VOLUME 72 NO.

06 PAGES -132 DECEMBER 2023 `100

JOU R NAL OF TH E I N STITUTE OF CHARTE R E D ACCOU NTANTS OF I N D IA



ICAI - S ET U P BY AN ACT OF PAR LIAM E NT


THE CHARTERED ACCOUNTANT
ICAI: The ‘I’ that is Shaping India’s Financial Landscape
T
he alphabet “I” in acronym ICAI holds a
significance that goes beyond a simple term
and may pose a challenge for individuals at
the first glance. Understanding the depth of its
meaning may not even be possible. Let’s delve into a
few notable aspects of the term “I” in ICAI.
Foremost among these is its association with
“India.” ICAI witnessed the adoption of the Indian
constitution, distinguishing it as one of the few
statutory bodies in existence during that period.
During the early stages of independence, newly
formed nations encountered various dependencies.
This underscored the necessity of an independent
accounting body capable of making decisions
aligned with the needs of the time and the future
requirements. The “I” as India within ICAI is pivotal,
taking on the responsibility of nurturing and guiding
the country’s finance sector as a guardian during
the time when India was striving to establish itself.
Human perception is often selective, and what one
sees is influenced by personal perspectives. In our
observation, when we perceive India, the first “I” that
comes to our mind is ICAI. At times, this “I” appears
as an “eye,” metaphorically positioning ICAI as the
eyes of India through which the country views its
finance sector. This analogy draws attention to the
critical importance of “I” in ICAI acknowledging the
pivotal role the institute plays in shaping and
overseeing India’s financial landscape.
Additionally, the “I” in ICAI symbolizes the Institute.
ICAI has played a vital role in shaping the professional
landscape of India. Known for upholding standards
of professional competence and financial
accountability, ICAI is a leading professional
accounting body. The rigorous and credible
examination process ensures that competent
individuals attain the esteemed CA qualification.
ICAI consistently updates its curriculum to align with
global standards, equipping CAs with the skills to
navigate dynamic global business scenarios. As a
regulator for Accounting and Auditing profession,
ICAI through its members and firms ensures reliable
audits, promoting transparency and instilling trust in
financial reporting. In addition, ICAI actively
contributes to research and development efforts
while organizing events that facilitate knowledge
exchange among its members. The institute’s
commitment to excellence has been recognized
internationally.
Furthermore, another noteworthy aspect of the
alphabet “I” in acronym ICAI refers to Individual
www.icai.org
663
Members, who serve as instrumental contributors
to ICAI’s overarching goal of national service.
Their role is significant as they actively work to
fulfil ICAI’s objectives, serving as supportive pillars
and embodying its mission through their unique
contribution. Each individual member serves as a
representative of ICAI, playing a crucial role in
upholding the organization’s reputation and
contributing for Nation Building. Operating at the
grassroots level, these members are working as
vital ambassadors for ICAI all around the world.
To illustrate the impact of ICAI’s work through its
members, consider the following short story: A
boy diligently placed entangled fishes to the
ocean, rescuing them from the shore during high
tide. Despite the vast number of fishes, the boy
remained committed to his task. A skeptical
person approached him, questioning the
effectiveness of his efforts and deemed it to be a
futile exercise. The boy, while throwing back the
EDITORIAL
struggling fishes to the ocean, replied with a smile,
“I’m sure these fishes would disagree with you.”
This narrative parallels the work of ICAI members.
Confronted with the challenge of a large population
that lacks financial literacy, members may not be
able to assist everyone simultaneously.
Nevertheless, they tirelessly put efforts to bring out
every possible transformative change in the lives of
their clients, citizens of country by addressing their
challenges. Each member understands that their
service, like the boy’s act, has a meaningful impact
on the lives of common man.
In conclusion, the “I” in ICAI plays a dual role as
the Illuminator and Invigilator, symbolizing a
potent force in India’s economic landscape. As
the Illuminator, ICAI has been a guiding light in
finance, promoting transparency and stability
while shaping the nation’s financial landscape.
Acting as a guardian during the formative years,
it has been pivotal in fostering credibility.
Simultaneously, as the Invigilator, ICAI propels
transformative change, leading efforts in
enhancing professional competence and
financial accountability. The institute equips
professionals to navigate global business
dynamics, with its members serving as catalysts
for impactful change. In essence, the “I” in ICAI
serves as a powerful force galvanizing India’s
growth story and igniting positive transformation
in the ever-evolving financial domain.
-Editorial Board ICAI: Partner in Nation Building
DECEMBER 2023 3
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VOLUME 72 NO. 06 PAGES -132 DECEMBER 2023 `100

691 Leveraging G20 Summit Outcomes: Role of

Chartered Accountants
JOU R NAL OF TH E I N STITUTE OF CHARTE R E D ACCOU NTANTS OF I N D IA
- CA. (Dr.) Sanjeev Singhal

- Viraj Singhal

696 Commitment, not coins, forges the brilliance of

a Chartered Accountant
- CA. (Dr.) Raj Chawla

701 Nurturing MSMEs to empower India’s Economic

Growth
- CA. Krishna Kanhaiya

705 Sustainable Growth Model: Shaping India’s

ICAI - S ET U P BY AN ACT OF PAR LIAM E NT

Economic Landscape
DECEMBER 2023 - Prof. Dr. Neelam Tandon
IN THIS ISSUE...

VOICE
663 Editorial TAXATION
- ICAI: The ‘I’ that is Shaping India’s
Financial Landscape 709 Democratizing Wealth Creation: Decoding
the Potential of REITs in Making Real Estate
666 From the President Investment an Accessible Reality
- CA. Shaily Gupta
CONTENT

MEMBERS 719 Comprehensive analysis of issues arising from

the Extraterritorial taxation of dividend under
Article 10(5) of OECD Model Tax Convention
670 Photographs - CA. Amit Rustagi

674 Report 727 Angel Taxation: An Investment Scenario in India

Global Professional Accountants - Aliza
Convention (GloPAC) “Connecting the - Dr. A.R. Tripathi
Globe, Creating Value”

682 New CA India Logo

684 Know Your Ethics

769 Opinion SUSTAINABILITY

786 Classifieds
733 Embedding ESG (Environmental, Social and
Governance) into Banks’s Strategy:
A Comprehensive Review

UPDATES - Dr. Dileep Kumar S. D.

- Jyothi G. H.

703 Special Segment 740 The Finance Function and Sustainable

Development
704 Accountant’s Browser - CA. Aditya Maheshwari

775 Legal Updates

- Legal Decisions
- Circulars and Notifications

FINANCIAL MARKET
THEME 745 Asset Pricing Models to Predict Returns: A
Comparative Study
- CMA Dr. Jeelan Basha V
687 India: An Emerging Global
- Tejesh H R
Accounting Hub
- CA. Atul Kumar Gupta

4 DECEMBER 2023 www.icai.org

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THE CHARTERED ACCOUNTANT

CONTENT
VOLUME 72 NO. 06 PAGES - 132 DECEMBER 2023 `100

EDITOR-IN-CHIEF CA. ANIKET SUNIL TALATI

Editor-In-Chief
JOINT EDITOR CA. RANJEET KUMAR AGARWAL
Joint Editor
MEMBERS CA. VISHAL DOSHI
CA. MANGESH PANDURANG KINARE
CA. PRITI SAVLA
CA. RAJENDRA KUMAR P
CA. SRIPRIYA KUMAR

INSOLVENCY CA. (DR.) DEBASHIS MITRA

CA. ABHAY CHHAJED
CA. PRAKASH SHARMA
751 Impact of Covid-19 on the Insolvency CA. KEMISHA SONI
Law in India: Measures for Long-Term CA. (DR.) RAJ CHAWLA
Development and a Way Forward CA. HANS RAJ CHUGH
- Harsh Goel CA. CHARANJOT SINGH NANDA
- Prof. Manoj Kumar Agarwal CA. (DR.) SANJEEV KUMAR SINGHAL
DR. P. C. JAIN
CA. M. DEVARAJA REDDY
CA. ANANDRAJ NAHAR H K
CA. MANISH AKHILRAY BAXI

ACCOUNTING STANDARDS CA. RUTVIJ P. SHAH

CA. SHAH DILIPKUMAR VADILAL

757 Cluster Analysis Approach to Measure ICAI EDITORIAL TEAM: KUNAL SHARMA, SECRETARY, EDITORIAL BOARD

Awareness of Hedge Accounting and the DR. NEETU SINGH, ASSISTANT SECRETARY

Significance of IFRS-9 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

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789 Glimpses of November - December - 2023

ACCOUNTANT are those of the authors and do not necessarily reflect those of
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www.icai.org DECEMBER 2023 5

 666
FROM THE PRESIDENT
CA. Aniket Sunil Talati
President, ICAI
Dear Professional Colleagues,
As the world turns its gaze toward the Indian
subcontinent, the resonance of India’s growth
story echoes far beyond its borders. At the
precipice of a profound transformation, India is
not merely witnessing change but embodying a
remarkable evolution that positions it as one of
the fastest growing economies globally.
Transcending its previous trajectories, India has
stepped into the global spotlight and is cementing
its position as a prominent economic and
geopolitical juggernaut. India’s seamless
transition from a developing nation into a
distinguished global powerhouse heralds an era
of unparalleled growth and promise.
The call for New India’s development into an
Aatmanirbhar Bharat is not merely a slogan but a
clarion call for the emergence of a self-reliant and
globally influential nation. The spirited aim to
become a US$ 5 trillion economy by 2025, the
world’s third-largest economy, underscores
India’s forward-looking vision and emphasizes
the monumental nature of this transformative
journey. Assuming the G20 presidency, India
entered the forefront. The period of India’s G20
presidency, which ends on November 30, marked
a significant juncture, offering an unprecedented
chance to highlight India’s rich cultural and
business heritage. It served as a defining
moment, illustrating India’s true potential to
emerge as a decisive force in shaping the global
economic landscape.
India’s growth remains a compelling narrative
marked by a comprehensive and forward-thinking
6 DECEMBER 2023
THE CHARTERED ACCOUNTANT
approach. The nation’s trajectory in addressing
economic development and environmental
sustainability reflects a multifaceted strategy that not
only prioritizes consistent higher economic growth
but also places a strong emphasis on adopting and
implementing eco-friendly practices and policies. The
Government on its part is strategically prioritizing
robust capital expenditure, focusing on the
development of infrastructure to stimulate job
creation, encouraging private consumption, and
propelling overall economic growth.
In this journey of India’s transformation, the role and
contributions of Chartered Accountants (CAs)
fraternity stand as a crucial cornerstone in the
nation’s economic ascent. As custodians of financial
integrity and architects of transparency, CAs play an
instrumental role in fortifying the economic
foundations of an Aatmanirbhar Bharat. In this era
where resilience, innovation, and self-sufficiency are
paramount, the collaboration between New India’s
aspirations and the strategic guidance of CAs has
become a guiding light, steering our nation towards
a future where economic sovereignty is both a reality
and a source of global influence. As we chart this
transformative path, our contribution as professionals
become inseparable from the narrative of India’s
self-reliant and globally resounding journey.
Let’s have a look at some of the recent
developments related to the profession:
Audit Diwas – Augmenting Accountability
in Local Governance
The foundation of a strong national economy rests
on professional and skilled auditing. Acknowledging
the importance of the Comptroller and Auditor
General (C&AG) institution, the 3rd Audit Diwas was
celebrated on 16th November, 2023 which showcased
its remarkable contribution to transparency and
good governance. The event was inaugurated by
Smt. Draupadi Murmu, President of India. In her
address, Smt. Draupadi Murmu, President of India
stated that “Auditors should be considered as
facilitators of Good Governance, not Critics”. She
added that they should be considered guides whose
scrutiny teaches us to follow the right path.
I had the privilege to be part of this prestigious event
and I am elated to inform you that the ICAI through
Accounting Research Foundation (ARF) shall be
working with the office of C&AG for strengthening
the local governance accounting by way of capacity
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THE CHARTERED ACCOUNTANT
building. During the event the Certificate course was
launched which will be conducted by ICAI-ARF as
part of MoU with C&AG to address the requirement
of skilled accountants for municipalities and
panchayats accounts.
Global Perspective, Universal Impact -
GloPAC 2023
ICAI embarks on a historic journey with organising
the first-ever Global Professional Accountants
Convention (GloPAC) event on the theme Connecting
the globe, Creating value, a testament to our
commitment to excellence in the accounting
profession. A magnanimous event of ICAI, the
convention delved upon the shaping the future of the
accountancy profession, illuminating the path
towards a globally revered accountancy profession
and a sustainable future.
The three days mega convention was inaugurated
by Shri Jagdeep Dhankhar, Hon’ble Vice-President
of India as the ‘Chief Guest’ along with ‘Guests of
Honour’ CA. Piyush Goyal, Hon’ble Minister of
Commerce and Industry, Consumer Affairs, Food
and Public Distribution and Textiles and Shri Praful
Pansheriya, Hon’ble Minister of State for
Parliamentary Affairs, Primary, Secondary and Adult
Education, Higher Education, Govt. of Gujarat and
benign presence of Ms. Asmaa Resmouki, President,
International Federation of Accountants (IFAC),
Ms. Anuradha Thakur, Additional Secretary, Ministry
of Corporate Affairs(MCA). The convention hosted
more than 4400 delegates from 25 countries.
The Chief Guest Shri Jagdeep Dhankhar, Hon’ble
Vice-President of India applauded ICAI for hosting
such a grand convention and said, “As we
collectively shape India’s destiny for 2047. You
(Chartered Accountants) are nerve centre, epicentre
of big change, your efforts, your farsighted
approach, your commitment will make Bharat the
most developed nation on this planet. While
institutions are vital for democratic governance and
nurturing of democratic values, ICAI has been
playing a stellar role in building, standardising and
sustaining the financial framework of the nation.”
He further added, “Chartered Accountants are
uniquely positioned as important pillars in the
economic growth of the nation. CAs in Bharat
have the highest ethical quotient and the
signature of a Chartered Accountant is an
unrivalled brand. You are the soldiers in
incremental growth trajectory of the Country.”
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FROM THE PRESIDENT
He also stated that, “Signature events in the
World are great, they indicate branding, but
signature of a Chartered Accountant is unrivalled
brand because this brand contains an element
of impregnability………. Your (Chartered
Accountants’) signature is signature.”
Guest of Honour CA. Piyush Goyal, Hon’ble
Minister of Commerce and Industry, Consumer
Affairs, Food and Public Distribution and Textiles
said, “Our strength, as highlighted by our Prime
Minister, lies in the trust and truth embedded in a
CA’s signature.” He further said that as the largest
accounting body our profession with a commitment
to act with a commitment to accountability will
going to be the change agent as India moves
forward and rises to become 3rd largest economy.
Our profession is going to play an important role in
India’s journey of Amritkaal and in this we must
continue to evolve and embrace the changes to
make India a prosperous and progressive nation.
Our profession can play a significant role in
attracting investment and technology globally.
Let’s focus on going global, making our companies
more visible worldwide.
The ground-breaking event witnessed delegates
from International Professional Accounting
Organizations, Firms, Regulators, Economists,
Academicians, Commerce Groups, Business
Leaders, Policymakers, Standard Setters and
esteemed global leaders from Accountancy
Profession. We are hopeful that the convention is
poised to establish new standards for global
collaboration, offering a platform for profound
discussions and insights into the evolving
dynamics of the accountancy profession which
will further strengthen the position of ICAI as a
global thought leader.
Launch of New CA India Logo –
Symbolizing India First Approach
During the GloPAC, the new CA India logo was also
launched with the august hands of Hon’ble Chief
Guest. The New logo reflects the accountancy
profession’s unwavering commitment towards being
a partner in nation building. To elaborate further each
element of the new CA India logo tells a story of our
profession’s dedication to excellence, transparency,
and accountability.
The logo consists of the letters ‘CA’ in blue colour
with a tricolour tick mark (upside down) with white
DECEMBER 2023 7
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FROM THE PRESIDENT
background. The blue colour denotes creativity,
innovativeness, knowledge, integrity, trust, truth,
stability, and depth. The upside-down tick mark in
tricolour, typically used by Chartered Accountants
during audit, has been included to symbolise the
wisdom and value of the professionals.
‘India’ is also added in the logo, as it epitomizes
the Institute’s connection to India First approach
and commitment to serve the Indian economy in
public interest. The detailed guidelines are
separately published inside the journal for
reference of all.
MoU signed with IFSCA, and GIFT City –
Bolstering India’s Financial Landscape
Globally
I am delighted to inform you that Memoranda of
Understanding (MoUs) with International Financial
Services Centres Authority (IFSCA) and Gujarat
International Finance Tec-City Company Limited
(GIFT City) were exchanged during GloPAC with Mr.
K Rajaraman, Chairperson, International Financial
Services Centres Authority, and Shri Tapan Ray, MD
and CEO, GIFT City respectively.
The MoU with IFSCA aims to enhance collaboration
and promote financial excellence by jointly organizing
international and domestic events, conferences,
seminars and roundtable meetings and harnessing
the expertise of both entities to bolster the financial
landscape in India and on the global stage.
The MoU with GIFT City aims to create opportunity
for profession by strengthening their skill sets on
topic related to International Financial Services
Centre (IFSC) business and regulations and to
facilitate research in the field of international financial
services for GIFT IFSC.
SAFA Board & Committee Meetings,
Networking and SAFA Collaboration
Summit
On the sidelines of GloPAC, India hosted the SAFA
Board and Committee meetings from 23-24
November, 2023 in Gandhinagar. I along with CA.
Ranjeet Kumar Agarwal, Vice President, ICAI, CA.
Nihar N. Jambusaria, Past President, ICAI and
President, SAFA attended the 80th SAFA Board
meeting on November 24, 2023. The meeting was
also addressed by Ms. Asmaa Resmouki,
President, IFAC.
8 DECEMBER 2023
THE CHARTERED ACCOUNTANT
Further, Networking and SAFA Collaboration Summit
was held on November 25, 2023. The objective of
the aforesaid Summit was to Connect, Share, and
Grow within vibrant community of CA professionals.
There was an overwhelming response with a
substantial participation from both Domestic and
International Chartered Accountant fraternity.
International Developments
• Launch of USA (Philadelphia) Chapter of ICAI
In line with our vision to take our profession
global the USA (Philadelphia) Chapter of ICAI
was launched on October 28, 2023. It is the 10th
Chapter of ICAI in the United States of America.
I, along with CA. Ranjeet Kumar Agarwal, Vice
President, ICAI addressed the event virtually.
The event also witnessed the presence of Mr.
David Powell, CEO, Chartered Accountants
Worldwide Network USA; Mr. Scott Hanson,
Director, Policy and Global Engagement at IFAC
and Mr. Srinivas Gurazada, Head, Public
Expenditure and Financial Accountability (PEFA)
Secretariat. With this launch , ICAI has now 48
Chapters and 33 Representative offices in 81
global cities of the world.
• IFAC Board & Council Meetings, Vienna
IFAC Board and Council Meetings were held
recently which were attended by ICAI
representatives. The meeting delved upon the
issues concerning the accounting profession
and in the changing global paradigm and
provided an apt forum to deliberate and discuss
on ways the profession can contribute to shape
the global financial landscape.
During the visit CA. Ranjeet Kumar Agarwal,
Vice President, ICAI also met with His Excellency
Shri Jaideep Mazumdar, Ambassador of India to
Austria, Montenegro & The Holy See, Embassy
of India, Vienna on November 14, 2023. The
discussions were held to explore expanding the
presence of Indian Chartered Accountants with
the support of embassy by way of collaborations
with the local institutions. A meeting was also
held with Prof. Michael Lang, Head of Institute,
Department of Public Law and Tax Law, Institute
for Austrian and International Tax Law, Vienna
University of Economics and Business, Vienna.
• Conference of Doha Chapter of ICAI
I along with CA. Ranjeet Kumar Agarwal, Vice
President, ICAI attended 9th Annual Conference
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THE CHARTERED ACCOUNTANT

FROM THE PRESIDENT
on the theme ‘Embracing AI: Future Finance My Condolences
Catalyst’ organized by the Doha Chapter of ICAI
With profound grief I would like to inform that our
on October 26, 2023 at Doha, Qatar. The event
Past President (1983-84) CA. P. N. Shah passed
also witnessed the presence of Chief Guest CA.
away on November 15, 2023. His words from the
Suresh Prabhu, Former Union Minister.
concluding para of Second Volume of the History
ICAI Convocation of Accounting Profession in India that “Our
members and students will have to keep themselves
Welcoming the newly qualified Chartered
abreast with latest developments and make
Accountants fills me with great pleasure. I hold a
dedicated efforts to render professional services of
strong belief that these newly qualified individuals
high standard keeping within the bounds of high
will chart a course for the accounting profession
ethical standards.” shall continue to inspire us in
beyond traditional routes, aligning it with the
all our endeavours.
digital age. As said by Former President of India
Dr. APJ Abdul Kalam “If four things are followed - Our heartfelt condolences to his family and may the
having a great aim, acquiring knowledge, hard departed soul rest in peace.
work, and perseverance - then anything can be
achieved”. I take this moment to encourage the In Conclusion
entrants to broaden their horizons and seek out GloPAC was not just a gathering; it was a dynamic
emerging pathways. As India takes the lead in the hub of learning. I want to express my heartfelt
upcoming phase of growth, I am confident that the gratitude and deepest appreciation to the Team
accounting profession will continue to be the ICAI and for the dedication and enthusiasm
catalyst for value creation. demonstrated by all the participants. Your
contributions were instrumental in making
The Convocation ceremony was held on December
GloPAC a phenomenal success. The event’s
4 & 5, 2023 across 12 venues nationwide, where
impact resonates with the global accounting
new members were honoured and conferred with
community’s commitment to continuous learning,
membership certificates. A commendable more than
excellence, and advancing the profession in an
12,700 recently enrolled Chartered Accountants
ever-changing global economy. I would like to
received their certificates during this round of
reiterate what I stated Think Global, Act Noble,
convocation.
be Vocal for Local.
ICAI Campus Placements Together, let us script the next chapter of India’s
I am delighted to inform that 58th Campus growth story - a chapter that echoes with inclusivity,
Placement Programme held for newly qualified sustainability, and prosperity for all. With unwavering
CAs of the May 2023 examinations witnessed an determination and a collective spirit, we shall
overwhelming response, with 169 organizations continue to march forward, ensuring that every
offering a total of 2,713 jobs, out of which 2,105 citizen contributes to and benefits from the
were accepted by our members. The statistics incredible narrative of our nation’s growth.
reflecting the demand for the exceptional skills
and knowledge possessed by our newly qualified Jai Hind! Jai ICAI!
CAs. The highest salary offered for domestic
postings reached INR 23.70 lakhs per annum,
while for international postings, it soared to an
impressive INR 49.20 lakhs per annum. The
average salary across the placements stood at an
impressive INR 11.17 lakhs per annum.

I extend my heartfelt congratulations to all the

members securing placements and express my
gratitude to the participating organizations for CA. Aniket Sunil Talati
recognizing and acknowledging the talent within our President, ICAI
community. New Delhi, 30 November, 2023
th

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THE CHARTERED ACCOUNTANT

ICAI Convocation 2023

Ahmedabad Delhi

Ahmedabad
Bangalore
PHOTOGRAPHS

Hyderabad
Indore

Ghaziabad
Chennai
Ludhiana

Kolkata
Mumbai

Jaipur Pune

ICAI Convocation was graced by ICAI President CA. Aniket Sunil Talati in Ahmedabad and by ICAI Vice-President CA. Ranjeet
Kumar Agarwal in Delhi. The ICAI Convocation 2023 was held in a magnificent manner across 12 locations in the country. The
distinguished guests at various locations were Shri Dr. V.M. Vyas, Vice Chancellor, National Forensic Science University, Ms.
Irina Garg, Principal Chief Commissioner Income Tax, Rajasthan, Smt. Madhuri Tai Misal, MLA, Maharashtra State, Dr. Deepak
Shikarpur, Independent Director with Kinetic Communications and Belrise Group of Industries, ICAI Immediate Past President
CA. (Dr.) Debashis Mitra and Central Council members. (4.11.2023)

10 DECEMBER 2023 www.icai.org

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THE CHARTERED ACCOUNTANT

PHOTOGRAPHS

ICAI President CA. Aniket Sunil Talati and ICAI Vice-President CA. Ranjeet ICAI President CA. Aniket Sunil Talati and
Kumar Agarwal presenting memento to the Chief Guest Shri Jagdeep ICAI Vice-President CA. Ranjeet Kumar
Dhankhar, Hon’ble Vice-President of India in the presence of Guests of Agarwal presenting memento to the Guest
Honour CA. Piyush Goyal, Hon’ble Minister of Commerce and Industry, of Honour CA. Piyush Goyal, Hon’ble
Consumer Affairs, Food and Public Distribution and Textiles and Shri Praful Minister of Commerce and Industry,
Pansheriya, Hon’ble Minister of State for Parliamentary Affairs, Primary, Consumer Affairs, Food and Public
Secondary and Adult Education, Higher Education, Govt. of Gujarat at Distribution at GloPAC, Gandhinagar.
GloPAC, Gandhinagar. (24.11.2023) (24.11.2023)

ICAI President CA. Aniket Sunil Talati and ICAI

Vice-President CA. Ranjeet Kumar Agarwal
presenting memento to the Chief Guest Shri
Yogi Adityanath Hon’ble Chief Minister, Uttar
Pradesh in the presence of Shri Ravi Kishan
Hon’ble Member of Parliament during the
seminar “Nav Srijan 2023” held in Gorakhpur.
Also seen in the photograph are ICAI Central
Council Members CA. Purushottamlal H.
Khandelwal and CA. Gyan Chandra Misra.
(30.11.2023)

ICAI President CA. Aniket Sunil Talati and

ICAI Vice-President CA. Ranjeet Kumar
Agarwal along with the Chief Guest Shri
Yogi Adityanath Hon’ble Chief Minister,
Uttar Pradesh and Shri Ravi Kishan Hon’ble
Member of Parliament released report on
“Industries of Uttar Pradesh-Present Status
and the Road Ahead” jointly prepared by
the Committee for Members in Industry
& Business (CMIB) of ICAI in association
with IIM Lucknow during the seminar “Nav
Srijan 2023” held in Gorakhpur. Also seen
in the photograph are ICAI Central Council
Members CA. Purushottamlal H. Khandelwal
and CA. Gyan Chandra Misra. (30.11.2023)

ICAI Vice-President CA. Ranjeet

Kumar Agarwal along with IFAC
President Ms. Asmaa Resmouki, IFAC
Vice-President Mr. Jean Bouquot,
ICAI Past President & CAPA President
CA. Prafulla P. Chhajed, ICAI Past
President & IFAC Board Member CA.
Atul K. Gupta and ICAI Past President
& SAFA President CA. Nihar N.
Jambusaria attending IFAC Council
Meeting in Vienna. (15.11.2023)

www.icai.org DECEMBER 2023 11

672
PHOTOGRAPHS
ICAI President CA. Aniket Sunil Talati along with Hon’ble
Comptroller & Auditor General of India Shri G C Murmu, Dy.
C&AG Ms. Parveen Mehta & Dy. C&AG Shri Subir Mallick
jointly launched Online Courses for Panchayat and Municipal
Accountants to help augment Local Govt Accounting during 3rd
Audit Diwas (16.11.2023)
ICAI President CA. Aniket Sunil Talati addressing at the
inauguration ceremony of Gandhinagar Branch of WIRC of
ICAI. Also present in the ceremony were ICAI Vice-President
CA. Ranjeet Kumar Agarwal, ICAI Central Council member CA.
Purushottamlal H. Khandelwal,WIRC Chairman and Chairman,
Gandhinagar Branch of WIRC of ICAI. (23.11.2023)
12 DECEMBER 2023
THE CHARTERED ACCOUNTANT
ICAI President CA. Aniket Sunil Talati along with Hon’ble
Comptroller & Auditor General of India Shri G C Murmu,
Dy. C&AG Ms. Parveen Mehta & Dy. C&AG Shri Subir
Mallick jointly launched Online Courses for Panchayat
and Municipal Accountants to help augment Local
Govt Accounting during 3rd Audit Diwas. Also seen in
the photograph are ICAI Central Council members CA.
Kemisha Soni and CA. Prasanna Kumar D. (16.11.2023)
ICAI President CA. Aniket Sunil Talati and ICAI Vice-
President CA. Ranjeet Kumar Agarwal inaugurating
the Gandhinagar Branch of WIRC of ICAI. Also seen
in the photograph are ICAI Central Council members,
WIRC Chairman, Managing Committee members of the
Gandhinagar Branch of WIRC of ICAI. (23.11.2023)
ICAI Vice-President
CA. Ranjeet Kumar
Agarwal along with
ICAI Immediate Past
President CA.(Dr.)
Debashis Mitra &
ICAI Central Council
member CA. Hans Raj
Chugh met Hon’ble
Ambassador of India
to Austria H.E. Shri
Jaideep Mazumdar in
Vienna & discussed
opportunities for
Indian CAs in Austria.
(14.11.2023)
ICAI President CA. Aniket Sunil Talati &
ICAI Vice-President CA. Ranjeet Kumar
Agarwal along with IFAC President Ms.
Asmaa Resmouki, ICAI Past President &
SAFA President CA. Nihar N. Jambusaria,
ICAI Central Council members and SAFA
delegates at 80th SAFA Board Meeting held in
Gandhinagar. (24.11.2023)
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THE CHARTERED ACCOUNTANT

PHOTOGRAPHS

ICAI President CA. Aniket Sunil Talati addressing the Networking & SAFA Collaboration Summit organised on the sidelines of
GloPAC. Also present in the Summit were ICAI Vice-President CA. Ranjeet Kumar Agarwal and ICAI Past President & SAFA
President CA. Nihar N. Jambusaria, SAFA Vice-President Mr. Heshana Kuruppu and ICAI Central Council Members. (24.11.2023)

ICAI President CA. Aniket Sunil Talati (virtually) and ICAI Vice-President
CA. Ranjeet Kumar Agarwal inaugurated the RERA Leadership
Development Program in Hyderabad. Also seen in the photograph are
ICAI Central Council members, officials of more than 10 State RERA
bodies and ICAI officials. (27.10.2023)

ICAI President CA. Aniket Sunil Talati and

ICAI President CA. Aniket Sunil Talati and ICAI Vice-President CA. Ranjeet ICAI Vice-President CA. Ranjeet Kumar
Kumar Agarwal at the Foundation laying ceremony of Centre of Excellence, Agarwal laying the foundation of Centre
Kolkata. Also seen in the photograph are Immediate Past President CA. (Dr.) of Excellence, Kolkata. Also seen in the
Debashis Mitra and ICAI Central Council Members CA. Sushil Kumar Goyal, photograph are Immediate Past President
CA. K Sripriya, and Chairman, EIRC and members of the EIRC. (29.11.2023) CA. (Dr.) Debashis Mitra and ICAI Central
Council Member CA. Sushil Kumar Goyal.
(29.11.2023)

www.icai.org DECEMBER 2023 13

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REPORT THE CHARTERED ACCOUNTANT

Global Professional Accountants Convention (GloPAC)

“Connecting the Globe, Creating Value”

“Your farsighted approach, your commitment will make Bharat the most developed
nation on this planet.”
– Hon’ble Vice-President of India

Chief Guest Hon’ble Vice-President of India Shri Jagdeep Dhankhar, inaugurated the Global Professional Accountants
Convention (GloPAC) in the presence of Guest of Honour CA. Piyush Goyal, Hon’ble Minister of Commerce and Industry,
Consumer Affairs, Food and Public Distribution and Textiles, Govt. of India, Guest of Honour Shri Praful Pansheriya, Hon’ble
Minister of State for Parliamentary Affairs, Primary, Secondary and Adult Education, Higher Education, Govt. of Gujarat, IFAC
President Ms. Asmaa Resmouki, ICAI President CA. Aniket Sunil Talati, ICAI Vice-President CA. Ranjeet Kumar Agarwal,
ICAI Immediate Past President CA. (Dr.) Debashis Mitra and ICAI Secretary CA. (Dr.) Jai Kumar Batra.

W
ith a vision of taking Indian Chartered
Accountancy Profession and positioning
India as global hub for Finance and
Accounting, ICAI organised the first of its kind
Global Professional Accountants Convention
(GloPAC) in India, at the Mahatma Mandir
Convention Centre in Gandhinagar, Gujarat from
November 24-26, 2023. The Convention was
inaugurated with lighting of the lamp by the august
hands of Chief Guest Shri Jagdeep Dhankhar,
Hon’ble Vice-President of India along with Guest
of Honour CA. Piyush Goyal, Hon’ble Minister
of Commerce and Industry, Consumer Affairs,
Food and Public Distribution and Textiles, Govt.
of India, Guest of Honour Shri Praful Pansheriya,
Hon’ble Minister of State for Parliamentary
Affairs, Primary, Secondary and Adult Education,
Higher Education, Govt. of Gujarat, CA. Aniket
Sunil Talati, President, ICAI, CA. Ranjeet Kumar
Agarwal, Vice-President, ICAI, Ms. Asmaa
Resmouki, President, International Federation
of Accountants (IFAC), CA. (Dr.) Debashis Mitra,
Immediate Past President, ICAI and CA.(Dr.) Jai
Kumar Batra, Secretary, ICAI. The Convention
served as a convergence point for professionals
and leaders across various sectors within the
accounting and auditing community, fostering a
dynamic exchange of ideas and insights. During
the event, the new logo of Chartered Accountancy
Profession ‘CA India’ was also unveiled by
the Chief Guest. The New Logo reflects the
unwavering commitment of the accountancy
profession towards being a partner in nation
building. Each element of the new logo ‘CA
India’ tells a story of our profession’s dedication
to excellence, transparency, and accountability.
Further moving towards bolstering India’s global
financial landscape, MoUs were entered by ICAI

14 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
with International Financial Services Centres
Authority (IFSCA) and Gujarat International
Finance Tec-City Company Limited (GIFT-City).
Presented below is a brief report of the Inaugural
Ceremony of the Convention.
Prior to the lighting of lamp, Hon’ble Vice-
President of India along with other dignitaries
planted sapling which served as a motivation for
all the delegates for working towards making a
more sustainable and a greener world.
Welcome Address by Vice-President, ICAI CA.
Ranjeet Kumar Agarwal
The Vice-President
of ICAI setting the
narrative of the
global convention
welcomed all the
dignitaries and more
than 4400 delegates
from 25 plus
countries to the first
ever GloPAC. He
stated that 150 plus
renowned speakers
will share their wisdom through 32 sessions in
this two-and-a-half-day convention and this
knowledge sharing will set a different yardstick
and benchmark for the accountancy profession
in the coming years. He enumerated ICAI’s 75
years of glorious journey of excellence to become
the largest accounting body in the World having
around 4 lakh members and 8.5 lakh students, and
this family of 12.5 lakh people has now presence
across 81 global cities with 48 chapters. The
Vice-President highlighted the transforming role,
the accountancy profession is playing towards
Gender equality and inclusivity by enabling and
empowering women and apprised that 29 percent
of ICAI members and 43 percent of the students
are females. The Vice-President ICAI concluded
that “Chartered accountants are contributing to
the growth of Indian economy like never before.
The theme of the convention “Connecting
the Globe, Creating Value” reflects our (ICAI)
commitment to diversity and will showcase the
pivotal role accountancy profession is playing
in the economic and social development of the
country. We are hopeful that the first GloPAC will
set a tone for generating new ideas, innovations
and strategies on the global economic challenges
and lead to sustainable economy for the future.”
He also emphasised upon continuous evolution of
the profession to always remain relevant.
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675
REPORT
Address by the President ICAI
CA. Aniket Sunil Talati
The President
of ICAI thanked
Shri Jagdeep
Dhankhar Hon’ble
Vice-President of
India for his august
presence and CA.
Piyush Goyal,
Hon’ble Minister
of Commerce
and Industry,
Consumer Affairs,
Food and Public Distribution and Textiles, for the
affection and support he has always extended
to the ICAI. He also welcomed all the dignitaries
for gracing the occasion with their presence. He
mentioned that this year is truly special not only
because we are celebrating the 75th year of the
Institute and 75 years of Trust but it is special
because India got the privilege to preside over
the G20 and we could showcase to the world
that India’s time has arrived, and the time for
leadership lies in India. He mentioned, it is a
matter of pride for us, and especially for the
accounting profession that in the G20, we now
have the African Union. He mentioned that he
is sure that the Indian accountancy profession,
as we have spread in the Middle East, Europe,
North America, and Africa, too, will have a very
strong collaboration and coordination. The
President, ICAI said that let us all aspire for
the day that we no longer have to go to foreign
jurisdictions for investments coming into India,
but our own jurisdiction in GIFT-City and IFSCA
offer an attractive investment destination for the
overseas investors.
The President, ICAI mentioned GloPAC that is a
movement and mission, where:
G stands for Growth towards a 5 trillion-dollar
economy;
L stands for Leadership in Sustainability and
Sustainable Development Goals;
O is a representation of the Oldest Vishwa Guru i.e.,
India.
P for Partner in Nation Building
A for Advancements towards Digital
Transformation, and
C stands for Connectivity through Global
Networking.
He added that GloPAC is not just a conventional
gathering of accountants, but a platform
DECEMBER 2023 15
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REPORT
that serves global networking and deliberate
ideas about emerging issues that face the
accounting profession. He elucidated that in
this era of artificial intelligence and blockchain
where misinformation and disinformation and
technology such as deepfakes are creating
disruptions, Professional Accountants are the
best positioned profession to deliver good data,
reliable reporting, supporting decision making
and leadership. He also emphasized on the
importance of Sustainability and Sustainable
Development Goals and stated that ICAI aims
to be carbon neutral by 2049 when the Institute
will complete 100 years. He concluded by saying,
Think Global, Act Noble and be Vocal for Local.
Address by the Guest of Honour CA. Piyush
Goyal, Union Minister of Commerce and
Industry, Consumer Affairs, Food and Public
Distribution and Textiles, Govt. of India
CA. Piyush Goyal
addressed the GloPAC
and said that India
is aspiring for much
larger goals and much
larger outcomes. We
work in the Amrit-
kaal with a sense of
duty, with a collective
commitment of 1.4 billion Indians, a commitment
which includes shedding the colonial mindset, a
Launch of New CA India Logo
The Chief Guest Shri Jagdeep Dhankhar, Hon’ble Vice-President of India unveiled the new CA India logo at the Global
Professional Accountants Convention on November 24, 2023 during the Inaugural of GloPAC.
16 DECEMBER 2023
THE CHARTERED ACCOUNTANT
commitment which reminds us of our rich heritage,
rich traditions, our culture, our value systems. A
commitment which talks about the unity and
integrity of this country being maintained and
which also recognizes the growing strength of
the Nari Shakti i.e. women led development. He
said that we all have the collective commitment,
collective consciousness, and desire to see India
as a nation where everything works in a transparent
fashion, giving equal opportunities to all so that we
can grow in this Amrit-kaal, the next 25 years to
become a developed nation, a prosperous nation.
Our strength, as highlighted by our
Prime Minister, lies in the trust and
truth embedded in a CA’s signature.
He further mentioned that with a commitment
to accountability and high standards, Chartered
Accountants must adapt to the changing world.
As the world’s largest accounting body, we have
a unique opportunity to shape the future of our
profession. Our strength, as highlighted by our
Prime Minister, lies in the trust and truth embedded
in a CA’s signature. The chartered accountancy
profession should transcend traditional roles and
become more inclusive, reaching every corner
of the country. He also added that accountancy
profession can play a significant role in attracting
investment and technology globally. Let’s focus on
going global, making our companies more visible
worldwide, and actively pursuing mergers and
collaborations. He stated that we must aim to have
at least 4 Indian companies making a global impact.
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THE CHARTERED ACCOUNTANT
The new CA India logo was unveiled by Hon’ble
Vice-President of India which is a mark of
continued trust and excellence. Each element tells
the story of profession’s dedication to excellence,
transparency, and accountability. The 3 tick
marks in tricolor represent ICAI’s forward thinking
approach and pledge to serve the people of India
and contribute towards the nation’s development
as a trusted partner in nation building. Incorporating
tricolor in the logo epitomizes Institute’s connection
Address by the Chief Guest, Hon’ble Vice-President of India Shri Jagdeep Dhankhar
“Signature events in the World are great, they indicate branding, but signature of a
Chartered Accountant is unrivalled brand because this brand contains an element of
impregnability………. Your (Chartered Accountants’) signature is signature.”
The Hon’ble Vice-
President of India gave a
captivating and thought-
provoking address at the
inauguration of the GloPAC.
He said, “As we collectively
shape India’s destiny for
2047, you (Chartered
Accountants) are nerve
centre, epicentre of big
change, your efforts, your
farsighted approach, your commitment will make
Bharat the most developed nation on this planet.
While institutions are vital for democratic governance
and nurturing of democratic values, ICAI has been
playing a stellar role in building, standardising and
sustaining the financial framework of the nation”.
A Chartered Accountant is an important
pillar, the final one in economic growth of
the nation because, they prevent corruption,
malfunctioning, unravelling of window dressing
and detecting frauds in Companies.
He said that just a decade ago, we were amongst
the fragile five nations and now we are amongst
top 5 economies of the world. He mentioned that
“Chartered Accountants are uniquely positioned
as important pillars in the economic growth of the
nation. CAs in Bharat have the highest ethical
quotient You (Chartered Accountants) are the soldiers
in incremental growth trajectory of the Country”.
He also stated that, “Signature events in the
World are great, they indicate branding, but
signature of a Chartered Accountant is unrivalled
brand because this brand contains an element
of impregnability………. Your (Chartered
Accountants’) signature is signature.”
Referring to the GST as the “Tryst with Modernity”,
the Vice-President remarked that it stands as
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677
REPORT
to ‘India First’ approach and commitment to serve
the Indian economy in public interest. Blue, the color
of alphabet’s ‘CA’ reflects divinity and determination.
It also resembles the qualities of a Chartered
Accountant, being strong, committed, fearless, and
passionate, strengthening profession’s identity and
credibility and connecting Indian CA community at a
global platform. It’s an evocative identity of trust, a
symbol of pride, a celebration of unity, and a spirit of
being one as an Indian.
the largest tax reform since independence,
completely transforming the country’s indirect
taxation landscape. He also praised the Chartered
Accountants fraternity for their role in shaping
Goods and Services Tax into the user-friendly ‘Good
and Simple Tax.’
The Hon’ble Vice-President mentioned that Ethics
are non-negotiable, Ethics is the only way out to
ensure trust and integrity in financial reporting and
CAs in Bharat have the highest Ethics quotient. He
urged all CAs to nurture the spirit of nationalism
in trade, business and industry. He said that
economic nationalism cannot be compromised
on the premise of fiscal gain and CAs need
to enlighten and sensitize our businesses. He
appealed to everyone to be ‘Vocal for Local’.
He mentioned that the greatest challenge today
is an informed mind, a knowledgeable person
who will try to monetize ignorance of others to
secure political equity. And CAs can help as they
are very skilled and well equipped. He urged all
CAs to take a pledge to be a global leader in
benchmarking best practices that announce
ease and transparency. He concluded by saying
that “I carry from this place hope, optimism, and
confidence that ICAI will continue to make its mark
on the global converse for further enrichment and
announcement of the accounting and auditing
standards and ethical integrity at national and
global level.”
Referring to the GST as the
“Tryst with Modernity”, the Vice-President
remarked that it stands as the largest tax reform
since independence, completely transforming
the country’s indirect taxation landscape. He also
praised the Chartered Accountants fraternity for
their role in shaping Goods and Services Tax into
the user-friendly ‘Good and Simple Tax.’
DECEMBER 2023 17
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REPORT
MoU with GIFT- City and IFSCA
The inaugural ceremony was followed by the
exchange of Memorandums of Understanding
(MoUs) with Gujarat International Finance Tec-City
Company Limited (GIFT-City) and International
Financial Services Centres Authority (IFSCA). Ms.
Anuradha Thakur, Additional Secretary, Ministry
of Corporate Affairs, Government of India, Mr. K.
Rajaraman, Chairperson, International Financial
Services Centres Authority, Shri Tapan Ray, MD and
CEO, GIFT-City joined the session for this ceremony.
MoU Exchange Ceremony with GIFT-City: ICAI President CA. Aniket Sunil Talati and ICAI Vice-
President CA. Ranjeet Kumar Agarwal exchanging MoU with Shri Tapan Ray, MD & CEO, GIFT-City at
the GloPAC in the presence of Immediate Past President, ICAI CA. (Dr.) Debashis Mitra and Secretary,
ICAI CA.(Dr.) Jai Kumar Batra.
Address by Immediate Past President ICAI,
CA. (Dr.) Debashis Mitra
CA. (Dr.) Debashis
Mitra welcomed
all participants and
mentioned that at the
Institute, we believe
that what will determine
our future is not
necessarily the size,
but the respect and
dignity that we command, the trust that we receive,
and to what extent we serve the cause of the nation.
Talking about the Institute’s emblem, he mentioned
that Garuda, the eagle is the only bird which blesses
the cloud even on a rainy day, when other birds
seek shelter elsewhere. He said that Chartered
Accountants are innovative, fearless, and unique.
18 DECEMBER 2023
THE CHARTERED ACCOUNTANT
The Second phase of the inaugural session started
with MoU signing ceremony between ICAI and
IFSCA that includes that ICAI will support the
Global finance and accounting hub and MOU
exchange between ICAI and GIFT City Company
Limited. GIFT City Company Limited is developing
the global financial services that will certainly play
the role of a catalyst in developing India as a global
financial Hub.
Address by Ms. Anuradha Thakur, Additional
Secretary, Ministry of Corporate Affairs,
Government of India
Ms. Anuradha Thakur
congratulated ICAI on
organizing GloPAC
which aims to bring
together stakeholders,
thinkers, policy makers
and professionals and
elaborated on few
important things. One,
the fast-changing global financial landscape is
getting complex and is also becoming increasingly
challenging to demonstrate how to evolve and face
new challenges. Second is the role of Chartered
Accountants in business to ensure the quality
of financial reporting. The financial reporting
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THE CHARTERED ACCOUNTANT

REPORT
management is responsible for the integrity of accounting and auditing profession have in
the information produced. CAs gets the task of shaping the destiny of financial system across the
improvising the quality of financial reporting. The globe. He complimented that the entire country
role of the professional body becomes extremely reposes faith and trust in the certification of
critical and gains center stage in promoting Chartered Accountants. Tax paid by the taxpayers
competence, skills, standards and ethics. She play a crucial role in the welfare and development
complemented ICAI for playing many roles of of the society and the CA community looks after
providing strong regulatory support, emphasizing the economic health of the society at large by
on ethical conduct and also actively contributing improving the corporate reporting
to good corporate governance. He elaborated on the scope and benefits of GIFT-
Address by Shri Tapan Ray City, which is India’s first Greenfield finance and
Smart City. GIFT-City is expected to provide
MD & CEO, GIFT-City International Financial Services not only to India
Shri Tapan Ray but to the entire world. GIFT-City’s International
mentioned that Financial Services Centre provides an ideal platform
since the time he for Chartered Accountants to tap the opportunities
was secretary in the under the existing framework of ancillary services
Ministry of Corporate opportunities which would develop GIFT-City into
Affairs, the size of a global hub for accounting.
the institute has
grown many folds. Address by Shri K. Rajaraman
He recalled that in Chairman, IFSC Authority
2017 Prime Minister Narendra Modi ji mentioned Shri K. Rajaraman said
that within five years India would have its own that the Indian economy is
big four, and today ICAI is the largest Accounting really booming due to the
body in the world. He congratulated ICAI for taking sound economic policies
the initiative to organise the Global convention - and improved quality of
GloPAC on a very relevant and important theme in human resources.
the time of globalization.
He emphasized that ICAI
According to him, ICAI has always played a is an important pillar of
constructive role not only for the development corporate governance in
of the accountancy professional but also played the financial markets. For Country to move fast and
a crucial role in the Nation’s financial system by be a developed country by 2047, ICAI’s role as a
ensuring transparent and consistent reporting. watchdog becomes very crucial. Everyone will have
He elaborated on the profound impact that the to collectively contribute
for India to become a
developed economy.
He explained that the
International Financial
Services Centre, which
was set up in 2019 is
an important gateway
to India for capital and
financial services. With
the added advantage
of the tax exemption
that has been given for
a period of 10 years out
of 15 years, the financial
services provided to
the rest of the world
MoU Exchange Ceremony with IFSCA: ICAI President CA. Aniket Sunil Talati and ICAI Vice- would be very cost
President CA. Ranjeet Kumar Agarwal exchanging MoU with Shri K. Rajaraman, Chairman, effective and therefore
IFSC Authority at the GloPAC in the presence of Immediate Past President, ICAI CA. (Dr.)
Debashis Mitra, Central Council Members CA. Dheeraj Kumar Khandelwal, CA Hans Raj Chugh
Accounting firms can
and Secretary, ICAI CA.(Dr.) Jai Kumar Batra. look at the possibilities

www.icai.org DECEMBER 2023 19

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REPORT THE CHARTERED ACCOUNTANT

of export of accounting services to the rest of the
world from the GIFT-City.
He thanked ICAI in playing an important role in the
development of the financial sector in India and for
entering into a very strong collaboration by way of
a MoU.
Address by Ms. Asmaa Resmouki,
President, International Federation of
Accountants
Ms. Asmaa Resmouki
expressed her
happiness to be back
in India exactly one year
after the World Congress
of Accountants (WCOA)
2022 in Mumbai wherein
she got to experience
the cordial hospitality
from the Incredible India. She further stated that
India holds a special place in her heart as she got
the presidency of IFAC in India. She mentioned
that as Accountants in the value chain, we have the
skills to transform high quality standards into high
quality information and enable efficient decision
making which is needed by all organisations.
She emphasized on significance of Sustainability
and role of the accountancy profession in making
the difference with right skills, mindset and ability to
connect and collaborate with various stakeholders
across the value chain. She further said that SMEs
are an important part of global economy and they
must understand and adopt the Sustainability
initiatives as the impact will be really huge across
the economies and towards building a sustainable
environment.
Vote of Thanks by Secretary ICAI,
CA. (Dr.) Jai Kumar Batra
In his closing remarks for
the inaugural ceremony,
Secretary ICAI extended a
very hearty vote of thanks
to all the dignitaries
present there on and off
the dais. He also thanked
around 4500 delegates,
who were present there and travelled from
different parts of India and abroad for their active
participation in the GloPAC and making it a grand
success.
He stated that ICAI is known for maintaining
highest standards in technical and ethical areas
and the conduct of its exams as well. The role
and contribution of ICAI is always remarkable.
Accountants are indeed pillars in the growing
history of emerging India. He concluded
by saying as Honorable Prime Minister of
India always says India should become the
Vishwaguru, the ICAI would like to become the
Vishwa Accounting Guru.

