NEW REQUIREMENTS INCLUDING IN CARO 2020 REPORTING

NEW ADDITIONAL REQUIREMENTS INCLUDING IN THE CARO 2020 REPORTING AFTER ON CONSULTING ON WITH THE NFRA

www.carajput.com; CARO2020

www.carajput.com; CARO2020

Statutory Auditor’s Report (CARO 2020) shall include a statement a New Reporting Requirements

The existing COVID-19 pandemic affects not only public health but also the financial system as a whole. Public safety measures in place, although necessary are a huge hit to the economy’s liquidity flow leading to serious problems such as unemployment, a failure of the supply chain, a sudden drop in demand, unavailable inventories, etc.

The Government provides various relief and relaxation measures to boost businesses and the economy. In the same sense, the MCA has postponed from FY 2019-20 to FY 2020-21 the applicability of the Companies (Auditor’s Report) Order, 2020 [CARO 2020].

The Statutory auditor’s report (CARO 2020) shall include the following statement on the below matters, which are mention below:

www.carajput.com;CARO2020 Disclouser

www.carajput.com; CARO2020 Disclouser

  • Registration U/s 45-IA of RBI Act
  • Total Cash losses information
  • Information about the tangible and intangible assets
  • Cost records Maintenance
  • Total of statutory liabilities Deposit
  • Completed unrecorded income which is required to be disclosed,
  • Information of Default in repayment of borrowings
  • Details of Compliance in respect of deposits accepted
  • Details of transfer to fund specified under Sch- VII of Co. Act
  • Qualifications or adverse auditor remarks in other group companies
  • information of resignation of statutory auditors during the year
  • any material uncertainty on meeting liabilities of the company.
  • information of inventory and working capital
  • complete details of investments, any guarantee or security or advances or loans given
  • Compliance in respect of a loan to directors
  • Funds raised and utilization
  • Any Fraud & whistle-blower complaints
  • Any pending Compliance by a Nidhi Company.
  • Complete details Compliance on transactions with related parties
  • Implementation about Internal audit system
  • Non-cash dealings with company directors

In cases where the answer given by the Statutory auditor to any of the above requirements is unfavorable or negative, The auditor’s report shall then also set out the basis for such unfavorable or qualified response. In addition, in cases at which the auditor is unable to give an opinion on any defined issue, the report shall state such fact together with the purposes why the auditor can not give an opinion on the same.

CARO 2020 Applicability on which of the Companies.

To improve the scope of the audit, the CARO 2020 was published by the MCA in consultation with the NFRA. It contains a list of topics that the relevant companies are obliged to report on.

CARO 2020 applies to all  St. Audits beginning on or after 1 April 2020 which relates to the financial year 2019-20. The order applies to all companies covered under CARO 2016. Accordingly, the order requires all companies except the following companies which have been expressly prohibited from their jurisdiction:

  • Companies registered for charitable purposes
  • Small companies (Companies with paid-up capital less than/equal to Rs 50 lakh and with a last reported turnover which is less than/equal to Rs 2 Cr)
  • Insurance companies
  • One person company
  • Banking companies
The Below Private Limited Companies are also exempt from CARO’s, 2020 requirements:
  • Whose gross receipts or revenue (including revenue from discontinuing operations) is less than or equal to Rs 10 Cr in the financial year
  • Whose paid-up share capital plus reserves is less than or equal to Rs 1 CR as on the Balance sheet date (i.e. usually at the end of the financial year )
  • Not a holding or subsidiary of a Public company
  • Whose borrowings is less than or equal to Rs 1 Cr at any time during the financial year

CARO, 2020 (Applicable from FY 2019-20)-Changes made

www.carajput.com; CARO2020

www.carajput.com; CARO2020

  • Fixed Assets/ Property, Plant, and Equipment

# Reporting over maintenance of records of Intangible assets have been specifically added.

# Leased Immovable property is specifically excluded from the reporting over the holding of title deeds in the Company’s name. If owned Immovable property is not held in the Company’s name, Dispute status and details of the registered owner need to be reported.

# In the case of EPP revaluation, the auditor must determine that the same has been achieved on the basis of the Reported Interest survey. Changes ought to be recorded if 10% or more of the adjustments are made in the WDV.

  • Inventory

# Inconsistencies recognized by management with an effect of 10% or more of the inventory value need to be reported.

# In the case that the Corporation has a working capital limit of more than INR 5 Crores depending on the security of the current assets (e.g. Stock, Debtors), the auditor must report that the regular filings (e.g. Financial Accounts, Debtors Listing) made with the lender are in compliance with the books.

  • Undisclosed Income:

# The auditor must disclose whether or not any income has been returned under the Income Tax Act, 1961 and the same has been duly accounted for in the books of accounts.

  • Default in repayment of loans

# The auditor must determine that the company is considered to be a “Willful defaulter.”

# Information on the removal of term loans from allowable use needs to be published.

# Data has been given on how short-term loans have been used for long-term purposes.

# The auditor must comment on all money taken to meet the commitments of the community business.

# Reporting on loans received by the Firm was made on the basis of the commitment of shares issued by the Firm to shareholders, Joint ventures and associates.

  • Fraud reporting

# Fraud reporting has been extended to fraud against the Company by any person rather than by officers or employees in the past.

# The fraud report issued by the auditors in the form ADT-4 to CG should be reported.

# The auditor has to record his evaluation of “Whistle Blower” allegations.

# The auditor must report whether the internal audit system exists within the company and whether or not the internal audit reports have been considered.

# The particulars of the proceedings (pending/initiated) under the Benami Law need to be published.

  • Consolidated Financial Statements

# Details of consolidated companies with qualifications or adverse reactions in the CARO report must be reported along with Paragraph Number of the auditor with audit report on Consolidated Financial Activities.

