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TEAM ONE

# 1. 2. 3. 4. 5. 6. 7.

TOPIC OBTAINING BANK FINANCE PF & ESI FEMA REVISED SCHEDULE VI GOODS AND SERVICE TAX FUNDING OPTION TO COMPANY

NAME C. SHASHANK SHEKHAR VENKATRAM SATHISH ROOPA DEEPA VARUN

DOUBLE TAXATION AVOIDANCE KARTHIKEYAN AGREEMENT

8.

TAX TAXES

PLANNING

IN

INDIRECT SRINATH VEERARAGHAVAN VENKATESH SUBHASHINI

9.

CARO

10. INCORPORATION OF COMAPNY

OBTAINING BANK FINANCE C. SHASHANK SHEKHAR shashank89@gmail.com


One of the toughest challenges which first generation entrepreneurs face is to raise money to implement their ideas. The most likely (and easiest) sources of capital are your families, friends and own 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 risk factors and increasing costs of servicing small accounts as the primary reasons for minimizing their exposure to small businesses. The process of getting a bank loan can take a lot of time, and it can be very frustrating, but it is the best way to do it. If you get loans from other places, you might run into trouble with raised interest rates, extra fees, or even with money being demanded from you that you should not have to pay. Banks are reputable organizations that can afford to loan you money and that will always follow the rules of commerce. If you go with a bank loan, there are going to be rules and regulations that you will know about ahead of time and that cannot be broken. A bank loan is really the best way for you to make sure that you are getting the money that you need, and that you are finding 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 ask for one. That is what the loan officer wants you to do. To increase your chances of 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 business financing. Some banks lend on a conventional basis (lending money without government support), while some banks participate in government programs (in the form of government participations involving direct government funds or loan guarantees). However, be aware that banks often demand stiff collateral requirements for start-ups. 2. As an entrepreneur, make sure that you are thoroughly prepared when you go to your banker's office to request a loan. You need to show your bankers that a loan to you is a lowrisk proposition. Have on hand a completed loan application, copies of cash flow and financial statement projections covering at least three years, and your cover letter.

3. Prepare a project report: - A detailed project report with feasibility analysis for the project for which loan is to be taken must be prepared and the same must be vetted from a Chartered Accountant or a person with vast experience in the field of Project Feasibility Analysis. Any of the models of project analysis namely Net Present Value (NPV), Internal Rate of Return (IRR), Payback Method (PB) or Discounted Payback Method (DPB) can be used. 4. Learn to anticipate every question that he or she has. Remember, the combination of information and preparation is the most powerful negotiating tool in the world. A confident and thoroughly prepared borrower is four times more likely to have his or her loan approved than 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 to your banker's questions. These questions normally are:
a) How much money do you need? Be as exact as possible; although adding a little extra for contingencies will not hurt. b) How long do you need it for? Be prepared to go into detail about what the money will do for 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 and business 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 providing your 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 it as such.

7. Do not stretch the truth in your loan application. Broad, unsubstantiated statements should be avoided. The lender can easily check many of the facts on your application. If you cannot support statements with solid data, then don't make them. Do your homework and spend time doing research to be able to support everything you say, including every single number in your projections. It is best to keep projections, assets lists and collateral statements on the conservative side. 8. Be sure all your documents are neat, legible and organized in a cohesive and attractive manner. Type all your loan documents. Handwritten documents look unprofessional. Don't forget to include a cover letter.

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

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

11. Keep trying one lender after another until you get your loan. To improve your position as you change bankers and banks, the best way is to ask for a referral from a successful entrepreneur. Before you decide to approach a bank dire ctly, find an associate, friend or acquaintance that is in good standing with the bank to give you a good referral. Bankers tend to 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't thought about risk. Let's face it - try as we might, we cannot plan for everything, for every contingency, for every turn of events. Bankers would want to know if you have planned for the major risks and how you intend to manage it. Then, there is also the risk of too much success. 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 to borrowers 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 of your 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 money that you need to get what you want. Also, you are going to have low monthly payments that you can make. 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. Bank loans are perfect for emergencies or when starting a new business. The list of positive reasons for getting a bank loan goes on and on for miles. Quite simply, there are many good reasons to get a bank loan.

EMPLOYEES' PROVIDENT FUND SCHEME 1952 VENKATRAMAN. V

venkatvisu80@gmail.com

Who are covered under EPF Scheme?


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

Excluded Employee Means:


An employee who having been a member of the fund has withdraw the full amount of accumulation in the 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 to become 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 of food concessions admissible thereon.

All emoluments which are earned by employee while on duty or on leave or holiday with wages and which are paid or payable in cash, but does not include a) The cash value of any food concession; b) Any dearness allowance c) Any present made by the employer.

