NON RESIDENT INDIANS UNDER FEMA:-

RAJPUT JAIN AND ASSOCIATES  3

NON RESIDENT INDIANS UNDER FEMA

Untitled94AAn Indian Citizen who stays abroad for (a) employment/ carrying on business or (b) vacation outside India or (c) stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident.  Persons posted in U.N. organizations and officials deputed abroad by Central/ State Government and Public Sector Undertakings on temporary assignments are also treated as non-resident.

Non-resident foreign citizens of Indian Origin are treated on par with non-resident Indian citizens.

  1. Who is a person of Indian Origin?
  2. For the purpose of availing of the facilities of opening and maintenance of bank accounts and investments in shares/ securities in India:-

A foreign citizen (other than a citizen of Pakistan or Bangladesh) is deemed to be of Indian Origin, if,

  1. He, at any time, held an Indian passport,
  2. He or either of his parents or any of his grandparents was a citizen of India but virtue of the Constitution of India or Citizenship Act, 1956(57 of 1955).

A spouse( not being a citizen of Pakistan or Bangladesh ) of an Indian citizen /Indian origin is also treated as a person of Indian origin provided the Bank accounts are opened or investments in shares/securities in India are made by such persons jointly with their NRI spouses.

  1. For Investment in immovable properties:-

A foreign citizen (other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri lanka or Nepal), is deemed to be of Indian origin if,

(i) He held an Indian passport at any time,

OR

(ii) He or his father or paternal grand-father was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).

NONRESIDENT INDIANS UNDER INCOME TAX ACT :-

The laws in this regard are quite complicated as these it  does not  define who is nonresident. Rather these define who is resident and who are not ordinarily resident.  Therefore, if a person does not fall in the category of resident or not ordinarily resident, he / she will be non-resident.

Residential status of an individual or HUF or a company is of great importance in Indian Income Tax Act as the liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year. There are three types of status based on the stay in India:-

(1) Resident:-

An individual is resident if any of the following conditions are satisfied:

(i) He stayed in India for 182 days or more during the previous year, or

(ii) He stayed in India for 365 days or more during the four preceding years and stays in India for at least 60 days 9 182 days in case of an Indian citizen or a person of Indian Origin coming on a visit to India or 182 days in case of an Indian citizen going abroad for an employment) during the previous year.

Stay in India for the above criteria may be continuous or intermittent. 

  1. Hindu Undivided Family (HUF) or firm or other Association of persons is resident of India except in cases where the control and management of its affairs is wholly situated outside India in the previous year

A company is resident in India if:-

  1. It is an Indian company, or
  2. During the previous year, the control and management is situated wholly in India.
  3. A person resident in India, in a previous year in respect of any source of income shall be deemed to be resident in India in respect of his other sources of income.

(2) Non-Resident

A person is non-resident if he is not resident in India.

(3) Resident but not ordinarily resident

An individual or an HUF is treated to be not ordinarily resident in India in any previous year if he or the manager of HUF:-

  1. Has not been resident in India in 9 out of 10 previous years preceding the previous year; or
  2. Has not during the seven previous years preceding that year, been in India for a period of or periods amounting in all to 730 days or more.

Thus according to condition in clause (a) a newcomer to India would remain not ordinarily resident in India for the first 9 years of his stay in India. Similarly, in case where a person who is resident in India goes abroad and ceases to be resident in India for at least 2 years, he would upon his return, be treated as, not ordinarily resident for the next 9 years.

HOW THE RESIDENTIAL STATUS OF A PERSON IS DETERMINED:-

In case of Indian citizen who leaves Indian during previous year for the purpose of employment :-

Such a person is resident in India if he satisfies the following conditions:-

  1. He stays in India for at least 182 days during the previous year.
  2. He is resident in India for at least 9 out of 10 years proceeding the previous year.
  3. He is resident in India for at least 730 days during 7 years proceeding the previous year.
  4. If such a person satisfies condition (a) but does not satisfy either of the conditions at (b) or (c) above, such a person would be resident but not ordinarily resident.

Such person would be non-resident if he does not satisfy condition (a) stated above.

  1. In case of Indian citizen or a person of Indian origin living abroad comes to India for a visit during the previous year

The residential status of such a person is to be determined after looking into the following

  1. He stays in India for at least 182 days during the pervious year and,
  2. He is resident in India for at least 9 years out of 10 years preceding the previous year.
  3. He is resident in India for at least 730 days during seven years preceding the previous year.

The person would be resident in India if he satisfies all the conditions (a) to (c) above.

The person would be resident but not ordinarily resident if he satisfies the condition at (a) but does not satisfy any or either of the conditions at (b) and (c) above.

The person would be non-resident if he does not satisfy the condition at a) above.

Thus condition (a) is of fundamental importance and must be satisfied to be resident in India. Conditions ( b) and (c) only help to qualify that resident status.

  • In case of any other individual

For individuals other than those included in category ( I ) or (ii), we have to look into the following four conditions to determine the residential status:-

  1. He stays in India for at least 182 days during the previous year.
  2. He stays in India for at least 60 days during the previous year and for at least 365 days during 4 year proceeding the previous year.
  3. He is resident in India at least in 9 out of 10 years proceeding the previous year.
  4. He is resident in India for at least 730 days during 7 years preceding the previous year.

A person would be resident in India if he satisfies any of the conditions at (a) or (b) and both the conditions at (c) and (d) i.e. he either satisfies conditions (a), (c) and (d) or (b), (c) and (d).

A person would be resident but not ordinarily resident if he satisfies either of the conditions at (a) or (b)and does not satisfy both or either of the conditions at (c) and (d). In other words, if a person satisfies condition (a) or (b) only but does not satisfy either (c) or (d) or both, he would be treated as resident but not ordinarily resident in India.

If a person satisfies neither of the conditions (a) or (b), he is non-resident. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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NEW CHANGES ON TDS – CHANGES IN WITHHOLDING TAX

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NEW CHANGES ON TDS – CHANGES IN WITH HOLDING TAX

Untitled29ASection 192 (2D) – TDS on Salary: The person responsible for making the payment referred to in sub-section (1) shall, for the purposes of estimating income of the assessee or computing tax deductible under sub-section (1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.

Now the employer is responsible to verify all the supporting documents before determining the applicable Tax liability of employees.

Applicable with effect from 1 June 2015

Section 195 – Payment to Non-Resident: The person responsible for making the payment referred to in sub-section (1) shall, for the purposes of estimating income of the assessee or computing tax deductible under sub-section (1), obtain from the assessee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.

Now the 15 CA should be furnished for the cases even if tax at source is not applicable

Applicable with effect from 1 June 2015

Section 194 C – Deduction of Tax on Transporter :In section 194C of the Income-tax Act, in sub-section (6), with effect from the 1st day of June, 2015, for the words “on furnishing of”, the words “where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with” shall be substituted.

Now the transporter needs to provide above stated declaration along with PAN to get the payment without ant Tax Deduction

Applicable with effect from 1 June 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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INPUT CREDIT ON CONSTRUCTION SERVICES

Input Credit on Construction Services

Untitled28ARULE 2(l): Input Services

 “Input Service” means any service,-

  • used by a provider of output service for providing an output service; or
  • used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to the place of removal, and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal;

But excludes services,-

(A) Specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for-

Construction of a building or a civil structure or a part thereof; or

laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; or

Sec. 65(105)(p) Architect’s Services
Sec. 65(105)(zn) Port Services
Sec. 65(105)(zzl) Other Port services
Sec. 65(105)(zzm) Airport Services
Sec. 65(105)(zzq) Construction services in respect of commercial or industrial buildings or civil structures
Sec. 65(105)(zzzh) Construction services in respect of residential complexes
Sec. 65(105)(zzzza) Works contract service
  • The definition of input services excludes (a) Construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods. Thus CENVAT CREDIT of service tax paid for such specified services are not allowed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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INDIA LIAISON OFFICE MANAGEMENT

RAJPUT JAIN AND ASSOCIATES  1

India Liaison office management

Untitled4AForeign companies planning to set up their business operations in India need to start a liaison office. The main purpose of starting a liaison office is to explore possible business opportunities in India by gathering relevant business information. This helps the companies to develop a business strategy to tap the existing business potential in India. A liaison office also acts as a marketing channel to provide business information about the parent company and their products to the prospective clientele in India. As the name suggest the Liaison office is setup by a foreign company in India to carry out the liaison activity for its business. The company cannot have any revenue for the Indian Liaison office; It has to meet all its expenses of Indian office through remittances from the Head office. The Liaison office is not allowed to earn any income in the India

Liaison office is suitable for a foreign company to test and understand the Indian market , as it does not allow the companies to do business but just to be in the market and understand the Indian market or carry out the Research & Development activities or to understand the problem of existing clients of the company and serve them better.

