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Cloud Accounting Software

by Sanjeev Archak Sanjeev Archak No Comments

Internet has changed the word in indescribable ways. With the advent of cloud computing all products and services are now hosted on the cloud. Cloud computing enables access to data from any device or any place.Rapid penetration of internet has made access to data easy and quick. Most businesses are now on the cloud so why should accounting be an exception? A recent report estimated the accounting software market to reach US$ 20,408 Mn by  2026.There has been steady shift to cloud based accounting software from desk top software.As businesses become more mobile, they will move away from on premise accounting software.

 

In this post we shall read  how cloud accounting can transform your business. Here are some reasons to move your accounting to cloud:

1.Automation

Desktop accounting is a manual process. This requires sales invoices,expense entries, bank and cash entries to be entered manually. In a cloud based software one can:

  1. Set recurring invoices for sales
  2. Set recurring bills for expenses
  3. Integrate expense management software with books of accounts
  4. Sync bank accounts,credit cards,payment gateways for automated matching
  5. Create workflows to streamline processes

These features are absent in a desktop environment.

2. All teams on one Software

Cloud based application empowers services organizations to manage

  1. People
  2. Projects
  3. Financials
  4. Customer
  5. Vendors

in one integrated application. Desktop bases software is designed to do only accounting. This means that the finance function becomes a silo, distinct from the rest of the business.

3.Accessibility

All you need is internet connection. Internet penetration is increasing in India and data costs are cheapest in the world. Your accounting software can be accessed from a PC,tablet,mobile phone or any other device. This allows teams to work remotely.

Desktop based software is installed on a machine and remote access is not possible unless one brings the machine along. This rules out remote working.

4. Customization

Cloud based accounting software are very flexible. An user can customize:

  1. Sales invoices based on customer requests
  2. Emails to be sent to vendors/customers
  3. Financial reports
  4. Integrate with third party apps

Desktop bases systems rarely integrate with other applications.Hence customization options are limited.

5.Data Backup

All data rests on the cloud. Data is backed up off site and secured by high tech systems.  If your computer crashes,is broken, you can access your data from another device.

Desktop software requires manual back ups. If your dedicated accounting computer breaks down then data,if not backed up, is lost. This can cause huge damage and downtime.

6.Security

A recurring question when it comes to cloud is “How secure is my data”?. Relax. All the cloud based accounting software’s use state-of-the-art encryption to secure data. You do not need an IT department to host and administer these applications. User access can be regulated and can be changed on demand.

Desktop software requires that local machines be protected from viruses and unauthorized access. Login credentials have to be kept confidential.

7.Updates

In cloud based software you are always using the most current version.The software is automatically updated for changes in tax laws or any other upgrades. Installing updates in a desk top software is forced when there is a migration. Bug fixes or other upgrades require a new version to be purchased.

So there you have it, seven reasons why you should move your accounting to the cloud.  Integra Books uses Zoho Books, cloud based accounting software to provide accounting services. Integra Books can help you migrate from into Zoho Books. Get in touch with us today to put your accounting on the cloud and empower your business.

How to prepare for a Due Diligence Audit

by Sanjeev Archak Sanjeev Archak No Comments

You’ve nailed the pitch, and now it’s time to focus on what investors will ask for once you’ve caught their initial interest. We have already covered the pre-funding and post-funding checklists. In this post we will try to guide you on how to prepare for a due diligence audit.

Once an investor has expressed interest in investing in a company, the deal will enter into a due diligence process. “Due diligence” is a term given to the investigation or audit of a potential investment. Throughout the due diligence process, investors look to confirm all material facts in regard to investment.

Investing in early stage companies is risky and conducting extensive due diligence can reveal problems with a company’s business early on allowing investors to identify the key risks associated with the investment.This will allow them to either develop a risk mitigation plan with the company or back out of the investment altogether.

Some investors conduct due diligence prior to issuing a term sheet, a nonbinding agreement used to propose the terms of an investment. However,most investors, especially when participating in more competitive deals, will issue a term sheet and then complete due diligence. For those deals, successful due diligence results in the legal paperwork being drafted and the investment round closing.

