WE MAKE IT HAPPENvasai-icai.org/Image/Newsletter for the Month of April 2017.pdf · WE MAKE IT...

3K Fun Run Mira Bhayander 2017 ....................................2

Chairman’s Communication .....3

Forthcoming Programmes and sub-committees ..............4

Workshop on GST ..................5

Seminar on ICDS ...................6

Direct Taxes - Law Update ......7

Income Recognition, Asset Classification and Provisioning ... 8

Budget 2017: Section 79 – Fresh Debate For Start-Up Companies! ........................11

Critical Transitional Issues Not Addressed By Revised Model GST Law ...................12

Photo – Seminar on Bank Branch Audit ...............14

Photo – Seminar on Unleashing the Power of Women ..............................15

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The Institute of Chartered Accountants of India – Vasai Branch of WIRC Newsletter

3k Fun Run Mira Bhayander 2017 held on 19th March 2017 at Bhayander (West)

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CHAIRMAN’S COMMUNICATIONMANAGING COMMITTEE

CA. Nitesh Kothari 9833860870 Chairman

CA. Sumeet Doshi 9869525956 Vice Chairman

CA. Xavier Rajan 9371720027 Secretary

CA. Hemant Shah 9022405230 Treasurer

CA. Ankit Rathi 9029059911 WICASA Chairman

CA. Vimal Agarwal 9320617447 Imm. Past Chairman

CA. Bhanwar Borana 8291454999 Committee Member

CA. Mukesh Sharma 9321160020 Committee Member

CA. Lalit Bajaj 9867692321 Branch Nominee

EDITORIAL BOARD

CA. Nitesh Kothari 9833860870 Chairman

CA. Sumeet Doshi 9869525956 Vice Chairman

CA. Mukesh Sharma 9321160020 Committee Member

Dear Professional colleague,

My first month of the term can be described as challenging, exciting and pretty rewarding for this month’s events witnessed a gathering of as good as many. Our area is relatively young and still growing. There are many things that we should be communicating on to better understand each other and find solutions for an inclusive development. As we progress down this path, it may require some creative thinking as Vasai Branch continues to grow not only in terms of membership, but also in number of events and activities we conduct in the area and within the community.

I believe in the motto that “education, learning from one another and communication are important to grow the association”. During my term in office, I will be leading and promoting ICAI based on this motto.

Learning from each other is especially important for the younger generation. Communication among all members also is a key principle in order for us to achieve Vasai Branch’s vision. In this month, we have successfully completed series of activities starting with a seminar on “Unleashing the power of women” on 11th March, 2017 inaugurated by our Chief Guest Shri Geeta Jain (Mayor of MBMC) and starred our young female achievers Kashi Kothari, lead role in Devanshi serial on Colours television and Harshaali Malhotra, Munni from Bajrangi Bhaijan followed by a healthy event of 3K run in Mira Bhayander on 19th March, 2017 in association with Health is Wealth & Narsima where more than 1K CA’s ran for 3K kms. and a sit down session on Bank Branch Audit was conducted on 26th March, 2017 jointly with Bhayander CPE Study Circle.

I am happy and pleased to have this opportunity and look forward to the challenges ahead. We are lucky to have very committed committee members and staff. Working together, they are achieving success in Vasai Branch.

As you know, we are finally seeing the rise of GST and its imperative that as a member of India’s leading professional body we equip ourselves with the ins and outs of this new tax regime to add extra value in our services to our clients and aid them to understand the basics, assist them to live the change and motivate them to adhere the law. We have many events planned relating to this subject and we aim to cover industries across the area, including traders, suppliers, customers, builders and manufacturers. The more we talk amongst ourselves, the more we get to know.

I look forward to the beginning of a new financial year in new light and I hope to see you all in Vasai Branch Premier League 2017 to be held on 8th & 9th April, 2017, in addition to other upcoming events. Wish you a Happy Gudi Padwa, Mahavir Jayanti, Good Friday celebrations & Dr. Babasaheb Ambedkar Jayanti and good spirits overall.

Nitesh KothariChairman – Vasai Branch

4 The Institute of Chartered Accountants of India – Vasai Branch of WIRC Newsletter

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Forthcoming – ProgrammesFORTHCOMING PROGRAMMES FOR MEMBERS

Date Seminar on Timings Venue Speakers Coordinator Fees CPE

9th April 2017

Vasai Branch Premier League for CA Members

7.30 am onwards

MBMC Ground, Behind Payyade Hotel, Mira Road (East)

_ CA. Hemant Shah 9022405230 CA. Ankit Rathi 9029059911 CA. Bhanwar Borana 8291454999

` 4,000 per

team

_

15th, 22nd, 23rd, 29th & 30th April, 2017

Workshop on GST

Refer Program Schedule

Branch Premises, Indralok Phase - II, Bhayander (East)

CA. Ashit Shah CA. Ashish Bajaj CA. Archit Agarwal CA. Jayesh Gogri CA. Vasant Bhat

CA. Vimal Agarwal 9320617447 CA. Sumeet Doshi 9869525956CA. Xavier Rajan 9371720027CA. Hemant Shah 9022405230CA. Mukesh Sharma 9321160020CA. Unmesh Narvekar 9821236179