The application for Liaison office Licenses is approved by the RBI , but as per the recent changes the applications for Liaison office are routed through the A.D i.e Authorized Dealers. Due to this the timeline for setting up the liaison office has increased tremendously. Further the documentation required for the same has also increased.

GENERAL FEATURES OF LIAISON OFFICE

  • The name of Indian liaison office shall be same as parent company.
  • The governing body for the Liaison office License is Reserve Bank of India.
  • It is suitable for foreign Companies looking to setup a temporary office in India to liaison its existing business with Indian clients.
  • The Liaison office does not have any ownership, it is just extension of the exiting company in the foreign country.
  • All the expenses of the Liaison office are met by the head office, hence the funds shall be received from head office account only.
  • The Licence for the Liaison office is given for three years and shall be renewed every 3 years.

ACTIVITIES ALLOWED TO LIAISON OFFICE IN INDIA

  • Representing in India the parent company / group companies.
  • Promoting export / import from / to India.
  • Promoting technical/financial collaborations between parent/group companies and companies in India.
  • Acting as a communication channel between the parent company and Indian companies.

CONDITION FOR SETTING UP LIAISON OFFICE

  • The company looking to start a Liaison office in India shall have a profitable track record during immediately preceding three years in the home country.
  • The Net Worth i.e total of paid-up capital and free reserves, less intangible assets as per the latest Audited Balance Sheet or Account Statement certified by a Certified Public Accountant or any Registered Accounts Practitioner by whatever name shall be not less then of equal to USD 50000/- .

DOCUMENTS REQUIRED FOR LIAISON OFFICE SETUP

Currently as per the RBI Requirement the application for the branch office and Liaison office is submitted through the Authorized dealer. The authorized dealer means the various institution having banking licenses.
The applicant of the Branch/Liaison office has to opt for the any of the Authorized Dealer , it is always preferable for the company to opt for the same authorized dealer as it is dealing in the home country.

  • Form FNC 1 Three copies
  • Letter from the principal officer of the Parent company to RBI.
  • Letter of authority from the parent company in favor of Local Representative.
  • Letter of authority/ Resolution from parent company for setting up liaison office in India.
  • Comfort letter from the parent company intending to support the operation in India.
  • Two copies of the English version of the Certificate of Incorporation, Memorandum & Articles of association (Charter Document) of the parent company duly attested by the Indian embassy or notary public in the country of registration.
  • Certification of Incorporation – Translated & Duly Not arised and Certified by Indian Consulate
  • The Latest audited Balance sheet and annual accounts of parent company duly Translated notarized for past Three years. & Certified by Indian Consulate & Directors
  • Name, Address, email ID and telephone number of the authorized person in Home Country.
  • Details of Bankers of the Organization the Country of Origin along with the bank account number
  • Commitment from the Organization to the effect that it will be open to report / opinion sought from its banker by the Government of India / Reserve Bank of India
  • Expected funding level for operations in India.
  • Details Relating to address of the proposed local office , number of persons likely to be employed, number of Foreigners among such employees and address of the head of the Local office, if decided
  • Details of Activity carried out in Home Country by the applicant organisation in brief about the product and services of company in Brief.
  • Bankers Certificate
  • Latest Proof of identity of all the Directors – Certified by Consulate and Banker in Home Country
  • Latest Proof of address all of Directors – Certified by Consulate and Banker in Home Country
  • Details of the Individuals / Company holding more 10% of Equity
  • Structure of the Organization w.r.t. Shareholding pattern
  • Complete KYC of Shareholders holding more than 10% Equity in the Applicant Company
  • Resolution for Opening up Bank Account with the Banker
  • Duly Signed Bank Account Opening Form for Indian Bank

NOTE – THE ABOVE LIST IS NOT EXHAUSTIVE AND MAY DIFFER DEPENDING UPON THE REQUIREMENT FROM THE AUTHORISED DEALER. 

BRIEF SUMMERY OF STEPS TO GET RBI LICENCES

  • Selection of Authorized Dealer by Client, As the same AD will have the bank account of the Company.
  • Working on the documentation required for Liaison office.
  • Submission of documents to the AD.
  • Scrutiny of documents by the AD
  • Providing clarification and additional documents to AD
  • Submission of final application to RBI by the AD.
  • Follow up and getting the Licenses from AD.

PROCEDURE AFTER GETTING THE RBI LICENCE

Every Liaison office registered with RBI shall get itself registered with the Ministry of Corporate Affairs, It is a registration by the Liaison office as a establishment of foreign company in India. On such registration a CIN i.e. Corporate Identity Number is allotted by the Registrar of Companies. The following documents shall be filled with the Registrar of Companies :-

  • Form 44
  • Charter, statutes or memorandum and articles of association or other Instrument constituting or defining the constitution of the company(In the manner provided under Rule 16, 17 of the Companies (Central Govement’s) General Rules and Forms, 1956)
  • If the above documents are not in english then the translated version of the documents.
  • Director(s) details individuals
  • Director(s) details bodies corporate
  • Reserve bank of India approval letter
  • Secretary(s) details
  • Power of attorney or board resolution in favor of the authorised representative(s)

OTHER BUSINESS LICENCES APPLICABLE TO LIAISON OFFICE

  • PERMANENT ACCOUNT NUMBER PAN NUMBER
  • TAX DEDUCTION NUMBER TAN NUMBER
  • SHOP & ESTABLISHMENT REGSITRATION

ANNUAL ACTIVITY TO BE CARRIED OUT BY LIAISON OFFICE

  • Maintenance of Books of Account
  • Getting Annual Accounts audited
  • Filling of Annual Activity Certificate with RBI
  • Filling of Annual Return and Balance sheet with Registrar of Companies
  • Intimating any change in constitution of Foreign Company to RBI & ROC
  • Intimating any change in Directors of Foreign Company to RBI & ROC
  • Intimating each and every change in the Liaison office to RBI & ROC
  • No additional place of business can be started unless approval is taken from RBI.

CLOSURE OF LIAISON OFFICE

Generally the Liaison office licenses is given for three years , if at any time the Company plans to close the Liaison office setup in India it shall file the necessary documents with the Authorized Dealer , and the application for the closure shall be forwarded by the Authorized Dealer.

  • Copy of the Reserve Bank’s permission/ approval from the sectoral regulator(s) for establishing the BO / LO.
  • Auditor’s certificate- i) indicating the manner in which the remittable amount has been arrived at and supported by a statement of assets and liabilities of the applicant, and indicating the manner of disposal of assets; ii) confirming that all liabilities in India including arrears of gratuity and other benefits to employees, etc., of the Office have been either fully met or adequately provided for; and iii) confirming that no income accruing from sources outside India (including proceeds of exports) has remained un-repatriated to India.
  • No-objection / Tax Clearance Certificate from Income-Tax authority for the remittance/s.
  • Confirmation from the applicant/parent company that no legal proceedings in any Court in India are pending and there is no legal impediment to the remittance.
  • A report from the Registrar of Companies regarding compliance with the provisions of the Companies Act, 1956, in case of winding up of the Office in India.
  • Any other document/s, specified by the Reserve Bank while granting approval.

FAQ’s ON LIAISON OFFICE 

  1. How can foreign companies open Liaison/Project/Branch office in India?

Foreign company can set up Liaison/Branch Offices in India after obtaining approval from Reserve Bank of India.

Reserve Bank of India has given general permission to foreign companies to establish Project Offices in India Subject to certain conditions.

2.What is the procedure to be followed for obtaining Reserve Bank’s approval for opening Liaison Office/ Representative Office?