A due diligence (DD) check list is divided into:

  1. Financial DD
  2. Legal DD

Financial Due Diligence

Financial DD covers all aspects of business with a financial perspective covering books of accounts, taxation,  A typical Financial DD check list is reproduced below:

Particulars DD Requirements
Accounting Records, documents and MIS Access to  Accounting package
List of books, records, documents, registers maintained
Sample copies of cash and bank vouchers
Bank reconciliation statements
Monthly MIS
Borrowings Detail of all secured/unsecured loans/working capital debt/ loan from shareholders/ directors & relatives loans
Purpose of loan
 Sanctioned amount, disbursement date/ schedule
Balance confirmations from lenders
Financials / Returns / Assessment status Audited Financial statements
Internal audit report
Tax audit report
Transfer Pricing report
Copies of notices / inspection / orders from VAT / Service Tax / Income Tax authorities
Status of assessments
Key Contracts / Agreements Agreements/ contracts with customers and relevant amendments/addendums as application
Details of Patents/Trademarks Nature of intellectual property – codes generated, physical machinery invented, new formulation, etc.
Ownership of patents
Research and development strategies
Fixed Assets Fixed assets register
Details of intangible assets
Capitalization Policy – Tangible and Intangible Assets
Debtors Age-wise analysis of debtors
Breakdown of provisions and bad debts
Creditors Age-wise analysis of creditors
Payroll / Renumeration Consolidated payroll register
PF / ESI / PT payment Challans and returns

Legal Due Diligence

Legal DD  covers foreign exchange regulation, company law compliance’s,labor law compliance’s.A typical Legal DD check list is reproduced below:

Particulars DD Requirements
Shareholder Details List of all current shareholders including addresses and numbers of shares owned
Share Certificates
Details of the Directors Name of all the directors, appointment of directors, resignation of directors
Board and General Meeting Minutes Copies of Board Minutes
Copies of Annual General Meeting and Extra Ordinary General Meeting Minutes
Private Placement Offer Issue Letters
Record of Offer Letter
Filings with the ROC
Annual Return filed with the ROC Forms filed with the ROC
Charge created on Assets Filings with the ROC
Incorporation documents MoA(Memorandum of Association) and AoA (Articles of Association)
Certificate of Incorporation
Register of Members Register of members
Register of Debentures holders
Loans/Investments/ Guarantees and Securities Register of Contracts
Register of Loans
Register of Investments

A sample DD check list can be found here. Founders and the team have to devote time and energy to the DD audit. Typically, a VC team will be using the gathered diligence materials to write a note to enable investment decision.

So if you are raising money and want help with due diligence audits get in touch with our experts at Integra Books.

SaaS metrics

by Sanjeev Archak Sanjeev Archak No Comments

Keeping track of key metrics is very important and can give you a great overview of how the business is doing. Traditional financial metrics like EBITA,Net Profit, Cash to Turnover does not cut it for a SaaS business. What metric should a SaaS company use to measure performance?  It doesn’t need to be all-consuming so let’s keep it simple. 

Here are the top metrics a SaaS business should track to keep growing and stay on the right path.

1.  Cost Per Acquisition (CPA)

Acquiring customers costs money. There is a cost involved in running Facebook ads, Email campaigns, Google ads. The formula for measuring CPA is simple.Your total marketing costs divided by a number of new clients you attract is your CPA. If you have a high CPA then you will have to re-look at your marketing processes and adjust accordingly. 

2. Customer Lifetime Value (CLV)

It is apparent that CLV has to be higher than CPV to generate a profit. This means that you consider the net profit over the entire course of your business’s relationship with a customer rather than just an initial sale. Depending on your business model this might be weeks, months or even years. SaaS companies have a recurring billing model which result in a loss in the initial transaction due to trial period discounts.

3. Gross Margin

A positive gross margin is required for a business prosper. So what is gross margin it is the difference between sales revenue and cost of goods sold. Increase in sales volume should allow increase in gross margin due to efficiencies.

4. Customer Churn

Customer loyalty is critical for a business. Customer retention costs nearly five times more than acquiring a customer. It is important to measure the time that the customer stays with your business. Something as simple as adding some user-friendly training videos your customers can access may improve churn.