  • Non-Banking Financial Activities

# The auditor must report on the conduct of financial activities of an NBFC nature by the company without valid Certificates and reporting.

  • Cash Losses

# The auditor will document whether the Company has suffered CASH LOSS during the current AND preceding financial year and the volume of such cash loss.

# The resignation of the statutory auditor and the causes, problems with him duly considered by the incoming auditor or not; must be published.

  • Financial Ratios

# The goals of the Organization to meet its Existing Obligations on the basis of percentages, maturity and plans for execution must be stated.

  • Corporate Social Responsibility:

# The Auditor will disclose that the unexpended amount has been allocated to the designated fund within 6 months of the end of the fiscal year and whether or not the pending project balance has been moved to a special account. (Amendment itself under the Corporations Act, not yet told in 2013).

APPLICABILITY OF ANNEXES TO THE AUDITOR’S REPORT:

  1. Annexure of the CARO Report is not needed in the case of Small Business, Banking Firm, Insurance Company, Section 8 Company, One Person Company, and any private company having paid-up capital and free assets to INR 1 crores as at the balance sheet date and borrowing up to INR 1 crores at any time during the year and revenue up to INR 10 crores as per the financial reporting of the year mentioned.
  2. Annexure of the Internal Financial Control Report is not required in the case of Small Company, One Person Company, AND any Private Company with Turnover up to INR 50 Crores as per the financial statements of the year concerned and borrowing up to INR 25 Crores at any time during the year.

CONCLUSION:

According to CARO 2020, disclosure is required as to whether any qualifications or adverse remarks have been made by the respective auditors in the CARO reports of the companies included in the consolidated financial statements, if yes, the company details and the CARO report sentence numbers usually contain the qualifications or adverse remarks should be noted. The CARO 2020 is supposed to substantially increase the overall standard of the audit reports on the company’s financial statements and thereby contribute to greater accountability and confidence in the company’s financial affairs. It is inevitably expected to increase the inflow of investment by and in Indian companies.

In summary, we would like to say that the auditor’s reporting expectations are expanding substantially. Hoping this would lead to more public accountability between the company and its shareholders and hence the auditor needs to make sure he’s more perspective and especially while performing his duties.

Compliance of CARO order deferred by 1YR: MCA

MCA defers the applicability of CARO 2020 to FY 2021-22: MCA  Order dated 17.12.2020 changed the date of operation of the Order of the Companies (Auditor’s Report) 2020 to the financial years starting on or after 1 April 2021. As a result, the Companies (Auditor’s Report) Order, 2020 will operate from FY 2021-22. CARO 2016 will continue to apply for the financial year 2020-21.

MCA order dated 17.12.2020 has changed the applicability date of Companies (Auditor’s Report) Order, 2020 to the FY starting on or after the 1st April 2021.

The Government has postponed the introduction of stringent transparency standards for company audit reports by one year, a development that came about as a result of the disruption caused by the coronavirus pandemic.

Previously, CARO 2020 was due to enter into force from the beginning of the financial year on or after 1 April 2020. CARO needs businesses to comply with tougher disclosure standards on various topics, including whistle blower lawsuits and default on borrowing payments. “CARO 2020 would require increased due diligence and disclosure on the part of auditors of eligible companies and be designed to bring increased accountability to the financial situation of such companies,” said MC.

Under that same strict structure, auditors are expected to make comprehensive statements in their annual reports on credit defaults, the amount of cash losses and immovable assets, as well as other corporate matters.

Click here to access the overview of the MCA Order on CARO, 2020 dated 25.02.2020.

Appointment of Stautory Auditor and their service under Companies Act, 2013

Rules and regulations of Audit and Assurance and corporate law compliance

Post by Rajput Jain & Associates

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

How will Tax Structure Look Like After Implementation of Goods and Services Tax?

How will Tax Structure Look Like After Implementation of Goods and Services Tax?

www.carajput.com; GST Vs. Sales Tax

www.carajput.com; GST Vs. Sales Tax

GST Council approves four tier GST rates @ 5% (Food Items), 12% & 18% (Standard) & 28% (Aerated drinks, Pan Masala, Tobacco & Luxury Items). GST rate for Gold to be decided later.

The Goods and services tax is a new regime in the indirect taxation in India. This was basically introduced mainly with the intention of removing the cascading effect that is the effect of paying taxes on taxes in India. The prevailing indirect taxes which are VAT, CST, service tax, central excise will all vanish once the GST comes into force. It is proposed that GST would come into force from 1st of April,2017.

This new GST would open the doors of theIndian market to many foreign investors who are willing to trade in India. Thus the trade barriers which are prevailing now due to the complications of Indian indirect taxation regime will be removed by GST. On the darker side, GST would also bring up some challenges to Indian businesses as there would be an ease of entry into Indian market thus increasing competition. But however, the business persons in India are still happy with GST because they no longer have to face the complications which prevail right now. Especially for service-oriented industries, it is no less than a boon.

In order to appreciate the provisions of GST, we need to have an overlook over the present tax structure. By doing so, we can have a comparative view. That would be more convincing. Here we go!

Present tax structure

Presently both state and the central governments are involved in imposing and collecting of taxes under various entries of the constitution. A detailed analysis is given below:

  • Service tax

Service tax is collected by the union government for the taxable services which are provided in the taxable territory ( thewhole of India except Jammu and Kashmir). The rates are differential based on the service provided.

  • Central Sales Tax ( CST)

It is collected by the state where the sale has been made. Only interstate sales come under CST. Local sales are left under State VAT.

