Compliances of TDS under section 194M

The Union Budget 2019 for the FY 2019-2020 presented on 5 July 2019, inter-alia, introduced section 194M of the Income Tax Act. This section mandates every Individual / HUF, who are making payment for the use of service of a contractor or a professional but not required to get their books of accounts audited, to deduct tax at source.

Intent behind introducing this section
Prior to the amendment an individual / HUF covered under section 44AB i.e. who are required to get their books of accounts audited and were making payment to a contractor or a professional were required to deduct TDS on the amount paid if such payment exceeds the specified statutory limit. But, with the applicability of this section the requirement of deducting TDS on payment made to a contractor or a professional has been imposed on individuals / HUF who are not required to get their books of accounts audited.

Applicability
Individuals / HUF making payment for the use of services by a contractor or a professional who are not required to get their books of accounts audited during the financial year i.e. their total turnover in case of business or gross receipts in case of profession does not exceed INR 1 crore and INR 50 lakhs respectively, and
When the total amount paid to a resident individual, for carrying out any contractual work or providing any professional service, in a financial year exceeds INR 50 lakhs.

Rate of TDS
Any individual  /HUF paying any sum to a resident, for carrying out any under any contract or by way of fees for professional services rendered during the financial year, exceeding INR 50 lakhs in a year will have to deduct TDS at 5%. In case PAN is not available of the deductee, TDS shall be deducted at the rate of 20% instead of 5%.

When can one deduct tax at source under 194M?
TDS amount will be deducted earlier of the following dates:

• At the time of credit of the amount; or
• At the time of payment by cash or by the issue of a cheque or draft.

Time limit of depositing TDS
The amount of TDS deducted shall be deposited to the credit of government within the time specified mentioned below:

• If the amount is deducted in the month of March then the same has to be deposited to the credit of government on or before April 30 of the next financial year.
• In any other month the amount has to be deposited to the credit of government within seven days from the end of the month in which the tax deduction is made.

If the amount of TDS is not deducted or the amount of TDS is deducted but not deposited to the credit of government then such deductor shall pay interest at the specified rates.

If you have question while making any payment to a contractor or professional regarding the applicability and implication of the section or require any assistance in complying with the TDS provisions, our team of experts can assist you.

CA in India |

Intimation under section 143(1)

Section 143(1) refers to the intimation order given by the Income Tax Department of India to the assessee against a return filed for any assessment year. In India, it is mandatory for individuals with a specified amount of annual income to file for an Income Tax Return within a specified time limit. Thus, it is necessary to understand what happens after the taxpayer has filed the return of income.

Income tax return is a form wherein taxpayer reports his gross taxable income obtained from various sources, his deductions and the net tax liability.

After the e-filing process has been completed by a taxpayer the Income Tax Department carries out a preliminary assessment of all the returns filed and informs taxpayers of the result of such preliminary assessment. This assessment primarily includes arithmetical errors, internal inconsistencies, tax computations and verification of tax payments. Such communication to the taxpayer post the preliminary assessment is called an intimation under section 143(1).

The assessee after filing the return of income receives intimation under section 143(1) if the assessee has paid either more or less than the amount which he is actually liable to pay. If the payment made is less than the actual amount, the assessee is required to make the payment. In case payment made is more than the actual amount, the assessee will be informed about the refund amount in the intimation sent by the department.

The total income of the assessee shall be computed under this section after making the following adjustments to the total income in the return-

1. Any arithmetical error in the return.
2. Any incorrect claim which is apparent from any information in the return where incorrect claim means the following-

• of an item which is inconsistent with another entry of the same item in such return; or
• in respect of which information was required to be furnished to substantiate such entry; or
• in respect of deduction where such deduction exceeds specified statutory limit.

1. Disallowance of losses claimed if the return of the previous year for which set off of loss is claimed was furnished beyond the due date of filing u/s 139(1).
2. Disallowance of expenditure indicated in the audit report but not taken into account in computing the total income.
3. Disallowance of deduction under section 10AA, 80IA, 80IAB, 80IB, 80IC, 80ID or 80IE if the return has been filed after the due date u/s 139(1).
4. Addition of income appearing in Form 26AS, 16 or 16A which has not been included in computing the total income but this is applicable only for the A.Y. 2017–18.

Time limit for intimation u/s 143(1)
The intimation u/s 143(1) can be sent by the tax department to the assesse any time before the expiry of one year from the end of the financial year in which return was furnished i.e. the notice u/s 143 can be sent before the expiry of assessment year.

If a taxpayer does not receive an intimation within such period, it simply means that no adjustments are carried out to the return filed by the taxpayer and there is no change in tax liability / refund. The acknowledgement itself is deemed to be section 143(1) intimation.

Opportunity of being heard
An opportunity of being heard shall be provided to the assesse before making any adjustment to explain and rectify the same within 30 days of such intimation and response, if given, by the assessee shall be considered before making any adjustments. If no such response is received by the assessee within 30 days of issue of such intimation then the adjustments can be made without any opportunity of being heard.

If you have recently received an intimation from the tax department and require assistance in filing a revised return or rectification application or tax assessment, our team of experts can assist you.

We can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, and trademark registration, business structuring and advisory services. If you require any assistance in this regard, kindly click here

Related Party transactions

A related party is a party related to a body corporate /company in any other way other than by the companies own transactions. It means that a special relationship persists between the parties even before the transaction takes place. Section 2(76) of the Companies Act, 2013 (“the Act”), defines a related party with reference to a company

• director or a key managerial person or their relatives or,
• a firm, private company in which the partner, director / manager or his relative is a partner or,
• a private company or a public company in which a director or manager is a director and holds along with his relatives, more than 2% of its paid-up share capital.

Transactions which are deemed to be related party transaction
Following transactions between a company and its related party relating to:

1. Sale, purchase or supply of any goods or materials,
2. Selling or otherwise disposing of, or buying, property of any kind,
3. Leasing of property of any kind,
4. Availing or rendering of any service,
5. Appointment of any agent for purchase or sale of goods, materials, service or property,
6. Appointment to any office or place of profit in the co., its subsidiary or associate, and
7. Company underwriting the subscription of any securities or derivatives thereof, of the company.

Arm’s length transactions
An arm’s length transaction means a transaction between two related parties that is conducted as if they were irrelevant so that there is no dispute of interest. In this case, it is to be distinguished that the burden of agreement lies within the parties entering the agreement that the said transactions come within the purview of arm’s length basis. If the transactions are conducted and carried out in a fair, justiciable manner without any trace of influence of the parties’ relation upon itself it is known as a transaction at arm’s length. It means transactions which are not biased by the relation of the parties and conducted as if with an unrelated party. Such transactions have been exempted from compliance with Section 188 of the Act.
Exemptions
All the above conditions would not be applicable in case the transactions are entered into a company in its ordinary course of business which is on arm’s length basis.
Consequences of non-compliance

1. Agreements voidable: Where any contract or arrangement is entered into by a director or any other employee, without the consent of the Board or approval by a special resolution in the general meeting and if it is not ratified by the Board or by the shareholders within three months from the date on which such contract is made, then such contract or arrangement shall be voidable at the option of the Board.
2. Indemnification: If such a contract or arrangement is with a related party to any director, or is authorized by any other director, the directors concerned shall indemnify the company against any loss incurred by it.
3. The company can also proceed against such director or any other employee who had entered into such contract or arrangement in contravention of the provisions of this section for recovery of any loss sustained by it as a result of such contract or arrangement.
4. Penalties for a director or any other employee in violation of the provisions of Section 188 of the Act:

• Listed company: Punishment of imprisonment for a term upto 1 year or with fine from INR 25,000 (Approx. 388 USD) upto INR 5 lacs (Approx. 7750 USD), or both
• Other companies: fine of INR 25,000 (Approx. 388 USD) upto INR 5 lacs (Approx. 7750 USD).

Audit
As per the provisions of the Companies Act, 2013 it is required that the audit committee to approve or modify the transactions with the related parties, scrutinize the same as per the provisions of the act. Further the companies act gives the audit committee the authority to investigate into any matters falling within its ambit and to have full access over the information contained in the records of the company.
The proposal introduced new amendments pertaining to related party transaction, the categories of related party transactions that earlier required approval through special resolution (more than 75% of the voting members) will now need an ordinary resolution (more than half of voting members). However, the listing agreement shall stipulate a special resolution requirement for transactions exceeding the threshold limit.