Some simple ways to examine the drop-off points are to survey existing customers and test some changes, ultimately implementing the most effective changes.

5. Cashflow

Cash is King. Without cash, a business dies, it’s that simple. A profitable business need not be a cash rich business and would be struggling to pay day to day expenses.

Its important to build a cashflow forecast for a range of scenarios. A dynamic forecast will enable to make strategic business decisions. 

There are endless financial metrics you could track in your business but getting a handle on just these five will give you a great starting point and help you keep your business on track, improve your bottom line and manage growth in a profitable way.

If you are a SaaS company, we recommend Zoho Subscriptions to handle all your subscriptions. Let our experts Integra Books help you with setting up Zoho Subscriptions.

Happy Tracking.

 

 

Key fundamentals to Effective Accounting

by Sanjeev Archak Sanjeev Archak No Comments

Accounting can be tedious work,however it helps you get more organized,brings more clarity and allows you to work more efficiently. In a day and age where business is cut throat competition,financial insights could be the game changer for your business. In many instances it could even be your competitive advantage.Without accounting, you’re driving blind like a car without knowing how much fuel is left in the tank. Proper book keeping gives you sight of what’s happening both internally and externally.

In this guide, we’ll break down the basics of accounting, we’ll show you why it is critical and the seven key steps to setting up and optimizing your own accounting process to help you get on the fast lane past your competition.

What is accounting?

In simple words, accounting is the process of tracking of all your company’s financial transactions, so you can see clearly where your business is spending money,where your revenue is coming from and which tax deductions you’ll be able to claim.

Why does accounting matter?

Accounting provides answers to critical questions viz

1.Is my business profitable?

Profit matters.Profit is the most critical measure of a business.It keeps your business ticking.Well kept books of accounts will always provide the correct answer to this critical question.

2.Are my operations cost effective?

You may be able to see your bottom line by glancing at your bank balance, but ups and downs in your account are also telling a story.Are sales up? Are my operations costs too high? Who knows? Paying attention to your financial statements is a great way to get to know the story of your business

3.Are my operations cost effective?

Taxes. There is no escaping from taxes. Well kept books of accounts will help you legitimately claim deductions. The more information & supporting documents your CA has, the better tax return will be.

4.Will I get loans?

If you need financing of any kind, having well-kept books gives lenders or investors a clear idea of your business’s current financial state and allows them to make financial projections about your company’s ability to pay off loan in the future.

Where to Start?

You probably are thinking that these tasks are easy and doable.However, from our experience working with multiple business, unpreparedness is precisely the problem that gets them drowned when everything seems to be fine and running smoothly. It then suddenly hits you like a Tsunami out of
nowhere.Here’s a few steps you can follow to help ensure you have the basics sealed tight and functioning for your advantage.

Step 1: Separate your business and personal expenses

It is critical to separate business finances effectively. In fact, we would suggest to permanently separate them from your personal finances.

If you are running a limited company (Pvt Ltd or LLP or Public Ltd) there must be distance between your personal and business finance.A corporate company is distinct legal entity different from the promoters.The law requires that finances of company be tracked separately. 

Plus, you’ll want to pull your hair out when it’s time to reconcile bank statements, you have to hunt down the receipt for lunch to remember if it was a personal expense or a client meeting.

Step 2: Choose a bookkeeping system

There are two main accounting methods: single entry and double entry.It is a matter of picking the system that’s right for your business and applying it consistently.

Single-entry is a simple system that might work for you if your accounting is straightforward. Entries are recorded one time, as either an input or output If you are doing your own accounting, this is the approach you are likely to take.

Double entry is much more complex, but also more detailed and effective. At first, all transactions are entered into a journal and then each of them entered into the ledger twice, as a debit and credit. If you are a corporate entity in India, you will be required to maintain your books under the double entry system mandatorily.

Step 3:Choose an accounting method: cash or accrual

If you are using cash accounting, you only record transactions when money has exchanged hands. So if you billed a customer you will not enter it till your customer has paid you.

Under the accrual method, you will record the income when you bill the customer,rather than waiting for them to pay you.

If you are a corporate entity in India, you will be required to maintain your books under the accrual system of accounting.