A Liaison office can carry on only liaison activities, i.e. it can act as a channel of communication between Head Office abroad and parties in India. It is not allowed to undertake any business activity in India and cannot earn any income in India. Expenses of such offices are to be met entirely through inward remittances of foreign exchange from the Head Office abroad. The role of such office is therefore, limited to collecting information about possible market opportunities and providing information about the Company and its products to the prospective Indian customers. The companies desirous of opening a liaison office in India may make an application in form FNC-1 along with the documents mentioned therein to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central office Mumbai. Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up. Liaison/ Representative offices have to flee an Activity Certificate on an annual basis from a Chartered Accountant to the concerned Regional Office of the Reserve Bank of India, stating that the Liaison office has undertaken only those activities permitted by Reserve Bank of India.

  1. What is the procedure for setting up Project Office?

Foreign companies are granted projects in India by Indian entities. General Permission has been granted by Reserve

Bank of India Vide Notification No. FEMA 95/ 2003-RB dated July 2, 2003 to foreign companies to open Project

Office/s in India provided they have secured from an Indian company, a contract to execute a project in India, and

  • the project is funded directly by inward remittance from abroad; or
  • the project is funded by a bilateral or multilateral International Financing Agency; or
  • the project has been cleared by an appropriate authority; or
  • a company or entity in India awarding the contract has been granted Term Loan by a Public Financial Institution

or bank in India for the project.

  • However, if the above criteria are not met, or if the parent entity is established in Pakistan, Bangladesh Sri Lanka, Afghanistan, lran or China, such applications have to be forwarded to Central Office of the Foreign  Exchange Department of the Reserve Bank at Mumbai for approval.
  1. What is the procedure for setting up Branch office?

Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch Office

in India for the following purposes:

  • To represent the parent company/ other foreign companies in various matters in India e.g. acting as buying/selling agents in India.
  • To conduct research work in the area in which the parent company is engaged.
  • To undertake export and import activities and trading on wholesale basis
  • To promote possible technical and financial collaborations between the Indian companies and overseas companies
  • Rendering professional or consultancy services
  • Rendering services in Information technology and development of software in India
  • Rendering technical support to the products supplied by the parent/ Group companies. .
  • A branch office is not allowed to carry out manufacturing, processing activities directly/ indirectly. A Branch office is also not allowed to undertake Retail Trading activities of any nature in India. Branch Offices have to submit Activity Certificate

5.What are the forms in which business can be conducted by a foreign company in India?

A foreign company planning to set up business operations in India may:

  • Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly Owned Subsidiary.
  • Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000.

6.What is the procedure for receiving Foreign Direct Investment in an Indian company?

An Indian company may receive Foreign Direct Investment under the two routes as given under:

  • Automatic Route
  • FDI is allowed under the automatic route without prior approval either of the Government or the Reserve Bank of India in all activities/sectors as specified in the consolidated FDI Policy, issued by the Government of India from time to time.
  • Government Route
  • FDI in activities not covered under the automatic route requires prior approval of the Government which are considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, Ministry of Finance
  • The Indian company having received FDI either under the Automatic route or the Government route is required to comply with provisions of the FDI policy including reporting the FDI to the Reserve Bank.

7.What are the instruments for receiving Foreign Direct Investment in an Indian company?

Foreign investment is reckoned as FDI only if the investment is made in equity shares , fully and mandatorily Convertible preference shares and fully and mandatorily convertible debentures with the pricing being decided Upfront as a figure or based on the formula that is decided upfront. Any foreign investment into an instrument issued

By an Indian company which:

  • gives an option to the investor to convert or not to convert it into equity or
  • does not involve upfront pricing of the instrument as a date would be reckoned as ECB and would have to comply with the ECB guidelines.

The FDI policy provides that the price/ conversion formula of convertible capital instruments should be determined upfront at the time of issue of the instruments. The price at the time of conversion should not in any case be lower than the fair value worked out, at the time of issuance of such instruments, in accordance with the extant FEMA regulations [the DCF method of valuation for the unlisted companies and valuation in terms of SEBI (ICDR)Regulations, for the listed companies]. 

8.What are the modes of payment allowed for receiving Foreign Direct Investment in an Indian company?

An Indian company issuing shares /convertible debentures under FDI Scheme to a person resident outside India

shall receive the amount of consideration required to be paid for such shares /convertible debentures by:

(i) Inward remittance through normal banking channels.

(ii) Debit to NRE / FCNR account of a person concerned maintained with an AD category I bank.

(iii) Conversion of royalty / lump sum / technical know how fee due for payment or conversion of ECB, shall be treated as consideration for issue of shares.

(iv) conversion of import payables / pre incorporation expenses / share swap can be treated as consideration for issue of shares with the approval of FIPB.

(v) debit to non-interest bearing Escrow account in Indian Rupees in India which is opened with the approval from AD Category – I bank and is maintained with the AD Category I bank on behalf of residents and non-residents towards payment of share purchase consideration.

If the shares or convertible debentures are not issued within 180 days from the date of receipt of the inward remittance or date of debit to NRE / FCNR (B) / Escrow account, the amount shall be refunded. Further, Reserve Bank may on an application made to it and for sufficient reasons permit an Indian Company to refund / allot shares for the amount of consideration received towards issue of security if such amount is outstanding beyond the period of 180 days from the date of receipt. 

9.Which are the sectors where FDI is not allowed in India, both under the Automatic Route as well asunder the Government Route?

FDI is prohibited under the Government Route as well as the Automatic Route in the following sectors:

  1. i) Atomic Energy
  2. ii) Lottery Business

iii) Gambling and Betting

  1. iv) Business of Chit Fund
  2. v) Nidhi Company
  3. vi) Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations)

vii) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges to the extent viii) Trading in Transferable Development Rights (TDRs).

 viii) Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco substitutes.

  1. ix) What are the advantage & Disadvantage of Liaison office?

 Advantages of Liaison office:

  • Fewer ongoing formalities although there are set-up costs.
  • No separate legal entity but does provide a formal presence for UKCo in India.

Disadvantages of Liaison office:

  • Cannot trade or generate revenue in India.
  • UKCo may be exposed to claims and liabilities in India.
  • What are the points to consider while setting-up a of Liaison office?

Five points to consider while setting-up a Liaison Office in India

Any Foreign Entity looking for an office in India as a sourcing division or to facilitate export or to test the Indian market with a prospective business venture to improve the relations with the authorities and business community or to have the presence in the country from worldwide business outlook, Liaison Office (LO) is the best option.

A Liaison Office or a Representative Office can undertake only liaison activities, which means that it can act as a channel of communication between the Head Office (out of India) and parties in India. It is not allowed to undertake any commercial activity in India. As there is no income of Liaison Office of its own, its expenses are to be met entirely through inward remittances from the parent company outside India received in Convertible Foreign Exchange.

Establishment of Liaison Office/Representative Office in India is governed by Reserve Bank of India (RBI) together with Ministry of Finance, Government of India.The rules and regulations in respect to Liaison Offices are framed under Foreign Exchange Management Act, 1999 and Circulars/Notifications issued by RBI from time to time.There are 2 routes to establish a Liaison Office in India:

RBI Route

If the industry the Foreign Entity is in, comes in the specified industries for 100% automatic route of investment as per Foreign Direct Investment Policy then the Liaison Office will be approved by the Reserve Bank of India.

Government Route

If the industry the Foreign Entity is in, doesn’t come in 100% automatic route and Non Profit and Non-Government Organization, then the Liaison Office will be approved by Reserve Bank of India in consultation of  the Ministry of Finance, Government of India.

In addition to above, Reserve Bank of India has prescribed eligibility criteria for Foreign Entities to apply for Liaison Office. The application of Foreign Entities satisfying the below criteria will be processed:

  • Profit making track record during immediate preceding 3 financial years.
  • Net worth as per latest audited balance sheet certified by CPA should not be less than US $50,000 or its equivalent amount in home country.

The other prequisites of Liaison Office application are to have a designated manager of the proposed Liaison Office and a prospective office space of the proposed Liaison Office which can be provided by consultants who help the foreign entities in applying for LO as part of their services which is called Virtual Office or Service Office Services.