` 1,500 15 Hrs

23rd April 2017

Seminar on ICDS

9.30 am to 4.30 pm

Zaika Orchid, Bhayander (West)

CA. N C HegdeCA. Nihar JambusariaCA. Paras Savla

CA. Xavier Rajan 9371720027CA. Hemant Shah 9022405230CA. Mukesh Sharma 9321160020 CA. Bhanwar Borana 8291454999

` 750 6 Hrs

FORTHCOMING PROGRAMMES FOR BHAYANDER CPE STUDY CIRCLE


16th April, 2017

Insolvency and Bankruptcy Code 2016 Compliance and Taxation Under Income Tax for Trusts

10.00 am to 1.00 pm

Zaika Restaurant, Bhayander (West)

CA Ravi Gupta CA. Sandip Jain 9930608040 CA. Amit Agarwal 8767306688

Free for Study Circle

Member ` 300 for

Others

3 Hrs

FORTHCOMING PROGRAMMES FOR STUDENTS


8th April, 2017

Vasai Branch Premier League for CA Students

7.30 am onwards

MBMC Ground, Behind Payyade Hotel, Mira Road (East)

_ CA. Ankit Rathi 9029059911 ` 1,000 per

team

_

Sub Committee for the year 2017-18Sr. No. Sub Committee Name Chairman

1. ITT / Orientation / GMCS CA. Nitesh Kothari

2. Members in Industry CA. Sumeet Doshi

3. Program Committee CA. Xavier Rajan

4. i. Administration Committee

ii. Direct Tax Committee

CA. Hemant Shah

5. Students Committee (WICASA) CA. Ankit Rathi

6. i. Members Committee

ii. Indirect Tax Committee

CA. Vimal Agarwal

7. Grant / CPE / Research & Representative Committee CA. Bhanwar Borana

8. Editorial Board (Newsletter Committee) CA. Mukesh Sharma

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Workshop on GSTOrganised By

Vasai Branch of WIRC of ICAIDates :

15th, 22nd, 23rd, 29th & 30th April 2017Venue :

Branch Premises, Indralok Phase-II, New Golden Nest Road, Bhayander (East)

Programme Chairman: Programme Chief Coordinator:CA. Nitesh Kothari (M) 9833860870 CA. Vimal Agarwal (M) 9320617447Chairman, Vasai Branch of WIRC Vasai Branch - Indirect Tax Committee Chairman

Programme Co-ordinator

CA. Xavier Rajan (Secretary, Vasai Br.) CA. Mukesh Sharma (Committee Member,Vasai Br.) CA. Hemant Shah (Treasurer, Vasai Br.) CA. Unmesh Narvekar (Past Chairman, Vasai Br.)

Programme Team

CA. Jayesh Parmar CA. Pratik Dave CA. Atul MehtaCA. Nikunj Bhangaria CA. Arvind Mohta CA. Pankaj Mall

Registration fees ` 1,500/- Cash/Cheque to be drawn in favour of "Vasai Branch of WIRC of ICAI" sent to Vasai Branch Office, Indralok Phase-II, Bhayander (East)

Online Registration http://utility.vasai-icai.org/scevent.aspx?companyid=887&serverip=1

Programme Schedule

Days, Date & Timing Topics SpeakersSat, 15th April, 2017

Timing – 5.30 pm to 8.30 pm

Input Tax Credit Definition of Input, Input Service, Capital Goods, Transitional Provisions, Provisions of Cenvat Credit

CA. Ashit Shah

Sat, 22nd April, 2017


Overview of Model GST Law including Concept of CGST, SGST, IGST CA. Ashish Bajaj

Sun, 23rd April, 2017

Timing – 10.00 am to 1.00 pm

Transitional Provisions CA. Archit Agarwal

Sat, 29th April, 2017


Registrations: Law & Business Processes & Filing of Returns & Refund CA. Jayesh Gogri

Sun, 30th April, 2017

Timing – 10.00 am to 1.00 pm

Place of Supply of Goods & Services CA. Vasant Bhat

For Details Please Contact:

Vasai Branch of WIRC, Branch Premises, Indralok Phase-II, New Golden Nest Road, Bhayander (East),

Tel:-022-65568900/01/02 or 07208099778 Email- [email protected] Website:-www.vasai-icai.org

CPE

15 Hrs

Limited Seats

70 Only


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Seminar on ICDS Organised By:

Direct Taxes Committee - ICAIHosted By:

Vasai Branch of WIRC of ICAIDay & Dates:

Sunday, 23rd April 2017 Timing : 9.30 am to 5.00 pm Venue:

Zaika Orchid, Near East West Flyover, Bhayander (West)

Programme Chairman: Programme Director:CA. Sanjay Agarwal CA. Nitesh Kothari (M) 9833860870CCM & Chairman, Direct Tax Committee Chairman, Vasai Branch of WIRC

Programme Co-ordinatorCA. Xavier Rajan (Secretary, Vasai Br.) CA. Mukesh Sharma (Committee Member,Vasai Br.) CA. Hemant Shah (Treasurer, Vasai Br.) CA. Bhanwar Borana (Committee Member, Vasai Br.)