Needs Taken care by EPF:


i. ii. iii. iv. v. vi. Retirement Medical Care Housing Family obligation Education of Children Financing of Insurance Polices

How the Employees' Provident Fund Scheme works:


As per amendment-dated 22.9.1997 in the Act, both the employees and employer contribute to the fund 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:


y y

y y

Any covered establishment with less then 20 employees, for establishments cover prior to 22.9.97. Any sick industrial company as defined in clause (O) of Sub-Section (1) of Section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 and which has been declared as such by the Board for Industrial and Financial Reconstruction, Any establishment which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and Any establishment engaged in manufacturing of (a) jute (b) Breed (d) coir and (e) Guar gum 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 on retirement from service after attaining the age of 55 year. Full amount in provident fund can also 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 of service. y A member is retired on account of permanent and total disablement due to bodily or mental infirmity. y On migration from India for permanent settlement abroad or for taking employment abroad. 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 the date on which the application for withdrawal is made by the member: y Where employees of close establishment are transferred to other establishment, which is not covered under the Act: y Where a member is discharged and is given retrenchment compensation under the Industrial Dispute 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.

Accumulations of a deceased member: Amount of Provident Fund at the credit of the deceased member is payable to nominees/ legal heirs. Transfer of Provident Fund account:
Transfer of Provident Fund account from one region to other, from Exempted Provident Fund Trust 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 the right to receive the amount that may stand to the credit in the fund in the event of death. The member may furnish the particulars concerning himself and his family. These particulars furnished 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, annual statements of accounts will de sent to each member through of the factory or other establishment where the member was last employed. The statement of accounts in the fund will show the opening balance at the beginning of the period, amount contribution during the year, the total amount of interest credited at the end of the period or any withdrawal during the period and the closing balance at the end of the period. Member should satisfy themselves as to the correctness f the 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 of manufacturing or not. The Scheme has been extended to shops, hotels, restaurants, cinemas including preview theatre, road motor 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 COVERED The ESI Scheme is being implemented area-wise by stages. The Scheme has already been implemented in different areas in the following States/Union Territories STATES All the States except Nagaland, Manipur, Tripura, Sikkim, Arunachal Pradesh and Mizoram.

UNION TERRITORIES Delhi, Chandigarh and Pondicherry


The existing wage-limit for coverage under the Act, is Rs.15,000/- per month (with effect from 01.05.2010).

Who are the administers of ESIC scheme


The Employees State Insurance Scheme is administered by a corporate body called the Employees State Insurance Corporation (ESIC), which has members representing Employees, Employers, the Central Government, State Governments, Medical Profession and the Parliament. The Director General is the Chief Executive Officer of the Corporation and is also an ex-officio member of the Corporation. The other bodies at the national level are the Standing Committee (a representative body of the Corporation) and the Medical Benefit Council, a specialised body which advises the Corporation 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 duties through a net-work of Regional Offices and Local Offices, Hospitals and Dispensaries spread over the entire 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 is valid ordinarily for a period of 3 months but may be extended, if necessary, for a further period of 3 months. Within this period, the Insured Person is given a permanent family photo Identity Card in exchange 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 Card affixed 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

FOREIGN EXCHANGE MANAGEMENT ACT, 1999 SATHISH KUMAR S sathishzoom@gmail.com


INTRODUCTION

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign Exchange Regulation Act (FERA). FEMA became an act on the 1st day of June, 2000. FEMA was introduced because the FERA didnt fit in with post-liberalisation policies. A significant change that the FEMA brought with it, was that it made all offenses regarding foreign 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 is legally 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

(i) (A) (a) (b) (c) (B) (a) (b) (c)

a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include a person who has gone out of India or who stays outside India, in either case for or on taking up employment outside India, or for carrying on outside India a business or vocation outside India, or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period. a person who has come to India or who stays in India, in either case, otherwise than for or on taking up employment in India, or for carrying on in India a business or vocation in India, or for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

Person other than Individual : (ii) (iii) (iv) any person or body corporate registered or incorporated in India. an office, branch or agency in India owned or controlled by a person resident outside India, 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 that indicates his intention to stay outside India for an uncertain period; then he becomes a non resident 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 that indicates his intention to stay in India for an uncertain period ; then he becomes a resident from the day 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 of 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 outside India 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

any time held an Indian Passport or (b) a person who himself or either of his parents or any of his grand 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) above. However, the citizens of Bangladesh, Pakistan, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan are not considered as PIO even if they satisfy the above conditions under FEMA for different purposes under different regulations.

CURRENT ACCOUNT TRANSACTION


SCHEDULE (See rule 3) I

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.

