Team One - Manual

8/6/2019 Team One - Manual

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TEAM ONE

# TOPIC NAME

1. OBTAINING BANK FINANCE C. SHASHANK SHEKHAR

2. PF & ESI VENKATRAM

3. FEMA SATHISH

4. REVISED SCHEDULE VI ROOPA

5. GOODS AND SERVICE TAX DEEPA

6. FUNDING OPTION TO COMPANY VARUN

7. DOUBLE TAXATION AVOIDANCE

AGREEMENT

KARTHIKEYAN

8. TAX PLANNING IN INDIRECT

TAXES

SRINATH

VEERARAGHAVAN

9. CARO VENKATESH

10. INCORPORATION OF COMAPNY SUBHASHINI


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OBTAINING BANK FINANCE

C. SHASHANK SHEKHAR

[email protected]

One of the toughest challenges which first generation entrepreneurs face is to raise money toimplement their ideas. The most likely (and easiest) sources of capital are your families, friends andown savings. However, one should not overlook institutional sources as well.

Without a previous track record in business, securing a bank loan may be difficult. Banks cite riskfactors and increasing costs of servicing small accounts as the primary reasons for minimizing theirexposure to small businesses. The process of getting a bank loan can take a lot of time, and it can bevery frustrating, but it is the best way to do it. If you get loans from other places, you might run intotrouble with raised interest rates, extra fees, or even with money being demanded from you that youshould not have to pay. Banks are reputable organizations that can afford to loan you money and thatwill always follow the rules of commerce. If you go with a bank loan, there are going to be rules andregulations that you will know about ahead of time and that cannot be broken. A bank loan is reallythe best way for you to make sure that you are getting the money that you need, and that you arefinding ways to be as productive as you can be.

The difficulties in obtaining the bank finance can be easily overcome by following the below

mentioned steps.

1. Keep in mind that to stay in business banks need to make loans. Do not be afraid to askfor one. That is what the loan officer wants you to do. To increase your chancesof getting a loan, look for a bank that is familiar with your industry and who has done

business with companies like yours. Seek out banks that are active in small businessfinancing. Some banks lend on a conventional basis (lending money without governmentsupport), while some banks participate in government programs (in the form of governmentparticipations involving direct government funds or loan guarantees). However, be aware thatbanks often demand stiff collateral requirements for start-ups.

2. As an entrepreneur, make sure that you are thoroughly prepared when you go to yourbanker's office to request a loan. You need to show your bankers that a loan to you is a low-risk proposition. Have on hand a completed loan application, copies of cash flow andfinancial statement projections covering at least three years, and your cover letter.


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3. Prepare a project report: - A detailed project report with feasibility analysis for the projectfor which loan is to be taken must be prepared and the same must be vetted from a CharteredAccountant or a person with vast experience in the field of Project Feasibility Analysis. Anyof the models of project analysis namely Net Present Value (NPV), Internal Rate of Return

(IRR), Payback Method (PB) orD

iscounted Payback Method (D

PB) can be used.

4. Learn to anticipate every question that he or she has. Remember, the combination ofinformation and preparation is the most powerful negotiating tool in the world. A confidentand thoroughly prepared borrower is four times more likely to have his or her loan approvedthan a borrower who does not know the answer to some of the basic questions a banker asks.To show the extent of your preparedness, your business plan should also include answers toyour banker's questions. These questions normally are:

a) How much money do you need? Be as exact as possible; although adding a little extra forcontingencies will not hurt.

b) How long do you need it for? Be prepared to go into detail about what the money will dofor you and why your business is a good risk.

c) What are you going to do for it? Businesses use loans for three things: to buy new assets,pay off old debts, or pay for operating expenses.d) When and how you will repay for it? Your cash flow projections should provide a

repayment time frame. Convince the banker of the long-term profitability of your business and your ability to repay the loan by using your financial projections andbusiness plan.

e) What will you do if you do not get the loan?5. Do not take an apologetic and negative attitude. Keep your negativity in check. Present

yourself as an entrepreneur who can and will repay the loan. Boost your image by providingyour loan officer with any promotional materials about your business, such as brochures, ads,articles, press releases, etc.

6. Dress in a professional manner for the interview. This is a business transaction, so treat itas such.

7. Do not stretch the truth in your loan application. Broad, unsubstantiated statements shouldbe avoided. The lender can easily check many of the facts on your application. If you cannotsupport statements with solid data, then don't make them. Do your homework and spend timedoing research to be able to support everything you say, including every single number inyour projections. It is best to keep projections, assets lists and collateral statements on theconservative side.

8. Be sure all your documents are neat, legible and organized in a cohesive and attractivemanner. Type all your loan documents. Handwritten documents look unprofessional. Don'tforget to include a cover letter.

9. Do not push the loan officer for a decision.Doing so might result in a rejection. Yourbanker cannot make a decision until all your documentation is complete. To ensure a speedydecision, make sure that your application is complete.


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10.Be confident. An attitude of confidence enhances your chance of getting the loan. Show thatyou can make a success out of the money that the bank will lend to you. Visualize in yourmind the positive results of your bank application.

11.Keep trying one lender after another until you get your loan. To improve your position asyou change bankers and banks, the best way is to ask for a referral from a successfulentrepreneur. Before you decide to approach a bank directly, find an associate, friend oracquaintance that is in good standing with the bank to give you a good referral. Bankers tendto deal more favourably those who were referred to them by their best customers.

12.Failure to discuss risk in your application.You must remember one thing: there is no business without risk. If you do not discuss risk, the bankers will assume that you haven'tthought about risk. Let's face it - try as we might, we cannot plan for everything, for everycontingency, for every turn of events. Bankers would want to know if you have planned forthe major risks and how you intend to manage it. Then, there is also the risk of too muchsuccess. The demand for your products or service may exceed well beyond your expectations,and they would want to know how you intend to handle success.

13.Remember that the first loan is usually the hardest to get. Bankers prefer to lend money toborrowers who have borrowed at least once and have paid back at least one loan on time.They are not venture capitalists that make high-risk loans regardless of the profit prospects ofyour business. Bankers prefer to lend to low-risk, low profit ventures than to high risk

businesses or those with no record of accomplishment.

Benefits of obtaining a bank loan:-There are many benefits to getting a bank loan. First of all, you are going to be able to have the moneythat you need to get what you want. Also, you are going to have low monthly payments that you canmake. And each bank loan that you get and are able to pay off is going to put good marks on your

credit score and give you a chance to look even better the next time you apply for a bank loan. Bankloans are perfect for emergencies or when starting a new business. The list of positive reasons forgetting a bank loan goes on and on for miles. Quite simply, there are many good reasons to get a bank

loan.


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EMPLOYEES' PROVIDENT FUND SCHEME 1952

VENKATRAMAN. V

[email protected]

Who are covered under EPF Scheme?

All the employees (including casual, part time, Daily wage contract etc.) other then an excludedemployee.

Excluded Employee Means:

An employee who having been a member of the fund has withdraw the full amount of accumulation inthe fund on retirement from service after attaining the age of 55 years; Or

An employee, whose pay exceeds Rs. Five Thousand per month at the time, otherwise entitled tobecome a member of the fund.

Which are all covered under Wages?

'Pay' includes basic wages with dearness allowance, retaining allowance, (if any) and cash value offood concessions admissible thereon.

All emoluments which are earned by employee while on duty or on leave or holiday with wages andwhich are paid or payable in cash, but does not include

a) The cash value of any food concession;b) Any dearness allowancec) Any present made by the employer.


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Needs Taken care by EPF:

i. Retirementii. Medical Care

iii. Housingiv. Family obligationv. Education of Children

vi. Financing of Insurance PolicesHow the Employees' Provident Fund Scheme works:

As per amendment-dated 22.9.1997 in the Act, both the employees and employer contribute to thefund at the rate of 12% of the basic wages, dearness allowance and retaining allowance, if any,payable to employees per month.

The rate of contribution is 10% in the case of following establishments:

yAny covered establishment with less then 20 employees, for establishments cover prior to22.9.97.

y Any sick industrial company as defined in clause (O) of Sub-Section (1) of Section 3 of theSick Industrial Companies (Special Provisions) Act, 1985 and which has been declared assuch by the Board for Industrial and Financial Reconstruction,

y Any establishment which has at the end of any financial year accumulated losses equal to orexceeding its entire net worth and

y Any establishment engaged in manufacturing of (a) jute (b) Breed (d) coir and (e) Guargum Industries/ Factories. The contribution under the Employees' Provident Fund Scheme by

the employee and employer will be as under with effect from 22.9.1997.