Step 4: Organise and store your documents

At tax assessment time, the burden on you to show validity of all of your expenses, so keeping supporting documents like receipts and records is crucial. Income tax law in India requires you to maintain the documents for a minimum of 8 years. It is smart to use cloud based software like Zoho Books or other such software to store receipts so you don’t have to deal with smudged receipts.

Step 5:Make it a habit

It’s easy to fall behind on your accounting when you’ve got other things happening. To stay on track, try setting a finance date with yourself once a month to get it done. If you do happen to fall behind, Integra Books can help you get caught up in no time.

There you have it, basic steps to make the foundation of your accounting processes strong and effective for your business’s advantage. Accounting is complex but with a strong foundation, you’ll be equipped to race past competition and ensure you are always on track to profitability.

In this new age of technology why should accounting be cumbersome and boring? Let the experts at Integrabooks help you.

 

 

 

 

 

 

GST Refund-Online Processing

by Sanjeev Archak Sanjeev Archak No Comments

The Government of India has been introducing changes to the GST law to make it more user friendly. As a part of this measure we have seen a simplified return scheme (you can read about  changes here https://integrabooks.co/changes-in-gst-law-return-filing-including-annual-returns/) being introduced from April 2020.

Another significant measure is the introduction of online processing of GST refunds. GST refunds have been a major contention for exporters ever since the introduction of GST. There were problems of jurisdiction of tax payers and huge paperwork to be filed for refunds. (You read about manual refunds here https://integrabooks.co/manually-file-gst-refund/)

In a significant process  improvement, a new online refund processing system has been announced to be begin from 26th September 2019. The changes introduced are as follows:

  1. . Refund applications filed by the taxpayers in RFD-01 form shall be processed electronically/ online by the tax-officer and all communications between the tax officers and the taxpayers shall take place electronically. 
  2. Refund amount shall be disbursed by accredited bank of Central Board of Indirect Taxes and Customs (CBIC) through the Public Financial Management System (PFMS) after bank account validation.

The details of changes in various forms are illustrated below in the tables:

Form RFD-01
Description  Refund Application
Action by Taxpayer
Previous Processing Workflow The taxpayers were filling refund application in form RFD-01A online. 
Electronic/ Online Processing  1.The RFD-01A form has been disabled on the portal.
2.The taxpayer shall be able to file his refund application in form RFD-01 now.
3.However, the taxpayer shall be able to view the status of RFD-01A applications also along with the new ones.
4.The bank account details mentioned in the refund application shall be validated by PFMS after filing of RFD-01. The taxpayers must ensure that the bank account details selected in the refund application are valid and correct.
5.The taxpayer shall be able to view the status of bank account validation
on his dashboard. It will also be communicated through e-mail/ SMS. 

 

Form RFD-02
Description  Acknowledgement
Action by Tax Officer
Previous Processing Workflow The tax officer issued RFD-02 manually.
Electronic/ Online Processing  1.The tax officer shall issue RFD-02 electronically to the taxpayer.
2.The taxpayer shall be able to view the acknowledgement in RFD-02 on his dashboard.
3.The taxpayer will also receive communication through email and SMS. 

 

Form RFD-03
Description  Deficiency Memo
Action by Tax Officer
Previous Processing Workflow The tax officer issued RFD-03 manually and there was no auto recredit
of ITC/cash.
Electronic/ Online Processing 

1.The tax officer shall issue RFD-03 electronically to the taxpayer.
2.With the issuance of RFD-03, the ITC/ cash will get re credited to the electronic credit/ cash ledger of the taxpayer.
3.The taxpayer shall be able to view the deficiency memo in RFD-03 on his dashboard.
4.Once RFD-03 has been issued against an ARN, the taxpayer is required to file a fresh refund application.
5.The taxpayer will receive communication through email and SMS. 

 

Form RFD-04
Description  Provisional Refund Order
Action by Tax Officer
Previous Processing Workflow The tax officer issued RFD-04 manually.
Electronic/ Online Processing  1.The tax officer shall issue RFD-04 electronically to the taxpayer.
2.The taxpayer shall be able to view the provisional sanction order in RFD-04 on his dashboard.
3.The taxpayer will receive communication through email and SMS. 

