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All posts by Mitesh Katira

Mitesh Katira

About Mitesh Katira

Mitesh's expertise lies in handling accounts Outsourcing, Management consultancy, Management & internal Audits and technology issues cutting across different clients particularly Family Owned, professionally Managed businesses, Private Equity/ Venture Capital backed and Multinational companies. He is convenor for Information Technology Committee of the CTC i.e., Chember of Tax Consultants which is the oldest association of Tax Practitioners in India. Mitesh has been a Convenor of the Ghatkopar CA CPE Study Circle for two years to lead the professional education initiative consisting of more than 300 Chartered Accountants. Socially, he is involved as a part of regional committee of Samskrita Bharati which promotes Samskrit language as key to cultural revival of India.

ELIGIBILITY CRITERIA FOR THE STARTUPS UNDER ‘STARTUP INDIA STANDUP INDIA’ INITIATIVE

Prime Minister Narendra Modiji on 16th January, 2016 announced a plethora of incentives and exemptions for Startups in India. The flagship Startup India initiative announced by the Prime Minister is aimed at creating a strong and vibrant startup eco-system in India and to create a culture of Entrepreneurship.

We have several new companies being setup in the name of startups in the country. Are all those startups eligible for the benefits that were announced?

In this column we shall have a glance at the startup eligibility criteria for the Startup India program which are as follows:

  • The firm incorporated should be less than five years’ old.
  • The Annual Revenue should be of less than Rs. 25 crores.
  • They should get approval from inter-ministerial board to be eligible for tax benefits and also get recommendation from an Incubator recognized by government, domestic venture fund or have an Indian patent
  • The Startup India Action Plan has literally mentioned that only Private Limited Companies, Limited Liability Partnership and Registered Partnerships are eligible for the Government schemes. This means the Proprietorships concerns, Cooperative societies and so on are NOT eligible for the same.

Whether the Companies registered prior to the announcement of the Startup India Action Plan can be eligible for the benefits of the plan?

In our understanding the answer is YES provided they fulfill all the conditions as described. For better clarity on taxation part, one needs to wait for the Union Budget 2016.

Do all the companies fulfilling the conditions, become eligible to obtain the approval from the inter-ministerial board?

NO, a business is considered to be a startup under the Startup India Action Plan if it aims to develop and commercialize:

  • New product or service or process;
  • Significantly improved existing product or service or process, that will create or add value for customers or workflow.

Further, in order for a “Startup” to be considered eligible, the Startup should:

  • Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or
  • Be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
  • Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI; or
  • Be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business;
  • Be funded by GoI as part of any specified scheme to promote innovation;
  • Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.

 Startups NOT Eligible for Startup India Action Plan

The mere act of developing of products or services of the following nature DO NOT make an entity eligible for incentives:

  • Products or services or processes which do not have potential for commercialization; or
  • Undifferentiated products or services or processes; or
  • Products or services or processes with no or limited incremental value for customers or workflow.

 This is a good start of a dialogue between the upcoming startup communityand the Government of India. This has given the startups which can create great value and jobs for the country, a platform and weightage. The above gives a fare idea as to the fitting into eligibility has got a lot of “ifs” and “buts” though. One needs to be really doing something unique to pass through the needle hole of the regulations. Even after entering, the things like “three years of Income Tax Exemptions” are limiting and would really NOT be able to help the startups in real sense.

For any further queries you can reach me at  [email protected]

“VAT not leviable on E-commerce Websites- Kerala HC

Recently in the case of Flipkart, Kerala High Court rejected the demand on Flipkart on sales to customers within state. Further, it was held that no VAT is leviable on website selling goods via electronic mode. The HC rejected the view of the revenue department that e-commerce transactions are subject to “sales on approval” which take place within the State and hence, the assesee is liable as an ‘agent’ to the seller.

In the said case, the department of Revenue of the state of Kerela held the view that ecommerce transactions are deemed to be completed in Kerela since the goods are delivered and payment thereof is collected in the state of Kerela. The department was of the view that the buyers placed orders for goods without knowing the name of the seller or place of supply and the assessee is liable to pay VAT as the transaction.