Tax Audit Report (Form 3CD)

In order to get the various amendments made to Income-tax Act, 1961 and other laws (indirect taxes) within the format of tax audit report (TAR), the Central Board of Direct Taxes (CBDT) issued notification No. 33/2018  on 20 July 2018 amending the report format of tax audit. These amendments to TAR will come in force from 20 August 2018, which implies that the tax audits filed with the Income-tax on or after 20 August 2018 will have to be in the amended TAR. The point wise changes have been discussed in the ensuing paragraphs:

1. Clause no. 4 of Form 3CD – Registration details of indirect taxesDetails regarding the registration number of Goods & Service Tax (GST) have been added.

2. Clause no. 19 and 24 of Form 3CD – Deduction for investment in new plant or machineryDisclosure with regard to section 32AD has been added in these clauses to Form 3CD. This section allows deduction in respect of investment made in new plant or machinery in notified backward areas.

3. Clause no. 26 – Section 43B Certain deductions on actual payment basisClause f of section 43B has been added for reporting under this clause which pertains to allowing of liability outstanding towards Indian Railways for use of their assets, on actual payment basis.

4. Serial no 29A – New clause introduced for section 56(2) (ix) of the ActThis section was introduced in Finance Act 2014 primarily to tax the advance amounts initially received against the capital asset in the course of negotiation and later forfeited and no transfer effected. Reporting under this section has been got under the TAR

5. Serial no. 29B – New clause introduced for section 56(2) (x)of the ActThis section of the Act widened the scope of taxability of any sum of money, immovable property or any other property received by one person from another person for no consideration or inadequate consideration.

6. Serial no. 30A – New clause introduced for section 92CE of the Act (‘Secondary adjustment’)Section 92CE was introduced by the Finance Act, 2017 which brought in the concept of secondary adjustment in the Act. According to this section, where there has been any primary transfer pricing adjustments made in the case of an assesse, under various circumstances, the assesse is required to make a secondary adjustment.

7. Serial no. 30B – New clause introduced for section 94B of the Act (‘Thin Capitalization’)Section 94B was introduced in Finance Act 2017 to limit the interest deduction in certain cases and to bring in the concept of Thin Capitalization. It is a situation where an entity is financed at a relatively high level of debt compared to equity. Some multinational companies engage in aggressive tax planning techniques such as placing higher levels of third party debt in high tax countries, using intragroup loans to generate interest deductions in excess of their actual third party interest expense, using third party or intragroup financing to fund the generation of tax exempt income. Certain relaxations are also provided under this section

8. Serial no. 30C – New clause introduced for section 96 of the Act (‘GAAR’)Section 96 (impermissible avoidance agreement) falls under the Chapter X-A (General Anti Avoidance Rule). This section was inserted to curb such arrangements where an agreement creates such rights between the parties to the agreement, by misuse of the provisions of the Act, which would not have been created in normal course between parties dealing at arm’s length. Under this clause, where the tax auditor is of the view that a particular arrangement falls under this provisions of the act then they are supposed to state the nature of such arrangement and the tax benefit created in the previous year to all parties in aggregate. Reporting under clause 30C has been deferred till 31^st March 2020 vide circular no. 9/2019 dated 14^th May 2019.

9. Serial no. 31 – Clause (ba), (bb), (bc) and (bd) introduced after clause (b) to serial no. 31 of TAR pertaining to section 269ST of the ActPursuant to introduction of section 269ST by Finance Act 2017, the TAR has been amended to include disclosure under this provision whereby there is a restriction on receiving by any person of an amount exceeding INR two lakh in aggregate from a person in a day; or in respect of a single transaction; or in respect of one event otherwise than by account payee cheque or account payee bank draft or use of electronic clearing system (ECS). Where this section of the act is applicable only to the recipient, the disclosure requirements even mandate the payer to make the relevant disclosures along with the name, address and PAN of the party involved.

10. Amendments have been made to the language of clause 31 (c), (d) and (e) of the TAR with regard to the provision of section 269T of the Act

11. Serial no. 34 – Clause (b) Details of eTDS returnsEarlier this provision required only reporting of the fact as to whether the eTDS statement submitted contains all details/ transactions (Yes/ No). Now with the amendment to this clause, the TAR requires reporting of such details/ transactions which have not been reported in the eTDS return. This will be a task for the assesse with huge volumes of transactions which will require reporting of all such entries.

12. Serial no. 36A – New clause for details regarding deemed dividend u/s 2(22) (e) of the ActUnder the provisions of this section where any company, in which public are not substantially interested, makes any payment by way of loan or advance, to any person who holds not less than 10 percent voting power or to any other person in which such shareholder has substantial interest, then such payment to the extent of accumulated profits, will be treated as deemed dividend.

13. Serial no. 42 – New clause for details regards Form no. 61, 61A and 61BThis requires reporting of details of submission and due date of the respective forms with the income-tax. It also requires the auditor to ensure if all the required details have been submitted and if not, then the unreported details/ transactions are required to be reported in Form 3CD. The details required to be submitted in respective forms have been given hereunder:

• Form 61 – this form requires details of all Form 60 to be submitted. Where transactions specified under Rule 114B of the Income-tax Rules, 1962 (‘the Rules’) have been undertaken by the assesse and document with that regard has been collected by the assesse without the PAN of the person giving the document, then the assesse is required to collect declaration in Form 60.
• Form 61A – Statement of specified financial transactions as given in Rule 114E of the Rules which mandates reporting of certain financial transactions undertaken during a particular financial year, before due date (31 May).
• Form 61B – Statement of reportable accounts in accordance with FATCA and CRS for a calendar year.

14. Serial no. 43 – New clause with regard to Country by Country Reporting (CbCR) u/s 286 of the ActSection 286 r.w.r 10DB specifies the Companies liable to comply with CbCR requirements. Entities to which CbCR is applicable need to comply with reporting requirements of Form 3CEAC and 3CEAD, wherever applicable. The details of parent entity, alternate reporting entity and date of furnishing of these reports are to be mentioned under this clause of TAR.

15. Serial no. 44 – New clause of expenditure with respect to registered / unregistered entities under GSTThis clause requires breakdown of entire expenditure debited to Profit & Loss a /c into the following heads:

• Relating to goods or services exempt under GST
• Relating to entities falling under composition scheme
• Relating to other registered entities
• Relating to entities not registered under GST
  Reporting under clause 44 has been deferred till 31^st March 2020 vide circular no. 9/2019 dated 14^th May 2019.

TAX AUDIT REPORT |  COMPANY FORMATION IN INDIA

Simplified process of Incorporation of Section 8 companies

Section 8 Companies are the limited companies established under the Companies Act and granted an exclusive license by Government under Section 8 association. It is a non-profit organization acquiring numerous tax benefits which are availed under Section 80G of Income Tax Act, 1961. They delight in minimal stamp duty structure and do not require much share capital. Funding for such organizations comes from subscriptions or donations made to them.

The Ministry of Corporate Affairs (MCA) vide its notification dated 7 June 2019 has amended the Companies Incorporation Rules, 2014 to simplify and fast track the incorporation procedure. This shall be effective from 15 August 2019. Any person desirous of incorporating a company under section 8 i.e., Not for Profit Organization, under the Companies Act, 2013 can make an application in e-Form INC-32. No separate application for license is required to be made. Prior to this amendment, the applicant was required to make an application in Form INC 12 to obtain license and thereafter application for Incorporation was required to be made. Post scrutiny of the documents, the Certificate of Incorporation for Section 8 companies will now be issued by Registrar of Companies in Form INC-11 which earlier was issued as a license under Form -16 or Form-17.

Section 8 Companies can be incorporated by either reserving names through Run and filing SPICe thereafter or by directly filing SPICe. License No. for a section 8 company shall henceforth be allotted at the time of incorporation itself.

In view of the above, all pending INC-12 SRNs for new Companies pending at respective RoCs would be marked as ‘Rejected’ on 15th August 2019. Such applicants may thereafter directly file SPICe for obtaining License Number and for incorporation of Section 8 Companies.