SCHEDULE (See rule 4)

II

Purpose of Remittance

Ministry/Department of Government of India whose approval is required


Ministry of Human Resource Development (Department of Education and Culture) of of Finance, Economic

1. Cultural Tours

2.

Advertisement in foreign print media for the purposes Ministry other than promotion of tourism, foreign investments and Department international bidding (exceeding US$ 10,000) by a State Affairs. Government and its Public Sector Undertakings. Remittance of Freight of vessel chartered by a PSU

3.

Ministry of Surface Transport (Chartering Wing)

4.

Payment of import through ocean transport by a Ministry of Surface Transport Government Department or a PSU on c.i.f. basis (i.e., (Chartering Wing) other than f.o.b. and f.a.s. basis) Registration Certificate from Multi-modal transport operators making remittance to the Director General of their agents abroad Shipping Remittance of container detention charges exceeding the Ministry of Surface Transport rate prescribed by Director General of Shipping (Director General of Shipping) Remittances under technical collaboration agreements

5.

where payment of royalty exceeds 5 per cent on local Ministry of sales and 8 per cent on exports and lump-sum payment Commerce exceeds US$ 2 million

Industry

and

Remittance of prize money/sponsorship of sports activity Ministry of Human Resource abroad by a person other than International/National/State Development, (Department of Level sports bodies, if the amount involved exceeds US$ Youth Affairs and Sports) 1,00,000 Payment for securing Insurance for health from a Ministry of Finance (Insurance company abroad Division) Remittance for membership of P&I Club Ministry of Finance (Insurance Division)

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SCHEDULE (See rule 5)

III

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

2. 3. 4. 5.

Development Corporations, etc., during special festivals or those artistes engaged by hotels in five star categories, provided the expenditure is met out of EEFC account). Release of exchange exceeding US $ 10000 or its equivalent in one calendar year, for one or more private visits to any country (except Nepal and Bhutan). Gift remittance exceeding US$ 5,000 per remitter/donor per annum. Donation exceeding US$ 5,000 per remitter/donor per annum. (Exchange facilities exceeding US$ 100,000 for persons going abroad for employment. 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 India and 1. is a citizen of a foreign State other Pakistan; or 2. 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 fund and other deductions) of a person who is resident but not permanently resident 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 on account of his employment or deputation of [OLD - employment of ] a specified duration (irrespective of length thereof) or for a specific job or assignment; the duration of which does not exceed three years, is a resident but not permanently resident".

6. Release of foreign exchange, exceeding US$ 25,000 to a person, irrespective of period of stay, for business travel, or attending a conference or specialised training or for maintenance expenses of a patient going abroad for medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/check-up. 7. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or hospital/doctor abroad. 8. Release of exchange for studies abroad exceeding the estimates from the institution abroad or US$ 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 are less than Rs. 10 lakh during each of the preceding two years.

-Remittances of royalty and payment of lump-sum fee under the technical collaboration agreement which has not been registered with Reserve Bank. 10. Remittance exceeding US$ 1,000,000, per project, for any consultancy service procured from outside India
11. Remittance exceeding US$100,000, by an entity in India by way of reimbursement of preincorporation expenses.

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

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

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 (See rule 5)

III

1. Remittance by artiste e.g. wrestler, dancer entertainer, etc. (This restriction is not applicable to artistes engaged by tourism related organisations in India like I1DC, State Tourism Development Corporations, etc., during special festivals or those artistes engaged by hotels in five 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 or more private visits to any country (except Nepal and Bhutan). 3. Gift remittance exceeding US$ US$ 5,000 per per remitter/donor remitter/donor per per annum. annum.

4. Donation

exceeding

5,000

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 India and 1. is a citizen of a foreign State other Pakistan; or 2. 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 fund and other deductions) of a person who is resident but not permanently resident 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 of stay, for business travel, or attending a conference or specialised training or for maintenance

expenses of a patient going abroad for medical treatment or check-up abroad, or for accompanying as attendant to a patient going abroad for medical treatment/check-up. 7. Release of exchange for meeting expenses for medical treatment abroad exceeding the estimate from the doctor in India or hospital/doctor abroad. Release of exchange for studies abroad exceeding the estimates from the institution abroad or US$ 100,000 per academic year, whichever is higher. 8. Commission, per transaction, to agents abroad for sale of residential flats or commercial plots in 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 either require 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 being liberalised at a very fast pace, India is still not close to full capital account convertibility though returning Indians enjoy certain concessions in relation to existing overseas assets

Schedule VI (Revised) ROOPA. K

roopa6006@gmail.com
[Effective for all accounts prepared for accounting year commencing on or after 01.04.2011]

