Author Archives: novojuris

Capital Gains Tax on Conversion of Compulsorily Convertible Preference Shares – The Current Scenario

The question of taxability on conversion of compulsorily convertible preference shares (CCPS) has come up for consideration quite a few times in the recent past. There seemed to be ambiguity regarding whether an event of conversion amounts to ‘transfer’ under Section 2(47) of the Income Tax Act, 1961 (the “Act”), thereby triggering capital gains tax under Section 45 of the Act.

As early as 12 May 1964, the Central Board of Direct Taxes (CBDT) in its Circular F. No. 12/1/64-IT(A) (the “Circular”) had stated that where one type of share is converted into another type of share, there is no ‘transfer’ of capital asset within the meaning of Section 2(47) of the Act. However, there have been many instances when assessments have still been framed adversely. The matter of Periar Trading Company Limited v Income Tax Officer[1] (the “Periar Case”) is one such instance where the conversion of preference shares was sought to be taxed and the above question again came up for consideration. The decision in this case pronounced by the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) further consolidates the position that CCPS would not attract any capital gains tax upon conversion. In this post, we look into the facts of the Periar Case and the reasoning adopted by Hon’ble Justice Mahavir Singh for pronouncing the judgment.

Factual Matrix of the case:

  • Perirar Trading Company Pvt Ltd (the “Assessee”) was engaged in the business of investment activities.
  • During the financial year 2010-11 relevant to the assessment year 2011-12, the Assessee had made investment in 51,634 CCPS of Series A of Trent Ltd. on a rights issue basis. The entire issue price of the said CCPS was paid on application itself.
  • As per the terms of the scheme for issue of CCPS, one CCPS of Series A would compulsorily and automatically get converted into one fully paid up equity share. Accordingly, on 10 September 2011, the Assessee was allotted one equity share of Trent Ltd. for every preference share held in Trent Ltd., i.e. 51,634 CCPS. The conversion was compulsory and automatic.
  • The Assessing Officer (the “AO”) noted from the schedule of non-current investment forming part of the balance sheet of the Assessee for the previous year 2011-12 that the Assessee company had its 51,634 CCPS Series A of Trent Ltd into equity shares and thus, during the assessment year 2012-13, sought to tax the Assessee, treating the conversion of CCPS into equity shares as a ‘Transfer’ within the meaning of the definition provided in section 2(47)(i) of the Act.
  • The Assessee brought the matter before the Commissioner of Income Tax (Appeals) [the “CIT(A)”], which accepted the AO’s arguments and relied on rulings in Re: The Nizam’s Second Supplementary Family Trust[2] and CIT v Santosh L Chowgule[3] to reject the Assessee’s appeal holding that the conversion of the CCPS amounted to a ‘transfer’ by way of exchange.
  • Aggrieved by the same the Assesee preferred appeal to the Mumbai bench of the ITAT.

Main Issue before the ITAT:

The ITAT was primarily faced with the question of, “Whether the action of CIT in confirming the action of AO to treat the conversion of Cumulative Compulsory Convertible Preference Shares (CCPS) into equity shares as transfer within the meaning of section 2(47) of the Act on the said conversion, was proper in law?” In dealing with the issue the decision also touches upon the following points:

  • Modality of calculating period of holding in the case of conversion and subsequent sale/transfer of the converted CCPS? and
  • The distinction between exchange and conversion of shares.

Arguments of the Assessing Officer (AO):

It was contended by the AO that the difference of,

  • (i) the market value of converted number of equity shares of Trent Ltd. and
  • (ii) the cost of the acquisition of equal number of CCPS Series A of Trent Ltd

is taxable as capital gains on account of transfer of shares by way of exchange of ‘assets’. The AO also relied on the definition of ‘exchange’ as per the Black’s Law Dictionary in support of his reasoning.

Reasoning adopted by the CIT(A):

Before the CIT (A), the AO relied on the case of Re: The Nizam’s Second Supplementary Family Trust[4], in which Hon’ble Andhra Pradesh High Court categorically held that conversion of preference shares into equity shares is nothing but a barter, which constitute transfer by way of exchange within the meaning of Section 45 of the Act. The CIT-A therefore held that the ratio of the above case should be applicable to the case of the Assessee and that the Assessee must pay the amount as long term taxable capital gain.