Benefits of EPF

A) A member of the provident fund can withdraw full amount at the credit in the fund onretirement from service after attaining the age of 55 year. Full amount in provident fund canalso be withdraw by the member under the following circumstance:

y A member who has not attained the age of 55 year at the time of termination ofservice.

y A member is retired on account of permanent and total disablement due to bodily ormental infirmity.

y On migration from India for permanent settlement abroad or for taking employmentabroad.

y In the case of mass or individual retrenchment.B) In the case of the following contingencies, the payment of provident fund be made after

complementing a continuous period of not less than two months immediately preceding thedate on which the application for withdrawal is made by the member:

y Where employees of close establishment are transferred to other establishment, whichis not covered under the Act:

y Where a member is discharged and is given retrenchment compensation under theIndustrialDispute Act, 1947.

Withdrawal before retirement:

A member can withdraw upto 90% of the amount of provident fund at credit after attaining the

age of 54 years or within one year before actual retirement on superannuation whichever is later.


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Accumulations of a deceased member:Amount of Provident Fund at the credit of the deceased member is payable to nominees/ legalheirs.

Transfer of Provident Fund account:

Transfer of Provident Fund account from one region to other, from Exempted Provident FundTrust to Unexampled Fund in a region and vice-versa can be done as per Scheme.

Nomination:

The member of Provident Fund shall make a declaration in Form 2, a nomination conferring theright to receive the amount that may stand to the credit in the fund in the event of death. Themember may furnish the particulars concerning himself and his family. These particularsfurnished by the member of Provident Fund in Form 2 will help the Organization in the building

up the data bank for use in event of death of the member.

Annual Statement of account:

As soon as possible and after the close of each period of currency of contribution, annualstatements of accounts will de sent to each member through of the factory or other establishmentwhere the member was last employed. The statement of accounts in the fund will show theopening balance at the beginning of the period, amount contribution during the year, the totalamount of interest credited at the end of the period or any withdrawal during the period and theclosing balance at the end of the period. Member should satisfy themselves as to the correctness fthe annual statement of accounts and any error should be brought through employer to the notice

of the correctness Provident Fund Office within 6 months of the receipt of the statement.

Interest Rate for EPF : 11% on Monthly Balance

Due Date for filing return : Within 15 th of Subsequent Month

ESIC

Applicability

Factories employing 10 or more persons irrespective of whether power is used in the process ofmanufacturing or not.

The Scheme has been extended to shops, hotels, restaurants, cinemas including preview theatre, roadmotor transport undertakings and newspaper establishment employing 20 or more persons.

The Scheme has been extended to Private Medical and Educational Institutions employing 20 or more

persons in certain States.

AREAS COVEREDThe ESI Scheme is being implemented area-wise by stages. The Scheme has already beenimplemented in different areas in the following States/Union Territories

STATESAll the States except Nagaland, Manipur, Tripura, Sikkim, Arunachal Pradesh and Mizoram.


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UNION TERRITORIESDelhi, Chandigarh and Pondicherry

The existing wage-limit for coverage under the Act, is Rs.15,000/- per month (with effect from01.05.2010).

Who are the administers of ESIC scheme

The Employees State Insurance Scheme is administered by a corporate body called the EmployeesState Insurance Corporation (ESIC), which has members representing Employees, Employers, theCentral Government, State Governments, Medical Profession and the Parliament. The DirectorGeneral is the Chief Executive Officer of the Corporation and is also an ex-officio member of theCorporation. The other bodies at the national level are the Standing Committee (a representative bodyof the Corporation) and the Medical Benefit Council, a specialised body which advises theCorporation on administration of Medical Benefit.

At the Regional and Local levels, the Regional Boards and Local Committees have been constituted.

There is, thus, an association of interests and interest groups at all levels.

ESIC is the trustee of the interests of the insured persons. It discharges its obligations and dutiesthrough a net-work of Regional Offices and Local Offices, Hospitals and Dispensaries spread over theentire country.

Whom does the Scheme protect?

The Scheme protects all employees engaged on a monthly remuneration not exceeding Rs. 6500/- in a

factory/establishment to which the Act applies.

Where do Employees State Insurance Funds come from?

The Employees State Insurance Funds are primarily built out of employers contribution and

employees contribution payable monthly as a fixed percentage of wages.

How it Works?

On registration every insured person is provided with a Temporary Identification Certificate which isvalid ordinarily for a period of 3 months but may be extended, if necessary, for a further period of 3months. Within this period, the Insured Person is given a permanent family photo Identity Card inexchange for the Certificate. Since medical benefit is also available to the families of insured persons,the particulars of family members entitled to Medical Benefit are also given in the Identity Cardaffixed with a postcard size family photo.

What are the rates of contribution?

Total Contribution 6.50% of Wages Payable (Employer 4.75% & Employee 1.75% of the

Wages)

An employee earning less than Rs.40/- per day are exempted from payment of Contribution. The

employer share of contribution is payable in all circumstances.

Due date for submission : 21st of the Subsequent Month


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FOREIGN EXCHANGE MANAGEMENT ACT, 1999

SATHISH KUMAR S

[email protected]

INTRODUCTION

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as areplacement for earlier Foreign Exchange Regulation Act (FERA). FEMA became an act on the 1stday of June, 2000. FEMA was introduced because the FERA didnt fit in with post-liberalisationpolicies. A significant change that the FEMA brought with it, was that it made all offenses regardingforeign exchange civil offenses, as opposed to criminal offenses as dictated by FERA.

RESIDENTIAL STATUS

WHO IS AN NRI ?

An Indian abroad is popularly known as Non-Resident Indian (NRI). The NRI status islegally defined under the Foreign Exchange Management Act, 1999 and the Income Tax Act,1961 for applicability of respective laws.

NON-RESIDENTS UNDER FEMA,1999

Section. 2(w) : Person resident outside India (NRI)

Person resident outside India means a person who is not resident in India.

Section 2(v) : Person Resident In India

Individual :

'person resident in India' means


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(i) a person residing in India for more than one hundred and eighty-two days during the course ofthe preceding financial year but does not include -

(A) a person who has gone out of India or who stays outside India, in either case -

(a) for or on taking up employment outside India, or

(b) for carrying on outside India a business or vocation outside India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay outsidIndia for an uncertain period.

(B) a person who has come to India or who stays in India, in either case, otherwise than -

(a) for or on taking up employment in India, or

(b) for carrying on in India a business or vocation in India, or

(c) for any other purpose, in such circumstances as would indicate his intention to stay in Indiafor an uncertain period.

Person other than Individual :

(ii) any person or body corporate registered or incorporated in India.

(iii) an office, branch or agency in India owned or controlled by a person resident outside India,

(iv) an office, branch or agency outside India owned or controlled by a person resident in India.

The above definition is explained in simple terms for individuals hereunder.

(1) The residential status of a person leaving India will be determined us under:

If a person leaves India for the purpose of employment, business or for any other purpose thaindicates his intention to stay outside India for an uncertain period; then he becomes a non residen

from the day he leaves India for such purpose.

(2) The residential status of a person returning to India will be determined us under:

If a person comes to India for the purpose of employment, business or for any other purpose thaindicates his intention to stay in India for an uncertain period ; then he becomes a resident from theday he comes to India for such purpose.

In the definition, stay for a period of 182 days is also stated. However, in our opinion, the period o

stay does not affect determination of status as stated in (1) and (2)

Thus if a person comes as a tourist, or for any purpose (not for employment or business in India),AND , he comes for a fixed or certain period of time he will be a non-resident.

The Term NRI, Generally, means a non-resident who is either an Indian Citizen residing outsideIndia and includes Foreign Citizen of Indian origin residing outside India

FEMA defines a person of Indian Origin (PIO) as a person, being a citizen of any country (a) who at


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any time held an Indian Passport or (b) a person who himself or either of his parents or any of hisgrand parents were citizens of India by virtue of the Constitution of India or the Citizenship Act,1955, or (c) spouse of an Indian citizen or (d) spouse of a person covered under (a) or (b) aboveHowever, the citizens of Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal andBhutan are not considered as PIO even if they satisfy the above conditions under FEMA for differentpurposes under different regulations.

CURRENT ACCOUNT TRANSACTION

SCHEDULE I(See rule 3)

1. Remittance out of lottery winnings.2. Remittance of income from racing/riding, etc. or any other hobby.3. Remittance for purchase of lottery tickets, banned/ prescribed magazines, football pools,

sweepstakes, etc.4. Payments of commission on exports made towards equity investment in joint ventures/wholly

owned subsidiaries abroad of Indian companies.5. Remittance of dividend by any company to which the requirement of dividend balancing is

applicable.6. Payment of commission of exports under Rupee State Credit Route, except commission up to

10% of invoice value of exports of tea and tobacco.