On the contrary, the assesee argued that as per Article 286 of the Constitution of India and Sec. 3 of CST Act, 1956 tax is payable in the state from where the sales have been occasioned. In the market place model opted by Flipkart, the seller has already discharged tax in full and therefore the place of delivery of goods hold no relevance. Hence no VAT demand should be raised as the assesee i.e. the ecommerce website was only acting as a facilitator to the sale transaction and not as a seller.

The Kerela HC, justifying the assessee’s viewpoint held that no State VAT is leviable on such ecommerce based websites on sales to customers within the state.

The copy of the judgement is still awaited.

Please feel free to get in touch at [email protected] for any further enquiries on the above

 

Here’s how you can earn interest under “Gold Monetisation Scheme”

This scheme allows customers to deposit their gold and earn interest rates fixed by designated banks subject to checking the gold at the time of collection and purity centers notified by the government.

Entry to this scheme is a minimum deposit of 30 grams having 995 fineness (includes bars, coins, stones,jewellery and other metals) and there is no maximum limit to the deposit. Deposits can also be in the form of joint deposit of two or more.

Principle on maturity and interest will be purely as per the  NAV (rate of gold at that time).The depositor has an redemption option in cash or in gold. This shall be specified at the time of entering this scheme, later on which cannot be amended.

This scheme has 3 deposit which includes Short term(1-3 yrs),Medium term (5-7 yrs) and long term (12-15 yrs) having a minimum lock-in period, however penalty charges will be incurred for pre maturity withdrawals.

The objective of the scheme is to mobilize a part of an estimated 20,000 tonnes of gold held by households and institutions in the country and to reduce India’s reliance on the import of gold. The Cabinet had approved the scheme last month.

What to look for in an Accountant while recruiting?

Every one of us is or would have been looking out for an accountant. A person who can do billing, handle basic data entry of receipt and payment, do bank reconciliation and generate summaries for filing IT, do accounts payable and receivable Vat and TDS returns. This blog is mainly for the companies with turnover of Rs. 1Cr. to Rs. 25Cr. into a new age service enterprise, a startup or a traditional trader or a professional like an architect or a Lawyers.

This type of routine accounting talent is in real shortage. People who have been qualified as B.com, BCAF, etc are normally considered to be fit for the same. Some with higher expectations look out for CAs, ICWAs, etc. Apart from the qualification one looks for experience. Experience gives an edge technically and communication wise. Also one understands the business models quickly and takes up small financial decision making freeing up management time to an extent. One also should have knowledge of accounting software like Tally, Quickbooks, etc and also spreadsheet software. This makes accountant more accountable!!

Let’s build a talent need matrix for Finance and accounting (F & A) function. This can include talent expectation in terms of capability and salary thereof.  Download the matrix for your ready reference from here http://bit.ly/1WR4iX3.

Attributes

Knows Basic Accounting

Knows basic accounting package

Basics of VAT, TDS, Service Tax, etc.

Calculation of VAT, service tax, TDS with sections and return names.

Uploading of the returns online on the Government Websites

Passing of Depreciation entries, ledger reviews and Stock Adjustment, etc

Team Management

Effective Communication and Bargaining Power

Salary Levels for Metros

Salary Levels for Non-Metro cities

Sales and Purchase Entries Yes yes                
Bank Reconciliation, Basic Journal Entries, Jvs, etc. Yes yes       Partly        
Summaries for VAT Returns, TDS Returns, Service Tax Returns and So on Yes yes Yes Yes Yes          
supervision of timely deposit of cheques and vendor payments Yes Yes                
MIS (Management information system) generation. Monthly Budgets, Sales by Client, Aeging Reports, Profitability, Stock position, etc. Yes Yes       Yes Yes      
Cashflow projections, decisions on buying the capital assets, etc. Yes Yes       Yes        
Handling the Audit queries, Decision on Tax applicability, handling the tax notices, Structuring of the entities, etc. Yes Yes Yes Yes   Yes Yes Yes    
Handling Banking Relationships like OD / CC / Term Loans with the banks with optimum interest rates, etc. Yes Yes         Yes Yes    
Development of Accounting Systems and Processes and implementation Yes Yes Yes Yes Yes Yes Yes Yes    

The above table comprehends the attributes, skillsets and capabilities that one is looking out for into an an accountant vs what can be the salary that one should be paying for the same.