20 DECEMBER 2023 www.icai.org

 The Institute of Chartered Accountants of India

www.icai.org
Photograph of the ICAI Council with Shri Jagdeep Dhankhar, Hon’ble Vice-President of India in GloPAC (November 24, 2023)
THE CHARTERED ACCOUNTANT

1st Row [L to R] : Dr. P. C. Jain (Govt. Nominee), CA.(Dr.) Debashis Mitra (Immediate Past President, ICAI), Shri Piyush Goyal, Hon’ble Union Minister of Commerce and
Industry, Consumer Affairs, Food and Public Distribution and Textiles, CA. Aniket Sunil Talati (President, ICAI), Shri Jagdeep Dhankhar, Hon’ble Vice-
President of India, CA. Ranjeet Kumar Agarwal (Vice-President, ICAI), Shri Praful Pansheriya, Hon’ble Minister of State for Parliamentary Affairs, Primary,
Secondary and Adult Education, Higher Education, Govt. of Gujarat, Adv. Vijay Kumar Jhalani (Govt. Nominee), CA. (Dr.) Jai Kumar Batra (Secretary, ICAI)
2nd Row [L to R] : CA. Chandrashekhar Vasant Chitale, CA. Mangesh P. Kinare, CA. K. Sripriya, CA. Sanjay Kumar Agarwal, CA. (Dr.) Anuj Goyal, CA. Prakash Sharma, CA.
Kemisha Soni, CA. Dheeraj Kumar Khandelwal, CA. Preeti P. Savla, CA. Rajendra Kumar P., CA. Purushottamlal H. Khandelwal, CA. (Dr.) Sanjeev Kumar
Singhal, CA. (Dr.) Rajkumar S. Adukia

DECEMBER 2023
3rd Row [L to R] : CA. Muppala Sridhar, CA. Umesh R. Sharma, CA. Durgesh Kumar Kabra, CA. Prasanna Kumar D., CA. Pramod Jain, CA. Dayaniwas Sharma, CA. Gyan
Chandra Misra, CA. (Dr.) Raj Chawla, CA. Cotha S. Srinivas, CA. Vishal Doshi, CA. Piyush S. Chhajed, CA. Abhay Chhajed, CA. Hans Raj Chugh
COUNCIL PHOTO

21
681
 682

NEW CA INDIA LOGO THE CHARTERED ACCOUNTANT

++
Incorporation of Tricolor:
The incorporation of the tricolor into the
logo is a powerful symbol of the Institute's
Incorporation
connection to India. of
TheTricolor:
three colors of the
The incorporation unity,
Indian flag represent of thediversity,
tricolorand
into the logo is a powerful symbol of the
Institute’s connection
sovereignty, and they reflectto India. The three colors of the Indian flag represent unity,
the brand’s

==
diversity, and
commitment sovereignty,
to serving the peopleandofthey
India reflect the brand’s commitment to serving
the people
and of Indiatoandthe
contributing contributing
nation's to the nation’s development. The tricolor
has been used
development. in suchhas
The tricolor a been
fashion
usedthat
in it hints at motion, a flight, and a journey
toward
such progress,
a fashion that showcasing the Institute’s
it hints at motion, a forward- thinking approach.
flight, and a journey toward progress,
Significance of blue color:
showcasing the Institute's forward-
The primary color of the new logo is blue,
Significance of blue color:
thinking approach.
which has been culled from the ICAI logo.
Theisprimary
Blue color
a color that is of the new
associated logo is blue, which has been culled from the ICAI
with
logo. Blue
divinity, is a color
immortality, that isand
bravery, associated with divinity, immortality, bravery, and
determination. It reflects vastness, being
determination. It reflects vastness, being the colour of the sky and ocean, and
the colour of the sky and ocean, and has
has been an integral part of the Indian cultural, political, and social landscape
been an integral part of the Indian cultural,
over the
political, andyears.
social Blue is also
landscape overculturally
the significant, as it has been a part of the Indian
tradition
years. Blue isfor
alsomore than
culturally 5,000 years.
significant, as
it has been a part of the Indian tradition for
more than 5,000 years.

Adaptability on all platforms:

The new logo can be adapted for use on all platforms, digital and analog, which
is essential for a modern brand. This versatility ensures that the Institute’s
brand is consistent across all cha nnels, helping to strengthen its identity and
credibility. The adaptability of the new logo also makes it more accessible to the
Institute’s stakeholders, including members, students, and the general public.

Colour Palette

In a nutshell:
The new logo of CA India reflects the brand’s connection to India while retaining
its existing identity. The incorporation of the tricolor, the significance of the blue
Colour Palette
color, and adaptability on all platforms are all essential elements of the new logo.
#F37920
The design is intended to be aesthetically pleasing and culturally significant,
C0 M62 Y91 K0

making it a strong representation of the Institute’s values and commitment to

Colour Palette serving the people of India.
#F37920 #145886
C0 M62 Y91 K0 C93 M61 Y24 K9

Colour Palette:
#F37920 #145886 #55B848
C0 M62 Y91 K0 C93 M61 Y24 K9 C67 M0 Y88 K0

#145886 #55B848
C93 M61 Y24 K9 C67 M0 Y88 K0

22 DECEMBER 2023 www.icai.org

#55B848
C67 M0 Y88 K0
 683

THE CHARTERED ACCOUNTANT

NEW CA INDIA LOGO
Guidelines (2023) for using the new CA India logo for CA members
• The logo consists of the letters ‘CA’ in blue colour with a tri colour tick mark
(upside down) with white background. The blue colour denotes creativity,
innovativeness, knowledge, integrity, trust, truth, stability, and depth. The
upside-down tick mark, typically used by Chartered Accountants, has been
included to symbolise the wisdom and value of the professional. ‘India’ is
also added in the logo, as it epitomizes the Institute’s connection to India First
approach and commitment to the serve the Indian economy in public interest.
With growing International recognition of ‘CA’ and International curriculum of
There should be no alteration of the font (colour,
ICAI proposed in the New CRET, incorporation of the country’s name is also
abold/unbold,
distinct identitysize). Moreover,
and pride of one ofthere should
the largest be no change
economies.
• in spacing and dimensions.
There should be no alteration of the font (colour, bold/unbold, size). Moreover,
there should be no change in spacing and dimensions.
The colour palette is
• The colour palette is

#F37920 #145886 #55B848

C0 M62 Y91 K0 C93 M61 Y24 K9 C67 M0 Y88 K0

• Do not change the design and colours including the white background.
•
Do not change the design and colours including the
Refrain from rotating or tilting the logo clockwise and anti-clockwise.
• white
The logobackground.
should not be shrunk or distorted changing the original proportion.
• Refrain
While fromare
members rotating or tilting
encouraged to use the logoCA
the new clockwise
India Logo and
as published
on letterheads, visiting cards, website etc, a transition time of 1 year has been
anti-clockwise.
provided to use the old ‘CA’ logo on existing stationary/ signage etc.
* The logo should
Effective not
from 24th be shrunk
November, or distorted changing the
2023.
original proportion.
While members Do not change
are background
encouraged to useDo notnew
the change
CAthe colours
India
Logo as published on letterheads, visiting cards, website
etc, a transition time of 1 year has been provided to use
the old ‘CA’ logo on existing stationary/ signage etc.

Correct Logo *Effective from 24th November, 2023.

Do not Rotate Do not Rotate

Do not crop Do not shrink, shear or distort

www.icai.org DECEMBER 2023 23

684
KNOW YOUR ETHICS
Q1. Can a Chartered Accountant in practice
use/fix a monogram of the Institute on any
column/wall located inside the office or on
professional documents?
A. No, in view of the Council directions under
Clause (7) of Part-I of the First Schedule
to the Chartered Accountants Act, 1949,
a Chartered Accountant in practice is not
permitted to use/fix a monogram of the
Institute on any column/wall located inside
the office or on any professional documents.
Q2. Whether a Chartered Accountant in
practice can use expression like Income
Tax Consultant, Cost Accountant,
Company Secretary, Cost Consultant or a
Management Consultant?
A. No, Council direction under Paragraph
2.14.1.7(ii) of Clause (7) of Part-I of the First
Schedule to the Chartered Accountants
Act, 1949, appearing in Volume-II of the
Code of Ethics states that it is improper
for a Chartered Accountant to state on his
professional documents that he is an Income-
tax Consultant, Cost Accountant, Company
Secretary, Cost Consultant or a Management
Consultant.
Q3. Whether Companies in which Chartered
Accountants have been appointed as
directors on their Board can publish
description about the Chartered
Accountant’s expertise, specialization and
knowledge in any particular field or add
24 DECEMBER 2023
THE CHARTERED ACCOUNTANT
appellations or adjectives to their names in
the prospectus or public announcements
issued by these companies?
A. The Council’s attention has been drawn
to the fact that more and more companies
are appointing Chartered Accountants’ as
directors on their Boards. The prospectus
or public announcements issued by these
companies often publish descriptions
about the Chartered Accountants’
expertise, specialization and knowledge in
any particular field or add appellations or
adjectives to their names. Attention of the
members in this context is invited to the
provisions of Clause (6) and (7) of Part-I
of the First Schedule to the Chartered
Accountants Act, 1949.
In order that the inclusion of the name of a
member of the Institute in the prospectus
or public announcements or other public
communications issued by the companies
in which the member is a director does not
contravene the above noted provisions,
it is necessary that the members should
take necessary steps to ensure that such
prospectus or public announcements or
public communications do not advertise
his professional attainments and also that
such prospectus or public announcements
or public communications do not directly or
indirectly amount to solicitation of clients for
professional work by the member. While it
may be difficult to lay down a rigid rule in this
www.icai.org

THE CHARTERED ACCOUNTANT
respect, the members must use their good
judgement, depending upon the facts and
circumstances of each case to ensure that
the above noted provisions are complied with
both in letter and spirit.
It is advisable for a member that as soon as
he is appointed as a director on the Board of
a company, he should specifically invite the
attention of the management of the company
to the aforesaid provisions and should request
that before any such prospectus or public
announcements or public communication
mentioning the name of the member
concerned, is issued, the material pertaining
to the member concerned should, as far as
practicable be got approved by him.
Q4. Whether the office of a Chartered
Accountant is permitted to go in for ISO
certification or other similar certifications?
A. Yes, there is no bar for a member to go
in for ISO certification or other similar
certifications. However, the member cannot
use the expression like “ISO Certified” on his
professional documents, visiting cards, letter-
heads or sign boards etc.
Q5. Can a Chartered Accountant in practice also
practice as an Advocate and mention the
designation of ‘Advocate’ simultaneously
with ‘Chartered Accountant’?
A. Yes, Council direction under Paragraph
2.14.1.7(v) under Clause (7) of Part-I
of the First Schedule to the Chartered
Accountants Act, 1949, appearing in
Volume-II of Code of Ethics states that
a Chartered Accountant in practice who
is otherwise eligible may practice as an
Advocate subject to the permission of Bar
Council but in such cases, he should not
use designation ‘Chartered Accountant’ in
respect of the matters involving the practice
as an Advocate. In respect of other matters
he should use the designation ‘Chartered
Accountant’ but he should not use the
designation ‘Chartered Accountant’ and
‘Advocate’ simultaneously.
Q6. Whether a Chartered Accountant
in practice can use the designation
‘Corporate Lawyer’?
A. No, a Chartered Accountant in practice is not
permitted to use the designation ‘Corporate
Lawyer’.
www.icai.org
685
KNOW YOUR ETHICS
On Website of Members’/Firms’
Q7. Whether a member may put CA Logo on
his website on the same background
colour as that of the website?
A. As per Logo Guidelines issued by ICAI, in
the CA logo, the background colour of Logo
has to be white. It is to be complied with
accordingly, irrespective of the background
colour of the website.
Q8. Can a Chartered Accountant in practice/
Firm of Chartered Accountants post the
particulars of himself/itself on a website?
A. Yes, the Council has approved the detailed
guidelines for posting the particulars on
Website by Chartered Accountants in
practice and firm(s) of Chartered Accountants
in practice.
Q9. Whether website of any Chartered
Accountant can provide a link to the
website of ICAI, its Regional Councils and
Branches and also to the websites of Govt./
Govt. Departments/Regulatory authorities
and other professional bodies?
A. Yes, it is permitted that website may
provide link to the website of ICAI, its
Regional Councils and Branches and also
to the websites of Govt./Govt. Departments/
Regulatory authorities and other professional
bodies.
Q10. Whether the information contained in the
website of the Chartered Accountants
and/or Chartered Accountants’ firms can
be circulated on their own or through
e-mail or by any other mode or technique?
A. Paragraphs 3.3.3 and 3.3.4 of Council
Guidelines for Advertisement, 2008,
appearing in Volume-II of Code of Ethics,
state that the Chartered Accountants and/or
Chartered Accountants’ firms should ensure
that none of the information contained
in the website be circulated on their own
or through e-mail or by any other mode
or technique except on a specific “pull”
request. The Chartered Accountants and/or
Chartered Accountants’ Firms would ensure
that their websites are run on a “pull” model
and not a “push” model of the technology to
ensure that any person who wishes to locate
the Chartered Accountants or Chartered
Accountants’ firms would only have access
DECEMBER 2023 25
686
KNOW YOUR ETHICS
to the information and the information should
be provided only on the basis of specific
“pull” request.
Q11. Whether the name of clients or fees
charges be mentioned on the website
of Chartered Accountant or Chartered
Accountants Firm?
A. Names of clients and fee charged cannot
be given. However, disclosure of names of
clients and/or fees charged may be made
26 DECEMBER 2023
THE CHARTERED ACCOUNTANT
on the website where it is required by a
regulator, whether or not constituted under
a statute, in India or outside India, provided
that such disclosure is only to the extent of
requirement of the regulator and is made
only till such period that the member works
under the purview of such regulator/such
requirements of the regulator are in force.
The fact that the disclosure is being made
due to requirement of regulator has to be
made below the disclosure itself.
www.icai.org
 687

THE CHARTERED ACCOUNTANT

THEME

India: An Emerging Global Accounting Hub

Yes, our organisation is growing with 10% CAGR and our market
valuation has reached X level! These news heading must be
attractive to all of us, but how does this analysis come and where
does the organisation performance come from?
It is the Accounting and Finance function which not only maintains
and keeps business financial records, feeds data for Compliance
to Legal Business Laws, assists in the creation of financial plan,
but also analyses how the business is doing. One of the biggest
advantages of accounting is how it allows businesses to keep a
systematic record of their financial information. Globally, from the
largest of the organizations, both Multi-National Companies and
SMEs share the common aspiration of establishing an Accounting
Hub. This hub plays a crucial role in enabling organizations to
centralize and standardize accounting rules, consolidating the
accounting function into a centrally controlled repository with
auditable and reconcilable rules. In the rapidly evolving and
intricate business landscape of today, the importance of making
CA. Atul Kumar Gupta well-informed strategic decisions cannot be overstated. In the
Past President context of a resilient Finance and Accounting system, it is essential
to stay updated on key trends, growth areas, and the competitive
landscape.

L
ooking into the benefit of
Accounting and Finance
function, there is always a
thrust for specialized services in
the field of accounting and finance
function; especially when it has
a lot of intricacies, standards,
and functions. Simultaneously,
CFOs face escalating demands
to streamline costs, enhance
productivity, and redirect their
teams toward higher-value
tasks. Despite the challenges
posed by the pandemic, the
unemployment rates in Finance
& Accounting remain remarkably
low in numerous countries,
posing an ongoing challenge
for organizations to retain top
talent. These factors collectively
impel Finance Leaders to seek
alternative solutions for the
modernization of operations and
expediting their journey toward
digital transformation. This trend is
not exclusive to large enterprises;
many small businesses are also
navigating this shift. Consequently,
37% of the organizations are
opting to outsource finance and
accounting services to fulfill their
accounting functions.
IFAC (International Federation
of Accountants) also listed
many priorities that a CFO needs
to adapt in reports. As per the
paper released by IFAC, the
future CFOs need to concentrate
on contribution to business
objectives and value creation,
digitalize finance and accounting
tasks, and other business
processes, leverage the power
of financial and nonfinancial
data to understand value drivers,
capture value creation with value
metrics linked to incentives
and rewards, improve decision
support information throughout
the organization, ensure robust
control and security, develop
finance function talent, capacity,
diversity and ways of working,
enable multicapital reporting
and communication of value
beyond the financials.
(http://www.ifac.org)
Enter the realm of comprehensive
BPO Accounting Services, where
the optimal blend of top-tier
talent and automation tools
is harnessed to enhance the
efficiency of finance operations.
This allows internal teams to
transition into genuine business
partners. Notably, following
IT Outsourcing, accounts and
finance have emerged as the
second-largest outsourcing
domain globally, with projections
pointing towards a growth to
US$68.8 Billion by 2030.
Benefits of Creating
Outsource hub of
Accounting and Finance
For organizations embarking on
the digital transformation journey,
adaptability is crucial in navigating
a swiftly evolving technology and
business landscape. Presently,
it is more important than ever
to not only meet but surpass
organizational expectations
by fostering a robust digital

www.icai.org DECEMBER 2023 27

688
THEME
Recent technological
progress has
simplified the creation
of precise financial
models, enabling your
organization to anticipate
and mitigate surprises or
issues effectively.
mindset supported by innovation.
The imperative for business
excellence lies in empowering
businesses to sense, learn,
respond, and evolve, akin to living
organisms. A comprehensive
yet modular suite of services
is precisely achieving this. It
empowers organizations with
intuitive, automated decision-
making at scale, provides
actionable insights derived from
real-time solutions, ensures an
anytime/anywhere experience,
and offers profound data visibility
across functions, leading to
heightened productivity. Live
Enterprise is actively fostering
connected organizations that
engage in collaborative innovation
for the future.
Real-time finance and
accounting: In the current
landscape, the Finance and
Accounting (F&A) industry is
Focus on
Core
Business
Supplement
Resources
Outsourcing
Improve Benefits
Service
Levels
Simplify
Ensure
Processes
Standardization
of Services
28 DECEMBER 2023
increasingly adopting fully
integrated digital accounting
solutions. These digital tools
streamline the process of
updating financial reports and
accounting books by capturing
each transaction in real time.
Secure audit preparation:
Within the Finance and
Accounting (F&A) sector, audits
play a crucial role. Digital
solutions effectively categorize
and organize all elements of the
audit function, simplifying and
optimizing the overall process.
Advanced financial modelling:
Recent technological progress
has simplified the creation of
precise financial models, enabling
your organization to anticipate
and mitigate surprises or issues
effectively.
Highly-sophisticated
automation: Neglecting the
adoption of digital financial
services or the automation of
Finance and Accounting (F&A)
functions can result in disorderly
and sluggish processes,
susceptibility to manual errors,
and the risk of employee burnout.
Outsourcing F&A operations
allows you to leverage the
capabilities of machine learning
and artificial intelligence solutions,
eliminating manual tasks and
automating workflows to enhance
efficiency and accuracy.
Personalised F&A packages:
With an increasing focus
Reduce
on customer-centricity in
Cost
business, specific Finance
Increase and Accounting (F&A)
Redundancy
requirements unique
to each business are
becoming apparent.
Introduce This personalized
Global
Practices approach enables
you to select only
Reduce
the services essential
Transaction to your business
Cost and
TAT
from a range of digital
financial services, thereby
maximizing the value of your
accounting team. Leveraging
THE CHARTERED ACCOUNTANT
a global network of experts,
financial outsourcing services
can provide customized and
personalized F&A packages that
align with the specific needs of
your business.
Some of the most commonly
outsourced F&A functions are:
Accounts Payable
● Vendor Master Maintenance
● PO Processing
● Invoice Processing
● Vendor Inquiries
● Exception Handling
● T&E Administration
● Reconciliations & Period
Closing Process
Accounts Receivable
● Customer, Pricing & Items
Master Maintenance
● Sales Order Processing
● Billing & Collections
● Cash Application
● Revenue Recognition
● Reconciliations & Period
Closing Process
General Accounting
● Period Closing Processing
● Chart of Accounts
● Journal Entry Processing
● Accruals & Allocations
● Account & Bank
Reconciliations
● Fixed Assets Management
● Management & Financial
Reporting
● Payroll
● Operational Audits
FP&A
● Consolidations
● Commission Calculations
● CAPEX & Project Accounting
● Financial Reporting & Analysis
Business Intelligence
● Operational Performance
● Revenue Analysis
● Customer Insights
www.icai.org

THE CHARTERED ACCOUNTANT
● Marketing Analytics
Process Automation
● Intelligent Data Capture
● Robotics Process Automation
● Workflow Automation
● Automated Account
Reconciliations
● Collaboration & Knowledge
Management
Multinational corporations
are increasingly considering
developing countries as
preferred locations for hosting
their accounting and finance
functions. This trend is fuelled by
the growing pool of competent
accountants in these nations.
Consequently, India is emerging
as a formidable competitor on
the global stage in the field of
accounting.
The elevation of India to a global
accounting hub signifies that
the country is securing a rising
number of accounting service
contracts from international
companies. Several factors
contribute to this evolution
within the accounting sector.
These factors encompass
the production of high-quality
accountants equipped with
a versatile skill set in multiple
languages, a workforce of future-
ready professionals, robust IT
www.icai.org
infrastructure, and the allure of
lower operating costs, all of which
enhance the value proposition of
India’s accounting sector.
In a bid to compete with
neighbouring countries such
as the Philippines, Malaysia,
and China, India is strategically
enhancing its competitive
position and fortifying its
accountancy sector. Initiatives
are being implemented,
including the alignment of
accountancy standards with
the International Financial
Reporting Standards (IFRSs),
aimed at elevating the quality
of accounting services to meet
international standards.
Challenges
Expanding on a global
scale poses the challenge
of ensuring India’s ability to
compete internationally as well.
Consequently, the accountancy
sector must implement strategies
to enhance its talent pool
and strengthen the country’s
connections with global
corporations.
Collaboration
Currently, the Institute of
Chartered Accountants, at
the forefront of this mission, is
persistently collaborating with
various stakeholders such as the
government, standard setters,
global professional
bodies, regulators,
and academicians.
The objective is to
formulate pertinent
frameworks that
guarantee industry
readiness and training.
The overarching
vision is to cultivate
professionals with
future-ready skill sets.
Technology
Furthermore, the
accountancy sector
also anticipates the
future of the industry
689
THEME
with the advancing technology.
The accountancy profession
looks forward to bracing talents
to changes like robotic process
automation, data analytics,
cybersecurity, Cloud computing,
IT audit, forensics, and finance
transformation.
Competence
The foundation of any robust
financial ecosystem is a skilled
workforce. IFRS are principle
based standards and formulated
from international perspective.
Consequently, the implementation
of these standards necessitates
a prominent level of professional
competence and specific skill
sets. Recognizing this challenge
early on, the Institute of Chartered
Accountants of India (ICAI) has
undertaken several initiatives to
effectively address and overcome
this challenge. These endeavours
include Certificate Courses,
In-house training programs,
e-learning modules, seminars,
awareness programs, and
webcasts, all aimed at ensuring
a seamless and trouble-free
transition to the new accounting
standard framework.
IFAC – Future Ready
Professionals - In another
initiative, looking into the cross-
border function, professionals
can provide and mitigate the
challenges posed by technology,
and the adaption of new legal
regime, and work for overall
public interest. The International
Federation of Accountants
body consists of Professional
Accountancy Organisations
(PAOs) from more than 135
countries, joining hands together
to imbibe skill set among
professionals to be future ready;
may it be professionals in
business or in assurance function.
Accordingly, it necessitates the
development of the benchmarks
that PAOs need to adopt and
develop the capacity for making
future ready professionals.
DECEMBER 2023 29
690
THEME
ICAI – Creating World-class
Standards for making India a
hub for F&A
● A robust regulatory
framework and financial
infrastructure is crucial for
building India as a global
accounting hub. A regulatory
landscape that is conducive
to businesses will not only
attract foreign investments but
also establish trust on a global
scale. Financial reporting
system, providing essential
financial information about the
company to its shareholders
and other stakeholders,
needs to be reliable, free
from bias and should enable
comparison based on common
benchmarks. This, in turn,
necessitates an appropriate
financial reporting system that
incorporates sound accounting
principles and reflects a true
and fair view of the financial
health of the company while
ensuring legally enforceable
accountability.
● The Institute of Chartered
Accountants of India (ICAI) is
the largest professional body
of Chartered Accountants
in the world on standalone
basis, demonstrating a
robust tradition of serving the
Indian economy in the public
interest. Over time, ICAI has
earned acclaim as a leading
accounting body, not only
within the nation but also on
a global scale, for upholding
the highest standards in
technical expertise. ICAI plays
a multifaceted role, regulating
the accountancy profession,
developing Accounting
Standards, overseeing quality,
ensuring members adhere
to performance standards,
exercising disciplinary
authority, conducting financial
reporting reviews, and offering
policy-related inputs to the
government, among other
responsibilities.
30 DECEMBER 2023
● Businesses are expanding
across borders and entities
are accessing the global
markets for capital. In such
a scenario, the users of the
statements of an entity are
no longer limited to a single
country. Moreover, such
users may not be able to
appreciate the differences
in GAAP requirements of
various countries. This has
necessitated the accounting
principles for reporting
financial information to be as
identical in all countries as
possible. For this purpose,
a single set of high quality
globally accepted accounting
standards are being adopted
around the world, which
have the ability of enhancing
comparability and transparency
of financial statements for
customers, suppliers, etc.
resulting in greater willingness
of customers and suppliers
to trade, and investors
to invest across borders.
Financial reporting in India
has undergone a momentous
transformation owing to the
adoption of Ind AS. India
has successfully transitioned
to IFRS-converged Indian
Accounting Standards (Ind
AS), as all listed companies,
companies and NBFCs having
net worth of 250 crores or more
have already implemented Ind
AS. This paradigm shift has
relatively filled the gaps of the
financial reporting framework
and has brought it at par
with the global standards of
reporting.
● India’s endeavour to become
a global accounting hub
necessitates a substantial
investment in education
and training. By nurturing a
cadre of highly competent
accountants and finance
professionals, the nation
can elevate its standing in
the global financial arena.
The rigorous training and
THE CHARTERED ACCOUNTANT
examination process set
by the ICAI ensures that its
members are well-equipped
with the knowledge and skills
required for the dynamic field
of accounting.
In a recent strategic initiative
poised to transform India’s
financial landscape, Federal
Finance Minister Nirmala
Sitharaman has revealed
plans for a comprehensive
legal framework. The objective
is to position GIFT City as
a dynamic global hub for
accounting and financial
back-office functions. This
forthcoming framework is
designed to facilitate accounting,
auditing, and taxation
professionals in offering their
services directly from GIFT City.
Conclusion
Since India became the 4th
Largest Economy a few days
before, and the service sector
contributes more than 55%
in GDP, its important that we
gear up to tap the potential
available in making India a
hub for Accounts and Finance
outsourcing. The requisite infra
in-terms of capacity of the
professionals, IT, adoption of
global standards, and economy
of scale are already in place
and the need of the hour is
to have more networking and
collaboration at the level of
professionals. At the same time,
like other economies support
from regulator/administrative
ministries in terms of showcasing
the services, a more liberal
approach where professionals
can advertise their services and
tax incentives will be the icing on
the cake.

Author may be reached at
eboard@icai.in
www.icai.org

THE CHARTERED ACCOUNTANT
Leveraging G20 Summit Outcomes:
Role of Chartered Accountants
CA. (Dr.) Sanjeev Singhal
Member of the Institute
The G20 summit held in Delhi on 8th & 9th September
2023 was the 18th meeting of the Group of Twenty, a
forum of 19 countries and the European Union that aims to
India’s G20 presidency under
the leadership of Prime
Minister Shri Narendra Modi
has delivered spectacular
results. The present article
discusses some of the key
points of discussion and
outcomes of the G20 summit
held in Delhi and the role
of chartered accountants
in implementing the action
points.
Global Challenges & Shared
Responsibility: There are
significant global challenges that
persist, ranging from economic
instability and environmental
threats to poverty, inequality,
and pandemics. The G20
Summit pledged to shape a
brighter future that doesn’t force
nations into the difficult choice
between poverty reduction
and environmental protection
but instead, to pursue a path
of sustainable and inclusive
development, ensuring
that no one is left behind in
www.icai.org
Viraj Singhal
Student, Ashoka University
this transformative journey.
This commitment to shared
responsibility is a testament
to the positive impact that the
G20 Summit can have on global
challenges.
Advancing Sustainability and
Inclusivity: The G20 Summit
yielded concrete commitments,
emphasizing sustainable
growth, alignment with the
2030 Sustainable Development
Agenda, climate action,
improved healthcare access,
debt relief for developing nations,
digital infrastructure, quality
employment, gender equality,
and global financial system
reform, amplifying the developing
countries’ voice in global
decision making, empowering
nations to address global
challenges, aiming to establish
a more human-centered global
system, & fostering prosperity
and well-being for all. These
commitments reflect a global
consensus to address pressing
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THEME
promote global economic
cooperation. It was
the first G20 summit
hosted by India. The
theme of the summit
was “People, Planet,
Peace and Prosperity”
and it focused on issues
such as climate change,
health, digital economy,
trade, and infrastructure.
The summit reflects
a strong commitment
to addressing global
challenges and promoting
sustainability.
issues and build a more inclusive
future.
Advancing Global Peace and
Cooperation: The resounding
commitment to international
principles, rejecting the use of
force for territorial gains and
calling for an immediate end to
attacks on critical infrastructure.
Also, acknowledging the severe
humanitarian and economic
consequences of the Ukraine
conflict, which extend to global
food and energy security,
supply chains, financial stability,
inflation, and economic growth.
Recognizing diplomatic efforts,
especially Turkey and the UN-
brokered Istanbul Agreements,
the G20 pledged to facilitate
the delivery of essential goods
from Russia and Ukraine to
developing nations, notably in
Africa. Emphasizing peaceful
conflict resolution and aligning
their actions with the UN
Charter principles for peaceful
international relations highlights
DECEMBER 2023 31
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THEME
the G20’s dedication to global
cooperation and conflict
resolution through peaceful
means.
Leveraging the Private Sector
for Global Prosperity: G20
recognised the pivotal role of
the private sector in accelerating
global growth and sustainability.
The summit’s resolution to
foster collaboration with the
private sector underscores its
commitment to creating inclusive
and resilient global value chains
while promoting sustainable
investments, aligning economic
growth with environmental
and social sustainability.
Additionally, the facilitation of
investments, including Foreign
Direct Investments (FDIs),
towards sustainable business
models, reflects a substantial
step forward. The emphasis on
the crucial role of start-ups and
small enterprises as engines
of innovation and employment
highlights their significance in
driving economic growth and
prosperity on a global scale.
Unlocking trade for growth:
G20 focussed on addressing
challenges for MSMEs and their
integration into international
trade, adopting frameworks
for global value chains, and
digitalizing trade documents.
The Summit emphasized aligning
trade policies with environmental
32 DECEMBER 2023
sustainability and endorsed
the ‘Aid for Trade’ initiative to
empower developing countries in
global trade. These efforts aim to
foster equitable and sustainable
global economic growth.
Empowering the Workforce of
future: Preparation for the future
of work is prioritized, resulting
in commitments with significant
benefits. Commitment to
address skill gaps, promote
decent work, and inclusive
social protection policies. The
value of skills-based migration
pathways is recognised,
highlighted mapping global
skill gaps, and enhancing skills
data. An international reference
classification for occupations
was considered for labour
standardization. To adapt to the
digital landscape, it was decided
to develop digital upskilling and
reskilling programs. Support
for the UN Global Accelerator
on Jobs and Social Protection
underscores equitable labour
transitions, and the commitment
to eliminating child and forced
labor in global value chains
emphasizes ethical practices
and child protection.
Advancing Financial Inclusion:
Progress towards the remittance
target was welcomed. The
regulatory toolkit for digital
financial inclusion of MSMEs was
also endorsed. The importance
of digital financial literacy and
THE CHARTERED ACCOUNTANT
consumer protection was
highlighted and the summit
supported the recommendations
for advancing financial inclusion,
especially in payment system.
Eradicating corruption: The
G20 Summit made a resolute
reaffirmation of a zero-tolerance
policy for corruption, reflecting
its unwavering commitment to
combat this global scourge.
The summit went further by
endorsing three high-level
principles that serve as the
cornerstone of its approach
to eradicating corruption.
Notably, the G20 committed
to strengthening international
cooperation, emphasizing the
imperative of asset recovery and
the promotion of integrity within
public institutions. Additionally,
the summit extended its full
support to efforts aimed at
the confiscation of criminal
proceeds, a critical step in
the fight against corruption.
Furthermore, it underscored
the need for criminalizing
foreign bribery, a significant
stride towards building a more
transparent and accountable
global business environment.
These outcomes signify the
G20’s dedication to promoting
ethical governance and fostering
a world where corruption holds
no place, ultimately benefiting
nations and societies at large.
Advancing Sustainable
Finance: Pledge to Foster a
Greener Future: Coming out
of the G20 Summit, there is a
clear commitment to elevate
sustainable finance to new
heights. The summit marked
a significant step forward by
pledging to scale up sustainable
finance, signalling the leaders’
shared determination to
drive positive environmental
and social impacts through
financial mechanisms. These
developments represent a
monumental stride towards
creating a financial landscape
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THE CHARTERED ACCOUNTANT
The Summit has
made significant
strides in combatting
plastic pollution with
the establishment of
an Intergovernmental
Negotiating Committee
for a binding
international
instrument.
that not only generates profits
but also actively contributes to
the betterment of the planet and
society at large.
Paving the Way for
Sustainable and Inclusive
Energy Transformation:
The emphasis on ensuring
uninterrupted energy flows,
facilitating low-cost financing for
developing nations, promoting
the expansion of renewable
energy sources, and advancing
sustainable fuels, underscores
the global focus on a cleaner
and more sustainable energy
future. Additionally, the
recognition of the importance
of grid interconnections,
responsible supply chains,
and the gradual phasing out
of fossil fuel subsidies marks
a significant step towards
reducing carbon emissions and
fostering inclusive access to
affordable and clean energy.
Advances Ecosystem
Conservation and
Sustainability: Commitments
were made to restore 30%
of the degraded ecosystems
by 2030 and support the
Kunming-Montreal Global
Biodiversity Framework.
There’s also a pledge to
reduce land degradation by
50% by 2040, protect forests,
combat deforestation, and
address plastic pollution. These
initiatives demonstrate a strong
www.icai.org
commitment to environmental
health and preservation, marking
a notable step towards a more
sustainable future.
Fostering Sustainable
Prosperity: The reaffirmation
of the Paris Agreement
commitments underscores the
urgent need to combat climate
change. Furthermore, the G20
calls for a comprehensive review
and reinforcement of climate
targets, with a paramount goal
of achieving global net-zero
emissions by mid-century.
The acknowledgment of the
substantial economic costs
associated with climate change
reflects a pragmatic approach
that considers the well-being of
nations and their inhabitants.
Advances Food Security:
This improves the global food
security, focusing on climate-
resilient crops, agricultural
innovation, and support
for developing nations.
Acknowledging economic
implications of food and energy
insecurity, the G20 anticipates
providing substantial funding
to combat these challenges,
reflecting a dedication to ending
hunger and malnutrition.
Strengthening Food Security:
One of the key takeaways
in the area of food security
is the anticipation of a
robust replenishment of the
International Fund for Agricultural
Development (IFAD) resources
at the end of the year by IFAD
members. This initiative promises
to substantially bolster IFAD’s
efforts in combating food
insecurity, ensuring a brighter
future for millions affected by
hunger and economic instability.
One Health approach: Central
to these achievements is a firm
commitment to strengthening
global health, with the World
Health Organization (WHO)
at its core. The importance
of Universal Health Coverage
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THEME
(UHC), pandemic readiness,
and robust infectious disease
surveillance systems is also
underscored. These measures
aim to enhance healthcare
services, delve into research
on COVID 19, and address the
growing threat of antimicrobial
resistance. Additionally, the G20
nations expressed their support
for international efforts to
combat drug trafficking, further
emphasizing their commitment
to safeguarding public health and
well-being on a global scale.
Fostering Collaborative
Finance-Health Efforts
for Global Well-being: The
strategic partnership between
Finance and Health ministeries
primarily through Joint Finance
and Health Task Force (JFHTF)
aims to reinforce global health
systems and mitigate economic
vulnerabilities exacerbated
by pandemics. The summit’s
endorsement of the Framework
on Economic Vulnerabilities
and Risks (FEVR) signifies a
critical step forward in assessing
pandemic-related economic
vulnerabilities comprehensively.
The establishment and
encouragement of new donors
for the Pandemic Fund reflect
the G20’s dedication to fostering
a collective response to
global health crises, ultimately
benefiting us all.
Quality Education: Providing
accessible and high-quality
education for all, underpinned
by the integration of digital
technology. The emphasis on
inclusive learning ensures that
education reaches diverse
populations. Additionally,
unwavering support for
Technical and Vocational
Education and Training (TVET)
was expressed, recognizing its
role in equipping individuals with
practical skills for the workforce.
Scientific collaboration fosters
innovation and knowledge
sharing, which are integral
DECEMBER 2023 33
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THEME
to achieving educational
excellence.
Pledge against Plastic
Pollution: The Summit has
made significant strides in
combatting plastic pollution
with the establishment of an
Intergovernmental Negotiating
Committee for a binding
international instrument. This
initiative reflects a collective
determination to address this
global environmental challenge.
Empowering Inclusive Digital
Economies: The transformative
potential of technology in
fostering inclusive development
is recognised. A prominent
focus lies on advancing Digital
Public Infrastructure (DPI) to
create secure, trustworthy, and
inclusive digital economies.
Through the introduction of
guiding principles, frameworks,
and initiatives, the summit aims
to champion DPI and guarantee
its safety and security. These
outcomes demonstrate the
G20’s commitment to harnessing
technology for the benefit of all,
promoting digital inclusivity, and
ensuring a secure digital future.
Charting Crypto Policy:
The potential macro-financial
implication of Central Bank
Digital Currencies (CBDCs)
was discussed, awaiting an
IMF report on this matter and
acknowledging research by
the BIS Innovation Hub. This
highlights the G20’s proactive
approach to navigating the
crypto landscape.
Advancing International
Taxation: There was an
emphasis on capacity building
for developing countries,
promoting equity in the
international tax landscape.
Additionally, the focus on
tackling crypto currency taxation
and enhancing international
tax transparency showcases
the G20’s commitment to
adapting to evolving economic
34 DECEMBER 2023
landscapes, ultimately benefitting
global financial stability.
Counter Terrorism and Money
Laundering: Terrorism was
strongly condemned, showing
unwavering commitment to
global security. The summit
also backed the FATF’s efforts
to address climate-related
financial risks and concentrated
on thwarting terrorist financing
through virtual assets and
emerging technologies.
Advancing Gender Equality
and Empowerment: The
G20 Summit reiterated its
commitment to gender equality
and women’s empowerment.
Launch of India – Middle
East Europe Economic
Corridor
During the New Delhi G20
summit, leaders from India,
Saudi Arabia, the European
Union, and the United States
jointly launched the India-
Middle East-Europe economic
corridor, aiming to enhance the
flow of commerce, energy, and
data from India across West
Asia to Europe.
The project seeks to connect
India with Europe via the
Middle East by sea and port.
This new corridor is envisioned
as a beacon of cooperation,
innovation, and shared progress,
reflecting shared aspirations and
dreams amongst its member
nations. The Prime Minister,
Shri Narendra Modi emphasized
that this connectivity initiative
is not merely about business
but also a matter of trust, with a
foundation rooted in adherence
to international rules and respect
for all nations’ sovereignty and
regional integrity.
The dedicated working groups will
develop a comprehensive plan
and establish timelines for the
project. The initial phase will focus
on identifying areas requiring
THE CHARTERED ACCOUNTANT
The G20, boasting a
thriving ecosystem
of more than 850,000
start-ups and over 1,500
unicorns, has emerged
as a global economic
trailblazer.
investment and determining
the feasibility of physical
infrastructure connectivity
between participating countries,
setting the stage for a potentially
transformative initiative in regional
and global economic cooperation.
This project will redefine the
movement of goods and
services across the continents
as it will bring down the logistics
cost and ensure quicker delivery
of shipments. The investment
in the transformative project
will greatly boost economic
activities, create jobs and most
importantly help reduce carbon
footprints.
The Indian presidency has
taken remarkable initiative
in establishing two more
new projects
● the Startup-20 Engagement
Group to effectively engage
key ecosystem stakeholders
and,
● a new working group on
Disaster Risk Reduction to
enable global preparedness
against disaster
G20’s Startup20 Initiative:
Global Collaboration
with Ambitious $1 Trillion
Investment Target by
2030: The G20, boasting a
thriving ecosystem of more
than 850,000 start-ups and
over 1,500 unicorns, has
emerged as a global economic
trailblazer. For Indian start-
ups and entrepreneurs, the
Startup20 initiative represents
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THE CHARTERED ACCOUNTANT
a significant leap onto the
global stage. Business leaders
and entrepreneurs are eagerly
looking towards international
collaboration to facilitate growth,
expand funding opportunities,
and access new markets.
The Declaration unveiled an
ambitious goal of generating
a staggering $1 trillion in G20
investment for the global start
up ecosystem by 2030. The
Startup-20 Communiqué, a
collaborative effort by India and
other G20 countries, emphasizes
the need for alignment in policy
frameworks, regulatory histories,
and market development levels
among the group. In a promising
development, Prince Fahad
Bin Mansour Al-Saud of Saudi
Arabia revealed that a MoU has
been signed to bridge start-up
ecosystems, entrepreneurship,
and investors, aiming to establish
a joint fund between Saudi
Arabia and India to support
start-ups in both countries.
This initiative is seen as just
the beginning, laying a solid
foundation for future endeavours
in this dynamic sector.
G20’s Disaster Risk Reduction
Working Group: In July 2023,
the G20 Disaster Risk Reduction
Working Group met in Chennai,
India, with a strong commitment
to tackling the complexities
of disaster challenges. They
envisioned a world where
disaster risks are mitigated for
everyone, acknowledging the
existing misalignment of policies
and investments with the Sendai
Framework. The establishment
of the DRRWG underscores
their unwavering dedication
to accelerating actions in line
with the framework’s goals.
A comprehensive set of
actions and recommendations
is outlined, encompassing
the promotion of digital
infrastructure, facilitation of
collaboration among pertinent
stakeholders, development
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of disaggregated weather
forecasting systems, capacity-
building enhancements, and
the fostering of international
cooperation in early warning and
disaster risk reduction. Emphasis
is placed on the importance of
fortified governance, legislation,
and collaboration amongst
governments, international
organizations, and the private
sector to bolster infrastructure
resilience and foster sustainable,
inclusive, and high-quality
infrastructure systems.
Role and Opportunities for
Chartered Accountants
Chartered Accountants can play
a pivotal role in implementing
the outcomes and commitments
made by the G20 member
nations. They can assist
governments and businesses
in adapting to new policies and
regulations resulting from the
G20 discussions.
For instance, CAs can help
businesses incorporate
sustainable practices into their
financial strategies, ensuring
compliance with emerging
standards and regulations.
They can also support the
mobilization of financial
resources for sustainable
projects, helping organizations
access funding opportunities
aligned with the G20 goals.
CAs can offer guidance on
sustainable finance and
responsible investment practices,
aligning financial strategies
with environmental, social, and
governance (ESG) principles. This
aligns with the G20’s commitment
to sustainable development and
can help member nations make
informed investment decisions
that benefit both their economies
and the planet.
CAs can provide training on
financial and non-financial
aspects and help build capacity.
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THEME
CAs can offer
guidance on
sustainable finance and
responsible investment
practices, aligning
financial strategies with
environmental, social,
and governance
(ESG) principles.
CAs can also facilitate the
transition toward clean energy
and reduced carbon emissions in
line with the G20 commitments
to combat climate change. They
can advise on financial models
and investment strategies that
support the development of
renewable energy infrastructure
and sustainable transportation
systems.
Analysing and addressing
potential financial risks and
vulnerabilities on a global scale
is crucial. CAs can assist in
identifying these risks and
devising strategies to mitigate
them, thereby contributing to
global financial stability.
Overall, Chartered Accountants
act as a vital bridge between the
outcomes and commitments of
the G20 Summit and practical
implementation in the public and
private sectors. Their expertise
in financial management,
auditing, taxation, sustainability,
etc. can ensure that the goals
and commitments of the G20
are translated into actionable
strategies, promoting economic
stability, sustainability, and
responsible governance on a
global scale.