Arguments of the Assessee before the ITAT:

The Assessee contended that the legislative scheme emanating from the provisions of the Act also did not require such transaction to be taxable. The Assessee relied on section 55(2)(b)(v)(e) of the Income Tax Act which states that where the newly converted share is transferred at a later date, then, the cost of acquisition of such share for the purpose of computing the capital gain tax shall be calculated with reference to the cost of acquisition of the original share from which it is derived. Thus, the legislative intent seems to be clear that conversion ought to be regarded as tax neutral.

Rulings of the ITAT:

The ITAT held that the CBDT vide the Circular has clarified the position that where one type of share is converted into another type of share, there is no transfer of capital asset within the meaning of Sec. 2(47) of the Act. It also noted that the provisions of the circular have also been adopted in the tribunal’s earlier judgment in ITO v Vijay M Merchant[5].

The ITAT further relied on the ruling in Gillanders Arbuthnot & Co[6] and Texspin Engineering and Manufacturing Works[7] to hold that the market value of the converted equity shares on the date of conversion shares resulting from the conversion cannot be treated as ‘full value of consideration’ of the CCPS, even if such conversion was treated as a transfer, for the purpose of determining capital gains under section 48 of the Income Tax Act, 1961. The Supreme Court in Gillanders[8] faced a similar case where the value of asset transferred in lieu of shares was sought to be the ‘full value of consideration’, the Apex Court had observed that ‘full value of consideration’ is inherently different from ‘fair market value of the capital asset transferred’. Further in Texspin[9], the Bombay High Court had held that one has to read the expression ‘full value of consideration’ under section 48 dehors section 45 and that the expression cannot be used to mean the market value of the capital asset on the date of the transfer.

The ITAT further observed that the present case was not a case where “one form of share has been exchanged, bartered, swapped for other form of share. In the present case, one type of share was converted into other type and the earlier type of share has ceased to exist. Thus, there is no exchange of any share as the pre-conversion security has ceased to exist. From the above, it is evident that mere conversion of one type of share to other type of share will not be a transfer of a capital asset within the meaning of Sec. 2(47) of the Act.” ITAT further pointed out that AO’s reliance on the ruling of the Hon’ble Supreme Court in the CIT v Motors & General Stores Pvt Ltd[10] was unfounded, as the Court therein had held the exchange of cinema house to preference shares is to be considered as a transfer for the purpose of taxability. The facts of the matters are, therefore, entirely different.

The ITAT accepted the interpretation of the Assessee, claiming this to be in furtherance to the legislative intention, that mere conversion of one type of share to other type of share will not be a transfer of a capital asset within the meaning of Sec. 2(47) of the Income Tax Act, 1961, which would also make the provision of capital gains work smoothly, in synchronization with other provisions, without any conflict with other provisions. If the view is adopted that capital gain tax liability arose upon conversion, then the same would be not only against the legislative intention but also would make the composition of capital gains unworkable and would bring conflict with other provisions of the Act. In fact, it would lead to instances of double taxation, as having taxed the capital gain upon such conversion, at the time of computing capital gain upon sale of such converted shares, the Assessee would be still taxed again, as the cost of acquisition would still be adopted as the issue price of the CCPS and not the consideration adopted while levying capital gain upon such conversion. The tribunal in this regard noted “by no stretch of imagination, such interpretation process is permissible”.

Key Takeaways:

Although now there is a specific provision in the form of Section 47(xb) (with effect from 1 April, 2018), the decision comes as a boon for matters where conversion took place even before the Finance Act, 2017 came into force. Further, to consolidate the mandate under Section 55(2)(b)(v)(e), the Finance Act, 2017 has also introduced new provisions in form of Sections 2(42A)(hf) and 49(2AE) that provide that holding period of equity shares resulting from conversion of preference shares start from the date of acquisition of original preference shares. The position of law with respect to taxability of conversion events now seems to be well settled therefore.