The sales or purchases which are affected within the state are subject to state VAT. They are collected by respective state governments.

  • Central excise

This is collected by the union government. It is collected by the manufacturers producing goods and is collected when the manufactured goods are removed from the premises.

  • State excise

This is collected by the state government on the alcoholic production.

Now, that was an overview of the present tax structure. Let us now zoom into the proposed GST structure. Read on!

The proposed GST structure

There would be 3 types of Tax in the proposed GST regime:

  • Central Goods and Services Tax( CGST)

The sale of goods and services between 2 different states come under this. It is levied and collected by the central government.

  • State Goods and Services Tax ( SGST)

The local sales happening in the state are covered here. It is imposed and collected by the state government.

  • Integrated Goods and Services Tax ( IGST)

Other residual sales are covered under this head. This is again collected by the central government.

The list of central taxes which are going to be subsumed in GST is given below for better insight:

  • Additional excise duty
  • Service tax
  • Central excise
  • Excise duty which is presently levied under Medicinal and toiletries preparation act
  • Central Sales tax
  • Cesses

Similarly, the state taxes or levies which are going to be subsumed in GST are:

  • Luxury tax
  • State VAT
  • Entry tax
  • Entertainment tax
  • State cessesand surcharges
  • Taxes on betting, gambling and lotteries

GST in relation to certain specific products

Though GST is supposed to be the unanimous tax which promises uniformity in taxes, the GST treats certain products differentially. These products have a separate provision in the GST regime. Highlights of these provisions are summarized below:

  • The manufacturing of alcoholic beverages is outside the ambit of GST. Thus alcoholic beverages will have no ruling sections and would continue to be levied by the state excise act and collected by the respective state government.
  • Also, the tobacco and tobacco related products also are not covered under GST. They would continue to be charged by the central excise by the central government.
  • Imposing GST on the petroleum products is kept at a halt as of now. It would be included on a later date when the GST council deems it necessary. Till then, the central government would continue to collect taxes on petroleum products. The petroleum products are inclusive of the following:
  • Petrol
  • Diesel
  • Natural gas
  • Aviation turbine fuel

The set-off and adjustment credit

As it is already mentioned, the main intention of GST is to remove the cascading effect of taxes. The double taxation will thus be removed by GST. Therefore, it is crucial that some set-off and adjustment credits need to be given when thetax is paid on both services and goods which are received to be set off against the liability which is to be paid when the goods are sold.

The 3 types of GST will have set off provisions like:

  • SGST can be set off against any surplus arising from IGST.
  • CGST can be set off against SGST and surplus from IGST.
  • IGST can be set off against SGST and CGST in the same sequence.

Exemption limits and the GST rate

The exemption limits and the GST rates are yet to be finalized by the GST council. However, it is estimated that the exemption limit would be INR 10 lacs. In layman terms, businesses which do not cross the turnover of 10 lacs are given exemptions under GST.

The rate of GST will have apositive impact on themajority of products like electronic goods and consumer goods and a negative impact on a few. The rate is estimated to be fixed between 18% and 20%. The concessional rate would be around 12% and the rate fir precious metals would be 2% to 6%.

GST registration

All the businesses indulged in thesale of goods and services are required to get themselves registered under GST. The registration has to be obtained based on states and not India as a whole. As the E- filing is in practice now obtaining GST registration is mandatory. The GST council has announced that the registration process is kept very simple and there is ease of operation.

Bottom line of GST

Thus as a whole, we can come to a conclusion that GST is going to reduce the price of many products and services. Moreover, due to ease of entry and ease of operations, the Indian market will be exposed to the international market. This can also pave way for investors to invest in India globally. The complications that prevailed in the indirect tax regime are removed by GST. Especially the service tax which is considered very complicated and confusing for many persons, GST is a boon. Besides the consumers too can benefit from theintroduction of GST as the frauds and errors are bound to decrease. There is no scope for escapism too to the dealers. Thus, bills will all be made white and no scope for theblack money. Everything would be billed and with a uniform tax rate. Thanks to the GST council and GST proposing committee!

We look forward for your valuable comments. www.carajput.com

FOR FURTHER QUERIES CONTACT US: W: www.carajput.com  E: info@carajput.com T: 011-233-4-3333, 9-555-555-460

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

CORPORATE AND PROFESSIONAL UPDATE OCT 5, 2016

Professional Update For the Day:

1

Direct Tax:-

CBDT notifies ICDS to be applicable w.e.f. AY 2017-18 for all assesses other than individual & HUF (who are not under audit u/s 44AB) following mercantile system of accounting for the purposes of computation of income chargeable to income-tax under the head “Profits and gains of business or profession” or “Income from other sources”vide Notification No. 87/2016 dated 29/09/2016.(Click here to view)

CBDT has issued Income tax (23rd Amendments) Rules, 2016 vide Notification No. 88/2016 dated 29/09/2016.These Rules shall come in to force with effect from 1st April, 2017.(Click here to view)

CBEC has issued revised guidelines for arrest in relation to Service Tax offences punishable under the Finance Act, 1994 and Central Excise Act, 1944, Circular No. 201/11/2016-Service Tax dated. 30.09.2016.

Assessee could not get the accounts audited within the time limit prescribed u/s 44AB and if there is no mala fide reason for not obtaining the accounts audited in time than penalty u/s 271B should not be imposed – Gemorium Vs ITO W-5(1), Jaipur (ITAT Jaipur).

