In light of the COVID-19 pandemic, the Finance Minister, Ms. Nirmala Sitharaman, on March 24, 2020, announced various changes to the statutory and regulatory compliance matters to deal with the economic impact caused by the outbreak. Key takeaways from the address are set out below:

Changes to Company Law related Requirements:

The Ministry of Corporate Affairs (‘MCA’), pursuant to the announcements made by the Finance Minister issued a circular dated March 24, 2020 setting out the below:

i        Requirement of independent directors meetings: Paragraph VII (1) of Schedule IV to the Companies Act, 2013 (‘Act’) requires independent directors to hold at least one meeting without the attendance of non-independent directors and members of management. If the independent directors of a company were unable to hold even one such meeting in the financial year (‘FY’) 2019-20, it will not be considered to be a violation of the requirements under the Act and the relevant rules under the Act. The MCA has clarified that the independent directors may share their views amongst themselves through telephone or e-mail or any other mode of communication, if they deem necessary.

ii        Moratorium on MCA21 Registry: In respect of the MCA21 registry (the e-filing registry through which all filings required under the Act are made), a moratorium is issued on the MCA 21 registry (the e-governance portal to access MCA’s services) from April 1, 2020 till September 30, 2020. No additional fees will be levied on late filings of any document, return, statement etc, irrespective of its due date, during this moratorium period.

iii      Extension of time period for holding board meetings: The mandatory requirement for holding board meetings within the prescribed interval under the Act, is being relaxed for a period of 60 days. This relaxation will be applicable for the next two quarters. Accordingly, as a one time relaxation, the gap between two consecutive meetings of the board may extend to 180 days for the next two quarters instead of 120 days as required under the Act.

iv       Applicability of CARO-2020: The Companies (Auditor’s Report) Order, 2020 (the details of which were provided in our Client Alert dated March 17, 2020) which was proposed to be made applicable on and from the FY commencing April 1, 2019, shall now be made applicable from the FY 2020-21. The MCA has also issued an order dated March 24, 2020 effecting this change.

v       Time period for declaration of commencement of business: In relation to newly incorporated companies, the requirement to file declaration for the commencement of new business within six months has been relaxed, with six more months being given, thereby making the time period one year from the commencement of business.

vi        Minimum residency requirement for directors: In the event the director of a company is not able to comply with the minimum residency requirement in India of 182 days or more in the last FY, then it will not be treated as a violation under Section 149 of the Act.

vii       Extension of deadline to create deposit reserve: The deadline under Section 73(2)(c) of the Act, for companies accepting deposits, to create a deposit reserve of 20% of deposits maturing during the FY 2020-21 before April 30, 2020, has been extended to June 30, 2020.

viii     Extension of deadline to invest in specified instruments: The deadline under Rule 18 of Companies (Share Capital and Debentures) Rules, 2014, to invest 15% of the amount of its debentures maturing during a particular year in specified instruments before April 30, 2020, has been extended to June 30, 2020.

Changes to the Insolvency Law related Requirements:

i        Increase in default threshold for filing insolvency application: The threshold of default for filing application to commence corporate insolvency resolution process of a company / limited liability partnership has been increased from ₹ 100,000 (approx. US$ 1,318) to ₹ 10,000,000 (approx. US$131,800).

ii        Possible suspension of provisions which allow filing of insolvency applications: In the event the economic distress caused by COVID-19 continues beyond April 30, 2020, application of Section 7 (application for initiation of corporate insolvency resolution process (“CIRP”) by financial creditors), Section 9 (application for initiation of CIRP by operational creditors) and Section 10 (application for initiation of CIRP by corporate applicant) of the Insolvency and Bankruptcy Code, 2016 may be suspended for a period of six months to stop companies at large from being forced into insolvency proceedings due to force majeure causes of default.

Direct Tax Announcements:

i         Extension of return filing deadline: The last date of filing the return of income for the FY 2018-19 has been extended from March 31, 2020 to June 30, 2020.

ii       Reduction in rate of interest for delayed payments: Applicable interest rate for delayed payments, of advance tax, self-assessment tax, regular tax, tax deducted at source (‘TDS’), tax collected at source, equalization levy, securities transaction tax (‘STT’), commodities transaction tax (‘CTT’), for FY 2018-19, has been reduced to 9% from 12% / 18% (i.e. 0.75 percent per month instead of 1 / 1.5 percent per month). These reduced rates shall only be applicable for payments made between March 20, 2020 and June 30, 2020. No late fee/penalty shall be charged for delay relating to this period. However, there is no extension of the applicable due dates.

iii      Extension of deadline under the Vivad Se Vishwas Scheme: The initial deadline of March 31, 2020 for making payment under the ‘Vivad Se Vishwas Scheme’ has been extended to June 30, 2020, without any additional charge (earlier there was a 10% additional charge for payments made on or after March 31, 2020).

iv       Extension of PAN-Aadhaar linking deadline: The deadline for linking of permanent account number with Aadhaar has been extended from March 31, 2020 to June 30, 2020

v      Extension of compliance deadlines: All other compliance deadlines, including in relation to issue of notice, intimation, notification, approval order, sanction order, filing of appeal, furnishing of return, statements, applications, reports, any other documents and time limit for completion of proceedings by the authority and any compliances by the taxpayers including investments in saving instruments or investments for roll over benefit of capital gains under the Income-tax Act, 1961, Wealth Tax Act, 1957, Finance Act, 2016 (dealing with Equalization Levy), Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, Prohibition of Benami Property Transactions Act, 1988, STT law, CTT law, Vivad se Vishwas law etc, where the time limit is expiring between March 20, 2020 to June 29, 2020, shall be extended to June 30, 2020.

vi       Necessary legal circulars and legislative amendments for giving effect to the aforesaid relief shall be issued in due course.

Indirect Tax Announcements:

i         Customs

a)      Customs clearance: Customs clearance will operate 24/7 till June 30, 2020.

b)     Extension of compliance deadlines: All other compliance deadlines, including in relation to issuance of notices, notifications, approval orders, sanctions orders, filing of appeals, furnishing of returns, statements, applications, reports or any other documents under the Customs or allied laws which were due before June 30, 2020 (including on March 20, 2020 or thereafter) have also been extended to June 30, 2020.

ii         Dispute settlement

a)      Extension of deadline for making payment under the Sabka Vishwas Scheme: Last date for making payment under the ‘Sabka Vishwas’ indirect tax dispute settlement scheme has been extended till June 30, 2020.

iii        GST[1]

a)        Relief from interest, penalty and late fee: Interest, penalty and late fee will not be charged for companies with a turnover less than ₹ 5 crore (approx. US$ 664,000).

b)        Relief from penalty and late fee: Penalty and late fee will not be charged for bigger companies.

c)       Extension of compliance deadlines: All other compliance deadlines, including in relation to issuance of notices, notifications, approval orders, sanctions orders, filing of appeals, furnishing of returns, statements, applications, reports or any other documents under the GST laws which were due before June 30, 2020 (including on March 20, 2020 or thereafter) have also been extended to June 30, 2020.

d)       Extension of return filing deadline: Last date for filing returns for March, April and May 2020 is being extended to June 30, 2020. Different staggering dates will be applicable, but all will be end of June.

Earlier today (March 26, 2020), the Finance Minister has also announced relief package for the poor and certain other measures to deal with the economic distress caused due to the COVID-19 pandemic.

[1] These reliefs are subject to approval of the GST Council.