Checklist for change in directorship-Resignation & Appointment of Director-NRI

As per Foreign Exchange Management Act, 1999 (FEMA)

Regulation 9(2)(ii) of FEMA (Transfer or issue of security by a person resident outside India) Regulations, 2000 read along with Regulation 8(B)(I)(b) of the Master Circular on FDI in India (2015-2016) grants a general permission for transfer of shares of an Indian company from one NRI to another.

However, it is to be ensured that the FDI sectoral cap as prescribed by the FDI policy is not breached. Also, there are no reporting guidelines specified by RBI in this regard.

As per Companies Act, 2013

Although no reporting requirements have been laid down by RBI, Section 56 of the Act has to be complied with. Either the transferor or the transferee must, in order to effectuate the share transfer, deliver the Share transfer form (SH-4) duly stamped, dated and executed within 60 days of the date of execution along with the share certificate to enable the Company to do the needful and update the Register of Members.

As per Stamp Act, 1899

Section 21 of the Indian Stamp Act provides for payment of duty in accordance with Article 62 of Schedule 1, on the transfer of shares (with or without consideration) in an incorporated company or other body corporate at a rate of 25 paise for every Rs.100 or part thereof of the value of the share.

As per Income Tax Act, 1961

As per Sec. section 9(1)(i)(d) of the Act, any income accruing or arising, whether directly or indirectly, through the transfer of a capital asset situated in India is deemed to accrue or arise in India.

Hence, capital gains from sale of shares of an Indian company are taxable in the hands of an NRI.

The tax to be deducted at source by NRI shall be treated as Withholding tax and a certificate has to be obtained from the Assessing officer.

NRIs are not eligible for Indexation benefits and deductions, however, they can avail the benefits from DTAA (Double Taxation Avoidance Agreement).

Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method.

In exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

A special provision exempts NRIs from filing a tax return, if their sources of income from India only include investment income and LTCG (Long Term Capital Gains).

(Note: In case of transfer of shares from NRI (Non-Resident Indian) to NR(Non-Resident), prior approval of RBI is required)

Following is the procedure:

Form foreign currency-transfer of shares (FC-TRS)

Form FC-TRS is required to be filed for transfer of Equity Shares.

Who is to file form FC-TRS

The onus of reporting FC-TRS shall be on the resident transferor/ transferee or the person resident outside India holding capital instruments on a non-repatriable basis.

Time Limit for filing FC-TRS

The form FCTRS shall be filed with the Authorised Dealer bank within sixty days of transfer of capital instruments or receipt/ remittance of funds whichever is earlier.

Procedure for filing FC-TRS

The following steps are included in filing of FC-TRS form:

1. Execution of Share Transfer Deed and Payment of Stamp Duty: The parties should execute the following documents for transferring their shares:
• Share Transfer Deed as per SH-4
• Duly signed Consent letters from the buyers and seller.

(Note: While executing the share transfer deed, stamp duty @ 0.25 % on the consideration amount is to be paid by purchasing the share transfer stamps, affixing those on the SH-4 and then crossing the same)

2. Transfer of Funds: The funds should be transferred through proper Banking channels. Copy of FIRC and copy of KYC of person resident outside India should be obtained from Authorised Dealer Bank.
3. Registration on Flair portal: it is mandatory to register the details of the person filing form along with his/her digital signatures (DSC) on portal.
4. Filing of form on Flair portal with the required attachments: The form is filled online on Flair portal along with the name of attachments given below. The DSC of the concerned person is affixed while submitting form.
5. Scrutiny from AD Bank: Post submitting form on Flair portal, AD bank scrutinize each and every application and it may send the form for re-submission if any documents/information is incorrect or missing.
6. Sanction letter/ Certificate issued by AD Bank: AD Bank provides you with a sanction letter or certificate if all the documents and information are satisfactory to them. This is a documentary evidence which states that FDI compliances are duly taken care off by the applicant.
7. Take on record by the Indian Company: The sanction letter/certificate issued by AD bank is attached with the share transfer form and share certificate and submitted to the Company so that company may take the transfer on its record.

Additional Step may be required in delay submission of FC-TRS: In case the applicant fails to file FC-TRS within 60 days of transfer, then the AD Bank will forward the application to RBI for its approval.