Indirect Tax:-

CBEC has issued guidelines for arrest in relation to offenses punishable under the Finance Act, 1994 and Central Excise Act, 1944 vide Circular No. 201/11/2016 dated 30/09/2016.(Click here to view)

CBEC has exempted the service tax on transportation to educational institutions vide Notification No. 45/2016 dated 30/09/2016.(Click here to view)

Judgment of Delhi high court quashing Rule 5A(2) of service tax rules, 1994 and holding service tax audits as invalid, has been stayed by the supreme court; hence, for time being, service tax audits may continue.[SC of India vs. Mega Cabs (p.) Ltd].

 MCA UPDATE:

MCA has introduced SPICE (simplified proforma for incorporating Company electronically) w.e.f. 02.10.2016 in e-form INC-32.

Form INC-32, INC-33, INC-34 under simplified Performa for Incorporating Companies electronically are available as notified by Comp. (Fourth) Amendment Rules, 2014.

RBI UPDATE:

RBI has cuts the Repo rate by 25 bps now The *new Repo rate is 6.25%.* This will make the loan rate cheaper.

RBI issued a circular regarding Investment by foreign portfolio Investors (FPI) in government securities vide Circular No. 4/2016 dated 30/09/2016.

GST UPDATE:

Under GST Composition Scheme is not applicable if assessee makes Inter- state supplies or pays tax on Reverse Charge basis.

Under GST no need to file GST RFD-01 for refund of balance in electronic cash ledger. Same can be claimed through return forms GSTR-3, 4 & 7.

FAQ on GST issued by CBEC

Q 1. What is the taxable event under GST?

Ans. The taxable event under GST shall be the supply of goods and / or services made for consideration in the course or furtherance of business. The taxable events under the existing indirect tax laws such as manufacture, sale, or provision of services shall stand subsumed in the taxable event known as ‘supply’.

Q 2. What is the meaning of ‘Supply’?

Ans. The term ‘supply’ is wide in its import and includes all forms of supply of goods and / or services such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It also includes import of service. The model GST law also provides for including certain transactions made without consideration within the scope of supply.

Q 3. What is a taxable supply?

Ans. A ‘taxable supply’ means a supply of goods and / or services which is chargeable to good and services tax under the GST Act.

Q 4. What are the necessary elements that constitute supply under MGL?

Ans. In order to constitute a ‘supply’, the following elements are required to be satisfied, i.e.-

(i)  supply of goods and / or services;

(ii)  supply is for a consideration;

(iii)  supply is made in the course or furtherance of business;

(iv)  supply is made in the taxable territory;

(v)  supply is a taxable supply; and

(vi)  Supply is made by a taxable person.

Q 5. Can a transaction in which any one or more of the above criteria is not fulfilled, be still considered as supply under GST?

Ans. Yes. Under certain circumstances such as importation of service (Section 3(1) (b)) or supplies made without consideration, specified under Schedule-I of MGL, where one or more ingredients specified in answer to question no. 4 are not satisfied, it shall still be treated as supply under GST Law

Q 6. Importation of Goods is conspicuous by its absence in Section 3. Why?

Ans. Importation of goods is dealt separately under the Customs Act, 1962, wherein IGST shall be levied as additional duty of customs in addition to basic customs duty.

Q 7. Are self-supplies taxable under GST?

Ans.Inter-state self-supplies such as stock transfers will be taxable as a taxable person has to take state wise registration in terms of Schedule 1(5). Such transactions have been made taxable even if there is no consideration. However, intra-state self-supplies are not taxable.

Q 8. Whether transfer of title and/or possession is necessary for a transaction to constitute supply of goods?

Ans. Title as well as possession both have to be transferred for a transaction to be considered as a supply of goods. In case title is not transferred, the transaction would be treated as supply of service in terms of Schedule II (1). In some cases, possession may be transferred immediately but titled may be transferred at a future date like in case of sale on approval basis or hire purchase arrangement. Such transactions will also be termed as supply of goods.

Q 9. What do you mean by “supply made in the course or furtherance of business”?

Ans. No definition or test as to whether the activity is in the course or furtherance of business has been specified under the MGL. However, the following business test is normally applied to arrive at a conclusion whether a supply has been made in the course or furtherance of business:

Is the activity, a serious undertaking earnestly pursued?

Is the activity is pursued with reasonable or recognisable continuity?

Is the activity conducted in a regular manner based on sound and recognised business principles?

Is the activity predominantly concerned with the making of taxable supply for consideration/ profit motive?

The test may ensure that occasional supplies, even if made for consideration, will not be subjected to GST.

Q 10. An individual buys a car for personal use and after a year sells it to a car dealer. Will the transaction be a supply in terms of MGL? Give reasons for the answer.

Ans. No, because supply is not made by the individual in the course or furtherance of business. Further, no input tax credit was admissible on such car at the time of its acquisition as it was meant for non-business use.

Q 11. A dealer of air-conditioners transfers an air conditioner from his stock in trade, for personal use at his residence. Will the transaction constitute a supply?

Ans Yes. As per Schedule-I (1) business assets put to a private or non-business use without consideration will be treated as supply.

Q 12. Whether provision of service or goods by a club or association or society to its members will be treated as supply or not?

Ans. Yes. Provision of facilities by a club, association, society or any such body to its members shall be treated as supply. This is included in the definition of ‘business’ in section 2(17) of MGL.

Key Dates:

Excise payment for Non SSI for the month of September by G.A.R.- 7 challan-06/10/2016

Service tax payment for the company for the month of September by G.A.R.- 7 challan-06/10/2016

Service tax payment for Individuals/Proprietory/ Partnership Firms for the quarter ended by G.A.R.- 7 challan-06/10/2016

Submission of TCS forms (27C) received in sep to IT Commissioner- 07/10/2016

Payment of TDS/TCS challan No. 281-07/10/2016

The biggest enemy of success is fear of failure. So when fear knocks at your door send courage to open the door and Success will wait for you.