6. Payment of commission on exports under Rupee State Credit Route."7. Payment related to "Call Back Services" of telephones.8. Remittance of interest income on funds held in Non-Resident Special Rupee Scheme

Account.


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SCHEDULE II

(See rule 4)

Purpose of RemittanceMinistry/Department of

Government of India whose

approval is required

1. Cultural ToursMinistry of Human ResourceDevelopment (Department ofEducation and Culture)

2.

Advertisement in foreign print media for the purposesother than promotion of tourism, foreign investments andinternational bidding (exceeding US$ 10,000) by a StateGovernment and its Public Sector Undertakings.

Ministry of Finance,Department of EconomicAffairs.

3. Remittance of Freight of vessel chartered by a PSUMinistry of Surface Transport(Chartering Wing)

4.Payment of import through ocean transport by aGovernment Department or a PSU on c.i.f. basis (i.e.,other than f.o.b. and f.a.s. basis)

Ministry of Surface Transport(Chartering Wing)

5.Multi-modal transport operators making remittance totheir agents abroad

Registration Certificate fromthe Director General ofShipping

6Remittance of container detention charges exceeding therate prescribed by Director General of Shipping

Ministry of Surface Transport(Director General of Shipping)

7

Remittances under technical collaboration agreements

where payment of royalty exceeds 5 per cent on localsales and 8 per cent on exports and lump-sum paymentexceeds US$ 2 million

Ministry of Industry andCommerce

8

Remittance of prize money/sponsorship of sports activityabroad by a person other than International/National/StateLevel sports bodies, if the amount involved exceeds US$1,00,000

Ministry of Human ResourceDevelopment, (Department ofYouth Affairs and Sports)

9 Payment for securing Insurance for health from acompany abroad

Ministry of Finance (InsuranceDivision)

10 Remittance for membership of P&I Club Ministry of Finance (InsuranceDivision)

SCHEDULE III(See rule 5)

1. Remittance by artiste e.g. wrestler, dancer entertainer, etc. (This restriction is not applicableto artistes engaged by tourism related organisations in India like I1DC, State Tourism


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Development Corporations, etc., during special festivals or those artistes engaged by hotels infive star categories, provided the expenditure is met out of EEFC account).

2. Release of exchange exceeding US $ 10000 or its equivalent in one calendar year, for one ormore private visits to any country (except Nepal and Bhutan).

3. Gift remittance exceeding US$ 5,000 per remitter/donor per annum.4. Donation exceeding US$ 5,000 per remitter/donor per annum.

(Exchange facilities exceeding US$ 100,000 for persons going abroad for employment.5. Exchange facilities for emigration exceeding US$ 100,000 or amount prescribed by country

or emigration.

Remittance for maintenance of close relatives abroad,1. exceeding net salary (after deduction of taxes, contribution to provident fund and

other deductions) of a person who is resident but not permanently resident in Indiaand

1. is a citizen of a foreign State other Pakistan; or2. is a citizen of India, who is on deputation to the office or branch or subsidiary

or joint venture in India of such foreign company.

3. exceeding net salary (after deduction of taxes, contribution to provident fundand other deductions) of a person who is resident but not permanentlyresident in India and is a citizen of a foreign state other than Pakistan.]

4. Exceeding US$ 5,000 per year per recipient, in all other cases.Explanation: For the purpose of this item, a person resident in India onaccount of his employment or deputation of [OLD - employment of ] aspecified duration (irrespective of length thereof) or for a specific job orassignment; the duration of which does not exceed three years, is a resident but not permanently residen

6. Release of foreign exchange, exceeding US$ 25,000 to a person, irrespective of period ofstay, for business travel, or attending a conference or specialised training or for maintenanceexpenses of a patient going abroad for medical treatment or check-up abroad, or foraccompanying as attendant to a patient going abroad for medical treatment/check-up.

7. Release of exchange for meeting expenses for medical treatment abroad exceeding theestimate from the doctor in India or hospital/doctor abroad.

8. Release of exchange for studies abroad exceeding the estimates from the institution abroad orUS$ 100,000 per academic year, whichever is higher.Short-term credit to overseas offices of Indian companies.

9. Remittances for advertisement on foreign television by a person whose export earnings areless than Rs. 10 lakh during each of the preceding two years.

-Remittances of royalty and payment of lump-sum fee under the technical collaborationagreement which has not been registered with Reserve Bank.

10.Remittance exceeding US$ 1,000,000,per project, for any consultancy service procured fromoutside India

11.Remittance exceeding US$100,000, by an entity in India by way of reimbursement of pre-incorporation expenses.


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CAPITAL ACCOUNT TRANSACTIONS:

3. Permissible Capital Account Transactions :-

(1) Capital account transactions of a person may be classified under the following heads,

namely :-

(A) transactions, specified in Schedule I, of a person resident In India;

(B) transactions, specified in Schedule II, of a person resident outside India.

(2) Subject to the provisions of the Act or the rules or regulations or direction or orders

made or issued thereunder, any person may sell or draw foreign exchange to or from

an authorised person for a capital account transaction specified in the Schedules;

Provided that the transaction is within the limit , if any, specified in the regulations

relevant to the transaction.

4. Prohibition :-

Save as otherwise provided in the Act, rules or regulations made thereunder,

a) no person shall undertake or sell or draw foreign exchange to or from an authorised

person for any capital account transaction,

b) no person resident outside India shall make investment in India , in any form, in any

company or partnership firm or proprietary concern or any entity, whether incorporated

or not, which is engaged or proposes to engage -

(i) in the business of chit fund, or

(ii) as Nidhi Company , or

(iii) in agricultural or plantation activities or

(iv) in real estate business, or construction of farm houses or

(v) in trading in Transferable Development Rights (TDRs).

Explanation:

For the purpose of this regulation, "real estate business" shall not include development

of townships, construction of residential/commercial premises, roads or bridges.

5. Method of payment for investment :-

The payment for investment shall be made by remittance from abroad through normal


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banking channels or by debit to an account of the investor maintained with an authorised

person in India in accordance with the regulations made by the Reserve Bank under the Act.

6. Declaration to be furnished :-

Every person selling or drawing foreign exchange to or from an authorised person for a

capital account transaction shall furnish to the Reserve Bank , a declaration in the form and

within the time specified in the regulations relevant to the transaction.

Schedule I

[See Regulation 3 (1) (A)]

Classes of capital account transactions of Persons resident in India

a) Investment by a person resident in India in foreign securities

b) Foreign currency loans raised in India and abroad by a person resident in India

c) Transfer of immovable property outside India by a person resident in India

d) Guarantees issued by a person resident in India in favour of a person resident outside India

e) Export, import and holding of currency/currency notes

f) Loans and overdrafts (borrowings) by a person resident in India from a person resident

outside India

g) Maintenance of foreign currency accounts in India and outside India by a person resident in

India

h) Taking out of insurance policy by a person resident in India from an insurance company

outside India

i) Loans and overdrafts by a person resident in India to a person resident outside India

j) Remittance outside India of capital assets of a person resident in India

k) Sale and purchase of foreign exchange derivatives in India and abroad and commodity

derivatives abroad by a person resident in India.

Schedule II

[See Regulation 3 (1) (B)]

Classes of capital account transactions of persons resident outside India

a) Investment in India by a person resident outside India, that is to say,

i) issue of security by a body corporate or an entity in India and investment therein

by a person resident outside India; and


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ii) investment by way of contribution by a person resident outside India to the capital

of a firm or a proprietorship concern or an association of persons in India.

b) Acquisition and transfer of immovable property in India by a person resident outside India.

c) Guarantee by a person resident outside India in favour of, or on behalf of, a person resident

in India.

d) Import and export of currency/currency notes into/from India by a person resident outside

India.

e) Deposits between a person resident in India and a person resident outside India.

f) Foreign currency accounts in India of a person resident outside India.

g)Remittance outside India of capital assets in India of a person resident outside India.

SCHEDULE III(See rule 5)

1. Remittance by artiste e.g. wrestler, dancer entertainer, etc. (This restriction is not applicableto artistes engaged by tourism related organisations in India like I1DC, State TourismDevelopment Corporations, etc., during special festivals or those artistes engaged by hotels infive star categories, provided the expenditure is met out of EEFC account).