Programme TeamCA. Nitesh Shah CA. Amit Agarwal CA. Satish Poojary

Registration fees ` 750/- Cash/Cheque to be drawn in favor of “Vasai Branch of WIRC of ICAI” sent to Vasai Branch Office, Indralok Phase-II, Bhayander (East)

Online Registration http://utility.vasai-icai.org/scevent.aspx?companyid=887&serverip=1

Programme Schedule

Timing Topics Speakers9.00 am to 9.30 am Registration & Breakfast —

9.30 am to 11.30 am Revenue Recognition (4) & Securities (8) CA. N. C. Hegde

(CCM & Vice Chairman – Direct Tax Committee, ICAI)

11.30 am to 11.45 am Tea Break —

11.45 am to 1.45 pm Valuation of Inventories (2)

Construction Contract (3)

Foreign Exchange (6)

CA. Nihar Jambusaria

(CCM)

1.45 pm to 2.30 pm Lunch Break —

2.30 pm to 4.30 pm Tangible Fixed Assets (5)

Borrowing Cost (9)

CA. Paras Savla

For Details Please Contact:

Vasai Branch of WIRC, Branch premises, Indralok phase-II, New Golden Nest Road, Bhayander(East), Tel:-022-65568900/01/02 or 07208099778 Email- [email protected]

Website:-www.vasai-icai.org

CPE 6 Hrs

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Direct Taxes - Law Update CA. Haresh P. KeniaMobile No. : 9821351838E-mail : [email protected]

• DEEMED INCOME ACCRUE OR ARISE IN INDIA – Section 9 – Clarifications on indirect transfer provisions under the said Act – Operation of Circular No. 41/2016, dated 21-12-2016 kept in abeyance for time being in force [244 TAXMAN (st.) 337]

The Central Board of Direct Taxes (CBDT) had issued Circular No. 41/2016 on 21-12-2016 regarding Indirect Transfer Provisions under the Income-tax Act,1961.

The CBDT vide Circular No. 4 of 2017 dated 20-1-2017 clarified that after the issue of the aforementioned Circular, representations have been received from various FPIs, FIIs, VCFs, and other stakeholders. The stakeholders have presented their concerns stating that the circular does not address the issue of possible multiple taxation of the same income. The representations made by the stakeholders are currently under consideration and examination. Pending a decision in the matter, the operation of the above-mentioned circular is kept in abeyance for the time being.

• TAXATION AND INVESTMENT REGIME FOR PRADHAN MANTRI GARIB KALYAN YOJANA, 2016 – Clarifications on said scheme [244 TAXMAN (St.) 339]

The CBDT vide Circular No. 2 of 2017 dated 18-1-2017 issued certain clarifications on the Taxation and Investment Regime for Pradhan Mantri Garib Kalyan Yojana, 2016 which has commenced on 17-12-2016 and will remain open for declarations/deposit up to 31-3-2017. Queries have been received from the stakeholders seeking further clarity on certain provisions of the Scheme. The Central Government has considered the queries and decided to clarify the same in the form of questions and answers. One may refer to above citation for further details.

• Section 45, read with section 28 (i), of the Income- tax Act, 1961 – Capital Gains, chargeable as – Transfer of unlisted shares by SEBI registered category I & II Alternative Investment Funds [245 TAXMAN (St.) 10]

Vide order dated 2-5-2016 in F. No.225/12/2016/ITA.II, the Central Board of Direct Taxes ('the Board') had clarified the position regarding tax treatment of income arising

from transfer of unlisted shares. It was communicated that income from such a transfer would be taxable as 'Capital Gains' irrespective of the period of holding of the unlisted shares. However, certain situations were provided in para 3 of the said order where the Assessing Officers were required to take appropriate view in the matter.

In this regard, a representation has been received in the Board that the exception in clause (iii) of para 3 regarding transfer of unlisted shares along with 'control and management of the underlying business' should not be made applicable in case of certain Alternative Investment Funds ('AIFs').

The matter has been considered by the Board. Primarily, SEBI registered Category I & II AIFs invest in unlisted shares of ventures, many of which are new set-ups or start-ups, and thus, some form of 'control and management of the underlying business' may be required to be exercised by such AIFs to safeguard the interest of the investors. Therefore, it is further clarified that exception in clause (iii) of para 3 of order dated 2-5-2016 in file of even number, would not be applicable in cases of SEBI registered Category I & II AIFs only.

• FINANCE ACT, 2016 EXPLANATORY NOTES TO PROVISIONS OF SAID ACT [245 TAXMAN (st.) 62]

The CBDT vide Circular No 3 of 2017 dated 20-1-2017 gives the explanatory notes to the Finance Act, 2016. The Finance Act, 2016 as passed by the Parliament, received the assent of the President on the 14th day of May, 2016 and has been enacted as Act No. AS 28 of 2016. This Circular explains substance of the provisions of the Act relating to Direct Taxes. One may refer to the above citation for further details.

• SECTION 90 – DOUBLE TAXATION AGREEMENT FOR AVOIDACE OF DOUBLE TAXATION AND FOR PREVENTION OF FISCAL EVASION WITH FOREIGN COUNTRIES – ISRAEL – Amendment in Notification No GSR 256 (E), dated 26-6-1996 [245 TAXMAN (st.) 142]

The Central Government vide Notification No. SO 441(E) [No 10/2017 (F. No. 500/14/2004-FTD-II)] dated 14-2-2017 notifies that all the provisions of said Protocol between the Republic of India and the State of Israel for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income and on capital as set out in the protocol shall be given effect to in the Union of India and came into force on the 19-12-2016.