Authors may be reached at
sanjeevsinghalca1997@gmail.com
and eboard@icai.in
DECEMBER 2023 35
696

THEME THE CHARTERED ACCOUNTANT

Commitment, not coins, forges the

brilliance of a Chartered Accountant

“You have to dream before your dream can come true.”

– Dr. A. P. J. Abdul Kalam

Embarking on the odyssey towards achieving greatness in

life is invariably fuelled by a visionary spark. It’s the origin of
an inspiration, and a riveting impression of an extraordinary
accomplishment on the canvas of our mind, that drives
individuals towards the zenith of their aspirations. Acting as
a stalwart lighthouse, it offers a profound sense of direction
and purpose, leading us purposefully on a path unfurling the
tapestry of our dreams.
CA. (Dr.) Raj Chawla
Member of the Institute

T
he apex of greatness is
seldom achieved without
the backbreaking labour,
perseverance, and unwavering
devotion it takes to reach
one’s goals. It stands atop a
toilsome ascent, requiring the
resolute willingness to confront
challenges and overcome
them, and adapt gracefully in
the face of an extensive and
painstaking journey. It entails a
mindset that embraces setbacks
not as stumbling blocks but
stepping stones, and obstacles
as opportunities for intellectual
growth. Within the crucible of this
journey comes the realisation,
that greatness isn’t merely a
distinctive achievement but an
eternal pursuit – a culmination of
the steady progress, unyielding
resilience, and an unshakeable
faith in one’s vision.
Chartered Accountants are the
most respectable and trusted
financial professionals in the
global economic landscape. They
stand as the custodians of fiscal
wisdom and transparency, their
diligence, grit, and determination
serving as the bedrock of
ethical financial integrity and
accountability. Their multifaceted
responsibilities extend beyond
financial management, and their
contribution towards societal
welfare, economic prosperity, and
governmental fiscal management
is significant and noteworthy.
Within the fabric of society,
economy, and governance,
Chartered Accountants wield
a significant influence. Their
knowledge and proficiency
pervade various sectors,
contributing considerably to
social well-being and economic
stability. They serve as ethical
custodians, ensuring that financial
statements accurately reflect the
health of organisations.
In the infrastructure of the
society, they are the guardians
of trust and accountability,
promoting an environment of
financial literacy. They foster
a culture of ethical practices
amongst individuals, imparting
guidance on fiscal administration,
investment procedures, and
adherence to tax regulations,
and also aid organisations
by guiding them towards
sustainable growth, financial
management, and risk mitigation,
furnishing communities and
businesses with the requisite
financial expertise. Within the
realm of government policy-
making, CAs serve as advisors
in regulatory compliance and tax
planning, their knowledge being
instrumental in the adherence
of financial regulations and
formulating effective fiscal
policies. Through their audit
and assurance services, CAs
ensure the credibility of financial
statements for government
bodies, ensuring the appropriate
utilization of public funds.
The profession of Chartered
Accountancy is a wide arena

36 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
For many
individuals, the
profession of Chartered
Accountancy is a matter
of immense pride, as well
as a legacy passed down
through generations.
that several individuals feel
attracted to. The aspiration to
become a CA is often fuelled by
an array of motivations that are
diverse, and often quite personal.
It is a vocation that serves as
a magnet for those fascinated
by the intricacies of financial
systems and complexities
of the economic landscape.
Many individuals feel driven by
the prospect of professional
excellence and expansive career
opportunities, while others
are inspired by the financial
stability and global recognition
that the qualification brings.
The opportunity to partake in
critical decision making or offer
counsel to businesses and
individuals alike, attracts several
others. There are also those
who are motivated by the ethical
responsibility that accompanies
the profession, aiming to uphold
integrity and accountability in the
financial world.
The allure of this field, therefore,
beckons a disparate group of
people, each persuaded by
their unique ambitions and
perspectives to embark upon
a formidable journey that is
both challenging yet rewarding.
However, the endeavour to
become a Chartered Accountant
is an arduous pilgrimage not
suited for the feeble-hearted. It’s
not only a professional pursuit
but an emotional crusade that
tests the very fabric of one’s
resilience and determination. It’s
a journey where the weight of
textbooks carries the dreams of
www.icai.org
financial dexterity, but the road
is fraught with challenges that
reverberate in the quiet corridors
of sleepless study sessions. It’s
a path laden with trials unknown,
requiring indomitable spirit and
undeterred dedication, which
is a testament to the values
of patience, endurance, and a
resolute commitment towards
one’s objectives. It is a pursuit
that necessitates a considerable
investment of time, energy,
efforts, and intellectual prowess,
altering the course of life. At
the outset, the aspirants tussle
with the extensive knowledge
on audit, accounting, taxation,
financial management, law etc.
that is an endless maze, not only
requiring understanding but also
mastery. Nights blur into days
and they immerse themselves
in the complexities of these
subjects struggling to get hands-
on experience in these domains.
The toll on personal life is
ostensible as sacrifices become
a constant companion. Kinship
gatherings missed, social events
forgone, and the warmth of
shared moments replaced by
the cold glow of study lamps.
The emotional strain of isolation
and longing for normalcy seem
like a distant echo. The ordeal
of examinations is not only
an assessment of knowledge
but a battlefield, where mental
fortitude clashes with self-
doubt. The emotional roller
coaster of faith and fear, and
the anxious days and sleepless
nights lead to examination
halls where dreams hang in the
balance, waiting for the ink on
the paper to transform into a
key to the coveted designation.
The practical training, though
indispensable, brings its own
emotional turmoil. The demands
of the profession collide with
the aspirations of the individual.
Juggling between managing
expectations, balancing work,
and personal life, and grappling
697
THEME
with the real-world implications
of financial decisions to deliver
excellence every step of the way
exert a mental toll. Yet, in the
heart of this emotional storm,
there’s a fire that refuses to be
extinguished. The tears shed in
frustration become the ink that
writes the story of triumph. Each
setback, a painful punctuation
mark, only serves to underline
the determination to overcome.
For many individuals, the
profession of Chartered
Accountancy is a matter of
immense pride, as well as a legacy
passed down through generations.
It’s an inheritance that is intricately
woven with determination,
skill, and the deepest sense of
accomplishment. It’s an aspiration
that originates from an individual
endeavour with a vision to
achieve a significant milestone,
and goes on to extend beyond
bloodlines, inculcating a heritage
of academic achievements,
devotion, and moral conduct
within the ancestry. It’s where
tales of initial failures that lead to
eventual success are recounted,
inspiring and teaching invaluable
lessons for others to follow in
moments of crisis and trying
times. This legacy transcends
personal triumphs, symbolising
a repository of knowledge,
principles of honour, and financial
adroitness, reinforcing the values
of commitment towards serving
the economy and society. A
shared feeling of contentment, and
an understanding of the struggle
and dedication required to earn
this designation binds together the
individuals in these families.
The financial resources required
in the pursuit of becoming a
Chartered Accountant may be
considerable, but they stand as
a mere fraction in comparison
to the diligence and devotion
pivotal for this endeavour. While
aspirants may get confronted with
expenditures in the form of tuition
fees for academic courses, training
DECEMBER 2023 37
698
THEME
The financial
resources required in
the pursuit of becoming
a Chartered Accountant
may be considerable,
but they stand as a mere
fraction in comparison
to the diligence and
devotion pivotal for
this endeavour.
material, registration charges,
and examination costs, these
expenses diminish in importance
when positioned with the relentless
dedication demanded throughout
this journey. The unwavering
perseverance, numerous hours
of study, and the sheer resolve
needed to endure a series of
exacting examinations and
rigorous practical training, is where
the true investment of a candidate
lies. The monetary outlay, though
indispensable, is outweighed
by persistence, tenacity, and
innumerable sacrifices that an
aspirant makes. This highlights
that the rightful cost for attaining
the designation of a Chartered
Accountant is measured in the
determination and unwavering
commitment of an individual, more
than in financial terms.
In the domain of professional
competence, the role of CAs has
ventured beyond conventional
boundaries, evolving beyond
financial experts, and into
strategic thinkers and influential
decision-makers. Numerous
inspirational narratives exist
of individuals who ascended
from modest beginnings,
assuming important roles in the
corporate leadership, and their
success stories as Chartered
Accountants stand as powerful
illustrations of the deep impact
of persistence, resolve, and
an unfaltering commitment
to achieve one’s aspirations.
38 DECEMBER 2023
Through a relentless pursuit
of achievements, ongoing
learning, and an adaptable
mindset, they progressed
through the ranks, shouldering
significant responsibilities.
This transformation of CAs
is evident from their rise to
prestigious positions such as
CEOs and CFOs, with many of
the members, both men and
women, serving as Independent
Directors in the Board of
companies. Their stories are
an attestation to their tenacity
and commitment to exceed
beyond their circumstances and
forge a path towards significant
professional achievements and
holding influential positions
of authority in the realm of
Chartered Accountancy.
In the harmony of achievement,
there are those whose melodies
resonate with the distinct rhythm
of triumph over adversity.
Amongst the esteemed
members of ICAI are individuals
who epitomise the triumph
of human spirit, who defied
conventional societal norms by
embracing their disabilities and
overcame physical challenges
to excel in the field of Chartered
Accountancy. Their journey to
this pinnacle of professional
accomplishment is not only
a narrative of academic
challenges, but a testament to
the unrelenting determination to
surmount barriers. Their stories
of inspiration serve to amplify the
resonance of their success.
THE CHARTERED ACCOUNTANT
CA. Rajani Gopalakrishnan
was the first virtually-impaired
woman who become a
Chartered Accountant. Due to
an incorrect line of treatment,
she faced partial blindness at
age 9 from a rare condition
called Steven-Johnson’s
Syndrome, progressing to
complete blindness by 1994.
Undeterred, she learned
screen reading software in
2000, enabling her to use a
computer. Despite innumerable
hurdles along her path, she
resumed the preparation for
CA. Final Examination after
a long gap of seven years in
the year 2001, triumphantly
earning her qualification in
2003. Another remarkable
feat was accomplished by
CA. R. Rajashekhar Reddy
who triumphed over a serious
disability by becoming a
Chartered Accountant. He
lost his vision at the age of 11
due to a damaged optic nerve
caused by a brain tumour. With
the help of volunteers, friends,
teachers, and mentors, he
was provided with the audio
format of the entire syllabus
and study material of the CPT
that helped him clear the first
stage. After clearing his CPT,
he was provided with a laptop
that enabled him to go through
the ICAI books using a screen
reading software. With the
mindset to accomplish the
impossible, he qualified his
examinations in the second
www.icai.org

THE CHARTERED ACCOUNTANT
The future of
the Chartered
Accountants is
intrinsically linked
to technological
development, progressing
worldwide economies,
and diversifying role
in various industries.
attempt to become a CA in
November 2012.
In another inspiring story, CA.
Omkar Jayant Nirgudkar stands
as one of the very few to hold
the dual degrees of a Chartered
Accountant and Company
Secretary. Born with Cerebral
Palsy, he outshone 3500 odd
‘abled’ chartered accountants
and was selected by 6 leading
companies in India, during ICAI’s
Campus Placement. Despite
the added challenge of travel
for in-house and on-location
training that he imparted apart
from his regular desk work,
he remained undeterred and
outdid his disability by earning
a Special Outstanding Achiever
award from CMD, Hindustan
Petroleum Corporation Limited
on 1st February 2013. He was
also honoured with the National
Award for Best Employee
(Cerebral Palsy) by the then
Hon’ble President of India,
Shri Pranab Mukherjee on 6th
February 2013.
CA. Pooja Karaveerashettar
who was born with the rare eye
disease Retinitis Pigmentosa,
aspired to become a doctor but
faced rejection due to her visual
impairment. Her professor, who
recognised her ambition, enrolled
her in the Foundation Course in
2010, and with the support of her
professor, parents, and siblings,
she cleared CPT in December
2010. Inspired by differently abled
success stories narrated to her
www.icai.org
by her mentors, she completed
IPCC in 2013, aided by her mother
reading the exam syllabus and
reference books to her. Despite
challenges in juggling studies and
articleship, her resilience prevailed.
After a decade of unwavering
dedication, she achieved her
dream and qualified as a Chartered
Accountant in May 2023.
CA. Sarika Jain, who was inflicted
with polio in her right leg with
50% disability at the age of two,
is another example of resilience in
the face of adversity. Her disability
could not stop her ambition from
taking wings and she qualified as
a Chartered Accountant in 2011,
further cracking the UPSC Civil
Services Exam in 2013. Within the
revered corridors of the Institute,
these individuals stand not only
as Chartered Accountants but
emerge as guiding beacons of
inspiration. There are several such
individuals in the CA profession
who have proved innumerable
times that their capabilities can
transcend any limitations imposed
by their physical conditions.
Their narratives reflect their
accomplishments, demonstrating
their indomitable will to succeed
in the financial world. Their sagas
of excellence not only shatter
stereotypes but also reshape
perceptions, emphasising
upon the infinite aptitude and
capabilities of the differently-
abled in the realm of Chartered
Accountancy.
The future of the Chartered
Accountants is intrinsically linked
to technological development,
progressing worldwide economies,
and diversifying role in various
industries. Automation and AI
both present obstacles and
opportunities, allowing CAs to
focus on high-value services
like financial analysis, strategic
planning, and advisory roles.
As the global financial markets
become more complex, and
with the regulatory framework
continuously evolving, the role
699
THEME
of CAs become indisputably
crucial in assuring ethical financial
practices, upholding transparency,
and strengthening accountability.
The evolving scope of Chartered
Accountants transcends traditional
financial oversight and into
strategic advisory positions,
circumscribing areas like
sustainability, risk management,
and technological integration.
With globalisation on the rise,
the need for CAs with cross-
border proficiency has surged,
underscoring the swiftly changing
landscape of the profession.
This necessitates continuous
learning and upgradation of
knowledge, while adapting to the
evolving business ecosystem,
and a steadfast commitment
to ethical financial standards.
Consequently, the individuals
who showcase adaptability, stay
committed to ongoing learning,
and promptly respond to the
dynamic financial terrain will
assume a pivotal role in sculpting
the future of the profession and
the global financial sphere. At
the end of the odyssey, when the
distinguished title of Chartered
Accountant is earned, it’s not just
a professional accomplishment.
It’s a victory over the emotional
battlefield that characterised the
journey. The tears, the sacrifices,
the moments of despair—all
woven into a drapery that
narrates a story of resilience,
courage, and an unwavering
commitment to a dream that was
more than just a career choice.
It’s an emotional triumph that
transcends the ledger books and
numbers, making the journey to
become a Chartered Accountant
a testament to the strength of the
human spirit.

Author may be reached at
eboard@icai.in
DECEMBER 2023 39
 701

THE CHARTERED ACCOUNTANT

THEME

Nurturing MSMEs to empower India’s

Economic Growth
The Micro, Small and Medium Enterprises (MSMEs) in India
are often considered as backbone of the Indian economy and
many phrases like “engine of growth” and “powerhouse of
enormous opportunities” are used to define the sector. There
is obvious reason why MSMEs are considered backbone of
India’s economy. As per Udyam registration data, over 20 Mn.
MSMEs are reg istered in India and provides employment to
over 140 Mn. people. The sector contributes over 30% to
India’s GDP and around 48% to exports and therefore plays a
significant role in shaping India’s economy. More importantly,
the potential for growth in this sector is immense. As per
CA. Krishna Kanhaiya latest predictions the sector is likely to contribute about USD
CEO, Mirae Asset Financial Services 1 trillion to India’s export by 2028. However, whenever there
(India) Pvt. Ltd.
is crisis, be it demonetisation or Pandemic, MSMEs are hit
disproportionately high.

Emerging importance the transfer of technologies and All round support and
of MSMEs in the Indian expertise and best practices from strategies required for
global peers to become more growth
Economy

M
competitive globally.
SMEs are increasingly Regulatory Simplification
contributing to Increasingly MSMEs are
also drawing from the digital The Government has been
employment creation,
revolution in the country and repeatedly admitting the
nurturing an ecosystem that indispensable role played by
fosters innovation, development has significantly improved their
operating efficiencies, productivity the MSMEs in the economic
and provides competitive edge growth of the country. It is taking
to India in the global market. and capacities across the system
using the power of technology. multiple measures to create an
The ability of the sector to environment of inclusive growth.
remain adaptive to changes has Multiple technology providers
are also creating robust platform The ‘Make in India’ push by the
caught the imagination of the current regime has helped create
to support the surge in the
policymakers as well as investors. multiple opportunities in the sector.
development of these companies.
Opportunities
The emergence of ‘China plus
one strategy’ has proved to be a
blessing for India in general and
the MSME sector in particular.
Many of the global manufacturing
companies are aggressively
exploring to shift their base to
India. This, along with Govt’s
push for “Atmanirbhar Bharat”
resents massive opportunities for
the MSMEs.
The sector can capitalize on
these opportunities and leverage

www.icai.org DECEMBER 2023 41

702
THEME
The ‘Make in India’
push by the current
regime has helped create
multiple opportunities in
the sector.
However, certain measures may
further augment the performance
of the sector. Encouraging
self-certification and digital
compliance mechanisms to help
ease of doing business. While
thrust is already given for single
window clearances in some of
the areas, there still is a huge
scope in this. Simplification and
streamlining of the regulatory
guidelines and procedures will
go a long way in boosting the
confidence of the sector and
providing the required boost
for them to perform optimally.
Other measures like institutional
credit guarantee schemes from
Government, providing marketing
assistance and incubating
technology driven initiatives
which have Government backing
can further enhance the potential
in this sector.
Development of the
Operating Infrastructure
Focused attention on
improvement of the physical
infrastructure like transportation,
logistics, and industrial parks
will support the MSME growth.
Uninterrupted access to key
utilities like power, water and
communications will be required.
Public-private collaboration in
Focused attention on
improvement of the
physical infrastructure
like transportation,
logistics, and industrial
parks will support
the MSME growth.
42 DECEMBER 2023
creating clusters of small and
emerging companies operating in
same or similar areas can create
significant synergies and build
economies of scale.
Continuous training and
development
The MSMEs can jointly pitch
and adopt a self-funding
disciplined approach towards
skill development by building
dedicated training centres,
partner with educational
institutes, and drive a culture of
continuous learning to remain
ahead of the changing market
demands.
Embracing technology
It cannot be adequately
emphasised the role technology
can play in creating the right
setting for the growth. It can
lead to creating competitive
edge and improve the
efficiency. Government can
also further incentivise by
providing additional subsidies
for implementation of digital
tools, e-commerce network
and adoption of automation
technologies. Each and every
company in this sector probably
need to allocate a meaningful
budget towards research and
development keeping technology
as one of the central themes.
Financial Inclusion
Despite significant strides
made by the sector, many
of the frontline lenders still
THE CHARTERED ACCOUNTANT
have not opened up fully
to fund the sector. There is
still dearth of credit in this
segment, arising out of multiple
issues like accessibility,
reach, understanding of the
actual business nuances etc.
Some of the new-age NBFCs
are solving this problem by
leveraging technology platforms
of Fintechs to reach to the
last mile using supply chain
financing or other tailor-made
products. Incidentally, many of
the leading Banks are now more
comfortable in participating
along with these NBFCs to lend
to the sector, acknowledging
their ability to better underwrite
such customers as compared to
traditional lenders. Right finance
at right price for the companies
in this sector can leapfrog the
country to its true potential at an
expeditious space.
Conclusion
MSMEs today are a powerhouse
of enormous opportunities
which is poised unleashing its
true potential. With right mix of
regulation, innovation, improved
credit access and encouragement
from the Government and
industry bodies, MSMEs
will shape India’s vision for
“Atmanirbhar Bharat” and lead
India’s economy in “Amrit Kaal”.

Author may be reached at
eboard@icai.in
www.icai.org
 703

THE CHARTERED ACCOUNTANT

SPECIAL SEGMENT
I am the I in ICAI – Fuelling India’s Growth Story
India stands at a critical juncture of growth, having huge advantage of
Demography, Democracy and Digitisation. Most countries have had only
one or at best 2 of these traits. In addition, the four pillars of Democracy are
as follows:

Democracy

CA. Nrupesh Shah

MD, Symphony Ltd.

Hence, we enjoy premium Legislature Executive Judiciary Media

amongst the other emerging
economies. India’s growth is going to be even more valuable because it will come at a time when most
other large countries are having problems of their own. Therefore, on a relative basis, India’s growth will be
a multiple of 1.5-2x of China/US. Value is also created through the quality i.e. predictability, consistency and
longevity of growth.
The introduction of GST, IBC, UPI, Aadhar are all bearing fruit and formalising the country. On the downside,
we have to be weary of the risks of unequal growth which is the K-shaped post COVID recovery, political
instability, and self goals that India has historically made. Also, we have to be weary of global turbulences
and unrest.
In this landscape, Chartered Accountants (CAs) have emerged as pivotal contributors to economic resurgence,
providing crucial expertise to guide businesses in a significant way. As business advisors, strategists, and
frontline administrators, CAs are catalysts steering the nation through this era of unprecedented growth
happening once in a millennia.

I am the I in ICAI - India’s Growth Story

India has surpassed several economies in the past 15 years and is on its
journey to become the world’s third-largest economy by 2027 at USD 5.4
trillion surpassing Japan and Germany, as per International Monetary Fund
projections in 2023. India became the fifth largest economy surpassing
United Kingdom, up from around USD 2 trillion in 2014 to USD 3.73 trillion
in 2023.
India’s demographic advantage, financial deepening, and a stable
currency with ample forex reserves fuel the long-term outlook. The capital
Mr. Anuj Mathur required for India’s growth is expected to be funded organically as well as
MD and CEO inorganically, as its demand consumption story holds quite strong. Driven
Canara HSBC Life Insurance by favorable demographics, India’s savings rate is likely to increase with
falling dependency ratios, rising incomes, and deeper financial sector
development, which is likely to make the pool of capital available to drive further investment. In the long-term,
India will emerge as what the World Bank classifies as an upper middle-income economy from its current
designation as a middle-income country. As per market estimates, India is expected a soaring GDP growth to
propel it to the top three of the globe’s largest economies, from just US$3.4tn today to larger than Japan’s by
2027, hitting US$29tn by 2047 and US$45tn by 2052.
Today, India finds itself at the center of many big initiatives and specifically on the manufacturing side the
expansion in near future will have significant bearing on the new world order in the next decade or so. The
growth story would be incomplete without acknowledging the significant contribution and impact that CA

www.icai.org DECEMBER 2023 43

704

SPECIAL SEGMENT THE CHARTERED ACCOUNTANT

professionals have made. Across industries and across hierarchies, a Chartered Accountant is making
significant impact not just in the Finance/ Accounts functions but beyond that as well.
Becoming a Chartered Accountant is a journey in itself. It teaches you to manage your time, priorities and the
most important aspect of discipline, dedication and hard work. While excellence is what every professional
wants to chase, but it is also important to enjoy the journey towards excellence – Being open to new ideas,
embracing technology, adapting to changing work environment, and continuous improvement every single
day to achieve it. Find your purpose and find how you will contribute to making India the superpower which
it deserves to become.
As the CEO of a Life Insurance Company, my role transcends beyond leading a business; it’s about being a part
of India’s economic and social progression. The adage “I am the I in ICAI” encapsulates this ethos perfectly.
Insurance, at its core, is about providing financial security and fostering a culture of long term savings and
investments. We contribute to the growth of the Country by creating employment opportunities and investing
across spectrum of industries. We are partners in the vison ‘Insurance for all by 2047’.
India is projected to be a US$29 trillion economy by 2047 and our current young population will be the
protagonists in this journey for the next 25 years. As future leaders, their vision should align with the broader
objectives of national growth. Many of those would be Chartered Accountants and each one of you must see
yourself as “enablers” – not just of growing the business but as contributors to the nation’s socio-economic
fabric. One should commit to being an integral agent in charting India’s further growth story.

Accountant’s Browser
PROFESSIONAL NEWS & VIEWS PUBLISHED ELSEWHERE
Index of some useful articles taken from Periodicals received during October - November 2023 for the reference of Faculty/
Students & Members of the Institute.

1. Accountancy Dushyant Dalal. Bombay Chartered Accountant

Journal, October 2023, pp.15-23.
Sustainability reporting and opportunities for
practitioners by Deep Agarwal. Bombay Chartered
Accountant Journal, October 2023, pp.35-39. 5. Management
2. Economics ESG board’s responsibility – India and globally by Rajiv
Dampening sustainability: Critical review of the Jha. Chartered Secretary, October 2023, pp.111-116.
‘Alternative’ approaches to sustainable agriculture by
Sandipan Baksi. Economic & Political Weekly, October 6. Taxation and Finance
28, 2023, pp.55-63.
Distinct and related persons under GST and related
Gold is old: Noble metal in the Indian Economy through
party transactions under IT by Jatin Christopher. The
ages by Satish Deodhar. Vikalpa, July-September
2023, pp.175-188. Chamber’s Journal, September 2023, pp.47-53.

Practical approach to handle the notice issued by GST

3. Law
Interim finance in creditor-oriented bankruptcy codes:
Study in the context of insolvency & bankruptcy code,
India by Amol Baxi. Vikalpa, July-September 2023,
pp.189-205.
4. Investment
Alternative investment funds (AFIs) – Examining the
application of pari-passu and pro-rata concepts by
department pertaining to secondment of employee(s)
by Ruchesh Sinha and Prakash Mehta. Goods &
Services Tax Cases, November 07’-13’, 2023, pp.49-
56.
Recent developments in GST by G.G. Goyal and
C.B. Thakar. Bombay Chartered Accountant Journal,
October 2023, pp.86-94.

Full Texts of the above articles are available with the Central Council library, ICAI, which can be referred on all working days.
For further inquiries please contact on 011-30110419 and 011-30110420 or by e-mail at library@icai.in.

44 DECEMBER 2023 www.icai.org

 705

THE CHARTERED ACCOUNTANT

THEME

Sustainable Growth Model: Shaping

India’s Economic Landscape
Prof. Dr. Neelam Tandon
Academician
Despite geopolitical unrest and global slow down, the
International Monetary Fund has declared India as the
bright spot in the world market at a real GDP growth rate of
6.5 percent in 2023. Despite the Russia -Ukraine crisis and
disruption in food and energy prices in the world market,
the headline inflation in India has decreased to 4.87 from
5.07 percent in November 2023. It is evident that India’s
coordinated monetary and fiscal policy measures have
resulted in the expansion of Capex and have helped India
to maintain a higher and sustainable economic growth
rate. This article will take you through the structural and
monetary measures taken by the Government of India and
Reserve Bank of India respectively to make India resilient
and gain the confidence of international investors with the
hope of getting high returns in India.

I
ndia’s G-20 presidency in
2023 and hosting of the Youth
Olympics in 2029 is a growth
story admired by the world. The
strengthening of the agricultural
sector, ensuring adequate food
supply, promoting green and
clean energy projects, and
nurturing of the startup culture
with the empowerment of the
female workforce to contribute
to the global value chain and
promote green, equitable, and
inclusive economic growth
is shaping India’s economic
landscape.
India Outshined in
COVID-19 Vaccination Drive
India’s growth journey is
an outcome of sustainable
structural reforms initiated by
the Government of India. The
development of the digital
ecosystem in the health sector
during COVID-19 vaccination
helped India to implement
the world’s largest COVID-19
vaccination drive to protect the
country from economic and
social loss. India’s health sector
is one of the most revenue and
employment-generating sectors.
The health sector has the
potential to create five hundred
thousand jobs each year with
a compounded annual growth
rate of twenty-two percent. To
improve operational efficiencies
and restructure government
spending to support human,
physical, and social capital
formation, the Government of
India strategized to leverage
poorly monetized assets with
the commercialization of coal
mines, 4G, and 5G Spectrum by
implementing the Public Private
Partnership (PPP) model.
Increasing Self-Reliance in
Coal Production
Commercialization of coal mines
is a significant step towards
improving operational efficiency.
The Government of India opened
the coal mine sector to private
players and conducted auctions
of 91 coal mines by November
2023. Commercialization of coal
mines helps firms to utilize coal
for their self-consumption, sale,
or any other purpose. Private
sector participation in coal mines
has created an equitable field
with an option to decide its end
use. The commercialization of
coal mines has promoted healthy
competition with higher revenue
generation for the government. It
has also brought regional parity
to coal-rich states and enhanced
employment opportunities at the
grassroots level.
Strengthening Power Sector
The operational cost of a firm
depends on the ease of access
to electricity. India is the third
largest consumer as well as the
third largest producer of electricity
in the world. The private sector
investment accounts for almost 60
percent of the total installed power
generation capacity in the country
with an installed power capacity
of 2,14,760 MW. India, the second

www.icai.org DECEMBER 2023 45

706
THEME
largest producer of coal has 48.6
percent coal installed capacity,
11.1 percent hydro installed
capacity, and 30.9 percent wind,
solar, and other renewal energy
installed capacity. The private
sector investment in infrastructure
development of the power sector
has resulted in the generation of
the highest 60 GW of conventional
power capacity in 2023.
Implementing Public-
Private Partnership Policy
Framework
The Government of India has
introduced structural policy
reforms to encourage PPP
in the health, education,
housing, sanitation, and social
infrastructure sectors to promote
an inclusive and equitable
economic growth within India.
The asset monetization scheme
of the Government of India has
offered opportunities for Public
Private Partnership (PPP) with
the government mitigating its
project cost risk. The Public
Private Partnership policy
framework of infrastructural
developments of airports
with the potential capacity of
almost three to four million
passengers has improved the
airport service quality, enhanced
the efficiency of services to
air passengers, reduced the
financial stress of commercial
banks, and generated a
continuous stream of revenue
to the Airport Authority of India
without making any investment.
The airports managed under
the PPP model include Delhi,
Mumbai, Bangalore, Hyderabad,
and Cochin. The PPP airports in
India have been ranked among
the top 5 in their respective
categories by the Airports
Council International (ACI) in
terms of Airport Service Quality
(ASQ). The PPP model for Smart
Cities, housing development,
infrastructural development,
information and communication
46 DECEMBER 2023
technology, sanitation, and
health sector is transforming
India’s growth journey. India has
implemented 345 PPP projects
with a total project cost of
Rupees 5,15,539.16 crore (2023).
Strengthening Digital
Financial Landscape
Ease of financial transactions is
vital for a country’s economic
growth rate. It helps firms to
invest and households to buy
goods and services and create
a real-time database to foster
innovation with improvement
in people’s livelihood. It also
helps households to invest
in the capital market secure
themselves against shocks and
mitigate risk. India introduced a
big push to digital payments by
introducing the Unified Payments
Interface (UPI) as an open
and interoperable direct bank
transfer platform. It empowered
consumers and small merchants
for online financial transactions.
The digital ecosystem in India
has led to an increase in 1.10
billion cellular mobile connection
users in 2023, equivalent to 77.0
percent of the total population.
According to the Digital India
Portal of the Government of
India, the expansion of internet
users in the first quarter of 2023
was 692.0 million with internet
penetration of 48.7 percent. In
2023, India reported 803.6 crore
digital payment transactions. The
reduction in the digital divide has
increased transparency and has
improved access to government
and other public utility services,
and financial services through
online and mobile platforms in a
simple, accessible, interoperable,
and citizen-friendly manner.
Promoting Ease of Doing
Business
The advancement in digital
infrastructure and digital
payment gateways with 5-G
wireless technology has resulted
THE CHARTERED ACCOUNTANT
The advancement in
digital infrastructure
and digital payment
gateways with 5-G
wireless technology
has resulted in better
governance and reduced
operational costs for
firms.
in better governance and
reduced operational costs for
firms. India’s low-cost payment
infrastructure gateway, the
Unified Payment Interface (UPI)
has enabled digital innovations
and generated web-based
employment opportunities for
India’s youth. It has also helped
social media influencers to earn
large sums of money, even in
small towns in India. The digital
ecosystem has reduced rigid
compliance norms and promoted
ease of doing business. Also,
to ease business transactions
and promote private and foreign
investments, the Government
of India has reduced more than
thirty-nine thousand business
compliance norms. A clear focus
on reducing the cost of doing
business and enhancing human
capital with the “Skill India” and
“National Education Policy”
initiatives has helped to deliver
better outcomes.
Developing Resilience to
External Shocks
Development of logistics parks,
“One Product One District”, “Go
Vocal Go Local”, and continuous
improvement in the supply
chain has reduced costs and
inflation. Also, accommodative
monetary policy has helped
to keep nominal interest rates
and borrowing costs low.
Agricultural reforms, millet
campaign, green farming, soil
health cards, crop insurance,
and Kisan credit card initiatives
www.icai.org

THE CHARTERED ACCOUNTANT
of the Government of India has
increased farm productivity
and increased the resilience of
the Indian economy to external
shocks of oil and food prices.
The Production Linked Incentive
(PLI) Scheme, strengthening
of MSMEs, development of
Logistics parks, and supply
chain diversification have
created new job opportunities in
labour-intensive manufacturing
industries. With the promotion
of tech-based start-up culture
in India, less skilled workers
with minimal training costs get
jobs in retail, delivery, and other
urban services segments. India’s
balanced moves to effectively
coordinate monetary and fiscal
measures has helped the country
to smoothen and gain resilience
to external shocks. The sufficient
buffer of foreign exchange
reserves helps India to overcome
countercyclical and spillover
impacts on the Indian economy.
Bringing Reforms in the
Financial Sector
The essential reforms in the
financial sector, in taxation with
the implementation of GST and
bank accounts linked to Aadhar
and PAN cards has helped the
Government to reduce leakages
in the flow of funds and tax
evasion. Tax reforms and digital
literacy has enhanced tax
revenue proceeds and reduced
leakages. RBI’s accommodative
monetary policy has helped
the repo rate fine-tune to
consumption and investment
demand in the country. RBI has
strategically raised the repo rate
duly calibrated to the recovery
of growth. RBI’s monetary policy
measures have helped to adjust
the real interest rate to keep
aggregate demand marginally
ahead of supply and sustain
economic growth.
To improve the health of the
financial market, the Government
has created institutions like
www.icai.org
the Insolvency and Bankruptcy
Board, a Development Finance
Institution, and a Bad Bank. The
increase in depth and diversity
of the financial market has
helped to improve long-term
financing, avoiding discretionary
choice, external control, and
the probability of poor decision-
making to borrow funds and
finance infrastructure projects.
The new Development Finance
Institution helps leverage
government funds to attract
global funds, available under
the Net Zero Climate Change
initiative. Financial diversity
helps in the development of
financial institutions to mitigate
volatility risk while using their
credit compliance and autonomy.
A more stable and diversified
financial sector helps to promote
savings and investments.
Financial market stability and the
ease of doing business increase
the share of foreign direct
investment and complement
domestic investment.
The Growth Journey
Continues
Crowding-in of private
investment in physical and
social infrastructure is an
outcome of the Government
policy initiatives of tax credit
rebates for green projects, cold
storage operations, startups,
warehouses, and hospitals.
It facilitates the production
capacity and increases capital
expenditure in these segments.
Government policy initiatives
of subsidized investment in
clean energy technologies and
green transportation sectors
promote sustainable economic
growth. To address the urgent
issues of the correlation
between the transport
sector and greenhouse gas
emissions and implement a
complete framework towards
environmentally friendly
transport modes like electric
vehicles, the government has
707
THEME
taken the initiative with the
implementation of the National
Electric Mobility Mission Plan
to promote electric vehicle
production in India. The green
initiatives and technological
reforms will increase the
potential GDP of India. But
at the same time, RBI must
manage the policy rate so
that the aggregate demand
increases moderately with an
increase in aggregate supply.
Corporate Compliance and
Governance have strengthened
with the Companies Act 2013,
IBC, Corporate Tax reforms, and
digital financial transactions.
MSMEs have started opting for
new opportunities to enhance
resilience with faster adoption of
digital technology and innovative
practices. The ease of bank loan
provisioning to the MSME sector
improves financial health and
increases job opportunities for
the low-skilled workforce.
Conclusion
India has sustained stable
economic growth and fostered
employment opportunities with
fiscal measures and improved
supply chain, keeping the
moderate inflation rate with
an accommodative monetary
policy. Coordinated and
balanced measures by the
Government of India and the
Reserve Bank of India are
the growth drivers of India’s
economy. Also, it is equally
important that India’s young
population with a higher
marginal propensity to consume
will drive marginal propensity
to invest in the market with a
resilient financial market and a
digitally transforming ecosystem
of the country.

Author may be reached at
neelamtandon2007@gmail.com
and eboard@icai.in
DECEMBER 2023 47
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 709

THE CHARTERED ACCOUNTANT

TAXATION

Democratizing Wealth Creation:

Decoding the Potential of REITs in
Making Real Estate Investment an
Accessible Reality
CA. Shaily Gupta
Member of the Institute
Within India’s real estate landscape, the Real Estate
Investment Trusts (REITs) offer a tantalizing prospect by
embracing the timeless wisdom of “buy land, they are not
making more of it.” These sophisticated investment vehicles
transform ‘realty’ dreams into ‘reality’, allowing individuals to
partake in the property market. However, in the face of their
alluring potential, the Indian REITs find themselves in an
intriguing adolescent stage, braving significant challenges.
Successfully manoeuvring through intricate regulations,
navigating liquidity concerns, and unravelling tax complexities
become pivotal in unlocking the full growth potential of the
REITs. Savvy investors keen on embracing the abundant
opportunities presented by the Indian REITs must skilfully
navigate these dynamics.