“Change will not come if we wait for some other person or some other time. We are the ones we’ve been waiting for. We are the change that we seek.

We look forward for your valuable comments. www.carajput.com

FOR FURTHER QUERIES CONTACT US:

W: www.carajput.com    E: info@carajput.com             T: 011-233-4-3333, 9-555-555-460

Continue reading

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

HIGHLIGHTS RESULTS OF THE GST COUNCIL MEETING HELD :

HIGHLIGHTS RESULTS OF THE GST COUNCIL MEETING HELD :

www.carajput.com; GST Council Meeting

www.carajput.com; GST Council Meeting

  1. The threshold Annual Exemption Limit fixed at ₹ 20 Lac.
  2. The threshold limit for the north-eastern and hill states paged at ₹ 10 Lac.
  3. GST rates and tax slabs would be decided at three-day’s meeting during 17-19 Oct, 2016.
  4. GST rollout slated for 1st April, 2017.
  5. All cesses will be subsumed in the GST
  6. GST Council’s next meeting on 30th Sep, 2016 to finalise draft GST law / rules.
  7. The state authorities will have jurisdiction over assessees with annual turnover of less than ₹ 1.5 crore.
  8. Those with turnover of over Rs 1.5 Crores would be cross examination either by officers from the Centre or state to avoid dual control.
  9. The existing 11 Lac service tax assessees would continued to be assessed by the Centre.
  10. New assessees which would be added to the list would be divided between the Centre and the States.
  11. Council is working on a compensation law and draft compensation formula.
  12. The base year for calculating compensation would be 2015-16 and the formula for payment of compensation would be deliberated b/w the state and Central authorities.
  13. All decisions today by the GST Council were taken on the basis of consensus.

We look forward for your valuable comments. www.carajput.com

FOR FURTHER QUERIES CONTACT US:

W: www.carajput.com E: info@carajput.com T: 011-233-4-3333, 9-555-555-460

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

Income Declaration Scheme’2016

Income Declaration Scheme’2016 – Latest Developments

www.carajput.com; CBDT

www.carajput.com; CBDT

(a)       Instruction No. 9 of 2016 (IDS) dated 27-09-2016

(Non –indexation of assets sold prior to 01-06-2016)

CBDT issues yet another clarification on the Income Declaration Scheme (‘IDS’), clears air on making declaration with respect to sale made prior to June 1, 2016 of capital asset acquired out of undisclosed income and sale proceeds held in cash.

Instances have been brought to the notice of the Board that some taxpayers are of the view that if a capital asset acquired out of undisclosed income is sold before 01.06.2016 and the sale proceeds so received are held in cash, then the amount of undisclosed income required to be declared under the Scheme shall be the amount of undisclosed income invested in acquisition of such capital asset as increased by the capital gain arising on sale of such asset determined in accordance with the provisions of the Income-tax Act, 1961 (i.e.sale consideration less indexed cost of acquisition).

Clarifying the position, the Board has clarified that as per the provisions contained in section 183(2) of the Scheme that where the income chargeable to tax is represented in the form of investment in any asset, the fair market value of such asset as on 01.06.2016 shall be deemed to be the undisclosed income for the purposes of the Scheme. In this context, it may be noted that cash in hand is an asset for the purposes of the Scheme.

(b)       Instruction No. 10 of 2016 (IDS) dated 28-09-2016

(Filing declarations in non pan cases)

In cases where the declarant is not having a PAN or PAN is pending allotment and the assessee is not likely to get PAN by the date of closure of the Scheme i.e. 30.09.2016, the CBDT has clarified that in such cases a declaration under the Scheme can be filed manually before the jurisdictional Pr.Commissioner/Commissioner by quoting the date and acknowledgment number of PAN application form.

However, the jurisdictional Pr.Commissioner/ Commissioner shall issue Form-2 only after the allotment of PAN to the declarant. The time limit provided for issuance of Form-2 under sub-rule (3) of rule 4 of the Income Declaration Scheme Rules, 2016 in such cases shall apply from the date on which PAN has been allotted to the declarant. In case, PAN allotment could not be made due to non­compliance/non-furnishing of documents by the declarant, the declaration shall be treated as invalid.

We look forward for your valuable comments. www.carajput.com

FOR FURTHER QUERIES CONTACT US:

W: www.carajput.com         E: info@carajput.com       T: 011-233-4-3333, 9-555-555-460

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

NEW UPDATE ON LEGALITY OF REOPENING OF ASSESSMENT U/S 147/263 BASED ON AUDIT OBJECTIONS

NEW UPDATE ON LEGALITY OF REOPENING OF ASSESSMENT U/S 147/263 BASED ON AUDIT OBJECTIONS

www.carajput.com; Company Registration

www.carajput.com; Company Registration

One of the key sources of dispute is the existing arrangement for follow up on audit objections by Internal Audit Party and the Revenue Audit Party. In terms of the existing arrangement, the AO is required to take corrective steps following audit objections. The corrective measures take the form of rectification or reassessment (by reopening the case under section 147 or revision by the Principal Commissioner or Commissioner under section 263). In the case of rectification, these are general in the nature of correction for arithmetical errors and other mistakes which are apparent from the record. The problem arises when the AO seeks to take corrective measures by invoking the provisions of section 147 or 263 of the Income tax Act. Since the audit objections are based on material on record and there is no occasion for new material to be brought on record in the course of audit, any reopening of assessment or review by the Principal Commissioner constitutes “change of opinion” in the eyes of the law. This being so, the corrective measure under section 147 or section 263 of the Income tax Act is held to be invalid by Courts.