Sl. Particulars No 1 Rounding off of Figures appearing in financial statement

Old Schedule Vi
Turnover of less than100 Crs - R/off to the nearest Hundreds, thousands or decimal thereof

Revised Schedule Vi
Turnover of less than100 Crs - R/off to the nearest Hundreds, thousands, lakhs or millions or decimal thereof

Turnover of100 Crs or more but less than500 Crs - R/off to the nearest Hundreds, thousands, lakhs or millions or decimal thereof

Turnover of100 Crs or more - R/off to the nearest lakhs, millions or crores, or decimal thereof

Turnover of500 Crs or more - R/off to the nearest Hundreds, thousands, lakhs, millions or crores, or decimal thereof 2 Net Working Capital Current assets & Liabilities are shown together under application of funds. The net working capital appears on balance sheet. Assets & Liabilities are to be bifurcated in to current & Non-current and to be shown separately. Hence, net working capital will not be appearing in Balance sheet. Fixed assets to be shown under non-current assets and it has to be bifurcated in to Tangible & intangible assets. Long term borrowings to be shown under noncurrent liabilities and short term borrowings to be shown under current liabilities with separate disclosure of secured / unsecured loans. Period and amount of continuing default as on the balance sheet date in repayment of loans and interest to be separately specified 5 Finance lease obligation Finance lease obligations are included in current liabilities Finance lease obligations are to be grouped under the head non-current liabilities Lease deposits to be disclosed as long term loans & advances under the head non-current assets

Fixed Assets

There was no bifurcation required in to tangible & intangible assets.

Borrowings

Short term & long term borrowings are grouped together under the head Loan funds sub-head Secured / Unsecured

Deposits

Lease deposits are part of loans & advances

Investments

Both current & non-current investments to be disclosed under the head investments

Current and non-current investments are to be disclosed separately under current assets & non-current assets respectively. Loans & Advances to be broken up in long term & short term and to be disclosed under noncurrent & current assets respectively. Loans & Advance from related parties & others to be disclosed separately. Deferred Tax assets / liabilities to be disclosed under non-current assets / liabilities as the case may be. Bank balances in relation to earmarked balances, held as margin money against borrowings, deposits with more than 12 months maturity, each of these to be shown separately. Debit balance of Profit and Loss Account to be shown as negative figure under the head Surplus. Therefore, reserve & surplus balance can be negative.

Loans & Advances

Loans & Advance are disclosed along with current assets

Loans & Advance to subsidiaries & others to be disclosed separately.

Deferred Tax Assets / Liabilities

Deferred Tax assets / liabilities to be disclosed separately

10

Cash & Bank Balances

Bank balance to be bifurcated in scheduled banks & others

11

Profit & Loss

P&L debit balance to be shown under the head Miscellaneous expenditure & losses.

12

(Dr Balance) Sundry Creditors

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

13

Other current liabilities

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

It is named as Trade payables and there is no mention of micro & small enterprise disclosure. Current maturities of long term debt to be disclosed under other current liabilities.

No specific mention for separate disclosure of Current maturities of finance lease obligation 14 Separate line item any item under which expense exceeds one per cent of the total revenue of the company or5,000 which ever is higher; shall be disclosed separately

Current maturities of finance lease obligation to be disclosed. any item of income / expense which exceeds one per cent of the revenue from operations or1,00,000, which ever is higher; to be disclosed separately

15

Disclosure criteria Expense classification

Function wise & nature wise

16

Finance Cost

Finance cost to be classified in fixed loans & other loans

17

Foreign exchange gain / loss

Gain / Loss on foreign currency transaction to be shown under finance cost

18

Purchases

The purchase made and the opening & closing stock, giving break up in respect of each class of goods traded in by the company and indicating the quantities thereof. Provisions, reserves, capital reserve, quoted Investment were defined Details of companys registration number, Products, etc. were required to be attached with financials

19 20

Part III-Interpretation Part IV-Balance Sheet Abstract

Expenses in Statement of Profit and Loss to be classified based on nature of expenses Finance cost shall be classified as interest expense, other borrowing costs & Gain / Loss on foreign currency transaction & translation. Gain / Loss on foreign currency transaction to be separated into finance costs and other expenses Goods traded in by the company to be disclosed in broad heads in notes. Disclosure of quantitative details of goods is diluted Part III removed. Part IV removed.

Non-current assets include fixed assets, non current investments, deferred tax assets(net), long term loans 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 current assets.