I
n the words of a distinguished
American real estate investor
and philanthropist, ‘The best
investment on Earth is Earth.’
1
This maxim finds particular
relevance in the grand Indian
narrative where historically, the
possession of land & real estate
had symbolized much more than
mere ownership. ‘Zamindars’
or landlords embodied the
essence of a status symbol,
signifying their elevated position
within the social fabric. Land
and real estate in India remains
a treasured inheritance that
embodies the essence of
prosperity, continuity and
stability. In the contemporary
realm of modern India, the Real
Estate Investment Trusts (REITs)
have proved to act as a conduit
for transforming the dream of real
estate investment into a tangible
and accessible reality. They
provide a channel through which
1
Texas Monthly, November 1990
individuals can participate in the
growth of the real estate sector,
tapping into its potential for a
long-term income generation and
capital appreciation.
Evolution of REIT
The REIT is an investment vehicle
that is a vertically integrated
entity that owns and operates
real estate and related assets
and allows individual investors
to own a part of the income
producing portfolio without
actually having to buy a capital
intensive asset.
The REIT was introduced to
the world by the US, as early
as the 1960s. Today, more than
41 countries offer REIT as an
investment vehicle. In 2019,
India saw its first publicly listed
REIT- Embassy Office Parks,
while the US REIT market
capitalization was already at
96% of the real estate market;
Singapore and Japan with 55%
and 51% respectively. Investors
around the world now have
access to portfolios of income
producing real estate trusts.
The inception of Real Estate
Investment Trusts (REITs) in India
dates back to 2013 when the
Securities and Exchange Board
of India (SEBI) released draft
guidelines for this investment
vehicle. The SEBI introduced
REITs in India with the aim of
providing the much-needed
capital to the real estate sector
and channelizing funds from
retail investors into the formal
system. To achieve this, the SEBI
implemented the SEBI (REITs)
Regulations in 2014, which have
been amended periodically.

www.icai.org DECEMBER 2023 49

710

TAXATION THE CHARTERED ACCOUNTANT

Table 1: Countries with high REIT market capitalization; Source: Author’s Presentation
The SEBI (REITs) Regulations in the REITs in India. Firstly, the REIT Structure
outline the registration previous minimum investment
requirements, registration requirement of INR 50,000 for To gain a comprehensive
procedures, and eligibility criteria investors to participate in the understanding of the taxation
for the REITs. However, due to a REITs was abolished. Presently, and legal aspects of the REITs,
lack of clarity regarding taxation the minimum investment amount it is crucial to first familiarize
and other legal aspects, the required is only INR 10,000 ourselves with the structure
implementation of the REITs was to INR 15,000 for investment of these entities, which
delayed until the 2015 Union through initial public offerings encompasses the following key
Budget. In that budget, the finance and follow-on offers. Secondly, entities:
minister announced measures the minimum lot size for trading
1. Sponsor
to facilitate the establishment of REITs was reduced from 100
REITs, such as rationalizing the units to 1 unit. The specificities The Sponsor is the real estate
capital gains tax on the transfer of the instruments shall be company that contributes the
of property from the developers’ discussed in the later parts of real estate assets to the trust
main companies to the listed this article. and appoints a Trustee to hold
entities, specifically the special
purpose vehicles (SPVs) formed
for running the REITs.
In the subsequent years, several
amendments were introduced
to clarify and streamline the
implementation of the REITs.
The amendments were made
to encourage broader investor
participation and improve the
accessibility to REIT investments,
aligning with the goal of
attracting retail investors and
facilitating the growth of the real
estate sector in India. Notably,
in June 2021, the SEBI made
two significant amendments to
Figure 1: Evolution of REIT in India: A Timeline; Source: Author’s
the rules governing investments
Presentation

50 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
these assets. A REIT can be
set up by the sponsor by:
● transfer of shareholding,
rights, or interest in the
holding company (Holdco)
or the SPV, or
● transferring the real estate
asset in favour of the trust,
in exchange for units of the
REIT;
Once the assets are
transferred to the Trust, the
Sponsor no longer directly
controls them.
2. Trustee
The Trustee is an independent
entity responsible for holding
and safeguarding the real
estate assets on behalf of the
REIT. The Trustee can also
appoint a Manager to manage
the real estate assets.
3. Manager
The Manager is appointed by
the Trustee to oversee the day-
to-day management of the real
estate assets held by the REIT.
The Manager is responsible for
making investment decisions,
maintaining and enhancing
the properties, and generating
income from the assets. The
Manager acts as a fiduciary
on behalf of the REIT and its
unitholders.
Taxation Aspects under
REIT
Following are the transactions
which accrue income to the
entities involved in an REIT. The
respective transactions may be
identified in Figure 2: Typical
Operating Structure of REIT for
better understanding of the reader.
2
In case of shares of SPV: STCG: Slab rates; LTCG (held for more than a year): 10% (on gains more than Rs 1 lakh) without indexation
benefit. In case of Real Estate Assets: STCG: relevant income tax slab rate; LTCG (held for > 24 months): 20% with indexation
benefits.
3
The specific tax provisions would not apply to Hold co. Sole purpose of Holdco is to own shares of SPVs. Real estate assets are
directly owned by SPV or the REITs.
www.icai.org
Sponsor
The transfer of real estate assets
by a sponsor to a Real Estate
Investment Trust (REIT) can
be accomplished through two
methods, as outlined below:
1. Transfer of shareholding,
rights, or interest in the
holding company (Holdco)
or Special Purpose Vehicle
(SPV): If the sponsor swaps
shares of the SPV for units of
the REIT, this transaction is
not considered a transfer
according to Section 47(xvii)
of the Income Tax Act.
Instead, it is deferred until
the sale of the units (i.e.,
the sponsor’s exit from the
REIT). Furthermore, if the
sponsor is a corporate entity,
it is not subject to Minimum
Alternate Tax (MAT). In the
case of selling such units (exit
opportunity), the sponsor will
be liable for the Capital Gains
tax. The Cost Of Acquisition
(CoA) for tax calculation
purposes is determined as
the cost of the shares in the
SPV that were transferred.
The Period of Holding (POH)
is calculated by considering
the POH of the units in the
REIT and the POH of the
shares of the SPV.
2. Transferring the real estate
asset in favour of the
trust: This method involves
transferring the real estate
asset directly to the REIT.
However, such a transfer will
attract Capital Gains Tax,
and there are no exemptions
available to the sponsor in this
case.
711
TAXATION
REIT – Taxation Aspects
The REIT is a pass-through entity.
The dividend income received
by the REIT is taxed only at the
hands of the SPV or Holdco and
is thus exempt at the hands of
the REIT. The Interest income
received by the REIT from the
SPV or Holdco is exempt in the
hands of the REIT but taxable in
the unitholder’s hand. However,
capital gains at the time of
disposal of assets of the trust
are to be taxed in the hands of
the trust. As a result, it can be
concluded that the pass-through
nature is actually hybrid.2
SPV3
1. Rent from real estate assets:
The income generated from
renting out real estate assets by
the SPV falls under the category
of “Income from House
Property” for tax purposes.
2. Profits from investments in
Real Estate/Infrastructure
Projects: Any profits earned
by the SPV through its
investments in real estate
or infrastructure projects
are classified as “Business
Income” for tax purposes.
3. Capital appreciations from
investments in Real Estate/
Infrastructure Projects:
If the SPV experiences
capital appreciation from its
investments in real estate or
infrastructure projects, any
resulting gains will be subject
to the Capital Gains Tax.
Investor/Unitholders
Income from Business Trusts in
the nature of:
DECEMBER 2023 51
712

TAXATION THE CHARTERED ACCOUNTANT

Figure 2: Typical Operating Structure of REIT; Source: Author's Presentation

1. Rent4: Taxable under “Income Taxable under “Income 3. Interest

from House Property” at the from Other Sources”
a. For Residents: Taxable
applicable rates based on the based on the slab under
under “Income from Other
slab under which the investor’s which the investor’s total
Sources” based on the slab
total income falls. income falls.
under which the investor’s
2. Dividend b. If the SPVs have not opted total income falls.
for a lower tax regime:
a. If the SPVs have opted b. For NRIs: Taxable @ 5%
Exempt u/s 10(23FD)
for a lower tax regime5:
4
*As per Section 115UA(1), Notwithstanding anything contained in any other provisions of this Act, any income distributed by a
business trust to its unit holders shall be deemed to be of the same nature and in the same proportion in the hands of the unit holder
as it had been received by, or accrued to, the business trust. This means that Income taxable in the hands of Unit holder based on
following:
1. Income needs to be distributed by the business trust;
2. Income distributed by the trust will be of same nature as it had been in the hand of business trust. For e.g. Rent received by
business trust will be taxable in the hands of unit holder as Rent under House Property head, Interest received by business trust
will be taxable in the hands of unit holder as Interest under Other Sources head.
5
SPVs has to pay tax @ 25% + surcharge and cess or the concessional rate of 22% + surcharge and cess if opted for lower tax
regime (Sec 115BAA).

52 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
Nature of Income
Dividend
Interest
Rental Income from any Real Estate
Assets held directly
Capital Gain on sale of shares of SPV or
any Real Estate Assets directly owned
Other income; e.g. Bank interest etc.
4. Amortisation of Debt /
Repayment of Loan6: Taxable
u/s 56(2)(xii) as IFOS and
taxed on the bases of the slab
in which the investor’s total
income falls
5. Any other Income: Exempt
u/s 10(23FD)
6. Capital Gain on Sale of
Units of Business Trust:
The STCG tax rate is 15%
of the capital gains obtained
from the sale of units. If the
holding period exceeds 1
year from the date of unit
allocation, the LTCG taxation
rules are applicable. The
LTCG tax rate is 10% of the
gains in excess of Rs. 1 lakh
(across all equity investments
for the applicable FY) with no
indexation benefit.
6
Up to FY 2022-23: Not taxable as the amount was not in nature of income w.e.f. FY 2023-24: Taxable u/s 56(2)(xii) as IFOS
www.icai.org
Taxability
Exempt u/s 10(23FC)
Exempt u/s 10(23FC)
Exempt u/s 10(23FC)
Taxable at specified
rates2
Taxable at Maximum
marginal Rate (MMR)
Comparative Analysis of
REIT Performance
Currently, there are 4 REITs
in India. The Mindspace REIT
was one of the top performers
with absolute returns of 8.11%
in the YTD Oct’22 period. The
Brookfield India REIT came in
second with 7.30% absolute
returns. These two were followed
by the Embassy REIT with 1.40%
absolute returns during the same
period. The Nexus Select Trust
is the 4th REIT which got listed
in the June of 2023 and thus
it shall be excluded from the
comparative analysis due to want
of data.
The Embassy Office Parks was
the first REIT which made its
IPO in 2019. At that time, with
only one REIT in India, the
713
TAXATION
market capitalization of REIT
(4 US$ bn) was already at 17%
of the market capitalization of
the real estate sector in India.
(24 US$ bn). India’s 3 listed
office REITs – combined has a
USD 7 bn market capitalization
~19% of the Nifty realty index
companies’ market cap. The
Real Estate Industry in India
is estimated at USD 265.18
billion in 2023, and is expected
to reach USD 828.75 billion
by 2028, growing at a CAGR
of 25.60% during the forecast
period (2023-2028).
In April 2023, NSE Indices Ltd,
an arm of the National Stock
Exchange (NSE), launched
the country’s first-ever Real
Estate Investment Trusts and
Infrastructure Investment Trusts
index — Nifty REITs and InvITs
Index. The S&P Dow Jones
Indices is a leading global index
provider that owns benchmark
indices like the S&P 500 and
the Dow Jones Industrial
Average. As part of this index
family, the S&P Property
Indices are float-adjusted
capitalization-weighted indices
that track property companies
globally. In particular, the S&P
Global REIT Index serves as a
comprehensive benchmark of
DECEMBER 2023 53
714

TAXATION THE CHARTERED ACCOUNTANT

Embassy Office Parks Mindspace Brookfield

Market Capitalisation 276.82 bn INR 184.99 bn INR 87.58 bn INR
PE Ratio 54.71 65.24 66.77
Price Performance -21.77% -11.04% -18.64%
Anchor Investors 55% 58.75% 45%

publicly traded equity REITs
listed in both developed and
emerging markets.
The S&P Global REIT index
has yielded annualized returns
of 6.08% over the past three
years. Upon analysis, it
becomes apparent that the
performance of the Embassy
Office Parks has failed to
surpass that of the equity
markets in India. A similar trend
is observed with the Mindspace
REIT, which has exhibited
unsatisfactory performance
in comparison to the Indian
equity markets. Brookfield
India, along with other REITs,
has demonstrated inferior
performance relative to the
equity markets.
Within the realm of REIT stocks,
Brookfield India has consistently
outperformed both Mindspace
and Embassy Office REITs.
Furthermore, Brookfield India
boasts the highest dividend
pay-out ratio among all REITs.
However, it is worth noting that
Embassy Office REIT possesses
a lower price-to-earnings (PE)
ratio and a relatively favourable
dividend pay-out.
The underperformance of the
REITs in India can be attributed
to several challenges:
1. Leasing to big corporate
houses with foreign holding
companies: A substantial
portion of rental revenue
across the REIT office
portfolio, approximately 43%
is derived from technology
sector clients. These REITs
primarily lease properties
to large multinational
corporations and foreign
enterprises that prefer leasing
arrangements over ownership
to avoid substantial capital
investments. However, the
shift towards remote work due
to the COVID-19 pandemic
has led to a decreased
demand for physical office
spaces by many multinational
corporations, potentially
impacting the performance of
the REITs.
Lower average lease rentals
and limited CBD-driven
assets: Listed REITs face
the challenge of relatively
lower average lease rentals

54 DECEMBER 2023 www.icai.org

 715

THE CHARTERED ACCOUNTANT

TAXATION
REIT Spotlight

Key Financial Metrics for REITs for quarter ending December 2022
Embassy Office Mindspace Business Brookfield lndia REIT
Parks REIT Parks REIT
Total Area (mn sq. ft.) 43.6 31.9 18.7
Occupancy 86% 88% 88%
lncremental Leasing (sq. ft.) 964,000 1,320,000 332,000
ln-Place Rents (INR/sq. ft./month) 80 65 64
Revenue from Operations (INR mn) 8,654 5,440 2,999
NOI (INR mn) 7,049 4,551 2,405
EBITDA (INR mn) 7,177 4,165 2,345
Distribution (INR/unit) 5.31 4.80 5.00
Dividend Yield (Annualised) 6.3% 5.7% 6.9%
Market Capitalisation (INR mn) 319,023 198,655 96,723
Gearing 37% 21% 47%

Source: REIT Quarterly Filings, BSE

compared to REIT-worthy 2. Large percentage of issue with a dividend payout ratio

assets. This is primarily due to
a significant share of Special
Economic Zone (SEZ) offices,
which account for over 60%
of the total portfolio. Sunset
Clauses which signalled the
end of direct tax benefits to
SEZ occupiers has reduced
the attractiveness of these
spaces. Additionally, there is a
limited presence of the Central
Business District (CBD)-driven
assets in the current REIT
portfolio. As CBD properties
generally command higher
rental rates, their limited
presence can affect the overall
3. Rental returns comparison:
rental returns of the REITs.
to Anchor Investors: A
significant portion of REIT
issuances is allocated to
anchor investors who have
a minimum holding period
requirement. This results in a
relatively lower number of retail
investors participating in REITs,
which can create liquidity
challenges. Retail investors
have recognized this lack of
liquidity and, as a result, may
be less enthusiastic about
investing in REITs, which can
exert downward pressure on
the price of these securities.
The rental returns from REITs,
(DPR) ranging from 5-7%, are
notably lower compared to the
other commercial real estate
options in India. Office spaces
in IT parks/business zones
typically yield returns in the
range of 6-8%, while sought-
after CBD-based commercial
offices can offer even higher
yields of 7-9%. Retail spaces
in malls and shopping
complexes may provide
yields of up to 9%. Investors
in REITs bear a penalty for
not having the capacity to
invest larger amounts and
avoid the burden of property
management. They expect

www.icai.org DECEMBER 2023 55

716

TAXATION THE CHARTERED ACCOUNTANT

PE Investment in Real Estate

this loss to be compensated cost of borrowing and financing them more hesitant to make bold
by gains from selling units at a projects increases, investors are investment decisions in the short
higher market price. However, more cautious and selective in term.
the poor price performance deploying their capital.
of REITs, even over the long Overall, the combination of rising
term, has amplified this Furthermore, there is a mismatch recession concerns, increasing
penalty and further dampened in valuation expectations cost of capital, and valuation
investor enthusiasm. between sellers and investors. mismatches, along with the
Differing perceptions of asset recent global financial events,
PE Investment in Real values can hinder successful has created an atmosphere
Estate transactions and make it of uncertainty and caution
challenging to reach mutually among investors, resulting in
In the first quarter of 2023, beneficial agreements. This a significant decline in private
the Indian real estate sector disparity in expectations adds equity investment in the Indian
experienced a significant decline another layer of complexity to the real estate sector.
in private equity investment capital deployment process.
inflows, amounting to USD 45 Untapped Potential of REIT
million (INR 3.7 billion). This As per the NAREIT8’s 2023
sequential decline of 97% can be Mid-year Report, three of the In India ~10% of the total Grade
attributed to several factors. four largest bank failures in U.S. A office stock is under REITs
history occurred in the first half of - indicating a huge potential
Firstly, concerns about a global for REITs as the market moves
2023. While the banking turmoil
recession have been on the rise, towards maturity. Of the current
appears to have subsided, credit
creating a cautious investment
conditions have tightened and four listed REITs, (including
environment. 7Investors are
financial markets will likely remain the latest Retail REIT - Nexus
becoming increasingly wary of
stressed. Banking regulators are Select Trust) three are primarily
economic uncertainties, which
concerned about commercial real commercial office assets based.
has led to a decrease in capital
estate exposures, particularly at Their market capitalisation is
deployment in India’s real estate
community and regional banks. a small fraction of the total
sector.
Consequently, these events of available REIT-worthy commercial
Secondly, the rising cost of uncertainty and tightened credit office opportunity. India Grade
capital has become a deterrent conditions may have dampened A office markets9 account for
for potential investors. As the investor confidence and made the largest share of Institutional
7
At the end of 2022, the Bloomberg consensus forecast survey placed the odds of a U.S. recession within the next 12 months at 70%.
As of May 2023, the likelihood of an economic downturn was 65%. The S&P United States REIT Index and the S&P Global Property
Index have both experienced a downturn, reporting negative annual returns of -9.51% and -9.67% respectively, as of July 28th, 2023.
8
National Association of Real Estate Investment Trusts
9
India Grade-A office space covers office stock of top 7 metros- Bengaluru, Mumbai, NCR-Delhi, Hyderabad, Chennai, Pune, and
Kolkata. These are the best-quality office spaces in the market and the benchmark against which other grades are measured.
Building Owners and Managers Association (BOMA) International classifies office buildings into three main categories: Grade A, B
& C. The purpose of this system is to help real estate agents, property managers, et. al. easily understand the quality of an office
space. The classification, however, is based on a set of guidelines and not hard-and-fast rules.

56 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
investments till date. The office
market is estimated to provide an
investment opportunity of USD
59-63 billion through the listing
of new REITs. Operational office
stock under REITs tripled to 74.4
mn. sq. ft as of 31st March 23
from 24.8 mn. sq. ft as of 31st
March ‘19.
There are several drawbacks
associated with investing in REITs
that investors should consider
such as, REIT dividends received
by investors being subject to
income tax, REIT share prices
highly sensitive to changes in
interest rates, high up-front fees
or sales commissions, as well
as annual management fees and
vulnerability to market volatility.
However, REITs’ also ensure
that a reliable income is derived
from rents paid to the owners of
commercial properties whose
tenants often sign leases for long
periods of time, or from interest
payments from the financing of
those properties, especially to
those investors who would never
have had the financial capacity
to own and manage real estate
assets.
REITs in India speak about the
maturing investor ecosystem
evolving towards a more
institutionalised and higher
quality, compliant market.
REITs in India speak
about the maturing
investor ecosystem
evolving towards a more
institutionalised and
higher quality, compliant
market. Countries with
more evolved real estate
market account for major
share of REITs.
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717
TAXATION
Countries with more evolved real
estate market account for major REITs present
share of REITs. a compelling
investment avenue that
Conclusion
combines accessibility,
In conclusion, REITs present a diversification, and
compelling investment avenue
that combines accessibility,
liquidity within the real
diversification, and liquidity estate realm.
within the real estate realm. By
offering wider access compared
to private equity investments,
estate market. By enabling
the REITs democratize
the ownership of a diversified
participation and open doors
portfolio of properties, REITs
for a broader range of investors.
offer a means to partially satiate
The inherent diversification
the desire to be a part of the
benefits of REITs despite the
dynamic real estate ownership
associated risk, is that they
landscape.
grant investors autonomy
to selectively navigate References
their investment portfolio,
maximizing potential returns. ● Kaur, B.A., 2021. Opportunities
Furthermore, the high liquidity for institutional investors
characteristic of the REITs in Indian REITs (Doctoral
ensures enhanced marketability dissertation, Massachusetts
Institute of Technology)
and flexibility, enabling
investors to swiftly adapt to ● Gupta, S., Majumdar, S., Jain,
changing market conditions. K., & Kathawala, S. S. (n.d.).
India’s REIT Opportunity, Crisil
Although challenges and
tax considerations exist, the ● Hiralal, M., & Company. (2023,
alluring prospect of regular May 2). REIT Regime In India.
dividend income and potential Mansukhlal Hiralal & Co.
long-term growth cements
● Securities and Exchange
REITs as an intriguing choice
Board of India (Real Estate
for sophisticated individuals
Investment Trusts) Regulations
seeking exposure to the
2014
dynamic real estate landscape.
Prudent decision-making, ● India real estate market size
rooted in thorough assessment & share analysis - Industry
of individual investment Research Report, Mordor
objectives, risk appetite, and Intelligence
prevailing market dynamics,
● India office REITs - Off to a
will ultimately guide investors
great start (2023) Jll.co.in
toward leveraging the potential
rewards offered by REIT
investments.

In a country where real estate
ownership holds immense
significance in the aspirations of
many Indians, REITs emerge as
a sophisticated and accessible
Author may be reached at
avenue for individuals to shaily.co@outlook.com and
actively engage in the real eboard@icai.in
DECEMBER 2023 57
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 719

THE CHARTERED ACCOUNTANT

TAXATION

Comprehensive analysis of issues

arising from the Extraterritorial
taxation of dividend under Article 10(5)
of the OECD Model Tax Convention
CA. Amit Rustagi
Member of the Institute
Organisation for Economic
Cooperation and
Development (OECD)
commentary to the provision
of Article 10(5) and its
history is very illuminating.
Article 10(5) of the OECD
Model tax convention, 2017 (OECD MTC) has been defined “as
a negative source rule”.iThe Source country should not tax the
dividend distributed by a non-resident company to shareholders
simply because such a non-resident company makes its
corporate profit that is created in the source country. However,
Article 10(5) have two exceptions.
With this background, the structure of this article makes an
attempt, in the first section, to provides the historical aspects of
Article 10(5) of the OECD MTC. Thereafter, the article discusses
the principle of Article 10(5) which consists of the main rule of
Article 10(5), exceptions to Article 10(5), and practical application
of the triangular case. Further, this analysis takes a closer look at
the application of Article 10(5) under specific scenarios such as
cash scenario, dual-residence scenario, and controlled foreign
corporation scenario. Each scenario has been discussed with the
help of a flow chart.
The last section of this article seeks to discuss the treaty
analysis in the context of interpreting Article 10(5) particularly,
(a) the provisions allowings a second layer of taxation on the
profits attributable to permanent establishment (“PE”) in the
country in which the said PE is located and (b) the provisions
allowing for the application of extraterritorial taxation.

Evolution of Article 10(5) of 1961, wherein the related The principle of Article 10(5)
the OECD MTC commentary provided of the OECD MTC
- Article 10(5) of the OECD MTC only limited guidance, in
i. Extract from the OECD
has its origin in Article VIII(3) of particular, that non-resident
companies were not to be MTC, 2017
the London Draft MTC of the
League of Nations of 1946. subjected to special taxes on “Where a company which is a
undistributed profits. resident of a Contracting State
- On 1 August 1960, Working
- From the OECD Draft (1963) derives profits or income from
Party 2 of the Fiscal
onwards, the provision the other Contracting State, that
Committee submitted the
final draft on Article 10 has been retained and its other State may not impose any
dealing with the taxation wordings has been slightly tax on the dividends paid by the
of dividends which was amended without any change company, except insofar as such
published on September 1, of its substance.ii dividends are paid to a resident of
i.
J.F. Avery Jones et al., Tax Treaty Problems Related to Source, 38 Eur. Taxn. 3, sec. II.B. (1998), Journals IBFD.
ii.
K. Vogel, Klaus Vogel on Double Taxation Conventions p. 693 (Kluwer L. Intl. 1997)

www.icai.org DECEMBER 2023 59

720

TAXATION THE CHARTERED ACCOUNTANT

that other State or insofar as the profits were wholly, mainly, or

holding in respect of which the
dividends are paid is effectively
connected with a PE situated
in that other State, nor subject
the company’s undistributed
profits to a tax on the company’s
undistributed profits, even if the
dividends paid or the undistributed
profits consist wholly or partly of
profits or income arising in such
other State.”
- The provisions of the OECD
MTC are similar to provisions
of the UN MTC. However, the
OECD MTC does not refer to
‘Fixed base’ as it covers only
PE situation.
ii. The main rule of Article 10(5)
- As per Article 10(5), the
source country should not tax
the dividend distributed by
a non-resident company to
shareholders merely because
such a non-resident company
derives its corporate profit
that originated in the source
country.
- Source of dividends is not
the state in which the profits
out of which dividends are
paid were derived.
- For example, in picture 1, X
Co. is a resident, on the basis
of Articles 3 and 4 of the OECD
MTC, in a contracting state
State X
(X Co.)
State Y
i.e., State X; and the profits are
derived by that company from
the other contracting state i.e.,
State Y.
- In such a case, State Y is not
entitled to tax the dividends
paid by X Co. and subject the
undistributed profits of the
company to tax, regardless of
the fact that the profits relate
to income arising in the other
contracting state i.e., State Y.
- In this way, Article 10(5)
prohibits the ‘extra-
territoriality’ with respect to
taxation of dividends and this
interpretation is confirmed by
the Commentary on Article
10 para 33 of the OECD
MTC, 2017.
- Further, this article also
prohibits the country
of source from taxing
undistributed profits of a
company that is a resident of
another country, even if the
partly derived from sources
within the country of source.
- Special taxes on
undistributed profits are
also prohibited, in other
words, non-resident
companies are not to be
subjected to special taxes
on undistributed profits.iii
iii. Triangular case
- As Article 10(5) does not
clearly indicate where the
recipient must be located,
there may be situations
involving three states.
- For example, in picture
2, X Co. and Z Co. are
residents in State X & State
Z respectively. Dividends are
paid by a resident of State
X to a resident of State Z. X
Co. carries on its business
in State Y. It also generates
income from State Y through
a PE in State Y.
State Z
(Z Co.)
State X State Y
(X Co.) (PE)
Picture 2 : Triangular case
( Dividend paid PE)

- In such a case, the following three tax treaties may apply:

Particulars
State X & State Z
- Z Co. is a resident
recipient of the
income. According
to Article 7(4) of the
OECD MTC, Article
1 State Z 10 takes priority over
Article 7.
- State Z can also tax
its resident recipient
i.e., Z Co., but should
grant relief.
iii.
Commentary on Article 10(5) Para 36 of the OECD MTC, 2017.
Tax treaty between
State Y & State Z State X & State Y
In this scenario Article
10 does not apply as
the dividends are not
paid by a resident of
State Y.
-
- Articles 7 or
21 apply, both
attributing taxing
rights to State Z.

60 DECEMBER 2023 www.icai.org

 721

THE CHARTERED ACCOUNTANT

TAXATION
- X Co can tax the
distribution of -
2 State X dividends, but subject -
to the limitations of
the tax treaty.

- State Y would be prohibited

from taxing the distribution of
the dividends by X Co.
- State Z is not entitled to –
1. tax the dividends paid by
X Co.
3 State Y -
2. subject the undistributed
profits of the company to
tax, regardless of the fact
- that the profits relate to the
income arising in the other
contracting state (i.e.,
State Y).

iv. The exceptions to Article 3. it is apparently a domestic

10(5): situation, the dividends
State X State Y should be attributed to the PE
- Article 10(5) provides for two (X1 Co.) (PE) of X1 Co. in State Y for the
exceptions:
purpose of the determination
1. Where the dividends are of its tax base.iv
paid to a resident of the State X

other contracting state.

(X Co.) The application on Article
10(5)
Picture 4 : Dividends effectively connected with PE
i. Cash Scenario
( Holdings PE Dividend paid)
State X
(X Co.)
- There could be a situation
taxing its own resident i.e, when a contracting state
Y Co. and is not the source wants to tax a distribution
State Y country of the profits from of dividends by a company
(Y Co.)
which the dividends are paid. resident in another
With regard to the second contracting state only
exception, the same result because the cash necessary
Picture 3 : Dividends are paid to a resident of would have been realized for the payment accrued and
the other contracting state ( ) through the application of the subsequent payment is
Article 7. In such a case, it is affected in its territory, i.e.,
2. Where the dividends are clear that despite the fact that through an account there.
paid to a company that
has a PE in the other
contracting state and the
holding from which the
entitlement to receive
the dividends arises is
effectively connected to
the PE.
- Under the first exception,
State Y should not be limited
by Article 10(5), as it is
iv.
E. Arruda Madeira & T. Cassiano Nieves, Exploring the Boundaries of the Application of Article 10(5) of the OECD MTC, 35 Intertax 8/9, p. 474 (2007).

www.icai.org DECEMBER 2023 61

722
TAXATION
- 3 possible ways for the distribution of the dividends are:
Case - 1: X Co. is a resident, on
the basis of Articles 3 and 4 of
the OECD MTC, in a contracting
state i.e., State X. Dividends are
paid by a resident of State X to
a resident of State X (P Co.). The
distribution of the dividend is
executed from State Y to P Co.
State X
(P Co.)
State X State Y
(X Co.) $ (X Co.)
In such a case, Article 10(5) of the
State X-State Y tax treaty is not
necessarily relevant to resolving
the issue; it is enough that Articles
7 or 21 of the OECD MTC apply,
which give exclusive taxing rights
to State X.
- Conclusion in case of Cash
scenario:
● In case of a cash scenario,
there could be situations in
which a taxpayer would be
insufficiently protected by a
treaty network.
● In the above case 3 (See
diagram 7), according to
Case - 1: Under the State X-State
Y tax treaty, the residence conflict
is resolved in favour of State X
and State X is the wining state,
whereas State Y is the losing
State. Dividends are paid by a
resident of State X to a resident of
loser State Y (P Co.).
62 DECEMBER 2023
Case - 2: X Co. is a resident,
on the basis of Articles 3
and 4 of the OECD MTC,
in a contracting state i.e.,
State X. Dividends are paid
by a resident of State X to a
resident of State Y (P Co.). The
distribution of the dividend is
executed from State Y to P Co.
State Y
(P Co.)
State X State Y
($)
In such a case, the first
exception in Article 10(5) of
the State X-State Y Tax Treaty
could invoke the same result
that could have been arrived at
by applying the general rule in
Article 10 of the OECD MTC.
State Z, Article 10(5) of the
State X-State Y Tax Treaty
would prevent State Y from
levying extraterritorial tax,
but according to State Y,
the same provision does
not affect its right to tax
P Co. which could be
disadvantaged from such an
interpretation conflict.
Case - 2: Under the State X-State
Y tax treaty, the residence conflict
is resolved in favour of State X
and State X is the winning state
whereas State Y is the losing
State. Dividends are paid by a
resident of State X to a resident of
winner State X (P Co.).
THE CHARTERED ACCOUNTANT
Case - 3: X Co. is a resident,
on the basis of Articles 3
and 4 of the OECD MTC,
in a contracting state i.e.,
State X. Dividends are paid
by a resident of State X to a
resident of the third State Z
(P Co.). The distribution of
the dividend is executed from
State Y to P Co. in State Z.
State Z
(P Co.)
State X State Y
(X Co.) ($)
In such a case, Article 10(5)
could be invoked to resolve the
issue.
ii. Dual-residence scenario
- A dual-resident company is a
company that is considered
to be a resident of two
contracting states according
to their domestic tax laws.
- 3 possible cases may arise in
which a dual-resident company
may distribute dividends:
Case - 3: Under the State X-State
Y tax treaty, the residence conflict
is resolved in favour of State X
and State X is the winning state
whereas State Y is the losing
State. Dividends are paid by a
resident of State X to a resident of
third State Z (P Co.).
www.icai.org

THE CHARTERED ACCOUNTANT
State Y
(P Co.)
State X State Y
(X Co.) (Y Co.)
(Winner State) (Loser State)
In such a case, Article 10 applies.
The “winning” state i.e. State X,
under its domestic tax law, may
tax the dividends up to the amount
provided for by the tax treaty and the
“losing” state i.e., State Y may tax
the dividends in the hands of P Co.
as its resident, but must provide relief
according to Article 23 A or 23B.
- Conclusion in case of Dual-
residency scenario:
● In case 3 (See diagram
10), with regard to the
dual-residence scenario, if
according to State Z, Article
10(5) of the State X-State Y
tax treaty prevents State Y
from levying an extraterritorial
tax but according to State Y,
this provision does not affect
its right to tax a taxpayer, P
Co could be disadvantaged
by such a conflicting
interpretation and P Co could
be disadvantaged from such
an interpretation conflict.
● The following underlying
principles can be derived
which are relevant to the
extent that they deal with a
dual-residency company:
a. The provision of Article
10(5) is considered as an
exception to Article 1 of
the OECD MTC as there is
no resident recipient of the
income.
b. The provision of Article
10(5) is also applicable
in the dual-residence
scenario, and taxation is
levied on the dividends
because of the
incorporation principle
www.icai.org
State X
(P Co.)
State X State Y
(X Co.) (Y Co.)
(Winner State) (Loser State)
In such a case, Article 10
does not apply. Therefore, the
solution to the problem is to be
found in Articles 7 or 21 of the
OECD MTC.
under the domestic tax
law of the country losing
the tie-breaker rule. The
winning country does not
derive any profits from
the losing country and the
dividends are paid out of
profits that did not arise in
the losing country is not
relevant.
iii. Controlled foreign
corporation (CFC) scenario:
- CFC rules are the rules by
means of which countries try
to prevent the tax deferral of
profits that normally would
have arisen and been taxed in
the relevant country.
State Y
(CFC)
State X
(X Co.)
(Shareholder located)
Picture 11: CFC scenario
- Article 10(5) should only apply
when the country applying the
CFC rules derives profits from
the CFC country.
- Para 37 of Article 10(5) of the
OECD Commentary provides
that:
723
TAXATION
State Z
(P Co.)
(Third State)
State X State Y
(X Co.) (Y Co.)
(Winner State) (Loser State)
In such a case, if no profits are
derived from State Y, Article
10(5) should not apply.
● it cannot be interpreted
as preventing the state of
residence of a taxpayer
from taxing that taxpayer,
pursuant to its CFC
legislation, on profits
which have not been
distributed by a foreign
company.
● the paragraph is confined
to taxation at source and,
thus, has no bearing on
the taxation at residence
under such legislation or
rules.
● the paragraph concerns
only the taxation of the
company and not that of
the shareholder.
- Hence, Article 10(5) should
be confined to taxation at
source, but can, nevertheless,
prevent the application of
CFC rules “because the CFC
legislation taxes all the profits
of the CFC because of tainted
income that has its source in
the country imposing the CFC
legislation.
Treaty analysis in the context
of interpreting Article 10(5)
- Most of the countries include
a provision that is in line with
Article 10(5) but also include
another provision that allows
DECEMBER 2023 63
724

TAXATION THE CHARTERED ACCOUNTANT

for a second layer of taxation on the profits attributable to a PE in the country in which the said PE is
located.
- The following table depicts the specific tax treaties between the contracting state which provides:
i. Provisions that allows for a second layer of taxation on the profits attributable to a PE in the
country in which the said PE is located.

Sl. Tax treaty Provision is A second layer Allow for Relevant extract of treaty
No. between in line with of taxation extraterritorial
Article 10(5) taxation
1 Canada- Yes Also includes No Nothing in the Convention shall
France another prevent a Contracting State
provision that from imposing on the earnings
allows for a attributable to a PE, situated
second layer in that State, of a company
of taxation which is a resident of the other
on the profits Contracting State a tax in
attributable addition to the tax allowable
to a PE in the under the other provisions of
country in the Convention, provided that
which the said any additional tax so imposed
PE is located shall not exceed 5 per cent of
the amount of such earnings....
2 Costa Rica- Yes Apply a second No Profits of a company of a
Spain layer of taxation Contracting State which
in the other carries on business in the other
contracting Contracting State through a
state in relation PE situated therein may, after
to profits of having been charged to tax by
a company virtue of Article 7, be taxed on
attributable to the remaining amount in the
such a PE Contracting State in which the
PE is situated and according
to the laws of that State, but in
that case the tax charged shall
not exceed 5%.
ii. Provisions allowing for the application of extraterritorial taxation.
Sl. Tax treaty Provision is A second layer Allow for Relevant extract of treaty
No. between in line with of taxation extraterritorial
Article 10(5) taxation
1 France- No - Allow for an Where a company resident in
African extraterritorial one of the Contracting States
taxation, are is subject in that State to a
quite peculiar tax on dividend distributions
because the and maintains one or more
tax base on PE in the other Contracting
which the State in respect of which it
extraterritorial may also be liable in the latter
taxation is State to a similar tax then the
applied is income which may be subject
apportioned to that tax will be apportioned
between the between the two States in
two countries order to avoid double taxation.
involved.

64 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
2 Brazil-Italy No
3 Austria- No
Canada
Article 10(5) of
OECD MTC looks
small, but it enjoys a
special treatment in
international tax
law.
Concluding remarks
Article 10(5) of the OECD MTC
looks small, but it enjoys special
treatment in international tax law.
Many contracting states have
tried to answer the questions
connected to Article 10(5) by
including specific provisions in
their treaties aimed at clarifying
whether or not the provision
www.icai.org
- Contain a
provision
allowing for the
application of
extraterritorial
taxation.
- Contain a
provision
allowing for the
application of
extraterritorial
taxation.
should be applied in certain
situations. Some tax treaties do
not include the phrase “derives
profit from” in order to make
it clear that the application of
the provision is not confined to
situations of taxation at source
and that, therefore, all forms
of extraterritorial taxation are,
in principle, prohibited. Other
treaties include deviations
related to the effects of article
10(5) in regard to a dual-resident
company and the application of
Article 10(5) is explicitly excluded.
In conclusion, it can be
observed that those countries
that provide for extraterritorial
taxation of dividends have tried
to include, in their tax treaties,
725
TAXATION
Where a resident of Italy has
a PE in Brazil, this PE may
be subject to tax withheld at
source in accordance with a
Brazilian law. However, such a
tax cannot exceed 15 percent
of the gross amount of the
profits of that PE, determined
after the payment of the
corporate tax related to such
profits.
Where a company is a resident
of a Contracting State the
other Contracting State may
not impose any tax on the
dividends paid by the company
to persons who are not
residents of that other State,
or subject the company to a
tax on undistributed profits,
even if the dividends paid or
the undistributed profits consist
wholly or partly of profits or
income arising in such other
State. The provisions of this
paragraph shall not prevent
that other State from taxing
dividends relating to a holding
which is effectively connected
with a PE, or a fixed base
operated in that other State.
a special provision in order not
to be restricted by Article 10(5).
However, evolution and increasing
complexity of business models
has led to recognition by the
OECD that the wording of Article
10(5) of the OECD MTC could
lead to absurd conclusions and
therefore, it should be interpreted
having in mind the purpose of the
provision i.e., the prohibition of
extraterritorial taxation and the
purpose of a tax treaty, i.e., the
avoidance of double taxation.

Authors may be reached at
sr1502@rediffmail.com and
eboard@icai.in
DECEMBER 2023 65
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 727

THE CHARTERED ACCOUNTANT

TAXATION

Angel Taxation: An Investment

Scenario in India
stringent norms related
to angel funding would
be a stepping stone to
achieve this. The primary
purpose of this article is to
dwell into the Indian Angel
Investment system and
examine the tax related
policies which support or
Aliza Dr. A.R. Tripathi hinder the flow of angel
Research Scholar Academician funding in the Indian start-
up ecosystem. Secondary
data sources have been
India’s tax landscape is dramatically shifting, which makes utilized in the current study
it challenging for emerging startups to adapt to new policies and concerns regarding
consequences. Rapid policy changes make it difficult angel taxations have
for start-ups to adjust to the existing start-up ecosystem. been highlighted along
Healthy growth of entrepreneurship is a pre-requirement with recommendations of
for attaining economic super power, and simplifying remedial measures.

Introduction introduction of Income Tax supportive policy measure is

S
mall startups are financed
through angel investors.
When such firms are in the
early stages of development, it
can be challenging for them to
find funding from conventional
sources of funding like banks,
financial institutions, etc. By
providing monetary and non-
monetary aids to startups
in their early growth stages,
angel investors promote
entrepreneurship in the nation.
Additionally, these investors
give businesses access to their
own professional networks
along with mentoring. As a
result, they provide both wealth
and experience to new business
endeavors. However, with the
Act’s Section 56(2) (viib), in
2012, which is now commonly
referred to as ‘Angel Tax’, it
has created a lot of buzz in the
Investors’ community regarding
its intention to support the
startup ecosystem in India.
The issue of India’s angel
tax has long been divisive. It
was first implemented with
the intention of serving as
an anti-abuse mechanism to
stop money laundering and
the transportation of illicit
funds under the pretext of
entrepreneurship. Since its
introduction, businesses have
found the tax regulations to
be arbitrary and vague. A
decade has passed since its
introduction, yet a concise and
still missing which is needed to
ease the angel fund flow in the
Indian Startups.
Angel Investor
High-net-worth individuals
who invest their own money in
start-up businesses or small and
medium-sized businesses are
known as angel investors. Their
experience enhances the value of
new businesses. In other words,
an angel is a wealthy individual
who provides risk capital to
small and private firms in the
form of private equity capital or
near equity capital, and angel
investment methodology differs
from other players as they apply
very primitive search process for
potential idea identification and

www.icai.org DECEMBER 2023 67

728

TAXATION THE CHARTERED ACCOUNTANT

relies heavily on informal friends

and family networks. [Prowse S. 2022: TOP ANGEL INVESTORS
(1998)]
AND NETWORKS IN INDIA
Angel Tax Kunal Shah 67
The Income Tax Act’s Section 56
LetsVenture 67
(2) (vii b), levies taxes on startup
funding raised, if it exceeds IP Ventures 55
over their fair market value. In
Venture Catalysts Angles 45
order to curb the practice of
conversion of black money into Kunal Bahl 34
white, through shell companies, Rohit Bansal 30
the then Finance Minister of
India, Mr. Pranab Mukherjee, in Mumbai Angels 27
Budget 2012 introduced section Indian Angel Network 26
56 (2) (vii b), effective from
AngelList 25
Assessment year (AY) 2013-14,
which is now termed as ‘Angel ah! Ventures 24
Tax’. The UPA government SucSEED Indovation 21
adopted it in 2012 in an effort
to uncover money-laundering 0 10 20 30 40 50 60 70
schemes and shut down (No. of deals)
fraudulent start-ups. *Data as of December 23
Soruce: Venture Intelligence
Why in news?
Angel tax valuation rules for Source: Venture Intelligence
investments in startups have
been announced by the Finance past ten years, angel investors viable long-term strategy and the
Ministry. The government has have begun to consider global expanding role of transnational
tried to ease the angel tax issues as more and more studies initiatives to support AI activities.
provisions for non-resident demonstrate the effectiveness Earlier, in Mason, C. M., &
investors by introducing five of the model of angel-led Harrison, R. T. (2008) states
different valuation methods entrepreneurial development as a that it is crucial to analyze the
for shares and offered 10%
deviation tolerance limit. Also
the CBDT has stipulated that Possible Characteristics of Angel Tax Provisions
the valuation of compulsory
convertible preference shares
(CCPS) may be based on the fair
market value of unquoted equity refundable? transferable?
shares in accordance with the non- non-
amendments to Rule 11UA of the refundable? transferable?
Income Tax Rules, which take
effect on September 25, 2023. Tax Credit?
% of investment?
Literature Review Seed Fund?
Angel investment is an Cap. Gains
under researched field of Deferral?
knowledge. Due to presence
capped
of angel syndications, unclear first dibs?
restrictions?
demarcation of angel funds and pro-rated?
carried
venture capital funds and co- if unused
forward?
occurrence of investment, it is
complex to measure the amount
of angel investment. Harrison, R.
T. (2017) conclude that over the Source: Hudson, M., & Williams, J. (2008)