In spite of several court judgments to this effect, the CBDT had issued a circular to the effect that in all cases of audit objections, the AO should initiate corrective steps irrespective of whether the objection is valid or not in the eye of law. Consequently, steps are initiated by the AO to reopen the completed assessment or by the Principal Commissioner for revision of assessment orders. These steps give rise to several rounds of litigation; first the assessee challenges the very act of reopening or revision, as the case may be, and upon losing, the Department files appeal before the higher Courts thereby clogging the judicial system. While this process is on, the AO proceeds to complete the assessment on merit leading to another round of litigation. In large number of cases, the assessments on merit are completed even though the Department is in disagreement with the audit objection. The very issue has also been considered by the Income-Tax Simplification Committee constituted by the Govt. of India against such mechanical reopening .

In a recent judgment in case of Sunil Gavaskar vs. ITO, the Hon’ble bench of ITAT Mumbai considered the legality of such reassessments based on audit objections. Primarily reopening merely on the basis of audit objections and in absence of any new material indicating escapement of income, amounts to change of opinion and creates uncertainties for taxpayers.

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

HIGHLIGHTS OF RAILWAY BUDGET 2016-17

Highlights of Railway Budget for 2016-17.

www.carajput.com; Highlight of Railway Budget

www.carajput.com; Highlight of Railway Budget

Following are highlights of the Railway Budget for 2016-17

(Apr-Mar), presented by Railway Minister Suresh Prabhu in Parliament today:

GENERAL

* Budget reflects aspirations of the entire railway family

* Rail Budget reflects aspiration of all

* Core objective is to improve individual experience

* Rail Budget is the vision of PM Modi

* Making all efforts to turn PM’s vision into reality

* Railways facing headwinds on tepid economic growth

* Railways have stood the test of time

* Need to overhaul Railways’ work culture

* Need to bring in new approach

* Will lay out three pillars of strategy

* Looking at new areas for generating revenues

* Need to reorganise, rejuvenate, restructure railways

* Railways facing headwinds from 7th pay panel burden

* Will engage with global agencies for funds

* Absolute deductions planned in expenses such as diesel

* Have significantly reduced cost of power procurement

* Will revisit all rules, structures to overhaul railways

* To improve procurement practises at par with international norms

* New revenues through changes in freight policies

* Punctuality has gone up to almost 95%

* To include implementation reports in Budget

* Carry 23 mln passengers every day

* Special teams to screen railway operations

* To introduce 33% quota for women passengers

FY17 ESTIMATES

* FY17 investment seen at 1.21 trln rupees

* Investment rate of capex has increased substantially

* FY17 capital expenditure seen 1.2 trln rupees

* FY17 revenue seen 1.84 trln rupees

* Capex to grow exponentially

* Ramped up capex in FY17

* FY17 operating ratio seen 92%

* Increasing rigour on cost optimisation in FY17

* Freight’s contribution to earnings seen 67%

* FY17 gross budgetary support seen 400 bln rupees

* 44 new projects planned FY17 worth 927 bln rupees

FY16 REVISED

* 87.2 bln rupees saved from last year budget estimate

* FY16 operating ratio seen 90%

* FY16 loss from subsidising passenger fares seen 300 bln rupee

* Saving from previous Budget estimates 787 bln rupees

INFRASTRUCTURE, MODERNISATION

* To be at forefront of infrastructure growth

* Railways will be at forefront of infra growth

* To generate employment for 90 mln man days by FY18

* To commission broad gauge lines at 7 km/day FY17

* FY17 track commissioning aim 2,800 km

* Aim to have zero direct discharge of human waste by 2020

* Reserved accommodation to be available on demand by 2020

* Aim 80 km/hour avg speed of express train by 2020

* Freight speed seen at 50 km/hr by 2020

* To eliminate all unmanned level crossings by 2020

* Taken action on 139 Budget announcements made last yr

* To run semi high-speed trains on Golden Quadrilateral by 2020

* Action initiated on 139 FY16 Rail Budget announcements

* To meet reservation on demand by 2020

* Will take a zero-based budgeting approach

* To take zero-base budgetary approach for freight

* To conduct recruitment online

* To set up Margao, Hazira ports FY17 via PPP

* To spend 8.5 trln rupees over 5 yrs to modernise rail infra

* To hasten electrification of railways working with Power Min

* To build more dedicated freight corridors

* To up FY17 allocation for electrification by 50%

* To generate employment of 140 mln man-days in 2018-19

* 65,000 additional berths generated in FY16

* Taken steps to significantly improve svcs for rail passengers

* Dedicated IVRS system receiving over mln feedback calls daily

* Set up mechanism to get direct feedback from customers

* Responsiveness to customer needs touched new heights this yr

* Initiated IT-based internal audit

* Signed MoUs with some zonal railways

* To move to contract award system online in FY17

* Social media being used as a tool to bring transparency

* Mission to ensure transparent bidding process

* To set up 2 loco units with 480 bln rupee invest

* To set up new loco units with order book of 400 bln rupees

* Aim to have 100 WiFi-enabled stations this yr, 400 in next 3

* To redevelop stations by different models

* Finalised 2 locomotive factories bids under ‘Make In India’

* E-ticket capacity 7,000 tickets/minute now vs 2,000 earlier

* Introduced 1,780 automatic ticket vending machines

* Initiated capacity augmentation on some busy routes

* Developed application to maintain centralised land data

* To open cashless ticketing facilities for foreigners in 3 mos

* To introduce tickets with bar codes

* To introduce bar-coded tickets

* To start track management system under Digital India

* To introduce bar-coding of tickets at major stations

* To allow cancellation of tickets via call on 139

NEW TRAINS, LINES

* Plan to electrify 2,000 km track in FY17

* Track laying to be at 13km/day in FY18, 19km/day in FY19

* North-South dedicated freight corridors in Delhi-Chennai

* Plan Kharagpur-Vijaywada freight corridor

* Plan Mumbai-Kharagpur freight corridor

* Decongestion on Jalandhar-Jammu line going on

* To put 3 freight corridor projects on high priority

* Mizoram, Manipur to come under broad gauge network soon

* To launch long distance fully unreserved Antyodaya trains

* To have more unreserved passenger coaches

* Proposed dedicated freight corridor for east-west, east coast

* Proposed dedicated freight corridors for north-south

* Overnight double-decker trains named ‘Uday trains’