2. Release of exchange exceeding US $ 10000 or its equivalent in one calendar year, for one ormore private visits to any country (except Nepal and Bhutan).

3. Gift remittance exceeding US$ 5,000 per remitter/donor per annum.4. Donation exceeding US$ 5,000 per remitter/donor per annum.

Exchange facilities exceeding US$ 100,000 for persons going abroad for employment.5. Exchange facilities for emigration exceeding US$ 100,000 or amount prescribed by country

or emigration.

Remittance for maintenance of close relatives abroad,1. exceeding net salary (after deduction of taxes, contribution to provident fund and

other deductions) of a person who is resident but not permanently resident in Indiaand

1. is a citizen of a foreign State other Pakistan; or2. is a citizen of India, who is on deputation to the office or branch or subsidiary

or joint venture in India of such foreign company.

3. exceeding net salary (after deduction of taxes, contribution to provident fundand other deductions) of a person who is resident but not permanentlyresident in India and is a citizen of a foreign state other than Pakistan.]

4. Exceeding US$ 5,000 per year per recipient, in all other cases.

6. Release of foreign exchange, exceeding US$ 25,000 to a person, irrespective of period ofstay, for business travel, or attending a conference or specialised training or for maintenance


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expenses of a patient going abroad for medical treatment or check-up abroad, or foraccompanying as attendant to a patient going abroad for medical treatment/check-up.

7. Release of exchange for meeting expenses for medical treatment abroad exceeding theestimate from the doctor in India or hospital/doctor abroad.

Release of exchange for studies abroad exceeding the estimates from the institution abroad orUS$ 100,000 per academic year, whichever is higher.

8. Commission, per transaction, to agents abroad for sale of residential flats or commercial plotsin India exceeding USD 25,000 or 5% of the inward remittance whichever is more.

9. Short-term credit to overseas offices of Indian companies.10.Remittances for advertisement on foreign television by a person whose export earnings are

less than Rs. 10 lakh during each of the preceding two years.11.Remittances of royalty and payment of lump-sum fee under the technical collaboration

agreement which has not been registered with Reserve Bank.

CONCLUSION

The golden rule of FEMA is, All capital account transactions other than those permitted are prohibited while all current account transactions other than those prohibited are permitted.Under FEMA, certain types of transactions do not require RBI permission while others eitherrequire prior approval of RBI/ Government or it is mandatory to inform RBI of the same.Though transactions of residents in foreign exchange such as investment abroad are beingliberalised at a very fast pace, India is still not close to full capital account convertibility thoughreturning Indians enjoy certain concessions in relation to existing overseas assets

Schedule VI (Revised)

ROOPA. K

[email protected]

[Effective for all accounts prepared for accounting year commencing on or after 01.04.2011]

Sl.No

Particulars Old Schedule Vi Revised Schedule Vi

1 Rounding off ofFigures appearing infinancial statement

Turnover of less than100 Crs - R/off to thenearest Hundreds, thousands or decimalthereof

Turnover of lessthan100 Crs - R/off tothe nearest Hundreds,thousands, lakhs ormillions or decimalthereof


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Turnover of100 Crs or more but lessthan500 Crs - R/off to the nearest Hundreds,thousands, lakhs or millions or decimalthereof

Turnover of100 Crs ormore - R/off to thenearest lakhs, millionsor crores, or decimalthereof

Turnover of500 Crs or more - R/off to thenearest Hundreds, thousands, lakhs, millionsor crores, or decimal thereof

2 Net Working Capital Current assets & Liabilities are showntogether under application of funds. The networking capital appears on balance sheet.

Assets & Liabilities areto be bifurcated in tocurrent & Non-currentand to be shownseparately. Hence, networking capital will notbe appearing in Balancesheet.

3 Fixed Assets There was no bifurcation required in totangible & intangible assets.

Fixed assets to be shownunder non-current assetsand it has to bebifurcated in to Tangible& intangible assets.

4 Borrowings Short term & long term borrowings aregrouped together under the head Loan fundssub-head Secured / Unsecured

Long term borrowingsto be shown under non-current liabilities andshort term borrowings tobe shown under currentliabilities with separatedisclosure of secured /unsecured loans.

Period and amount ofcontinuing default as onthe balance sheet date inrepayment of loans andinterest to be separatelyspecified

5 Finance leaseobligation

Finance lease obligations are included incurrent liabilities

Finance leaseobligations are to begrouped under the headnon-current liabilities

6 Deposits Lease deposits are part of loans & advances Lease deposits to bedisclosed as long termloans & advances underthe head non-currentassets


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7 Investments Both current & non-current investments tobe disclosed under the head investments

Current and non-currentinvestments are to bedisclosed separatelyunder current assets &non-current assetsrespectively.

8 Loans & Advances Loans & Advance are disclosed along withcurrent assets

Loans & Advances to bebroken up in long term& short term and to bedisclosed under non-current & current assetsrespectively.

Loans & Advance to subsidiaries & othersto be disclosed separately.

Loans & Advance fromrelated parties & othersto be disclosedseparately.

9 Deferred Tax Assets

/ Liabilities

Deferred Tax assets / liabilities to be

disclosed separately

Deferred Tax assets /

liabilities to be disclosedunder non-current assets/ liabilities as the casemay be.

10 Cash & BankBalances

Bank balance to be bifurcated in scheduledbanks & others

Bank balances inrelation to earmarkedbalances, held as marginmoney againstborrowings, depositswith more than 12months maturity, eachof these to be shown

separately.

11 Profit & Loss P&L debit balance to be shown under thehead Miscellaneous expenditure & losses.

Debit balance of Profitand Loss Account to beshown as negative figureunder the head Surplus.Therefore, reserve &surplus balance can benegative.

(Dr Balance)

12 Sundry Creditors Creditors to be broken up in to micro &small suppliers and other creditors.

It is named as Tradepayables and there is nomention of micro &small enterprisedisclosure.

13 Other currentliabilities

No specific mention for separate disclosureof Current maturities of long term debt

Current maturities oflong term debt to bedisclosed under othercurrent liabilities.


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No specific mention for separate disclosureof Current maturities of finance leaseobligation

Current maturities offinance lease obligationto be disclosed.

14 Separate line item any item under which expense exceeds oneper cent of the total revenue of the company

or5,000 which ever is higher; shall bedisclosed separately

any item of income /expense which exceeds

one per cent of therevenue from operationsor1,00,000, which everis higher; to be disclosedseparately

Disclosure criteria

15 Expenseclassification

Function wise & nature wise Expenses in Statementof Profit and Loss to beclassified based onnature of expenses

16 Finance Cost Finance cost to be classified in fixed loans& other loans Finance cost shall beclassified as interestexpense, otherborrowing costs & Gain/ Loss on foreigncurrency transaction &translation.

17 Foreign exchangegain / loss

Gain / Loss on foreign currency transactionto be shown under finance cost

Gain / Loss on foreigncurrency transaction tobe separated into financecosts and other expenses

18 Purchases The purchase made and the opening &closing stock, giving break up in respect of

each class of goods traded in by thecompany and indicating the quantitiesthereof.

Goods traded in by thecompany to be disclosed

in broad heads in notes.Disclosure ofquantitative details ofgoods is diluted

19 Part III-Interpretation Provisions, reserves, capital reserve, quotedInvestment were defined

Part III removed.

20 Part IV-BalanceSheetAbstract

Details of companys registration number,Products, etc. were required to be attachedwith financials

Part IV removed.

Non-current assets include fixed assets, non current investments, deferred tax assets(net), long termloans and advances and other non current assets. Current Assets, include current investments,

inventories, trade receivable, cash and cash equivalents, short term loans, advances and other currentassets.

Non-current liability include long term borrowings, deferred tax liabilities(net), other long termliabilities and long term provisions. Current liability includes short term borrowings, trade payables,other current liabilities and short term provisions.


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GOODS AND SERVICE TAX

R.Deepa

[email protected]

GST -- is a comprehensive tax levy on manufacture, sale and consumption of goods and services.Goods and service tax is a new version of VAT which gives a comprehensive setoff for input taxcredit and subsuming many indirect taxes from state and national level. The GST Implementation isnot yet declared by government and the drafting of GSTlaw is still under process

NEED FOR GOODS AND SERVICE TAX

AVOID CASCADING EFFECT OF TAXATION

One of the main reasons of the introduction of GST is to avoid cascading effect of taxes in India. Forexample manufacturing of a product attract CENVAT. The manufacturer pays CENVAT on goodsproduced. So the CENVAT element is loaded on the product. According VAT rules, the sales tax is payable on the aggregate selling price which include CENVAT. Here there is no set off benefitsavailable. Likewise there are many situations in the nature of cascading effect for instance, State VATon CST, Entry tax on VAT etc. Now Govt has decided to abolish tax on tax effect byimplementing GST.