The Application has to be made to RBI through Authorized Dealer Category-1 Bank in India. RBI will allot a UIN (Unique Identification Number) on approval of application. Once approved the intimation has to be given to Registrar of Companies (ROC) and Director General of Police (DGP). An application has to be sen to the Income Tax Department to allot Permanent Account Number (PAN).

Annual Compliance

A Liaison office has to do minimal annual compliances as compared to other forms of business in India.

As annual compliance, an annual activity certificate issued by a Practicing Chartered Accountant at the end of March 31, need to be submitted to the Authorized Dealer Category-1 Bank, Directorate General of Income Tax (International Taxation), concerned Registrar of Companies and Director General of Police, on or before 30th September of each financial year (In India the Financial Year is April to March) including audited receipts and payments account.

Tenure

Approval is generally given for a period of 3 years and extension is granted on the basis of

  • Track record of annual activity certificates.
  • Record of the account maintained with the designated bank as per the terms and conditions of original approval.

Additional Activities and Offices

For establishing additional office, a fresh application duly signed by authorized signatory of the foreign entity, is filed to Reserve Bank of India with a justification to open additional office and identify one of the offices as nodal office to co-ordinate the activities of all offices.

Conclusion:-

Liaison Offices are very popular forms of business in India since a long time. However, the issue of taxability of liaison offices still looms over the foreign entities and is not free from ambiguity. To capture the entities in tax clutches, tax authorities have been contending that the liaison offices are transgressing the list of permitted activities and constitute company’s permanent establishment in India.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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SUMMARY ABOUT INCOME-TAX ASSESSMENTS PROCEDURES, APPEALS AND REVISION

SUMMARY ABOUT INCOME-TAX ASSESSMENTS PROCEDURES, APPEALS AND REVISION

Untitled17A

  1. TIME FOR FILING RETURN OF INCOME [SEC. 139 (1)] Different Situations Due Date for filing Return 1. Where the assessee is a company i. Required to file a Transfer Pricing report under section 92E ii. In any other case 30th November 30th September 2. Where the assessee is person other than a company – i. In case where accounts of the assessee are required 30th September to be audited under any law ii. Where the assessee is “working partner” in a firm whose accounts are required to be audited under any law iii. In any other case 30th September 31st July
  1. FILING OF RETURNS – STEPS  Compute income for each Source of Income  Aggregate the income from various sources under the respective Heads of Income  Arrive at the Gross Total Income Claim the Deductions available  Arrive at the Total Income
  1. FILING OF RETURNS – STEPS  Compute  Reduce  Add the Tax payable on the Total Income the Rebates, if any from the tax payable Surcharge as applicable to the tax  Add the Education Cess to the figure of tax plus surcharge  Arrive at the Gross Tax Liability
  1. FILING OF RETURNS – STEPS  From the Gross Tax payable, reduce the TDS  Arrive at the Net Tax Payable or the Refund due as the case may be  If the net tax payable is equal to or more than Rs. 10,000 then Advance Tax is payable  Advance tax is payable in 3 installments (4 in case of companies) during the previous year itself.
  1. FILING OF RETURNS – STEPS  If there is a shortfall in payment of advance tax then calculate Interest u/s. 234B and/or 234C  If the return is filed late then calculate Interest u/s. 234A  From the net tax payable, reduce the Advance Tax  Add the Interest to the balance amount to arrive at the Self Assessment Tax Payable / Net Refund Due.
  1. FILING OF RETURNS – STEPS  Pay the Self Assessment Tax  File the Return physically or upload the return electronically.
  1. ADVANCE TAX [SECTION 211]  Advance tax is payable in 3 Installments (4 in case of Companies)— Payable on 15th June  15th September  15th December  15th March— and Where first installment of 15th June is payable only if the assessee is a company.
  1. SELF ASSESSMENT TAX [SECTION 140A] When on computation of income for the year for the purpose of filing the return of income it is found that some tax remains payable even after adjustment of advance tax along with deducted/collected at source, such balance tax along with interest thereon is required to be paid as self-assessment tax before filing the returns of income.  From A.Y 2013-14, any return uploaded without paying the Self-assessment tax would not be accepted by the Income-tax department and considered defective.
  1. RETURN OF INCOME [SECTION 139]  Normal Return  Belated Return  Revised Return  Loss Return  Defective Return.
  1. NORMAL RETURN  Who is required to file return of income — Company or a firm – mandatory requirement — Others – total income exceeds basic threshold limit (i.e. INR 2,00,000 for A.Y. 2013-14)— Any person who is otherwise not required to furnish return of income will be required to file a return if he has any asset located outside India or has signing authority in any account located outside India.
  1. BELATED RETURN  Any person who has not furnished a return within the time allowed u/s 139(1) or  Within the time allowed under a notice issued u/s— 142(1), but filed before the end of one year from the relevant assessment year or the completion of the assessment, whichever is earlier.
  1. REVISED RETURN Can be filed if the assessee discovers an omission or wrong statement  Replaces the original return  Can be filed before the end of one year from the relevant assessment year or the completion of the assessment, whichever is earlier  Can be revised further  Belated return cannot be revised.
  1. LOSS RETURN  Return must be filed within the prescribed time limits  If not filed, no carry forward of loss, however carry forward of loss under House property head, unabsorbed depreciation & unabsorbed family planning expenses are permissible.
  1. DEFECTIVE  RETURN  Incomplete return  Assessee may be given an opportunity to rectify the defect  If the defect not rectified, the return treated as invalid.  Return will be defective if: columns of return not filled or annexures are not attached;  computation of income tax not attached;proof of tax deposited is not produced within the period of two years, Non furnishing of tax audit report; etc,Self-assessment tax is not paid (from A.Y 2013-14).
  1. RETURN IS FILED – WHAT NEXT?  Either a summary assessment (Section 143(1)) and/or  A regular (scrutiny) assessment (Section 143(3)).
  1. SUMMARY ASSESSMENT [SEC. 143(1) To be issued only if there is a demand or a refund due.  If no demand/refund then Acknowledgement is deemed to be the intimation  Time limit – the end of one year from the relevant assessment year or the completion of the assessment, whichever is earlier .There will be no processing of the returns where assessee are selected for Scrutiny.
  1. SCRUTINY ASSESSEMENT [SEC. 143 (2)/(3)]  Time limit for issuing notice Time limit for completing the scrutiny Type of questions that are being asked.
  1. REFUNDS [SECTION 237]  A claim for refund shall be claimed in Form No. 30  Adjustment of refund against demand for another year (Section 245).
  1. INTEREST [SECTION 234A 234D]  For Defaults in furnishing return of income [SECTION 234A]  For Failure to Deduct and pay tax at source [SECTION 201(1A)] A Interest for Default in payment of Advance Tax [SECTION 234B].
  1. INTEREST [SECTION 234A 234D] TO SECTION For Deferment of Advance Tax [SECTION 234C] Corporate Assessee [SECTION 234C(1)(a)] Non Corporate Assessee [SECTION 234C(1)(c)] àShort payment of Advance Tax in case of Capital Gains/Casual Income [First Proviso to SECTION 234C(1)].
  1. INTEREST [SECTION 234A 234D]  Interest TO SECTION on Excess Refund [SECTION 234D] For Making Late Payment of Income tax [SECTION 220(2)]  Interest Payable to Assessee [SECTION 244A].
  1. RECTIFICATION OF MISTAKES [SECTION 154]RECTIFICATION OF MISTAKES  An income-tax authority may with a view to rectifying any mistake apparent from the record:  amend any order passed by it—  amend any intimation or deemed intimation under— section 143(1) and section 200A. Rectification may also be made on application by the assessee  Orders cannot be rectified after expiry of 4 years from the end of the financial year in which order sought to be amended was passed  On rectification plea by assessee – Amendment / refusal order to be passed within 6 months from the end of the month in which the application is received by the incometax authority.
  1. RECTIFICATION OF MISTAKES  Mistake  Obvious and patent—  Self evident and reached without debate—  Fresh determination of facts should not be required—  Misreading of a clear provision of law/ applying an— inapplicable provision/ overlooking mandatory provision  Statutory interpretation should not be involved—  Record  Includes all materials/ documents available at the time— of passing the order of assessment  Fresh documents/ materials not recorded at the time of— passing the order cannot be considered  Record of any period can be considered—
  1. RECTIFICATION OF MISTAKES  Examples of mistakes apparent from record which can be rectified — Error of law or fact — Clerical or arithmetical error — Error in determination of written down value — Overlooking the obligatory provisions of the legislature — Mistakes arising out of retrospective amendment of law
  1. REVISION OF ORDERS BY COMMISSIONER [SECTION 263 & 264]REVISION OF ORDERS BY COMMISSIONER U/S 263  Pre-requisites — Erroneous order Record shall include and shall be deemed always to have included all records available at the time of examination by the Commissioner Revised order should be passed before the expiry of 2 years from the end of the financial year in which order sought to be revised was passed Opportunity of being heard should be given to the assessee before passing an order under section 263 Powers of Commissioner – Enhance, modify or cancel the assessment and direct a fresh assessment Appeal can be filed to the Appellate Tribunal against the order under section 263 —  Prejudicial to interests of Revenue
  1. REVISION OF ORDERS BY COMMISSION U/S 264 : Revision of orders, on own motion of Commissioner or on application by the assessee Revision of order on own motion by the Commissioner, to be passed within one year from date of order sought to be revised Application by assessee should be made within 1 year from date on which the order in question was communicated or date on which assessee came to know of order, whichever is earlier Order to be passed within 1 year from end of financial year in which application is made by assessee for revision Pre-requisite – Assessee to waive right of appeal Where appeal against the order has been filed – no revision possible
  1. APPEALS TO COMMISSIONER(APPEALS) [SECTION 246A TO 249]APPEALS TO COMMISSIONERS (APPEALS) Appealable orders (Illustrative):  Scrutiny assessment order—  Best Judgment assessment order—  Reassessment order—  Rectification order enhancing assessee’s liability—  Appeal against intimation passed under section 200A—  Tonnage tax order— Appeal to CIT(A) within 30 days of  Date of payment of tax, where appeal is in respect of TDS—under section 195  Date of service of notice of demand relating to assessment or— penalty  Date on which intimation of order sought to be appealed against— is served
  1. APPEALS TO COMMISSIONERS (APPEALS)  Time extended if sufficient cause proven Appeal to be filed in prescribed form and manner CIT(A) fixes a day and place for hearing the appeal, and notice of the same is given to the appellant and the assessing officer whose order is being appealed against During the course of the hearing, CIT(A) may entertain additional ground/evidence raised by the appellant in seeking modification of the assessment order passed by the assessing officer  CIT(A)’s order disposing of the appeal is in writing and states decision and reasons supporting the same  CIT(A) has powers to confirm, reduce, enhance or annul the assessment Where possible, CIT(A) to dispose within 1 year from the end of the financial year in which appeal was filed
  1. APPEALS TO TRIBUNAL [SECTION 252 TO 255]APPEALS TO TRIBUNAL  Should be filed within 60 days of the date on which the order sought to be appealed against is communicated Memorandum of cross-objections – within 30 days of receipt of notice that an appeal has been preferred to the ITAT Time extended if sufficient cause proven To be filed in prescribed form and manner Additional ground/ evidence can be raised for the first time before the ITAT. In such a case opportunity of being heard should be given to the assessing officer After hearing both parties, the ITAT passes an order as it thinks fit and communicates the same to the assessee and the Commissioner Where possible, ITAT to dispose within 4 years from the end of the financial year in which appeal was filed In case order of stay is made, appeal to be disposed within 180 days of stay order; else, stay stands vacate.
  1. APPEALS TO TRIBUNAL Mistakes apparent from record – Order of ITAT can be amended within 4 years from date of ITAT order [Section 254(2)] if it is brought to the notice by the assessee or the assessing officer  Final fact finding authority  Binding nature
  1. APPEAL TO HIGH COURT [SECTION 260A] APPEALS TO HIGH COURT Right exercisable u/s 260A  Preferred against ITAT’s order  Only for a case involving a “substantial question of law”  Should be filled within 120 days of receipt of ITAT’sorder  Can also be filed by the Tax department  Rules framed for court proceedings and conduct has to be observed
  1. APPEALS TO SUPREME COURT Right exercisable u/s 261.  Preferred against High Court’s order Only for a case involving a “substantial question of law”  Should be filled within 60 days of receipt of High Court’s order  Can also be filed by the Tax department  Rules framed for court proceedings and conduct has to be observed