This also initiates the discussion as to whether one should do this inhouse and manage the accountants which is not his core job or outsource. What if an institution takes up the responsibility with similar cost. This calls for a decision as to whether one should be creating the ecosystem for the F & A division to be automated by investing for a while in the function or one will leverage on a ready made talent wherein we just need to set expectations and say shoot to an institution. Nowadays options are available either side. Few don’t even invest in computer systems and software licenses as they think that it’s best to use the scarce resource for the core job instead of accounting which is mundane for them and too technical to measure the performance on!!

Decision on this is a CEO’s job and he continues to be deliberating on time and again!!  All depends on how the CEO perceives his time to be spent :-)

ICAI elections are nearing.. what’s the duty mandated to the central council?

ICAI elections are up. We all Chartered Accountant members would be receiving huge number of SMS, WHATSAPP from all over. Few of us would be personally visited by candidates soliciting our “First Preference Vote”. This bombardment may make us more confused as to who is entitled to my first preference vote? A friend’s friend or a relative or a suitable person for the profession at large. Some may also have the question as to what’s the real role of this so much sought after and prestigious CENTRAL COUNCIL. I was facing similar pressure from all sides. With curiosity on who is capable to be a council member at the center, just had a look Section 15 at the Duties of Central Council as laid down by the Chartered Accountants Act 1949. Functions of Council with highlights for a quick read….

(1) The Institute shall function under the overall control, guidance and supervision of the Council and the duty of carrying out the provisions of this Act shall be vested in the Council.

(2) In particular, and without prejudice to the generality of the foregoing powers, the duties of the Council shall include —

(a) to approve academic courses and their contents;

(b) the examination of candidates for enrolment and the prescribing of fees therefor;

(c) the regulation of the engagement and training of articled and audit assistants

(d) the prescribing of qualifications for entry in the Register;

(e) the recognition of foreign qualifications and training for the purposes of enrolment;

(f) the granting or refusal of certificates of practice under this Act;

(g) the maintenance and publication of a Register of persons qualified to practice as chartered accountants;

(h) the levy and collection of fees from members, examinees and other persons;

(i) subject to the orders of the appropriate authorities under the Act, the removal of names from the Register and the restoration to the Register of names which have been removed;

(j) the regulation and maintenance of the status and standard of professional qualifications of members of the Institute;

(k) the carrying out, by granting financial assistance to persons other than members of the Council or in any other manner, of research in accountancy;

(l) the maintenance of a library and publication of books and periodicals relating to accountancy;

(m) to enable functioning of the Director (Discipline), the Board of Discipline, the Disciplinary Committee and the Appellate Authority constituted under the provisions of this Act;

(n) to enable functioning of the Quality Review Board;

(o) consideration of the recommendations of the Quality Review Board made under clause (a) of section 28B and the details of action taken thereon in its annual report; and

(p) to ensure the functioning of the Institute in accordance with the provisions of this Act and in performance of other statutory duties as may be entrusted to the Institute from time to time.

Above is the extract of such duties as laid down by ICAI Act.

The above list surprised me that the COUNCIL at the CENTRE is a policy making body for the overall betterment of the accounting profession and NOT for running programmes, seminars, etc. It should rather be laying down the suitable policies for the regional councils like WIRC of ICAI to run the programs effectively for overall professional development.

Infact, the CA Regulations specifically provide that programmes are to be conducted by the Regional Councils and branches with guiding role for Central Council and its Committees. One sometimes gets the feeling that the only role left and carried out by the Central Council and its Committees is that of organising events with very little coming out in terms of policy for common members’ consumption!

The above means awareness based selection and not NO voting. Please vote – but be aware of what is the impact of your vote on the overall profession in long term.