Stakeholders who have already obtained License Numbers and are yet to file SPICe form for incorporating Sec 8 companies may do so at their convenience but may please note that the forms shall be processed only after a certain time lag to allow for work flow changes to take effect.
Those stakeholders who have already filed SPICe forms which are pending at CRC may kindly await processing of these forms after the work flow changes take effect.

The income of the Company must be used to promote only charitable objects and cannot pay any dividend to the members of the company. The central government provides an incorporation certificate to all such companies and also informs them about some restrictions and conditions. In case they don’t fulfill them, the central government may also order them to wind up the company. In case fraud objectives of the Company are proved, legal action will be taken against all officers of the Company.

If you are looking forward to establish a business in India, know about latest updates, we can offer a comprehensive range of professional services in registration process, attest services, special advisory services and its statutory compliance as per your business requirements.

Introduction to Ind AS 12

Ind AS 12 prescribes accounting treatment for income taxes. The principal issue in accounting for income taxes is how to account for the current and future tax consequences of future recovery of the carrying amount of assets (liabilities) that are recognized in an entity’s balance sheet and transactions and other events of the current period that are recognized in an entity’s financial statements.
Notable changes were made in Ind AS 12 in comparison to AS 22. Considering the time constraint and for ease of understanding it is important to address only those issues which are imperative for the one’s understanding. To summarize the same following are the important points are to be taken care of while applying Ind AS 12.
Scope of Ind AS 12
For the purpose of this standard, income taxes include:

• All foreign and domestic taxes which are based on taxable profits
• Withholding taxes, payable by the components on distributions to the reporting entity.

And income taxes exclude:

• Other taxes (e.g. VAT, Business Tax) that are levied on another basis (e.g. on gross revenue)
• Methods of Accounting for Government grants

Brief
Concept of current tax, deferred tax assets / liabilities is same as in AS 22 and new concept of taxable and deductible temporary differences is introduced which is an elaborative version of timing difference if we compare it with AS 22. Further, entirely new concept which is introduced in Ind AS 12 is Tax Base.
Concept of tax base under Ind AS 12
The tax base of an asset or liability is the amount allocated to that asset or liability for tax purposes. The tax base of an asset is the amount that will be deductible for tax purposes opposed to any taxable economic benefits that will flow to an entity when it recovers the carrying amount of the asset. If those economic benefits will not be taxable, the tax base of the asset is equal to its carrying amount.
For an instance,
(a) Current liabilities include accrued expenses having carrying amount of INR 100. The associated expense has already been deducted for tax purposes. The tax base of the accrued costs is INR 100.
(b) Current liabilities include accrued expenses having carrying amount of INR 100. The associated expense will be deducted for tax purposes on a cash basis. The tax base of the accrued costs is nil.
Recognition
Recognition of current tax liabilities and current tax assets under Ind AS 12 will remain same as in AS 22.
Recognition of Deferred Tax Liabilities (DTL) and Deferred Tax Assets (DTA)
Taxable Temporary Differences: A deferred tax liability shall be recognized for all taxable temporary differences, but to the extent that the deferred tax liability arises:

1. At the time of initial recognition of goodwill; or
2. At the time of initial recognition of an asset or liability in a transaction which:

• is not a business combination; and
• at the time of the transaction, affects neither book profit nor taxable profit (tax loss).

However, for taxable temporary differences related with investments in subsidiaries, branches and associates, and interests in joint ventures, a deferred tax liability shall be recognized.
Approach for creating deferred tax
Ind AS 12 is based on balance sheet approach. It requires recognition of tax consequences of differences between the carrying amounts of assets and liabilities and their tax base whereas existing AS 22 is based on income statement approach. It requires recognition of tax consequences of differences between taxable income and accounting income.
No Discounting
DTA and DTL shall not be discounted.
Review of Deferred Tax Asset
The carrying amount of a DTA shall be reviewed at the end of each reporting period. An entity shall reduce the carrying amount of a DTA to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that DTA to be utilized. Any such decrease shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available.
Important Disclosures
Below mentioned are some essential disclosures in Ind AS 12:

1. Major component of tax expenses (income) that are required separate disclosure such as:

• Current tax expense
• Prior period adjustment
• Deferred expense/income

2. Total of current and deferred tax relating to items that are charged or credited directly to equity.
3. Income tax relating to each component of Other Comprehensive Income (OCI).
4. Reconciliation

• a numerical reconciliation between tax expense (income) and the product of book profit multiplied by the applicable tax rate, disclosing also the basis on which the applicable tax rate is computed; or
• a numerical reconciliation between the average effective tax rate and the applicable tax rate, disclosing also the basis on which the applicable tax rate is calculated.

5. A statement for explanation of changes in the applicable tax rate compared to the previous accounting period.
6. Amount and expiry date, if any of deductible temporary differences, unused losses and credits for which no DTA recognized.
7. Aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in joint ventures, for which DTL have not been recognized.
8. Amount of DTA recognized and nature of evidence supporting its recognition, when:

• the utilization of the DTA is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences; and
• the entity has incurred a loss in either the current or preceding period (history of losses)

9. In respect of each class of temporary difference, and in respect of each type of unused tax losses and unused tax credits:

• the amount of the DTA and DTL recognized in the balance sheet for each period presented,
• the amount of the deferred tax income or expense recognized in profit or loss, if this is not apparent from the changes in the amounts recognized in the balance sheet.

10. Amount of income tax consequences of dividends to shareholders of the entity that were proposed or declared before the financial statements were approved for issue, but are not recognized as a liability in the financial statements.
    

Guidance on certain issues can be obtained from AS 22:
Existing AS 22 specifically provides guidance in relation with the tax rates to be applied in measuring deferred tax assets / liabilities in a situation where a company pays tax under section 115JB as per the Income Tax Act 1961. Ind AS 12 doesn’t specifically deal with this aspect.
If you are looking for any updates on accounting standards or need any assistance in assessment or convergence of accounting standards, our experts can assist you.
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Union Budget of India (2019–20)

Ms. Nirmala Sitharaman, Minister for Finance and Corporate Affairs, Government of India announced the Union Budget for 2019-20, in Parliament on July 05, 2019. The budget aimed at boosting infrastructure and foreign investment, the first since the Bharatiya Janata Party led by Prime Minister Narendra Modi returned for a second term in power. The main focus of this budget is reducing red tape, making best use of technology, building social infrastructure, digital India, pollution free India, make in India, job creation in Micro, Small and Medium Enterprises (MSMEs) and investing heavily in infrastructure making India, a US$ 3 trillion economy by the end of 2020.Total expenditure for 2019-20 is budgeted at INR 2,786,349 crore, an increase of 14.09 % from 2018-19 (budget estimates). Termed as Green budget by PM Modi, it will focus on water, water managements & lean rivers, Swachh Bharat Abhiyan and more emphasis on energy conservation and sustainable development. Below are some highlights of Union Budget 2019-20:

1. StartupsThis budget does provide lot of heart for startups and the VC industry in general and a bunch of verticals in particular. A separate committee will be created to administer the issues that startups face due to angel tax. As a welcome step the matter will now will not be subject to subjective interpretation by an assessing officer. From now onwards, there won’t be any consequences of angel tax on registered startups. A proposal for greater FDI in insurance is definitely a shot in the arm for the insurance industry and startups operating in the vertical where there is very high investor interest. A budget will be proposed for capitalization of banks and performing NBFCs paving greater ability to get benefits by way of first loss guarantee from public sector banks. Apart from these benefits, there are steps like greater flexibility in set off and carrying forward of losses for startups, bringing larger number of corporates in the lower tax rate threshold, streamlining of labor laws to provide a more consistent set of definitions, and credit guarantee scheme for small businesses that will enable an opportunity to hasten business cycles.

2. Corporate Tax proposalIndividual taxpayers with annual income up to INR 5 lakh will get full tax rebate and hence will not be required to pay any tax. Limit for applicability of lower corporate tax rate of 25 per cent increased from INR 250 crore to INR 400 crore.

3. Aadhaar and PAN interchangeabilityAadhaar and PAN to be interchangeable and permit those who do not have PAN to file Income Tax returns by only citing their Aadhaar number. More than 120 crore Indians now have Aadhaar card, therefore for ease of tax payers I propose to make PAN card and Aadhar card interchangeable and allow those who don’t have PAN to file returns by simply quoting Aadhaar number and use it wherever they require to use PAN.