BENEFITS OF GST

1. GST provide comprehensive and wider coverage of input credit setoff, you can useservice tax credit for the payment of tax on sale of goods etc.

2. Many indirect taxes in state and central level subsumed by GST, You need to pay asingle GST instead of all.

3. Uniformity of tax rates across the states4. Ensure better compliance due to aggregate tax rate reduces.5. By reducing the tax burden the competitiveness of Indian products in international market is

expected to increase and there by development of the nation.


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INDIRECT TAXES UNDER GST

The following indirect taxes from state and central level is going to integrated with GST

State taxes

1. VAT/Sales tax2. Entertainment Tax ( unless it is levied by local bodies)3. Luxury tax4. Taxes on lottery, betting and gambling.5. State cesses and surcharges in so far as they relate to supply of goods and services.6. Entry tax not on in lieu of octroi.

Central Taxes

1. Central Excise Duty.2. Additional Excise Duty.3. The Excise Duty levied under the medical and Toiletries Preparation Act4. Service Tax.5. Additional Customs Duty, commonly known as countervailingDuty ( CVD)6. Special Additional duty of custums-4% ( SAD)7. Surcharges8. Cess

The above taxes dissolve under GST; instead only CGST & SGST exists.

GST IN INDIA

Many countries are following single GST. But it is proposed that dual CST is suitable for federalcountry like India. The end user, i.e. consumer cannot recover taxes but a business can recover byclaiming input tax setoff.

Dual GST

Dual GST means, the proposed model will have two component called

1. CGST Central goods and service tax for levied by central Govt.2. SGST State goods and service tax levied by state Govt.

There would have multiple statute one CGST statute and SGST statute for every state.

IGST

Under GST, inter-state trade will be leviable to GST. Under IGST, the tax paid by the selling dealerin the exporting state will be available as input tax credit to the purchasing dealer in the importingstate. This requires verification of ITC claims and transfer of funds from one state to another. Further,in an interstate business to consumer transaction, tax collected in one state has to be transferred toanother state as finalized by the business

TAXABLE EVENT

Supply of goods and supply of services will be considered as taxable event underGST. Anyeconomic activity which is not supply of goods is treated a supply of service.


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COLLECTION OF GS T

It is same as VAT; Tax is collected on the basis of value addition on each stage of sale. Both CGSTand SGST would have to be charged in an every service bill and sale bill and paid after adjustinginput credit available on both.

INPUT TAX CREDIT SETOFF

The input tax credit of SGST can be utilized for the payment of SGST only and input tax credit onCGST can be utilized for the payment of CGST only. This means that cross utilization of input taxcredit will not be allowed.

Making it clearer; input tax credit of CGST cannot be utilized for the payment of SGST and viceversa. However there is an exemption for the above in the case of interstate transaction.For interstatetransaction IGST is proposed and would be implemented along with CGST and SGST.

APPLICABILITY OF CGST AND SGST

The applicability of taxes is as usual there would be a prescribed limit of annual turnover, also somegoods and services are exempted under GST. The dealer whose turnover is below prescribed limitneed not pay tax.

Threshold for annual turnover for goods and services would be 10 lakh for SGST and threshold ofCGST for goods may be 1.5 crore and service would have a separate threshold that too will beappropriately high.

GST RATES

The rate structure would be as follow;but not final

1. A lower rates for essential commodities2. Standard rates for general goods3. Special rates for precious metals4. For services may be single rates for CGST and SGST.

GST rates is not yet announced by government, however it is assumed that aggregate total of CGST& SGST would be 14 % to20%.

WHY ARE SOME STATES AGAINST GST

Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty.The government believes that dual GST will lead to better revenue collection for States. However,backward and less-developed States could see a fall in tax collections. GST could see better revenue

collection for some States as the consumption of goods and services will rise.

PRODUCTS OUTSIDE THE REGIME OF INDIRECT TAX

Alcohol, tobacco, petroleum products are likely to be out of the GST regime.


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LATEST IN GST

Bihar deputy chief minister Sushil Kumar Modi is the new head of the empowered group of financeministry to usher in the biggest tax reform in the country.

The Tamil Nadu Foodgrains Merchants Association has urged Sushil Kumar Modi, BiharDeputyChief Minister and the new Chairman of the Empowered Committee of State Finance Ministers onGoods and Services Tax (GST), to ensure that tax exemptions granted to all commodities under valueadded tax (VAT) continued in the GST also.

Introduction of negative list concept for services. Most chambers are yet to submit their formalviews on the same. But chambers like FICCI and Assocham have indicated that they favour thenegative list approach. April 2012 deadline for implementation of the long-awaited GST could bemoved to June or July 2012 as the central and state governments continue trying to resolve theirdifferences.

FUNDING OPTIONS AVAILABLE FOR COMPANIES

VARUN. R

[email protected]

For every prospective business it is extremely important to seek different sources of appropriatefunding. When an entrepreneur is able to successfully raise the desired amount of capital, the newbusiness will be able to thrive. It may take a considerable amount of time to break-even and earnrevenue; therefore, having this type of financial security is beneficial for the entrepreneur and the

viability of the new business. A new enterprise needs capital to finance its everyday businessexpenses. This can include property rent, employee salaries, marketing expenses, inventory, day-to-day operations, and maintenance.

Funds are basically classified into two types:

Long Term funds To meet the major capital expenditures. Short Term funds To meet the day to day operating expenses and working capital needs.


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Share Capital

Raised through issue of shares to the general public. The holders of shares are the owners of the

business.

Two types of share capital are issued in general: (i) Equity and (ii) Preference.

Retained earnings:

The company may not distribute the whole of its profits among its shareholders. It may retain a part of

the profits and utilize it for their expansion and running of business.

DebenturesThese are also issued to the general public at a fixed rate of interest. These debentures may beredeemable or irredeemable. These instruments are also issued with an option to convert them intoshares at a specific future date at agreed upon price. The holders of debentures are the creditors of thecompany

Public Deposits

General public also like to deposit their savings with a popular and well established company whichcan pay interest periodically and pay-back the deposit when due.

Term loans and Borrowings

Many industrial development banks, cooperative banks and commercial banks grant medium term

loans where the repayment is spread across for a period of three to five years. These loans are granted

for a specific purpose (say purchase of machinery) against security of the assets of the company.

ECB (External Commercial Borrowings)

It is an instrument used in India to facilitate the access to foreign money by Indian corporations and

PSUs. External Commercial Borrowings (ECB) basically refer to commercial loans in the form of

bank loans, buyers credit, suppliers credit, securitized instruments (e.g. floating rate notes and fixedrate bonds) availed of from non-resident lenders with minimum average maturity of 3 years. ECBs

include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such

as Floating Rate Notes and Fixed Rate Bonds etc., The DEA(Department of Economic Affairs),

Ministry of Finance, Government of India along with Reserve Bank of India, monitors and regulates

ECB guidelines and policies. For infrastructure and greenfield projects, funding up to 50% (through

ECB) is allowed. In telecom sector too, up to 50% funding through ECBs is allowed.

LONG TERM FUNDS

EQUITY

SHARE CAPITAL RETAINED EARNINGS

DEBT

DEBENTURES

TERM LOANS

&

BORROWINGS

PUBLIC DEPOSITS


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So far we saw some of the commonly used ways of borrowing. We now go deep into various other

options available for long term funding:

Venture Capital Funding

It is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The

venture capital fund makes money by owning equity in the companies it invests in, which usually

have a novel technology or business model in high technology industries, such as

biotechnology, IT, software, etc. The typical venture capital investment occurs after the seed

funding round as growth funding round in the interest of generating a return through an eventual

realization event, such as an IPO or trade sale of the company.

Bridge Finance

It is a method of financing, used to maintain liquidity while waiting for an anticipated and reasonably

expected inflow of cash. Bridge financing is commonly used when the cash flow from a sale of an

asset is expected after the cash outlay for the purchase of an asset. For example, when selling a house,

the owner may not receive the cash for 90 days, but has already purchased a new home and must pay

for it in 30 days. Bridge financing covers the 60 day gap in cash flows. It is also done before the issue

of an IPO where the companies obtain funds to take care of start up and maintenance activities.