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CA. Vinit [email protected]

In line with the international best practices and to ensure greater transparency, the RBI has directed the banks to adopt the '90 days' overdue’ norm for identification of NPAs from the year ending March 31, 2004. The Committee on Financial System set up by the RBI under the Chairmanship of Mr. M. Narasimham,

made several recommendations concerning accounts of banks. The Committee recommended that a policy of income recognition should be objective and based on record of recovery rather than on any subjective considerations. Likewise, the classification of assets should be done on the basis of objective criteria which would ensure a uniform and consistent application of norms. As regards provisioning, the Committee recommended that provisions should be made on the basis of classification of assets under different categories. Vide its Circular No. BP.BC.129/21.04.043-92 dated April 27, 1992, the Reserve Bank issued guidelines to be followed by all scheduled commercial banks (excluding regional rural banks) for income recognition, asset classification, provisioning and other related matters. These guidelines (commonly referred to as ‘prudential guidelines’ or ‘prudential norms’) have since been modified in several respects through various circulars of the Reserve Bank. The latest Master Circular No. RBI/2015-16/101DBR.No.BP.BC.2/21.04.048/2015-16 was issued on July 1, 2015 on ‘Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances”.I. UNDERSTANDING CERTAIN IMPORTANT TERMS:a. Definition of Non-performing Assets (NPA): An asset is termed as an NPA when it ceases to generate

income for the Bank. b. What is overdue status? Any amount due to the bank under any credit facility is

‘overdue’ if it is not paid on the due date fixed by the bank.

c. What is out of order status? An account should be treated as 'out of order' if the

outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.

d. What is Standard Asset? Loans and Advances including Bills purchased/ discounted

which do not fall under NPA classification are called standard assets

II. CLASSIFICATION OF ADVANCES AS NPA

a. Term Loans

i. Interest or installment remains overdue for a period of more than 90 days from end of the quarter

Income Recognition, Asset Classification and Provisioning (IRAC Norms)

ii. Agricultural loans granted for short duration crops

and long duration crops will be treated as NPA, if the installment of principal or interest thereon remains overdue for two crop seasons and one crop season respectively

b. Cash Credits & Overdraftsiii. The account remains continuously out of order

i.e., Outstanding balance remains continuously in excess of the sanctioned limit/ drawing power or there are no credits continuously for a period of 90 days or credits are not enough to cover the interest debited during the same period

iv. Banks may not classify an account NPA merely due to existence of some deficiencies, which are of temporary nature such as non availability of adequate drawing power temporarily, balance outstanding exceeding the limit temporarily, non submission of stock statements and non renewal of the limits on the due date but submitted later on, etc

v. A working capital borrowal account will become NPA if such irregular drawings are permitted in the account for a continuous period of 90 days even though the unit may be working or the borrower's financial position is satisfactory.

vi. an account where the regular/ ad hoc credit limits have not been reviewed/ renewed within 180 days from the due date/ date of ad hoc sanction will be treated as NPA

vii. Balance outstanding in the account based on drawing power calculated from stock statements more than 3 months old would be deemed as irregular

viii. Further, an account where the regular/ ad hoc credit limits have not been reviewed/ renewed within 180 days from the due date/ date of ad hoc sanction respectively, will be treated as NPA

ix. If the debits arising out of devolvement of letters of credit or invoked guarantees are parked in a separate account, the balance outstanding in that account also should be treated as a part of the borrower s principal operating account for the purpose of application of prudential norms on income recognition, asset classification and provisioning.

c. Bills Purchased & Discountedx. Bills purchased/ discounted remains overdue for a

period of more than 90 daysxi. Overdue interest should not be charged and taken

to income account in respect of overdue bills unless it is realized

d. Other Accountsxii. Any amount to be received in respect of that facility

remains overdue for a period of more than 90 days Government guaranteed advances

xiii. State Government guaranteed advances in respect of which guarantee has been invoked and has remained in default for more than 90 days

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xiv. The credit facilities backed by guarantee of Central Government though overdue may be treated as NPA only when the Government repudiates its guarantee when invoked. However, income shall not be recognised if the interest or installment has remained overdue or the account has remained continuously out of order or the bills or any other facility has remained overdue for a period of more than 90 days

III. INCOME RECOGNITIONa. Recognizing Revenue Income on non-performing assets are not recognized, it is

recognized when it is actually received. However interest

on advances against term deposits, NSCs, IVPs, KVPs and life policies, interest are recognized when adequate margin is available in the account

b. Reversal of income If any advance, including bills purchased and discounted,

becomes NPA, the entire interest accrued and credited to income account in the past periods, should be reversed if the same is not realised. This will apply to Government guaranteed accounts also.

In respect of NPAs, fees, commission and similar income that have accrued should cease to accrue in the current period and should be reversed with respect to past periods, if uncollected.

IV. PROVISIONING NORMS

Category Description Provisioning RequirementSecured

(%)Unsecured

(%)Loss A loss asset is one where loss has been identified by the bank or internal or

external auditors or the RBI inspection but the amount has not been written off wholly.