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

GOODS AND SERVICE TAX R.Deepa deepa2187@gmail.com

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 tax credit and subsuming many indirect taxes from state and national level. The GST Implementation is not 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. For example manufacturing of a product attract CENVAT. The manufacturer pays CENVAT on goods produced. 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 benefits available. Likewise there are many situations in the nature of cascading effect for instance, State VAT on CST, Entry tax on VAT etc. Now Govt has decided to abolish tax on tax effect by implementing GST. BENEFITS OF GST
1. GST provide comprehensive and wider coverage of input credit setoff, you can use service 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 a single GST instead of all. 3. Uniformity of tax rates across the states 4. 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.

INDIRECT TAXES UNDER GST


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

State taxes
1. 2. 3. 4. 5. 6. VAT/Sales tax Entertainment Tax ( unless it is levied by local bodies) Luxury tax Taxes on lottery, betting and gambling. State cesses and surcharges in so far as they relate to supply of goods and services. Entry tax not on in lieu of octroi.

Central Taxes
1. 2. 3. 4. 5. 6. 7. 8. Central Excise Duty. Additional Excise Duty. The Excise Duty levied under the medical and Toiletries Preparation Act Service Tax. Additional Customs Duty, commonly known as countervailing Duty ( CVD) Special Additional duty of custums-4% ( SAD) Surcharges 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 federal country like India. The end user, i.e. consumer cannot recover taxes but a business can recover by claiming 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 dealer in the exporting state will be available as input tax credit to the purchasing dealer in the importing state. 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 to another state as finalized by the business

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

COLLECTION OF GST
It is same as VAT; Tax is collected on the basis of value addition on each stage of sale. Both CGST and SGST would have to be charged in an every service bill and sale bill and paid after adjusting input 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 on CGST can be utilized for the payment of CGST only. This means that cross utilization of input tax credit will not be allowed. Making it clearer; input tax credit of CGST cannot be utilized for the payment of SGST and vice versa. However there is an exemption for the above in the case of interstate transaction.For interstate transaction 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 some goods and services are exempted under GST. The dealer whose turnover is below prescribed limit need not pay tax. Threshold for annual turnover for goods and services would be 10 lakh for SGST and threshold of CGST for goods may be 1.5 crore and service would have a separate thresho that too will be ld appropriately high.

GST RATES
The rate structure would be as follow;but not final 1. 2. 3. 4. A lower rates for essential commodities Standard rates for general goods Special rates for precious metals 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.

LATEST IN GST
Bihar deputy chief minister Sushil Kumar Modi is the new head of the empowered group of finance ministry to usher in the biggest tax reform in the country. The Tamil Nadu Foodgrains Merchants Association has urged Sushil Kumar Modi, Bihar Deputy Chief Minister and the new Chairman of the Empowered Committee of State Finance Ministers on Goods and Services Tax (GST), to ensure that tax exemptions granted to all commodities under value added tax (VAT) continued in the GST also. Introduction of negative list concept for services. Most chambers are ye to submit their formal t views on the same. But chambers like FICCI and Assocham have indicated that they favour the negative list approach. April 2012 deadline for implementation of the long-awaited GST could be moved to June or July 2012 as the central and state governments continue trying to resolve their differences.

FUNDING OPTIONS AVAILABLE FOR COMPANIES VARUN. R r_varun89@yahoo.co.in

For every prospective business it is extremely important to seek different sources of appropriate funding. When an entrepreneur is able to successfully raise the desired amount of capital, the new business will be able to thrive. It may take a considerable amount of time to break-even and earn revenue; 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 business expenses. This can include property rent, employee salaries, marketing expenses, inventory, day -today 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.

LONG TERM FUNDS

EQUITY

DEBT

TERM LOANS SHARE CAPITAL RETAINED EARNINGS DEBENTURES & BORROWINGS PUBLIC DEPOSITS

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. Debentures These are also issued to the general public at a fixed rate of interest. These debentures may be redeemable or irredeemable. These instruments are also issued with an option to convert them into shares at a specific future date at agreed upon price. The holders of debentures are the creditors of the company Public Deposits General public also like to deposit their savings with a popular and well established company which can 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 fixed rate 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.

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 Equity It 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 S F ST V E ES IS TI G F BILLS

E IT

E IT

ES

SH

E IT

VE

FT

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) Overdraft When 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 the period of bill. Customers Advances Sometimes businessmen insist on their customers to make some advance payment. It is generally asked when the value of order is quite large or things ordered are very costly. Customers advance represents a part of the payment towards price on the product (s) which will be delivered at a later date. Customers generally agree to make advances when such goods are not easily available in the

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

Factoring: It is a financial transaction whereby a business job sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. Factoring differs from a bank loan in three main ways. First, the emphasis is on the 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, a bank 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 credit facility whereby companies can avail facilities like Bank guarantees, Letter of Credit etc.