Private EquityIt is an asset class consisting of equity securities in operating companies that are not publicly

traded on a stock exchange. Private equity investments are primarily made by private equity firms,

venture capital firms, or angel investors, each with their own set of goals, preferences, and investment

strategies, yet each providing working capital to a target company to nurture expansion, new product

development, or restructuring of the companys operations, management, or ownership.

SH T TE

F S

T E E IT B K E IT

L SV ES

SH E IT VE FT IS TI GF BILLS

ST E

V ES


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1. Trade Credit

Trade credit refers to credit granted to manufactures and traders by the suppliers of raw material,

finished goods, components, etc. Usually business enterprises buy supplies on a 30 to 90 days credit.

This means that the goods are delivered but payments are not made until the expiry of period of credit.

This type of credit does not make the funds available in cash but it facilitates purchases without

making immediate payment. This is quite a popular source of finance.

2. Bank Credit

Commercial banks grant short-term finance to business firms. When bank credit is granted, the

borrower gets a right to draw the amount of credit at one time or in installments as and when needed.

Bank credit may be granted by way of loans, cash credit, overdraft and discounted bills.

(i) Loans

When a certain amount is advanced by a bank repayable after a specified period, it is known as bank

loan. Such advance is credited to a separate loan account and the borrower has to pay interest on the

whole amount of loan irrespective of the amount of loan actually drawn. Usually loans are granted

against security of assets.

(ii) Cash Credit

It is an arrangement whereby banks allow the borrower to withdraw money upto a specified limit.

This limit is known as cash credit limit. Initially this limit is granted for one year. This limit can be

extended after review for another year. However, if the borrower still desires to continue the limit, it

must be renewed after three years. Rate of interest varies depending upon the amount of limit. Banks

ask for collateral security for the grant of cash credit. In this arrangement, the borrower can draw,

repay and again draw the amount within the sanctioned limit. Interest is charged only on the

amount actually withdrawn and not on the amount of entire limit.

(iii) OverdraftWhen a bank allows its depositors or account holders to withdraw money in excess of the balance in

his account upto a specified limit, it is known as overdraft facility. This limit is granted purely on the

basis of credit-worthiness of the borrower. Banks generally give the limit upto Rs.20,000. In this

system, the borrower has to show a positive balance in his account on the last friday of every month.

Interest is charged only on the overdrawn money. Rate of interest in case of overdraft is less than the

rate charged under cash credit.

(iv) Discounting of Bill

Banks also advance money by discounting bills of exchange, promissory notes and hundies. When

these documents are presented before the bank for discounting, banks credit the amount to customers

account after deducting discount. The amount of discount is equal to the amount of interest for theperiod of bill.

Customers AdvancesSometimes businessmen insist on their customers to make some advance payment. It is generallyasked when the value of order is quite large or things ordered are very costly. Customers advancerepresents a part of the payment towards price on the product (s) which will be delivered at a laterdate. Customers generally agree to make advances when such goods are not easily available in the


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market or there is an urgent need of goods. A firm can meet its short-term requirements with the helpof customers advances.

Factoring:It is a financial transaction whereby a business job sells its accounts receivable (i.e., invoices) to athird party (called a factor) at a discount in exchange for immediate money with which to financecontinued business. Factoring differs from a bank loan in three main ways. First, the emphasis is onthe value of the receivables (essentially a financial asset),[1][2] not the firms credit worthiness.Secondly, factoring is not a loan it is the purchase of a financial asset (the receivable). Finally, abank loan involves two parties whereas factoring involves three.

NON FUND BASED FACILITY

Apart from the facilities available to the companies, banks also provide with non fund based creditfacility whereby companies can avail facilities like Bank guarantees, Letter of Credit etc.

DOUBLE TAXATION AVOIDANCE AGREEMENT

KARTHIKEYAN [email protected]

Need for DTAA:Generally, the two legal criteria for taxability under any tax law are the residence and source. OnThe source rule holds that income is to be taxed in the country in which it originates irrespective ofwhether the income accrues to a resident or a non-resident whereas the residence rule stipulates thatthe power to tax should rest with the country in which the taxpayer resides. If both rules apply

simultaneously to a business entity and it were to suffer tax at both ends, the cost of operating on aninternational scale would become prohibitive and would deter the process of globalisation. It is fromthis point of view that Double Taxation Avoidance Agreements (DTAA) become very significant.

What is DTAA:A Double Taxation Avoidance Agreement (DTAA) is an agreement entered into between twocountries in order to avoid taxing the same income twice.DTAAs lay down the rules for taxation of the income by the source country and the residencecountry. Such rules are laid for various categories of income, for example, interest, dividend,


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royalties, capital gains, business income etc. Each such category is dealt with by separate article in theDTAA.

Types of Double Taxation Relief:Relief from double taxation can be provided in mainly two ways:1. Bilateral Relief; and2. Unilateral Relief.Bilateral Relief: Under this method, the Governments of two countries can enter into an agreement toprovide relief against double taxation by mutually working out the basis on which the relief is to begranted. E.g. DTAAs entered by India with various foreign countries.

Bilateral Relief may be granted in either one of the following methods:(a) Exemption method, by which a particular income is taxed in only one of the two countries; and

(b) Tax relief method, under which, an income is taxable in both countries in accordance with theirrespective tax laws read with the double taxation avoidance agreement.However, the country of residence of the tax payer allows him credit for the tax charged thereonin the country of source. In India, double taxation relief is provided by a combination of the two

methods.

Unilateral Relief: This method provides for relief of some kind by the home country even where nomutual agreement has been entered into by the two countries.E.g. Sec. 91 of Indian Income Tax Act, 1961.

Other Purposes of DTAA:

DTAAs entered by various countries not only provide for avoidance of double taxation, but alsoprovide for the following purposes also,

1. Exchange of information for the prevention of evasion or avoidance of Income tax,2. Investigation of evasion or avoidance of Income tax cases and3. Recovery of taxes.

DTAAs entered by India:India has comprehensive Double Taxation Avoidance Agreements (DTAA) with 81 countries. Thismeans that there are agreed rates of tax and jurisdiction on specified types of income arising in acountry to a tax resident of another country.IT needs mention that the Double Taxation Avoidance Agreements (DTAA) entered into by Indiawith various countries needs independent study and scrutiny as they invariably differ from oneanother in substance.

DTAA overrides domestic law:

It needs to specifically mentioned that the specific provisions of the comprehensiveDouble TaxationAvoidance Agreements (DTAA) should override the general provisions of the Income Tax Act 1961clarified by circular ofCBDT No 333 and Sec 90(2) of Income Tax Act 1961.However, if the relevant provisions under the Indian Income Tax act are more beneficial, then to thatextent. The assessee can seek application of the provisions of the Indian Income Tax Act as againstthe provisions of the agreement.

Recent Developments:


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In light of the present drive against black money the Government of India is pressing for re-visiting

the three-decade old Double Tax Avoidance Agreement (DTAA) with Mauritius as the country faces

huge revenue losses due to it. It is believed that several companies set up shops in tax havens like

Mauritius and route their illegal money back to India to avoid taxes as DTAA is aimed at avoiding

double taxation. The process is called round-tripping. It is understood that a significant chunk of

Indias foreign direct investment as also the inflows into the stock market are round-tripped throughMauritius and other tax havens. Since April 2000, FDI from Mauritius has totalled USD 55.2 billion,

which is 42 per cent of the total inflows. With a view to plugging loopholes, the country had begun re-

negotiation of the DTAA with Mauritius in 2006 but the talks were stalled two years later as

Mauritius said it did not have the mandate to re-visit the treaty. The DTAAs with Mauritius and tax

havens are said to be widely misused for bringing illegal wealth back to India through FDI and FII.

Recently Finance Minister Pranab Mukherjee had said the government was amending DTAA by

inserting a clause on information regarding banking sector and also entering into tax information

exchange agreements (TIEA) with several countries, including tax havens. Experts, however, said that

re-negotiation of the DTAA would not be of much help. Instead, the FII investments into country

would be impacted if capital gains tax is imposed. India has so far amended DTAAs and entered into

Tax Information Exchange Agreements (TIEAs) with 41 countries and tax havens.

Tax Planning in Indirect Taxes

SRINATH. V

[email protected]

What is Tax Planning?

The term Tax Planning refers to the reduction of tax liability by utilising the options available withinthe tax legislation. It is done by utilising the deductions and exemptions available within the taxlegislation.

What is Tax Evasion?

The term Tax Evasion refers to the non-compliance with tax legislation. Even though it also leads toreduction of tax liability it is an illegal means of reducing tax thereby leading to attracting penal

consequences.