* Overnight double-decker trains for better access on busy line

BORROWING

* Will scout overseas for rupee bonds

* To scout international markets for rupee bonds

INVESTMENT PUSH

* Secured funding from LIC at favourable terms

* Bankable projects assured of funding now

* LIC to invest 1.5 trln rupees over 5 years

* 1 rupee invest in rail can impact econ output by factor of 5

* In partnership with SAIL, NTPC, coal ministry on funding

* Signed MoUs with 6 states for JVs

* Got expressions from 17 states to form JVs

* MoUs with zonal railways for quantifying performance

* Forming JV with states for local rail projects

* Availing multilateral financing for station development

* Cabinet approved redevelopment of 400 stations via PPP model

* Bidding process in advanced stage to redevelop 4 stations

* To undertake bidding to redevelop some big stations next yr

* Bankable railway projects to be completed in 3-4 years

MISCELLANEOUS

* To raise quota of lower berth for women, senior citizens

* To build additional toilets in 475 stations before FY16 end

* Aim 17,000 bio-toilets before FY16 end

* Initiated audit for punctuality of passenger trains

* Disposable bed rolls at all stations for all classes

* 311 railway stations currently under CCTV surveillance

* All stations to have CCTV surveillance in phased manner

* Anti-falling measures in suburban coaches

* To eliminate accidents by adopting latest technology

* Entered into R&D pacts with Korea, Japan to improve ops

* All railway stations to be under CCTV surveillance in phases

* Supporting 120,000 concurrent users now vs 40,000 earlier

* Installed CCTV cameras at 311 stations

* To introduce ‘Deen Dayalu’ coaches

* Every customer a brand ambassador for railways

* To upgrade Baroda rail institute to full fledged university

* Working on implementing Kakodkar panel report on safety

* To have Hamsafar, Tejas, Uday coaches for reserved passengers

* Tajas speed to be 130 km/hour

* Deen Dayalu coaches for unreserved passengers for long travel

* To add 2 or 4 more unreserved coaches in long distance trains

* New catering policy for multipurpose stalls at stations

* To extend e-catering services to all 408 A1, A2 stations

* IRCTC to introduce local cuisines available on demand

* To make local cuisine available on demand on trains

* IRCTC to unbundle catering services

* Set up Swachh Rail waste aggregation and recycling centre

* To install 30,000 bio-toilets at stations

* To start Clean-My-Coach service on pan-India basis

* To introduce CCTV coverage at all Tatkal counters‎

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

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

CORPORATE AND PROFESSIONAL UPDATE FEBRUARY 23, 2016

CORPORATE AND PROFESSIONAL UPDATE FEBRUARY 23, 2016

6

  • Supply Of Goods to Indian Navy not must to claim excise exemption.
  • Manufacture of rosin and turpentine without aid of power , seeking retrospective exemption is not a constitutional right – HC. [Mangalam Organics Limited vs Union of India – 2016 (2) TMI 529 – Delhi High Court].
  • Brokerage paid to the third party has nothing to do with the rental income paid by the tenant brokerage not deductible in computing income from house property
  • Cenvat of Goods/ Service used in construction of rented property allowed. [Nirlon Ltd. vs. Commissioner of Central Excise,Mumbai].
  • Proceedings under rule declared unconstitutional by HC in invalid. [Vipul-S Plasticrafts P. Ltd. vs. Commissioner of Central Excise].
  • The petitioner is admittedly not a foreign company : Since the petitioner is not an eligible assessee in terms of section 144C(15)(b), no draft order can be passed in the case of the petitioner u/s 144C(1) – HC. [Honda Cars India Limited (Formerly – M/s. Honda Siel Cars India Limited vs Deputy Commissioner of Income Tax & Another – 2016 (2) TMI 527 – Delhi High Court].
  • Kindly attend the Annual Award Function of NIRC of ICAI  on February 20th at 3 PM in NDMC Convention Centre, Connaught Place, New Delhi.

Direct Tax:

  • Bogus purchases – CIT(A) was fully justified in deleting the addition made by the AO on account of alleged bogus purchases particularly when the GP rate declared by the assessee was progressive and was accepted by the AO. – ITO, Ward 2 (2) , Ghaziabad Versus Ray Steels – 2016 (2) TMI 498 – ITAT DELHI
  • Disallowance of short term capital loss on sale of shares – sale of share was effected between two group companies having the same directors about the shares of the group company during the lock-in period – it is case of sham transaction – loss booked not allowed –  AAA Portfolios Pvt. Ltd. Versus DCIT, Circle-1 (1) , New Delhi – 2016 (2) TMI 499 – ITAT DELHI

Indirect Tax:

  • Claim of refund of service tax paid by them during the period from April 2011 to March 2012 on services of constructions of college building – Ld. Commissioner (Appeals) by proper application of mind set aside rejection of refund claim and allowed appeal of the respondent. – Refund cannot be denied – Commissioner of Service Tax-VII Versus M/s SM Sai Construction – 2016 (2) TMI 486 – CESTAT MUMBAI

Updates:

  • IRDAI has issued Clarification on IRDAI (Registration of corporate Agents) Regulations, 2015 Vide Ref: IRDA/CAGTS/CIR/LCE/029/ 02/2016 dated 16.02.2016.
  • RBI has recently issued Notification on the Implementation of Section 51-A of Unlawful Activities Prevention Act (UAPA), 1967 – Updates to ISIL (Da’esh) & Al-Qaida Sanctions List Vide Notification No.  DBR.AML.No.10293/14.06.001/ 2015-16 dated 16.02.2016

Company Law:

Query:  Does income tax representation services can be rendered by an auditor under section 144? Are they covered in management services?