Authors: Mr. Avaneesh Satyang and Ms. Sohini Mandal

[1] ITA No. 1944/Mum/2018 decided on 09 November 2018

[2] (1976) 102 ITR 248 (Andhra Pradesh)

[3] (1998) 234 ITR 787 (Bombay), wherein the Bombay High Court held that preference shares and equity shares are different.

[4] Supra note 2

[5] (1986) 12 ITD 510 (Bombay)

[6] 66 ITR 622 (Supreme Court)

[7] 263 ITR 345 (Bombay)

[8] Supra note 6

[9] Supra note 7

[10] (1967) 66 ITR 692 (SC)

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Basics of capital table and different capital instruments

The capital table is a reflection of the shareholding pattern of a company, shareholder names, percentage of shareholding.  This shareholding should ideally reflect the voting percentage in the company. But does it? What if the ESOP percentage has to be included while there is no voting on ESOP?

Founders should also consider the number of people on the capital table, though the maximum number in a private limited is 200, for various reasons including logistics of execution of documents, distribution of the annual accounts & annual report etc.

In this post, we have captured some of the key aspects to be considered while structuring the capital table.

At the time of Incorporation: It may be noted that the subscription of shares at the time of incorporation will be at face value and cannot be issued at a premium. The initial subscribers are usually the founders themselves.

The shareholding pattern amongst the founders is a function of many factors, such as roles and responsibilities and what each of them would bring to the table, whether investment is in cash or in terms of performance and service, for example, as a technical expert or a marketing expert. It certainly helps in decision making if one of the founders have majority shareholding. It is highly recommended that the founders enter into a founders’ agreement wherein the number of shares, percentage shareholding, future investment, vesting schedule, if any; roles and responsibilities of each founder, treatment of shares upon termination, etc. This would help in setting expectations as well as helpful in easing the founder terminations / resignations.

Employees Stock Option Pool (“ESOP”): A great team is instrumental and vital to the growth of an early stage company. However, the company may not have the finances to compensate with market salary to its employees at early stages (unless well funded). Thus, issuing stock options becomes very attractive – not only as compensation mechanism but also as building ownership and responsibility in the company. Stock options are notional unless they are exercised and shares are allotted. They represent a right to purchase a specified number of shares at a specific (exercise) price. When an employee exercises the Options and issued shares, then they became part owners in the company and can also sell the shares. Stock Options cannot be transferred or sold. Please see our previous post on Ten Frequently Asked Questions on Exercising Employee Stock Options in Private Limited Companies for more details in this regard.

Though Stock Options are not shares yet, it still forms a part of the capital table. External investments into the company, be it angel or institutional investment, are on a fully diluted basis. Ie. a shareholding pattern, as if all the outstanding share allotments regardless of vesting, assuming all stock options are converted, assuming all convertible securities are converted into common shares. Hence, Stock Options also form part of the capital table. In such a scenario, the percentage captured in the cap table is not necessarily the percentage of voting.

At the time of Investment: Whenever new investors subscribe to the shares of the company, the capital table undergoes a change. All the earlier shareholders’ percentage holding dilute, while the number of shares that they hold remains. If ESOP is set aside before the new investors coming in, then ESOP percentage dilutes, while the number of options set aside, remain the same.

Issuance to Advisors: Issuance of shares has to be at fair market value. Many a time, it is convenient for the founders to transfer their shares to the advisors. However, tax impact has to be evaluated for such transfers.

In India, we have different kinds of shares:
Equity share capital (common stock): (i) with voting (ii) with differential rights, such as dividend or voting. Founders typically have equity shares. ESOP is also typically granted as equity share class.

Preference share capital, which carry a preferential right over the equity shares to be paid dividend and a preference for repayment of capital in case of winding up. Investors typically have preference shares.

Preference shares can be:
Cumulative preference shares, which means that the holders are entitled to receive dividend even when a company does not make (adequate) profit, in which case the dividend is accumulated and paid when the company does have sufficient profits.
In Non-cumulative preference shares, the holders get the dividend only when a company makes sufficient profits, else the dividend lapses and cannot be carried forward.
Participating preference shares, means that the holders are eligible to receive surplus profits or dividends in addition to being entitled to their fixed dividend.
In Non-participating preference shares, the dividend paid is only to the extent of the agreed fixed dividend.
Convertible preference shares are those that are converted into equity within the maximum period of 20 years. Non-convertible preferences are those that do not get converted into equity shares.
Redeemable preference shares or optionally redeemable preference shares are those that have to be paid back within the maximum period of 20 years. We don’t have irredeemable preference shares.

