Revised draft Indian Financial Code
released
Vatsal Khullar The Ministry of Finance released the revised
draft of the Indian Financial Code (IFC), 2015 on
July 23, 2015.5
Comments have been invited on
the revised draft by August 8, 2015.
An earlier draft Code, along with the report of
the Financial Sector Legislative Reforms
Commission (FSLRC) was released for
comments and suggestions in March 2013. 6
,
The draft Code seeks to move away from the
current sector-wise regulation to a system where
the RBI regulates the banking and payments
system and the proposed Financial Agency
subsumes the roles of existing regulators like
SEBI, IRDA and PFRDA to regulate the rest of
the financial sector. It also proposes an appellate
tribunal and agencies for consumer protection,
resolution of unviable entities, public debt
management and ensuring systemic stability.
Consequently, it proposes repeal of 19 existing
Acts. Table 1 highlights the proposed regulatory
framework.
Table 1: IFC's regulatory framework Present Proposed Functions
RBI RBI Monetary policy; regulation of banks and payments system.
SEBI; FMC; IRDA; PFRDA Financial Authority Regulation of nonbank and payments related markets. Securities Appellate Tribunal Financial Sector Appellate Tribunal Hear appeals against RBI, the Financial Authority and FRA. Deposit Insurance and Credit Guarantee Corporation Resolution Corporation Resolution work across the system. Financial Stability Development Council (FSDC) FSDC Statutory agency for systemic risk and development. New entities Public Debt Management Agency Independent debt management agency. Financial Redress Agency (FRA) Consumer Complaints Sources: FSLRC Report; PRS. Other important guidelines outlined in the Code are: Consumer protection: Establish certain basic rights for all consumers, and create a unified Financial Redress Agency (FRA) to serve aggrieved consumers across the sector. Prudential regulation: Outline a framework for the regulators to follow, in order to monitor and reduce the failure probability of a financial firm. Contracts, trading and market abuse: Establish the legal framework for regulating contracts, property and securities, and Capital controls: Entrust the Central Government and the RBI to formulate rules and regulations, in order to control the capital inflow and outflow from the country. More information about the 2013 draft Code can be found in the PRS Monthly Policy Review for March 2013, here.
Black Money Rules, 2015 in relation to one time compliance opportunity notified
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 were notified on July 2, 2015.7 The Rules were notified under the Foreign Income and Assets (Imposition of Tax) Bill, 2015 which was passed by Parliament on May 13, 2015.8
The Act (i) imposes a 30% tax rate on undisclosed foreign income and assets, and (ii) provides for a one- time compliance opportunity to declare previously undisclosed foreign income. Availing of such one-time compliance opportunity would attract a lower penalty (100% of the value of the asset as opposed to 300%) and no criminal prosecution.
Primarily, the Rules provide for: (i) the manner of determination of the fair market value of an undisclosed foreign asset; and (ii) the time period of the one-time compliance opportunity for declaring previously undisclosed foreign assets.
The procedure to be followed in relation to the one time compliance opportunity is as follows9 : The Act states that any person would be permitted to make a declaration in relation to previously undisclosed foreign assets (prior to the assessment year beginning April 2016), on or before a date to be notified by the central government. The Rules specify that this date would be September 30, 2015. The Rules also specify that the Commission of Income Tax is required to inform the declarant of any information related to that asset, currently available to them by October 31, 2015. The declarant is permitted to submit a revised declaration within 15 days of receiving such information. The tax and penalty on the value of undisclosed foreign assets declared is required to be paid by December 31, 2015.