100 100

Doubtful

Doubtful 1/ DA1

Doubtful 2/ DA2

Doubtful 2/ DA2

An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.

Period for which asset remained under doubtful catergory-

upto one year

one to three years

More than three years

25

40

100

100

100

100Substandard A substandard asset would be one, which has remained NPA for a period less

than or equal to 12 months.

* without making any allowance for ECGC guarantee cover and securities available

**Except for infrastructure lending where there is escrow account will attract 20%)

15* 25**

Standard Assets

Category Provisioning Requirement (%)

Farm Credit to agricultural activities and Small and Micro Enterprises (SMEs) sectors 0.25Advances to Commercial Real Estate (CRE) Sector 1.00Advances to Commercial Real Estate – Residential Housing Sector (CRE - RH) 0.75Restructured Advances 5.00Teaser Loans 2.00All other loans and advances not included above 0.40

b. Unhedge Foreign currency Exposure (UHFCE):Banks are required to estimate the riskiness of unhedged position of their borrowers and make incremental provisions on their exposures to such entitie over and above the extant standard asset provisioning. Banks need to duly obtain details of UHFCE from management of the borrower every quarter and once in a year from statutory auditor of borrower

Likely Loss / EBID (%) Incremental Provisioning Requirement on the total credit exposures Up to 15 per cent 0

More than 15 per cent and up to 30 per cent 20 bps



More than 75 per cent 80 bps


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c. Country Risk exposureBanks are required to make provision for country risk in respect of a country where its net funded exposure is one per cent or more of its total assets.

Insignificant A1 0.25 Low A2 0.25 Moderate B1 5 High B2 2 Very high C1 25 Restricted C2 100 Off-credit D 100

Points for Considerationa. The provisions on standard assets should not be reckoned

for arriving at net NPAs.b. The provisions towards Standard Assets need not be netted

from gross advances but shown separately as 'Contingent Provisions against Standard Assets' under 'Other Liabilities and Provisions Others' in Schedule 5 of the balance sheet.

c. It is clarified that the Medium Enterprises will attract 0.40% standard asset provisioning. The definition of the terms Micro Enterprises, Small Enterprises, and Medium Enterprises shall be in terms of Master Circular RPCD.SME&NFS.BC.No. 3/06.02.31/2013-14 dated July 1, 2014 on Lending to Micro, Small & Medium Enterprises (MSME) Sector.

d. Erosion in the value of security can be reckoned as significant when the realisable value of the security is less than 50 per cent of the value assessed by the bank or accepted by RBI at the time of last inspection, as the case may be. Such NPAs may be straightaway classified under doubtful category.

e. b. If the realisable value of the security, as assessed by the bank/ approved valuers/ RBI is less than 10 per cent of the outstanding in the borrowal accounts, the existence of security should be ignored and the asset should be straightaway classified as loss asset.

f. Provisioning norms in respect of all cases of fraud:i. The entire amount due to the bank (irrespective of the

quantum of security held against such assets), or for which the bank is liable (including in case of deposit accounts), is to be provided for over a period not exceeding four quarters commencing with the quarter in which the fraud has been detected;

ii. However, where there has been delay, beyond the prescribed period, in reporting the fraud to the Reserve Bank, the entire provisioning is required to be made at once. In addition, Reserve Bank of India may also initiate appropriate supervisory action where there has been a delay by the bank in reporting a fraud, or provisioning there against.

V. RBI UPDATESCircular reference: Relaxation in Prudential NormsRBI/2016-17/143 DBR.No.BP.BC.37/21.04.048/2016-17Additional 60 days beyond what is applicable for the concerned regulated entity(RE) for recognition of a loan account as substandard in the following cases:a. Running working capital accounts (OD/CC)/crop loans, with

any bank, the sanctioned limit whereof is ₹ 1 crore or less;b. Term loans, whether business or personal, secured or

otherwise, the original sanctioned amount whereof is ₹

1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI). This shall include housing loans and agriculture loans.

(Note: The limits at (a) and (b) above are mutually exclusive limits applicable to respective category of loans.)

c. Loans sanctioned by banks to NBFC (MFI), NBFCs, Housing Finance Companies, and PACs and by State Cooperative Banks to DCCBs.

d. The above guidelines will also be applicable to loans extended by DCCBs.

The above dispensation will be subject to following conditions:e. It applies to dues payable between November 1, 2016 and

December 31, 2016. REs shall note to ensure that this is a short-term deferment of classification as substandard due to delay in payment of dues arising during the period specified above and does not result in restructuring of the loans.

f. Dues payable before November 1 and after December 31, 2016, will be covered by the extant instruction for the respective regulated entity with regard to recognition of NPAs.

g. The additional time given shall only apply to defer the classification of an existing standard asset as substandard and not for delaying the migration of an account across sub-categories of NPA.

Circular reference: Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to AdvancesRBI/2016-17/198 DBR.No.BP.BC.49/21.04.048/2016-17(i) Provide 30 days, in addition to the 60 days provided vide

the abovementioned circular, in the following categories of loans:(a) Running working capital accounts (OD/CC)/crop

loans, with any bank, the sanctioned limit whereof is ₹ 1 crore or less;

(b) Term loans for business purposes, secured or otherwise, the original sanctioned amount whereof is ₹1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI). This shall include agriculture loans.

