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33.Convertibility of Currency Flashcards

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1
Q

What is Convertibility of Currency?

A

Convertibility of Currency refers to the ease with which a country’s currency can be converted into gold or another currency in global exchanges.

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2
Q

What does Convertibility of Currency indicate?

A

Convertibility of Currency indicates the extent to which regulations allow the inflow and outflow of capital to and from a country.

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3
Q

When did India allow full current account convertibility?

A

India allowed full current account convertibility in 1994.

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4
Q

What is the status of capital account convertibility in India?

A

Capital account transactions were not made fully convertible in India.

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5
Q

What can be done with the Indian rupee for Current Account purposes?

A

For Current Account purposes, the Indian rupee can be converted to any foreign currency at existing market rates for trade purposes, for any amount.

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6
Q

What was the purpose of the Tarapore Committee?

A

The Tarapore Committee was constituted by the Reserve Bank of India (RBI) to suggest a roadmap for full Capital account convertibility.

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7
Q

What does Convertibility of Currency refer to?

A

Convertibility of Currency refers to the ease of converting a country’s currency into gold or another currency in global exchanges.

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8
Q

What does the level of Convertibility of Currency indicate?

A

The level of Convertibility of Currency indicates the extent of regulations governing the inflow and outflow of capital in a country.

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9
Q

When did India implement full current account convertibility?

A

India implemented full current account convertibility in 1994.

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10
Q

What recommendations did the Tarapore Committee provide?

A

The Tarapore Committee provided recommendations for achieving full Capital account convertibility in India.

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11
Q

What does Current Account Convertibility allow?

A

Current Account Convertibility allows free inflows and outflows of foreign currency for all purposes except for capital purposes.

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12
Q

When was Current Account Convertibility operationalized in India?

A

Current Account Convertibility was operationalized in India on August 19, 1994.

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13
Q

What transactions are restricted in the Current Account?

A

Transactions involving the remittance of money earned through racing, lotteries, betting, etc., are not permitted in the Current Account.

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14
Q

Are withdrawals of foreign currency allowed for travel to Nepal and Bhutan?

A

No, the withdrawal of foreign currency is prohibited for travel to Nepal and Bhutan or transactions with residents of Nepal or Bhutan.

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15
Q

What are the purposes for which individuals can avail foreign exchange under the FEMA Rule 2015?

A

Individuals can avail foreign exchange within the limit of US Dollar 2.5 lakh under the FEMA Rule 2015 for purposes such as private visits to any country (except Nepal and Bhutan), gift and donation, going abroad for employment, immigration, maintenance of close relatives living abroad, travel for business or attending specialized training, expenses related to medical treatment, medical checkup abroad, and studies abroad.

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16
Q

When was Current Account Convertibility implemented in India?

A

Current Account Convertibility was implemented in India in August 1994.

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17
Q

What transactions are not permitted in the Current Account?

A

The remittance of money earned through racing, lotteries, betting, etc., is not permitted in the Current Account.

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18
Q

Can foreign currency be withdrawn for travel to Nepal and Bhutan?

A

No, the withdrawal of foreign currency for travel to Nepal and Bhutan or transactions with residents of Nepal or Bhutan is prohibited.

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19
Q

What are the purposes for which individuals can avail foreign exchange under FEMA Rule 2015?

A

Individuals can avail foreign exchange for purposes such as private visits (except Nepal and Bhutan), gift and donation, employment abroad, immigration, maintenance of close relatives abroad, business travel, medical treatment abroad, medical checkup abroad, and studies abroad.

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20
Q

When did Current Account Convertibility become fully operational in India?

A

Current Account Convertibility became fully operational in India on August 19, 1994.

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21
Q

What are the permitted transactions under the Capital Account?

A

The permitted transactions under the Capital Account include External Commercial Borrowings (ECBs), Foreign Direct Investment (FDI), Foreign Portfolio Investors (FPI), and investments in Nepal and Bhutan.

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22
Q

What is the maximum amount an eligible borrower from India can raise under the Automatic Route for ECBs?

A

An eligible borrower from India can raise up to $750 million US dollars per financial year under the Automatic Route for ECBs.

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23
Q

How much can Indian corporations borrow in total for working capital purposes in one financial year?

A

Indian corporations can borrow a total of $10 billion US dollars in one financial year for working capital purposes, with a minimum maturity period of 3 years.

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24
Q

What is the borrowing limit for manufacturing companies for ECBs per financial year?