68 DECEMBER 2023 www.icai.org

 729

THE CHARTERED ACCOUNTANT

TAXATION
activity of angel investors and
monitor changes over time in Number of angel investment deals in
order to better comprehend the India from 2016 to 2020
entrepreneurial environment.
Business angel population is
neither fixed nor static; rather,
it is in a cyclical state. Also,
FY 2016 297
the distinction between angel
investing and other informal
investing has been muddled by
connections with other investors.
FY 2017 229
Emphasizing on the inter-
relatedness of investment
and taxation, Poterba, J. M.,
(1989) examined that tax- FY 2018 256
related investment elasticities
may play a substantial role in
determining the investment
propensity of micro angel
FY 2019 275
investors. Similar conclusions
was drawn by San José, A.,
Roure, J., & Aernoudt, R. (2005)
who stated that the ineffective
performance of business angels’ FY 2020 341
investment activities is the
result of insufficient attempts to
strengthen frameworks including 0 100 200 300 400
taxation, legal considerations,
Number of deals
and advertising of business angel
networks.
Source: Statista
Back in 2012, Under the
leadership of Shri Sunil Mishra (a) it has annual revenue of less suggested that government
(Ex-Revenue Secretary, than ₹25 crore; (b) it is unlisted; policy should significantly
Government of India), a and (c) it is not marketed, encourage impact accelerators
committee was established sponsored, or affiliated with so that social and environmental
to investigate different an industrial group with annual companies can expand
challenges and make policy revenue of more than 300 crore. sustainably and have better
recommendations for speeding The seed stage investment cap access to follow-on investments
angel investment and early and turnover criterion ought to from angel investors.
stage venture capital in India. be inflation-indexed.
As per the reports submitted by Angel Tax- Picture so far
committee, angel investor was Discussing over the trends, After the proposal in the Finance
defined as “As a person who prospects, and challenges Act 2023, The Income Tax Act’s
directly invests his own money in in Indian Angel Investment, Section 56(2) (vii b) has been
a seed stage enterprise in which Sabarinathan, G. (2019) amended. The amendment shall
there is no familiarity”. The angel discovered that over the past be effective from April 1st, 2024,
investor may work alone, as part fifteen years, there has been a for the assessment year 2024-25.
of a formal or unofficial angel sharp increase in the number
organization, or both. For an of enterprises funded by angel Now, the tax’s coverage has
individual, this investment in the investors, and that as a result, been extended to overseas
venture is less than ₹5 crore, and policy planners are paying more investors. After the amendment,
for a group as a whole, it is less attention to angel networks. On investment received by a start-
than ₹10 crore. A company is global level, a related observation up from a foreign investor has
considered a seed stage venture was also made by Pierrakis, Y., been consider as income and
if it meets the following criteria: & Owen, R. (2022) and it was subjected to taxation. Yet, there

www.icai.org DECEMBER 2023 69

730
TAXATION
are also exceptions. It states
that when investing in an Indian
company that has received
government recognition and is
registered with the Directorate
for Promotion of Industry and
Internal Trade (DPIIT), overseas
investors won’t be subject to any
angel taxes. In other cases, the
extra premium on a sale of shares
to a foreign investor is regarded
as “income from other sources”
if it is received by an unlisted
Indian company. And such
income are subjected to tax. Prior
to the inclusion of this change
in the budget 2023–24, only
investments made by residents
were subject to the angel tax.
The distinction that previously
allowed foreign investors to be
exempt from the provisions of
the angel tax has been eliminated
with the Budget of 2023, which
has levelled the playing field for all
investors, but can lead towards an
in-build problem of fund shortage.
Additionally, the DPIIT also
lays out a set of requirements
for startup registration. The
startup must have issued and
paid-up capital of no more
than ₹25 crores; be registered
as a private limited company,
a partnership firm, or a limited
liability partnership; and have
had annual revenues of not
more than ₹100 crore in any of
the prior fiscal year. It is also
mentioned that the company
shall not be reconstructed
by dissolution of an existing
business or by simple asset
transferring by an already
existing corporation. Moreover,
to be called as a startup the
business should lie within early
ten years from the date of its
operation commencement. Only
if the business satisfies the
aforementioned requirements,
it will be qualified to receive an
angel tax exemption, pending
Inter-Ministerial Board approval.
70 DECEMBER 2023
As per former laws, the exemption
from angel tax was for companies
with turnover up to Rs 25 crores,
but as per current guidelines,
the exemption ceiling has been
expanded to organization with
turnover less than Rs 100 crores
and those companies should be
less than 10 years old. Listed
firms with a net worth of at least
₹100 crore or a total annual
revenue of at least ₹250 crore,
as well as investments made by
non-resident Indians, will also be
completely free from the tax. A
start-up would be considered
eligible as a startup if it was
registered with the government,
had been incorporated for
less than ten years, and had a
turnover under ₹100 crore during
that time. The startup must be
acknowledged by the Department
for Promotion of Industry and
Internal Trade (DPIIT) and
approved by the Inter-Ministerial
Board (IMB) in order to qualify
for the angel tax exemption.
Additionally, the investment
should not exceed the fair market
value and must be made by SEBI
registered angel investor.
The Finance Minister also
disclosed that an electronic
verification system would be
implemented to address the
problem of proving the investor’s
identity and the source of his
funds. With this, the Income
Tax Department won’t have
to scrutinize startup money in
any way. Also, it was disclosed
that startups would not be
required to disclose the fair
market value of the shares they
issued to certain investors,
such as Category-I Alternative
Investment Funds (AIF).
Problem Faced by Startups
and Angel Investors in
calculating Fair Market Value
Since it was controversial to
determine the Fair Market Value
(FMV) of Startups, in September
THE CHARTERED ACCOUNTANT
As investor’s resist
with additional tax
liabilities, it can also
have negative impact
on FDI inflow from
foreign investment.
2023, the government specifies
five new specific procedures for
non-resident investors which
includes- the replacement
cost approach, the probability
weighted anticipated return
method, the comparable
company multiple method,
the option pricing method,
and the milestone analysis
method. Moreover, deals can
be completed at the same fair
market value as previously
if they are completed within
90 days following an equity
money infusion performed by an
investor exempt from the Angel
Tax regulations.
However, investors value a
company based on several
factors like future capacity,
growth rate, revenue and run
rate, Gross Market Value,
founding team etc. It is
problematic, when Income Tax
department officials due to their
hindsight, calculate reduced
“fair value” as a result of which
the taxed premium amount is
increased. Sometimes it may
also leads to taxing the amount
raised as a capital. The problem
is more intensified if along with
taxes, interest and penalties
are also ordered to be paid.
Moreover, shares that are not
publicly traded in the market
cannot have their market value
determined. So, tax officials with
dubious motives may still find
a way to annoy businesses by
making irrational tax demands.
Since it is impossible to
determine a startup’s true market
worth, many businesses have
expressed worries about the
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THE CHARTERED ACCOUNTANT
To take advantage
of the most recent
exemption, businesses
must be officially
registered with the
government as
start-ups.
angel tax, calling it a very hostile
and unfair tax. If the government
does nothing to address the
arbitrary character of this angel
tax, the harm to investor’s trust
might continue.
Angel Tax Policy Related
Concerns
The new tax proposal can
damage investor’s confidence
in startup ecosystem. Foreign
investors are a significant source
of funding for Indian companies.
As investor’s resist with
additional tax liabilities, it can
also have negative impact on FDI
inflow from foreign investment.
However, to gain trust in the new
system, the DPIIT Secretary has
cleared that ‘Angel Tax’ provision
will not impact registered
startups. Additionally, startups
claims that the Assessing
Officer (AO) uses the cash
discounted flow method, which
is less startup-friendly but more
advantageous to tax officers, for
determining fair market value.
Startups have frequently
received letters and requests for
settlement of angel tax, despite
the fact that investments were
made at fair market value and
in compliance with all relevant
laws. The Indian government
recognized this problem and
put up a number of solutions to
deal with it. But, since the tax
is introduced during a period of
diminishing startup financing, it
may have a negative influence on
startup investment. In India, the
value of startups decreased by
www.icai.org
33% from 2021 to 2022, totaling
$24 billion.
To take advantage of the most
recent exemption, businesses
must be officially registered
with the government as start-
ups. However, a company must
meet a number of requirements
in order to be considered a
startup, such as not having
invested in jewelry, land
unrelated to the business, or
vehicles costing more than Rs.
10 lakh. These requirements
will undoubtedly put in place
to stop money-laundering,
but can cause a great deal of
bureaucratic red tape and rent-
seeking. However, the new angel
tax regulations may result in the
same old problem of arbitrary
tax demands for businesses
that don’t belong under the
defined start-ups group, albeit
being less harsh than before.
However, when taken as a whole,
the adjustments are favorable
for new businesses. The
adjustments will partially allay the
government’s worries about shell
corporations using this approach
to evade taxes while allowing
exemptions for new businesses.
Recommendations
With the introduction of new
amendments to angel tax,
the government has sought
to achieve tax parity by
expanding its provisions to
non-resident investors, contrary
to expectations that it would
provide relief to local investors
by eliminating the Angel Tax.
The following recommendation
731
TAXATION
can be mindfully considered by
government with regards to new
provision to angel taxation.
● Special tax concession may
be granted to entities such
as-that are not residents of
India but are registered with
the corresponding regulatory
bodies in their home nations;
entities or funds that fall
under the 2019 SEBI FPI
Rules’ definition of Category
I Foreign Portfolio Investors;
entities which are not notified
as a “specified person” under
Section 10(23FE), direct or
indirect investments made by
sovereign wealth funds and
pension funds that meet the
definition in Section 10(23FE)
may be made (23FE).
● “Coercive” steps should
not be taken in recovering
pending taxes.
● Ensuring fair assessment by
laying details parameters for
fair assessment and checking
the genuine transaction.
● The existing registration as an
Alternative Investment Fund
(AIF) or Venture Capital (VC) is
long and expensive process
involving approval from
different regulatory authorities,
making it non-viable for Angel
investors to get registered.
There is a need to simplify the
registration of angel investors.
Unclear taxation norms
have made Angel Investors
skeptical to investing in Indian
Start-ups. Angel investors
should be asked to register
themselves on IT portal with
Tax Residency Certificate
DECEMBER 2023 71
732
TAXATION
or PAN Card or other easily
available details.
● Simpler and more focus
driven startup India
registration. The process
for granting startup India
registration for availing
Income tax benefit should be
more automated and process
driven and no discretionary
power of officers should
be included to determine
innovativeness & employment
generation of startups.
● Furthermore, where shares
are issued at a price greater
than the valuation report by
category-I merchant banker,
a safe harbor mechanism or
tolerance limit of up to 25%
may be offered. Any valuation
disputes that go over the
tolerance level of 25% should
be first submitted to an
approval panel (exactly like
in the case of GAAR) for an
impartial assessment of the
situation.
● E-Assessment with no
human intervention is correct
step, however practical and
technical difficulties continues
to exist. The discretionary
power of assessing officer
should also be controlled in
this regard.
● To check money outflow,
central government issues
notification on May 24, 2023,
to exempt certain jurisdiction
from angel tax preview.
Currently, investment made by
non-resident entity belonging
from 21 countries like
Australia, Denmark, France,
Germany, UK, USA etc., are
kept outside the preview of
angel taxation. However, more
countries need to be included
in the list.
Conclusion
By inhibiting the growth of
emerging firms and hurting the
entrepreneurial spirit, rigidity
in angel taxation will put India
72 DECEMBER 2023
at a disadvantageous position.
Given the prevailing global
headwinds, the startup industry
needs a favorable governmental
framework. The new tax regime
may appear as discouragement to
foreign investment in India, but on
contrary non- resident investment
can increase via alternative
investment fund (AIF) route. Angel
taxation may cause the problem
of ownership-structure reverse
flipping as Indian companies
may shift towards more tax
friendly nations elsewhere. The
Foreign Exchange Management
Act (FEMA)'s contradiction
with income tax laws makes
the problem of even more
challenging. However, by ensuring
taxpayer flexibility through
different valuation method,
easing tax norms and reducing
tax rate, government may help
the budding startups to meet its
angel investment requirements.
References
● Harrison, R. T. (2017). The
internationalization of business
angel investment activity: a
review and research agenda.
Venture Capital, 19(1-2),
119-127
● Hudson, M., & Williams,
J. (2008). Tax Credits and
Government Incentives for Angel
Investing in Various States.
Available at SSRN 1291795
● Mason, C. M., & Harrison, R.
T. (2008). Measuring business
angel investment activity in the
United Kingdom: a review of
potential data sources. Venture
capital, 10(4), 309-330
● Pierrakis, Y., & Owen, R. (2022).
Startup ventures and equity
finance: How do Business
Accelerators and Business
Angels’ assess the human
capital of socio-environmental
mission led entrepreneurs?
Innovation, 1-25
● Prowse, S. (1998). Angel
investors and the market for
angel investments. Journal of
Banking & Finance, 22(6-8),
785-792
THE CHARTERED ACCOUNTANT
● Poterba, J. M., 1989, ‘Venture
Capital and Capital Gains
Taxation’, NBER Working Paper
No. W2832, Cambridge, MA:
National Bureau of Economic
Research
● Sabarinathan, G. (2019). Angel
Investments in India–Trends,
Prospects and Issues. IIMB
Management Review, 31(2),
200-214
● San José, A., Roure, J., &
Aernoudt, R. (2005). Business
angel academies: unleashing
the potential for business angel
investment. Venture capital, 7(2),
149-165
● https://assets.ey.com/
content/dam/ey-sites/ey-com/
en-in/topics/tax/india-tax-
insights/2023/03/ey-india-
tax-insights-march-2023-v1.
pdf?download
● https://byjus.com/free-ias-prep/
angel-tax-upsc-notes/
● https://indianexpress.com/
article/business/startups/
income-tax-dept-notifies-angel-
tax-rules-valuing-investments-
startups-8956691/lite/
● https://www.barandbench.
com/amp/story/law-firms/
view-point/incentivising-
foreign-investments-angel-tax-
exemption-for-start-ups-and-
non-resident-entities
● https://www.monwycontrol.com/
news/business/startup/creds-
kunal-shah-retains-title-as-top-
angel-investor-with-67-deals-
in-2022-9786131.html/amp
● https://www.statista.com/
statistics/1233096/india-number-
of-angel-investment-deals/
● https://www.thehindu.com/
business/amid-startups-funding-
winter-centre-seeks-to-soften-
angel-tax/article67349609.ece/
amp/
● https://www.ventureintelligence.
com
● https://yourstory.com/2023/02/
impact-angel-tax-startups-in-
india-income-tax-law

Authors may be reached at
eboard@icai.in
www.icai.org
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SUSTAINABILITY

Embedding ESG (Environmental,

Social and Governance) into Banks’s
Strategy: A Comprehensive Review
the increasing awareness
of the significant
challenges faced by
the global economy,
including climate change,
social inequality, ethical
concerns, and potential
disruptions to the existing
Dr. Dileep Kumar S. D. Jyothi G. H. banking eco-system.
Academician Academician Therefore, these become
a big challenge for the
bankers and also for
The Reserve Bank of India and other banks in the country the government. In this
play multiple and pivotal roles and contribute substantially backdrop, this paper
to the overall development of the economy. In spite of this makes an attempt to
pivotal role, the ESG is gaining an increasing attention analyze and present
worldwide, including India as well. Some of the challenges various dimensions of
associated with embedding ESG into banks' strategies lie in embedding ESG.

I
n recent years, there has
been a growing recognition
of the need to incorporate
Environmental, Social, and
Governance (ESG) considerations
into the strategies of banks and
financial institutions. ESG factors
encompass a broad range of
issues, including environmental
sustainability, social impact, and
effective corporate governance.
Integrating these factors into
banking strategies is seen as a
crucial step toward creating a
more sustainable and responsible
financial system. The background
behind embedding ESG into
banks’ strategies lies in the
increasing awareness of the
significant challenges faced by
the global economy, including
climate change, social inequality,
and ethical concerns. These
challenges not only pose risks
to the stability and reputation
of banks, but also have broader
implications for society and the
planet. Recognizing this, banks
are realizing the importance of
aligning their operations, risk
management, and decision-
making processes with
sustainable and responsible
practices.
The significance of embedding
ESG into banks’ strategies is
multifaceted. In this backdrop,
the significance of embedding
ESG into banks’ strategies
stem from the recognition of the
interconnectedness between the
financial sector, sustainability,
and responsible business
practices. By integrating
ESG considerations into their
strategies, banks can effectively
manage risks, navigate regulatory
changes, meet stakeholder
expectations, gain a competitive
advantage, and contribute to a
more sustainable future.
Drivers for Embedding
ESG into Banks’ Strategies
The following are the main
drivers for embedding ESG into
banks’ strategies:
● Stakeholder Expectations
and Demand: Stakeholders,
including customers,

www.icai.org DECEMBER 2023 73

734
SUSTAINABILITY
investors, employees, and
communities, are increasingly
demanding that banks
demonstrate a commitment to
sustainability and responsible
practices. Customers prefer to
engage with banks that align
with their values and have
a positive societal impact.
Investors are integrating ESG
factors into their investment
decisions, seeking financial
institutions that manage
ESG risks and opportunities
effectively. Employees are
seeking meaningful work and
want to be associated with
organizations that prioritize
environmental and social
responsibility.
● Financial Performance
and Risk Management:
Environmental risks such
as climate change, natural
resource depletion, and
pollution can have material
financial impacts on banks’
portfolios and operations.
Social risks, including human
rights violations, labor
practices, and community
relations, can lead to
reputational damage and
legal liabilities. Governance
risks, such as inadequate
board oversight or unethical
conduct, can undermine a
bank’s stability and long-term
viability.
● Regulatory Landscape and
Standards: Governments are
enacting on regulations and
guidelines that require banks
to disclose ESG information,
demonstrate responsible
lending practices, and
contribute to sustainability
goals. Regulatory frameworks
such as the EU Sustainable
Finance Action Plan and the
Task Force on Climate-related
Financial Disclosures (TCFD)
recommendations are driving
banks to incorporate ESG
factors into their strategies.
By aligning with regulatory
74 DECEMBER 2023
requirements, banks can avoid
compliance risks, maintain
their social license to operate,
and stay ahead of the evolving
regulatory expectations.
● Competitive Advantage
and Market Differentiation:
Banks that effectively
integrate sustainability and
responsible practices can
differentiate themselves
from their competitors. They
can attract impact-oriented
customers and investors who
prioritize ESG considerations,
capture new market
segments, and develop
innovative financial products
and services that address
sustainability challenges. By
proactively responding to the
emerging market trends and
customer demands, banks
can strengthen their market
position and enhance their
long-term profitability.
● Long-term Sustainability
and Resilience: Recognizing
the interconnectedness of
the financial sector with
broader environmental and
social challenges, banks
are embracing the need for
long-term sustainability and
resilience. By embedding
ESG considerations into their
strategies, banks contribute
to the achievement of global
sustainability goals such as the
United Nations’ Sustainable
Development Goals (SDGs)
and the Paris Agreement on
climate change. They play a
crucial role in financing the
transition to a low-carbon
and sustainable economy,
supporting sustainable
businesses and projects.
Challenges and Barriers
of Embedding ESG into
Banks
The following are the key
challenges and barriers of
embedding ESG into banks:
THE CHARTERED ACCOUNTANT
● Data Availability and Quality:
One of the primary challenges
is the availability and quality
of ESG data. Banks require
reliable and standardized
data on environmental
impact, social factors, and
governance practices to
effectively integrate ESG
considerations into their
strategies. However, data
on ESG metrics can be
fragmented, incomplete,
and inconsistent, making
it challenging for banks
to obtain accurate and
comparable information.
Limited access to relevant
data can hinder the
assessment of ESG risks,
opportunities, and impact,
thus impeding effective
decision-making.
● Integration of ESG Factors
into Decision-making
Processes: Banks need to
develop frameworks and
methodologies to incorporate
ESG considerations into risk
assessment, credit analysis,
and investment decision-
making. This requires robust
models, tools, and expertise
to quantify and evaluate ESG
factors alongside financial
metrics. Banks may face
difficulties in integrating ESG
factors into their existing risk
management systems and
processes, and in establishing
appropriate thresholds
or benchmarks for ESG
performance.
● Organizational Culture
and Change Management:
Shifting towards an ESG-
focused strategy requires
changes in organizational
culture, mindsets, and
behaviors. Banks may face
resistance from employees,
particularly if there is a lack of
awareness or understanding
of the importance of ESG
considerations.
www.icai.org

THE CHARTERED ACCOUNTANT
● Cost and Resource
Constraints: Embedding
ESG considerations into
banks’ strategies can
involve additional costs
and resource requirements.
Banks may need to invest
in data collection, analysis
tools, expertise, and training
to effectively integrate ESG
factors. Smaller banks, in
particular, may face resource
constraints and may find
it challenging to allocate
the necessary funds and
personnel to ESG initiatives.
Balancing the costs and
benefits of ESG integration
can be a significant
consideration for banks,
especially in the short term.
● Complexity of ESG
Issues: ESG considerations
encompass a wide
range of issues, making
the integration process
complex. Environmental
factors can involve multiple
dimensions, such as climate
change, biodiversity, and
resource efficiency. Social
factors encompass labor
practices, human rights,
and community impact.
Governance factors include
board diversity, executive
compensation, and ethics.
Banks need to navigate this
complexity, prioritize material
www.icai.org
ESG issues, and develop a
holistic understanding of the
interconnections between
these factors.
Benefits of Embedding
ESG into Banks’ Strategies
The following are the key benefits
of embedding ESG into banks’
strategies:
● Enhanced Risk
Management: By integrating
ESG considerations into
their strategies, banks can
effectively identify, assess,
and manage a broader range
of risks. Incorporating ESG
factors enable banks to
proactively address these
risks, leading to improved
risk, resilience, and reduced
exposure to financial and
reputational risks.
● Improved Financial
Performance: By aligning
their operations with
sustainability objectives,
banks can enhance
operational efficiency, reduce
costs, and improve long-term
profitability. ESG integration
also provides better insights
into the financial materiality of
non-financial factors, enabling
banks to make more informed
investment and lending
decisions.
735
SUSTAINABILITY
● Strengthened Reputation
and Stakeholder
Engagement: Embedding
ESG into banks’ strategies
can enhance their reputation
and foster trust among
stakeholders. Customers,
investors, employees, and
communities increasingly
expect banks to demonstrate
a commitment to sustainability
and responsible practices.
By integrating ESG
considerations, banks can
meet these expectations,
build stronger relationships
with stakeholders, and
enhance their brand image.
Transparency and robust
ESG reporting can also
improve communication
with stakeholders, leading
to greater trust, loyalty, and
engagement.
● Competitive Advantage:
Banks that effectively embed
ESG considerations into
their strategies can gain a
competitive advantage in
the marketplace. They can
differentiate themselves by
offering sustainable financial
products and services that
meet the evolving needs of
the customers and investors.
By capturing emerging market
segments, such as impact
investing and sustainable
finance, banks can tap into
new revenue streams. ESG
integration also allows banks
to attract and retain top talent
by aligning with the values
and aspirations of employees
who seek meaningful
work and ethical business
practices.
● Regulatory Compliance:
Regulatory frameworks are
increasingly emphasizing
the integration of ESG
considerations into the
financial sector. By embedding
ESG into their strategies,
banks can proactively respond
to the evolving regulatory
DECEMBER 2023 75
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SUSTAINABILITY
requirements and avoid
compliance risks. Banks that
stay ahead of the regulatory
curve can maintain their
social license to operate,
avoid potential legal and
reputational consequences,
and adapt to the changing
expectations of regulators.
● Contribution to Sustainable
Development: Banks have
a crucial role in financing the
transition to a sustainable and
inclusive economy. Banks
can support sustainable
businesses, promote
responsible lending practices,
and facilitate investments
in projects with positive
environmental and social
impacts. By aligning their
strategies with sustainable
development objectives,
banks contribute to a more
resilient and prosperous
future.
Strategies and Best
Practices
The following are the key
strategies and best practices
for embedding ESG into banks’
strategies:
● Board and Executive
Leadership Commitment:
Banks should demonstrate
strong leadership and
commitment to ESG
integration by engaging the
board and senior executives.
The board should actively
oversee and champion ESG
initiatives, ensuring that
ESG considerations are
integrated into the bank’s
overall strategy. Executive
leadership should set clear
goals, allocate resources,
and promote a culture of
sustainability and responsible
practices throughout the
organization.
● Integrated ESG Governance
Framework: Establishing
76 DECEMBER 2023
an integrated ESG
governance framework is
crucial for effective ESG
integration. Banks should
develop policies, guidelines,
and procedures that
explicitly incorporate ESG
considerations into decision-
making processes across
all business functions. This
includes integrating ESG into
risk management frameworks,
credit assessment, investment
processes, and product
development. The governance
framework should also define
roles and responsibilities,
ensuring accountability for
ESG performance at all levels
of the organization.
● Stakeholder Engagement
and Collaboration: Engaging
with stakeholders is a critical
component of successful
ESG integration. Banks
should actively communicate
with customers, investors,
employees, regulators, and
communities to understand
their expectations and
incorporate their feedback into
ESG strategies. Collaborating
with industry peers, NGOs,
and relevant stakeholders can
facilitate knowledge sharing,
promote best practices, and
drive collective action to
address shared sustainability
challenges.
● ESG Metrics, Reporting, and
Disclosure: Banks should
develop robust ESG metrics,
reporting frameworks, and
disclosure practices. This
involves selecting relevant
ESG indicators, tracking
performance against targets,
and reporting progress
transparently. Banks should
align with internationally
recognized reporting
frameworks, such as the
Global Reporting Initiative
(GRI) and the Sustainability
Accounting Standards Board
(SASB). Disclosure of ESG
THE CHARTERED ACCOUNTANT
information should be clear,
consistent, and accessible
to stakeholders, providing
insights into the bank’s ESG
performance and progress.
● Capacity Building and
Training: Banks should invest
in capacity building and
training programs to enhance
employees’ understanding
of ESG issues and their
integration into business
practices. This includes
providing training on ESG
concepts, industry trends,
and regulatory developments.
Banks should foster a culture
of continuous learning,
ensuring that employees have
the necessary knowledge and
skills to effectively integrate
ESG considerations into their
day-to-day work.
● Collaboration with External
Partners: Banks should
collaborate with external
partners, such as research
organizations, sustainability
consultants, and industry
associations, to access
expertise and resources.
Partnering with organizations
that specialize in ESG
research and analysis can
help banks stay informed
about emerging trends, best
practices, and regulatory
developments. Collaboration
can also facilitate the sharing
of data, methodologies,
and tools for assessing and
managing ESG risks and
opportunities.
● Continuous Improvement
and Innovation: Banks
should continuously review
and refine their ESG
strategies, considering
emerging sustainability
challenges, evolving
stakeholder expectations,
and regulatory changes.
Regular assessment of the
bank’s ESG performance and
impact allows for continuous
www.icai.org

THE CHARTERED ACCOUNTANT
improvement. Banks should
encourage innovation by
developing new financial
products and services that
address ESG challenges,
supporting sustainable
businesses, and leveraging
technology.
Emerging Trends and
Innovations
The following are some emerging
trends and innovations in
embedding ESG into banks:
● Impact Investing and
Sustainable Finance: There
is a rising trend in impact
investing and sustainable
finance, which involves
directing capital towards
investments that generate
● Sustainable Risk
positive environmental and
social outcomes alongside
financial returns. Banks
are developing innovative
financial products and
services that support
sustainable businesses and
projects. This includes green
bonds, sustainability-linked
loans, social impact bonds,
and other ESG-focused
investment vehicles. Banks
are also integrating impact
measurement methodologies
and tools to quantify and
communicate the positive
social and environmental
impact of their investments.
● Climate Risk Assessment
and Scenario Analysis:
Climate change poses
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significant risks to the
financial sector, and banks
are increasingly focusing on
climate risk assessment and
scenario analysis. Banks
are developing frameworks
to assess the physical and
transition risks associated
with climate change on their
portfolios. They are using
scenario analysis to model
different climate change
scenarios and understand
the potential impact on their
businesses. This helps banks
in identifying and managing
climate-related risks and
opportunities, aligning their
lending and investment
activities with a low-carbon
and sustainable economy.
Management: Banks are
integrating sustainability
factors into their risk
management frameworks.
This involves incorporating
ESG considerations into
credit risk assessment, stress
testing, and operational risk
management. Banks are
developing methodologies
and models to assess the
financial materiality of ESG
factors and their impact
on risk profiles. They are
also exploring the use of
external data sources and
advanced analytics to
enhance risk assessment
and identify emerging ESG
risks. Sustainability risk
management enables banks
737
SUSTAINABILITY
to make more informed
decisions, enhance risk,
resilience, and align their
risk appetite with long-term
sustainability objectives.
● ESG Data and Technology:
The availability and quality
of ESG data have been a
challenge for banks. However,
there is a growing trend of
leveraging technology and
data analytics to address
this issue. Banks are using
advanced data analytics tools,
machine learning, and artificial
intelligence to collect, analyze,
and interpret ESG data from
various sources. They are also
exploring partnerships with
data providers and utilizing
innovative data solutions
to enhance the accuracy,
comparability, and timeliness
of ESG data. Technology-
driven solutions help banks
in better understanding ESG
risks and opportunities,
making data-driven decisions,
and improving ESG reporting
and disclosure.
● Collaboration and
Partnerships: Collaboration
and partnerships are key
trends in embedding ESG
into banks’ strategies.
Banks are collaborating
with industry peers, NGOs,
research organizations,
and other stakeholders
to share best practices,
develop industry standards,
and drive collective action.
Collaborative initiatives such
as industry working groups,
sustainability consortia, and
impact investing networks
are emerging to address
common ESG challenges
and promote knowledge
exchange. Partnerships with
external organizations and
experts also help banks in
accessing specialized ESG
expertise, enhancing research
capabilities, and aligning with
global sustainability initiatives.
DECEMBER 2023 77
738
SUSTAINABILITY
● Stakeholder Engagement
and Transparency:
Stakeholder engagement
and transparency continue to
be important trends in ESG
integration. Banks are actively
engaging with stakeholders,
including customers,
investors, employees, and
communities, to understand
their ESG expectations and
incorporate their feedback in
decision-making processes.
Stakeholder engagement
platforms, surveys, and
dialogues are used to foster
meaningful communication
and collaboration. Banks are
also enhancing transparency
by improving ESG reporting
and disclosure practices,
aligning with global reporting
frameworks, and providing
stakeholders with clear
and comprehensive ESG
information.
Conclusion and
Implications
Embedding Environmental,
Social, and Governance
(ESG) considerations into
banks’ strategies has become
increasingly important in
today’s business landscape.
The integration of ESG factors
enables banks to manage risks,
improve financial performance,
enhance reputation, and
78 DECEMBER 2023
contribute to sustainable
development. By adopting
strategies and best practices
such as strong leadership,
commitment, integrated
governance frameworks, robust
risk management, stakeholder
engagement, transparency,
and continuous improvement,
banks can effectively embed
ESG into their strategies.
Therefore, it becomes clear
that, embedding ESG into
banks’ strategies is not only a
responsible business practice,
but also brings significant
benefits and implications. It
positions banks as leaders in
sustainability, strengthens their
risk management capabilities,
enhances their reputation, and
contributes to a more sustainable
and resilient global financial
system.
References
● Clark, G., Feiner, A., & Viehs,
M. (2015). From the stockholder
to the stakeholder: How
sustainability can drive financial
performance. Journal of Business
Ethics, 112(4), 1-23
● Eccles, R. G., & Serafeim, G.
(2013). The performance frontier:
Innovating for a sustainable
strategy. Harvard Business
Review, 91(5), 50-60
THE CHARTERED ACCOUNTANT
● Krosinsky, C., & Robins, N.
(2012). Sustainable investing: The
art of long-term performance.
Routledge
● Scholtens, B. (2020). Sustainable
finance and banking: The financial
sector and the future of the
planet. Oxford University Press
● Singh, A., & Mehrotra, A. (2018).
Environmental, social and
governance (ESG) criteria in
investing: A review of empirical
evidence. Journal of Economic
Surveys, 32(4), 973-993
● Eccles, R. G., Ioannou, I., &
Serafeim, G. (2014). The impact
of corporate sustainability on
organizational processes and
performance. Management
Science, 60(11), 2835-2857
● Guenster, N., Bauer, R., & Derwall,
J. (2011). The economic value
of corporate eco-efficiency.
European Financial Management,
17(4), 679-704
● Kjaer, L. L., & Kothari, T. H. (2020).
The barriers to implementing
environmental, social, and
governance (ESG) criteria in
investment processes. Journal
of Sustainable Finance &
Investment, 10(1), 1-27
● Roche, M. J., & Sanders, G.
(2018). Overcoming the barriers
to integrating environmental,
social, and governance criteria in
investment portfolios. Journal of
Applied Corporate Finance, 30(2),
76-85
● Spiller, P. T., Scholtens, B., &
Dam, L. (2019). The financial
performance of the European
banking sector: Environmental
and social governance, incentives
versus national lending bias.
Journal of Sustainable Finance &
Investment, 9(1), 39-57
nnn
Authors may be reached at
dileepsd87@gmail.com,
jyothiguntnur@gmail.com and
eboard@icai.in
www.icai.org
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SUSTAINABILITY THE CHARTERED ACCOUNTANT

The Finance Function and Sustainable

Development
CA. Aditya Maheshwari
Member of the Institute
Controllership function under the aegis of the broader finance
domain could increasingly play an indispensable role in
achieving Sustainable Development Goals (SDG) of entities,
and in the process could add substantial monetary as well as
non-monetary value to the global economy.
The Finance Control (FC) function plays a critical role in cost
optimization within an organisation. It involves managing
and monitoring the company’s financial activities, ensuring
compliance with financial regulations, and providing valuable
insights to help the business optimize its resources and
reduce expenses. This function can collaborate with various
departments (including the Chief Ethics Officer, if any) to
implement effective cost-rationalization measures while
maintaining financial stability and sustainability. Let us go
through the role of the aforesaid function in organisational
“minimalism”.

Budgeting Benchmarking reduce operational costs while

T
he FC function is
responsible for creating and
monitoring budgets and
financial forecasts. By predicting
revenue and expenses, this
function can identify potential
areas for cost saving and allocate
resources more efficiently.
Regularly comparing actual results
to budgeted figures allows for
adjustments and proactive cost
management.
Cost Analysis
The FC function conducts
detailed cost analysis to identify
areas of inefficiency, duplication,
and overspending. By analyzing
expenses across different
departments and projects, it
pinpoints non-essential costs
and areas where cost-cutting
measures can be implemented
without compromising
productivity or quality.
Establishing key performance
indicators (KPIs) allow the FC
function to monitor the financial
health of the organisation
continually. KPIs related to
cost efficiency can help track
progress and identify areas
for improvement. Likewise
comparing the company’s
performance and expenses
to industry benchmarks can
help identify areas where
the organisation may be
overspending or falling behind
competitors. Benchmarking also
provides valuable insights into
best practices and potential
cost-cutting opportunities.
Process Improvement
The FC function can identify
and streamline inefficient
processes. By eliminating
redundant or time-consuming
tasks, the organisation can
maintaining or enhancing overall
productivity.
Vendor Management
Managing vendor relationships
is another essential aspect of
cost-cutting. The FC function
can be a party to negotiate
better contracts, explore bulk
purchasing opportunities and
assess supplier performance
The FC function
evaluates proposed
capital expenditure to
determine their potential
return on investment
and align them with
the company's strategic
goals.

80 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
Cost cutting
initiatives for
sustainability inducing
activities, such as
energy efficiency,
waste reduction, and
responsible procurement,
not only save money
but also contribute to a
healthier planet.
to ensure that the company is
getting the best value for its
money.
Capex Management
The FC function evaluates
proposed capital expenditure to
determine their potential return
on investment and align them
with the company’s strategic
goals. By prioritizing projects that
offer significant value and growth
potential, unnecessary spending
on non-essential assets can be
avoided.
Risk Management
Incorporating risk management
practices into frugality decisions
is essential to avoid unintended
consequences. The FC
function assesses potential
risks associated with cost
minimization measures, ensuring
that they do not compromise
the organisational ability to
operate efficiently or comply with
regulatory requirements.
Employee Awareness
The FC function can work
with HR and departmental
mentors to educate employees
about the importance of cost
consciousness. By raising
awareness about these initiatives
and encouraging employees to
participate in the process, the
organisation can foster a culture
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of responsible spending and
resource management.
Organisational “Minimalism”
and Sustainability: Rules of
the Road
While expenses restructuring
primarily focuses on financial
efficiency and reducing costs,
incorporating spiritualistic
“minimalism” principles can
foster a deeper understanding
of the interconnectedness
between business decisions
and their impact on individuals,
society, and the environment.
Let’s explore how spirituality
(aka “minimalism” and financial
simplicity) can influence the
stakeholders in a positive and
meaningful way:
i. Mindful Decision-Making
Spirituality encourages
individuals to cultivate
mindfulness and awareness
in their actions. In the context
of finance domain, this
means taking a thoughtful
and compassionate approach
to financial decisions. Instead
of merely slashing expenses
without consideration,
businesses can evaluate
the broader consequences
of their actions, seeking
cost-cutting measures that
align with their values and
support the well-being of all
stakeholders.
ii. Ethical Cost Cutting
Spirituality often emphasizes
ethical conduct and moral
values. Businesses can
embrace cost-cutting
measures that uphold
ethical standards, such
as avoiding practices that
exploit workers, harm the
environment, or compromise
product quality. Ethical cost-
cutting ensures that financial
efficiency does not come at
the expense of integrity and
social responsibility.
741
SUSTAINABILITY
iii. Sustainability
Spirituality often emphasizes
the interconnectedness
of all living beings and
the environment. By
incorporating sustainability
into cost-cutting strategies,
businesses can reduce their
ecological footprint and
promote responsible resource
management. Cost cutting
initiatives for sustainability
inducing activities, such
as energy efficiency, waste
reduction, and responsible
procurement, not only save
money but also contribute to
a healthier planet.
iv. Employee Well-being
A spiritual approach to
cost-cutting recognizes the
importance of caring for the
well-being of employees.
Instead of solely focusing
on reducing labor costs,
businesses can consider
innovative ways to support
their employees’ physical,
emotional, and spiritual
needs. Investing in employee
wellness programs, work-
life balance initiatives, and
personal development
opportunities can lead to a
more engaged and motivated
workforce.
v. Long-Term Perspective
Spirituality often encourages
individuals to look beyond
short-term gains and adopt
a long-term perspective.
Investments in
employee training,
process improvement,
and technological
advancements can
lead to significant cost
savings and increased
efficiency in the
long run.
DECEMBER 2023 81
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SUSTAINABILITY THE CHARTERED ACCOUNTANT

In the context of cost recognition of abundance. stakeholders, including

cutting, this means making
decisions that prioritize the
sustainable growth and
viability of the business
over time. Investments
in employee training,
process improvement, and
technological advancements
can lead to significant cost
savings and increased
efficiency in the long run.
vi. Gratitude and Abundance
Spirituality often fosters
a sense of gratitude and
Instead of focusing solely
on cost-cutting out of fear
or scarcity, businesses
can approach financial
decisions with an attitude
of abundance. This mindset
can lead to creative solutions
that optimize resources and
identify opportunities for
growth and expansion.
vii. Empathy and Compassion
A spiritual perspective
can foster empathy and
compassion towards all
customers, employees,
suppliers, and the
community. In the context
of cost cutting, this means
considering the potential
impact of financial decisions
on various individuals
and groups and seeking
ways to minimize negative
consequences.
viii. Simplicity
Spiritual outlook is
straightforward thought
process, speech, and actions

Table 1 of 1: Nuts & bolts - User manual to facilitate the larger purpose

# Dimension Key Insights

Conduct a thorough analysis of all costs, categorize them into essential
and non-essential expenditures, and identify areas with the potential
1. Expenses for optimization. Focus on reducing unnecessary overheads, such as
subscriptions to redundant services, unused office space, or outdated
equipment.
Incorporating technology can lead to significant cost savings and
improve and speed up the various aspects of an organization’s activities
in various business functions. Automation can streamline repetitive
tasks, increasing productivity. Cloud computing can eliminate the
2. Technology
need for expensive hardware and software installations, reducing
maintenance costs. Additionally, leveraging data analytics can provide
valuable insights into customer behavior, enabling businesses to make
more informed decisions and allocate resources more efficiently.
Adopting lean management principles involves eliminating waste
and inefficiency across all aspects of the business. Regularly assess
3. Lean Management workflow and identify bottlenecks that hinder productivity. By promoting
a culture of continuous improvement, businesses can foster innovation
and find more cost-effective ways to deliver their products or services.
Energy costs can constitute a substantial part of a company’s expenses.
Implementing energy-saving practices can have a considerable impact
on the bottom line. Simple steps, such as switching to energy-efficient
4. Energy Efficiency
lighting, investing in programmable thermostats, and powering down
equipments during non-working hours, can lead to substantial savings
over time.
Human resources are a significant expense for any organisation. While
it is essential to have a competent and motivated workforce, it’s equally
5. Staffing vital to optimize staffing levels to match the current business demands.
Explore flexible work arrangements to maintain a skilled workforce and
to attract the right talent.
Outsourcing non-core activities can be a cost-effective strategy.
Tasks like payroll, IT support, or customer service can be entrusted to
Outsourcing (for a leaner
6. specialized service providers, saving both time and money. Outsourcing
organization)
allows the organisation to focus on its core competencies and strategic
objectives while reducing the burden of fixed expenses.

82 DECEMBER 2023 www.icai.org

 743

THE CHARTERED ACCOUNTANT

SUSTAINABILITY
# Dimension Key Insights
Waste reduction not only lowers waste disposal costs but also aligns
with sustainable principles. Implementing recycling programs and
Waste Reduction &
7. encouraging responsible waste management practices can significantly
Recycling:
reduce expenses while demonstrating a commitment to environmental
stewardship.
Collaborating with suppliers that adhere to sustainable practices and
ethical standards can foster a more sustainable supply chain. Besides,
Supply Chain optimising the supply chain is a strategy that can simultaneously
8.
Optimization: enhance cost efficiency and sustainability. By sourcing materials locally,
businesses can reduce transportation costs and support the local
economy.
Integrating sustainability into the procurement process can lead to
long-term cost savings. Choosing products or services with eco-friendly
9. Sustainable Procurement: credentials may have a higher upfront cost, but they often prove to be
more durable and efficient, reducing maintenance and replacement
expenses over time.
Investing in energy-efficient buildings and utilizing natural lighting
10. Green Building Practices: can lead to reduced utility bills while promoting a healthier and more
productive work environment.
Engaging employees in sustainability initiatives can foster a culture of
responsible consumption and resource management. Employees can
11. Employee Engagement:
suggest innovative ideas for cost-cutting and sustainability, creating a
sense of ownership and commitment to the company’s goals.
Respect the fine line between planning and evasion by building
12. Taxes necessary safeguards and boundaries to remain on the right side of the
law.

while abhorring unnecessary
complexities. When applied
to financial decisions, it
implies focusing on the right
business model to generate
wealth instead of adopting
round about ways to earn
money out of a doomed
business model.
Take away
Responsible and enlightened
businesses prioritize
sustainable practices. By
adopting sustainable practices,
businesses can not only
contribute to environmental
and social well-being but also
gain a competitive advantage
in an increasingly eco-
conscious market. By reducing
environmental impacts,
optimizing resources, removing
unwarranted complexities, and
embracing socially responsible
practices, entities can create
a positive impact on both their
bottom line and the world they
operate in. Also, simplicity
drives businesses towards
long-term success and a
brighter, and more sustainable
future.
Effective Finance function
stewards organisations for long-
term growth and meaningful
success. The finance function
ought to realize its destiny, its
calling, and its fullest potential
by being a revolutionary force
kindling a fire healing the planet
through:
● Conservation of resources
& sustainable resource
management
● Facilitation of authentic
social responsibility
measures & support for
non-profit initiatives
● Boosting accessibility &
affordability of products &
services
● Speeding innovation &
efficiency
● Creating inspiring role
models
Most importantly, integrating
spirituality into the levers of
expenses maneuvering lead
to a more conscious and
values-driven approach to
business practices along with
a more holistic and responsible
approach to financial
management. 
Author may be reached at
aditya.s.maheshwari@gmail.com
and eboard@icai.in

www.icai.org DECEMBER 2023 83


THE CHARTERED ACCOUNTANT
Asset Pricing Models to Predict
Returns: A Comparative Study
CMA Dr. Jeelan Basha V
Academician
In this study, the applicability of Capital Asset Pricing Model (CAPM)
and Fama and French Three-Factor Model (FFTFM) CAPM, and
FFTFM is examined and compared in the Indian context. The
A
Introduction
sset pricing models
specify how return and
risk relate to one another.
The first model to elucidate the
risk-return association in the
financial market was Modern
Portfolio Theory (MPT). In 1952,
Harry Markowitz proposed MPT
in his paper “Portfolio Selection”.
According to MPT, investors who
wish to minimize their risk create
diversified portfolios to optimize
their rewards. In 1960s, a new
model dubbed the CAPM was
developed based on Markowitz’s
MPT by W. Sharpe, J. Lintner
and J. Mossin autonomously.
Although the CAPM is frequently
used and well-known, has
received unsatisfactory results in
earlier studies like Basu (1977),
Banz (1981), Rosenberg, Reid and
Lanstei (1984), Bhandari (1988)
and Fama and French (1993). This
has driven many researchers to
attempt and identify other factors
that ignored by CAPM. Fama and
French collaborated in 1992 to
test the single-factor model by
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FINANCIAL MARKET
Tejesh H R
Research Scholar
adding market capitalization and
value factors. Their findings lead
to the development of the FFTFM,
a well-known alternative model to
CAPM. Additionally, they argued
that their three-factor model
outperformed CAPM in accurately
predicting stock/portfolio returns.
Naughton and Veeraraghavan
(2005), proved that the CAPM
alone is inadequate to explain
portfolio return and concluded
that the FFTFM, rather than the
CAPM, is an appropriate model.
Yash Pal Taneja (2010), found
that the FFTFM is an effective
predictor in the elucidation of
asset return in India. Sanjay
Sehgal and A Balakrishnan
(2013), re-examined the
efficacy of the CAPM and the
FFTFM in terms of explaining
returns, they found that the
FFTFM outperforms CAPM
in explaining returns on most
portfolios. Veysel Eraslan (2013),
concluded that the FFTFM has
only a limited ability to explain
variations in portfolio returns
for stocks listed on the Istanbul
745
study is undertaken on the
companies in the Nifty-100
index covering a period of
twelve years. The portfolios
for explanatory variables are
formed, considering market
capitalization and value.
The findings adequately
evidence to draw the
conclusion that the FFTFM
is more effective. The results
of the GRS (Gibbons, Ross,
and Shanken) test also
supported the use of the
FFTFM in explaining stock
return variations.
Stock Exchange. Nenavath
Sreenu (2018), showed that the
FFTFM could offer a clearer
elucidation for the disparity in
the stock return in NSE and
BSE. Mobin Anwar and Sanjay
Kumar (2018), revealed that
the FFTFM did not adequately
capture individual asset returns.
However, explained the returns
on portfolio assets sorted
by size and value. Zankhana
Atodaria (2020), found that
market capitalization and value
factors influence stock returns
in addition to the market. As
a result, investors can use
the size and value premium
to optimize their investments.
Debaditya Mohanti and Ravi
Kumar Jain (2020), noticed that
the FFTFM captured systematic
risk better than the CAPM
model and confirmed that size
and value effects existed in
the Indian market. This study
made an attempt to examine
and compare the applicability of
CAPM and FFTFM, in the Indian
market as a whole, specifically
DECEMBER 2023 85
746
FINANCIAL MARKET
among companies listed in the
S&P CNX Nifty-100 Index.
Research Methodology
The study is relied on secondary
data, covering a period of ten
years, ranging from March 2011
to March 2023. Eighty-two
companies that are selected
have been listed in S&P CNX
Nifty-100 Index. The required
data is taken from the annual
reports, yahoofinance.com,
moeycontrol.com etc. The S&P
CNX Nifty-100 Index returns are
Table 1: Measurement of Fama and French Three Factors
Sl. No. Factors
1 Market Capitalization
2 Book to Market Equity
3 Excess return on market
Source: Authors’ calculation.
Data Analysis
Table 2: Descriptive Statistics for Independent Variables
Mean Std. Dev.
EMR 0.587 4.761
SMB -0.129 1.821
HML -1.184 5.526
Source: Authors’ calculation.
premium indicates that big stock
average returns outperformed
small stocks’ average returns.
Similarly, the negative value
premium shows that the average
returns of growth stocks are
86 DECEMBER 2023
used as the proxy for market
return (Rm). For this, market
price data is obtained from
yahoofinance.com. Using data
from the RBI bulletin, the return
on 365-day T-bills is used as a
proxy of the risk-free rate (Rf).
The variables are defined and
computed using the FFTFM.
At the end of March (year t), the
firms are sorted to build portfolios
based on market capitalization
and value. GRS.test package of R
Programme is used to determine
whether the factors fully explain
Measurement
MC = Outstanding equity shares × Market value per share
BM = Book Equity/Market Equity
MF = Return on market-Risk free rate
Skewness Kurtosis
-1.132 6.313
-0.047 -0.348
0.210 0.278
larger than that of value stocks.
In comparison to market and size
factors, the value factor is found
to be more volatile. All variables
except value, are negatively
skewed. The leptokurtic
THE CHARTERED ACCOUNTANT
the expected returns of various
portfolios. This study employed
univariate sorting to construct
ten portfolios. For each portfolio,
monthly average returns that are
equally weighted are calculated.
Table 1 below depicts the
measurement of Fama-French’s
three factors.
The mean value is positive for
market premium by 0.587%
per month, while size and value
factors are negative. The results
are in line with those of Taneja,
Y.P. (2010). A negative size
Correlations
EMR SMB HML
1.000 - -
-0.120 1.000 -
0.441 0.023 1.000
nature for only market factor is
confirmed with the kurtosis value
greater than 3. The table above
also shows that value factor
has a positive weak association
with market and size factors
www.icai.org
 747

THE CHARTERED ACCOUNTANT

FINANCIAL MARKET
Figure 1: Graphical representation of explanatory variables

Table 3: OLS Regression Estimates for CAPM

Portfolio Intercept EMR R2 Adj. R2

Part A: Size sorted portfolios
P1 0.007099 ** 0.836131 *** 69.8% 69.5%
P2 0.006691 **
0.998681 ***
81.6% 81.4%
P3 0.004792 *
1.089122 ***
84.6% 84.4%
P4 0.004126 . 1.081783 *** 80.4% 80.2%
P5 0.006984 *** 0.903765 *** 91.2% 91.1%
Part B: BM sorted portfolios
P1 0.01144 *** 0.66881 *** 59.3% 58.9%
P2 0.012841 *** 0.876988 *** 72.7% 72.5%
P3 0.005909 ***
0.912251 ***
85.2% 85.0%
P4 0.002 1.153218 ***
88.0% 87.9%
P5 -0.003 1.311027 *** 66.9% 66.7%
GRS : 7.917444
P-value : 1.816864e-09
Source: Authors’ calculation.

respectively. The market factor is
weakly inversely correlated with
size factor.
For all five size grouped stocks,
the constant term and market
factor are positive and have
a considerable influence on
the response variable. With
the exception of P4 the R2
and Adj. R2 values increases
with the increase in market
capitalization and P5 has the
highest explanatory power of
91.2%. Except for P4 and P5,
the BM grouped stocks exhibit
positive and significant in
terms of constant term. Unlike
previously, all portfolios are
statistically significant, with the
coefficient values ranging from
0.67 to 1.31. Except for P5, the
R2 and Adj. R2 values increases
with the increase in BM ratio.
However, in comparison to
size-sorted portfolios, the
explanatory power dropped
for P1, P2 and P5. Since the
combined test for the intercept
terms (GRS static) is higher
(7.92), the null hypothesis is
rejected with the p-value less
than the level of significance.

www.icai.org DECEMBER 2023 87

748

FINANCIAL MARKET THE CHARTERED ACCOUNTANT

Table 4: OLS Regression Estimates for FFTFM

Adj.
Portfolio Intercept EMR SMB HML R2
R2

Part A: Size sorted portfolios

P1 0.0077 *** 0.87064 *** 0.89573 *** 0.016 80.8% 80.3%

P2 0.006636 *** 1.048257 *** 0.775555 *** -0.022 88.3% 88.0%

P3 0.006732 *** 1.050597 *** 0.454103 *** 0.110491 ** 87.7% 87.3%

P4 0.008053 *** 0.92154 *** -0.419197 *** 0.256441 *** 86.0% 85.6%

P5 0.004439 *** 0.983196 *** -0.125547 * -0.156456 *** 94.2% 94.1%

Part B: BM sorted portfolios

P1 0.00506 ** 0.913524 *** 0.429531 *** -0.410163 *** 83.1% 82.6%

P2 0.009202 *** 1.013163 *** 0.188 -0.232754 *** 77.9% 77.4%

P3 0.004945 ** 0.966497 *** 0.345384 *** -0.068903 * 87.1% 86.8%

P4 0.00527 ** 1.069419 *** 0.306742 ** 0.180401 *** 91.2% 91.0%

P5 0.009295 *** 0.901057 *** 0.32805 ** 0.779361 *** 91.4% 91.2%

GRS : 6.025099

P-value : 3.30128e-07

Source: Authors’ calculation.