(Note: The limits at (a) and (b) above are mutually exclusive limits applicable to respective category of loans.)

The above dispensation will apply to dues payable between November 1, 2016 and December 31, 2016.(ii) Permit all REs to defer the down grade of an account that

was standard as on November 1, 2016, but would have become NPA for any reason during the period November 1, 2016 to December 31, 2016, by 90 days from the date of such downgrade in the following categories of accounts:(a) Running working capital accounts (OD/CC)/crop

loans, with any bank, the sanctioned limit whereof is ₹1 crore or less;

(b) Term loans for business purposes, secured or otherwise, the original sanctioned amount whereof is ₹1 crore or less, on the books of any bank or any NBFC, including NBFC (MFI). This shall include agriculture loans.

(Note: The limits at (a) and (b) above are mutually exclusive limits applicable to respective category of loans) 2

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Budget 2017: Section 79 – Fresh debate for start-up companies!CA. Saurabh [email protected] 45326

Background

Continuously changing business dynamics and this constant change in tax and regulatory environment, requires the corporates to not only review their investment and business structure, but also at times, suitably amend them to harmonize their business policies keeping in mind not only the commercial requirements but

also the tax and regulatory framework.

Section 79 of the Income-tax Act, 1961 (‘ITA’), is a Specific Anti-Abuse Rule (‘SAAR’) which was introduced to curb situations where companies were buying out loss making companies.

According to Section 79 of the ITA, in case of a change in shareholding of a company, other than a company in which the public is substantially interested, no loss incurred in any previous year, is allowed to be carried forward and set-off, unless shares carrying not less than 51% of the voting power are beneficially held by persons who also held such shares in the year in which the loss was incurred.

Few exceptions to the above provisions have been provided to cover certain scenarios such as the death of a shareholder or on account of transfer of shares by way of a gift to any relative of the shareholder making the gift. Similarly, an exception has been carved out in case of global mergers and demergers, where there is a change in the shareholding of an Indian company which is a subsidiary of a foreign company, as a result of amalgamation or demerger of a foreign company, provided 51% of the shareholders of the amalgamating or demerged foreign company continue to be shareholders of the amalgamated or the resulting foreign company.

This section has been a matter of debate considering the language and the intent of the section. Though one view is that the position of registered shareholder should be seen for triggering this SAAR, other view is that this section should not be triggered if the real beneficial owner of the shares who is controlling the voting power despite not being the legal owner of the shares is the same. Such a situation could typically arise in a case where the immediate shareholder is a corporate entity which is itself a subsidiary of another corporate and hence the ultimate parent should be seen as a beneficial owner of the shares of the loss making company. There are judicial rulings which are also divided in their views.

Budget 2017 Amendments

Since the time Modi Government has come into power, significant importance has been given to “Make in India” initiative. In order to boost this objective, slew of amendments has been prescribed not only in corporate laws but also under Income-tax Act, 1961. This has led to number of start-ups rising in India since last couple of years. While the Government has taken various initiatives by providing this industry with certain

tax benefits so that these start-ups are able to withstand the force of the giants of the corporate world, one long standing request was to exclude such start-ups from the provisions of Section 79 of the ITA.

Budget 2017 seemed to have accepted this request, however, the wordings of the amendment seem to create fresh round of debates rather than providing much needed clarity. Relevant extracts of the amendment is reproduced below for ease of reference:

“(b) In the case of a company, not being a company in which the public are substantially interested but being an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year, if, all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred,—

(i) Continue to hold those shares on the last day of such previous year; and

(ii) Such loss has been incurred during the period of seven years beginning from the year in which such company is incorporated”.

While the rationale of the amendment as prescribed in the memorandum to Budget 2017 is to facilitate ease of doing business and to promote start-ups in India, the language of the amendment seems other way.

As per the amendment, one could interpret that all the shareholders holding the shares in the year in which loss was incurred should continue to hold all such shares in the year in which set-off of such losses is proposed. If such a view is taken, any secondary sale of even a single share would violate the conditions of the amendment and these provisions are therefore worse-off than the existing provisions of Section 79 which allows up to 49% of the shares to change hands. Thus, indirectly it refers to a situation that the original shareholding of the promoter is locked in the company and is not allowed to exit until a period of seven years is lapsed.

Further, because the amendment brings in a specific provision for set-off of loss in case of eligible start-up companies, taking resort to the existing provision of Section 79 where a change up to 49% of the shareholding is permitted,may not be available to such start-up companies.

In such a scenario, such companies could then resort to holding a compulsorily convertible instrument which could be then sold off to the investors for providing exit to the original promoters or any change in the shareholding of the company could happen through fresh allotment of shares in the company.

While the intent of the regulator could be to provide relaxation to eligible start-up companies and to promote ease of doing business, the wording of the amendment goes the other way. Hence, it would be advisable to have a wait and watch approach unless additional clarity emerges on the said issue.

Views expressed are personal.

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CA. Ashish Bajaj [email protected]

Background

The Government is at full strength trying to implement GST w.e.f. 1st July 2017. Till date, 12 meetings of GST council have taken place and almost all issues have been resolved. The GST council as well as cabinet has approved the draft CGST law,

draft SGST law, draft UTGST law and draft compensation law. Now the same is expected to be placed in current Parliament session as ‘Money Bills’. Further the GST council has already cleared the draft registration rules, draft payment rules, draft return rules and draft refund rules. The pace at which the Government is working, it is almost certain that GST will become reality w.e.f. 1st July, 2017.

