Recently, the Income Tax Department prominently displayed a message on its website stating, “According to the RBI Notification, in the case of non-individuals, a Legal Entity Identifier (LEI) No. is required for Credit of Refunds of Rs. 50 crore and above*. For hassle-free refund processing, please submit LEI details on the Income Tax portal in Login->Dashboard->Services->LEI.” In this article, we will explore the specifics of what an LEI is, its purpose, and its relevance to large-value transactions within centralized payment systems.
*Income Tax Websites say Income Tax Refund Exceeding Rs. 50 crore but in our opinion LEI is required for Credit of Refunds of Rs. 50 crore and above and accordingly we updated above message also for our readers.
Introduction:
In the ever-evolving landscape of global financial transactions, the Legal Entity Identifier (LEI) plays a crucial role in enhancing transparency, accuracy, and risk management. This 20-character alpha-numeric code uniquely identifies parties involved in financial transactions worldwide. The purpose of LEI is to establish a standardized global reference data system, ensuring every legal entity in any jurisdiction involved in financial transactions is uniquely identified.
The Reserve Bank of India (RBI) has introduced a significant requirement for non-individual entities when it comes to the credit of income tax refunds of Rs. 50 crore and above. A Legal Entity Identifier (LEI) No. has become mandatory for such transactions to ensure smooth and hassle-free refund processing.
LEI Issuance and Accreditation:
Legal Entity Identifiers (LEIs), essential for global financial transparency, are procured through accredited Local Operating Units (LOUs) authorized by the Global Legal Entity Identifier Foundation (GLEIF). In India, the Reserve Bank of India (RBI) recognizes Legal Entity Identifier India Ltd. (LEIL) as the designated entity for LEI issuance. Positioned as a pivotal link between Indian entities and the international financial network, LEIL ensures compliance with global standards. Entities seeking LEIs can access the comprehensive information and procedures provided on the official LEIL website (https://www.ccilindia-lei.co.in/), solidifying the role of LEIs in enhancing the efficiency and transparency of financial transactions on a global scale.
Which Transactions Require LEI Information?
The requirement for Legal Entity Identifier (LEI) information is mandated for all single payment transactions amounting to ₹50 crore and above, specifically involving entities (non-individuals). This stipulation applies to transactions conducted through the National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) payment systems. In the case of RTGS, the obligation extends to both customer payments and inter-bank transactions that meet the specified criteria, necessitating the inclusion of LEI information. This stringent guideline aims to enhance the transparency and traceability of large-value financial transactions, ensuring comprehensive identification of entities involved in these transactions for effective risk management and regulatory oversight.
Exemption for Government Entities:
Government entities, encompassing both Central and State Governments or affiliated Departments and Ministries, are exempt from the obligation to obtain Legal Entity Identifiers (LEIs) or reference LEI numbers for payment transactions conducted through NEFT and RTGS. However, this exemption does not extend to Corporations and Undertakings, even if wholly owned by the Government, which are mandated to obtain LEIs. Notably, all single payment transactions exceeding ₹50 crore initiated by Government Undertakings and Corporations through NEFT/RTGS must include both remitter and beneficiary LEI information. This nuanced approach ensures that while certain government entities are relieved from the LEI requirement, the mandate remains in place for associated Corporations and Undertakings, contributing to a balanced and standardized regulatory framework.
LEI Requirement for Individual Customer Transactions:
The Legal Entity Identifier (LEI) is not obligatory for customer transactions when both the remitter and the beneficiary are individuals. In such cases, where the transaction involves parties who are individuals, the LEI requirement is waived. However, for transactions that include non-individual entities as either the remitter or the beneficiary, the acquisition and inclusion of LEI become mandatory. This targeted application of the LEI requirement ensures that the regulatory focus on unique entity identification aligns with the nature of the transaction, contributing to a streamlined and effective implementation of the LEI framework in financial transactions.
Technical Guidelines for Populating LEI in NEFT and RTGS:
In the case of NEFT payment messages, the field 7495 serves as a free-format optional field specifically designated for capturing sender and beneficiary LEI information. The guidelines dictate a structured approach to populate this field, ensuring clarity and accuracy in the representation of LEI data.
Similarly, for RTGS transactions involving customer payments and inter-bank messages, the optional field “<-RmtInf->” is utilized for the inclusion of sender and beneficiary LEI information. The guidelines provide a detailed framework for the format and placement of LEI data within this field. This systematic approach aims to maintain consistency across transactions and facilitate accurate identification of legal entities involved in financial transactions.
Types of Accounts for LEI Recording:
Legal Entity Identifiers (LEIs) are mandated for recording in all non-individual National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) transactions, ensuring a comprehensive coverage of entities engaged in large-value financial transactions. Legal Entity Identifier India Ltd. (LEIL) further facilitates adherence to this requirement by providing an indicative list of entity types on their official platform (https://www.ccilindia-lei.co.in/Documents/FAQs.pdf). This exhaustive list guides entities in identifying the specific categories that fall under the ambit of LEI recording, thereby promoting a standardized and inclusive implementation of LEIs across various transaction types, contributing to the overall robustness and accuracy of the financial ecosystem.
Capture of Counterparty LEI Information:
In the context of capturing counterparty Legal Entity Identifier (LEI) information, it is incumbent upon remitting banks to ensure the acquisition of LEI details for both the sender and the beneficiary in financial transactions. Importantly, beneficiary banks should not reject inward transactions solely based on the absence or inappropriateness of LEI information. However, following the completion of the transaction, both remitting and beneficiary banks are required to uphold valid and verified LEI information for all payment transactions amounting to ₹50 crore and above. This meticulous process is designed to enhance the accuracy, transparency, and risk management in large-value financial transactions, fostering a secure and standardized approach in the maintenance of LEI data by the respective banking institutions.
Applicability to Operational Transactions by Financial Institutions:
The guidelines extend their applicability to operational transactions conducted by financial institutions, encompassing sub-member banks, banks, Business Correspondents (BCs), White Label ATMs (WLAs), and other entities. Specifically, operational transactions of ₹50 crore and above are subject to the outlined guidelines.
LEI Applicability for Internal Bank Transactions:
LEI is not applicable for internal transactions initiated by banks, including payments, loan disbursements, term deposits, maturity proceedings, and account closure proceedings.
Applicability to WEB-API Messages:
The LEI instructions are applicable to all channels used for connecting to RTGS, including thick-client, Web-API (through INFINET or any other approved network), and Payment Originator (PO) module.
Conclusion: The mandatory requirement of Legal Entity Identifier (LEI) for transaction of Rs. 50 crore and above including income tax refunds signifies a paradigm shift in the way financial transactions are conducted in centralized payment systems. Entities involved in such transactions are urged to comply with the RBI guidelines, submitting LEI details for efficient refund processing. This move aligns with global initiatives to create a standardized identification system for legal entities, contributing to the overall stability and integrity of financial markets. As financial systems evolve, the inclusion of LEI in large-value transactions emerges as a crucial component for transparency, risk management, and the global standardization of financial data reporting.
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very good update thank You