  • Tax = 20% of Rs. 2,30,000 = Rs. 46,000

• Redemption After July 23, 2024:
  For debt mutual funds purchased before April 1, 2023, and redeemed after July 23, 2024, the tax rate drops to 12.5%, and there is no indexation benefit. Additionally, the holding period to qualify for long-term capital gains is reduced to 24 months.

Example:

• Mr. Deepak bought debt mutual fund units in March 2022 for Rs. 2,00,000 and plans to sell them in April 2025, making a capital gain of Rs. 5,00,000. After considering the basic exemption limit of Rs. 4,00,000, the capital gains tax will be:
  • Capital gains subject to tax: Rs. 1,00,000
  • Tax = 12.5% of Rs. 1,00,000 = Rs. 12,500

If Mr. Deepak redeems the units before April 1, 2025, his capital gains would be taxed based on the slab for FY 2024-25, leading to a higher tax liability.

5. Summary of Taxation Rules for Debt Mutual Funds

The tax treatment of debt mutual funds can be summarized as follows:

Sl. No.	Date of Purchase	Date of Redemption	Tax Rate	Holding Period	Remarks
(a)	On or after 01.04.2023	FY 2025-26	Applicable Slab Rate	NA	Qualifies for rebate of Rs. 60,000 under Section 87A
(b)	On or after 01.04.2023	FY 2024-25	Applicable Slab Rate	NA	Qualifies for rebate of Rs. 25,000 under Section 87A
(c)	Before 01.04.2023	Before 23.07.2024	20% with indexation	36 Months	NA
(d)	Before 01.04.2023	Before 23.07.2024	Applicable Slab Rate	< 36 months	Qualifies for rebate under Section 87A
(e)	Before 01.04.2023	After 23.07.2024	12.5% without indexation	24 months	NA
(f)	Before 01.04.2023	After 23.07.2024	Slab Rate	< 24 months	Qualifies for rebate under Section 87A

6. Conclusion

The taxation of debt mutual funds has become more complex with the latest changes, especially from April 1, 2023. To minimize tax liability, it’s important to know the purchase date of your investment and plan redemptions carefully. For investments made after April 1, 2023, taxpayers may qualify for a rebate under Section 87A, reducing their tax burden.

By staying informed about these changes, you can make better investment decisions and optimize your tax planning.

Comprehensive Guide to CARO 2020 Compliance & Audit Reporting

Overview of CARO 2020

The Companies Auditor Report Order (CARO), 2020, issued under the Companies Act, 2013, mandates auditors to report specific financial and operational aspects of a company. It aims to enhance corporate transparency and governance by providing a structured framework for audit reports.

Applicability of CARO 2020

CARO 2020 applies to all companies, including foreign companies, except:

🚫 Exempted Companies:
1️⃣ Banking companies
2️⃣ Insurance companies
3️⃣ Charitable companies (Section 8 Companies)
4️⃣ One-Person Companies (OPCs)
5️⃣ Small Companies (as per Section 2(85): Paid-up share capital ≤ ₹4 crore & Turnover ≤ ₹40 crore)
6️⃣ Private Companies (not subsidiary/holding of a public company) that meet all the following conditions:

• Paid-up capital + reserves & surplus ≤ ₹1 crore
• Total borrowings ≤ ₹1 crore at any point during the financial year
• Total revenue ≤ ₹10 crore during the financial year

🔹 Applicability on Consolidated Financial Statements:
CARO does not apply to consolidated financial statements, except for Clause 3(xxi), which requires auditors to disclose any adverse remarks in standalone audit reports.

🔍 Detailed CARO Compliance & Reporting Checklist

1️⃣ Fixed Assets & Intangible Assets (Clause 3(i))

✔ Maintain an updated fixed asset register.
✔ Conduct physical verification and report discrepancies over 10% of book value.
✔ Verify ownership documents of immovable properties.
✔ Check whether assets have been revalued and disclose details.
✔ Ensure compliance with Ind AS 16 regarding depreciation and impairment.

🚨 Risk of Default:

• Non-disclosure of revaluation or impairment losses may lead to audit qualifications and penalties under Section 143(12).

2️⃣ Inventory & Working Capital (Clause 3(ii))

✔ Ensure physical verification of inventory at least once a year.
✔ Report any material discrepancies (>10%) in audit reports.
✔ Verify whether inventory is hypothecated against loans and reconcile figures.
✔ Ensure valuation of inventory follows Ind AS 2 (Inventory Accounting Standards).

🚨 Risk of Default:

• Incorrect inventory valuation can impact profitability reporting and lead to tax penalties.