DOUBLE TAXATION AVOIDANCE AGREEMENT

KARTHIKEYAN R
only2uu@gmail.com

Need for DTAA: Generally, the two legal criteria for taxability under any tax law are the residence and source. On The source rule holds that income is to be taxed in the country in which it originates irrespective of whether the income accrues to a resident or a non-resident whereas the residence rule stipulates that the 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 an international scale would become prohibitive and would deter the process of globalisation. It is from this 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 two countries 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 re idence s country. Such rules are laid for various categories of income, for example, interest, dividend,

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

Types of Double Taxation Relief: Relief from double taxation can be provided in mainly two ways: 1. Bilateral Relief; and 2. Unilateral Relief. Bilateral Relief: Under this method, the Governments of two countries can enter into an agreement to provide relief against double taxation by mutually working out the basis on which the relief is to be granted. 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 their respective 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 thereon in 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 no mutual 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 also provide 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 and 3. Recovery of taxes.

DTAAs entered by India: India has comprehensive Double Taxation Avoidance Agreements (DTAA) with 81 countries. This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country to a tax resident of another country. IT needs mention that the Double Taxation Avoidance Agreements (DTAA) entered into by India with various countries needs independent study and scrutiny as they invariably differ from one another in substance. DTAA overrides domestic law:
It needs to specifically mentioned that the specific provisions of the comprehensive Double Taxation Avoidance Agreements (DTAA) should override the general provisions of the Income Tax Act 1961 clarified by circular of CBDT 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 that extent. The assessee can seek application of the provisions of the Indian Income Tax Act as against the provisions of the agreement.

Recent Developments:

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 through Mauritius 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 renegotiation 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


srinathvagul@gmail.com

What is Tax Planning?


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

What is Tax Evasion?


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

Tax Planning in Indirect Tax:The taxable event in income tax is the act of generation of income, which is measured in terms of net profit. It is an accounting concept. Hence tax planning for corporate can be done by legal experts and Chartered Accountants on the Direct Tax side as Direct Tax is levied on the Net Profit of the company which 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 valu of royalty e and technical knowhow fee. The taxable events in the case of indirect taxes are transaction based. In the case of Customs duty it is the act of import or export. In the case of Excise duty it is the act of manufacture. In the case of VAT, it is the act of adding value. In the case of service tax, it is the act of providing service. These are all precise and physical concepts. Import is bringing things into India from a foreign country, which is a very precise concept. Manufacture is a physical concept. The act of addition of value for the purpose of value added tax is reflected on paper but it is a simple concept. The act of providing service is also a clear concept with few controversies about whether something is a service or not. Thus, we find that the taxable events on indirect taxes are much more precise. Either they are physical or easily identifiable. On the other hand, net profit can be shown as less or more due to manipulation of 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 of the 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 such concept. It is important to clarify that availing of an exemption is neither evasion not tax planning. An exemption for opening a factory in a designated area such as Uttarakhand or for using some special types of input is clearly available to the manufacturers. If they avail of it, it is just legal and not an evasion. This cannot be called tax planning. The word tax planning has a shady connotation. It smacks of suitable manipulation of accounts. Even though it is difficult to carry out tax planning on the Indirect Tax front one must adhere to the following commandments while carrying out Tax Planning:-

1. Tax requires talent and ability: Tax planners should possess in themselves proper and good knowledge of tax laws so that they can apply their talent and ability in tax planning. Besides tax laws, 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 only reducing 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 is being done but also all the applicable direct taxes and indirect taxes, levies and costs.

3. Past, present and future tax repercussions to be considered: All the past, present and future tax repercussions should be considered while planning a proposal where they are conflicting in nature, they must be carefully analyzed and then final decision should be taken. Those proposals which give permanent tax benefit (may be of smaller amount) should be considered better than those proposals which give temporary tax benefits (i.e. which involve litigations). Though, these implications 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 a particular 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 laws and he should carefully study the case laws which are against the assessee so that the weakness of those cases are taken care of in the present planning. 6. All the alternatives should be assessed: Tax planner must weigh and compare various alternatives available for reducing the tax incidence in order to achieve clients objectives. It is for the tax consultants to dig out the real issues and work out the various alternatives and assess their tax 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 evaluate the 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 areas of litigation and their consequences because it is ultimately the client who should decide whether or not he wants to undertake those risks. Some assesses want to play completely safe (i.e. they are risk averse) whereas others may be prepared to take risks for a reasonable reward (i.e. they are risk lovers) in the form of tax saving. But, still the ultimate decision has to be taken by the client and 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 the transaction. Therefore, need for proper documentation is a requisite factor in the implementation of tax planning. b.) After implementation of the tax planning proposal, appropriate disclosure must be made in the tax returns so as to avoid any penalty for concealment of income/wealth/gift. c.) It is also important to make proper representations before the Assessing Officer and the 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 then develop 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 carryout efficient 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.