4. ReturnsTaxpayers having annual turnover of less than INR 5 crore can now file quarterly returns.

5. GST refund moduleFully automated GST refund module shall be implemented.

6. GST e-way billAn electronic invoice system is proposed that will eventually eliminate the need for a separate e-way bill

7. SurchargeSurcharge increased on individuals having taxable income from INR 2 crore to INR 5 crore and INR 5 crore and above.

8. Arrival of NRI’s passportAadhaar cards to non-resident Indians holding Indian passport are required to wait for 180 days to get the Aadhaar card on their arrival in the country.

9. Pension benefitPension benefit is extended to around INR 3 crore for retail traders and shopkeepers with an annual turnover less than INR 1.5 crore under Pradhan Mantri Karam Yogi Man Dhan Scheme.

10. Digitalized paymentsIn order to discourage business payments in cash, there will be a TDS of 2% on cash withdrawals exceeding INR 1 core in a year from bank accounts further, businesses with annual turnover of over INR 50 crore will offer low-cost digital payments. No charges will be levied on customers and merchants as RBI will bear these expenses.

11. Micro, Small and Medium Enterprises (MSMEs) and TradersGovernment has proposed granting of loans up to INR 1 crore for MSMEs within 59 minutes through a committed online portal. Under the Interest Subvention Scheme for MSMEs, INR 350 crore has been allocated for FY 2019-20 where the government will create a payment stage for MSMEs to enable filing of bills and payment thereof on the platform itself. The Government e-Marketplace (GeM) is being extended to all Central Public Sector Enterprises (CPSEs) providing more opportunities for MSMEs to sell their products.
    

12. Foreign Direct Investment (FDI)FDI in sectors like aviation, media (animation, AVGC) and insurance sectors can be opened further after multi-stakeholder examination. Insurance Intermediaries will get 100% FDI.
    Also, local sourcing norms to be eased for FDI in single brand retail sector.

13. Other announcementsApart from the above, below are some other announcements:

• Government has proposed to permit investments made by Foreign Institutional Investor’s (FIIs) / Foreign Portfolio Investments (FPIs) in debt securities issued by Infrastructure Debt Fund.
• Legacy Dispute Resolution Scheme for quick closure of pending litigations in Central Excise and Service tax from pre-GST regime.
• To boost affordable housing, additional deduction up to INR5 lakh will be provided for interest paid on loans borrowed up to 31st March, 2020 for purchase of house valued up to INR 45 lakh

Being a 6th largest economy in the world and 3rd largest in Purchasing Power Parity (PPP) terms, the government has continuously shown that it doesn’t lack the intent. Things are moving and we are in a position to fulfill the commitments Indian fund managers have made to financial and strategic investors, overseas and in India. However, there is a slightly different track India must take for the next decade.
If you are looking for more recent updates about the budget or any compliance associated with it, our team of experts can assist you.
We can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, and trademark registration, business structuring and advisory services. If you require any assistance in this regard, kindly click here

Chartered accountant in India

Income Computation and Disclosure Standards

Income Computation and Disclosure Standards (ICDS) have been notified u / s 145 (2) of the Income Tax Act, 1961 vide Notification No. S.O. 3079 (E) dated September 29
th
2016. On 23
rd
March, 2017, certain clarifications were issued by CBDT by way of FAQs.
Below mentioned are the 10 ICDS that are notified up to the date:

1. Accounting Policies
2. Valuation of Inventories
3. Construction Contracts
4. Revenue Recognition
5. Tangible Fixed Assets
6. Effect of Changes in Foreign Exchange Rates
7. Government Grants
8. Securities
9. Borrowing Costs
10. Provisions, Contingent Liabilities & Contingent Assets

Applicability of ICDS:-
ICDS is applicable to all assesses having Income under the head Business or Profession or Income under the head Other Sources and following mercantile system of accounting.

1. ICDS is not applicable to any of the following assesses:Person not having Income under the head Business or Profession or Income under the head Other SourcesPerson following cash system of accountingIndividual who is not required to get his accounts audited u / s 44ABHUF who is not required to get his accounts audited u / s 44AB
2. ICDS shall be applicable irrespective of accounting standards adopted by the companies i.e. AS or Ind-AS, and it shall not apply for computation of MAT but shall apply for computation of AMT.
3. Tax officer has power for best judgment assessment in case of non-compliance with ICDS.

A Gist of Income Computation and Disclosure Standard V (ICDS V) relating to Tangible Fixed Assets
ICDS deals with the treatment i.e. recognition and valuation of tangible fixed assets.

1. Various terms used in ICDS V:
   Tangible fixed asset is an asset being land, building, machinery, plant or furniture held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business (concept is same as that of AS-10, but wordings are somewhat different).Fair value of an asset is the amount at that asset could be exchanged between knowledgeable, willing parties in case of an arm’s length transaction (arm’s length price is defined under section 92F (ii) of Income Tax Act, 1961).
2. Identification of tangible fixed assets:
   The definition of tangible fixed assets given above provides criteria for determining whether an item is to be classified as tangible fixed asset. Stand‐by equipment and servicing equipment are to be capitalized. Machinery spares shall be charged to revenue as and when consumed. When such spares can be used only in connection with an item of tangible fixed asset and their use is expected to be irregular, they shall be capitalized (this is in line with AS 10).
3. Components of actual costs:

• The actual cost of an acquired tangible fixed asset shall comprise its purchase price, import duties and other taxes, and any directly attributable expenditure on making the asset ready for its intended use. Any trade discounts and rebates shall be deducted in arriving at the actual cost.
• The cost of a tangible fixed asset may undergo changes subsequent to its acquisition or construction on account of:price adjustment, changes in duties; orexchange fluctuation as specified in ICDS on the effects of changes in foreign exchange rates.
• Administration and other general overhead expenses shall be deducted from the cost of tangible fixed assets. Expenses which are specifically attributable to construction of a project or to the acquisition of a tangible fixed asset or bringing it to its working condition, shall be included as a part of the cost of the project or as a part of the cost of the tangible fixed asset.
• The expenditure incurred on start‐up and commissioning of the project, including the expenditure incurred on test runs and experimental production, shall be capitalized. The expenditure incurred after the plant has started commercial production, i.e., production intended for the purpose of sale or captive consumption, shall be treated as revenue expenditure.
  (Above mentioned components of actual costs are in line with AS 10)

1. Self-constructed tangible fixed assets:
   In arriving at the actual cost of self‐constructed tangible fixed assets, the same principles shall apply as mentioned above. Any internal profits shall be eliminated in arriving at such costs.
2. Non-monetary consideration:
   As per ICDS-V, when a tangible fixed asset is acquired in exchange for another asset, the fair value of the tangible fixed asset so acquired shall be its actual cost. When a tangible fixed asset is acquired in exchange for shares or other securities, the fair value of the tangible fixed asset so acquired shall be its actual cost.
3. Repairs and improvements
   Any expenditure that increases the future benefits from the existing asset beyond its earlier assessed standard of performance needs to be added to the actual cost.The cost of an addition or extension to an existing tangible fixed asset in the nature of capital expenditure and which becomes an integral part of the existing tangible fixed asset needs to be added to its actual cost. Any addition or extension, which has a separate identity and is capable of being used after the existing tangible fixed asset is disposed of, shall be treated as separate asset.
4. Depreciation:
   Depreciation on a tangible fixed asset shall be computed in accordance with the provisions of the Act.
5. Transfers:
   Income arising on transfer of a tangible fixed asset shall be computed in accordance with the provisions of the Act (which may depend on whether the asset is depreciable or not).
   AS-10 says that items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realizable value and are shown separately in the financial statements. Any expected loss is recognized immediately in the profit and loss statement (it should be noted that ICDS does not allow any expected loss).
6. Disclosures:
   Following disclosure shall be made in respect of tangible fixed assets, namely:

• Description of assets or block of assets;
• Depreciation rate;
• Written down value or Actual cost;
• Additions or deductions during the year;
• Allowable depreciation; and
• WDV (Written down value) at the end of year.