The other form of investment is as debentures, which is primarily a debt. But the debt can convert into shares through the issuance of Compulsorily Convertible Debentures (CCD). You can read our post on CCD on the nuances related to its issuance. https://novojuris.com/2018/03/21/nuances-associated-with-issuance-of-compulsorily-convertible-debentures/

Investors also invest through CCD, especially when the valuation of the company is not clear. Here’s how it is done https://novojuris.com/2015/12/21/raising-of-funds-through-compulsorily-convertible-debentures/

You can share your thoughts or email your questions to relationships@novojuris.com

National Medical Devices Promotion Council under the Department of Industrial Policy and Promotion (DIPP)

The Union Minister of Commerce and Industry and Civil Aviation, Suresh Prabhu, on 14 December 2018, announced the setting up of a National Medical Devices Promotion Council (“Council”). Though the medical devices industry has been growing steadily, it is primarily import driven. Thus, the setting up of the Council would perhaps spur domestic manufacture in the sector.

This is an announcement and we look forward to information / notification when the Council is  set up and the processes announced are implemented.

The Council would be headed by the Secretary of the DIPP. Further, it would have representatives from the health care industry and quality control institutions. Institutions such as Andhra Pradesh MedTech Zone, Visakhapatnam would provide technical support to the Council.

The Council will have the following objectives:

  • Act as a facilitation, promotion and developmental body for the Indian medical device industry.
  • Hold periodic seminars, workshops to garner views of the industry and understand the best global practices in the sector.
  • Simplify the approval processes for the medical device industry.
  • Enable the entry of emerging interventions and support certificates for manufacturers to reach levels of global trade norms and facilitate India to become an export driven market.
  • Support the dissemination and documentation of international norms and standards for medical devices by capturing the best practices in the global industry.
  • Drive a robust and dynamic Preferential Market Access (PMA) policy by identifying the strengths of the domestic manufactures and discouraging unfair trade practices in imports.
  • Undertake validation of Limited Liability Partnerships (LLPs) and such other entities within MDI sector which would add value to the industry strengths in manufacturing to gain foothold for new entrants.
  • Make recommendations to government based on industry feedback and global practices.

Available at: http://pib.nic.in/newsite/PrintRelease.aspx?relid=186385

Data Protection and the many facets of it: Inter-collegiate Essay Competition

NovoJuris Legal is proud to announce the Inter-collegiate Essay Competition on Data Protection and its various facets. 

Data Protection has taken very high importance not only in India but across the World. The Personal Data Protection Bill, 2018 (“Bill”) and the Data Protection Committee’s (“Committee”) Report (released on 27 July 2018) provides for the framework and the policymakers’ insight on protection of individual’s privacy and personal data in India. The Bill has set high expectations particularly after the European Union’s General Data Protection Regulation (“GDPR”) came into force on 25 May 2018. It is also essential to note the important judgments including the now famous “Aadhar case” of Justice Puttaswamy (Retd.) V. Union of India.

Reserve Bank of India (RBI) in April this year has mandated that all data generated by the payment systems in India, is to be stored in India. The Ministry of Health and Welfare has also published the draft legislation called Digital Information Security in Healthcare Act, to safeguard e-health records and patients’ privacy.

Thus, all these new rules/policies/regulations (collectively referred as “the Data Protection Framework”) indicate a very strong direction that the Government wishes to undertake on protection of data including but not limited to data localisation, which helps in enforcing data protection, nation’s security and protect its citizen’s data, better control on transmission of data outside the country and more.