Companies (Auditors Report) Order, 2003

VENKATESH. C
ven222ster@gmail.com

Applicability
CARO order is applicable to every company including a foreign company except the following : i. ii. iii. iv. Banking Company Insurance Company Company registered under Section 25 of the Companies Act 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 or financial institution and does not have a turnover exceeding rupees five crore at any point of time during the financial year.

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 such verification and if so, whether the same have been properly dealt with in the books of accounts c. If a substantial part of fixed assets have been disposed off during the year, whether it has affected the going concern. ii. a. Whether physical verification of inventory has been conducted at reasonable intervals by the management b. 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 of its 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 the same 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 or unsecured are prima facie prejudicial to the interest of the company. c. Whether receipt of principal amount and interest are regular d. 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 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. f. Whether the rate of interest and other terms and conditions of the loans secured or unsecured are prima facie prejudicial to the interest of the company. g. Whether payment of principal and interest are regular. 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 in internal control system. 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 been made at prices which are reasonable having regard to the prevailing market prices at the relevant time; (This information is required only in case of transactions exceeding the value of five 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 by the Reserve Bank of India and the provisions of sections 58A, 58AA or any other relevant provisions of the Act and the rules framed there under, where applicable, have been complied

iv.

v.

vii.

viii. ix.

with. If not, the nature of contraventions should be stated; If any order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other tribunal whether the same has been complied with or not. In the case of listed companies and other companies having a paid up capital and reserves exceeding rupees 50 lakh as at the time of commencement of the financial year or having an average turnover exceeding 5 crore for a period of three consecutive financial years immediately preceding the financial year concerned, whether the company has an internal audit system commensurate with the size and nature of its business. Where the maintenance of cost records has been prescribed central govt as per section 209 of the companies act, whether such accounts and records have been made and maintained. a. is the company regular in depositing undisputed statutory dues including Provident Fund, Investor Education and Protection Fund, Employees' State Insurance, Incometax, Sales-tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty, cess and any other statutory dues with the appropriate authorities and if not, the extent of the arrears of outstanding statutory dues as at the last day of the financial year concerned for a period of more than six months from the date they became payable, shall be indicated by the auditor. b. in case dues of Income tax/ sales tax/wealthtax/ service tax/ Customs duty/Excise duty/cess have not been deposited on account of any dispute, then the amount s involved and the forum where dispute is pending shall be mentioned 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 net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year. Whether the company has defaulted in repayment of dues to a financial institution or a bank or debenture holders? If yes, the period and amount of default to be mentioned. Whether adequate records and documents are maintained in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities., if not the deficiencies to be pointed out. Whether the provisions of any special statute applicable to chit fund have been duly complied with. 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 date of 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 the borrowers. d. whether the repayment schedule of various loans granted by the nidhi is based on the repayment capacity of the borrower. if the company is dealing or trading in shares, securities, debentures and other investments whether proper records have been maintained of the transactions and contracts and whether timely entries have been made therein; also whether the shares, securities, debentures and 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. 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 the company. Whether term loans were applied on the purpose for which they were applied. 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. 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 have been issued is prejudicial to the interest of the company.

x.

xi. xii.

xiii.

xiv.

xv.

xvi. xvii. xviii.

xix. xx. xxi.

whether security or charge has been created in respect of debentures issued? Whether the management has disclosed on the end use of money raised by public issues and the same has been verified. 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 unfavourable or 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 there for.

INCORPORATION OF COMPANY SUBHASHINI R


rnandhini1988@gmail.com

INTRODUCTION
Incorporation of Companies in India and setting up of branch offices of foreign corporations in India are regulated by the Companies Act, 1956. The Companies Act of 1956 sets down rules and regulations 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 most commonly used corporate form is the limited company, unlimited companies being relatively uncommon. 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 Reserve Bank of India to open its branch offices in India. Application for permission to open a branch, a project office or liaison office is made via the Reserve Bank of India by submitting form FNC-5 to the Foreign Investment and Technology Transfer Department of the Reserve Bank of India. For opening a