The Government issued original draft GST law in June 2016 and revised draft GST law in November 2016. Sections 165 to 197 of the revised draft GST law addresses many transitional issues which are likely to arise at the time of transition from existing indirect tax regime to GST regime. It is appreciated that Government has tried to cover all major transitional issues in revised Model GST Law vis-a-vis transitional issues covered by draft of June 2016. However, there are still some unanswered issues which are likely to arise at the time of transition. The present article highlights some important transitional issues which are not covered by the transitional provisions of revised draft GST law.

Issue No. 1 – Sword of Excise Duty on finished goods lying in stock as on the day immediately preceding the appointed day

It is well-settled in excise law that taxable event is manufacture of excisable goods. However, the said liability crystallises at the time of removal from factory. Thus, it can be said that excise duty liability accrues as soon as manufacture takes place, however the same becomes due when the goods are removed from the factory.

As per Section 164(1)(c) of revised Model GST Law, restriction on operation of law pertaining to taxes which are going to subsume in GST (hereinafter referred to as ‘earlier laws’) will not affect any right, privilege, obligation, or liability acquired, accrued or incurred under the earlier laws before the appointed day.

It is evident from the above provision that non-applicability of earlier laws w.e.f. appointed day will not affect any liability accrued under the earlier laws before the appointed day. Further there is no transitional provisions which specifies that no tax under GST law will be applicable once the tax accrues under the earlier laws.

With the above background, now question arises what will happen to goods manufactured before the appointed day but sold on or after the appointed day. Whether the department can raise excise duty demand on finished goods lying in stock as on cut-off day but sold on or after the appointed day on the ground that excise liability has already accrued on finished stock lying as on cut-off day.

Critical Transitional Issues not addressed by Revised Model GST LawIssue No. 2 – Conflict due to different Point of Taxation under Excise and State VAT Laws

Section 189 of revised Model GST Law reads as follows: -

Notwithstanding anything contained in Section 12 or 14, the tax in respect of the taxable goods shall be payable under the earlier law to the extent the point of taxation in respect of such goods arose before the appointed day.

Explanation: Where the portion of the supply of goods is not covered by this section, such portion shall be liable to tax under this Act.

(CGST Law)

Notwithstanding anything contained in section 12 or 14, the tax in respect of the taxable goods shall be payable under the earlier law to the extent the point of taxation in respect of such goods arose before the appointed day.

Explanation: Where the portion of the supply of goods is not covered by this section, such portion shall be liable to tax under this Act.

(SGST Law)

It is evident from the above law that no tax under CGST and SGST Law will be payable if the point of taxation in respect of the same arose before the appointed day. The law does not define the term ‘Point of Taxation’. However, the context in which it is used under service tax law denotes that the point of time at which the liability becomes due. The liability becomes due under the excise law at the time of removal and under State VAT Laws, at the time of sale.

Thus, there is a difference between Point of Taxation under excise laws and State VAT Laws. Now the following question arises due to said differences:

(i) Which Point of Taxation should be considered for the purpose of applicability of Section 189. Whether it should be common for both the Laws or should be different for CGST and SGST Laws.

(ii) In a scenario, where goods are removed from factory to depot on payment of excise duty then

(a) Whether CGST and SGST both will not be applicable on the same? or

(b) Whether excise and SGST will be applicable on the same? or

(c) Whether both CGST and SGST will be applicable on the same?

Issue No.3 – Treatment of advances pertaining to pure service contract outstanding as on cut-off

Section 188 of the revised Model GST Law reads as follows:

Notwithstanding anything contained in Section 13 or 14, the tax in respect of the taxable services shall be payable under the earlier law to the extent the Point of Taxation in respect of such services arose before the appointed day.

Explanation: Where the portion of the supply of services is not covered by this section, such portion shall be liable to tax under this Act.

(CGST law)

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Notwithstanding anything contained in Section 13 or 14, the tax in respect of the taxable services shall be payable under the earlier law to the extent the Point of Taxation in respect of such services arose before the appointed day.

Explanation: Where the portion of the supply of services is not covered by this section, such portion shall be liable to tax under this Act.

(SGST Law)

It is evident from the above transitional provision that no tax i.e. CGST/SGST would be applicable and tax would be applicable under the earlier law to the extent of Point of Taxation in respect of such services arose before the appointed day.

Let’s understand the same with appropriate example:

Total Contract Value of services – ` 10 lakh

Advance received as on 15 June 2017 – ` 5 lakh

Service Tax liability discharged for the month of June 2017* – ` 75,000 (5,00,000*15%)

Invoice raised on 15 July 2017 – ` 10 lakh

Nature of Supply – Intrastate Supply

* For simplicity, service tax computation by inclusive method has been ignored.

Now the question arises, how much GST would be applicable at the time of invoice raising.