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-23343333

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INCOME TAX SAVINGS THROUGH HOUSE PROPERTY

RAJPUT JAIN AND ASSOCIATES  5

INCOME TAX SAVINGS THROUGH HOUSE PROPERTY

21Does your home, saving your income tax? Buying a house for self occupation can be biggest tax saving instrument.  It saves your income tax in two ways.   You can save maximum Rs 75750 per year on your home.

Introduction:

There are two main benefits which are available under Income Tax Act, 1961 in relation to Purchase or Construction of House Property which are described as under:

  • Deduction of Interest on Capital borrowed for purchase or construction of House Property under Section 24 (b) of the Income Tax Act, 1961. (Interest paid by house owner on housing loan)
  • Principle amount paid towards Housing loan for  purchase or construction of House Property under Section 80 C of the Income Tax Act, 1961.
  • The amount stamp duty/ Registration charges paid while acquiring property will be allowed deduction U/s 80C.

Interest Paid towards housing loan:-

The house property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount payable towards interest on borrowed capital is allowed as deduction under u/s 24(b) of Income tax act.

  • We have to note here Interest payable on borrowed capital is allowed (Interest paid is irreverent here).
  • In case of under construction property, Interest will aggregated from the date of borrowing till the end of the previous year prior to the previous year in which the house is completed and allowed in five successive financial years starting from the year in which the acquisition or construction was completed.
  • In case Assesses is owner of more than one residential property, he may exercise an option to treat any one of the houses to be self occupied and the other houses will be deemed to be let out and annual value of such house will be determined as per Section 23(1)(a) of the Income Tax Act, 1961.

How much Interest Deduction allowed U/s 24(b) :-

In case of self occupied house:-

(a)   In case property is acquired or constructed with capital borrowed on or after 01-04-1999 and such acquisition or construction is completed within 3 years of the end of the financial year in which the capital was borrowed:

Minimum of Actual Interest payable or Rs 1, 50,000/- .

(b)   In case property is acquired or constructed with capital borrowed

Minimum of Actual Interest payable or Rs 30,000/- .

In case of Rental / Deemed to be let out House Property.

Interest payable on barrowed capital for the previous year is allowed as deduction under U/s 24(b).

Principle Amount paid towards Housing Loan:-

Any payment made for purchase or construction of a residential house property which is chargeable to tax under the head “Income from House Property” towards any installment or part payment due to any Bank, Financial Institution, Company or Co-Operative Society towards the cost of the house property allotted to him is allowed as deduction U/s 80 C of the Income Tax Act, 1961 to the extent of Rs. 1,00,000 along with other Specified Investments mentioned under Section 80 C of the Income Tax Act, 1961.

Stamp Duty and Registration Charges for a home:-

The amount you pay as stamp duty or registration fee when you buy a house  can be claimed as deduction under section 80C in the year of purchase of the house.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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INCOME TAX CALCULATION – RESIDENTIAL STATUS

INCOME TAX CALCULATION – RESIDENTIAL STATUS

6

  • Resident & Ordinary Resident
  • Resident But not Ordinary Resident
  • Non –Resident

Based on the duration for which individual present in India determine the residential status.

Resident: An individual is said to be resident in India in any previous year if he fulfills any one of the following two conditions:

  • He is in India in that year for a period of 182 days or more; (Should be determined total no days stay)
  • He is in India for a period of 60 days or more during the previous year and 365 days or more during the 4 years preceding that previous year.

Resident and ordinarily resident: If any individual fails to satisfy below both conditions he will be treated as Resident and ordinary resident.

  • He has been a non-resident in India in 9 out of the 10 preceding previous years; And
  • He has been in India for a period not exceeding 729 days during the last 7 years before the assessment year.

Resident, But not ordinarily resident: If an individual satisfy the conditions for Resident But does not fall under Ordinary resident defined above treated as not Ordinary resident.