If you have any questions or would like to discuss more about Income Computation and Disclosure Standards, our team of tax experts can assist you. We can also assist you in tax structuring & planning, tax fillings & assessments and any taxation advisory.
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Advance Ruling under GST

A letter ruling is a written statement issued to a taxpayer by tax authorities that interprets and applies the tax law to a specific set of facts and an advance ruling is the written statement for interpretation of tax laws. It is issued to applicants when the tax payer is in doubt with regards to provisions of laws.
As per section 95 of CGST / SGST Law and section 12 of UTGST law, ‘advance ruling’ means a decision provided by the authority or the appellate authority to an applicant on matters or on questions specified in section 97(2) or 100(1) of CGST / SGST Act in relation to the supply of goods and / or services proposed to be undertaken or being undertaken by the applicant.

Advantages of Advance Ruling
Below mentioned are some advantages of advance ruling:

• Reduced litigation cost
• Provides clarity regarding the provisions of law
• Attracts foreign investment

When can a Taxpayer make an application for Advance Ruling?
As per Section 97(2) of CGST / SGST Act or 100(1), the application for advance ruling can be made for following:

• Classification of goods or services or both;
• Admissibility of input of tax paid or deemed to be paid;
• Determination of the liability to pay tax on goods or services or both;
• Whether applicant is required to be registered;
• Applicability of a notification issued under the provisions of this Act;
• Determination of time and value of supply of goods or services or both; and
• Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

Whether a person desirous of making application for advance ruling needs to be registered?
Any person registered under the GST Act(s) or is in a process of or desirous of obtaining registration can be an applicant. Since the portal offers this facility without any requirement of regular logins (As per Section 95(b)).

Restriction on making advance ruling application
The only restriction for making an advance ruling is that the question being raised shall not be pending or has been decided in any proceedings of the case.

Authority for Advance Ruling
Authority for advance ruling’ (AAR) shall comprise one member CGST and one member SGST / UTGST. They will be appointed by the Central and State government respectively.

Time Limit to Pronounce the Advance Ruling
As per Section 98(6) of CGST / SGST Act, within 90 days from the date of receipt of application, the Authority shall pronounce its ruling in writing.

Appellate Authority for Advance Ruling
Appellate authority for advance ruling (AAAR) shall be constituted under the SGST Act or UTGST Act and such AAAR shall be deemed to be the Appellate Authority under the CGST Act in respect of the respective state or Union Territory. An applicant or the jurisdictional officer, if aggrieved by any advance ruling, may appeal to the Appellate Authority.

How many AAR and AAAR will be constituted?
There will be one AAR and AAAR for each State.

Applicability of Advance Ruling
Section 103 provides that an advance ruling pronounced by AAR or AAAR shall be binding only on the applicant who sought it in respect of any matter referred to in 97(2) and on the respective jurisdictional tax authority. Thus, this clearly states that an advance ruling is not applicable to similarly placed taxable persons in the State, and is only limited to the person who has applied for an advance ruling.

If you are looking for any assistance regarding the applicability of the rulings for any assessment, our team of experts can assist you for the same.

Our team can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, trademark registration, business structuring and advisory services. If you require any assistance, kindly visit: Chartered accountant in India

New GST return system – Transition plan

The GST Council in its 31st meeting decided that a new GST return system will be initiated to facilitate taxpayers. Government introduced a transition plan for all the taxpayers under the goods and services tax switching to new simpler return Forms. In order to ease the transition to the new return system, a transition plan has been worked out. This mechanism allows taxpayers to try the new return filing Forms during July-September and it will become mandatory only from October. The new return mechanism will have 3 Forms – one main return Form (Form GST RET-1) and two annexures (Form GST ANX-1 that will capture details of outward supplies and Form GST ANX-2 that will be the purchase Form). The new mechanism comes with some offline tools as well.

From July 2019, the users can upload invoices using the Form GST ANX-1 offline tool on trial basis. Form GST ANX-2 offline tool will include viewing and downloading the inward supply of invoices under this trial program. They would also be able to import their purchase register in the offline tool and match it with the downloaded inward supply invoices to find mismatches from August 2019.The summary would also be available for view on the common portal online.

For a period of three months i.e. July to September, the new return system (ANX-1 & ANX-2) would be available as trial which would have no impact at the back end on the tax liability or input credit of the taxpayer. Taxpayers shall continue fulfilling their compliances by filing Form GSTR-1 as monthly or quarterly basis and Form GSTR-3B on monthly basis. Non-filing of these returns shall attract penal provisions under the GST Act.

From October 2019, Form GST ANX-1 shall be compulsory and Form GSTR-1 would be replaced by Form GST ANX-1 for all large taxpayers. Large taxpayers with aggregate annual turnover over INR 5 crore in the previous financial year would upload their monthly Form GST ANX-1. However, small taxpayers whose turnover is up to INR 5 crore will file the first compulsory quarterly Form GST ANX-1 in January 2020 for the quarter October to December of 2019. Invoices can be uploaded in Form GST ANX-1 on a continuous basis both by large and small taxpayers from October 2019.
In addition to the above, small taxpayers would stop filing Form GSTR-3B and start filing Form GST PMT-08 from October 2019 onwards. They would file their first Form GST-RET-01 for the quarter October 2019 to December 2019 from January, 20, 2020. From January 2020, all taxpayers shall be filing Form GST RET-01 and Form GSTR-3B shall be completely phased out.

Also, separate instructions shall be issued for filing and processing of refund applications between October and December 2019.
If you are looking to keep yourself updated about the recent compliances or requires assistance in filing of GST returns, GST assessments and GST audits, our team of experts can assist you in complying with the GST regime.

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Deadline to file the Income tax return

Recently, the government notified the income tax return (ITR) forms for financial year (FY) 2018-19. The year following the financial year in which income earned by a person is assessed is referred as assessment year (AY). This is the year in which you file your ITR for the financial year gone by. For instance, for the financial year 2018-19, the AY is 2019-20.There are various different categories to file ITR of taxpayers.

For individuals, Hindu Undivided Families (HUF) and the taxpayers whose accounts are not required to be audited, the deadline to file the ITR for the FY 2018-19 is July 31, 2019. For other categories such as companies and working partners of a firm, the deadline of July 31, 2019 does not apply. Deadlines for various categories of taxpayers are as follows:

1. Due date of filing returns of all individuals / assesses whose accounts are not required to be audited (Individuals, HUFs, Association of Person, Body of Individuals ) is July 31 of the relevant assessment year
2. September 30, 2019 of the relevant assessment year is the deadline for below persons whose accounts are required to be audited:

• A company
• An individual or other entity whose accounts are required to be audited (like proprietorship, firm etc.)
• A working partner of a firm

1. An assesse whose is required to furnish report under section 92E should file return on November 30 of the relevant assessment year. (Report under section 92E is submitted when a taxpayer has undertaken international transactions during the relevant financial year).

Missing the deadline
On missing the ITR filing deadline of July 31, 2019, individuals can still file the return which is termed as belated ITR. The last date to file belated ITR for FY 2018-19 is March 31, 2020. On missing the deadline as well, the person will not be able to file ITR unless you receive a notice from tax department to do the same. Though there is an option to file belated ITR till March 31, it is required to avoid filing it late because late filing fees will be levied for if ITR is filed after July 31, 2019 and any time before March 31, 2019.