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Tax Planning in Indirect Tax:-

The taxable event in income tax is the act of generation of income, which is measured in terms of netprofit. It is an accounting concept. Hence tax planning for corporate can be done by legal experts andChartered Accountants on the Direct Tax side as Direct Tax is levied on the Net Profit of the companywhich can be manipulated to a certain extent as the concept of true and fair is being applied to arrive

at the profits of the company for the given period.

However Indirect Tax is being levied at the transaction stage and hence cannot be subject to tax planning except in rare cases of reducing the assessable value by not including the value of royaltyand technical knowhow fee. The taxable events in the case of indirect taxes are transaction based. Inthe case of Customs duty it is the act of import or export. In the case of Excise duty it is the act ofmanufacture. In the case of VAT, it is the act of adding value. In the case of service tax, it is the act ofproviding service.

These are all precise and physical concepts. Import is bringing things into India from a foreigncountry, which is a very precise concept. Manufacture is a physical concept. The act of addition ofvalue for the purpose of value added tax is reflected on paper but it is a simple concept. The act ofproviding service is also a clear concept with few controversies about whether something is a serviceor not.

Thus, we find that the taxable events on indirect taxes are much more precise. Either they are physicalor easily identifiable. On the other hand, net profit can be shown as less or more due to manipulationof accounts. There are very many provisions in the income tax law to provide for bad debts or other

receivables which can suitably lead to a lesser net profit.

But a tax advisor on the indirect tax side cannot reduce the amount of indirect tax by manipulation ofthe production or manufacture or import etc. He can only correctly interpret the law to come to the

proper taxable amount.

Evasion is not the same as tax planning. If a manufacturer does not show his production in the register

and thereby avoid tax, it is evasion, pure and simple. It is not tax planning. In income tax, some people argue that legal avoidance is different from evasion. I however, hold that there is no suchconcept.

It is important to clarify that availing of an exemption is neither evasion not tax planning. Anexemption for opening a factory in a designated area such as Uttarakhandor for using some specialtypes of input is clearly available to the manufacturers. If they avail of it, it is just legal and not anevasion. This cannot be called tax planning. The word tax planning has a shady connotation. It smacksof suitable manipulation of accounts.

Even though it is difficult to carry out tax planning on the Indirect Tax front one must adhere to thefollowing commandments while carrying out Tax Planning:-

1. Tax requires talent and ability: Tax planners should possess in themselves proper and goodknowledge of tax laws so that they can apply their talent and ability in tax planning. Besides taxlaws, they should also be aware about other laws like company law, transfer of property law,registration law etc.

2. Is reducing tax the only aim? : The ultimate goal of the tax planning proposal is not onlyreducing the tax but also it should emphasize on increasing the net worth of the client. In any tax planning, one should consider not only a particular tax, say, income tax for which planning isbeing done but also all the applicable direct taxes and indirect taxes, levies and costs.


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3. Past, present and future tax repercussions to be considered: All the past, present and futuretax repercussions should be considered while planning a proposal where they are conflicting innature, they must be carefully analyzed and then final decision should be taken. Those proposalswhich give permanent tax benefit (may be of smaller amount) should be considered better thanthose proposals which give temporary tax benefits (i.e. which involve litigations). Though, theseimplications should be given due weightage while deciding for tax planning.

4. Cash flows are very crucial: There should be proper control over the funds and assets by the tax planner in implementing the tax planning aspects. Any tax planning which results in losing aparticular asset or control over it, it may not be regarded as good tax planning.

5. Tax planning vis a vis Judiciary: Tax planner should have adequate knowledge about case lawsand he should carefully study the case laws which are against the assessee so that the weakness ofthose cases are taken care of in the present planning.

6. All the alternatives should be assessed: Tax planner must weigh and compare variousalternatives available for reducing the tax incidence in order to achieve clients objectives. It is forthe tax consultants to dig out the real issues and work out the various alternatives and assess theirtax consequences. Tax planning also helps in avoiding adverse consequences and tax litigations.

7. All perils to be considered: Tax planner should evaluate each and every proposal and evaluatethe hazards involved under each and every proposal so that potential areas of litigations and their

consequences should be identified. Further, the client should be made aware of the potential areasof litigation and their consequences because it is ultimately the client who should decide whetheror not he wants to undertake those risks. Some assesses want to play completely safe (i.e. they arerisk averse) whereas others may be prepared to take risks for a reasonable reward (i.e. they arerisk lovers) in the form of tax saving. But, still the ultimate decision has to be taken by the clientand not by the tax planner.

8. Miscellaneous:

a.) Tax planning proposal should be supported by proper documentation and paper work because tax department just needs evidence from the documents in support of thetransaction. Therefore, need for proper documentation is a requisite factor in theimplementation of tax planning.

b.) After implementation of the tax planning proposal, appropriate disclosure must bemade in the tax returns so as to avoid any penalty for concealment ofincome/wealth/gift.

c.) It is also important to make proper representations before the Assessing Officer andthe appellate authorities if the matter comes up before them. Further, it is essential to judge the mind of the Assessing Officer or of the appellate authorities and thendevelop an appropriate strategy for representation.

Thus tax planning requires sound knowledge of various laws on taxation coupled with related

circulars and notifications issued by the respective tax administration authorities to carryoutefficient and effective tax planning thereby leading to reduction of tax liability for the entity

and also not much reduction of revenue to the Government. It is a very tough balancing act to

be undertaken by the tax planner after assessing all the possibilities.


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Companies (Auditors Report) Order, 2003

VENKATESH. C

[email protected]

Applicability

CARO order is applicable to every company including a foreign company except the following :

i. Banking Companyii. Insurance Company

iii. Company registered under Section 25 of the Companies Activ. A Private Ltd Company with paid up capital and reserves not more than fifty lakh rupees and

which does not have loan outstanding exceeding rupees twenty five lakh from any bank orfinancial institution and does not have a turnover exceeding rupees five crore at any point of

time during the financial year.


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Auditors Report to contain the matters specified in para 4 and 5 of CARO.

Para 4 of CARO

Auditors Report to which CARO applies shall include a statement on the following matters, namely:

i.a. Whether the company is maintaining proper records showing full particulars,including quantitative details and situation of fixed assets.b. Whether these fixed assets have been physically verified by the management at

reasonable intervals; whether any material discrepancies were noticed on suchverification and if so, whether the same have been properly dealt with in the books ofaccounts

c. If a substantial part of fixed assets have been disposed off during the year, whether ithas affected the going concern.

ii.a. Whether physical verification of inventory has been conducted at reasonable intervals

by the managementb. Are the procedures of physical verification of inventory followed by the management

reasonable and adequate in relation to size of the company and the nature ofits

business. If not the inadequacies to be reported.c. Whether the company is maintaining proper records of inventory and whether any

material discrepancies were noticed on physical verification and if so, whether thesame has been dealt with in the books.

iii.a. Has the company granted any loans, secured or unsecured to companies, firms or

other parties covered in the register maintained u/s 301 of the companies act. If so,give the number of parties and amounts involved in the transactions.

b. Whether the rate of interest and other terms and conditions of the loans secured orunsecured are prima facie prejudicial to the interest of the company.

c. Whether receipt of principal amount and interest are regulard. If overdue amount is more than one lakh rupees, whether reasonable steps have been

taken by the company for recovery of principal and interest.

e. Has the company taken any loans, secured or unsecured to companies, firms or otherparties covered in the register maintained u/s 301 of the companies act. If so, give thenumber of parties and amounts involved in the transactions.

f. Whether the rate of interest and other terms and conditions of the loans secured orunsecured are prima facie prejudicial to the interest of the company.

g. Whether payment of principal and interest are regular.iv. Is there an adequate internal control system commensurate with the size of the company and

the nature of its business; whether there is a continuing failure to correct major weaknesses ininternal control system.

v.a. whether the particulars of contracts or arrangements referred to in section 301 of the

Act have been entered in the register required to be maintained under that section ;and

b. whether transactions made in pursuance of such contracts or arrangements have beenmade at prices which are reasonable having regard to the prevailing market prices atthe relevant time;

(This information is required only in case of transactions exceeding the value offive lakh rupees in respect of any party and in any one financial year)

vi. In case the company has accepted deposits from the public, whether the directives issued bythe Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevantprovisions of the Act and the rules framed there under, where applicable, have been complied


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with. If not, the nature of contraventions should be stated; If any order has been passedby Company Law Board or National Company Law Tribunal or Reserve Bank of India or anyCourt or any other tribunal whether the same has been complied with or not.