Non-resident: If an individual does not satisfy any of the conditions that require to be qualifying as resident, will be considered as non-resident.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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FAQ’s ON EXCISE

RAJPUT JAIN AND ASSOCIATES  1

FAQ’s on Excise

32Excise Registration

What is Excise Duty?

Excise duty is a tax which is charged on Manufacturer / Production of goods as well as from Importers of some specified Goods. Excise Duty is generally recognized as:-

  • Central Excise: – This is the duty which is collected by central Govt.
  • State Excise:- This is collected by Specific state in which the business is located
  • Additional Duties on Import:- This is the duty which is collected on import of those items on which Excise is collected if that product was manufactured in India instead of importing it. This duty is in kind of compensatory duty which is collected to compensate the revenue loss caused by import of those goods.

The Central Excise Law & Procedures essentially embody Central Excise Act, 1944, Central Excise Rules, 2002, Cenvat Credit Rules 2004, Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001, Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008, Central Excise (Compounding of Offenses) Rules, 2005, Central Excise (Appeals) Rules, 2001, CESTAT (Procedure) Rules, 1982 and Notifications issued under Central Excise Act, 1944 and the Rules made thereunder.

 Who need to apply for Excise?
Every person who produces or manufactures excisable goods will have to register themselves with Excise Department.

Persons Requiring Registration under Excise Department: The accompanying classifications of persons oblige enrollment:

  • Every Manufacturer if dutiable excisable products.
  • First and second stage merchants (counting maker’s stops and shippers) wanting to issue Cenvatable receipts.
  • Persons holding distribution centers for putting away non-obligation paid products.
  • Persons who acquire excisable products for profiting end-use based exception.
  • Exporter-producers under refund/ security method; Export Oriented Units and EPZ units which have connection with the residential economy

Every Business which is planning to start a manufacturing unit or planning to import any item from abroad ,need to consult about the excise duty implication on that particulars product. It is always advisable to be certain about the tax implication and its compliance.Separate enlistment is needed in admiration of divided premises (production line, warehouse, godown and so forth.) aside from in situations where two or more premises are really piece of the same plant (where procedures are between interfaced) yet are isolated by open street, channel or track line. On account of materials, a solitary enlistment will accomplish for all premises recorded in that. Further, a few producers owning apparatus, (for example, force looms) under a typical shed or in as something to be shared premises will be dealt with as a different manufacturing plant each for their particular hardware and there will be no clubbing of their generation/freedom.
For Example the If you want to set a manufacturing plant confirm the duty liability under Central as well as State Excise well in advance before starting the activity.

Factor Excise tax before you start a manufacturing unit.

As mentioned above it is utmost important to factor the excise tax impact due to:-

  • Decision on cost of final product
  • Decision on selling price of product
  • Decision on Manufacturing or Import

Exemption for Small Scale Industry

Considering the importance and for its promotion small scale industries are exempted from paying of excise duty.

Any Manufacturing unit which has a turnover of less than 1.5 Cr is exempt from payment of Excise duty.

When Excise is chargeable?

Excise is an event based taxes, and taxes is charged once goods are exit from gate of manufacturing plant. The invoice is made on gate pass basis

 What is the Type of Excise registration?

Type of Excise Registration

TYPES OF EXCISE REGISTRATION  :
Single Premises: Single Registration is required in case of one premises More than Single Premises: If the person has more than one premises requiring registration, separate registration certificate shall be obtained for each of such premises.

What are the Documents & Process required for Excise registration?

Documents Required for Excise Registration Excise Registration Procedure
  • Filled Form A-1 (2 Copies)
  • PAN No.
  • Constitution of Applicant
  • Ground Plan for Factory Premises
  • Detail of Manufacturing Process
  • Tariff Classification Code
  • Board Resolution(In Case of Company)
Step 1: Excise Registration Application to AC/DC [FormA-1(2 copies) and PAN No.]Step 2: AC/DC will grant Excise Registration Certificate after receipt of application and all documents and due verification premises.

Excise Compliance :

What is the compliance under Excise?

All the compliance can be divided in two steps:-

  • Payment of Taxes
  • Filing of Return on 10th of next month.

What is the rate of Central Excise duty?

Rate of Excise duty is depend on Product to product which is decided as per Central Excise Tariff which is notified and updated each year in Finance Act, the same can be found in.

Every Person who is registered with Excise has to file Periodic Return on timely basis. There are various types of return as mentioned below to be filed by Assessee.

Form of Return Late Fees/ Amount Payable Who is required to file Time limit for filing return
ER-1[Rule 12(1) of Central Excise Rules] Monthly Return by large units Manufacturers not eligible for SSI concession 10th of following month
ER-2[Rule 12(1) of Central Excise Rules] Monthly Return by EOU EOU units 10th of following month
ER-3[Proviso to Rule 12(1) of Central Excise Rules] Quarterly Return by SSI Assessees eligible for SSI concession (even if he does not avail the concession) 10th of next month of the quarter
ER-4[rule 12(2) of Central Excise Rules] Annual Financial Information Statement Assessees paying duty of Rs one crore or more per annum either through PLA or Cenvat or both together. Annually by 30th November of succeeding year
ER-5[Rules 9A(1) and 9A(2) of Cenvat Credit Rules] Information relating to Principal Inputs Assessees paying duty of Rs one crore or more per annum (either through PLA or Cenvat or both together) and manufacturing goods under specified tariff headings Annually, by 30th April for the current year (e.g. return for 2005-06 is to be filed by30-4-2005].
ER-6 [Rule 9A(3) of Cenvat Credit Rules] Monthly return of receipt and consumption of each of Principal Inputs Assessees required to submit ER-5 return 10th of following month
ER-7 [Rule 12(2A) of Central Excise Rules] Annual Installed Capacity Statement All assessees, except manufacturers of biris and matches without aid of power and , reinforced cement concrete pipes Annually, by 30th April for the previous year (e.g. return for 2010-11 should be submitted by30-4-2011
ER-8 [Sixthproviso to Rule 12(1) of CE Rules] Quarterly return Assessees paying 1%/2% excise duty and not manufacturing any other goods Quarterly within 10 days after close of quarter
Form as per Notification No. 73/2003-CE(NT) [Rule 9(8) of Cenvat Credit Rules] Quarterly return of Cenvatable Invoices issued Registered dealers By 15th of following month
ST-3 [Rule 9(10) of Cenvat Credit Rules] Half yearly return of Cenvat credit distributed Input Service Distributor Within one month from close of half year

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

 

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FAQ ON ONE PERSON COMPANY (OPC)

RAJPUT JAIN AND ASSOCIATES  5

FAQ ON ONE PERSON COMPANY (OPC)

Untitled24AIs One Person Company (OPC) preferred for small business?

Yes, One Person Company (hereinafter referred to as OPC) is preferred for small business. The concept of OPC is basically to eradicate the limitation of sole proprietorship, which is actually the most popular form for small businesses, such as unlimited liability, no legal form etc.

In case, you are registered as OPC and if your

  • Paid up share capital exceeds 50 lakhs or;
  • Average annual turnover exceeds 2 crores

Then it has to convert itself within 6 months from the date on which any of the above condition is fulfilled. This requirement is as per rule 6 of Companies (incorporation) rules, 2014.

Why prefer one person company (OPC) over others forms of companies?

Answer is simple; only one person is required in OPC. You don’t need another person. If you are independently want to commence your business without involving any other person then One Person Company (OPC) is idle choice for you.

When OPC concept wasn’t introduced in India, the above categories of people usually choose Proprietorship as their form of business. Proprietorship has many disadvantages like

  • Cannot take investments
  • No legal existence
  • Unlimited liabilities

And many other as well. Further proprietorship as form of business also not considered trustworthy. One Person Company (OPC) is a solution for all the above problems.  Therefore, to make the above category of businesses more organised, OPC was introduced.

“Therefore, start-ups should use OPC as their form of business to make your business more organised and more valuable”.

Why Funding is not a problem for One Person Company (OPC)?

Yes, it is true. Funding is not a problem for One Person Company (OPC) subject to if you have a good business idea and business plan.