Let’s, on this backdrop set right our priorities for posterity with judge us too.

।। य एष सुप्तेषु जाग्रति।। He who is awake amidst all the sleeping ones.

Not for profit (NPO) entity selection

It’s very typical to be confused between what’s ideal entity for an NPO. What’s good and not so good about various options available.

One can consider a Trust, Co-operative society, a Section 8 Company. All can work like an NPO.

It’s a situational decision as to what suits best for your NPO which can be an NGO or an association. Now let’s look at (evaluate) each entity model….

1. Trust : – trust is simpler to register. Just make a deed of trust. Have more than two or three trustees. There is a state trust Act almost in each state wherein one can register. Like in Mumbai imfact for whole of Maharashtra and Gujarat there is a Mumbai public trust Act.

Cons:
1. Different trust Acts across the country for being registered. State managed model of governance.
2. Complicated formalities for managing the changes, rotations and so on.

Pros:
1. Best for charity organization like hospitals, food distribution, relief to poor, etc. Also religious organization can form trust.
2. Formation easier. Only a deed between trustees needs to executed and registered.
3. Compulsory formalities of charity commissioner.

2. Cooperative Society:– Just create a bylaw with minimum seven members. It gets registered under the cooperative societies Act 1860. Exception to this is Maharashtra state wherein it has to formed and registered with Charity commissioner of Maharashtra. Few other states also have this compulsion of registering with local charity office.

Governance of the same through bylaws. Governing body should be rotating by election model.

Pros
1. Good for Credit societies, Public Gymkhana or Clubs, promotion of culture, education, Music and Art promotion.
2. No stamp paper required for registration of society. That means society is exempt from Stamp Duty as far as registration goes.

Cons:
1. Complete Offline process for registration, change in members, etc. Very painful to manage.
2. Compulsory periodical Rotation of governing body is a hassle.

Section 8 Company under Companies Act 2013 (section 25 company under companies Act 1956). This is central Act with registrars in all the states. It’s governed by the board of director generally elected by voting for governance:-

Pros:
1. Good for associations, professional bodies, art promotion societies, science Laboratories, public libraries
2. Complete online upload from registration to changes to submission of annual accounts.
3. Not compulsory to register under the local charity commissioner.
4. No stamp duty payment for registration.

Cons:
1. Audit under Companies Act
2. Complications with respect to new companies Act 2013 apply
3. Higher penalties for delays in compliance

All above models can be registered for exemptions with income tax and also the donors can get tax deduction for their contribution. Non of above are permitted to distribute surplus of any kind to the trustees.

So depending on what you want to do and where you want do in NGO or an NPO, you may look up to the above options.

Data Analytics for a small company

Data Analytics is a art and science of analyzing the data generated by the business and around the business for various benefits to the business.

Tremendous amount of data get’s generated while doing the transaction recording of the business at various levels in various systems while doing the business. Also there is a huge load of data that get churned around various aspects of the business externally. Data Analytics is a manner in which all this can be put to use proactively to make business decisions in right direction.

Many a times the results are astonishing and against the perception of the owner or promoter or the management but the same are fact based and hence reliable.

What is needed to do the analysis
Simple excel with analytical mind is sufficient for the small businesses. There are many reports even readily available in the softwares in which the transactions are recorded. All these reports with an analytical focus and knowledge of business model can throw disruptive insights.

Marketing and Sales:
Answers to the below question may be different if based on Data
What’s more interesting to the customer?
Who is real decision maker?
What’s the real USP of the business?
What’s paying faster Digtal marketing or the traditional one?

Operations
Answers to the below question may be different if based on Data
Who is the star performer?
What is the real test of quality for the product?
How Can we manage cost while keeping the quality constant?
What small thing can change the complete scale-ability of the business?
What’s critical to be controlled to stop leakages?

Small businesses and startups being more agile and flexible can do quick analysis and decide on course of actions to see immediate ROI. Believe me Data Analytics is even simpler to adopt for the smaller organization. Early Adoption to the basic technique can open doors to numerous possibilities.