A

Manufacturing companies can raise up to $50 million US dollars per company per financial year for ECBs, with a maturity period of 1 year.

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25
Who sets the limits for Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPI)?
The limits for FDI and FPI investors are set by the Ministry of Commerce and Industry.
26
Are there any investment restrictions for Nepal and Bhutan?
There are no restrictions on investments in Nepal and Bhutan.
27
What is the investment limit per person per year for investments outside Nepal and Bhutan?
The investment limit per person per year for investments outside Nepal and Bhutan is 2.5 lakh US dollars.
28
What is the maximum amount an Indian resident can take outside India under the Liberalised Remittance Scheme?
An Indian resident can take up to 2.5 lakh US dollars outside India under the Liberalised Remittance Scheme.
29
What types of transactions are permitted under the Capital Account?
Permitted transactions under the Capital Account include ECBs, FDI, FPI, and investments in Nepal and Bhutan.
30
What is the borrowing limit for Indian corporations for working capital purposes in one financial year?
Indian corporations can borrow up to $10 billion US dollars in one financial year for working capital purposes, with a minimum maturity period of 3 years.
31
What is Double Taxation Avoidance Agreement (DTAA)?
Double Taxation Avoidance Agreement (DTAA) is an agreement between two countries to avoid double taxation, where an individual or company is required to pay taxes for the same income or transaction in both countries.
32
Why does double taxation occur?
Double taxation occurs due to overlapping tax laws and regulations in different countries where an individual or company operates their business.
33
How is double taxation relieved?
Double taxation is relieved through tax agreements, known as treaties or Double Taxation Avoidance Agreements (DTAA), between the countries involved.
34
What is the need for Double Tax Avoidance Agreement (DTAA)?
The need for DTAA arises to avoid double taxation and prevent tax evasion when an individual or company conducts business in a foreign country and ends up paying taxes in both the country of income and the country to which the company belongs.
35
Why is the collection of taxes globally considered improper?
The collection of taxes globally is considered improper because it can lead to double taxation, which creates a burden for individuals or companies operating internationally.
36
How does DTAA help in preventing tax evasion?
DTAA helps in preventing tax evasion by providing a legal framework for determining tax liabilities and avoiding double taxation, thereby ensuring that companies do not resort to tax evasion methods.
37
What information does DTAA provide to both countries involved?
DTAA keeps both countries well-informed about the activities of a company in the source country, helping to maintain transparency and prevent tax evasion.
38
What is the purpose of a Double Taxation Avoidance Agreement?
The purpose of a Double Taxation Avoidance Agreement is to eliminate or reduce the incidence of double taxation, promote international trade and investment, and provide clarity on tax obligations for individuals and businesses operating in multiple countries.
39
What problems can arise without a Double Taxation Avoidance Agreement?
Without a DTAA, individuals or companies conducting business in multiple countries may face double taxation, resulting in increased costs and potential tax evasion.
40
How does DTAA benefit individuals and businesses operating internationally?
DTAA benefits individuals and businesses operating internationally by providing relief from double taxation, ensuring fair taxation, promoting cross-border trade and investment, and maintaining transparency in tax matters between countries.
41
How many countries does India have Double Tax Avoidance Agreements (DTAAs) with?
India has Double Tax Avoidance Agreements (DTAAs) with 89 countries under Section 90 of the Income Tax Act, 1961.
42
What is the purpose of tax treaties between countries?
The purpose of tax treaties is to develop a fair and equitable system for the allocation of the right to tax different types of income between the "source" and "residence" countries.
43
What is one advantage of Double Tax Avoidance Agreements (DTAA)?
One advantage of DTAA is that double taxation on income earned will not take place.
44
How do Double Tax Avoidance Agreements lower administrative costs?
DTAA lowers the administrative costs of taxation by providing clear guidelines and procedures for determining tax liabilities in cross-border transactions.
45
How can Double Tax Avoidance Agreements promote investments in a country?
Double Tax Avoidance Agreements can promote investments in a country by making it an attractive investment destination, as investors are assured of avoiding double taxation and having clarity on their tax obligations.
46
What are the benefits of Double Tax Avoidance Agreements in terms of clarity and transparency?
DTAA promotes more clarity and transparency in terms of investments, as it provides a clear framework for determining tax liabilities and obligations for individuals and businesses operating across borders.