Topics for the Essay Competition:

The following sub-themes have been identified as requiring academic consideration:

  1. General Data Protection Regulation in European Union has raised the bar on legislation on data protection across the world. Would this be beneficial or would it stunt technological growth and innovation?
  2. Is our Privacy safe under the Aadhar scheme? A critical analysis of change in the privacy law regime post Aadhar case in India.
  3. Implication and critical analysis of the Data (Privacy and Protection) Bill, 2017.
  4. Do we need a stronger consumer centric data protection law in India like the Customer Online Notification for Stopping Edge – Provider Network Transgressions (CONSENT Act), USA in the aftermath of the Facebook data breach incident?
  5. With all the industry specific regulator (RBI, TRAI, MHoW and etc.) providing various regulations, guidelines and draft policy notes with regards to Data Protection Framework in India, what do you think the outcome will be? Is India formalizing a uniform law for data protection?

Important Dates

▪ Submission Date – The essays must be submitted on or before 11:59 PM on 30 January 2019.

▪ Declaration of the Result on 31 March 2019.  – The winners of the competition shall be notified by email and by declaration of results of the competition on this website.

Details about the prizes, guidelines for submission and other details can be found here.  Intercollegiate-Data Privacy Essay-Competition-NovoJuris

 

Social media, Fake news: Govt is proposing amendments to Intermediary Guidelines under Information Technology Act

The Ministry of Electronics and Information Technology on 24 December, 2018 released the Draft Information Technology (Intermediary Guidelines) (Amendment) Rules, 2018 (the “Draft Intermediary Rules”) and has invited comments and suggestions from all stakeholders on the same.

An ‘Intermediary’ under the Information Technology Act, 2000 is any person who on behalf of another person stores or transmits that message or provides any service with respect to that message. An Intermediary cannot knowingly host, publish or initiate the transmission, select the receiver of transmission, or select or modify the information therein. Thus, this would include telecom service providers, internet service providers, web-hosting service providers, search engines, online-payment sites, online auction sites, online market places, and also social media platforms, which seem to be the primary subject of the proposed amendment.

The Draft Intermediary Rules seeks to address the calling attention motion on “Misuse of Social Media Platform and spreading of fake news” admitted in the Rajya Sabha during the monsoon session this year. Thus, in order to strengthen the legal framework and make the social media platforms accountable the following amendments and new provisions are proposed under the Draft Intermediary Rules. Whilst the changes bring in more strict compliance from intermediaries and might drive the cost of compliance fairly high as well, it remains yet to be seen how many of these proposed changes make it to the final amendments.

Due Diligence obligations of the Intermediaries:

The Draft Intermediary Rules prescribes the following due diligence measures to be taken by Intermediaries:

Restriction on the proliferation of certain information by users

  • The Draft Intermediary Rules already requires Intermediaries to publish rules and regulations, privacy policy and user agreement, and such rules must inform the users[1] not to host, display, upload, modify, publish, transmit, update or share such information. The Draft Intermediary Rules however includes information which promotes cigarettes or any other tobacco products or consumption of intoxicant including alcohol and Electronic Nicotine Delivery System (ENDS) & like products that enable nicotine delivery in the list except to the extent permissible under the Drugs and Cosmetics Act, 1940.
  • The Intermediary is also required to inform its users at least once every month that in cases of non-compliance with rules and regulations, the Intermediary has the right to immediately terminate the access or usage rights of the users and remove non-compliant information.

Intermediaries to assist Government Agencies

  • Intermediaries with more than 50 Lakh users in India, or those Intermediaries specially notified by the government must be a registered company in India, have a permanent registered office in India, and appoint a nodal person of contact and alternate senior designated functionary for 24×7 coordination with law enforcement agencies in India.
  • The Intermediary must assist any government agency, security of the state, cyber security agency (those legally authorised) in matters of cyber security; or investigation or detection or prosecution or prevention of offence(s); protective or cyber security and those upon a lawful order. Such assistance must be provided within 72 hours and can be extended to tracing out the originator of information on its platform.
  • The government can seek the information about unlawful acts from the intermediaries by court order or by being notified by the government itself and the parameter to judge unlawful activities would be Article 19(2) of the Constitution, which would include inter alia, interests of the sovereignty and integrity of India, security of state, friendly relations with foreign states public order, decency or morality, etc. The timeline to comply with this is 24 hours, and such information and records must be preserved by the Intermediaries for at least 180 days for investigational purposes (or longer if court or government agency prescribes).