Private Companies can accept deposits from a relative of a Director

MCA Update on Deposit From Relative of a Director By Private Limited Company:

Deposits rules are quickly getting aligned with old 58A exempted rules to private limited company.

Without any upper limit of amount, now a private company can  accept unsecured loans apart from director even from a relative (as per definition) of a director of the company with simple declaration saying the relative has not borrowed same from others. The relative need not be a shareholder of the company.

​http://www.mca.gov.in/Ministry/pdf/Amendement_Rules_15092015.pdf

It Your Turn Now

Basics for Setting up business in India

India being a hot destination for business and thereby investment world over, a lot of companies from US, UK, rest of Europe, China, Korea want to set shops in India.

What are the means to create presence in India for Businesses ?
1. Liaison office in India – most convenient option for Creating India presence. The issue with this is the same cannot trade or serve in India only liaison. This can be a good way to study market and establish contacts, scout for takeover or merger opportunities, etc. It can be formed with express permission from RBI through an authorized dealer which is a scheduled bank. The LO or liaison office needs registration in India as foreign company with Ministry of Company affairs MCA. Funds which come in India can be used only for spending on study and administration in India. It needs to comply With all laws as required by any other entity. It cannot enter into any revenue earning contract. Exit option is easier if you have liaison office setup with all compliance in place.

2. Having a 100% subsidiary in India. This is a great way to have full fledged and active presence. It is allowed to trade and serve from this entity without any restrictions once established. Apart from few exceptions in FEMA, 100% foreign subsidiary can be formed for most of the businesses. For restricted businesses FIPB approval is required to be taken. All infusion of funds call for FCGPR formality which is post facto except few exceptions. This companies need to have all VAT, Service tax and excise approvals based on its nature of business. An auditor needs to be appointed within one month of formation and audited accounts need to be submitted within stipulated time frame. Almost all the formalities are like any other Indian owned company. Only additional is having a compulsory Indian resident as director on the board. This model is suitable for those who have clear business plan and expect revenues to flow in a shorter time frame post formation. Exit becomes a bit difficult in this model and also costlier.

What are other crucial issues which need to be looked at to setup business in India?

Apart from the entity structure questions like tax impact on margins, pricing, capital introduction structure, etc are crucial for the incumbents.

How to calculate Advance tax

Advance Tax Provisions under the Income Tax Act’1961

1.  Advance Tax is applicable for all assesses whose Tax Liability exceeds Rs. 10,000/- during the financial year.

2.  Advance Tax is payable as follows:

Particulars

Up to 15th June of financial year 15% of Tax Payable for company.

Not Applicable for Noncompany

Up to 15th September of financial year

45% of Tax Payable for company

30% of Tax Payable for noncompany

Up to 15th December of financial year

75% of Tax Payable for companies

60% of Tax Payable for noncompany

Up to 15th March of financial year

100% of Tax Payable

100% of Tax Payable

Points to remember:-

1. Advance Tax provisions are not applicable in case of assesses having income under head Profits & Gains from Business or Profession U/s 44AD and 44AE i.e presumptive income.
2. Advance Tax provisions are not applicable in case of senior citizens aged above 60 years, but if senior citizens have business income then Advance Tax provisions are applicable.
3. Note above points are applicable for residents only i.e exemptions are available only for residents. No exemption for senior citizens if such individual is Non-resident.
4. Advance Tax can be paid by challan ITNS 280 under the minor head code 100 and Major Head code is 0020 for tax on Companies and 0021 for Tax on other than Companies.
5. Tax can be paid by challan either by cheque, cash or by the online mode.

Interest on Late Payment of Advance Tax

If the Income Tax is not paid as per the above schedule, Interest is liable to be paid for late payment of tax as follows

1.     Interest under section 234B – Interest @ 1% is payable if 90% of the tax is not paid before the end of the financial year i.e. for Default in Payment of Advance Tax

2.     Interest under section 234C – Interest @ 1% per month is payable if the tax is not paid as per the above schedule i.e. for Deferment in Installments of Advance Tax.

It Your Turn Now