47
How does Double Tax Avoidance Agreement promote global trading?
DTAA promotes global trading by eliminating or reducing the incidence of double taxation, which can be a barrier to international trade and investment.
48
What is the significance of India's network of tax treaties?
India's network of tax treaties is one of the largest, and it helps in avoiding double taxation and preventing tax evasion, thereby facilitating international trade and investment.
49
What is the purpose of Double Tax Avoidance Agreements?
The purpose of Double Tax Avoidance Agreements is to ensure that individuals and businesses are not taxed twice on the same income and to provide a framework for allocating taxing rights between countries.
50
How does Double Tax Avoidance Agreement benefit countries and taxpayers?
Double Tax Avoidance Agreement benefits countries by promoting trade, investment, and transparency, while taxpayers benefit from avoiding double taxation and having a clearer tax framework when operating internationally.
51
What are the two types of relief methods under DTAA?
The two types of relief methods under DTAA are bilateral relief and unilateral relief.
52
How does bilateral relief work under DTAA?
Under bilateral relief, the governments of two or more countries enter into an agreement to provide relief against double taxation. They mutually decide on the method of relief, which can be either exemption or tax relief.
53
What is the exemption method in bilateral relief?
In the exemption method, the income earned is exempted from tax in either of the two countries involved in the agreement.
54
What is the tax relief method in bilateral relief?
In the tax relief method, the country of origin pays tax in credit for the amount that is subject to tax in the foreign country.
55
What is unilateral relief under DTAA?
Unilateral relief is provided by the country of origin for tax paid by the company, even if there is no mutual agreement between both countries.
56
Which sections of the Income Tax Act deal with double tax relief provisions?
Sections 90 and 91 of the Income Tax Act deal with the double tax relief provisions.
57
What is the purpose of bilateral relief under DTAA?
The purpose of bilateral relief is to provide a mechanism for countries to avoid double taxation and determine the appropriate relief method mutually.
58
When is the exemption method used in bilateral relief?
The exemption method is used when one of the countries involved in the agreement exempts the income earned from tax.
59
How does unilateral relief benefit companies?
Unilateral relief benefits companies by allowing them to claim relief for taxes paid in the country of origin, even without a mutual agreement between the countries.
60
Why are sections 90 and 91 of the Income Tax Act important?
Sections 90 and 91 of the Income Tax Act are important as they provide the legal framework for implementing double tax relief provisions and managing the taxation of income earned in multiple countries under DTAA.
61
What does BEPS stand for?
BEPS stands for Base Erosion and Profit Shifting.
62
What is the objective of BEPS strategies used by multinational companies?
The objective of BEPS strategies is to avoid paying taxes by taking advantage of loopholes and gaps in tax rules.
63
How is tax levied on multinational companies?
Tax is levied on multinational companies as a percentage of their profit or income by the government.
64
What do multinational companies do to shift their income or profit?
Multinational companies use loopholes to shift their income or profit to another country, often a tax haven.
65
What is the impact of profit shifting on the country where the revenue is generated?
Due to profit shifting, the country where the revenue is generated may experience tax erosion or not receive any tax from the multinational company.
66
Why is BEPS a concern for governments?
BEPS is a concern for governments because it reduces their tax revenue and creates an imbalance in the allocation of taxes among countries.
67
How do multinational companies exploit gaps in tax rules?
Multinational companies exploit gaps in tax rules by manipulating transfer pricing, utilizing tax havens, and engaging in other complex financial arrangements to artificially reduce their taxable income.
68
What are tax havens?
Tax havens are countries or jurisdictions that offer favorable tax benefits, low or no taxation, and financial secrecy to attract businesses and individuals looking to minimize their tax liabilities.
69
Why is BEPS considered an issue of international tax avoidance?
BEPS is considered an issue of international tax avoidance because it involves the shifting of profits and erosion of tax base across borders, creating challenges for governments in effectively taxing multinational companies.
70
What measures have been taken to address BEPS?
The Organization for Economic Cooperation and Development (OECD) has developed a comprehensive plan known as the BEPS project, which includes a set of actions and guidelines to address BEPS and improve international tax transparency and cooperation.
71
What does GAAR stand for?
GAAR stands for General Anti-Avoidance Rule.
72
What is the purpose of GAAR?
The purpose of GAAR is to provide a framework or set of rules that revenue authorities can use to combat aggressive tax planning and tax avoidance.