The Reserve Bank of India (RBI) has instructed banks to increase the funding made to priority sectors, viz agriculture and small scale industries. Eligible priority sector lending:-

Manufacturing Sector
Enterprises Investment in Plant & Machinery
Micro Enterprises Do not exceed 25 lakhs rupees
Small Enterprises More than 25 Lakhs but does not exceed 5 crores
Service Sector
Enterprises Investment in Plant & Machinery
Micro Enterprises Do not exceed 10 lakhs rupees
Small Enterprises More than 10 Lakhs but does not exceed 2 crores

One Person Company coming under any of above category may fall under priority sector lending. There is enormous scope for One Person Companies to leverage benefits of priority sector lending.

Further, there are some additional benefits:-

  • No ownership is transferred to bank.
  • Bank also lends without security up to a certain limit, subject to strong business plan and projections.
  • In case of any default, the liability is limited only up to the share value in the company.

Therefore, doesn’t worry about the funds, just concentrate on your core business idea, and evolve it into a plan, incorporate a One Person Company (OPC) with Carajput.com and start your business today!

Is it true that Public Limited Companies is valued higher than other forms of companies?

Yes, Public limited Companies are valued higher than every form of business. As per the statistics published by U.S. Chamber of commerce and Entrepreneur.com, private companies are valued at only four to six times, while public companies are typically valued at multiples greater than twenty times earnings. There are many reasons for it, namely

  • Market liquidity
  • Risk Profile
  • Capitalisation/capital structure
  • Trust
  • Operational reasons

The obvious result is an immediate and substantial increase in the net worth of its founders and shareholders.

Many companies that are about to be purchased, strategically converting themselves into public company to be purchased at a much higher price.

10 Reasons why start-ups should choose One Person Company (OPC) as their form of business

If you are person having a business idea and thinking of starting a business, One Person Company is ideal choice for you. Here are the 10 reason why you should choose One Person Company (OPC) as your form of Business:

A Separate Personality in the eyes of law

The first and foremost reason is that a Separate legal entity is created in the eyes of law, which is capable of doing almost everything a natural person can do.

Easy Funding

An OPC can raise funds from others like venture capital, Angel investors, financial institutions etc., thus graduating itself to a private limited company.

Additional risk, limited liability

The advantage of limited liability is certainly a desire of any start-up. It encourages you to take additional risk with limited liability.  (It means even if you fail, your liability will only be restricted to the value of your share capital, i.e. your personal assets are safe).

Minimum regulations

OPC need not bother too much about the compliances like other forms of companies. Therefore, entrepreneurs can concentrate on their core functional area.

Benefits of being a Small Scale Industries (SSI)

An OPC can avail various benefits available to the SSI units. E.g. Loans at lower rate of Interest, funding without any security from banks up to a certain limit, various benefits under Foreign Trade policy and many other as well. These benefits can really provide you early assistance, which is a boon for any business in the initial years.

You are the Only Owner

You being the only owner give you full control over the entity. Further, faster decision making will also help your business grow effectively.

Your credit rating doesn’t matter

If OPC applies for the loan, then your credit rating is not relevant, rating of OPC is relevant. In other words, if you are having a bad credit rating, then also you can easily get funds, if the rating is OPC is as per norms.

Benefits under Income Tax Law

Being registered as OPC, any remuneration paid to the director will be allowed as deduction under income tax law unlike proprietorship. Other benefits of presumptive taxation are also available subject to income tax act.

Receive interest on any late Payment

Since all start-ups are generally SSI’s, they are all covered under Micro, small and Medium Enterprises development Act, 2006. If any buyer or service receiver pays you after a specified period than you are also entitle to interest which is three times the bank rate.

Increased Trust and prestige

Any business which runs in the form of company always enjoys an increased trust and prestige than any other form of business.

“Existing proprietors can also convert themselves into the One Person Company (OPC) or any other company as per the requirements and can avail the above mentioned benefits.”

Start Ups – Take Home 30% Extra!

The Twenty First Century will belong to Knowledge! The statement is off course holds true when we look up at the big giants like Google, Microsoft etc. Also, when we look up at the start ups across the world, the kind of innovation that they create is out of the world and with this they earn a lot of dollars.

But, hold a second, how do feel if with all the hard work you did to earn hefty money and you get only the seventy percent of that? Shocked? But that’s what happens in the real world. You do all the hard work and then maybe somebody impressed with your work may buy your start up and pays you hefty dollars, however on that income you will have to pay tax @ 30% (assume tax rate is 30%), and at the end you will be left only with 70%.

In other words, it means that if earn 100 Crores by selling your start up, then you will get only 70 Crores net. Couldn’t we do anything? Is there any solution? Yes there is!

With the simple tax planning, we can avoid the tax liability and keep the 100% income with our self and further to say its all legal!

This tax planning is particularly for Profession. Profession can be IT, Designing, Marketing or anything which require intellectual skills. Now let’s have a look at the tax planning!

Planning is very simple. While selling your start up, you just has to remember that you are not selling any assets, company or anything you are selling your brand, your goodwill. When you give your transaction this kind of shape, then tax machinery will fail and you will benefit. Accordingly no tax will be levied upon you and your whole income is tax free and remembers it’s your legal tax free white income. You can do whatever you want to do with this income.

Also remember that “money saved is money earned”

So, always think, plan and then execute before you commit for any big transaction because with a simple planning you may save hefty money.

If A Person Is Non Resident In Both The States! Where to Tax the Income?

Facts of the Case

Assessee is an employee of a Canadian Company. He went to Canada on 1st March, 2013 and he came back to India on 2nd October, 2013. Then on 17th November, 2013 he again went to Canada and came back on 22nd November, 2013. Assessee was paid salary outside India and that was also in a Bank Account which is also operated outside India. It also to be noted that during the period of stay in India, neither salary was paid in India nor any other payment was received by the employee from the company in India.

Query raised

The question before us is that whether employee was liable to be taxed in India for the period he stayed in India?

Analysis on the query

This is the case where taxability as per Indian domestic law and taxability as per Double Taxation Avoidance Agreements (hereinafter referred to as ‘DTAA’) has to be checked and those provisions which are most beneficial to the assessee will be applied to the case.

Taxability as Per Indian Domestic Law

Let us check the residential status of the assessee based on the taxability of income will have to be decided.

Step 1: Residential status

Assessee went to Canada on 1st March, 2013 and came back to India on 2nd October. Then he stayed in India till 17th November. Therefore his period of stay in India is 47 days. Then assessee again came back to India on 22nd November, 2013 and then continues to stay during the entire previous year. The total stay in India of the assessee is 177 Days.

As per section 6 of the Income tax act, 1961 (hereinafter referred to as ‘act’), if any person stays in India for the period of 182 days or more, then he shall be treated as ‘Resident’ for the purpose of the act. This is to be noted that the condition of 182 days or more has to be checked for each previous year separately.

The second basic condition for the residential status does not apply to the assessee.

Therefore, assessee is a non Resident for the purpose of the act.

Step 2: Taxability of Income

Since the assessee is a Non resident, therefore the following income shall be taxable in India

  • Income accrued in India or deemed to be accrued in India
  • Income received in India or deemed to be received in India

As per the facts of the case, assessee has earned his salary in India for 177 days, therefore, as per section 9 of the act, the salary income which is earned in India will be deemed to arise in India. Therefore, that portion of salary which is earned in India will be taxable in India.

This has to be taxed in India despite the fact that salary amount is credited by the foreign company outside India in a bank account which is also located outside India, this has been held in Elly Lilly Vs. CIT (2011) SC.

Salary income earned outside India, before his arrival in India will not be taxable in India because it has not been earned in India and section 9 does not attract in this case.

Taxability as Per Dtaa

Now we have to analyze the DTAA between India and Canada and to check whether any benefit can be given to the assessee or not.

The salary income has to be decided as per Article 15 of the tax treaty. The article 15 of the treaty is as follows:-

  • Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived there from may be taxed in that other State.
  • Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if :-
v  (a) v  The recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in the relevant fiscal year;
v  (b) v  The remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and
v  (c) v  The remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
  • Notwithstanding the preceding provisions of this Article, remuneration in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State, may be based in that State.

As per para 2 of article 15, if any person resident in Canada exercise the employment in India, and if the aforesaid conditions are fulfilled then, the salary income will be taxable in Canada only.