Table 5: Predicted Monthly Excess Return Using Asset Pricing Models

Size Value
Actual
Portfolio Actual
(Ri) CAPM FFTFM CAPM FFTFM
(ERi) (ERi) (ERi) (ERi)

P1 1.053785 1.200525 1.146359 1.305117 1.536444 1.471982

P2 1.106055 1.255106 1.204913 1.648484 1.798699 1.765930

P3 1.015528 1.118275 1.100079 1.027809 1.126191 1.098474

P4 0.920513 1.047369 1.096736 0.850156 0.903885 0.901242

P5 1.129485 1.228711 1.222287 0.348587 0.442684 0.493140

Source: Authors’ calculation.

Almost all the size and BM
portfolios have positive and
significant intercepts for FFTFM.
Only 60% and 40% of the
size and value factors have
positive impact on portfolio
returns in Part A, respectively.
On the other hand, all the size
and value factor portfolios
are significant irrespective of
signs, with the exception of P2,
which is insignificant in terms
of size factor. From single
factor to three factor model,
the explanatory power of all ten

88 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
portfolios increased, whereas
the intercept of combined test
almost near CAPM to FFTFM.
Therefore, it performs better
than CAPM. The findings are
similar to those reported by
Fama & French (1993), Naughton
& Veeraraghavan (2005), Taneja
(2010), Sehgal & Balakrishnan
(2013), and Mohanti & Jain
(2020).
According to both the asset
pricing models, the expected
returns for all the portfolios
have a likelihood to rise. Only
CAPM offers the highest
expected returns in 80% of the
portfolios, however it considers
only a single risk factor. On the
other hand, considering three
risk factors, FFTFM registered
the highest expected returns
in 20% of the portfolios. P2 is
anticipated to generate higher
returns than other portfolios
for all the models, except for
FFTFM in size-sorted portfolios.
Conclusion
This study attempted to examine
and compare the applicability of
CAPM and FFTFM in the Indian
stock market. For this purpose,
univariate sorting approach is
employed to build ten portfolios
based on market capitalization
and value. Market, size and
value risk factors are used as
the explanatory variables. The
estimated results show that the
FFTFM is better in explaining
variations on the portfolio
returns which are constructed
by using selected eighty-two
companies listed in S&P CNX
Nifty-100 Index during the period
from March 2011 to March
2023. FFTFM is superior to
CAPM in terms of positivity and
significance of intercepts and
the goodness of fit. Therefore, it
is evident to conclude that the
FFTFM is the better performing
model than that of CAPM. The
findings are matched with Fama
www.icai.org
FINANCIAL MARKET
Figure 2: Graphical Representation of Monthly Excess Portfolio
Return
& French (1993), Naughton &
Veeraraghavan (2005), Taneja
(2010), Sehgal & Balakrishnan
(2013), and Mohanti & Jain
(2020).
References
� Atodaria, Zankhana. (2020).
Fama-French Three Factor
Model in Indian Stock Market.
Conference: Developing
Strategies for Business of
Tomorrow: Re–Moulding
Management Education.
https://www.researchgate.net/
publication/341597111
� Mohanti, Debaditya., & Jain, R.K.
(2020). Effect of Size and Value
in Three Factor Model: Evidence
from Indian Equity Market. MDIM
Business Review, 1(1), 46-53
� Arora, Deeksha., & Gakhar, Divya,
Verma. (2019). Asset Pricing
Models: A Study of CNX Nifty
500 Index Companies. Indian
Journal of Finance, 13(4), 20–35.
http://dx.doi.org/10.17010 /
ijf%2F2019%2Fv13i4%
2F143125
� Sreenu, N. (2018). An Empirical
Test of Capital Asset-pricing
Model and Three-factor Model of
Fama in Indian Stock Exchange.
Management and Labour
Studies, 43(4), 1–14. http://
dx. doi.org/10.1177/0258042X
18797770
� Anwar, M., & Kumar, S. (2018).
Three-factor model of asset
pricing: Empirical evidence
from the Indian stock market.
The IUP Journal of Applied
Finance, 24 (3), 16–34. Available
749
at SSRN: https://ssrn.com/
abstract=3275917
� Eraslan, V. (2013). Fama and
French Three-Factor Model:
Evidence from Istanbul Stock
Exchange. Business and
Economics Research Journal,
4(2), 11-22. https://www.research
gate.net/publication/282359641
� Taneja, Y.P. (2010). Revisiting
Fama French Three-Factor
Model in Indian Stock Market.
Vision: The Journal of Business
Perspective, 14(4), 267-274.
https://doi.org/10.1177/09722
6291001 400403
� Fama, E. F., & French, K. R.
(1993). Common risk factors
in the returns on stocks and
bonds. Journal of Financial
Economics, 33(1), 3-56.
https://doi.org/10.1016/0304-
405X(93)90023-5
� Sharpe, William F. (1964). Capital
asset prices: a theory of market
equilibrium under conditions
of risk. The Journal of Finance,
19(3), 425-442. https://doi.
org/10.1111/j.15406261.1964.tb
02865.x
� Harry Markowitz. (1952). Portfolio
Selection. The Journal of
Finance, 7(1), 77-91. https://doi.
org/ 10.2307/2975974

Authors may be reached at
drjeelanbasha@yahoo.co.in,
hrtejesh@gmail.com and
eboard@icai.in
DECEMBER 2023 89
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ACCOUNTING
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THE CHARTERED ACCOUNTANT
Impact of Covid-19 on the
Insolvency Law in India: Measures
for Long-Term Development and a
Way Forward
Harsh Goel
Research Scholar
Covid-19 had significantly impacted the global economy,
leading to immediate measures to protect companies and
individuals from bankruptcy and insolvency. These include
suspending debt repayment, sector-specific tolerance,
T
he adoption of the new
Insolvency bill, also known
as the Insolvency and
Bankruptcy Code 2016 (The
Code) is seen, together with the
Goods and Services Tax Act , as
a significant economic reform.
Prior to its introduction, the legal
mechanism utilised to handle
the repayment of loans was not
that effective. Initiating recovery
proceedings from debtors using
existing framework didn’t get the
intended outcomes. The largest
credit market sector in India is
the secured loan provided by
banks. The Code attempts to
encourage entrepreneurship and
the necessary access to finance
www.icai.org
Prof. Manoj Kumar Agarwal
Academician
strives to achieve a time-bound
process and balances between
the interests of all stakeholders
and raises the realizable value
of debtor’s assets. When a firm
fails to meet its debt repayment
commitments, the Code provides
for the timelines as the insolvency
resolution process under the code
is time bound .If the insolvency
resolution process fails, then it
leads to liquidation process. It
ensures that control transfers
from the owners to the Credit
Provider, or from a “debtor in
control” model to a “Creditor in
possession” model.
751
INSOLVENCY
imparting measures in
the financial system,
leniency in insolvency
proceedings, and freedom
from compliance with legal
obligations. The Indian
Government introduced
changes in insolvency
framework, and this paper
discusses the immediate
and long lasting reforms
implemented in response
to the pandemic and their
impact on the overall
performance of the Code.
The Covid-19 pandemic
caused economic downturns
in India, causing damage to
businesses. Industrial activities
halted, leading to significant
losses and employee layoffs.
The pandemic affected sectors
like micro, small, and medium
enterprises, healthcare, tourism
and automobiles. The virus
disrupted contract performance,
causing financial and operational
problems for creditors. Stock
value declined rapidly due to
decreased global demand. The
same is shown in snapshot 1:
It wouldn’t have been too
far-fetched to expect that at
DECEMBER 2023 91
752
INSOLVENCY
that point, the financial and
operational creditors would have
moved to the National Company
Law Tribunal (NCLT) to avail
remedies available to them under
the Insolvency and Bankruptcy
Code, 2016. The same would
have had a negative impact as it
would have resulted in the decline
of the value-adding mechanism
by the corporate to the economy.
Due to these reasons, the
Government of India decided
to adopt a pragmatic approach
in dealing with this problem
and came up with several
amendments to the IBC, 2016.
Importance of Insolvency
Law for Economy during the
time of Covid-19
A bankruptcy law’s crucial
function is to lessen the harm
brought on by the financial
problem, by using various tools
such as the proclamation of a
“Moratorium Period,” a change
in the “debtor in possession”
system to the “creditor in control”
model, valuing the rescue
kind of financing, diminution
of “ipso facto” clauses, etc.
and successfully addressing
the insolvencies on part of
debtors’, increase the number of
assets available to lenders and
facilitate the closure of infeasible
businesses. However, if the
company is economically feasible,
the successful asset allocation
will be possible by keeping the
company alive.
Overall the insolvency laws
can be a very useful tool as,
in addition to minimizing the
enterprise value demolition,
it provides a number of ways
to facilitate debt restructuring.
Therefore, companies can get out
of debt through a new financial
framework that is more relevant to
the company in generation of the
cash flow. Due to this, company
insolvency law was crucial in a
circumstance like a pandemic.
92 DECEMBER 2023
Snapshot 1.
+ Indicators + Comparison
^NSEI 10451.45
6 9 11
NIFTY Charts from period March’2020 to April’2020
Notwithstanding the significance
and authority of such a
bankruptcy legislation, there
were some restrictions and relief
measures undertaken on the
application of the same in the
context of pandemic.
Immediate Measures that
were taken to tackle the
Covid-19 Outbreak
In the wake of the global
Covid-19 pandemic, including in
India, the Indian government had
taken a number of steps to help
curb the spread of the disease.
It had announced a nationwide
closure for 21 days from March
25, 2020. The pandemic and
its control mechanisms had
significantly affected the whole
ecosystem of insolvency law,
its stakeholders and ongoing
proceeding. This had disrupted
business operations, particularly
of MSMEs, which pushed some
of them to fail to meet their
debt obligations. Several steps
mentioned below were taken in
the area of insolvency in relieving
their distress caused by the
pandemic.
Suspension of certain
provisions to stay the Insolvency
Proceedings: The suspension
aimed to reduce the of financial
distress by preventing creditors
from enforcing claims and seizing
property. This approach, adopted
by the Central Government, aimed
to protect economically viable
THE CHARTERED ACCOUNTANT
Mar 06,2020 Apr 03,2020 1D 5D 1M 3M 6M YTD 1Y 2Y 5Y Max Interval 1D Line Draw Setting
11,000.00
10,500.00
10,000.00
9,500.00
-2893.99 (-25.94%) 11 Bars 9,000.00
8,500.00
8083.80
8,000.00
697.00K
12 13 16 17 18 19 20 23 24 25 26 27 30 Apr 3
businesses from bankruptcy
crises. During the Covid-19 crisis,
Section 10A of the IBC was
adopted, suspending sections
7 and 9, which refer to the
initiation of insolvency by both
financial and operational debtors,
respectively. This suspension was
initially declared for six months
and extended for an additional
six months in two installments of
three months each. This automatic
suspension prevented creditors
from initiating insolvency resolution
process against the debtor.
Additionally, the Government had
declared that all financial defaults
during the “Period of Lockdown”
would not be subject to the
code’s definition of a default,
meaning firms cannot be sued
under the IBC for any defaults
during that time. India’s response
to the pendemic had been
substantial, unlike many other
countries that had only declared
partial or sectorial respite from
bankruptcy cases.
Relaxation by NCLAT with
respect to timelines of
Resolution Period: Additionally,
NCLAT decided that in every
situation where a resolution
process was being used and
was pending before any bench
of NCLT or before NCLAT, the
lockdown period determined
by the Government would not
be taken into account when
calculating the duration of
the “Resolution Process” as
www.icai.org

THE CHARTERED ACCOUNTANT
The Insolvency
and Bankruptcy
Code (IBC) has been
a significant factor
in resolving
insolvencies.
allowed under Section 12 of
the Code. Businesses that
were going through the process
of resolution at that time were
relieved by this; else many of
them might have failed.
Increase in Threshold for
triggering CIRP: In an effort to
help MSMEs from getting shoved
into the process of insolvency
because of non-compliance with
business payments obligations,
the Government, with a notice
dated 24th March 2020, had
increased the minimum amount of
default for triggering the insolvency
from Rs 1 lakh to Rs 1 crore.
Extension of Period of
Limitation by Supreme Court:
“Period of limitation” means the
maximum period prescribed
for filing any suit, appeal or
application. As per the order of
the Supreme Court, the period of
limitation in all such proceedings
extended with effect from March
15, 2020. A court order stated
that the period between March
15, 2020 and February 28, 2022,
would not be calculated within
the time frame (limitation period)
for filing any case. This had
helped to calm the Aggrieved
Creditors to postpone their
decision for filing the CIRPs.
Moratorium imposed by RBI:
A three-month moratorium on
all debt payments due between
March 1 and May 31, 2020,
which was then extended for a
further three months till August
31, 2020, was announced by
the RBI at the same time. This
www.icai.org
action had assisted in helping a
borrower in need of money with
financial support. In order to
create liquidity, the RBI had also
induced market investments of
Rs. 3.7 lakh crore. Additionally,
the RBI had announced an
out-of-court settlement plan on
August 6, 2020, under which
its regulated lenders could gain
by restructuring and settling
company debt without changing
the management control. This
incentive was only available to
borrowers that were Covid-19
impacted.
The actions taken by the Indian
Government and Reserve Bank
of India had helped numerous
enterprises survive the sorrow of
closure. IBC played a crucial role
in this procedure since it enabled
lenders to restructure debt and
empowered structured remedies
for failing businesses.
Impact of Immediate
Covid-19 Measures on the
Insolvency Law
The aforementioned actions had
brought about a “calm period”
in which firms who had been
negatively impacted financially
by lockdown closures were
no longer in danger of going
SHARP DECLINE IN CIRP POST IMMEDIATE COVID
MEASURES
1,118
287
91
74
2018_19
CIRP Admitted
CIRP Withdrawn
753
INSOLVENCY
bankrupt as a result of unstable
finances.
However, these measures
impacted the performance of
the code in a significant manner.
This could be better understood
by the below factors:
Significant Decline in
Corporate Insolvency
Resolution Processes
On December 1st, 2016, the
CIRP provisions came into force.
Up to the end of March 2020, the
acceptance ratios among CIRPs
had been continuously rising.
The number of CIRPs that were
“admitted” and “withdrawn”
decreased significantly after
implementing the Immediate
Phase 1 Covid-19 measures as
described in table 1.
In 2018–19, 1,118 CIRPs were
admitted; this number increased
to 1,883 in 2019–20, but fell
to 499 in 2020–21. Similar to
this, the number of approved
resolutions rose from 74 in
FY 18-19 to 120 in FY 19-20
and then declined to 108 once
the Covid-19 measures were
put into effect, lasting through
March 2021. The CIRP numbers
that lead to liquidation are
successively 287, 518, and 339.
1,883
499
518
399
113
108
120
70
2019_20 2020_21
CIRP Approved
Liquidation
DECEMBER 2023 93
754

INSOLVENCY THE CHARTERED ACCOUNTANT

Table 1.
Particulars 2018-19 2019-20 2020-21
CIRP Admitted 1,118 1,883 499
Ref. - “Insolvency
Approved 74 120 108 Resolutions Para” of IBBI
Newsletters for Q4 Period
Appeal/Review/Settled 67 104 54 of 2018,2019,2020,2021
CIRP Withdrawn 91 70 113
Liquidation 287 518 339

Significant rise in factor in resolving insolvencies. include both a “creditor in control”

Resolution Period of the The IBC allows any creditor and a “debtor in possession”
with a certain default limit to component. Participants’ rights are
Ongoing CIRPs
initiate insolvency proceedings protected as in the CIRP and there
The resolution rate of CIRPs against defaulters, transferring is enough testing and balancing to
is significantly better under the management of the affairs prevent potential misuse.
the IBC framework, with an of the corporate debtors to
average resolution period of 394 the IP. The Government has One major difference between
days compared to 4 years in chosen to use Pre-Packs, or Pre-Packs and CIRPs is that the
previous insolvency frameworks. prepackaged methods for framework allows the operations
However, the pandemic had resolving insolvencies, within of CDs to be in the hands of the
led to significant delays in the the IBC framework to make the debtor only, rather than shifting
timelines of ongoing CIRPs. process more debtor-friendly. it to the Insolvency Professional.
The percentage of cases under The Government established a However, control will remain in
the “More than 270 days Old” Committee called the Insolvency the hands of creditors, and all
basket increased from 32% in Law Committee (ILC) on June 24, decisions taken by CDs need
March 2019 to 79% in March 2020, to create a pre-packaging to be approved by CoCs before
2021. The total number of cases procedure within the fundamental implementation.
from March 2020 to March 2021 framework of the Code. Pre-
saw a decline of 21%. This is packs are more debtor-friendly, Further Proposed
due to the suspensions of Sec cost and time-efficient, adaptable developments
7, 9, and 10. The shutdown and less disruptive to the firm, as Additionally, on January 18,
periods were not counted under compared to CIRP. 2023, the Government proposed
the resolution period, as NCLAT a number of changes to
had decided not to consider The Committee created a pre- strengthen the insolvency law
shutdown periods in calculating packaging procedure within the system, including expediting
the duration of CIRPs. fundamental framework of the the procedure, broadening the
Code, giving financial creditors application of the pre-packaged
Bringing a more debtor a significant amount of authority, framework, improving outcomes
allowing businesses to enjoy in real estate cases, and
friendly Framework -
a moratorium throughout the developing an electronic platform
Introduction to Pre-Packs process, and making the outcome with minimal human interface.
The Insolvency and Bankruptcy legally obligatory. Pre-packs are
Code (IBC) has been a significant informal, but legally binding, and Enduring Reforms: How
90% Developments Enhanced
Percentage to Ongoing CIRPs

79%
80%
70%
the Efficiency of Insolvency
60% Law in Long term
50%
The measures undertaken to
40%
30%
32% 34% 30% combat the Covid-19 pandemic
20%
23% 22% 26% 17% have had a positive impact on
16% 12%
10%
4% 5%
the landscape of insolvency
0%
>270 Days >180 Days >90 Days >90 days
cases. The data clearly reflects
<270 Days <180 Days this positive trend, with a
Ongoing CIRPs Ageing Basket substantial increase in the

94 DECEMBER 2023 www.icai.org

 755

THE CHARTERED ACCOUNTANT

INSOLVENCY
Total
Ongoing 1143 2170 1723
CIRP
Status of
As on 31 Mar 2019 As on 31 Mar 2020 As on 31 Mar 2021
CIRPs
Percentage Percentage Percentage
Days Ageing No. of Cases No. of Cases No. of Cases
to Ongoing to Ongoing to Ongoing
>270 Days 362 32% 738 34% 1361 79%
>180 Days <
186 16% 494 23% 69 4%
270 Days
>90 Days
247 22% 561 26% 86 5%
<180 Days
<90 Days 348 30% 377 17% 207 12%
Ref. - IBBI Newsletter Jan-19 to Mar-19 | Jan’20 to Mar’20 | Jan’21 to Mar’21
Long Lasting Development in the Wake of Covid-19:

number of cases admitted for insolvency landscape was implemented to address the
Corporate Insolvency Resolution marked by a staggering 79% economic challenges posed by
Process (CIRP) from 499 in of cases pending for over 270 the pandemic had led to swifter
2020-21 to 834 in 2021-22, days, signifying significant insolvency resolutions and a
and further rising to 1255 in delays in resolution. However, more efficient system overall,
2022-23. Equally promising is by March 2022, the effects of offering renewed hope for
the increase in the number of these measures were becoming businesses and creditors alike.
approved cases, which climbed apparent, with a noticeable drop
from 108 in 2020-21 to 180 in to 66% in cases exceeding Conclusion
2022-23, indicating a significant 270 days. The positive trend With regard to the resolution
improvement in the efficiency of continued into March 2023, timelines, methods, etc., IBC had
the resolution process. where the percentage remained aggressively addressed a number
steady at 64%. Equally promising of difficulties in the recovery of
The measures had also shown is the rise in cases resolved stressed assets and in expediting
a remarkable positive influence within 90 days, which increased the Resolution processes. IBC
on insolvency resolution from 12% in March 2021 to 15% is still the greatest option to
timelines, as evident from in March 2023. These statistics deal with insolvencies or loans
the data. In March 2021, the illustrate how the strategies that have become bad in India’s
overall financial system as of
now because the percentage
Post Developments Status of CIRPs of repayments and haircuts
1400 1255 under IBC have shown to be
1200
834
than those under the country’s
1000
800
prior alternative remedies.
600
499
400 The pre-packaged insolvency
319
400 339 resolution process combines
200 113 125 195 the best of the out-of-court
108 112 180
0
2020-21 2021-22 2022-23 resolution efforts and the judicial
CIRP Admied 499 834 1255 finality of a resolution plan. This
CIRP Approved 108 125 180 mechanism, which is allowed
CIRP Withdrawn 113 112 195 only for micro, small and medium
Liquidaon 339 319 400
enterprise (MSME) borrowers,
may effectively complement
CIRP Admied CIRP Approved CIRP Withdrawn Liquidaon the prudential framework of the
Reserve Bank, if extended to all
Ref. - “Insolvency Resolutions Para” of IBBI Newsletters for Q4 borrowers. Even the RBI’s 2019
Period of 2021 to 2023 “Trend and Progress of Banking

www.icai.org DECEMBER 2023 95

756
INSOLVENCY
Resolution Timelines as on Mar
2023
15%
12%
9%
>270 Days
>180 Days < 270 Days
>90 Days <180 Days <90 Days
in India” Report states that
“Resolutions made under the
IBC, which accounted for more
than half of the total amount
recovered, helped the recovery of
stressed assets throughout 2018-
19”. In addition, the Economic
Survey for 2022–2023 stated
that “structural reforms like the
Insolvency and Bankruptcy Code
enhanced the efficiency and
transparency of the economy
and ensured financial discipline
and better compliance.”
In conclusion, our research
underscores the resilience
and adaptability of the Indian
insolvency framework in the face
of unprecedented challenges
brought on by the pandemic.
As we had explored the various
measures implemented to
address the immediate impact of
Covid-19, it is evident that these
initiatives have not only stabilized
the insolvency landscape but
also laid the groundwork for
long-term improvements.
The data and analysis
presented throughout in this
article demonstrate that the
developments and reforms
have contributed significantly
to enhancing the efficiency and
effectiveness of insolvency
laws in India. These positive
outcomes not only benefit
businesses and creditors but
also bode well for the overall
economic recovery and growth
of the nation. As we look ahead,
it is crucial to build upon these
96 DECEMBER 2023
achievements and continue the
journey towards a more robust
and responsive insolvency
regime that can withstand future
64% challenges and contribute to
India’s economic prosperity.
References
● Government of India, Insolvency
and Bankruptcy Code,
2016, Pub. L.No.31, 2016,
https://ibbi.gov.in//uploads/
legalframwork/2020-09-23-
232605-8ldhge942e8ee82
4aa2c4ba4767 b93aad0 e5d.pdf.
● File No. 30/38/2021-Insolvency
- Invitation of comments from
the public on changes being
considered to the Insolvency
and Bankruptcy Code, 2016.
(2023, January 18). Ministry of
Corporate Affairs. Retrieved
September 22, 2023, from
https://www.mca.gov.in/content/
dam/mca/pdf/IBC-2016-
20230118.pdf
● Understanding the IBC
– Key Jurisprudence &
Practical Consideration – A
Handbook | https://ibbi.
gov.in/uploads/whatsnew/
e42fddce80e99d28b683a7
e21c81110e.pdf
● Insolvency and Bankruptcy
Code biggest economic reform
in recent years: Chief M S
Sahoo | The Financial Express.
(2017, July 28). https://www.
financialexpress.com/ industry/
banking-finance/insolvency-
and-bankruptcy-code- biggest-
economic-reform-in-recent-
years-chief-m-s-sahoo/784208/
● Bankruptcy Law Reforms
Committee, the Report of
the Bankruptcy Law Reforms
Committee, vol. 1, Rationale
and Design | November
2015 - https://ibbi.gov.in/
BLRCReportVol1_04112015.pdf
● Key Highlights of Economic
Survey 2020-21. (n.d.). Press
Information Bureau. https://
pib.gov.in/Pressreleaseshare.
aspx?PRID=1693231
● Insolvency & Bankruptcy Code
(Amendment) Ordinance, 2021|
Suspending Section 7,9,10.
THE CHARTERED ACCOUNTANT
https://www.mca.gov.in/
Ministry/pdf/IBCAmedOrdinance
Bill_06042021.pdf
● NCLAT Suo-Moto Order dated
30.03.2020 | Relaxation of
Resolution Period Timelines |
https://www.ibbi.gov.in/uploads/
order/0fd02d6fd104fcdd
63936eb4cb23021b.pdf
● Increase in the Threshold limit to
trigger Insolvency from 1 Lakh to
1 Crore - https://www.ibbi.gov.in/
uploads/legalframwork/48bf3215
0f5d6b30477b74f652964edc.pdf
● Reserve Bank of India,
COVID-19—Regulatory
Package, RBI/2019-20/186,
https://www.rbi.org.in/scripts/
NotificationUser.aspx?
Mode=0&Id=11835, para. 2.
● Reserve Bank of India,
Resolution Framework for
COVID-19-Related Stress,
RBI/2020-21/16 https://www.rbi.
org.in/Scripts/NotificationUser.
aspx? Id=11941&Mode=0.
● IBBI Quarterly Newsletter |
Jan-18 to Mar-18 | Jan-19 to
Mar-19 | Jan-20 to Mar-20 | Jan-
21 to Mar-21| Jan-22 to Mar-22
| Jan-23 to Mar-23 | - https://
www.ibbi.gov.in/publication
● Sub-committee of the
Insolvency Law Committee,
Report of the Sub-committee
of the Insolvency Law
Committee on Pre-packaged
Insolvency Resolution
Process | October 2020),
https://ibbi.gov.in/uploads/
whatsnew/34f5c5b6fb00a97
dc4ab752a798d9ce3.pdf.
● Official Notification of
MCA dated. 30-01-2020,
Exercising Powers u/s 227 |
https://ibbi.gov.in//uploads/
legalframwork/3878e1c4
a2332a3e4398d924fac58166.pdf
● Reserve Bank of India, Report
on Trend and Progress, 51.

Authors may be reached at
harsh.goel@mail.ca.in and
eboard@icai.in
www.icai.org
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THE CHARTERED ACCOUNTANT

ACCOUNTING STANDARDS

Cluster Analysis Approach to Measure

Awareness of Hedge Accounting and
the Significance of IFRS-9
Dr. Asha Sharma
Academician
Managing an entity’s risk management is a challenge for
corporates. The objective of hedge accounting is to represent
the awareness of hedge accounting. The purpose of the
paper is to identify the effectiveness of IFRS 9 to meet
the objective of reducing entrepreneurs’ risk management
with less complexity. The aim of this review is to highlight
the importance of hedge accounting and the significance
of IFRS 9 in financial reporting. Questionnaire-based on
Likert’s Five-Point scale was applied to analyse the results
with 252 responses. Descriptive statistics have been used
for demographical and physiographical report presentations.
For testing the hypotheses, the technique chi-square test, phi
test, fisher exact and one-way ANOVA, and K-means cluster
techniques have been applied. It is found that there is a strong
relationship between the nature of work and the experience
of all the respondents of all three clusters. Also, a significant
association between awareness and hedge accounting, and
perception towards the need to change in IFRS 9 among all
three clusters has been found.

Introduction and the many kinds of hedges accessible. It makes it possible

A
n accounting practice
known as “hedge
accounting” is used to
lessen the volatility of financial
statements brought on by
changes in the fair value of
financial instruments used to
manage risks. In order to provide
a more accurate portrayal of
an entity’s financial condition,
hedge accounting aims to match
changes in the value of the
hedging instrument with changes
in the value of the hedged item.
With numerous distinct methods
and regulations that can be used
to account for various kinds of
hedging arrangements, hedge
accounting is a complex topic
of accounting. This article will
give a general review of hedge
accounting, including its goals
that can be taken into account.
Hedge accounting rules of
IFRS ensure that earnings and
expenses regarding hedging
relationships are accounted for
simultaneously.
It offers a more accurate
reflection of the hedging
relationship’s economic reality.
Even if the accounting approach
of a hedging relationship does
not correspond to the legal form
of the relationship, the goal of
hedge accounting is to recognize
the economic implications of the
relationship.
It can be used to make the
financial statements, disclosure
of financial assets, and
liabilities at a fair value more
for the management to reduce
financial risk.
In order to control the risk
that an entity encounters,
hedge accounting is used.
By using the proper financial
instruments, the company
effectively manages risk in the
context of hedge accounting,
thereby moderating or lowering
the impact of such risk on the
profit and loss account. The
primary requirement for hedge
accounting compliance is that
the hedging activity adheres to
the enterprise’s risk management
strategy.
The control of exposures
resulting from various forms
of risks that have an impact
on the profit and loss account

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758
ACCOUNTING STANDARDS
Hedge accounting
rules of IFRS
ensure that earnings
and expenses regarding
hedging relationships
are accounted for
simultaneously.
is efficiently accomplished
through several risk management
objectives using various financial
instrument types.
Accounting for hedges is
optional. Yet, once an entity
uses hedge accounting for a
connection, it is impossible to
deliberately stop using it unless
the particular hedge’s risk
management goal is no longer
legitimate or relevant. Protecting
the profit from unintended
changes in the profit or loss
account is one of the goals of
hedge accounting.
Hedge Accounting and
IFRS 9
Understanding hedge accounting
and IFRS 9 requires knowledge
and expertise in finance. By
balancing gains and losses in
the value of assets or liabilities
with comparable gains and
losses in the value of hedging
98 DECEMBER 2023
instruments, hedge accounting is
a financial management strategy
that enables businesses to
manage their financial risks. In
the current economic climate,
where businesses must deal
with a variety of financial risks
like interest rate, currency,
and commodity price risk,
hedge accounting is especially
important. In IFRS 9 Financial
Instruments, the International
Financial Reporting Standards
(IFRS) offer advice on hedge
accounting. A thorough
accounting standard called
IFRS 9 lays out the guidelines
for classifying, valuing, and
disclosing financial instruments.
The adoption of IFRS 9 will
have a substantial impact on
the accounting and financial
reporting procedures. Businesses
must be aware of the standard
changes and how they may
affect their financial reporting.
In this essay, we examine the
research on IFRS 9 adoption, and
awareness of hedge accounting.
Review of Literature
Finding research gaps requires
an examination of the literature.
For the purpose of understanding
the work already done, research
papers published in international
journals, books, and periodicals
THE CHARTERED ACCOUNTANT
have been examined. IFRS 9 and
hedge accounting awareness
among investors, analysts,
and accountants has been the
subject of some studies. There
is a large amount of research on
IFRS 9 and hedge accounting. A
synopsis of some of the studies
is provided below.
Hedge Accounting and
financial awareness
In a study published in the
Journal of Applied Accounting
Research in 2019, 100 Malaysian
investors were questioned about
IFRS 9 and hedge accounting
for a study. Only 33% of the
investors knew about hedge
accounting and how it affected
financial statements, according
to the report. Similarly, only 36%
of the investors knew about the
modifications IFRS 9 had made
(Abdullah and Ismail 2017).
The choice of hedge accounting
for 379 Brazilian listed
companies from 2010 to 2017
was examined to determine
whether the firms’ high financial
exposure to currency risk, the
high exchange rate depreciation
resulting from the financial crisis
verified in Brazil, and the option
to defer taxes on exchange
earnings affected the decision
(Sticca and Nakao 2019).
This paper investigates, in the
Brazilian stock market, the effect
of hedge accounting on the
quality of financial information,
on the disclosure of derivative
financial instruments, and on
the information asymmetry.
To measure the quality of
accounting information,
relevance metrics of accounting
information, and book earnings
informativeness were used
(Potin, Bortolon, and Neto 2016).
An in-depth investigation of the
financial data pertaining to hedge
accounting in European banks
from 2005 to 2014 is presented in
this article. We demonstrate that
www.icai.org

THE CHARTERED ACCOUNTANT
the reported statistics have more
value relevance than both “as-if”
earnings and “as-if” book values
that do not account for the effects
of hedge accounting. This shows
that the market values knowledge
about hedge accounting (Dinh
and Seitz 2020).
According to studies, the
application of SFAS 133 has
made it challenging for even
seasoned consumers of financial
statements to understand
the effects that hedging
derivatives have on profitability.
(Ranasinghe, Sivaramakrishnan,
and Yi 2022).
Bullen and Crocker (2019)
performed a poll to see how
well-known hedge accounting
is amongst the UK finance
professionals. Just 35% of the
respondents to the research had
actually implemented hedge
accounting in their firms, despite
60% of them being aware of
it. The study found a need for
increased training and instruction
in hedge accounting.
Identification of Research
Gap
The analysis of the literature
suggests that hedge accounting
is a crucial instrument for
businesses to successfully
manage their financial risks. Also,
the adoption of IFRS 9 has a
substantial impact on accounting
and financial reporting
procedures. Businesses must be
aware of the standard changes
and how they may affect their
financial reporting.
After the review of the literature,
certain research questions arise:
● Are the entrepreneurs,
professionals, and educators
aware of hedge accounting as
a tool for risk reduction?
● Is the adoption of IFRS 9 in
place of IAS 39 fulfilling the
need of reducing complexity?
www.icai.org
ACCOUNTING STANDARDS
Research Methodology
The following research
methodology has been used
to precede the paper. The
questionnaire was framed based
on a review of the literature.
Research Design
Questionnaires were sent
to 510 respondents. But
out of those 510, only 252
were complete. So only the
completed 252 questionnaires
has been used for further study
purpose. Likert’s Five-Point
scale was applied to analyse
the results. Further, data has
been analysed in two steps.
Descriptive statistics has
been used for demographical
and physiographical report
presentation. For testing the
hypotheses, the one way
ANOVA technique has been
applied. It is used to find out
the significance of differences
among the cluster relating to
awareness and perception
of hedge accounting. Also,
cluster segments are used to
Table 1 Nature of working and qualification
Frequency Percent
academicians 197
Valid professionals 55
Total 252
759
compare the demographical
variable like experience and
nature of working. And to know
the association between these
variables, the fisher exact
technique is applied in place
of the Chi-square test due
to not fulfilling the condition
for the application of the chi-
square test. The K-means
cluster classified respondents
with similar motivation into
homogenous internally, but
different externally.
Three clusters have been
analysed and labelled as highly
aware, moderately aware,
and unaware groups. Phi test
has been applied to measure
the association between the
responses of the respondents.
Objectives of the study
● To find the demographical
statistics to study the
structure of the respondents
● To prepare a cluster of different
segments or respondents
Valid Cumulative
Percent Percent
78.2 78.2 78.2
21.8 21.8 100.0
100.0 100.0
DECEMBER 2023 99
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ACCOUNTING STANDARDS THE CHARTERED ACCOUNTANT

nature of working and qualification

H02 There is
200
no significant
association between
150 awareness and hedge
accounting, and the
Frequency

perception towards the

100
need to change in IFRS 9
among all the three
50 clusters.

0
acadmician professional with the application of cluster
nature of working and qualification analysis, if the variation is
found in the opinion
Chart 1 Nature of work and qualification
● To find out the awareness of
Table 1 and Chart 1 show that 78.2% of the respondents were hedge funds among investors
academicians and 21.8% were professionals.
● To review IFRS 9 and the
significance of hedge
Table 2 Experience
accounting standard
Valid Cumulative
Frequency Percent Percent Percent Hypotheses
5-10 years 192 76.2 76.2 76.2 H01 There is no significant
association between the nature
10-15 years 41 16.3 16.3 92.5 of working and the experience of
Valid
15-20 years 19 7.5 7.5 100.0 all the respondents.
Total 252 100.0 100.0
H02 There is no significant
association between awareness
experience
and hedge accounting, and the
200 perception towards the need to
change in IFRS 9 among all the
three clusters.

150 H03 There is no significant

association between the nature
Frequency

of working and experience

100 among the respondents of all the
three clusters.

50 Result and Discussion

Descriptive statistics have been
applied for demographical
and physiographical report
0
5-10 years 10-15 years 15-20 years presentation. In the first segment
of the analysis, the study
experience examined the demographic
information of the accounting
Chart 2 Experience professionals, like the nature of
Table 2 and Chart 2 reveal that out of the 252 respondents, 76.2% working and experience. A total
have 5-10 years of experience, 16.3% have between 10-15 years, and of 252 responses were chosen
7.5% have 15-20 years of experience. for the analysis.

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 761

THE CHARTERED ACCOUNTANT

ACCOUNTING STANDARDS
H01 There is no significant association between the nature of Testing of Hypotheses
working and the experience of the respondent. In order to test the significant
relationship between
Table 3 Chi-Square Tests advertisement cost and sales
Value df Asymp. Sig. volume, the correlation was
(2-sided) applied using SPSS 21. The results
so obtained are given in table 1.
Pearson Chi-Square 69.863a 2 .000
The result reveals that the
Likelihood Ratio 61.562 2 .000 association between the nature
of working and experience is
Linear-by-Linear Association 48.767 1 .000 significant (Pearson chi-square
N of Valid Cases 252 = .000, p<0.05) as the value of
p is less than 0.05, indicating
Bar Chart that the null hypothesis is
experience rejected at a 5% level of
200 5-10 years significance and that there is a
10-15 years
significant association between
15-20 years
the nature of working and
150 experience.

Cluster Analysis
Count

100 Initially, the hierarchical cluster

technique is applied. As a
strong relationship between
the demographical attributes
50
is found, it is required to know
if there are any associations
or similarities among the
0 respondent groups. So, a cluster
acadmicain professional
analysis has been applied to
nature of working and qualification find the groups or clusters of the
same opinion of the respondents.
Chart 3 Nature of work and experience Firstly, the hierarchical cluster
technique is applied to know
the probable number of groups.
The following dendrogram is an
output of this technique.

About demographical
variable
Table 4 presents that based on
experience, the respondents
have been sub-categorized
into three groups i.e., 5 to 10
years, 10 to 15 years, and 15
to 20 years. The first group has
people with less experience
highest, the second group
has more people with good
experience, meaning people
with 15-20 years of experience,
Fig 1 Dendrogram showing the appearance of clusters with the and the third group has middle-
Hierarchical cluster technique experience people.
In this figure, with the help of a dendrogram, it can be presumed The respondents can be divided
that at least three groups/clusters of respondents can be created. into two segments namely

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762

ACCOUNTING STANDARDS THE CHARTERED ACCOUNTANT

academician and professional professionals. The third group Physiographical Information

based on their nature of work. has the highest academicians The table shows the variables
They have been categorised into but fewer professionals, and the used for the cluster analysis
three groups. The first cluster second group has a moderate approach on the basis of
has fewer academicians but high kind of combination. their level of awareness and

Table 4 Descriptive statistics of Physiographical and Demographical clustered variables

Final Cluster Centres
Cluster
Physiographical Information 1 2 3
The fund seeks to hedge investor’s capital against market volatility by employing 2.06 3.51 4.42
alternative investment approaches

Hedge accounting assesses the amounts, timing, and uncertainty of future cash 2.23 3.28 4.13
flows
Do you feel that the companies’ hedging activities are effective in risk 2.00 3.59 4.38
management
There is a requirement for change in IFRS 9 in regard to hedging accounting 2.39 3.39 4.33

New adoption will change the way it accounts for financial assets and financial 2.29 3.49 4.43
liabilities under IFRS 9
Demographical variables Cluster
1 2 3
Experience
5-10 years 77.4 75.2 76.7
10-15 years 19.4 13.9 17.5
15-20 years 3.2 10.9 5.8
Nature of working
academicians 67.7 77.2 81.7
professionals 32.3 22.8 18.3

Table 5 Test Statistics of Fisher exact test

Cluster Number of Case awareness towards opinion for
hedge accounting significance of IFRS 9
Chi-Square 11.677a 26.677b
df 2 3
1 Asymp. Sig. .003 .000
Exact Sig. .003 .000
Point Probability .001 .000
Chi-Square 50.455c 98.010d
df 2 3
2 Asymp. Sig. .000 .000
Exact Sig. .000 .000
Point Probability .000 .000

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 763

THE CHARTERED ACCOUNTANT

ACCOUNTING STANDARDS
Table 5 Test Statistics of Fisher exact test
Cluster Number of Case awareness towards opinion for
hedge accounting significance of IFRS 9
Chi-Square 19.200e 69.050f
df 1 2
3 Asymp. Sig. .000 .000
Exact Sig. .000 .000
Point Probability .000 .000

Table 6 Symmetric Measures (Phi test)

Cluster Number of Case Value Approx. Sig.
Phi .620 .003
Nominal by Nominal
1 Cramer’s V .620 .003
N of Valid Cases 31
Phi .468 .000
Nominal by Nominal
2 Cramer’s V .468 .000
N of Valid Cases 101
Phi .563 .000
Nominal by Nominal
3 Cramer’s V .563 .000
N of Valid Cases 120
a. Not assuming the null hypothesis.
b. Using the asymptotic standard error assuming the null hypothesis.
The result reveals that there is the association between the nature of work and experience is significant.
This significant value (Pearson chi-square = .000, p<0.05) of the phi test is less than .05 for all the
clusters, indicating that the null hypothesis is rejected at a 5% level of significance and there is a strong
relationship between the nature of working and experience of the investors.

perception towards the need to

change in IFRS 9. Based on the
responses of the respondents,
they are categorized into three
clusters.
The first cluster involves
highly aware people and the
approaches tend to change in
IFRS 9. At the same time, second
cluster includes people who have
an average level of awareness.
The third cluster consists of an
unaware group of people.
Now for the hypothesis testing
purpose, further statistical tests
have been applied.