3️⃣ Loans, Investments, Guarantees & Securities (Clause 3(iii))

🔹 Compliance with Section 186 (Loans & Investments by Companies):
✔ Companies cannot give loans, guarantees, or securities exceeding:

• 60% of paid-up capital, free reserves & securities premium or
• 100% of free reserves & securities premium, whichever is higher.
  ✔ Prior Board & Shareholder approval required for exceeding limits.
  ✔ Loans to subsidiaries/associate companies must be disclosed in financials.
  ✔ Ensure interest rates comply with RBI guidelines (not below the prevailing yield of 1-year, 3-year, or 10-year government securities).

🚨 Risk of Default:

• Violation of Section 186 can result in a fine up to ₹25 lakh for the company and ₹5 lakh for officers in default.

🔹 Compliance with Section 185 (Loan to Directors & Related Parties):
✔ Loans to directors, relatives, or firms in which directors hold interest are prohibited unless:

• Given to wholly-owned subsidiaries (with proper disclosures).
• The company provides a guarantee to its subsidiary, fulfilling conditions under Section 186.

🚨 Risk of Default:

• Violation of Section 185 can lead to imprisonment up to 6 months – 5 years and a fine up to ₹25 lakh.

4️⃣ Deposits (Clause 3(v))

✔ Verify compliance with Sections 73-76 before accepting deposits.
✔ File DPT-3 form annually for outstanding deposits/borrowings.
✔ Ensure unsecured loans from directors are disclosed correctly.

🚨 Risk of Default:

• Unapproved deposits can lead to imprisonment up to 7 years & fines up to ₹25 lakh under Section 76A.

5️⃣ Related Party Transactions (Clause 3(xiii))

🔹 Compliance with Section 188 (Related Party Transactions - RPTs):
✔ Board approval is mandatory for all RPTs.
✔ Shareholder approval required if transactions exceed:

• 10% of turnover or ₹1 crore, whichever is lower (for related party contracts).
  ✔ Transactions must be at arm’s length price (supported by Transfer Pricing documentation).
  ✔ File MGT-9 or AOC-2 for disclosures.

🚨 Risk of Default:

• Violation of Section 188 can make contracts void and attract penalties up to ₹5 lakh.

6️⃣ Default in Loan Repayment (Clause 3(ix))

✔ Report details of defaults on borrowings, lenders, and amounts overdue.
✔ Maintain loan repayment schedules and ensure timely EMI payments.
✔ Verify compliance with bank covenants (DSCR, debt-equity ratio).

🚨 Risk of Default:

• Loan defaults can result in NPA classification, credit rating downgrade, and lender scrutiny.

7️⃣ Internal Audit & Corporate Governance (Clause 3(xiv))

✔ Ensure independent internal audit mechanisms are in place.
✔ Maintain compliance with SOX (for foreign subsidiaries) or Companies Act norms.
✔ Address findings from internal audit reports in board meetings.

🚨 Risk of Default:

• Weak internal audit systems increase fraud risks and lead to financial mismanagement.

📌 Final Checklist to Ensure CARO 2020 Compliance

Key Reporting Area	Compliance Action	Risk of Default
Fixed Assets	Physical verification, ownership docs	Misstatement leads to qualification
Inventory	Reconciliation, valuation as per Ind AS 2	Manipulation attracts tax penalties
Loans & Advances	Compliance with Section 185, 186	Non-compliance leads to ₹25 lakh penalty
Deposits	File DPT-3, comply with Sections 73-76	Imprisonment up to 7 years
Statutory Dues	Ensure GST, TDS, PF, ESI are paid	Interest, penalties, and prosecution
Fraud Reporting	Report frauds under Section 143(12)	Auditor fined up to ₹5 lakh
RPTs	Board approval for RPTs under Section 188	Transactions may be voided
Loan Repayment	No defaults on bank loans	Credit downgrade & NPA risk

🚀 Conclusion

To avoid regulatory penalties, companies must implement a robust internal control system and maintain accurate financial records. Auditors must ensure complete compliance with CARO 2020, especially Sections 186, 188, and 185.

Please write to us on ca.sahuja@gmail.com or in comments if you need Checklist in Excel Format

Company Closure Under MCA: Process, Costs, and Key Compliance Step by Step

A company may apply for closure under the following conditions:

• It has not commenced business within one year of incorporation.

• It has not carried out any business operations for the last two consecutive financial years.

• The company intends to close its business voluntarily.

Pre-requisites for Filing an Application for Closure under FTE

1. Nil Assets and Liabilities

   • The company must have no remaining assets or liabilities before filing for closure.

2. Bank Account Closure

   • The company’s bank account must be closed before submitting the application.

3. Income Tax Compliance

   • The latest Income Tax Return must be filed under the Income-tax Act, 1961.

4. Restrictions on Name and Registered Office Changes

   • The company must not have changed its name or shifted its registered office in the last three months.