If we read our facts in the light of above law, then it can be concluded that in our case the aforesaid conditions are fulfilled as

  • Assesseee is present in India for less than 183 days, hence first condition is fulfilled
  • Remuneration is paid by company which is not resident of India, hence second condition is also fulfilled;
  • The remuneration is paid directly by the foreign company and no part of salary is being borne by the permanent establishment.

Therefore, when all the conditions are fulfilled, then it can be concluded that the salary income earned in India will be taxable in Canada only and no part of income is taxable in India.

However, some other facts may also be off prime importance in the deciding this issue, Facts are, in Canada, tax period starts from 1st January and ends on 31st December, so their tax period are as per calendar year. However in India, tax period is always from 1st April to 31st March. In our case, assessee has already paid tax in Canada for the period 1st Jan, 2013 to 31st Dec, 2013. And for next year, i.e. 1st Jan, 2014 to 31st Dec, 2014 he will be treated as Nonresident.

In India, assessee is already a non resident for the PY 2013-14. Therefore, the question is that where will the income for the period 1st Jan, 2014 to 31st March 2014 will be taxable because for the period from 1st January to 31st March, 2014, assessee is nonresident in the both the Countries. It has to be noted that since assessee is not a resident in Canada for the period 1st January to 31st March, then he will not be allowed to avail the benefit of article 15, because article 15 clearly talk about being resident of contracting state. But in our case, assessee is nonresident for both the countries and therefore, article 15 will not apply.

However, since assessee has rendered his services in India and also no DTAA benefit is available to the assessee, hence as per section 9 of the domestic tax laws of India, the salary earned for the period 1st January to 31st March, 2014 will be taxable in India.

Final Conclusion

In the absence of applicability of article 15, case has to be decided as per domestic law and as per domestic law read with Elly Lilly v. CIT (2011) SC, the salary income earned during 1st January to 31st March, 2014 will be taxable in India.

Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-435 201 94

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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EXPECTATIONS FROM – BUDGET 2015

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As most of us are aware, the present government has come to power on agenda of development and controlling black money. Hence, budget proposal is expected to focus on higher economic growth and eradicating corruption. Mode Government has identified and started working on key initiatives of “Make in India” and “Skill, scale and speed” for higher growth. Thus, tax proposals should be focusing on controlling black money and generating long term investments. Keeping in view these goals some of the expectations from the budget 2015 are to:-

Make E-filing mandatory for all to save taxpayers’ money:- Budget 2013-14 made it mandatory for people with annual taxable income above Rs. 5 lakh to file their returns in the electronic mode. Now, making 100% e-filing would further help in reducing the tax evasion and faster refund. There is a big cost and many problems associated with managing the paper return collection and processing at the end of income tax department which can be saved and utilized for making the process more automated. Saving on collection and processing of manual return implies saving of taxpayers’ money which can be utilized on education or health.

Do away with physical ITR V to make it really online:- The I-T department and private portals have made e-filing more user-friendly but even after 7 years, physical submission of ITR V is the biggest pain attached to e-filing. It has been planned to introduce electronic PIN-based verification for e-filers from the past few years. This would mean that the return filers need not send a hard copy of acknowledgment ITR-V to the CPC in Bangalore after filing returns. However, the change has not been enacted yet. Hopefully, they will try to push and do away with this redundant dependency on this physical aspect of e-filing.

Increase scrutiny through more tax notices:- The tax collection has to be increased without increasing the rates which means greater scrutiny of taxpayer’s income. Newer fields are being included in the return for getting additional information about income, e.g., landlord’s PAN for HRA exemption. Tax notices are being issued in lakhs and in many cases taxpayers are required to visit local ward even after e-filing. One should be allowed to submit online or speed post the documents/information required by the assessing authority.

Make NRI tax laws investment friendly:- With a view to attract investment in long term infrastructure bonds in foreign currency, the rate of tax on interest paid to non-resident (NRI) investors was reduced last year from 20% to 5%. It has been proposed to extend the same benefit to the investments made through a designated bank account in rupee denominated long term infrastructure bonds.

Rent deduction u/s 80GG for self-employed to be increased: Self employed professionals should also be able to claim higher rent like HRA exemption for salaried taxpayers. Right now the exemption is capped at a mere Rs. 2,000 per month for rent paid by self employed.

Medical Reimbursement: Limit for exemption for Medical reimbursement perquisites should be increased to Rs. 30,000 from the existing Rs. 15,000 to meet the increased cost of Medical services.

Transport Allowance: The transportation allowance granted by the employer to his employee for commuting between the place of work and residence is tax-free to the extent of Rs. 800 per month. This limit was fixed more than a decade ago, and needs to be revised upwards to at least Rs. 3,000 per month, given the rising commuting costs.

Leave Salary exemption to be Rs. 5 lakh: Presently leave salary is exempt on retirement to a maximum of Rs. 3 lakh which was fixed in 1998. If we consider the inflation alone, the limit may be increased to Rs. 5 lakh. This is similar to increase in exempted amount of gratuity to Rs. 10 lakh from Rs. 3 lakh, done in the past.

Food coupons: Value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. Looking at present inflation, it should be Rs. 100 per meal.

Staff Loan limit may be increased: Interest free/Concessional loan to employees is exempt, where Loan amount does not exceed in aggregate of Rs. 20,000. It will be good if this limit is revised to at least Rs. 50,000.

Attack black money and increase the tax base instead of tax rates:-

Common man should not be burdened with more tax in the current scenario of high inflation and low savings. The right direction and action is to catch the black money holders, i.e., tax evaders. The number of tax evaders and amount of tax evaded can be expected to be similar to the number of tax payers and amount of tax paid by them, as the cash based economy is assumed to be of the same size. Currently, there are only 34 million taxpayers in India, despite being a country of 1.2 billion people. Even a layman knows that actual number of people with income more than the exempt limit of Rs. 2 lakh would be much higher than this.

Reduction in the Property Transactions value:-

Tax Deduction at Source (TDS) at the rate of 1% on the value of the transfer of immovable property where consideration exceeds Rs. 50 lakh was started last year. The limit is expected to be further reduced to Rs. 30 lakh to control the black money. Similarly, TDS on sale of agricultural land may be imposed. This can help the government to achieve revenue target and catch tax evaders. This would also bring agriculture land along with urban land as an asset.

Replacement or reconstruction of RGESS:-

Keeping in view the government funds requirement for pushing growth through MAKE IN INDIA campaign, the Rajiv Gandhi Equity Savings Scheme (RGESS) is expected to be liberalized or replaced. In current format, it has received a cold response due to which investment in the scheme is not significant. Hence, change is inevitable to attract investment from taxpayers including the first time investors. Taxpayers may be allowed to invest in mutual funds as well as listed shares as a continuous investment like provident fund, wherein if you withdraw before five year or discontinue, the amount becomes taxable. The income limit for investment eligibility is expected and may be removed for realizing “Make In India”.

Better deal for First time home buyers or those owning only one home:- 

On one hand, there is a big inventory of residential properties and on the other side, majority of taxpayers have not bought even their first home. The additional deduction of Rs. 1 lakh may be continued and even a higher deduction can be expected. Currently, this is applicable for loan amounting Rs. 25 lakh availed during the period 1.4.2013 to 31.3.2014 against house property not exceeding Rs. 40 lakh. These limits could be increased to Rs. 40 lakh loan for house valuing Rss 50 lakh to be entitled to an additional deduction of interest of up to Rs. 3 lakh. This will promote home ownership and give a boost to a number of industries like steel, cement, brick, wood, glass etc. besides jobs to thousands of construction workers.

Increase in Section 80C limit focusing on retirement i.e. long term investment: Retirement savings could have separate deduction limit of Rs. 1 lakh paid to pension funds, i.e., NPS and mutual funds dedicated to retirement plans. Since, equity investments are advisable for long term and saving for retirement is the need of hour.

Besides the above, one can expect higher deduction in below cases where the limit has not been revised for the past many years. It is necessary for making these deductions relevant and beneficial for today’s taxpayers:-

Some of the above expectations are continuing from the past many years. But this time, there is even more need and opportunity to take action on them.

Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-43520194

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances; Hope the information will assist you in your Professional endeavors. For query or help, contact:   info@carajput.com or call at 011-233 433 33

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