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764
ACCOUNTING STANDARDS
Hedge accounting is
a valuable tool for
entities that are exposed
to financial risks, such as
changes in interest rates,
foreign exchange rates, or
commodity prices.
H02 There is no significant
association between
awareness and hedge
accounting, and the opinion
towards the significance of
IFRS 9 among all the three
clusters.
Chi-square test was applied to
measure the association. But due
to not fulfilling the assumptions
and the conditions for the
application of the chi-square
test, Fisher exact test has been
applied for physiographical data.
It is applied to find the strength
of the relationship between
two ordinal variables. Here, it is
applied to know the association
between awareness and opinion
towards the significance of IFRS 9
among all the three clusters.
The result reveals that the
association between awareness
and opinion towards the
significance of IFRS 9 is
significant (Pearson chi-square
= .000, p<0.05) as the value of p
is less than 0.05, indicating that
the null hypothesis is rejected
at a 5% level of significance
and that there is a significant
association between awareness
and opinion towards the
significance of IFRS 9 among all
the three clusters.
H03 There is no significant
association between the
nature of working and
experience among all the
three clusters
Phi test has been applied
for demographical data. It is
104 DECEMBER 2023
applied to find the strength of
the relationship between two
categorical variables. Here, it is
applied to know the association
between the nature of working
and the experience of the
investors.
Conclusion
Hedge accounting is a
valuable tool for entities that
are exposed to financial risks,
such as changes in interest
rates, foreign exchange rates,
or commodity prices. By using
hedge accounting, entities can
reduce the volatility of their
financial statements, provide a
more accurate reflection of their
financial position, and manage
their financial risks more
effectively. However, hedge
accounting can be complex,
and entities need to ensure that
they understand the rules and
requirements associated with
hedge accounting before they
adopt this technique.
The paper attempts to present
the awareness of hedge
accounting. The purpose of
the paper is to identify the
effectiveness of IFRS 9 to
meet the objective of reducing
entrepreneurs’ risk management
with less complexity. Three
clusters namely highly aware,
moderately aware, and unaware
have been consisted. It is found
that there is a strong relationship
between the nature of working
and the experience of all the
respondents of all the clusters.
Also, a significant association
between awareness and hedge
accounting, and perception
towards the significance of
IFRS 9 among all the three
clusters has been found.
Reference
● Abdullah, Azrul, and
Ku Nor Izah Ku Ismail.
2017. “Company-Specific
Characteristics and the
Choice of Hedge Accounting
THE CHARTERED ACCOUNTANT
for Derivatives Reporting:
Malaysian Case.” International
Journal of Accounting,
Auditing and Performance
Evaluation 13(3)
● Bernhardt, Thomas,
Daniel Erlinger, and Lukas
Unterrainer. 2016. “IFRS
9: THE NEW RULES FOR
HEDGE ACCOUNTING FROM
THE RISK MANAGEMENT’S
PERSPECTIVE.” ACRN Oxford
Journal of Finance and Risk
Perspectives 5(3)
● Dinh, Tami, and Barbara Seitz.
2020. “The Information Content
of Hedge Accounting—
Evidence from the European
Banking Industry.” Journal
of International Accounting
Research 19(2)
● Potin, Silas Adolfo, Patrícia
Maria Bortolon, and Alfredo
Sarlo Neto. 2016. “Hedge
Accounting in the Brazilian
Stock Market: Effects on
the Quality of Accounting
Information, Disclosure, and
Information Asymmetry.”
Revista Contabilidade e
Financas 27(71)
● Ranasinghe, Tharindra,
Konduru Sivaramakrishnan,
and Lin Yi. 2022. “Hedging,
Hedge Accounting, and
Earnings Predictability.”
Review of Accounting
Studies 27(1)
● Sticca, Ralph Melles,
and Silvio Hiroshi Nakao.
2019. “Hedge Accounting
Choice as Exchange Loss
Avoidance under Financial
Crisis: Evidence from Brazil.”
Emerging Markets Review 41

Author may be reached at
drashasharma.sharma07@gmail.com
and eboard@icai.in
www.icai.org
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THE CHARTERED ACCOUNTANT

ACCOUNTING STANDARDS

Supplier Finance Arrangements –

New Disclosure Requirements
The International Accounting Standards Board (IASB) has
introduced amendments to IAS 7 Cash Flow Statements
and IFRS 7 Financial Instruments: Disclosures to address
the information requirements of investors regarding
supplier finance arrangements (SFAs). Supplier finance
arrangements, such as reverse factoring, play a significant
role in optimizing cash flow and working capital within supply
chains. However, the lack of adequate disclosure in financial
statements poses risks, including the lack of comparability,
inaccurate assessment of leverage, and erroneous judgment
of operational efficiency. The amendments require entities to
disclose the terms and conditions of the SFAs, as well as the
range of payment due dates for financial liabilities within and
outside of the SFAs. The effective date for these disclosures
is 1 January 2024. Entities should prepare by reviewing
CA. Vishwa Deep Mishra
contracts, systems, and information needs with their finance
Member of the Institute
providers and auditors.

T
he IASB released cash flow and working capital factoring or approved payable
amendments to IAS 7 within a supply chain. Supply finance, dynamic discounting,
Cash Flow Statements chain finance encompasses inventory financing, and more.
and IFRS 7 Financial a wide array of financing The International Accounting
Instruments: Disclosures in options, including receivable Standards Board (IASB) employs
May 2023. These amendments financing (factoring), reverse the term “Supplier Finance
were introduced to address
the specific information
Typical supplier finance arrangement
requirements of investors
regarding supplier finance
arrangements. This article Receipt of goods
aims to clarify and explore from the supplier
the realm of supplier finance
arrangements, including
the associated risks and
the information needs of
investors in relation to these
arrangements.
Buyer Supplier
What are Supplier Finance
Arrangements?
Supply chain finance
arrangements are used
to refer a wide range of Agreement to
pay at a later date Financial Payment for
financing techniques that Institution goods
help companies optimize

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766
ACCOUNTING STANDARDS
Arrangements” or SFA to denote
the agreements made by an
entity to provide funding for its
payable obligations to suppliers,
encompassing all forms of
reverse factoring. This way,
the company gets benefitted
in the form of extended credit
period, cashflows, and additional
available channel of liquidity.
In a typical supplier finance
arrangement, a company enters
into a financing arrangement
with a finance provider or
intermediary to finance its
payment obligations towards the
purchase of goods and services
from its suppliers. Finance
provider(s) pays the suppliers
on approval of supplier invoices
by the company as per invoice
due dates or in advance. The
company settles its obligations
towards the finance provider(s)
by paying them on the invoice
due dates or at a later date.
Supplier finance arrangements
can be structured in different
ways including –
- Where supplier chooses to be
paid before the invoice due
date by the finance provider,
at a discount
- Where the buyer receives
extended credit from a finance
provider, allowing the buyer to
make payment to the finance
provider later than the invoice
due date, while the finance
provider pays the supplier on
the invoice due date
Please note that the
amendment specifically
applies to supplier finance
arrangements commonly known
as reverse factoring, regardless
of the naming convention used.
It is important to understand
that the amendment does
not encompass other supply
chain finance arrangements
1
https://www.wsj.com/articles/carillion-collapse-highlights-accounting-shortcomings-moodys-1521025234
2
https://industrytoday.com/fitch-suggests-supply-chain-finance-reclassification/
3
Non-financial companies – Global: Reverse factoring is increasingly popular but can weaken liquidity at a time of stress,” Moody’s
Investors Service,19 September 2019.
106 DECEMBER 2023
like receivable financing
(factoring) undertaken by the
supplier or inventory financing.
Additionally, it is important
to highlight that the scope
of the amendment does not
extend to cover other types of
arrangements in the nature of
credit enhancement measures,
such as letters of credit or
other financial guarantees
that the buyer may provide to
the supplier. Furthermore, the
amendment does not cover
situations where the buyer
borrows funds in order to fulfill
payment obligations to the
supplier, and subsequently
repays the borrowed amount.
What are the reasons for
amendments and investors’
information needs?
Supplier finance arrangements,
specifically reverse factoring, are
extensively utilized worldwide
across a range of industry
sectors, from aerospace to
pharmaceuticals. According to
Grand View Research estimates,
the global reverse factoring market
reached a size of approximately
$500 billion in 2022, and is
projected to grow at a compound
annual growth rate (CAGR) of
11.4% from 2023 to 2030.
Given the extensive size of the
supplier finance arrangements,
these can have a material effect
on the entities using such
financing techniques in the form
of –
- Availability of extended
payment terms (sometimes
beyond industry standards).
- Concentration of liquidity
risk with the limited finance
providers that could dry up
almost instantly in times of
stress without any warning
signs.
THE CHARTERED ACCOUNTANT
The lack of adequate information
on SFA in the entities’ financial
statements leads to the following
risks –
- Lack of comparability
between financial statements
of the entities that use SFA
and those that do not.
- Inaccurate assessment of
leverage or borrowings used
by the entities leading further
to risks relating to inaccurate
measurement of credit and
liquidity risks, mispricing of
equity, and misallocation of
capital by investors
- Erroneous judgement of
entities’ operational efficiency
and effectiveness due to lack
of clarity between operating
cashflows (credit from
suppliers) vis-à-vis financing
cash flows (credit from
financial institutions), resulting
from miscalculated efficiency
and financial ratios.
Top credit rating agencies have
been talking about the risk of
inadequate disclosure of the
supply chain programs in the
financial statements. The topic
of inconsistent and inadequate
disclosure of SFA in the financial
statements gained a lot of
traction in the wake of collapse
of the UK construction giant –
Carillion.
Moody’s1 and Fitch2 pointed out
the lacuna in the accounting
framework, which allowed for
misreporting and ultimately
contributed to Carillion’s demise.
According to Moody’s, while
standby credit facility(SCF)
arrangements, including reverse
factoring, are widely used, their
disclosure in financial statements
is limited. Recent research by
Moody’s3 revealed that less than
5% of entities rated by them
disclose the usage and impact of
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THE CHARTERED ACCOUNTANT
SCF on their financial statements
and risk profile.
In 2020, S&P Global Inc., another
major credit rating analyst,
referred to supply chain finance
as a “Sleeping Risk4” that could
be triggered by the pandemic.
These issues have emphasized
the urgent need for improved
reporting by entities to provide
investors with the necessary
information for making
informed financial decisions.
What are Investors’
information needs?
The key information needs
of investors are to clearly
understand the degree of
elasticity between supplier
finance arrangements and (i) the
working capital management and
(ii) liquidity management of an
entity.
Working Capital Management:
The Investors intend to assess
how the presence of a supplier
finance arrangement impacts the
working capital management of
entities in terms of the amount of
trade payables or financial liabilities
subject to such arrangements, and
the effect on key efficiency ratios
such as cash conversion cycle,
free cashflows or days payable.
Liquidity Risk Management:
Investors seek adequate
information to evaluate the
effects of supplier finance
arrangements on both financial
position and liquidity of a
company. This pertains to
its cash accessibility and the
capacity to promptly fulfil
financial commitments, given the
concentration of funding sources
through SFA. Additionally, they
aim to understand the potential
repercussions for the entity if
these funding sources were
suddenly unavailable.
4
https://www.livemint.com/news/world/supply-chain-finance-is-new-risk-in-crisis-11586069576694.html
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767
ACCOUNTING STANDARDS
Illustration:
Note X - Supplier Finance Arrangements
The entity entered supplier finance arrangements with the following
terms and conditions:
SFA Type 1 : ...... SFA Type 2 : ......
What is the impact of (b) for each arrangement, as at
the amendments on the the beginning and end of the
reporting period:
disclosure requirements of
the Companies? (i) the carrying amount of
Amendments to IAS 7 – Cash financial liabilities recognised
flow statements in the entity’s statement of
financial position that are
In order to meet the investors’ part of the arrangement
information needs, IASB and the line item(s) in which
added the following disclosure those financial liabilities are
requirements relating to supplier presented
finance arrangements and its (ii) the carrying amount of
impact liabilities and cashflow of financial liabilities disclosed
an entity – under (i) for which suppliers
have already received
An entity is required to disclose:
payment from the finance
(a) the key terms and conditions providers; and
Carrying amount of liabilities FY - 20X4 FY - 20X3
Presented within trade and other CU 5,000 CU 4,600
payables
– of which suppliers have received CU 3,100 CU 2,600
payment
Presented within finance payables CU 2,000 CU 1,000
– of which suppliers have received CU 1,400 CU 900
payment
(iii) the range of payment due dates of financial liabilities
disclosed under (b) and of trade payables that are not part of a
supplier finance arrangement.
Range of Payment Due Dates after FY - 20X4 FY - 20X3
invoice date
Financial liabilities that are part of SFAs 80-90 80-90
Comparable trade payables that are not 45-60 45-60
part of a SFA
Terms and conditions forms of guarantees provided to
the finance provider(s). An entity
As a part of the disclosure of
is required to disclose terms
terms and conditions of the SFAs,
and conditions of all SFAs, but
entities should include information the amendments permit the use
on the payment terms, assets of aggregation while disclosing
pledged as security, or other the terms and condition of
DECEMBER 2023 107
768
ACCOUNTING STANDARDS
SFAs that are similar in nature.
However, a separate disclosure
of terms and conditions of SFAs
are required that are unique or
dissimilar in nature, in order to
prevent omission or obstruction in
disclosure of material information.
Range of payment due dates
While disclosing the range of
payment due dates of financial
liabilities that are part of the SFAs,
in comparison to the range of
payment due dates of financial
liabilities that are not part of the
SFAs, they must be presented
on a comparable basis, such as
within the same lines of business
or geography. An entity is required
to offer further explanation
or additional ranges (such as
stratified ranges), if the ranges of
payment due dates are wide.
Amendments to IFRS 7:
Financial Instruments:
Disclosures
As a response to liquidity
risk information needs of the
investors, amendments to
IFRS 7 add supplier finance
arrangements as other factors
for entities to consider while
providing qualitative disclosures
on concentration of liquidity
risks. Entities are required to
disclose if the liquidity risk is
concentrated with few finance
providers due to the use of
supplier finance arrangements.
What are the Transition
Provisions and Effective
Date?
The amendments will be
effective for the annual periods
beginning on or after 1 January
2024 with early adoption
permitted. These amendments
provide transition reliefs to the
entities in the form of –
● Exemption from disclosing
comparative information in the
first year of adoption,
● Relief from quantitative
disclosures relating to
108 DECEMBER 2023
amounts paid to suppliers and
ranges of payment dates on
effective date.
● No disclosures required in the
interim financial statements in
the first year of reporting.
How to prepare for adoption
of amendments?
For a smooth transition and
compliance with the amendments,
entities may need to start taking
the following steps –
● Review of existing SFAs –
Entities should begin with
identification of the different
types of SFAs entered into
by them and understand the
terms and conditions of each
arrangement.
● Improve data capture
and reporting systems –
Entities should review their
existing systems capabilities
for generation and capture
of relevant information for
disclosure purposes. They
may need to update their
reporting systems, contract
management systems and
data collection processes.
System updates would entail
working with finance teams,
IT department, and other
stakeholders to implement
the systems updates and
changes.
● Collaboration with
finance providers and
auditors – Entities may
also initiate discussions
with their finance providers,
consultants or auditors
to finalize the information
needs, presentation and
documentation required
for the disclosures. They
can seek guidance on
the best practices from
accounting consultants and
ensure alignment between
disclosures and auditor’s
expectations.
THE CHARTERED ACCOUNTANT
Effect of amendments in
India
As part of convergence with IFRS
standards, similar amendments
to Ind AS 7 and Ind AS 107 are
being considered in India. In this
view, on July 25, 2023, ICAI’s
Accounting Standards Board
(ASB) issued an exposure draft of
Supplier Finance Arrangements
– Amendments to Ind AS 7 and
Ind AS 107 for public comments.
The exposure draft proposes
the amendments to be effective
from annual reporting periods
beginning on or after 1 April 2024.
Similar amendments by
other accounting bodies
Financial Accounting Standards
Board (FASB) – the accounting
standards setting body in the
United States of America has
issued similar amendments in the
form of Accounting Standards
Update (ASU) No. 2022-04,
Liabilities – Supplier Finance
Program (Subtopic 405-50):
Disclosure of Supplier Finance
Program Obligations in September
2022. These amendments have
been effective from fiscal year
beginning after 15 December
2022, except for certain sections
in ASU which became effective
from fiscal period beginning after
15 December 2023. FASB also
permitted the early adoption of the
ASU.
Unlike IASB, FASB does not
provide transition reliefs relating
to interim period reporting and
comparative information i.e.,
that the impacted entities will be
required to add disclosures as per
the ASU in their interim financial
statements. The entities are also
required to present comparative
information for both interim and
annual financial reporting.

Author may be reached at
Vishwa.mishra11@gmail.com and
eboard@icai.in
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THE CHARTERED ACCOUNTANT
Residual Value of Gas Transmission
Pipeline under Ind AS framework
A. Facts of the Case
1. A Company (hereinafter referred to as ‘the
Company’) was incorporated on 16th August 1984 for
procuring, transmission, processing and marketing of
Natural Gas. The Company has an authorised share
capital of Rs. 10,000 crore out of which Rs. 6,575.10
crore is paid-up share capital. The Government
of India holds 51.52% equity of the Company at
present. The securities of the Company are listed
with NSE, BSE and London Stock Exchange.
2. At present, the Company owns over 14500 kms
of Natural Gas pipeline and currently transmits about
206 million standard cubic meter (MMSCM) per day
of Natural Gas. The Company operates five liquid
hydrocarbon processing plants in different parts
of the country with an installed capacity of 1.42
million metric tonne (MT) of liquid hydrocarbons
(LHC) per annum. The Company has an integrated
petrochemical plant for manufacturing polymers.
The Company has world’s longest pipeline for
transmission of liquefied petroleum gas (LPG). The
Company has integrated its business activities
and operates into the city gas distribution (CGD),
exploration of natural gas, wind power and solar
power plant and telecom business. The Company
has formed subsidiaries/associates/joint venture
companies for CGD, petrochemicals, liquefied
natural gas (LNG), gas trading, power generation
and shale gas.
3. The Company has prepared its accounts as
per Indian Accounting Standards (Ind AS) w.e.f. 1st
April 2016. In compliance to Companies (Indian
Accounting Standards) Rules, 2015 as amended from
time to time, the Company has prepared its first Ind
AS financial statements for the financial year (F.Y.)
2016-17 with comparative figures for F.Y. 2015-16.
4. The Company has natural gas pipeline and
LPG pipeline across the country. The useful life of
the said pipeline is considered as 30 years as per
the Schedule II of the Companies Act, 2013. The
Company’s accounting policy for depreciation of
Property, Plant and Equipment (PPE) is as under:
“i. Depreciation on PPE (including enabling
assets) is provided in accordance with
the manner and useful life as specified in
1
Substituted vide Notification No. GSR 627(E), dated 29.8.2014
2
Omitted vide Notification No. GSR 237(E), dated 31.3.2014
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769
OPINION
Schedule II of the Companies Act, 2013, on
straight line method (SLM) on pro-rata basis
(monthly pro-rata for bought out assets),
except for the assets as mentioned below
where different useful life has been taken
on the basis of external/internal technical
evaluation:
Particulars Years
Furniture provided for 6 years
the use of employees
Electrical Equipments 4 years
provided for the use of
employees
Mobile Phones provided 2 years
for the use of employees
ii. Cost of the leasehold land is amortised over
the lease period except perpetual leases
iii. Depreciation due to price adjustment in
the original cost of fixed assets is charged
prospectively.”
Further, as per Schedule II to the Companies Act,
2013
“the useful life and the residual value shall not
be different from that as indicated in Part C,
provided that if such a company uses a useful
life or residual value which is different from the
useful life or residual value indicated therein, it
shall disclose the justification for the same.”1
“Ordinarily, the residual value of an asset is often
insignificant but it should generally be not more
than 5% of the original cost of the asset.”2
The Company has adopted residual value of an
asset as 5% in line with industry practice.
Further, as per the Operation and Maintenance (O&M)
Policy of the Company on ‘Pipeline Decommissioning,
Recommissioning and Abandonment’:
“The decommissioning option to permanently
abandon a pipeline section, and leave in-situ
or retrieve, shall be made on the basis of a pre-
assessment that shall give consideration to the
current and future RoU, use and size of pipeline”.
DECEMBER 2023 109
770
OPINION
The Company is charging depreciation on pipelines
over 30 years (which is as per Schedule II to the
Companies Act, 2013) after keeping 5% towards
residual value (which is as per Schedule II to the
Companies Act, 2013 and industry practice).
5. During the F.Y. 2021-22, Comptroller and Auditor
General of India (C&AG) has raised observation in
regard to consideration of 5% of capital expenditure
(CAPEX) as residual value of the pipelines as under:
“Standalone Balance Sheet as at 31st March
2022
Assets
Non-Current Assets
Property, Plant & Equipment (Note 2)
Rs. 35,736.71 crore
The above includes an amount of Rs. 1761 crore
as 5 per cent residual value of the pipelines.
However, the same should have been zero since
the cost to sales thereof is higher than its residual
value considered in the books of account.
Ind AS 16 stipulates that the residual value and
the useful life of an asset shall be reviewed
at least at each financial year-end and if
expectations differ from previous estimates, the
change(s) shall be accounted for as a change
in an accounting estimate in accordance with
Ind AS 8, ‘Accounting Policies, Changes in
Accounting Estimates and Errors’.
It was noticed that the Company had neither
formed any accounting policy with reference to
the periodicity of reviewing the residual value
and the useful life of assets nor it is reviewing the
residual value of the PPE in line with aforesaid
Ind AS provision. It was also noticed that the
Company replaced one of its line pipes having
a carrying value of Rs. 19.67 crores in the books
of account by incurring a cost of Rs. 24.37
crores for digging out and disposing the same,
for which it ultimately recovered an amount of
Rs. 14.61 crores only. This not only represents
overstatement of residual value in the books but
has also resulted in less charge of depreciation
in the earlier years due to the same. Since, the
cost of disposal for line pipes was much more
than what the entity might obtain from disposing
the said asset, the residual value for the same
shall be considered zero.
Thus, non-considering the residual value of line
pipes as zero had resulted into overstatement
of PPE and Profits for the year to the extent
of Rs. 1761 crore each and understatement
of depreciation to the same extent. Moreover,
3
Ibid
110 DECEMBER 2023
THE CHARTERED ACCOUNTANT
the accounting policies of the Company were
deficient to that extent.
Management/Joint Statutory Auditors replied
that the depreciation on PPE (including enabling
assets) was provided in accordance with the
manner and useful life as specified in Schedule II
of the Companies Act, 2013. Further, as per the
Company’s O&M policy “the decommissioning
option to permanently abandon a pipeline
section, and leave in-situ or retrieve, shall be
made on the basis of a pre-assessment that
shall give consideration to the current and future
RoU, use and size of pipeline”.
Management/Joint Statutory Auditors’ replies
could be viewed in light of the fact that the
Company has neither framed any accounting
policy nor it was reviewing the residual value
& useful life of the asset, at each financial year
end. Further, the Company was well aware of
the fact that the extractability of the pipeline
after their useful life from beneath the ground
would not be feasible on technical as well as
commercial aspects, thus residual value shall
be considered as zero instead of the current
consideration.”
CAG is of the view that generally, the pipelines are
not taken out after completion of their useful life and
left as it is under the ground. Further, if the pipelines
are taken out, the cost to take out the pipelines will
be more than the scrap value of the pipeline. Thus,
the net residual value is zero or negative. Therefore,
the Company should have kept zero as the residual
value for the pipeline instead of 5%.
6. To the said Query, the management of the
Company has submitted the reply as under:
“It is submitted that, as per the Company’s
accounting policy No. 1.11 regarding
depreciation/amortization:
“Depreciation on PPE (including enabling assets)
is provided in accordance with the manner and
useful life as specified in Schedule II of the
Companies Act, 2013, on straight line method
(SLM) on pro-rata basis (monthly pro-rata for
bought out assets).”
As per Schedule II to the Companies Act, 2013:
“the useful life and the residual value shall
not be different from that as indicated in Part
C, provided that if such a company uses a
useful life or residual value which is different
from the useful life or residual value indicated
therein, it shall disclose the justification for
the same.”3
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THE CHARTERED ACCOUNTANT
“Ordinarily, the residual value of an asset is
often insignificant but it should generally be
not more than 5% of the original cost of the
asset”4
The Company has adopted residual value of an
asset as 5% in line with industry practice.
Further, as per the Company’s O&M policy,
“The decommissioning option to
permanently abandon a pipeline section,
and leave in-situ or retrieve, shall be made
on the basis of a pre-assessment that shall
give consideration to the current and future
ROU, use and size of pipeline”.
It is further submitted that the residual value
for the pipeline whose useful life has already
been completed but in use is around Rs.
10.00 crore only. It may be noted that while
arriving at financial impact of Rs. 1761 crore,
Audit has not considered the depreciation
already adjusted against the Gross Block to
arrive at deemed cost of PPE at the time of
transition to Ind AS. (refer Point No.1.1(e) of
Note 1A).
Further, by considering residual value as NIL
for the pipeline whose useful life is yet to be
completed, the same (i.e. residual value) will be
depreciated over the remaining useful life of the
asset instead of immediately charging off to the
statement of profit and loss as per Ind AS 16.
However, the residual value of pipeline will be
reviewed based on technical analysis including
industry practice and necessary action will be
taken along with the necessary disclosure on
residual value during F.Y. 2022-23.”
It may be noted that the Pipeline Tariff is being
fixed by Petroleum Natural Gas Regulatory Board
(PNGRB) and the CAPEX, operating expenditure
(OPEX) and Terminal value etc. are considered while
fixing the Pipeline Tariff. Tariff Regulation does not
specifically deal with the value of terminal value
to be considered. However, as a practice, the
terminal value based on SLM depreciation basis is
considered for calculation of tariff with residual value
being not less than 5% of the CAPEX. In case the
terminal value is reduced from 5% then there would
be possibility of increase in tariff.
As per the O&M Policy of the Company, “The
decommissioning option to permanently abandon a
pipeline section, and leave in-situ or retrieve, shall
be made on the basis of a pre-assessment that shall
give consideration to the current and future RoU, use
and size of pipeline.”
4
Ibid
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771
OPINION
The Company analyses whether to take out the
pipeline or not on case to case basis considering
various technical parameters and availability of RoU
and other safety factors. Further, in some of the
cases in past, due to non-availability of RoU land,
the Company replaced the old pipeline (damaged)
with the high diameter pipeline in the same route
and the extracted pipelines were sold out as scrap.
The digging cost was capitalised along with the
new pipeline and scrap value of the old pipeline
after adjusting carrying value (i.e. residual value) is
recognised in profit and loss account as profit/(loss)
on sale of asset.
It is impracticable to say which pipeline will be taken
out and which will not. It has to be seen on case to
case basis. Further, in one pipeline, some portion might
have to be taken out and the rest may be left as it is.
Considering the above, the Company has kept
residual value of the pipeline as 5%.
B. Query
7. In view of above, the querist has sought the
opinion of the Expert Advisory Committee (EAC) of
the Institute of Chartered Accountants of India (ICAI)
on the following issues:
(i) Whether the Company’s accounting policy
to keep residual value at 5% is in order
and in line with applicable Ind AS and
Companies Act, 2013.
(ii) In case the answer to (i) above is not
affirmative,
(a) whether any other percentage of the
residual value of the pipeline may be
considered.
(b) if so, the manner and form of such
disclosure etc.
C. Points considered by the Committee
8. The Committee notes that the basic issue raised
by the querist relates to whether the Company’s
accounting policy to keep residual value of pipelines
at 5% is in order and in line with applicable Ind AS
and requirements of the Companies Act, 2013. The
Committee has, therefore, examined only this issue
and has not examined any other issue that may arise
from the Facts of the Case, such as, depreciation
policy of the Company in general, appropriateness
of taking useful life different from as specified in
Schedule II to the Companies Act, 2013 for certain
assets such as furniture, electrical equipment and
mobile phones provided for the use of employees,
amortisation of leasehold land including perpetual
leases, appropriateness of charging of depreciation
DECEMBER 2023 111
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OPINION
due to price adjustment in the original cost of fixed
asset prospectively, accounting or adjustments
made to PPE at the time of transition to Ind ASs
including determination of deemed cost as per Ind
AS 101, ‘First-time Adoption of Indian Accounting
Standards’, appropriateness of accounting treatment
of digging/extraction cost in case of replacement of
pipelines, determination or estimation of useful life,
impact of the accounting treatment on determination
of pipeline tariff, accounting for regulatory deferral
account balances as per the requirements of Ind AS
114, ‘Regulatory Deferral Accounts’, that may arise
on account of differences in treatment of certain
items of income, expenses, assets and liabilities for
the purposes of preparation of financial statements
and for tariff fixation etc. Further, the opinion,
expressed hereinafter is purely from accounting
perspective and not from any other perspective,
such as, tariff regulation etc. Further, the Indian
Accounting Standards referred to in the Opinion are
the Standards notified under the Companies (Indian
Accounting Standards) Rules, 2015, as revised or
amended from time to time.
At the outset, the Committee wishes to mention that
the Committee has not considered the situation where
the Company has included in the cost of pipeline,
the estimated cost towards obligation to dismantle,
remove the pipeline and restore the items of PPE viz.,
‘decommissioning, restoration and similar liabilities’.
The same will be dealt with as per the requirements of
Ind AS 16, ‘Property, Plant and Equipment’.
9. In the context of the issue raised, the Committee
notes the following definitions and requirements of
Ind AS 16, ‘Property, Plant and Equipment’ and
Schedule II to the Companies Act, 2013, as follows:
Ind AS 16
“Cost is the amount of cash or cash
equivalents paid or the fair value of the other
consideration given to acquire an asset at
the time of its acquisition or construction
or, where applicable, the amount attributed
to that asset when initially recognised in
accordance with the specific requirements
of other Indian Accounting Standards, eg Ind
AS 102, Share-based Payment.”
“The residual value of an asset is the estimated
amount that an entity would currently obtain
from disposal of the asset, after deducting
the estimated costs of disposal, if the asset
were already of the age and in the condition
expected at the end of its useful life.”
“51 The residual value and the useful
life of an asset shall be reviewed at
112 DECEMBER 2023
THE CHARTERED ACCOUNTANT
least at each financial year-end and,
if expectations differ from previous
estimates, the change(s) shall be
accounted for as a change in an
accounting estimate in accordance
with Ind AS 8, Accounting Policies,
Changes in Accounting Estimates
and Errors.”
“53 The depreciable amount of an asset is
determined after deducting its residual
value. In practice, the residual value of an
asset is often insignificant and therefore
immaterial in the calculation of the
depreciable amount.
54 The residual value of an asset may
increase to an amount equal to or greater
than the asset’s carrying amount. If it
does, the asset’s depreciation charge is
zero unless and until its residual value
subsequently decreases to an amount
below the asset’s carrying amount.”
“76 In accordance with Ind AS 8 an entity
discloses the nature and effect of a change
in an accounting estimate that has an
effect in the current period or is expected
to have an effect in subsequent periods.
For property, plant and equipment, such
disclosure may arise from changes in
estimates with respect to:
(a) residual values;
(b) …”
Part A of Schedule II to the Companies Act:
“1. Depreciation is the systematic allocation
of the depreciable amount of an asset over its
useful life. The depreciable amount of an asset is
the cost of an asset or other amount substituted
for cost, less its residual value. …”
“3. Without prejudice to the foregoing
provisions of paragraph 1,—
(i) The useful life of an asset shall not
ordinarily be different from the useful life
specified in Part C and the residual value of an
asset shall not be more than five percent of the
original cost of the asset:
Provided that where a company adopts a
useful life different from what is specified in Part
C or uses a residual value different from the
limit specified above, the financial statements
shall disclose such difference and provide
justification in this behalf duly supported by
technical advice.”
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THE CHARTERED ACCOUNTANT
The Committee also notes the following requirements
of the Guidance Note on Accounting for Depreciation
in Companies in the context of Schedule II to the
Companies Act, 2013 (Issued 2016), issued by the
ICAI (hereinafter referred to as ‘the Guidance Note’)
as follows:
“Residual Value of an Asset
15. As mentioned above, paragraph 3(i) of
Part A of Schedule II, inter alia, states that the
residual value of an asset shall not be more
than five percent of the original cost of the
asset; provided that where a company uses a
residual value different from the limit specified
above, the financial statements shall disclose
such difference and provide justification in this
Determination of Residual Value
Estimate Residual Value
Lower than 5% of Equal to 5% of Original
Original Cost Cost
No Disclosures No Disclosures
From the above, the Committee notes that residual
value is determined for the purpose of determining the
depreciable amount of an asset so as to allocate that
depreciable amount over the useful life of the asset
in a systematic manner. Determination of residual
value of PPE is an independent technical process
of estimation based on the amount recoverable from
disposal of specific asset or the item of PPE after
deducting the estimated costs of disposal, using
prices prevailing at the date of the estimate for the
sale of a similar asset that has reached the end of
its useful life and has operated under conditions
similar to those in which the asset will be used. The
Committee is of the view that the residual value is
estimated technically at the beginning of the useful
life of the asset and is assessed/reviewed periodically
to determine whether there is any change in the
original estimate or not. Further, considering the
requirements of Schedule II to the Companies Act,
2013, Ind AS 16 and Guidance Note, the Committee
is of the view that the Company has to first estimate
residual value of an item of PPE/asset as per the
requirements of Ind AS 16 and then compare it with
5% of its original cost. Even if, estimated residual
value is more than 5% of the original cost of the
asset, the Company should use that estimated
residual value along with appropriate disclosure and
justification as per the requirements of Schedule II.
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773
OPINION
behalf duly supported by technical advice. The
aforesaid proviso can be taken to mean that the
residual value of the asset is indicative in nature.
Thus, where the estimate of the residual value
of the asset is more than five percent of the
original cost of the asset, the company should
use that estimate of residual value provided it
is supported by technical advice, external or
internal, and disclosures in this regard are made
as recommended later in this Guidance Note. In
case the residual value is estimated to be less
than five percent of the original cost of the asset,
the same should be used and it would not be
necessary to make a disclosure in such a case.
The chart given below summarises the position
as stated above.
Higher than 5% of
Original Cost
Make Disclosures
”
Therefore, the contention of the querist in this regard
to keep the residual value of pipelines at standard 5%
as per Schedule II requirements is not appropriate.
The Committee is of the view that providing
depreciation and estimation of useful life as well
as residual value is an asset-specific process. The
basic purpose of charging depreciation is to allocate
depreciable amount of an asset over its useful life.
For each individual asset(s), the conditions (in which
it is operating) during the useful life may be different
leading to a different residual value. For example,
in the extant case, pipelines operating in different
geographical locations may be subject to different
working conditions and environment and therefore,
the residual value at the end of their useful lives may
be different from one another. Therefore, it is not
appropriate to consider same residual value for all
the pipelines in such case.
10. The Committee further notes that the querist
has also stated that it is impracticable to determine
that which pipelines will be extracted and which will
not. The Committee is of the view that a reasonable
estimate based on the various factors such as, terms of
lease/contract for Right of way or Right to use of land
to lay pipelines, location of pipelines, past experience
or historical data and future estimate etc. should
nevertheless be made by the Company at the beginning
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OPINION THE CHARTERED ACCOUNTANT

of useful life, considering the facts and circumstances
at that time, which should further be reviewed at each
financial year-end, as per requirements of Ind AS 16.
Thus, any change in circumstances or situations in
future (like change in decision with regard to whether
the pipeline will be extracted or not, etc.) shall be
considered while determining residual value every
year. Therefore, the Committee is of the view that the
Company should consider its facts and circumstances
at the date of making estimates/review while
determining the residual value of its various pipelines.
Further, the estimated costs of disposal should also be
considered as per the definition of residual value given
in Ind AS 16. In case, the pipeline will not be extracted
and will just be abandoned, the residual value should
be considered ‘nil’ as nothing can be sold as scrap
or otherwise. Further, in case, it is estimated that the
pipeline will be extracted and sold, the cost attributable
to extraction activity should also be considered/
adjusted while determining the residual value.
D. Opinion
11. On the basis of the above, the Committee is
of the following opinion on the issues raised in
paragraph 7 above:
(i) The Company’s accounting policy to
keep a standard residual value of 5%
without considering all the facts and
circumstances is not appropriate.
(ii) (a&b) The Company should determine
the residual value of its various
pipelines considering its facts and
circumstances at the beginning of
their useful life, which should be
reviewed at each financial year-
end, as discussed in paragraph 10
above. Further, the estimated costs
of disposal should also be considered
as per the definition of residual value
given in Ind AS 16. In case, the pipeline
will not be extracted and will just be
abandoned, the residual value should
be considered ‘nil’ as nothing can be
sold as scrap or otherwise. Further, in
case, it is estimated that the pipeline
will be extracted and sold, the cost
attributable to extraction activity
should also be considered/adjusted
while determining the residual value.

1. The Opinion is only that of the Expert Advisory Committee and does not necessarily represent the
Opinion of the Council of the Institute.

2. The Opinion is based on the facts supplied and in the specific circumstances of the querist. The
Committee finalised the Opinion on April 19th and 20th, 2023. The Opinion must, therefore, be
read in the light of any amendments and/or other developments subsequent to the issuance of
Opinion by the Committee.

3. The Compendium of Opinions containing the Opinions of Expert Advisory Committee has been
published in forty-two volumes. These volumes are available for sale and can be procured online
through CDS Portal at https://icai-cds.org/.

4. Opinions of the Committee may be accessed at the following link: http://115.248.235.50/eacicai/.

5. Opinions can be obtained from EAC as per its Advisory Service Rules which are available on the
website of the ICAI, under the head ‘Resources’. For further information, write to eac@icai.in.