Late filing penalties
For filing the ITR post the deadline was announced in Budget 2017 and came into effect from the AY 2018-19, for the tax returns filed for FY 2017-18. Prior to this, it was the sole discretion of the assessing officer to levy penalty if the individual failed to file tax return before the end of the relevant assessment year. Section 234F introduced in the Income Tax Act made late filing mandatory.
The late filing fees structure is mentioned below:

Date of filing ITR
After July 31 but on or before December 31
5,000

Amount (INR)
Between January 1 and March 31
10,000

For small taxpayers whose total income does not exceed INR 5 lakh, the maximum late fee amount will not exceed INR 1,000 irrespective of when it is filed, i.e., before March 31. If an individual’s gross total income does not exceed the basic exemption limit, then he/she will not be liable to pay late filing fees if he/she files belated ITR. As per the current income tax laws, the basic exemption limit is as follows:

• 1. For below 60 years, basic exemption limit is INR 2,50,000
• 2. For 60 years or more but below 80 years (senior citizen), it is INR 3,00,000
• 3. For 80 years and above, INR 5,00,000 is the limit

However, if you have some unpaid tax liability, then penal interest on the same would be leviable, as applicable to your case, in case you have filed a belated return. But if no tax is payable, the taxpayer won’t be liable to pay this interest solely due to the belated filing of ITR for FY17-18. If the income tax department, upon assessing your return, raises demand for additional tax payment then you would have to pay penal interest on that tax as well as the additional tax. Therefore, it is recommended to file your return. If a resident individual has income from foreign assets and he files belated ITR, then late filing fee will be levied even if gross total income does not exceed the tax exemption limit.
The above are some of the deadline in ITR filing which leads to a tax notice. If you would like to know more about income tax updates and its impact assessment on your company, our team of experts can assist you. We can assist you in filing your ITRs, tax structuring, transfer pricing certification / documentation, international taxation and withholding tax treaty issues and representation for your tax assessments.

Deadline to file the Income tax return

Delineating assessments under GST

Goods and services Tax (GST) is a broad based, comprehensive tax to be levied on goods and services aiming at a simple and transparent tax structure to positively incentivize trade and industry. Under GST, the term “assessment” means determination of tax liability under this Act i.e. to figure out how much tax is to be paid actually, a GST assessment is organized. Various forms of assessments under GST include:

1. Self-assessment
2. Provisional assessment
3. Scrutiny assessment
4. Best judgement assessment
5. Assessment of unregistered persons
6. Summary assessment

Self-assessment (Sec 59)
A taxable person undergoes his self-assessment where all GST filings are based on his own assessment to furnish a return which concludes that GST promotes self-assessment like excise, VAT and service tax under current tax regime. It is the assessment done by the taxpayer himself whereas others are undertaken by tax authorities.

Provisional assessment (Sec 60)
In case of provisional assessment, a taxable person is unable to determine the tax liability due to value or rate of tax or understanding whether certain receipts should be added or not, he files an application in form GST ASMT- 01 along with the documents in support of paying taxes on provisional bases which follows a below procedure:

• A request for provisional assessment in writing is submitted by the taxable person to the concerned GST officer.
• After a provision by GST officer, an order is passed within a period not later than ninety days from the date of receipt of the request submission.
• The taxable person paying tax on provisional basis issues a bond with a security promising to pay the difference between provisionally assessed tax and final assessed tax.
• Now, a final assessment is passed with a period not extending six months from the date of communication of order of provisional payment. However, final assessment can be extended by commissioner for further 4 years as he seems fit.

Scrutiny of Returns (Sec 61)
To verify whether it is appropriate, a proper officer can scrutinize the return which is a non- compulsory pre –adjudication process. In short, it is not a legal and authorized judicial proceeding.

Best judgment assessment (Sec 62)
Failure to furnish the required returns by a taxable person, even after service of notice under section 46, an assessment is conducted by the GST officer which can be deemed to be withdrawn within a period of 30 days from the date of issuance of assessment order.

Assessment of unregistered persons
When a taxable person fails to obtain GST registration even if liable to do so, the GST officer can proceed to assess the tax liability of such taxable person to the best of his judgment for the relevant tax periods and issue an assessment order within a period of 5 years under section 44.

Summary assessment (Section 64)
A GST officer can on any evidence showing a tax liability of a person coming to its notice, proceed to assess the tax liability of such persons to protect the interest of revenue. A proper officer is required to obtain previous permission of additional commissioner or joint commissioner.
To conclude, taxpayers must furnish an application form, along with the necessary financial records to the tax official. The tax official may accept or reject the application communicating the decision to the registered taxpayer within 90 days from the date of receipt of the application. If the tax official finds the explanation satisfactory then the taxable person will be informed and no further action will be taken and if not, the officer may-

• Conduct audit of the tax payer u/s 65
• Start special audit procedure u/s 66
• Inspect and search the places of business of the tax payer
• Start demand and recovery provisions

If you are looking for assistance to represent your GST assessments or require professional advice for GST self-assessment, our team of experts can assist you in taking a proactive assessment approach for your business.
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Tweaking the Goods and services tax – An ease or an agony

Goods and services tax (“GST”) is an indirect tax for the entire country levied on the supply of goods and services. GST is India’s single unified tax which reflects an overall shift from taxing goods and services at the point of supply to where they’re consumed. India is also looking to boost tax revenue by moving the existing sales taxes to a new harmonised GST system. GST was touted as biggest taxation reform since independence.

The recent 32nd GST council meet announced new registration criteria for businesses, doubling the sales threshold for GST registration to INR 40 Lakh, allowance to certain states of northeast to keep threshold at INR 10 lakhs as against INR 20 lakhs for other states.One of the key decisions taken at this council meeting was to increase the existing turnover limit of composition scheme to INR 1.5 crore. Special category states have been given the option to decide about the composition limit in their respective states. Further, it declared that the new GST rates will be applicable from April 1, 2019 on under construction properties.
On the roadmap ahead, industry leaders opine that GST council should take charge for aligning tax rules, however, the question remains if it has managed to achieve its intended purposes? Not wholly, it seems.

Below are some highlighted core issues being faced under present system of GST:

1. Different states, different rules
   Government’s one time exception to certain states highlights increased exemption limit which is applicable to only those who have businesses within a state and inter-state businesses trade.
   
2. Operational challenges
   From applying the tax rules to individual products through filing and payment, the operational demands of GST are much greater than any standard tax.
   
3. Evaders bonanza
   Increased pool of registered taxpayers impacted less on revenue generation as only 70% of taxpayers file returns regularly. There is an estimated mismatch of INR 34,000 crore tax liabilities reported in GSTR-1 and GSTR-3B. The present GST structure has no mechanism for checking discrepancies found between GST returns for July till December and final returns filed by the taxpayers. On an average of 84% taxpayers were unable to correctly report revenue statements. The discrepancies demand that the GST Council now needs to take rigorous measures to tackle the menace of tax evasion through under-invoicing.
   
4. Fiscal features
   Deficit in GST revenue promises large dents in the centre and states’ fiscal applecart. A layman will find himself on the receiving end if such gap in the revenue continues.
   
5. Technical issues
6. i. Credit reversal – The credit claimed on the purchases in which the payment has not been given to the suppliers within 180 days must be reversed. To keep notice of these things might lead to an extra burden on the organization.
7. ii. Pertinent issues for small traders – Additional operation costs are involved in small trader businesses. Sellers even if exempted from GST need to submit bill to buyers. Without the certificate of GST exemption, small shop owners find themselves marooned and immobile.
8. iii. E-commerce companies – The capital blockage will hamper day to day operational cost due to tax collected at source (TCS) provisions. GST council has fixed 1% TCS over the deduction made while payment to the sellers.
9. AAR (Authority for advance Ruling)
   Recent changes in AAR has confused the Industry with divergent rulings given on a single issues. Different states following different rulings have emerged as a major issue add to the pan-India complexities for businesses.
10. ITC (Input tax credit)
    Presently, GST is levied at an effective rate of 12% on normal housing and 8% on affordable housing payments, where completion certificate has not been issued at the time of sales. Withdrawal for ITC policy can block credit chain and hike in cost of construction. Real estate developers may pass on this burden to the ultimate buyers in the form of higher sale price. Lower slab with restriction on input tax credit is likely to lead to cost-benefit analysis of lower rate vis-à-vis loss of credit.
11. Tax filing
    In the present GST, each registered business person is required to fill in a host of forms. Some temporary changes introduced in the GST calculated that a business operating in 31 states of India would have had to file 37 forms per annum per state making it a total of 1,147 forms annually. In accordance with proposed system, only one form per month and one annual return per state would be needed to be filed. So, the forms to be filled would be around one-third of the present system and the paperwork would be far less. The required monitoring would also get greatly simplified.

In addition to this, industry believes that the discretion to states for allowing different specifications and different thresholds for different states from a registration perspective under GST may debase the ‘One Nation, One Tax’ code of GST and might eventually result in complicating the entire tax framework. Thus, a uniform threshold across India is the best way forward as the same is in line with the founding principles of GST.