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

APPROVAL OF NAME
The first step in the formation of a company is the approval of the name by the Registrar of Companies (ROC) in the State/Union Territory in which the company will maintain its Registered Office. This approval is provided subject to certain conditions: for instance, there should not be an existing company by the same name. Further, the last words in the name are required to be "Private Ltd." in the case of a private company and "Limited" in the case of a Public Company. The application should mention at least four suitable names of the proposed company, in order of preference. In the case of a private limited company, the name of the company should end with the words "Private Limited" as the last words. In case of a public limited company, the name of the company should end with the word "Limited" as the last word. The ROC generally informs the applicant within seven days from the date of submission of the application, whether or not any of the names applied for is available. Once a name is approved, it is valid for a period of six months, within which time Memorandum of Association and Articles of Association together with miscell neous a documents should be filed. If one is unable to do so, an application may be made for renewal of name by paying additional fees. After obtaining the name approval, it normally takes approximately two to three 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 be submitted to the ROC for the purpose of incorporation of a company. The Memorandum of Association 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 of company - the shareholders, the directors or simply the registered agent) must sign the articles of incorporation - the main document that defines the name of the company being formed, its internal management structure, the possibility of increasing or reducing its share capital, as well as the details stipulating 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 with them, 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 the company, the date of its registration or incorporation, usually (but not in all jurisdictions) also the address of its registered office, the name of the registered agent of the company and the objects of the company. The ROC will give the certificate of incorporation after the required documents are presented along with the requisite registration fee, which is scaled according to the share capital of the company, as stated in its Memorandum. A private company can commence business on receipt of its certificate of incorporation.

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 company to 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 company decides 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 to the 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 and forms 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 of Incorporation 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 to receive a Certificate of Incorporation. Although a private company can commence business immediately 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 for appointment 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 of the Memorandum and Articles of Association of the proposed company. # Original copy of the letter of the Registrar of Companies intimating the availability of name. # Form No. 18 - Situation of registered office of the proposed company. # Form No. 29-Consent to act as a director etc. Dates on the consent Form and the undertaking letters should be the same as is mentioned in the Memorandum of Association signed by the director himself. A private company and a wholly-owned Government company are not required to file Form No. 29. # Form No. 32 (in duplicate). Particulars of proposed, directors, manager or secretary. # Power of attorney duly typed on a non-judicial stamp paper of the requisite value. The stamp paper should be purchased in the name of the persons signing the authority.

# No objection letter from the persons whose name has been given in application for availability of name in Form No. 1-A as promoters/directors but are not interested at a later stage should be obtained filed with the Registrar at the time of submitting documents, for registration # The agreements, if any, which the company proposes to enter with any individual for, appointment as managing or whole-time director or manager are also to be filed. FEES
Fee payable depends on the nominal capital of the company to be registered and may be paid in one of the following modes. Cash/postal order (upto Rs.501-), demand draft favouring Registrar of Companies/Treasury Challan should be payable into specified branches of Punjab National Bank for credit

TAX REGISTRATION
Businesses liable for income tax must obtain a tax identification card and number [known as Permanent Account Number (PAN)] from the Revenue Department. In addition to this, businesses liable to withhold tax must necessarily obtain a Tax Deduction Account Number (TAN). Both the PAN and the TAN must be indicated on all the returns, documents and correspondence filed with the Revenue Department. The PAN is also required to be stated in various other documents such as the documents pertaining to sale or purchase of any immovable property (exceeding Rs. five lakh), sale or purchase of a motor vehicle, time deposit (exceeding Rs. 5 lakh), contract for sale or purchase of securities (exceeding Rs. 10 lakh), to name a few.

ADDITIONAL STEPS TO BE TAKEN FOR PRIVATE COMPANIES


y Apply for DIN (Director Identification Number) Documents Required: Identity and Address proof

and one passport size photo of the proposed directors.[information required about directors are Name, Father's Name, Date of Birth, Nationality, Present Residential address, Permanent Residential address] y Apply for Digital Signature Documents Required: Identity and address proof of the any one proposed director y Apply for the availability of the name (Suggest 3-4 name for the new company) y Drafting of Memorandum and Article of association y Pay Stamp Duty on Memorandum and Articles of Association (Now you can pay stamp duty online electronically also) y File the documents for Company Registration (Form 1, Form 18, Form 32, Power of attorney) y Get the Registration Certificate through email and speed post. y There should be at least to directors of the company. y The two directors will be the subscriber of the memorandum and they subscribe the minimum capital. y Minimum capital for a private company is INR 1,00,000/y Registration fee is depending upon the authorized capital of the company. It should be equal or more than the subscribed capital of the company. y Regarding non-resident interest in the company Foreign Exchange management Act is controlled all the issue. You can invest up to 100% depending upon the type of industry

ADDITIONAL STEPS TO BE TAKEN FOR PUBLIC COMPANIES


y

Arrange for payment of application and allotment money by Directors on shares taken or agreed to be taken.

y y y

File the statement in lieu of prospectus with ROC in schedule-iv of the Companies Act. File a declaration in Form-20 duly signed by one of the Director. Obtain the Certificate of Commencement of Business.