Answer:  No, they are not considered as management services. So, an auditor can render tax representation services provided it shall be approved by the Board or Audit committee of the company, as the case may be, in pursuant to Section 144 of the Act.

Key Dates:

  • New appeal filing monetary limit shall  apply to pending appeals also.[ITO vs. Smt. Sudha Brijratan Damani (ITAT Mumbai), I.T.A. No. 6952/Mum/2013].
  • CBEC makes it mandatory for RBI and Electricity Board to file Annual Information Return. Notification no. 04/2016 dated 15.02.2016.
  • Interest from surplus fund is taxable as income from other sources. [M/s Himlayan Expressway Limited vs. ITO (ITAT Chandigarh), ITA No. 690/ Chd /2014, AY 2009-2010].
  • 172 : No TDS on payment to Non–Resident shipping companies. [CIT vs. V.S. Dempo & Co. Pvt. Ltd. (Bombay High Court), Income Tax Appeal Nos. 989, 991, 948, 957,978 of 2015].
  • WIP Valuation on receipt basis is forbidden in Mercantile Accounting. [The ACIT vs. M/s. Ambarwadikar & Co., Engineers & Contractors (ITAT Pune), ITA Nos.169 to 171/PN/2006 & C.O.No.27/PN/2010].
  • MCA invites comments on The Draft Companies (Accounting Standards) & (Indian Accounting Standards) Amendment Rules 2016 to be submitted latest by03.2016.
  • Last date for submission of online application form for emplacement with O/o C&AG for the year 2016-2017 for audit of PSUs is extended to 2.2016.

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

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

THE AUDIT WORK AND CERTIFICATION WOULD NOT COME WITHIN THE REALM OF FTS.

THE AUDIT WORK AND CERTIFICATION WOULD NOT COME WITHIN THE REALM OF FTS

www.carajput.com; Audit Work

www.carajput.com; Audit Work

In a recent ruling, ISO Certification fee paid by Indian company to Non-Resident can’t be treated as FTS as the audit work and certification would not come within the realm of FTS. Hence, not taxable in India in the absence of PE of NR in India.

TUV Bayren (India) Ltd. V. DIT[2015] (Bombay HC)

Facts

Assessee was a certification agency which was issuing ISO certificate to its clients. The nature of work is that the assessee is approached by certain parties for issuance of this standard certificate. The process of evaluation in the form of audit of activities undertaken by the clients is carried out through the audit parties of the assessee. Based on the report of such audit party, a certificate to individual clients/applicants are issued. This is after reviewing the report and several stages of audit work which has been carried out. The certificates are issued for specific and certain period.

AO submits that the services provided are clearly technical or of consultancy in nature. It is not a simple certification agency as is projected by the assessee. It has specified clients and handles these clients cases. To enable them to obtain certification so that the products of such clients are certified to meet with the International Quality standards and hence these are covered under FTS.

Ruling

It was held that the present case is completely covered by the judgment of the same Court in the case of DIT(IT) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.). As a result of the above discussion, none of the questions are substantial questions of law. The appeal fails and is dismissed. These are neither technical nor managerial nor consultancy services. There is no advice given but insofar as this activity is concerned, the record indicates that the audit work and certification would not come within the realm of fees for technical services. In the circumstances, there is nothing in the activities which could enable the revenue to bring them within the purview of section 9 (1)(vii) and Article 12(4) of Indo-German Double Taxation Avoidance Agreement.

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 9555555480

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)

INDIA LIAISON OFFICE MANAGEMENT

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 its products to the prospective clientele in India.

As the name suggests the Liaison office is set up 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 the Indian office through remittances from the Head office. The Liaison office is not allowed to earn any income in India

The 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 the Indian liaison office shall be the same as the 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 the parent company for setting up a 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 Notarised 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
  • The 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 the 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 the 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 SUMMARY 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 the Liaison office.
  • Submission of documents to the AD.
  • Scrutiny of documents by the AD
  • Providing clarification and additional documents to AD
  • Submission of the 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 an establishment of a 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 Government’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 authorized representative(s)

OTHER BUSINESS LICENCES APPLICABLE TO LIAISON OFFICE

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 the 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 companies 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 prerequisites 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 the 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 an additional office, a fresh application duly signed by an 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 a nodal office to co-ordinate the activities of all offices.

Conclusion:-

Liaison Offices are very popular forms of business in India for a long time. However, the issue of the 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 the 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 9555-555-480

Disclaimer: 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; before making any decisions do consult your Professional / tax advisor. For misrepresentation or interpretation of act or rules Author does not take any responsibility. Neither the author nor the firm accepts any liability for the loss or damage of any kind arising out of information in this document or for any action taken in reliance there on. carajput.com is committed to helping entrepreneurs and small business owners to start, manage and grow their business with peace of mind. Our goal is to support the entrepreneur on legal and regulatory requirements and to be a partner throughout the entire business life cycle, offering support to the company at every stage to ensure that it is compliant and consistently growing. Hope the information will assist you in your Professional endeavors. For query or help, contact: info@carajput.com or call at 09811322785/4 9555 5555 480)