*******

114 DECEMBER 2023 www.icai.org


THE CHARTERED ACCOUNTANT
Legal Decisions
DIRECT Income Tax
TAXES
LD/72/52
Bombay High Court: Writ Petition
No.3034 of 2022
Diversey India Hygiene Pvt Ltd
Vs.
The Asst. Commissioner of Income Tax
08 th November 2023
Reassessment proceedings initiated in the name of
amalgamating entity quashed by Bombay High Court;
Fact that PAN was not deactivated would not help the
Revenue because there could be cases relating to
various years when the company was in existence and
it is possible those PAN numbers are picked up for
scrutiny, but that will not be a sanction for Department to
issue notices to a non-existing entity, particularly, when
Revenue was aware that the entity was not in existence;
Amalgamation was informed to the Revenue on May 12,
2016; Notices to non-existent entity was a substantial
illegality and not merely a procedural violation, thus, not a
curable defect under Section 292(B).
LD/72/053
ITAT Nagpur: ITA Nos. 61/NAG/2022
Gupta Domestic Fuels Limited
Vs.
The Asst. Commissioner of Income Tax
31st October 2023
ITAT held that CIT(A) orders and assessment orders
issued without the DIN to be invalid and deemed to
have never been issued for violating CBDT Circular No.
19/2019; Rejects Revenue’s argument that the Revenue
communicated DIN by a separate intimation within
15 days; As per ITAT intimation of DIN by separate
letters within 15 days of issuance of the former DIN-
less communication would be valid only if, such former
communication is issued incorporating therein the reason
for issue of such DIN less communication along with the
number & date of obtaining written approval of the Chief
Commissioner.
LD/72/54
ITAT Delhi: ITA No. 1344/Del/2021
The Dy. Commissioner of Income Tax
Vs.
Tapesh Tyagi
27 th October 2023
Rectification order set aside by the Delhi High Court
whereby the Revenue sought to apply sec. 115BBE
on the income voluntarily surrendered by the Assessee
in course of search and seizure and offered to tax in
the return of income; In the statement recorded u/s
132(4), assessee surrendered an amount of Rs.30.20
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LEGAL UPDATES
Cr as income which was offered to tax in the return of
income for AY under dispute; There is nothing on record
to suggest that assessee’s explanation regarding the
source of the income offered has either been doubted or
disputed at the time of search or even during assessment
proceedings; Also, assessee hadn’t offered the income
u/s 69A.
LD/72/55
Delhi High Court: ITA 399/2022
The Commissioner of Income Tax, Intl taxation
Vs.
Deloitte Touche Tohmastu
18 th October 2023
Receipts from subscription fees paid by member
firms held to be not in the nature of fees for technical
services but exempt from tax on the basis of principles
of mutuality; Assessee, a Switzerland-based association
(Verein) having member firms situated across the world,
filed its return in India declaring Nil income for AYs 2008-
09 to 2011-12; Assessee was subjected to scrutiny and
additions of AO were deleted by the CIT(A) holding that
assessee is a non-profit entity and subscription fees
from its members were not trading receipts; Three basic
conditions to test the existence of mutuality, viz (i) element
of commonality, (ii) element of non-profiteering, and (iii)
element of obedience, satisfied as per High Court.
LD/72/56
Gujarat High Court: ITA 722 of 2023
The Prin. Commissioner of Income Tax
Vs.
KGY Glass Industries (P) Ltd
18 th October 2023
Benefit of concessional rate u/s 115BAA for AY 2020-
21 allowed when assessee could not upload form 10-IC
due to technical error due to no fault of the assessee; HC
notes that Form No.10-IC could not be uploaded due
to technical problem on ITBA portal at the relevant time
and the time to file was extended upto Jun 30, 2022; The
Assessee furnished Form 10-IC before AO on Jun 29,
2022 which was also placed before CIT(A); HC stated that
assessee should not be deprived of benefit particularly
when this being the first year for availing such benefits.
LD/72/57
Madras High Court: Crl. O.P. Nos. 26151 of 2018
S. Arputharaj
Vs.
The Dy. Commissioner of Income Tax
05 th October 2023
Prosecution initiated against the assessee u/s 276C(1),
276C(2) and 276CC quashed by observing that the
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LEGAL UPDATES
since order of assessment itself is set aside and
as such, initiation of the prosecution as against the
petitioner cannot be sustained till fresh assessment
orders are passed and therefore the complaints
pending on the file of the Judicial Magistrate No.III,
Coimbatore are liable to quashed; Assessee was
subjected to assessment under Section 153A for AY
2009-10 to AY 2015-16 which led to tax demand and
penalty that was not paid; Entire prosecution was
initiated in pursuance of the assessment order and
penalty u/s 153A which itself were set aside for de
novo consideration by ITAT.
LD/72/58
ITAT Mumbai: ITA no.1981/Mum./2023
Kavita Jasjit Singh
Vs.
The Commissioner of Income Tax Appeals
14th September 2023
ITAT deleted penalty u/s 270A over non-disclosure of
interest on income tax refund in his return of income,
where the Assessee had neither received the refund
nor was intimated regarding the refund at the time of
filing of return; Assessee suo-motu offered the interest
of income tax refund to tax, during the course of the
assessment proceedings; Explanation of assessee held
to be bonafide, and thus the non-declaration of interest
on income tax refund cannot be said to be under-
reporting of income.
Circulars/Notifications
Significant Notifications and Circulars issued
DIRECT I. NOTIFICATIONS
TAXES
1. CBDT amends Rule 37BB incorporating
provisions for remittance made by a Unit
of an IFSC referred to in section 80LA -
Notification No. 89/2023, dated 16-10-2023
The amended Rule 37BB, inter alia, provides that a
quarterly statement, for each quarter of the FY shall
be furnished in respect of all remittances referred
therein by a Unit of an International Financial Services
Centre referred to in section 80LA(1A), responsible for
paying to a non-resident, not being a company, or to a
foreign company, in Form No. 15CD, to the authorities
specified under digital signature within 15 days
from the end of the quarter of the FY to which such
statement relates in accordance with the procedures,
116 DECEMBER 2023
THE CHARTERED ACCOUNTANT
LD/72/59
Delhi High Court: ITA 503/2023
Pr. Commissioner of Income Tax
Vs.
M/s Azure Retreat Pvt. Ltd.
04th September 2023
High Court upheld deletion of sec. 68 addition for
investment made by the Mauritian entity; Foreign Mauritian
investor could not have been allotted shares below the floor
price of Rs.95.07 per share and this explains the difference
between the price collected from domestic promoter
investors which was Rs. 10 per share; Shares were issued
to Mauritian entity as per FEMA regulations and as per
DCF method; Demonstration of creditworthiness of source
of source was not applicable for the relevant year as sec.
68 was amended later, however, the assessee had still
identified the source of source.
LD/72/60
ITAT Mumbai: I.T.A. No.3077/Mum/2022
The Asst. Commissioner of Income Tax
Vs.
M/s Messe Frankfurt Trade Fairs India Pvt. Ltd.
25 th August 2023
ITAT deleted the addition made by the Revenue on
depreciation on intangible assets; Intangible assets i.e.
trademark and goodwill for conducting new events,
were put to use for more than 180 days, since assessee
carried out several pre-work activities immediately on
acquisition of the rights; Addition regarding adjustment
of impairment loss to book profits under Section 115JB
was also deleted by ITAT noting that it was not a
provision but the actual write off of the asset.
formats and standards as specified. The amended
Rule 37BB shall be applicable w.e.f. 01.01.2024.
The detailed Notification can be downloaded from
the link below:
https://incometaxindia.gov.in/communications/
notification/notification89-2023.pdf
2. CBDT notifies Form No. 56F w.e.f. 29.07.2021 -
Notification No. 91/2023, dated 19-10-2023
Vide this Notification, the CBDT has inserted Rule 16D
laying down provisions for Form of report for claiming
deduction under section 10AA. Rule 16D provides
that the report of an accountant which is required to
be furnished by the assessee, under sub-section (8) of
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THE CHARTERED ACCOUNTANT
section 10AA read with sub-section (5) of section 10A
shall be in Form No. 56F.
The detailed Notification can be downloaded from
the link below:
https://incometaxindia.gov.in/communications/
notification/notification-91-2023.pdf
3. CBDT amends Form ITR-7 w.e.f. 01.04.2023
vide the Income-tax (Twenty-Seventh Amendment)
Rules, 2023 - Notification No. 94/2023, dated 31-10-
2023
Vide this Notification, the CBDT has amended
Form ITR-7 applicable for AY 2023-24. Specifically,
amendment has been made in Part B–TI, Part B1, at S.
No. 16 & 17 and in Part B–TTI, against serial number 1,
for item ‘a’ pertaining to specified income chargeable
u/s 115BBI @ 30%.
The detailed Notification can be downloaded from
the link below:
https://incometaxindia.gov.in/communications/
notification/notification-94-2023.pdf
4. Government notifies the pension fund, namely,
‘BPC Penco XVII Corporation (PAN: AALCB4169R)’
u/s 10(23FE) - Notification No. 95/2023, dated 01-
11-2023
Vide this Notification, the Government has specified
‘BPC Penco XVII Corporation (PAN: AALCB4169R)’,
a pension fund for the purpose of sub-clause (iv) of
clause (c) of the Explanation 1 to clause (23FE) of
section 10. This is in respect of eligible investment
made by it in India on or after 01.11.2023 but on
or before 31.03.2024 subject to the fulfilment of
conditions laid therein.
The detailed Notification can be downloaded from
the link below:
https://incometaxindia.gov.in/communications/
notification/notification-95-2023.pdf
5. Government notifies the exchange of
information and assistance in collection with
respect to taxes Agreement between India and
Saint Vincent and the Grenadine- Notification No.
96/2023, dated 01-11-2023
In exercise of the powers conferred by section 90(1),
the Central Government has notified that all the
provisions of Agreement between the Government
of the Republic of India and the Government of Saint
Vincent and the Grenadines for the Exchange of
Information and Assistance in collection with respect
to taxes, as signed at Kingstown, Saint Vincent and the
Grenadines on 19.05.2022, shall be given effect to in
the Union of India w.e.f. 14.02.2023.
The detailed Notification can be downloaded from
the link below:
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777
LEGAL UPDATES
https://incometaxindia.gov.in/communications/
notification/notification-96-2023.pdf
6. Format, Procedures and Guidelines for
submission of Statement of Financial Transactions
(SFT) for Depository Transactions - Corrigendum to
Notification No. 3/2021, dated 15-11-2023
The format, procedure, and guidelines for submission
of information relating to capital gains on transfer of
listed securities or units of mutual funds by Depository
Institutions was notified vide notification no. 3/2021
dated 30.04.2021 as per the mandate of Section
285BA and Rule 114E(5A). The notification lists various
files, file formats, data types for different data fields
that need to be reported, and various DQ rules that
should be validated by Depository Institutions before
submission of the data. On the basis of discussions
held with stakeholders, certain changes as specified in
this notification are made to the said notification.
The detailed Notification can be downloaded from
the link below:
https://incometaxindia.gov.in/communications/
notification/corrigendum-notification-3-2021.pdf
7. Format, Procedures and Guidelines for
submission of Statement of Financial Transaction
(SFT) for Mutual Fund Transactions by Registrar &
Share Transfer Agent - Corrigendum to Notification
No. 4/2021, dated 15-11-2023
The format, procedure and guidelines for submission
for SFT data for mutual fund transactions by registrar
and share transfer Agents (RTA) were notified vide
Notification no. 4/2021 dated 30.04.2021 as mandated
by Section 285BA and Rule 114E(5A). The notification
lists various files, file formats, data types for different
data fields that need to be reported, and various
DQ rules that should be validated by RTA before
submission of the data. On the basis of discussions
held with stakeholders, certain changes as specified in
this notification are made to the said notification.
The detailed Notification can be downloaded from
the link below:
https://incometaxindia.gov.in/communications/
notification/corrigendum-notification-4-2021.pdf
DIRECT II. CIRCULARS
TAXES
1. Extension of timeline for filing of Form
No. 56F for the Assessment Year 2023-24
– Circular No. 18/2023, dated 20-10-2023
The CBDT, in exercise of its powers under section 119(2)
(b), vide this Circular, has extended the due date of filing
of report of the accountant as required to be filed under
clause (8) of section 10AA, read with clause (5) of section
10A of the Act, for Assessment Year 2023-24 from the
specified date under section 44AB to 31.12.2023.
DECEMBER 2023 117
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LEGAL UPDATES
The detailed Circular can be downloaded from the
link below:
https://incometaxindia.gov.in/communications/
circular/circular%2018-2023.pdf
2. Condonation of delay under section 119(2)(b) in
filing of Form No. 10-IC for Assessment Year 2021-
22 - Circular No. 19/2023, dated 23-10-2023
With a view to avoid genuine hardship to the domestic
companies in exercising the option u/s 115BAA, CBDT,
vide this Circular, has directed that the delay in filing of
Form No. 10-IC as per Rule 21AE for P.Y. relevant to
A.Y. 2021-22 is condoned in cases where the following
conditions are satisfied:
i) The return of income for relevant AY has been filed
on or before the due date specified under section
139(1);
ii) The assessee company has opted for taxation
u/s 115BAA in item (e) of “Filing Status” in “Part
A-GEN” of the Form of Return of Income ITR-6; and
iii) Form No. 10-IC is filed electronically on or before
31.01.2024 or 3 months from the end of the month
in which this Circular is issued, whichever is later.
The detailed Circular can be downloaded from the
link below:
https://incometaxindia.gov.in/communications/circular/
circular-no-19-2023.pdf
DIRECT III. P
 RESSRELEASES/
TAXES INSTRUCTIONS/OFFICE
MEMORANDUM/ORDER
1. Processing of returns with refund
claims under section 143(1), 1961 beyond the
prescribed time limits in non-scrutiny cases – Order
u/s 119, dated 16-10-2023
CBDT vide an earlier Order dated 30.09.2021 directed
that all validly filed returns up to AY 2017-18 with refund
claims, which could not be processed under Section
143(1) and which had become time-barred, should be
processed by 30.11.2021, subject to the conditions/
exceptions specified therein. Vide this Order, the
CBDT had further extended the aforesaid time frame
till 31.01.2024 in respect of returns of income validly
filed electronically.
The complete text of the above Order can be
downloaded from the link below:
https://incometaxindia.gov.in/Lists/Latest%20News/
Attachments/607/Processing-of-returns-with-refund-
claims-under-section-143-Misc-Comm-16-10-23.pdf
2. Order assigning the role of Pr.CCslT of the
region and Pr.CClT (NaFAC) – Order u/s 119, dated
25-10-2023
118 DECEMBER 2023
THE CHARTERED ACCOUNTANT
The CBDT vide this Order has clarified that the the
Pr. CCIT (NaFAC) will be responsible for:- a. Overall
implementation of the CBDT’s Policy with respect to
Faceless Assessment, b. Formulating the Guidelines
and SOPs required for the work to be done by the
Assessment Units/Verification Units/Review Units/
Technical Units with prior approval of the CBDT, c.
Ensuring that the Technical Units provide a considered
view on legal matters and provide technical support
required for Assessment Units and d. Advising the
CBDT for improvement of efficiency and effectiveness
of faceless assessment processes.
The complete text of the above Order can be
downloaded from the link below:
https://incometaxindia.gov.in/Lists/Latest%20News/
Attachments/614/Order-us119-Assigning-the-role-of-
PrCCsIT-MiscComm-25-10-23.pdf
3. Direct Taxes Data shows improved Taxpayer
compliance – Press Release, dated 26-10-2023
ITD has, over the years, focused on several measures
to ensure ease in compliance of taxpayers and
transparent tax administration. In line with transparency
in its functioning, the ITD had released the Time Series
Data of Direct Taxes and Income Tax Return statistics,
in various tranches, from time to time. The overall
impact has been reflected in increase in net direct tax
collections from Rs.6.38 lakh crore in FY 2013-14 to
Rs. 16.61 lakh crore in FY 2022-23.
The complete text of the above Press Release can
be downloaded from the link below:
https://incometaxindia.gov.in/Lists/Press%20
Releases/Attachments/1164/Press-Release-Direct-
Taxes-Data-shows-improved-Taxpayer-compliance-
dated-26-10-2023.pdf
4. Record number of over 7.85 crore ITRs filed till
31st October, 2023 – Press Release, dated 01-11-2023
The ITD appreciated taxpayers and tax professionals
for making compliances in time, resulting in record
number of filing of Income Tax Returns (ITRs) till
31.10.2023 which was the due date for filing of ITRs
(other than ITR 7), for taxpayers (not having any
international or specified domestic transaction), in
whose case books of account were required to be
audited. The total number of ITRs for AY 2023-24 filed
till 31.10.2023 is more than 7.65 crore, which is 11.7%
higher compared to the total number of ITRs of 6.85
crore for AY 2022-23 filed till 07.11.2022, the due date
for filing such ITRs in the preceding year.
The complete text of the above Press Release can
be downloaded from the link below:
https://incometaxindia.gov.in/Lists/Press%20
Releases/Attachments/1165/Press-Release-Record-
number-of-over-7.85-crore-ITRs-filed-till-31 st -
October-2023-dated-01-11-2023.pdf
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THE CHARTERED ACCOUNTANT
5. CBDT successfully achieves targets of month-
long Special Campaign 3.0 – Press Release, dated
01-11-2023
The Government of India undertook Special Campaign
for Swachhata in government offices and disposal
of pending matters from 02.10.2023 to 31.10.2023,
on the lines of the Special Campaign held in 2022.
The Special Campaign 3.0 covered all Ministries/
Departments of Government of India. CBDT along with
its subordinate offices enthusiastically participated
in the Special Campaign 3.0. The Campaign was
organized in two phases – Preparatory Phase from
14.09.2023 to 30.09.2023 and Implementation Phase
from 02.10.2023 to 31.10.2023.
The complete text of the above Press Release can
be downloaded from the link below:
https://incometaxindia.gov.in/Lists/Press%20
Releases/Attachments/1166/PressRelease-CBDT-
successfully-achieves-targets-of-month-long-Special-
Campaign-3-0-2-11-23.pdf
INDIRECT
GST
TAXES
I. NOTIFICATIONS
1. Amendment in Notification No. 11/2017-
CT(R) dt. 28.06.2017 - Rates for supply of services
a) Another condition has been introduced for
taking input tax credit on input services in the
same line of business in case of Passenger
Transport Services and Rental services of
transport vehicles with operators, restricting it
to 2.5%, where the supplier of input service in
the same line of business charges central tax at
a rate higher than 2.5%.
b) In case of services provided by a race club, the
word ‘totalisator or a license to’ a bookmaker has
been replaced with ‘licensing a’ bookmaker.
c) The entry related to ‘Gambling’ has been omitted.
Consequently, entries related to ‘Gambling
and betting services including similar online
services’ and ‘Lottery services’ in the scheme of
classification of services has also been omitted.
Notification No. 12/2023-CT(R) dt. 19.10.2023
2. Amendment in Notification No. 12/2017-CT(R)
dt. 28.06.2017 – Services exempt from levy of GST
Services provided to a Governmental Authority by
way of water supply, public health, sanitation and
conservancy, solid waste management and slum
improvement and upgradation have been exempted
from levy of GST.
Notification No. 13/2023-CT(R) dt. 19.10.2023
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LEGAL UPDATES
3. Amendment in Notification No. 12/2017-
CT(R) dt. 28.06.2017 – Services exempt from levy
of GST and Notification No. 13/2017-CT(R) dt.
28.06.2017 – Services leviable to reverse charge
under GST
Supply of all goods and services by Indian Railways
shall be taxed under Forward Charge Mechanism to
enable them to avail ITC.
Notification No. 13/2023-CT(R) dt. 19.10.2023, Notification
No. 14/2023-CT(R) dt. 19.10.2023
4. Amendment in Notification No. 15/2017-CT(R)
dt. 28.06.2017 - No refund of unutilised input tax
credit u/s 54(3) in case of supply of certain service
As per Notification No. 15/2017-CT(R) dt. 28.06.2017,
no refund of unutilised input tax credit shall be
allowed under sub-section (3) of section 54 in case
of supply of services specified in sub-item (b) of item
5 of Schedule II. Now the said notification has been
amended and the words ‘specified in sub-item (b) of
item 5 of Schedule II’ has been substituted with the
words ‘of construction of a complex, building or a
part thereof, intended for sale to a buyer, wholly or
partly, where the amount charged from the recipient
of service includes the value of land or undivided
share of land, as the case may be, except where the
entire consideration has been received after issuance
of completion certificate, where required, by the
competent authority or after its first occupation,
whichever is earlier”.
Notification No.15/2023-CT(R) dt. 19.10.2023
5. Amendment in Notification No. 17/2017-CT(R)
dt. 28.06.2023 – Services on which tax shall be paid
by E-Commerce Operator (ECO)
Notification No. 17/2017-CT(R) dt. 28.06.2023 has been
amended to provide that GST in case of services by
way of transportation of passengers provided through
Omnibus shall be paid by the ECO except where the
supplier supplying such service through the ECO is a
Company.
Further, ‘Company’ shall have the same meaning as
assigned to it in section 2(20) of the Companies Act,
2013.
Notification No. 16/2023-CT(R) dt. 19.10.2023
6. Amendment in Notification No. 1/2017- CT (R)
dt. 28.06.2017 - CGST rate schedule for goods
a) GST rate on molasses has been reduced from
14% to 2.5%.
b) Spirits for industrial use has been made taxable at
the rate of 9%.
Notification No. 17/2023-CT (R) dt. 19.10.2023
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LEGAL UPDATES
7. Amendment in Notification No. 2/2017- CT (R)
dt. 28.06.2017 - Power to grant exemption from tax
and Notification No. 1/2017- CT (R) dt. 28.06.2017 -
CGST rate schedule for goods.
Taxability of “Food preparation of millet flour in powder
form, containing at least 70% millets by weight” has
been amended as follows:
a) other than pre-packaged and labelled form - 0%
(Notification No. 18/2023-CT (R) dt. 19.10.2023)
b) pre-packaged and labelled form - 2.5%
(Notification No. 17/2023-CT (R) dt. 19.10.2023)
8. Amendment in Notification No. 4/2017-CT(R)
dt. 28.06.2017 - Reverse charge on certain specified
supplies of goods
As per the amended Notification No. 4/2017-CT(R) dt.
28.06.2017, tax shall be paid under forward charge
when used vehicles, seized and confiscated goods,
old and used goods, waste and scrap is supplied by
Ministry of Railways (Indian Railways) to a registered
person.
Notification No. 19/2023-CT (R) dt. 19.10.2023
9. Amendment in Notification No. 5/2017- CT(R)
dt. 28.06.2017 - Supplies of goods in respect of
which no refund of unutilised input tax credit shall
be allowed where rate of tax on input is higher than
rate of tax on output supplies of such goods
A new entry has been inserted in Notification No.
5/2017- CT(R) dt. 28.06.2017 to provide that no refund
of unutilised input tax credit under inverted duty
structure shall be allowed in case of supply of imitation
zari thread or yarn made out of Metallised polyester
film /plastic film. An explanation has also been inserted
providing that this shall apply for refund of input tax
credit only on polyester film /plastic film.
Notification No. 20/2023-CT (R) dt. 19.10.2023
All the above Notifications have come into effect
from 20th October, 2023.
Similar notifications have been issued under IGST
Act as well as UTGST Acts.
10. Amendment in CGST Rules
In order to give effect to the recommendations made
in the 52nd GST Council Meeting, the following
amendment in the CGST Rules have been notified:
a) Amendment in Rule 28 - Value of supply of
goods or services or both between distinct or
related persons, other than through an agent
Rule 28 has been divided into two sub-rules. The
existing rule has been re-numbered as sub-rule (1)
and the sub-rule (2) has been inserted to prescribe
120 DECEMBER 2023
THE CHARTERED ACCOUNTANT
the manner of calculation of value of supply in case
of corporate guarantee. Hence, as per the newly
inserted sub-rule (2), the value of supply of services
by a supplier to a recipient who is a related person,
by way of providing corporate guarantee to any
banking company or financial institution on behalf
of the said recipient, shall be deemed to be-
● one per cent of the amount of such guarantee
offered, or
● the actual consideration,
whichever is higher.
b) Amendment in Rule 142 - Notice and Order for
demand of amounts payable under the Act
As per the amended rule 142, where the person
chargeable with tax makes payment of tax and
interest under section 73(8) or 74(8) or where the
person concerned makes payment of the amount
referred to in section 129(1), within the time
prescribed under the said rule, he shall intimate
the proper officer of such payment in FORM GST
DRC-03 and the proper officer shall issue an
intimation (instead of an order) in FORM GST DRC-
05 concluding the proceedings in respect of the
said notice.
c) Amendment in Rule 159 - Provisional
Attachment of Property
Rule 159(2) has been amended to provide that the
Revenue Authority or Transport Authority or any
such Authority who has placed encumbrance on
the movable or immovable property on the order of
the Commissioner, shall remove such encumbrance
on the written instructions from the Commissioner
to that effect or on expiry of a period of one year
from the date of issuance of order under sub-rule
(1), whichever is earlier. Consequent amendment
has been made in Form GST DRC-22.
d) Amendment in Form REG-01 - Application for
Registration
“One Person Company” has been added in
the constitution of business in the Registration
application Form REG-01.
e) Substitution of Form REG-08 - Order of
Cancellation of Registration as Tax Deductor at
source or Tax Collector at source
Form REG-08 has been classified into two
categories viz.,
● Where the order has been issued on an
application by the tax deductor or tax collector,
or
● Where the order has been issued by the
department after serving of show cause notice
to the tax deductor or tax collector
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THE CHARTERED ACCOUNTANT

f) Amendments in Form GSTR-8 - Statement for
tax collection at source
● S. No. 5 asking the details of interest has been
omitted.
● S. No. 7 asking the details of interest payable
and paid has been amended. The amended
row asks for interest as well as late fee details.
● S. No. 9 has also been amended on similar
grounds by including late fee along with
LEGAL UPDATES
interest. The amended entry now asks for
Debit entries in cash ledger for TCS, interest
and late fee payment (to be populated after
filing of statement).
g) Amendment in Form PCT-01 - Application
for Enrolment as Goods and Services Tax
Practitioner
The eligibility criteria for enrolment as GST
Practitioner has been revised as follows:

S. No. Old Criteria Revised Criteria

1. Chartered Accountant holding COP Chartered Accountant
2. Company Secretary holding COP Company Secretary
3. Cost and Management Accountant Cost and Management Accountant
holding COP
4. Advocate Graduate or Postgraduate or its equivalent degree in Law
5. Graduate or Postgraduate degree in Graduate or Postgraduate or its equivalent degree in
Commerce Commerce
6. Graduate or Postgraduate degree in Graduate or Postgraduate or its equivalent degree in
Banking Banking including Higher Auditing
7. Graduate or Postgraduate degree in Graduate or Postgraduate or its equivalent degree in
Business Administration Business Administration
8. Graduate or Postgraduate degree in Graduate or Postgraduate or its equivalent degree in
Business Management Business Management
9. Degree examination of any recognized Degree examination of any Foreign University recognized
Foreign University by any Indian University
10. Retired Government Officials Retired Government Officials
11. Sales Tax practitioner under existing Sales Tax practitioner under existing law for a period of
law for a period of not less than five not less than five years
years
12. Tax return preparer under existing law Tax return preparer under existing law for a period of not
for a period of not less than five years less than five years
13. - Any other examination notified by Government

Sr. No. (4) to (8) of the table should be from an Indian
University established by any law for the time being in
force.
Notification No. 52/2023-CT dt. 26.10.2023
11. Amendment in Notification No. 01/2023-IT dt.
31.07.2023 - Supplies and class of registered person
eligible for refund under IGST Route
As per the amendment in Notification No. 01/2023-IT
dt. 31.07.2023,
● all classes of goods or services (except goods
like pan-masala and tobacco) have been notified
as the class of goods or services which may be
exported on payment of integrated tax and on
which the supplier of such goods or services may
claim the refund of tax so paid, and
● all suppliers to a Developer or a unit in Special
Economic Zone undertaking authorised operations
have been notified as the class of persons who may
make supply of goods or services (except goods like
pan-masala and tobacco) to such Developer or a unit
in Special Economic Zone for authorised operations
on payment of integrated tax and on which the said
suppliers may claim the refund of tax so paid.
Further, as per the explanation provided in the
Notification:
i) the term “authorized operations” shall have the
same meaning as defined in clause (c) of Section

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LEGAL UPDATES
2 of the Special Economic Zone Act, 2005 (28 of
2005),
ii) the term “Developer” shall have the same meaning
as defined in clause (g) of Section 2 of the Special
Economic Zone Act, 2005 (28 of 2005),
iii) the term “Special Economic Zone” shall have the
same meaning as defined in clause (za) of Section
2 of the Special Economic Zone Act, 2005 (28 of
2005),
iv) the term “unit” shall have the same meaning as
defined in clause (zc) of Section 2 of the Special
Economic Zone Act, 2005 (28 of 2005)
Notification No. 05/2023-IT dt. 26.10.2023
12. Goods and Services Tax Appellate Tribunal
(Appointment and Conditions of Service of President
and Members) Rules, 2023.
The Ministry of Finance through its Department of
Revenue has notified the following rules for Appointment
and Conditions of Service of President and Members of
GSTAT:
a) Chapter I – Preliminary
b) Chapter II – Appointment of President and Member
c) Chapter III – Removal of President or Member
d) Chapter IV – Salary and Allowances
e) Chapter V – Pension, Provident Fund, Gratuity and
Leave
f) Chapter VI – Powers of President and Vice-
President
g) Chapter VII – Miscellaneous
egazzete.gov.in
13. Relaxation for filing appeals against demand
orders passed till 31.03.2023 under Section 73 or 74
of the CGST Act, 2017
Taxable persons
● who could not file an appeal against the order
passed by the proper officer on or before
31.03.2023 under section 73 or 74 within 3 months
specified in section 107(1) or the extended period
of 1 month as specified under section 107(4) of the
CGST Act, and
● whose appeal against the said order was rejected
solely on the grounds that the said appeal was not
filed within the time period specified in section 107,
shall file an appeal against the said order in FORM
GST APL-01 in accordance with section 107(1) on
or before 31st day of January 2024.
Further, an appeal against the said order filed in
accordance with the provisions of section 107 of the
Act, and pending before the Appellate Authority before
the issuance of this notification, shall be deemed to
122 DECEMBER 2023
THE CHARTERED ACCOUNTANT
have been filed in accordance with this notification, if
the appellant has paid:
a) in full, such part of the amount of tax, interest, fine,
fee and penalty arising from the impugned order,
as is admitted by him; and
b) a sum equal to 12.5% of the remaining amount of
tax in dispute arising from the said order, subject
to a maximum of Rs. 25 Crore rupees, in relation
to which the appeal has been filed, out of which at
least 20% should have been paid by debiting from
the Electronic Cash Ledger.
No refund shall be granted on account of this
notification till the disposal of the appeal, in respect of
any amount paid by the appellant, either on their own
or on the directions of any authority (or) court, in excess
of the amount paid by the appellant as specified above
before the issuance of this notification, for filing an
appeal section 107(1).
No appeal under this notification shall be admissible in
respect of a demand not involving tax.
Furthermore, the provisions of Chapter XIII ‘Appeals
and Revision’ of the CGST Rules, 2017 shall mutatis
mutandis, apply to an appeal filed under this notification.
Notification No. 53/2023-CT dt. 02.11.2023
INDIRECT II. CIRCULARS
TAXES
1. Clarification relating to export of
services – Section 2(6)(iv) of the IGST Act,
2017
It has been clarified that when the Indian exporters,
undertaking export of services are paid the export
proceeds in INR from the Special Rupee Vostro
Accounts of correspondent bank(s) of the partner
trading country opened by AD banks, the same shall be
considered to be fulfilling the conditions of sub-clause
(iv) of clause (6) of section 2 of IGST Act, 2017, subject
to the conditions/restrictions mentioned in Foreign
Trade Policy, 2023 & extant RBI Circulars and without
prejudice to the permissions /approvals, if any, required.
Circular No. 202/14/2023-GST dt. 27.10.2023
2. Clarification regarding determination of place
of supply in various cases
A. Place of supply in case of supply of service of
transportation of goods, including through mail
and courier
Section 13(9) of the IGST Act, 2017 which provided
that the place of supply in case of service of
transportation of goods, other than by way of mail
and courier, in cases where location of supplier
of services or location of recipient of services is
outside India shall be the destination of such goods,
has been omitted vide Finance Act, 2023, w.e.f.
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THE CHARTERED ACCOUNTANT
01.10.2023. Consequently, after the amendment
comes into force, the place of supply in such
case shall be determined by the default rule under
section 13(2) of the IGST Act. Accordingly, in cases
where location of recipient of services is available,
the place of supply of such services shall be the
location of recipient of services and in cases where
location of recipient of services is not available in
the ordinary course of business, the place of supply
shall be the location of supplier of services.
Further, the place of supply in case of service of
transportation of goods by mail or courier will
continue to be determined by the default rule
under section 13(2) of IGST Act.
B. Place of supply in case of supply of services in
respect of advertising sector
(i) Place of supply where there is supply (sale)
of space or supply (sale) of rights to use the
space on the hoarding/structure (immovable
property) belonging to vendor to the client/
advertising company for display of their
advertisement on the said hoarding/structure:
Place of supply in such case shall be location
where such hoarding/structure is located.
(ii) Place of supply where the vendor himself
owns the structure or takes it on rent or
rights to use from another person and is
responsible for display of the advertisement
of the advertisement company at the said
location. During this entire time of display of
the advertisement, the vendor is in possession
of the hoarding/structure at the said location
on which advertisement is displayed and the
advertising company is not occupying the
space or the structure.
The said service does not amount to sale of
advertising space or supply by way of grant of
rights to use immovable property. Accordingly,
the place of supply of the same shall not be
covered under section 12(3)(a) of IGST Act.
Such services provided by the vendor to
advertising company are purely in the nature
of advertisement services in respect of which
Place of Supply shall be determined in terms
of section 12(2) of IGST Act.
C. Place of supply in case of supply of the
“co-location services”
Co-location is a data center facility in which a
business/company can rent space for its own
servers and other computing hardware along with
various other bundled services related to Hosting
and information technology (IT) infrastructure.
It has been clarified that the Co-location services
are in the nature of Hosting and information
technology (IT) infrastructure provisioning
services. (S. No. 3 of Explanatory notes of SAC-
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783
LEGAL UPDATES
998315). Supply of co-location services cannot be
considered as the service of renting immovable
property. Therefore, the place of supply of the
colocation services shall not be determined by
the provisions of section 12(3)(a) of the IGST Act
but shall be determined by the default provision
under section 12(2) of the IGST Act i.e., location
of recipient of co-location service.
However, in cases where the agreement between
the supplier and the recipient is restricted to
providing physical space on rent along with basic
infrastructure, without components of Hosting
and IT Infrastructure Provisioning services and the
further responsibility of upkeep, running, monitoring
and surveillance, etc. of the servers and elated
hardware is of recipient of services only, then the
said supply of services shall be considered as
the supply of the service of renting of immovable
property. Accordingly, the place of supply of these
services shall be determined by the provisions of
section 12(3)(a) of the IGST Act which is the location
where the immovable property is located.
Circular No. 203/15/2023-GST dt. 27.10.2023
3. Clarification on issues pertaining to taxability
of personal guarantee and corporate guarantee in
GST.
(a) Whether the activity of providing personal guarantee
by the Director of a company to the bank/financial
institutions for sanctioning of credit facilities to the
said company without any consideration will be
treated as a supply of service or not and whether
the same will attract GST or not?
The activity of providing personal guarantee by
the Director to the banks/financial institutions for
securing credit facilities for their companies is to
be treated as a supply of service, even when made
without consideration.
In terms of rule 28 of the CGST Rules, the taxable
value of such supply of service shall be the open
market value of such supply. However, as per
para 2.2.9 of RBI Circular No. RBI/2021-22/121
dated 9th November, 2021, no consideration by
way of commission, brokerage fees or any other
form, can be paid to the director by the company,
directly or indirectly, in lieu of providing personal
guarantee to the bank for borrowing credit limits.
Hence, when no consideration can be paid for the
said transaction by the company to the director in
any form, directly or indirectly, as per RBI mandate,
there is no question of such supply/transaction
having any open market value. Accordingly, the
open market value of the said transaction/supply
may be treated as zero and therefore, the taxable
value of such supply may be treated as zero. In
such a scenario, no tax is payable on such supply
of service by the director to the company.
DECEMBER 2023 123
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LEGAL UPDATES
However, in cases, where the director, who had
provided the guarantee, is no longer connected
with the management but continuance of his
guarantee is considered essential because
the new management’s guarantee is either not
available or is found inadequate, or there may
be other exceptional cases where the promoters,
existing directors, other managerial personnel,
and shareholders of borrowing concerns are
paid remuneration/consideration in any manner,
directly or indirectly, the taxable value of such
supply of service shall be the remuneration/
consideration provided to such a person/
guarantor by the company, directly or indirectly.
(b) Whether the activity of providing corporate
guarantee by a person on behalf of another
related person, or by the holding company for
sanction of credit facilities to its subsidiary
company, to the bank/financial institutions, even
when made without any consideration will be
treated as a taxable supply of service or not, and
if taxable, what would be the valuation of such
supply of services?
Where the corporate guarantee is provided by
a holding company, for its subsidiary company,
those two entities also fall under the category of
‘related persons’. Hence the activity of providing
corporate guarantee by a holding company
to the bank/financial institutions for securing
credit facilities for its subsidiary company, even
when made without any consideration, is also
to be treated as a supply of service by holding
company to the subsidiary company, being a
related person, as per the provisions of Schedule
I of CGST Act.
Hence, in such a case, the taxable value will
be determined as per rule 28 of CGST Rules.
Consequently, sub-rule (2) has been inserted
in rule 28 vide Notification No. 52/2023 dated
26.10.2023, for determining the taxable value of
such supply of services between related persons
in respect of providing corporate guarantee,
irrespective of whether full ITC is available to the
recipient of services or not.
Further, it has been clarified that rule 28(2) shall
not apply in respect of the activity of providing
personal guarantee by the Director to the banks/
financial institutions for securing credit facilities
for their companies and the same shall be valued
in the manner provided in S. No. (a) above.
Circular No.204/16/2023-GST dt. 27.10.2023
4. Clarification regarding GST rate on imitation
zari thread or yarn based on the recommendation
of the GST Council ins its 52 nd meeting
It has been clarified that imitation zari thread or
yarn made from metallised polyester film/plastic film
124 DECEMBER 2023
THE CHARTERED ACCOUNTANT
falling under HS 5605 are covered by Sl. No. 218AA
of Schedule I of Notification No. 1/2017-Central Tax
(Rate) dated 28.6.2017 attracting 5% GST. Further, no
refund will be permitted on polyester film (metallised)/
plastic film on account of inversion of tax rate.
Requisite changes have been made in Notification
No. 5/2017-Central Tax (Rate) vide Notification no.
20/2023-Central Tax (Rate) dt. 19.10.2023.
Circular No. 205/17/2023-GST dt. 31.10.2023
5. Clarifications regarding the applicability of
GST on certain services
A. Whether ‘same line of business’ in case of
passenger transport service and renting of
motor vehicles includes leasing of motor
vehicles without operators?
Input services in the same line of business as
stated in the Notification No. 11/2017-Central
Tax (Rate) include transport of passengers (SAC
9964) or renting of motor vehicle with operator
(SAC 9966) and not leasing of motor vehicles
without operator (SAC 9973) which attracts GST
and/or compensation cess at the same rate as
supply of motor vehicles by way of sale.
B. Whether GST is applicable on reimbursement
of electricity charges received by real estate
companies, malls, airport operators etc. from
their lessees/occupants?
Whenever electricity is being supplied bundled with
renting of immovable property and/or maintenance
of premises, as the case may be, it forms a part of
composite supply and shall be taxed accordingly.
The principal supply is renting of immovable
property and/or maintenance of premise, as the
case may be, and the supply of electricity is an
ancillary supply as the case may be.
Even if electricity is billed separately, the
supplies will constitute a composite supply and
therefore, the rate of the principal supply shall be
applicable.
However, where the electricity is supplied by
the Real Estate Owners, Resident Welfare
Associations (RWAs), Real Estate Developers
etc., as a pure agent, it will not form part of
the value of their supply. Further, where they
charge for electricity on actual basis that is, they
charge the same amount for electricity from their
lessees or occupants as charged by the State
Electricity Boards or DISCOMs from them, they
will be deemed to be acting as pure agent for this
supply.
C. Whether job work for processing of “Barley”
into “Malted Barley” attracts GST@ 5% as
applicable to “job work in relation to food and
food products” or 18% as applicable on “job
work in relation to manufacture of alcoholic
liquor for human consumption”?
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THE CHARTERED ACCOUNTANT

LEGAL UPDATES
Malt being a food product, can be directly “Conversion to coastal Vessel” shall include the vessel
consumed as part of food preparations or can be granted necessary license under the Merchant Shipping
used as an ingredient in food products and also Act,1958.
used for manufacture of beer and alcoholic liquor
for human consumption. However, irrespective of 2. Import of Gold or Silver or both by banks
end-use, conversion of barley into malt amounts Import of Gold or Silver or both are exempted if
to job work in relation to food products. imported by certain banks. The list of banks specified
Hence, it has been clarified that job work services for this purpose has been substituted with the following
in relation to manufacture of malt are covered by banks:
the entry at Sl. No. 26 (i) (f) which covers “job 1. Axis Bank Limited
work in relation to all food and food products
falling under chapters 1 to 22 of the customs 2. Bank of India
tariff” irrespective of the end use of that malt and 3. Federal Bank Limited
attracts 5% GST.
4. HDFC Bank Limited
D. Whether District Mineral Foundations Trusts
(DMFTs) set up by the State Governments are 5. Industrial and Commercial Bank of China Limited
Governmental Authorities and thus eligible for
6. ICICI Bank Limited
the same exemptions from GST as available
to any other Governmental Authority? 7. IndusInd Bank Limited
It is clarified that DMFT set up by the State 8. Indian Overseas Bank
Governments are Governmental Authorities and
thus eligible for the same exemptions from GST 9. Kotak Mahindra Bank Limited
as available to any other Governmental Authority. 10. Karur Vysya Bank Limited
E. Whether supply of pure services and
11. Punjab National Bank
composite supplies by way of horticulture/
horticulture works (where the value of goods 12. RBL Bank Limited
constitutes not more than 25% of the total
13. State Bank of India
value of supply) made to CPWD are eligible
for exemption from GST under Sr. No. 3 and 14. Union Bank of India
3A of Notification no 12/2017-CTR dated
28.06.2017? 15. Yes Bank Limited

It has been clarified that supply of pure services
and composite supplies by way of horticulture/
horticulture works (where the value of goods
constitutes not more than 25% of the total
value of supply) made to CPWD are eligible for
exemption from GST under Sr. No. 3 and 3A of
Notification no 12/2017-CT(R) dated 28.06.2017.
INDIRECT III. CUSTOMS
TAXES
NOTIFICATIONS
1. Exemption to Foreign Going Vessel
converted for a coastal run
As recommended in the 52nd GST Council Meeting,
with effect from 20.10.2023, Foreign Going Vessel
converted for a coastal run has been exempted from
the levy of customs duty as well as IGST, provided such
vessel re-converts to a foreign going vessel within six
months from the date of such conversion.
Foreign going vessel” shall have the same meaning
as assigned to it under clause (21) of section 2 of the
Customs Act, 1962.
Notification No. 60/2023-Customs dt. 19.10.2023
FEMA FEMAUpdates
A.P. (DIR Series) Circular No. 07 dated
November 10, 2023
GuidelinesonImportofSilverbyQualified
Jewellers as notified by – The International
Financial Services Centres Authority (IFSCA)
Vide A.P. (DIR Series) Circular No. 04 dated May
25,2022 the AD Category I Banks were permitted
to remit advance payments on behalf of Qualified
Jewellers (QJs) as notified by IFSCA for 11 days for
import of gold through India International Bullion
Exchange IFSC Ltd. (IIBX).
DGFT vide its notification No. 35/2023 dated October
11, 2023 has not allowed the QJs to import silver under
specific ITC codes through IIBX. Accordingly, it has
been decided that AD Category I banks may allow QJs
to remit advance payment for 11 days for import of
silver through IIBX subject to conditions as prescribed
in A.P Dir Circular No. 04 of May 25, 2022.

(Matter on FEMA has been contributed by CA Manoj Shah, Mumbai, CA Hinesh Doshi, Mumbai and CA Sudha Bhushan, Mumbai)

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LEGAL UPDATES
Disciplinary Case
Issuance of certificate by the Respondent Firm to the effect that the Company has paid up equity
share capital of 500.00 lacs by including share application money received whereas paid up share
capital and authorised capital of the Company as per audited balance sheet for the year ending
was Rs. 1.00 lacs only – Held, Respondent is GUILTY of professional misconduct falling within the
meaning Clause (7) of Part I of Second Schedule to the Chartered Accountants Act, 1949.
Held:
In the instant case, charge against the Respondent
was that he made wrong certification for the
year 2013-14 in respect of Company M/s X. The
Committee noted that language of the certificate is
clearly misleading as the Respondent had merged the
amount of share application money in paid up share
capital which clearly violates Para 2.2 of Guidance
Note on Audit Reports and Certificates for Special
Purposes which says that “………..when a reporting
auditor issues a certificate, he is responsible for the
factual accuracy of what is stated therein. On the
other hand, when a reporting auditor gives a report,
he is responsible for ensuring that the report is based
on factual data, that his opinion is in due accordance
with facts, and that it is arrived at by the application
of due care and skill.” The Committee noted that
the language of the certificate indicated that paid
up share capital of the Company was Rs.500 lakhs
5986 43 years’ old CA firm wants to open branch
offices by inducting full time practising CAs as
Partner purely on revenue sharing basis (No fixed
remuneration). Write: hoaps1980@gmail.com
5987 Required full time partners for Delhi, Chennai,
Vishakhapatnam, Hyderabad, Lucknow,
Raipur, Rourkela and Bangalore on revenue
sharing basis. Please Contact on email id:
bk1ckdk@gmail.com
5988 Required Part/Full time C.A’s Partners/
Retainers, Semi- Qualified, Articled Asstts. for
Mumbai, Chennai, Delhi, Jammu, Sri Nagar
Gurugram, Faridabad & Sonepat. Contact
9205136037 E-mail: kkg200317@gmail.com
5989 Delhi-NCR proprietorship (1990) managed by
FCA with industrial experience including cross-
126 DECEMBER 2023
THE CHARTERED ACCOUNTANT
which would have mislead users of the certificate.
Hence, the Respondent was required to check the
factual accuracy of the certificate before issuing
the same. The Company noted that in present case
the authorised capital of the Company was only Rs.
1.00 lakhs and hence Rs. 499 Lakhs were share
application money. The Respondent had taken the
same as part of paid capital without ensuring that
necessary resolutions in this regard were passed and
requisite forms were uploaded by the Company on
MCA. Thus, while looking into the facts of the case
vis-a-vis detailed submission made the Committee
found no merits in defence of the Respondent and
held the Respondent guilty for not exercising due
diligence. The Committee held that the Respondent
is GUILTY of professional misconduct under Clause
(7) of Part I of Second Schedule to the Chartered
Accountant Act, 1949.
[PR/138/17-DD/190/17-DC/1146/19]
CLASSIFIEDS
border acquisition, TP & Due Diligence, invites
partnership/networking proposals. Contact
9560245629; finanzaccelerators@gmail.com
5990 “56 years’ old Mumbai based CA firm wants
to open branch offices at Delhi, Bangalore,
Hyderabad, Chennai, Guwahati & Ranchi
by inducting full time practicing CAs (CISA/
DISA qualification will be preferred) as Partner
purely on revenue sharing basis (No fixed
remuneration). CAs having COP and wish to
start own practice also can be considered.
write: admin@rdevendra.com”
5991 Gujarat headquartered 42 year old firm
(www.rkdoshi.com) wishes to open
branches in Tamil Nadu, Kerala, Punjab, AP,
Telangana, Assam, Orissa & WB. Contact:
firm.rkdoshi@gmail.com.
www.icai.org
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THE CHARTERED ACCOUNTANT

ICAI NEWS

Announcement
Peer Review Mandate –
applicability of 2nd & 3rd phases from April 1, 2024
With the roll out of the 2nd & 3rd phases of the Peer Review mandate, the Council has w.e.f April 1, 2024
mandated Peer Review process for the following category of firms (referred to as Practice Unit):
Practice Units which propose to undertake Statutory Audit of unlisted public companies
having paid-up capital of not less than rupees five hundred crores or having annual
turnover of not less than rupees one thousand crores or having, in aggregate, outstanding
loans, debentures and deposits of not less than rupees five hundred crores as on the 31st
March of immediately preceding financial year.
OR
Practice Units which propose to undertake the Statutory Audit of entities which have
raised funds from public or banks or financial institutions of over Fifty Crores rupees during
the period under review or of any body corporate including trusts which are covered under
public interest entities
OR
Practice Units rendering attestation services and having 4 or more partners.
Accordingly, the above mentioned Practice Units which accept Statutory audits on or before March 31,
2024 should ensure that they have a Peer Review Certificate at the time of signing.
In case a Practice Unit is not possessing Peer Review Certificate, then it may apply for Peer Review in
‘Form 1’ hosted at https://resource.cdn.icai.org/72026prb57960-pform1.pdf to be sent to the Secretary,
Peer Review Board at peerreviewboard@icai.in.
In this regard, please refer to the Announcement “Peer Review Mandate - Roll Out” dated 12.02.2022
hosted at https://www.icai.org/post/peer-review-mandate-roll-out, read with Announcement “Peer
Review Mandate - Roll Out - (Revised)” dated 11.04.2022 hosted at https://www.icai.org/post/peer-
review-mandate-roll-out-revised, and the Announcement “Further deferment of second phase of Peer
Review Mandate” dated 19.07.2023 hosted at https://www.icai.org/post/further-deferment-of-second-
phase-of-peer-review-mandate.

Empanelment of Chartered Accountant firms/LLP by Office of

C&AG from the empanelment year 2024-2025
The office of C&AG has been giving cognizance to location of the Head office as well as Branch
Offices of the firms for the purpose of allotment of audits of Government Companies and its units
located at various locations.

It has been informed by the Office of C&AG that from the empanelment year 2024-2025, while
considering the firm/LLP for allotment of audit on the basis of the location of its Branch Office, only
those Branch Offices will be considered where at least 50 percent of the full-time partners or
two full time partners, whichever is less, of the firm/LLP, are stationed.

Members may kindly note the above.

www.icai.org DECEMBER 2023 127

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ICAI NEWS THE CHARTERED ACCOUNTANT

Certificate Course on Concurrent Audit of Banks

The concurrent audit system of banks has become very crucial and important for banks. The main
objective of the system is to ensure compliance with the audit systems in banks as per the guidelines
of the Reserve Bank of India and importantly, to ensure timely detection of lapses/ irregularities. In
view of the core competence of the chartered accountants in the area of finance and accounting, risk
management, understanding of the internal functioning and controls of banks, etc., the banking sector
has been relying extensively on them to comply with these requirements of the regulator. The Board of
Internal Audit & Management Accounting of ICAI conducts 6 days Certificate Course on Concurrent
Audit of Banks. The purpose of the Certificate Course on Concurrent Audit of Banks is to provide
an opportunity to the members to understand the intricacies of concurrent audit of banks thereby
improving the effectiveness of concurrent audit system in banks, and also the quality and coverage of
concurrent audit reports.
The course is open for the members of the Institute of Chartered Accountants of India
Please refer link for further details of the Course: https://www.icai.org/post.html?post_id=9611
FEES DETAILS: Rs. 11,800/- (including GST)
The details of the forthcoming batches of the Certificate Course on Concurrent Audit of Banks to be
organized by the Board of Internal Audit & Management Accounting is as follows:

Location Scheduled Dates Course Structure and other

416th Batch – HYDERABAD
details
December 2- 7, 2023 https://learning.icai.org/
(10:00 to 5:30 PM) committee/ias/concurrent_
audit_of_banks_hyderabad_
phy23/

128 DECEMBER 2023 www.icai.org

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THE CHARTERED ACCOUNTANT

ICAI IN MEDIA

www.icai.org DECEMBER 2023 129

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ICAI IN MEDIA THE CHARTERED ACCOUNTANT

130 DECEMBER 2023 www.icai.org

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