Intermediaries to develop internal mechanisms to tackle unlawful information

  • The Intermediary is required to use the help of technology based automated tools or appropriate mechanisms that should be deployed with appropriate controls for a proactive identification and removal or disabling of unlawful information or content.

Author: Mr. Avaneesh Satyang

 Sources: Invitation for Comments/Suggestions:

http://meity.gov.in/content/comments-suggestions-invited-draft-%E2%80%9C-information-technology-intermediary-guidelines

Draft Intermediary Rules:

http://meity.gov.in/writereaddata/files/Draft_Intermediary_Amendment_24122018.pdf

[1] A ‘User’ under the Draft Intermediary Rules means any person who accesses or avails any computer resource of intermediary for the purpose of hosting, publishing, sharing, transacting, displaying or uploading information or views and includes other persons jointly participating in using the computer resource of an intermediary.

Cash compensation for the unemployed under Employees’ State Insurance Act

A benevolent measure has been introduced by the Government to support the unemployed for certain periods.

The Employees’ State Insurance Corporation (“ESIC”) in furtherance of the Employees’ State Insurance Act, 1948 (“Act”), has provided a welfare measure for qualified employees under section 2(9) the Act to seek cash compensation for being rendered unemployed. This compensation can be sought by the employees after the passage of 3 (three) months from the date of being rendered unemployed upto a maximum period of 90 (ninety) days in a lifetime. The employees can seek this compensation in one or more periods provided that the following conditions are met:

  1. the employee should have competed two years of insurable employment,
  2. the employee should have contributed not less than 78 (seventy-eight) days in each of the four consecutive contribution periods immediately preceding to the claim of relief,
  3. the relief does not exceed 25% of the average earning per day,
  4. unemployment should not have been as a result of any punishment for misconduct or superannuation or voluntary retirement,
  5. the identity of the employee would be determined from the ESIC database subject to the employee having a verified Aadhar Number,
  6. The employee furnishes his/ her claim in Form AB-1 provided with the notification duly forwarded by his last employer to his/her allotted Branch Office.

For the purpose of determining the average earning per day, the same shall be equivalent to the total amount of wages received during the four consecutive contribution periods divided by seven hundred and thirty (730) days.

The welfare measure would be deemed to be effective from 1 July 2018 and shall become due for payment after three months. Moreover, the welfare measure is introduced by the ESIC for a term of 2 (two) years on a pilot basis.

Source: http://egazette.nic.in/WriteReadData/2018/193738.pdf

New Wave in Digitizing Registration, Licenses and Reporting under various Labour Laws in India: The Growing Importance of Shram Suvidha Portal

About the Portal:

The Ministry of Labour & Employment developed a single unified Web Portal in Shram Suvidha Portal (Portal) for online registration of units, reporting of inspections and submissions of annual returns. As an initiative on pilot basis, the Ministry has selected the Chief Labour Commissioner (Central) organization, the Employees State Insurance Corporation (ESIC), Employees Provident Fund Organisation (EPFO) and Directorate General of Mines Safety (DGMS) to utilize the portal covering 16 Labour Laws. As of now 8 State Governments and NCR of Delhi have voluntarily adopted registration under the Portal for return filing and filing inspection reports under various labour laws (which also includes returns under the Factories Act, 1948).

Services offered by the Portal:

This integrated portal operates through a common Unique Labour Identification Number (Shram Pehchan Sankhya) for each establishment. The employers are allotted Labour Identification Number (LIN) after registration on web portal. The enforcement agency uploads the data of inspection on the web portal which is updated periodically. This web portal also provides for filing of single harmonized annual return by the employers.

Registration under the following legislations is provided under the Portal:

  1. Contract Labour (Regulation and Abolition) Act 1970; [Mandatory]
  2. Building and Other Construction Workers Act 1996; [Mandatory]
  3. Inter-State Migrant Workmen Act 1979; [Mandatory]
  4. Employees Provident Funds and Miscellaneous Provision’s Act 1952; and
  5. Employees’ State Insurance Act 1948.

