Monday, 19 August 2019

New DVR rules of Companies Act enable promoters of Indian firms to retain control

The Ministry of Corporate Affairs has amended the provisions relating to issue of shares with Differential Voting Rights (DVRs) provisions under the Companies Act with the objective of enabling promoters of Indian companies to retain control of their companies while as they raise equity capital from global investors with DVR shares now making up 74 percent of total voting rights instead of 26 percent earlier.

The key change brought about through the amendments to the Companies (Share Capital & Debentures) Rules brings in an enhancement in the previously existing cap of 26 percent of the total post-issue paid-up equity share capital to a revised cap of 74 per cent of the total voting power in respect of shares with Differential Voting Rights of a company, according to an official statement.
Another key change brought about is the removal of the earlier requirement of distributable profits for 3 years for a company to be eligible to issue shares with Differential Voting Rights.

The above two initiatives have been taken by the government in response to requests from innovative tech companies and startups and to strengthen the hands of Indian companies and their promoters who have lately been identified by deep-pocketed investors worldwide for acquisition of controlling stake in them to gain access to the cutting edge innovation and technology development being undertaken by them.

The Government had noted that such Indian promoters have had to cede control of companies which have prospects of becoming Unicorns, due to the requirements of raising capital through the issue of equity to foreign investors.
Alongside the above two changes, another major step taken is that the time period within which Employee Stock Options (ESOPs) can be issued by startups recognized by the Department for Promotion of Industry & Internal Trade (DPIIT) to promoters or Directors holding more than 10 percent of equity shares, has been enhanced from 5 years to 10 years from the date of their incorporation.

6 Instruments That Offer Tax Free Income In India

Unit Linked Insurance Plans, more popularly known as ULIPs, offer a combination of insurance and returns. You have an option of investing the money in debt mutual funds or equity mutual funds as the case may be.
Returns tend to be much lower, due to the fact that initially a lot of money goes into administration and policy changes. This is one drawback of the ULIP.
However, the income earned from the ULIP is tax-free. They also tend to have a lock-in period of 5 years and one can withdraw the money after this lock-in period. Returns can be much lower, but, the advantage is that you get insurance. So, if something were to happen to the policyholder, insurance around 10 times the premium paid is available to the nominee.

2. Public Provident Fund

The interest earned on the PPF is exempt from tax. Apart from this, you get tax benefit under Sec80C. The current interest rate under this instrument is around 7.9 percent, which is not bad at all.
The one drawback of the scheme is that you can invest a very limited sum of Rs 1,50,000 each year. Apart from this, the scheme is for 15-years and there is a lock-in period of 7 years. Also, there are various conditions for withdrawal. This is a rather safe scheme, which is good for investors looking to build a decent corpus closer to their retirement.

3. IRFC Tax-Free Bonds

These Bonds are listed on the stock exchanges and offer a tax-free income to investors. They are issued by the government sector enterprise and are very safe. The IRFC N1 series offers an interest rate of 8.0 percent and is available at a price of Rs 1,130. Interest is paid on Oct each year.
It's important to remember that tax-free bonds must be bought at an attractive rate so that your yields on the bonds remain high. Sometimes, liquidity in the bonds are not very great, hence you can trade only n limited quantity.

4. Voluntary Provident Fund

The Voluntary Provident Fund is another way to save tax. The best thing about the VPF is that its interest beats that of the PPF, by a good margin. The interest earned is also tax-free in the hands of the investors.
In 2017-18, the VPF earned an interest rate of 8.55% while the PPF rate varied between 7.6% and 7.9%. Investors can definitely look at this option. However, it is meant only for salaried individuals.

5. HUDCO Tax-Free Bonds

HUDCO Tax-Free Bonds are another good option that can be purchased from either the BSE or the NSE. There are various tax-free bonds of HUDCO including the N1, N2, N3 series, etc. Each of these offers varying interest rates to investors. As mentioned earlier, the liquidity in some cases can be poor and investors may not get to buy in heavy volumes.

6. Some other tax-free bonds

There are many other tax-free bonds like REC etc., which investors can also consider for investment purposes. They have an expiry of 10 to 15 years and can be bought and sold on the BSE and NSE.
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