Foreign Contribution (Regulation) Amendment Rules, 2024

The Union Home Ministry has announced the Foreign Contribution (Regulation) Amendment Rules, 2024, effective from January 1, 2025.

Background

• NGOs were encountering challenges in transferring FCRA components of funds from their non-FCRA accounts, especially concerning refunds of tax deducted at source (TDS).

Amendments to the Foreign Contribution Regulation Rules, 2011

• The new amendment introduces a proviso in Rule 5 allowing associations to carry forward the unspent part of allowable administrative expenses to the succeeding financial year.
• Reasons for carrying forward these expenses should be mentioned in Form FC-4.

Key Clarifications

• Form FC-4: This form will now address the transfer of foreign contribution parts from income-tax refunds from non-FCRA to FCRA bank accounts.
• Such transfers will not constitute a violation of Section 17 of the FCRA Act, 2010.

Accounting Treatment

• TDS Accounting: TDS deductions will be accounted as utilization of foreign contributions.
• Upon receiving a refund in the FCRA account, it should be recorded as "other income".

India's Organic Product Export Goals

India is targeting to surpass $1 billion in organic product exports in 2024, with a significant focus on enhancing export quality and acceptance through Mutual Recognition Agreements (MRAs), especially in sensitive sectors like fisheries.

Current Export Status

• Organic food exports have increased from $213 million in 2012-13 to $494.80 million in 2023-24.
• Major export destinations include the US, EU, Canada, UK, Switzerland, Australia, the Middle East, and Asian countries.

Challenges and Strategies

• Quality issues are a bigger concern than tariff barriers for export consignments.
• Over 300% increase in the number of labs and 200% increase in certification for exported food products in the past decade.
• Export rejections of Indian fisheries by the EU decreased from 15 in 2017 to 3 in 2024.

Mutual Recognition Agreements (MRAs)

• Existing MRAs with the EU, China, Bhutan, with ongoing talks with Qatar.

Infrastructure and Development

• The Export Inspection Council (EIC) plans to expand food testing infrastructure, increasing accredited labs from 21 in 2013-14 to 78.
• The number of export establishments approved through the EIC system rose to 1,446 from 794 in the last decade.
• Export certificates accepted by importing countries nearly doubled to over 120,000 from 61,000.

Tobacco Exports

• India's tobacco exports are expected to grow by 8%, reaching over ₹13,000 crore this year.
• India stands as the second-largest tobacco producer globally, after China.

India's Growing Export Sectors

India's export basket is diversifying beyond traditional sectors, with a focus on new products and markets. 

Emerging Export Products

• Banana and Agri Products:
  • Banana is identified among 20 agricultural products for boosting exports.
  • Other products include watermelons, ghee, guavas, green chilli, capsicum, okra, garlic, onions, and alcoholic beverages.
  • India aims to increase its global export share from 2.5% to 4-5%.
• Alcoholic Beverages:
  • Growing acceptance of Indian single malt whisky in the EU, US, and the Far East.
  • Alcoholic beverages exports rose 8% in the April-October period, with whisky exports up by 16%.
• Office Stationery:
  • Registers and diaries are popular in Nicaragua, El Salvador, and Cyprus.
• Solar PV Modules:
  • India is the sixth largest exporter of solar PV modules, with a share increase from 0.4% in 2013 to 2.51% in 2023.
  • In April-October, exports worth $711.95 million, with 96% to the US.
• Spices and Chemicals:
  • Growth in exports of spices like black pepper.
  • Exports of dyes, organic, and inorganic chemicals are projected to remain strong.

Strategic Focus on New Markets

• Target Markets:
  • France, Saudi Arabia, and Kenya for iron ore.
  • Latvia, Chad, and Montenegro for drugs and pharmaceuticals.
  • Greece and Croatia for engineering goods.
  • Guatemala and Morocco for cotton yarn.

Key Export Drivers

• Electronics and engineering goods supported by production-linked incentive (PLI) schemes.
• Automotive sector anticipating surge in export revenues due to global demand and diversification strategies.
• Apparel exports expected to maintain growth momentum.

Future Outlook

India aims to exceed $800 billion in goods and services exports in FY25, focusing on both traditional and emerging sectors to drive growth.

Clarifications by India's Central Board of Indirect Taxes and Customs (CBIC)

GST on Vouchers

• Transactions involving vouchers are not considered as supply of goods or services, hence, not liable to Goods and Services Tax (GST).
• GST applies to additional services related to vouchers, like marketing or commission-based distribution.
• Unredeemed vouchers, termed as 'breakage,' are not taxable as they do not represent consideration for any supply.

This clarification follows a decision by the GST Council, aimed at providing tax certainty and reducing litigation within the industry.

Input Tax Credit (ITC) on Ex-Works Contracts

• CBIC clarifies that businesses can claim ITC on goods purchased under "Ex-Works" contracts from the date on the invoice.
• In "Ex-Works" contracts, goods are considered delivered to the buyer once handed over to the transporter at the seller's factory gate.
• This clarification resolves confusion for industries like automotive, heavy engineering, and EPC contracts on claiming ITC.

Bank Credit Growth Outlook

The expected scenario for bank credit growth this financial year indicates a moderation from the previous year's robust growth rate of 16%. This moderation is attributed to several key factors:

Key Factors for Moderation

• Statistical High-Base Effect:
  The strong growth rate observed in the last financial year sets a high benchmark, making it challenging to achieve similar growth percentages this year.
• RBI's Revision in Risk Weights:
  The Reserve Bank of India's decision to increase risk weights on bank lending, particularly to non-banking financial companies (NBFCs) and for unsecured loans, has resulted in reduced credit growth in these segments.
• Relatively Slower Economic Activity:
  There is an anticipation of slower economic activity, which is expected to contribute to the moderation in credit growth. Additionally, the country's gross domestic product (GDP) growth is expected to moderate, further impacting credit demand.

Conclusion

In summary, while last financial year witnessed significant credit growth driven by strong economic activity and retail credit demand, this year is expected to see a slower growth rate due to high base effects, regulatory changes by the RBI, and a general slowdown in economic activity.

CBDT's PRUDENT Approach for 2025

The Central Board of Direct Taxes (CBDT) aims to enhance its operations in 2025 by adopting the 'PRUDENT' approach, as detailed by Chairman  in his address to the Income Tax Department.

Key Elements of PRUDENT

• P - Professionalism
• R - Responsible and Responsive
• U - Understanding transactions and businesses
• D - Dedication and Due Diligence
• E - Effective Enforcement
• N - Non-intrusive Administration
• T - Technology-based Tax Administration

Achievements and Future Commitment

• In the past year, over 2.4 lakh grievances were resolved, with 1.75 lakh through the E-nirvan platform.
• The department plans to enhance taxpayer services and strengthen trust in the tax system through technology.
• Chairman emphasized continuous improvement and maintaining excellence through collaborative efforts and timely grievance resolution.

Improvement and Training Initiatives

• Leveraging technology to encourage voluntary compliance and improve taxpayer services.
• Enhanced training programs and refined approaches to investigations and disputes.
• Undertaking a comprehensive review of the Income Tax Act with contributions from officers and stakeholders nationwide.

The focus for 2025 will be on building a productive and fulfilling workplace, enhancing taxpayer services, and addressing concerns effectively to build trust in the system.