For ease of compliance of Labour Laws, the portal reduces the number of registers to be maintained to 5 in place of 56 registers which were earlier provided under the following central labour/rules:

  1. The Building and Other Construction Workers (Regulation of Employment & Conditions of Service) Act, 1996
  2. The Contract Labour (Regulation & Abolition) Act, 1970
  3. The Equal Remuneration Act, 1976
  4. The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
  5. The Mines Act, 1952
  6. The Minimum Wages Act, 1948
  7. The Payment of Wages Act, 1936
  8. The Sales Promotion Employees (Conditions of Service) Act, 1976
  9. The Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955.

Necessary amendments in various rules via the Ease of Compliance to Maintain Registers under various Labour Laws Rules, 2017 were made to give effect to the services of the Portal. The Registers can be maintained in a software available for download at the Portal. Annual Returns under the Factories Act, 1948 for participating states can also be filed online on the Portal.

The Portal also offers self-certification/declaration by start-ups recognized by the Department of Industrial Policy & Promotion (DIPP) under the start-up action plans of various state governments and also the central start-up action plan.

Further Amendments being rolled out to make registration through the Portal mandatory for;

  1. Contract Labour (Regulation and Abolition) Act, 1970

Vide notification number G.S.R. 829(E) dated September 4, 2018, the Ministry of Labour and Employment has published the Draft Contract Labour (Regulation and Abolition) Central (Amendment) Rules, 2018 which states that the registration of principal employer, and the procurement of licence for a contractor are now to be mandatorily done through the Portal.

Apart from this payment of the registration or licence fees, renewal fees etc shall be made by the e-payment system. the Certificate of registration shall also be generated electronically. Further under the notification number S.O. 4259(E) dated September 4, 2018, applications regarding registration and licensing under the said Act must be made online through the Portal till the said draft rules are finalized.

  1. Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979

Changes sought to be made vide the Draft Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Central (Amendment) Rules, 2018 [G.S.R. 830(E) dated September 4, 2018] also make registration through the Portal mandatory. Further under the notification number S.O. 4260(E) dated September 4, 2018 registration through the Portal is mandated till the draft rules are finalized for this legislation as well.

  1. Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996

Similarly, compliances under the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 are also made to be mandatorily carried out on the Portal. The Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Central (Amendment) Rules, 2018 [G.S.R. 828(E) dated September 4, 2018] has been notified to this effect.

Benefits under the Pradhan Mantri Rojgar Protsahan Yojana to employers registering through Shram Suvidha:

The Pradhan Mantri Rojgar Protsahan Yojana (PMRPY) Plan Scheme seeks to incentivise employers for generation of new employment. All employees earning wages less than INR 15,000/- are made eligible for this benefit wherein originally, the Government of India (GoI) would pay the employer’s contribution towards the Employees’ Pension Scheme (EPS) for three consecutive years. However, effective from April 1, 2018, GoI will pay the full employer’s contribution under EPS and also Employees’ Provident Fund (EPF) for a period of three years for all such employees.

To avail this benefit, it has been made mandatory to obtain registration under EPFO and also have a LIN allotted to the establishment under the Shram Suvidha Portal, the LIN shall be the primary reference number for all communication to be made under the PMRPY Scheme.

Our thoughts:

It is not difficult to foresee that the gradual push towards digitization of labour law compliances is gaining momentum in India, and several incentives are being offered for early adapters of the same.

Author: Mr. Avaneesh Satyang

Sources:

Notifications G.S.R. 828-830(E): https://labour.gov.in/sites/default/files/Notification%20Regarding%20Online%20Registeration%20and%20Licensing_0.pdf

Notifications S.O. 4259 (E) and 4260 (E): https://labour.gov.in/sites/default/files/Statutory%20orders%20regarding%20online%20registration%20and%20licensing.pdf

Ease of Compliance to Maintain Registers under various Labour Laws Rules, 2017: https://labour.gov.in/sites/default/files/Ease%20of%20Compliance%20Rules.pdf

Pradhan Mantri Rojgar Protsahan Yojana Plan Scheme:

Shram Suvidha Portal: https://shramsuvidha.gov.in/aboutUs.action