73
What does GAAR target?
GAAR targets financial transactions or business arrangements that are specifically entered into to avoid paying taxes.
74
How does GAAR assist tax authorities?
GAAR helps tax authorities in determining whether a business arrangement or transaction is primarily designed to avoid taxes.
75
How is GAAR different from tax evasion?
GAAR is different from tax evasion, which involves illegal activities, misrepresentation, suppression, or fraud. GAAR focuses on aggressive tax planning and avoidance.
76
What is the difference between GAAR and tax mitigation?
GAAR focuses on aggressive tax planning to avoid taxes, while tax mitigation involves utilizing fiscal incentives and tax-efficient zones to legally reduce tax liabilities.
77
Who is responsible for implementing GAAR?
Revenue authorities, such as tax departments or agencies, are responsible for implementing GAAR.
78
How does GAAR impact tax planning strategies?
GAAR acts as a deterrent against aggressive tax planning strategies by allowing revenue authorities to challenge and disallow transactions that are primarily aimed at tax avoidance.
79
What is the objective of implementing GAAR?
The objective of implementing GAAR is to ensure fairness and prevent abusive tax avoidance practices, thereby protecting the tax base and maintaining the integrity of the tax system.
80
How does GAAR contribute to tax transparency?
GAAR promotes tax transparency by allowing tax authorities to scrutinize and challenge transactions that are suspected of being primarily driven by tax avoidance motives.
81
What is the purpose of the General Anti-Avoidance Rule (GAAR)?
The purpose of GAAR is to prevent tax avoidance by exploiting international tax treaties and laws.
82
What can the government do under GAAR if there is no sound business for a transaction?
Under GAAR, the government can deny a tax benefit and reclassify the profits arising from the transaction.
83
When was GAAR initially proposed?
GAAR was initially proposed in the Direct Tax Code 2009.
84
When did GAAR become effective?
GAAR became effective from April 1, 2017.
85
Was GAAR originally intended to be implemented earlier than April 1, 2017?
Yes, GAAR was originally intended to be implemented from April 1, 2014.
86
Why was the implementation of GAAR delayed?
The implementation of GAAR was delayed due to recommendations from the Shome Committee and protests from foreign investors.
87
Are investments made through tax treaties and agreements subject to GAAR?
No, the provisions of GAAR do not apply to investments made through tax treaties and agreements that have a sufficient limitation of benefit.
88
Which department is responsible for implementing GAAR?
The Department of Revenue is responsible for implementing GAAR.
89
What does GAAR aim to address?
GAAR aims to address aggressive tax planning and abusive tax avoidance practices.
90
How does GAAR contribute to tax fairness and integrity?
GAAR ensures fairness and maintains the integrity of the tax system by preventing tax avoidance and reclassifying profits from transactions lacking a valid business purpose.
91
Why was the General Anti-Avoidance Rule (GAAR) introduced?
AAR was introduced to address the revenue losses caused by aggressive tax planning and loopholes in the law.
92
Is tax avoidance considered a crime?
No, tax avoidance is not considered a crime, but it can lead to significant revenue losses for the government.
93
What is the purpose of anti-avoidance rules in many countries?
The purpose of anti-avoidance rules in many countries is to prevent revenue losses and curb aggressive tax planning.
94
What triggered the discussion of GAAR in India?
The discussion of GAAR in India was triggered by the Vodafone tax dispute, where tax avoidance was alleged in the sale of Hutch India to Vodafone.
95
How much did Vodafone purchase Hutch India for?
Vodafone purchased Hutch India for 55,000 crores.
96
Why was Hutchinson Hong Kong liable to pay capital gains tax to the Indian government?
Hutchinson Hong Kong, the parent company of Hutch India, was liable to pay capital gains tax to the Indian government due to the sale of its Indian assets to Vodafone.
97
Who initiates the process for invoking General Anti-Avoidance Rule (GAAR)?
The Assessing Officer initiates the process by making a reference to the Tax Commissioner.
98
What does the Income Tax Commissioner do after confirming an Impermissible Avoidance Arrangement (IAA)?
The Income Tax Commissioner issues a notice to the taxpayer.
99
What documents does the taxpayer file after receiving a notice?
The taxpayer files documents showing that the arrangement is not an Impermissible Avoidance Arrangement (IAA).
100
What happens if the Income Tax Commissioner is not satisfied with the taxpayer's explanation?
The case can be referred by the Income Tax Commissioner to the Approving Panel.
101
What is the role of the Approving Panel?
The Approving Panel examines the case and provides directions that apply to the taxpayer and the tax authorities.
102
Who issues an order to the taxpayer after the Approving Panel's directions?
The Assessing Officer issues an order to the taxpayer.

INDIAN ECONOMY (35 decks)

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