vii. In the case of listed companies and other companies having a paid up capital and reservesexceeding rupees 50 lakh as at the time of commencement of the financial year or having anaverage turnover exceeding 5 crore for a period of three consecutive financial yearsimmediately preceding the financial year concerned, whether the company has an internalaudit system commensurate with the size and nature of its business.

viii. Where the maintenance of cost records has been prescribed central govt as per section 209 ofthe companies act, whether such accounts and records have been made and maintained.

ix.a. is the company regular in depositing undisputed statutory dues including Provident

Fund, Investor Education and Protection Fund, Employees' State Insurance, Income-tax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, cess and anyother statutory dues with the appropriate authorities and if not, the extent of thearrears of outstanding statutory dues as at the last day of the financial year concernedfor a period of more than six months from the date they became payable, shall beindicated by the auditor.

b. in case dues of Income tax/ sales tax/wealthtax/ service tax/ Customs duty/Exciseduty/cess have not been deposited on account of any dispute, then the amountsinvolved and the forum where dispute is pending shall be mentioned

x. whether in case of a company which has been registered for a period not less than five years,its accumulated losses at the end of the financial year are not less than fifty percent of its networth and whether it has incurred cash losses in such financial year and in the immediatelypreceding financial year.

xi. Whether the company has defaulted in repayment of dues to a financial institution or a bankor debenture holders? If yes, the period and amount of default to be mentioned.

xii. Whether adequate records and documents are maintained in cases where the company hasgranted loans and advances on the basis of security by way of pledge of shares, debenturesand other securities., if not the deficiencies to be pointed out.

xiii. Whether the provisions of any special statute applicable to chit fund have been duly compliedwith. In respect of nidhi/mutual benefit fund/societies:

a. Whether the net owned funds to deposit liability ratio is more than 1:20 as on the dateof the balance sheet.b. Whether the company has complied with the prudential norms on income recognition

and provisioning against substandard/doubtful assets.c. Whether the company has adequate procedures for appraisal of credit

proposals/requests, assessment of credit needs and repayment capacity of theborrowers.

d. whether the repayment schedule of various loans granted by the nidhi is based on therepayment capacity of the borrower.

xiv. if the company is dealing or trading in shares, securities, debentures and other investmentswhether proper records have been maintained of the transactions and contracts and whethertimely entries have been made therein; also whether the shares, securities, debenturesand other investments have been held by the company, in its own name except to the extent of

the exemption; if any, granted under section 49 of the Act.xv. Whether the company has given any guarantee for loans taken by others from bank or

financial institutions, the terms or conditions whereof are prejudicial to the interest of thecompany.

xvi. Whether term loans were applied on the purpose for which they were applied.xvii. whether the funds raised on short-term basis have been used for long term investment; If yes,

the nature and amount is to be indicated.xviii. Whether company has made any preferential allotment of shares to parties and companies

covered in register maintained u/s 301 and if so, whether the price at which the shares havebeen issued is prejudicial to the interest of the company.


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xix. whether security or chargehas been created in respect of debentures issued?xx. Whether the management has disclosed on the end use of money raised by public issues and

the same has been verified.xxi. Whether any fraud on or by the company has been noticed or reported during the year. If yes,

the nature and amount involved to be indicated.

Para 5 of CARO

Where in the auditors report the answer to any of the questions mentioned in Para 4 is unfavourableor qualified, the auditors report shall also state the reasons for such unfavourable or qualified answer.Where the auditor is unable to express an opinion, the report shall indicate that fact and reasons therefor.

INCORPORATION OF COMPANY

SUBHASHINI [email protected]

INTRODUCTION

Incorporation of Companies in India and setting up of branch offices of foreign corporations in Indiaare regulated by the Companies Act, 1956. The Companies Act of 1956 sets down rules andregulations for the establishment of both public and private companies in India. The Companies Act

of 1956 sets down rules for the establishment of both public and private companies. The mostcommonly used corporate form is the limited company, unlimited companies being relativelyuncommon. A company is formed by registering the Memorandum and Articles of Association with

the State Registrar of Companies of the state in which the main office is to be located.

Foreign companies engaged in manufacturing and trading activities are permitted by the ReserveBank of India to open its branch offices in India. Application for permission to open a branch, aproject office or liaison office is made via the Reserve Bank of India by submitting form FNC-5 to theForeign Investment and Technology TransferDepartment of the Reserve Bank of India. For opening a


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project or site office, application may be made on Form FNC-10 to the regional offices of the ReserveBank of India. A foreign investor need not have a local partner, whether or not the foreigner wants tohold full equity of the company. The portion of the equity thus not held by the foreign investor can beoffered to the public.

APPROVAL OF NAME

The first step in the formation of a company is the approval of the name by the Registrar ofCompanies (ROC) in the State/Union Territory in which the company will maintain its RegisteredOffice. This approval is provided subject to certain conditions: for instance, there should not be anexisting company by the same name. Further, the last words in the name are required to be "PrivateLtd." in the case of a private company and "Limited" in the case of a Public Company. Theapplication should mention at least four suitable names of the proposed company, in order ofpreference. In the case of a private limited company, the name of the company should end with thewords "Private Limited" as the last words. In case of a public limited company, the name of thecompany should end with the word "Limited" as the last word. The ROC generally informs theapplicant within seven days from the date of submission of the application, whether or not any of thenames applied for is available. Once a name is approved, it is valid for a period of six months, withinwhich time Memorandum of Association and Articles of Association together with miscellaneousdocuments should be filed. If one is unable to do so, an application may be made for renewal of nameby paying additional fees. After obtaining the name approval, it normally takes approximately two tothree weeks to incorporate a company depending on where the company is registered.

MEMORANDUM OF ASSOCIATION

The Memorandum of Association and Articles of Association are the most important documents to besubmitted to the ROC for the purpose of incorporation of a company. The Memorandum ofAssociation is a document that sets out the constitution of the company. It contains, amongst others,the objectives and the scope of activity of the company besides also defining the relationship of the

company with the outside world.

ARTICLES OF ASSOCIATION

In order to incorporate a company, its founders (or, depending on the relevant jurisdiction and type ofcompany - the shareholders, the directors or simply the registered agent) must sign the articles ofincorporation - the main document that defines the name of the company being formed, its internalmanagement structure, the possibility of increasing or reducing its share capital, as well as the detailsstipulating the manner of conducting shareholders' meetings or special provisions for the dissolution(liquidation) of the company. This document usually exists alongside the by-laws and complies withthem, while in some jurisdictions it is the main document that regulates the company's activities, thus

completely replacing the by-laws.

The certificate of incorporation is the main document certifying the existence of the company as well

as its belonging to the relevant jurisdiction. The certificate of incorporation contains the name of thecompany, the date of its registration or incorporation, usually (but not in all jurisdictions) also theaddress of its registered office, the name of the registered agent of the company and the objects of thecompany.

The ROC will give the certificate of incorporation after the required documents are presented alongwith the requisite registration fee, which is scaled according to the share capital of the company, asstated in its Memorandum.

A private company can commence business on receipt of its certificate of incorporation.


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A public company has the option of inviting the public for subscription to its share capital.Accordingly, the company has to issue a prospectus, which provides information about the companyto potential investors. The Companies Act specifies the information to be contained in the prospectus.

PROSPECTUS

The prospectus has to be filed with the ROC before it can be issued to the public. In case the companydecides not to approach the public for the necessary capital and obtains it privately, it can file a"Statement in Lieu of Prospectus" with the ROC.On fulfillment of these requirements, the ROC issues a Certificate of Commencement of Business tothe public company. The company can commence business immediately after it receives this

certificate.

CERTIFICATE OF INCORPORATION

After the duly stamped Memorandum of Association and Articles of Association, documents andforms are filed and the filing fees are paid, the ROC scrutinizes the documents and, if necessary,instructs the authorised person to make necessary corrections. Thereafter, a Certificate ofIncorporation is issued by the ROC, from which date the company comes in to existence. It takes one

to two weeks from the date of filing Memorandum of Association and Articles of Association toreceive a Certificate of Incorporation. Although a private company can commence businessimmediately after receiving the certificate of incorporation, a public company cannot do so until it

obtains a Certificate of Commencement of Business from the ROC.

DOCUMENTS TO BE SUBMITTED

The documents/forms stated below are filed along with Memorandum of Association and Articles of

Association on payment of filing fees (depending on the authorised capital of the company):

# Copy of agreement if any, which the proposed company wishes to enter into with any individual forappointment as its managing or whole-time director or manager

# Requisite fees either in cash or demand draft

# With the stamped copy, one spare copy each

Team One - Manual

Documents

Transcript of Team One - Manual