5. Restrictions on Property Disposal

   • The company should not have sold any property or rights immediately before ceasing trade to gain profit.

6. No Pending Litigations

   • The company must not have any pending litigations.

7. No Other Business Activity

   • The company must not have engaged in any other business activity except those necessary for closure.

8. No Pending Compromise or Arrangement Applications

   • No application for compromise or arrangement should be pending with the Tribunal.

9. No Winding-Up Proceedings

   • The company should not be under the process of winding up under the Companies Act or Insolvency and Bankruptcy Code, 2016.

Categories of Companies Not Eligible for Strike-Off Under FTE

• Listed companies.

• Companies delisted due to non-compliance with listing regulations.

• Vanishing companies.

• Companies under investigation or pending court proceedings.

• Companies with outstanding public deposits or defaults in repayment.

• Companies with pending charges for satisfaction.

• Companies registered under Section 25 of the Companies Act, 1956, or Section 8 of the Companies Act, 2013.

Procedure for Closure of Companies Under FTE

Step 1: Board Meeting

• Convene a Board Meeting to discuss and approve the closure of the company.

• Obtain approval to call an Extraordinary General Meeting (EGM).

Step 2: Preparation of Documents

• Prepare the closure application along with necessary supporting documents, affidavits, and consents.

Step 3: Extraordinary General Meeting (EGM)

• Convene an EGM to pass a resolution for closure.

• Obtain a special resolution or 75% consent from members in terms of paid-up share capital.

• If regulated under a special Act, obtain approval from the respective regulatory body.

• File Form MGT-14 for special resolution approval.

Step 4: Execution of Documents

• All directors must sign and execute the required documents.

• If documents are executed outside India, they must be notarized and apostilled.

• If any director has been deactivated, removed, or has not resigned, file Form DIR-12 for necessary updates.

Step 5: Filing with ROC

• File an application for removal of the company’s name with the Registrar of Companies (ROC) in the prescribed form.

Step 6: Public Notice and Statutory Intimations

• Upon application submission, the ROC publishes a notice in the Official Gazette, MCA website, and newspapers in English and the vernacular language of the state where the registered office is located.

• ROC notifies various statutory authorities.

Step 7: Striking Off the Company’s Name

• After the notice period, the ROC removes the company's name from the register of companies.

• Upon publication in the Official Gazette, the company stands dissolved.

Forms to be Filed and Fee Structure

Forms Required for Company Closure

1. Form STK-2 (Application for Striking Off)

   • To be filed with the ROC along with the necessary documents.

   • Requires an affidavit and indemnity bond from directors.

2. Form MGT-14 (Approval of Special Resolution)

   • Filed to approve the closure resolution passed at the EGM.

3. Form DIR-12 (Director Changes, if Required)

   • Filed to update director details if any director has been deactivated or not resigned.

Fee for Filing Forms

Form	Filing Fee (INR)
STK-2	10,000
MGT-14	200 to 600 depending on share capital
DIR-12	300 to 600 depending on share capital

Timeline for Closure

Step	Estimated Time
Board Meeting and EGM	7-10 days
Preparation and Filing of Application	15-20 days
Public Notice Period	30 days
Final Striking Off by ROC	60-90 days

This process ensures compliance with MCA regulations and facilitates the orderly closure of non-operational companies.

MCA Extends Deadline for Mandatory Dematerialisation Compliance to June 30, 2025

The Ministry of Corporate Affairs (MCA) has issued the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2025, extending the deadline for mandatory dematerialisation compliance for certain private companies. This move is aimed at facilitating a smoother transition for companies that were facing challenges in meeting the previous deadline. This extension has been granted through Notification dated February 12, 2025, specifically for extending the last date for compliance.

Key Highlights of the Update

• Applicability: Private companies that are not classified as small companies as of the financial year ending on or after March 31, 2023, must ensure their securities are in dematerialised form.

• Revised Deadline: The earlier deadline of September 30, 2024, has now been extended to June 30, 2025.

• Compliance Requirements:

  • All existing securities must be converted into dematerialised form before the new deadline.

  • Any future issuance, transfers, or corporate actions (such as bonus or rights issues) must be conducted in dematerialised form only.

  • Companies must facilitate the dematerialisation process by coordinating with a registered depository (NSDL or CDSL) and obtaining an International Securities Identification Number (ISIN).

The extension provides much-needed relief, particularly for businesses that were struggling with logistical and procedural aspects of dematerialisation. However, it is advised that companies start the process well in advance to avoid last-minute regulatory non-compliance. Ensuring compliance with dematerialisation rules enhances corporate governance and increases transparency in ownership records.

Companies are encouraged to take proactive steps towards dematerialisation compliance to align with regulatory expectations and avoid penalties