One View: – ` 90,000 [(10,00,000-5,00,000)*18%]

Another View: - ` 1,35,000 [(CGST ` 5,00,000*9% = ` 45,000) plus (SGST ` 10,00,000*9% = 90,000)]

It is possible that department will follow second view citing that since States were not empowered to levy service tax on services prior to appointed day. Hence no Point of Taxation has arisen before the appointed day for the purpose of levy of SGST. Hence Section 188 is not applicable. Hence SGST will be applicable on whole amount.

However, in view of author, it should be ` 90,000 [(10,00,000-5,00,000)*18%] because on advance of `5,00,000, no GST would be payable since the Point of Taxation in respect of the same has already arisen before the appointed day. The SGST will also be applicable on balance amount of ` 5,00,000 only since on advance of ` 5,00,000, the Point of Taxation has already arisen before the appointed day. The said view is also evident from the fact that section 188 of draft SGST does not envisage that Point of Taxation must be occurred under State laws which are going to subsume in GST. It simply says that no SGST will be applicable to the extent of Point of Taxation in respect of the same arose before the appointed day. Thus if department follows the second view then that will be contrary to explicit provision of law.

In continuance of previous example, let’s understand the same in the nature of inter-state supply.

Section 21 of Draft IGST Law reads as follows

Notwithstanding anything contained in Sections 12 and 13 of the CGST Act, 2016 import of services or inter-State supply of goods and/or services made after the appointed day shall be liable to tax under the provisions of this Act regardless of

whether the transactions for such import of services or inter-State supply had been initiated before the appointed day:

PROVIDED that if the tax on such import or inter-State supply had been paid in full under the earlier law, no tax shall be payable on such import or inter-state supply under this Act:

PROVIDED FURTHER that if the tax on such import of services had been paid in part under the earlier law, balance amount of tax shall be payable on such import or inter-state supply under this Act.

Explanation: For the purpose of this section, a transaction shall be deemed to have been initiated before the appointed day if either the invoice relating to such supply or payment, either in full or in part, has been received or made before the appointed day.

The important points of Section 21 are as follows: -

(i) IGST will be applicable on all interstate supply of Goods/Services made on or after the appointed day regardless of the fact that transaction of interstate supply has been initiated before the appointed day.

(ii) A transaction shall be deemed to have been initiated before the appointed day if either the invoice relating to such supply or payment, either in full or in part, has been received before the appointed day.

(iii) If tax has been paid in full before the appointed day, then no IGST would be payable on the same.

(iv) If tax has been paid in part before the appointed day, then balance amount of IGST would be payable on the same on or after the appointed day.

• It is to be noted that transitional provisions as prescribed in Model CGST/SGST Law is not applicable to IGST Law. (Refer Section 17 of Model IGST Law).

With the data of above example, the GST payable at the time of invoicing is as follows: -

Particulars Amount

Total Tax Payable under IGST 1,80,000 (10,00,000*18%)

Tax already paid before the appointed day

75,000

Balance Tax Payable 1,05,000

It is evident from the above that there is no consistency in transitional provisions as contained in draft CGST/SGST Law vis-a-vis draft IGST Law. Tax payable under interstate transaction is more than payable under intrastate transaction. The said artificial inconsistency needs to be removed.

Conclusion

It is expected that Government will soon place in public domain the draft of CGST, SGST, IGST and UTGST law. Hope the above issues are already covered by the Government in final version of various draft GST laws. If the same issues were not addressed by the Government in final version of various draft GST laws, then the same will pose a huge challenge before the industry by way of paying incremental taxes from their own pocket.

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Seminar on Bank Branch Audit held on 26th March 2017 at Bhayander (West)

Group Photo taken at Inauguration Session

Standing from L to R: CA. Sumeet Doshi

(Vice Chairman-Vasai Branch), CA. Sandip Jain (Convenor Bhayander

CPE Study Circle), CA. Nitesh Kothari (Chairman-Vasai

Branch of WIRC), CA. Ketan Saiya (Speaker), CA. Vimal Agarwal (Imm.

Past Chairman- Vasai Branch) & CA. Hemant Shah

(Treasurer- Vasai Branch) at the dais

CA. Ketan Saiya

Faculties

CA. Pankaj Tiwari CA. Parag Hangekar Section of audience

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CA. Nitesh Kothari (Chairman- Vasai Branch of WIRC) presenting Memento to Ms. Harshaali Malhotra (Munni – Film Bajrangi Bhaijaan)

Seminar on Unleashing the Power of Women held on 11th March, 2017 at Bhayander (W)

Managing Committee Members and coordinator presenting Memento Ms. Kashi Kothari (Devanshi Serial in Colour Television)

Managing Committee Members and dignitaries presenting Memento to Chief Guest Smt. Geeta Jain (Mayor MBMC)

Group Photo taken at Session in the presence of Chief Guest Smt. Geeta Jain (Mayor MBMC) and Special Invitees - Kashi Kothari (Devanshi Serial in Colour Television) & Harshaali Malhotra (Munni – Film Bajrangi Bhaijaan)

Panel Discussion Session – (L-R): Smt Krishna Tiwari, Adv. Nikita Badheka, CA. Shweta Jain (Past Chairperson- Vasai Branch), CA. Priti Savla (RCM), CA. Blossom D’Souza & CA. Sheetal Shah

Group Photo taken at the session Group Photo taken at the session


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Appreciation Award for Best Study Circle – 2 from WIRC for the year 2016

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