You can’t plough a field simply by turning it over in your mind, so we have a specialised team of experienced professionals who can assist you in best methodologies for GST implementations, innovation and a clear manageable roadmap to your business. It will help you to drive key business decisions on operating business model changes required to optimize tax outcome.

Our team can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, trademark registration, business structuring and advisory services. If you require any assistance, kindly click here
 
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Illuminating facts of payroll processing

For any organization, one of the most crucial tasks is payroll processing with complications paving way as tax regulations as well as compliances. Also, incorrect computation of worker benefits can wreck the timing and accuracy of one’s payroll system. Payroll is a list of particulars of employees of the company including the amount they are to be paid. Human resource, for any organization, is the paramount resource and paying them for the work performed by them is not a choice but an obligation for the organization.
Nonetheless, it is paradoxical not to encounter any challenges when an in-house payroll system or outsourced payroll process hits rock bottom. Outsourcing payroll processing has gained immense popularity these days. Both in-house and outsourced services have scope of improvement to enable timely payments to the employees. Here are few tips to aid the process of payroll for all types of business organizations:

• Understanding taxation policiesPayroll procedure, if misjudged, can result in penalties. The only way to avoid such casualties is to have a lucid grip on tax laws and assimilating the same into the payroll process. Additionally, only a payroll compliant with the Indian laws will have legal existence in the eyes of law. This process should be undertaken typically during every pay cycle. In this era of constant change in rules and regulations, an outsourced payroll process will take a lot of burden off your shoulders. If going for in-house payroll process, one must be prudent on any amendments in tax laws to keep oneself abreast of any unforeseen event.
  
• Creating an explicit schedulePayroll is a persisting and exhaustive process that must be handled or prepared in a way that is systematic as well as recurring. It is pivotal for enterprises to have explicitly expounded almanac including all the guidelines and deadlines. Deadlines enable the staff to be focused also, payroll specialists do not have to rush working with confusion and stress which could swiftly accelerate into incorrect data filing. One such solution for mitigating this problem is by creating adequate time to have the job done, a stringent schedule could be of immense importance in this regard. For effectiveness and efficiency, try inculcating all the steps of the process in your schedule and allow oneself a realistic time frame.
  
• Conducting frequent checks and auditsIf your payroll department being susceptible to constant employee complaints, it is time for an audit of the whole processing system. The most foolproof method is by diagnosing and treating the wounds through an extensive workflow analysis. Efficient work operations, proper integration of payroll software and determination of whether or not time management of an employee is a snag that is tripping the process are the constituents of an efficacious audit.
  
• Transparency in approachTransparency in set standards, policies and procedures mitigates inconsistencies that arise as a result of misunderstanding of the payroll structure by the employees. Such misunderstandings are a result of inadequate representation or non-disclosure of pay policies to the employees. Staff members too can assist you in daily operations related to employee misclassification or underpaid taxes. The business should specify comprehensive policies and communicate the same to all the employees. This will develop employee’s understanding on how payroll process works, employees are classified or salaries are determined.
  
• Rendering online accessCreating an online presence is a crucial step for all business houses these days. One can upload the information regarding the organization, prior or current pays to employees, etc. and provide online access to all the employees. This enables employees to absorb more information about the entire system resulting in significant reduction in time used for educating them or responding payroll related enquiries. Online payroll system can also be integrated with accounting structure to create precise and accurate payroll results.
  
• Outsourcing payroll processIn-house payroll processing is not viable in case of small business houses because of comparatively lesser resources for investing in a building or in-house payroll office and time constraints for perpetually updating the previously ascertained records. Consequently, a professional full-fledged payroll management company can prove to be a strategic and worthwhile alternative. If opting for outsourcing payroll processing activities, one is more likely to secure and divert time, resources and energy on other thriving and developing opportunities.
  
• Upgrading already installed softwareErratically, all one needs is to upgrade already installed payroll processing software. Resultantly it diminishes wastage of time as well as streamlines entire payroll process for the business. The already installed software might be an older version and hence taking time to perform tasks thus delaying the whole process. New technology is developed and hence accurate, efficient and swift in processing data. Payroll software might cut off workload into half, however, one cannot rely completely on a computer program solely as it will not absolutely solve all the process issues.

Understanding and decoding constantly changing payroll compliances might prove to be a tedious task. Thus, if your company has employees working varying amounts of hours each month or has a significant turnover rate, hiring payroll professionals can be a time-saving and cost-effective alternative to internal processing. Our payroll professionals can help you to improve transparency of operations letting you spend more time and resources on critical business functions.
Our team can also assist you in setting up your business in India, accounting, bookkeeping, auditing, taxation, secretarial compliances, trademark registration, business structuring and advisory services. If you require any assistance or would like to know more about payroll, kindly click here

Impediments to Income Tax Act for assessment year 2019-20

The thrust of framing amendments in Income Tax Act (“IT Act”) was on social infrastructure, ease of living, and technology-led governance aiming at inclusive and equitable growth which means greater public expenditure. With the following trends of market, IT Act ought to be updated from time and onwards. Following are the amendments made to the IT Act with effect from assessment year 2019-20:

• Conversion of stock-in-trade into capital asset
  In accordance with section 2 (24), a new sub-clause (xiia) has been appended, stating fair market value of inventory to be included in income.
• Modification in terms of employment
  Sub-clause (xviib) introduced in section 2 (24) will include any compensation or other payment referred to in section 56 (2) (x).
• Determination of period for which the capital asset is held by the assesse
  In reference to section 2 (42A), new sub-clause (ba) has been introduced to provide conversion of inventory to be treated as a capital asset. The holding period shall be enumerated from the date of its conversion or the treatment. For the purpose of section 2 (42A), “equity oriented mutual funds” will have the same meaning assigned to it in section 112A.
• Aligning the scope of business connection with modified permanent establishment (PE) Rule as per multilateral instrument
  According to section 9 (1) (i), a person acting on behalf of a non-resident should commence any business activity to halt contracts or habitually plays the principal role leading to pinnacle of the contracts by the non-resident.
• Business connection to include significant economic presence
  Economic presence in India shall also aggregate business connection. For this purpose significant economic presence shall include:
• - Any transaction regarding any goods, property or services undertaken by a non-resident in India including provision of downloading any software or data in India provided the accumulation of payments arising from any such transaction (s) exceeds the prescribed amount at any time during preceding year; or
• - Imploring of its business operations, systematically and continuously; or
• - Interacting with number of prescribed users in India via digital mode.
• Standard deduction
  Interpolation of sub-clause (ia) in section 16 states standard deduction for amount decided INR 40,000 or the amount of salary, whichever is lower in reckoning income accountable under the head “salaries”.
• Deduction in respect to any market loss
  There are certain deductions that are under the head of “profits and gains of business or profession”. Sub-clause (xvii) conditions deduction in accordance with Income Computation and Disclosure Standards (ICDS) in respect to market loss shall be allowed.
• Cost of acquisition
  Cost of acquisition shall be deemed to be the fair market value which has been taken into account for the purpose of section 28 (via).
• Stamp duty value exceeds 105% of consideration
  According to section 56 (2) (X), the statement will be pertinent if a person removes an immovable property from any person. Also, subduction value between consideration and stamp duty value is more than INR 40,000.
• Standard deduction for medical insurance on senior citizens level
  According to Section 80D, deduction of INR 30,000 shall be permitted for a senior or super senior citizen.
• Incentive for employment generation
  The minimum number of days of employment in the years of employment shall be 150 days in place of 240 days.
• Conditions for section 80PA
  The assesse is a producer company under section 581 A, total turnover is less than INR 100 crores in any previous year.
• Failure to furnish return
  Provision to section 276CC administers that a person shall not be proceeded under the said section for dilapidation to furnish return if the tax payable by him on the total income determined on regular assessment (as reduced by advance tax / tax deducted at source) does not exceed INR 3,000

The above forecast highlights some areas which can be of great value for improving Indian income tax system. Rationalisation of tax rates, timely disposal of taxes, and upgradation of technology and tax regimes can help in improvement in tax administration. These changes in IT Act endeavour an extensive pre-lustration of different aspects of IT Act in India, but still there is a scope for further research in income taxation. Moreover, some studies conducted to examine various aspects of IT system and perception of professionals and taxpayers can be an addition to get a better IT Act regime. If you require any assistance in your tax compliances, tax computation, return filing, tax assessments or would like to discuss the above amendments further, our team of tax experts can assist you.
Our team can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, trademark registration, business structuring and advisory services. If you require any assistance, kindly click here

Genesis of a business entity

India is the fastest growing economy and a substantial recipient of foreign direct investment (FDI) globally. Among all, India shines to be the most stable economy claiming 100th
spot in World Bank’s recently released Ease of Doing Business rankings. In addition to this, Make in India campaign, startup India and digital India has been a welcoming change. In order to reap the benefits of the fast growing economy, varied forms of business organizations are set up for doing business in India and are flourishing. Below mentioned is a brief connotation to incorporate an entity.
Incorporation of an entity idea suggests forming a new entity formally recognized by your state of incorporation. After establishing your business, it becomes a legal business entity distinct from the persons who formed it. These are the 3 key regions any business entity should acknowledge:

• Distinctive element- An association should make its segments distinctive which makes it contrasting from other companies.
• Descriptive element- This targets on type of activities and business, an entity follows.
• Legal ending- Any constituent that proves an entity’s existence in legal terms to succeed any claim is legal ending.