RBI constitutes a Committee on Financial Inclusion
The Reserve Bank of India (RBI) constituted a Committee on Financial Inclusion on July 15, 2015.10 The Committee will formulate a five year measurable action plan for financial inclusion. It will be chaired by an executive director of the RBI and will have 13 other members who will include, among others, representatives from the RBI, private and public sector banks, and research institutes. Terms of Reference of the Committee include: Review the existing policy of financial inclusion and recommendations made by various committees, Formulate the underlying policy and institutional framework covering consumer protection, financial literacy and delivery mechanism of financial inclusion, especially in rural areas, Study cross country financial inclusion experiences to identify key learnings, especially in the field of technology-based delivery models, and Suggest an action plan for financial inclusion whose components can be monitored. These include payments, deposit, credit, social security transfers and pension and insurance. The Committee is expected to submit its report within four months after its first meeting
Table 1: IFC's regulatory framework Present Proposed Functions
RBI RBI Monetary policy; regulation of banks and payments system.
SEBI; FMC; IRDA; PFRDA Financial Authority Regulation of nonbank and payments related markets. Securities Appellate Tribunal Financial Sector Appellate Tribunal Hear appeals against RBI, the Financial Authority and FRA. Deposit Insurance and Credit Guarantee Corporation Resolution Corporation Resolution work across the system. Financial Stability Development Council (FSDC) FSDC Statutory agency for systemic risk and development. New entities Public Debt Management Agency Independent debt management agency. Financial Redress Agency (FRA) Consumer Complaints Sources: FSLRC Report; PRS. Other important guidelines outlined in the Code are: Consumer protection: Establish certain basic rights for all consumers, and create a unified Financial Redress Agency (FRA) to serve aggrieved consumers across the sector. Prudential regulation: Outline a framework for the regulators to follow, in order to monitor and reduce the failure probability of a financial firm. Contracts, trading and market abuse: Establish the legal framework for regulating contracts, property and securities, and Capital controls: Entrust the Central Government and the RBI to formulate rules and regulations, in order to control the capital inflow and outflow from the country. More information about the 2013 draft Code can be found in the PRS Monthly Policy Review for March 2013, here.
Black Money Rules, 2015 in relation to one time compliance opportunity notified
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules, 2015 were notified on July 2, 2015.7 The Rules were notified under the Foreign Income and Assets (Imposition of Tax) Bill, 2015 which was passed by Parliament on May 13, 2015.8
The Act (i) imposes a 30% tax rate on undisclosed foreign income and assets, and (ii) provides for a one- time compliance opportunity to declare previously undisclosed foreign income. Availing of such one-time compliance opportunity would attract a lower penalty (100% of the value of the asset as opposed to 300%) and no criminal prosecution.
Primarily, the Rules provide for: (i) the manner of determination of the fair market value of an undisclosed foreign asset; and (ii) the time period of the one-time compliance opportunity for declaring previously undisclosed foreign assets.
The procedure to be followed in relation to the one time compliance opportunity is as follows9 : The Act states that any person would be permitted to make a declaration in relation to previously undisclosed foreign assets (prior to the assessment year beginning April 2016), on or before a date to be notified by the central government. The Rules specify that this date would be September 30, 2015. The Rules also specify that the Commission of Income Tax is required to inform the declarant of any information related to that asset, currently available to them by October 31, 2015. The declarant is permitted to submit a revised declaration within 15 days of receiving such information. The tax and penalty on the value of undisclosed foreign assets declared is required to be paid by December 31, 2015.
RBI constitutes a Committee on Financial Inclusion
The Reserve Bank of India (RBI) constituted a Committee on Financial Inclusion on July 15, 2015.10 The Committee will formulate a five year measurable action plan for financial inclusion. It will be chaired by an executive director of the RBI and will have 13 other members who will include, among others, representatives from the RBI, private and public sector banks, and research institutes. Terms of Reference of the Committee include: Review the existing policy of financial inclusion and recommendations made by various committees, Formulate the underlying policy and institutional framework covering consumer protection, financial literacy and delivery mechanism of financial inclusion, especially in rural areas, Study cross country financial inclusion experiences to identify key learnings, especially in the field of technology-based delivery models, and Suggest an action plan for financial inclusion whose components can be monitored. These include payments, deposit, credit, social security transfers and pension and insurance. The Committee is expected to submit its report within four months after its first meeting
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