An entrepreneur can choose any of the following forms to register its business in India:

• Public limited company - It is an association holding minimum 7 members with no restriction on transferability of shares or minimum capital requirement.
• Private limited company - It is an association possessing 2 to 200 members and an ironclad restriction on transferability of shares.
• Company limited by guarantee - It requires no share capital or shareholders , only members who act as guarantors can take part in contributing a nominal amount at the time of winding up of the company.
• Unlimited company - It is a company where the legal liability of the members or shareholders is not limited and incorporated with or without the share capital or shareholders.
• Section 8 company - These are the limited companies established under the Companies Act and granted an exclusive license by Government under Section 8 association. It is a non-profit organization acquiring numerous tax benefits which are availed under Section 80G of Income Tax Act, 1961. They delight in minimal stamp duty structure and do not require much share capital. Funding for such organizations comes from subscriptions or donations made to them.
• Limited liability partnerships (“LLP”) – In a LLP, the liabilities are limited for all partners up to an extent.

Apart from the above, following entities can also be entitled to undertake business activities in India:

• Associate company – It is a company which provides another company a significant portion of voting shares.
• Subsidiary company - A corporation holding more than 50% of shares in a company. It becomes part of parent company to provide parent with explicit synergies especially taxation benefits, diversified risk, equipment and property.
• Foreign company – It is an entity that is incorporated in abroad but also holds a place in domestic country by conducting any business activity in various specified manner.
• Liaison office - It functions as a representative office primarily set up to explore and understand the business and investment climate. For establishing a liaison office in India, a profit-making track record during the immediately preceding three financial years in the home country and net worth of not less than USD 50,000 or its equivalent is required.
• Branch office - It is a location other than head office where business is conducted. A profit making track record during the immediately preceding five financial years in the home country and net worth of not less than USD 100,000 or its equivalent is required.
• Project office - For establishing a project office in India, the project is funded directly by inward remittance and cleared by an appropriate authority.

Following prerequisites need to be followed while establishing an entity:

• Resilience – Align your goals with a proper configuration so as to support the growth cycle and development of the association.
• Liability – Corporation carries least amount of personal liability, since the law holds that it is its own entity.
• Taxation – In early stages of incorporation, avoid double taxation. You can pay personal taxes, social security and medicare, on your personal return for what you were paid throughout the year.
• Control – A board of directors is constructed so as to keep an inspection and audit to ensure that ethics and regulations are followed accordingly.
• Capital investment – Obtain outside or inside funding alike selling stock of shares or using personal credit.
• Licensing – Specific licenses and permits are required to register your association at local, state and federal levels.

India is a favorable business destination globally because of its growing middle class, large pool of skilled english speaking manpower and minimal labor cost. Entirely, the concept of incorporation is advantageous to business and owners in easy transfer of ownership to another party, achieving a lower tax rate than on personal income, and receiving more lenient tax restrictions on loss carry forwards.
If you are looking forward to establish your business in India, we can offer a comprehensive range of professional services including registration process, business structuring, advisory services, tax planning and statutory compliances as per your business requirements.
Our team can also assist you in various other services including bookkeeping, auditing, internal audit, trademark registration, tax audit, payroll compliances, management audit, STPI registration, statutory audit, income tax, tax planning, setting up of virtual office, direct taxes, service tax, Delhi value added tax, sales tax, company formation, business consultation, company registration / incorporation in India, corporate compliance, foreign branch / liaison office registration. For detailed discussion or assistance in compliance related issues, kindly click here

Concept of permanent establishment (PE)

In this contemporary world, initiation of globalization has lubricated great technological advancement. All this has facilitated easy access as well as real-time communication among various countries notwithstanding the physical distance. Currently, the world is a ‘global hub’ where no destination is secluded. Subsequently, corporates around the world have become global in their operations and have been expanding their businesses beyond the boundaries of their countries into new markets in their quest to achieve growth and economies of scale.
Over time, two type of cross border transactions have emerged

• Conducting business activities with a country – Residents of a country transacting business with foreign companies without setting up the business presence in the other country.
• Conducting business in a country – Business activities are undertaken in the foreign country by establishing a formal presence in it.

This difference in establishment of companies leads to varied tax implications. This is where Article 5 (1) of the double tax avoidance agreement (DTAA) provides that for the purpose of this tax concept of PE comes in action. Any fixed place of conducting business through which the business operations of an enterprise are carried on by foreign companies, wholly or partly is termed as permanent establishment.

This concept determines the right of a country to tax the profits of a company that is the resident of another country. They lay down the principles and factors to be considered for the constitution of a PE, and the consequent profit attribution methods and the taxation mechanisms it should use to avoid double taxation. The PE concept is recognized by most countries and has been incorporated by them in their domestic tax provisions and international tax treaties.

Inclusions in PE
Exclusions from PE
Place of management
A fixed place for the purpose of advertising
Branch
For preparatory and auxiliary activities
Office
For purchase of goods and merchandise
Workshop
Independent agents
Sales outlet
Purchasing or information gathering exercise
Warehouse
Mine, quarry, oil or gas well or any other place of extraction of natural resources

Mandatory requirements for PEs in India:

• Maintenance of books of accounts and other documents in accordance with the provisions
• Auditing of accounts by an accountant and a duly signed and verified audit report obtained in the prescribed format before the due date of filing the return of income
• Taxation of profits attributable to a PE in India at the rate of 40% (plus applicable surcharge and cess) on a net basis, subject to domestic tax provisions
• Mandatory permanent account number (PAN) , tax deduction and collection account number (TAN) and indirect tax registrations
• Filing of return of income in India
• Deduction of expenses incurred, such as salary cost of employees, from income attributable to a PE, subject to its compliance with withholding tax provisions under domestic tax provisions
• Mandatory compliance with withholding tax requirements – withholding tax on payments made, filing of withholding tax returns, issue of tax withholding certificates, etc.
• Payment of indirect tax and compliance with its related rules
• Mandatory personal taxation of employees of foreign companies in India

The concept of permanent establishment is one of the most important concepts in international taxation. The existence of a PE or otherwise, would in most cases determine the exposure to domestic tax liability in the country of source. It is, therefore, imperative to understand the concept fully before embarking on the structuring of activities in another jurisdiction. Attribution of profits to a Permanent Establishment has also been one of the major issues both for taxpayer as well as tax advisers.

(Trademark registration)

If you are looking to establish your PE in India, our team of professionals can assist you in complying with all the mandatory requirements and compliances as prescribed by law. We can provide assistance in registration under indirect taxation, acquisition of PAN and TAN, auditing services, payroll processing services, etc.

Our team can also assist you in various other services including bookkeeping, auditing, internal audit, trademark registration, tax audit, payroll compliances, management audit, STPI registration, statutory audit, income tax, tax planning, setting up of virtual office, direct taxes, service tax, delhi value added tax, sales tax, company formation, business consultation, company registration / incorporation in India, corporate compliance, foreign branch / liaison office registration. For detailed discussion or assistance in compliance related issues, kindly click here