 

Form RFD-05
Description  Payment Order
Action by Tax Officer
Previous Processing Workflow The tax officer issued RFD-05 manually and sent a copy to the central  nodal authority and state AAs respectively for disbursement.
Electronic/ Online Processing  1.The tax officer shall issue RFD-05 electronically to the taxpayer.
2.The tax officer is not required to send the copy of RFD-05 to the central nodal authority and state AAs.
3.The taxpayer shall be able to view the payment order in RFD-05 on his dashboard.
4.The bank account details mentioned in the refund application shall be validated by PFMS after issuance of RFD-05 by the tax-officer.
5.The taxpayer will receive communication through email and SMS.

 

Form RFD-06
Description  Final Refund Sanction/Rejection Order
Action by Tax Officer
Previous Processing Workflow The tax officer issued RFD-06 manually.
Electronic/ Online Processing  1.The tax officer shall issue RFD-06 electronically to the taxpayer.
2.The taxpayer shall be able to view the final sanction/ rejection order in  RFD-06 on his dashboard.

 

Form RFD-07B
Description  Withholding Order
Action by Tax Officer
Previous Processing Workflow The tax officer issued RFD-07B manually.
Electronic/ Online Processing  1.The tax officer shall issue RFD-07B electronically to the taxpayer.
2.The taxpayer shall be able to view the withhold order in RFD-07B on his dashboard.
3.The taxpayer will receive communication through email and SMS.

 

Form RFD-08
Description  Show Cause Notice
Action by Tax Officer
Previous Processing Workflow The tax officer issued RFD-08 manually.
Electronic/ Online Processing  1.The tax officer shall issue RFD-08 electronically to the taxpayer.
2.The taxpayer shall be able to view the show cause notice in RFD-08 on his dashboard.
3.The taxpayer is expected to give reply to the SCN within 15 days of
receipt of the SCN.
4. If the taxpayer doesn’t respond within 15 days of the issuance of SCN, the tax officer can take action on the refund application.
5.The taxpayer will receive communication through email and SMS.

 

Form RFD-09
Description  Reply to Show Cause Notice by the Taxpayer
Action by Taxpayer
Previous Processing Workflow The taxpayers were submitting reply to the show cause notice manually  to the tax officer.
Electronic/ Online Processing  1.The taxpayer is required to reply the SCN electronically/online in RFD-09 form which would be available on his dashboard.
2.The taxpayer shall be able to reply to the SCN and upload supporting documents electronically through RFD-09.
3.The tax officer may not process the reply to the SCN if not given electronically in RFD-09 by the taxpayer. 

 

Form RFD-09
Description  Order for Re credit of Rejected Amount
Action by Tax Officer
Previous Processing Workflow The tax officer uploaded the refund order details in RFD-01B and then the ITC got re credited to the taxpayer’s ITC ledger.
Electronic/ Online Processing  1.The tax officer shall issue PMT-03 electronically.
2.With the issuance of PMT-03, the inadmissible ITC shall get re credited to the electronic credit ledger of the taxpayer automatically.
3.The taxpayer is required to give an undertaking that he will not file an appeal against the refund order if he/she desires to get a recredit of the rejected amount. This undertaking has to be submitted to the tax officer manually.
4.The taxpayer shall be able to view the recredit order in PMT-03 on his  dashboard.

Now the tax payers will be able to view the various stages of processing of their refund claims. Communication between the GST department and tax payers are now through email/SMS which is welcome move.

The disbursement of refund will now be done by a single authority.Earlier the state and the central government used to disburse the refunds separately. 

Final Thoughts

Online GST refund processing is a major relief for tax payers. The earlier process relied on too much paper work and manual processing  of claims. Hope this new workflow proves beneficial to tax payers.

 

Budgeting and Cashflow Forecasting

by Sanjeev Archak Sanjeev Archak No Comments

A business to be successful has to not only focus on day to day elements of finances but has to create a financial plan for the future.A financial plan will enable the management team to know where they are going and how they’re going to get there.

Budgeting and forecasting is an essential part of any business. Often these terms are used interchangeably.In this post we guide you through the differences between budgeting and forecasting and how combining them together  will give you an insight into your financial future

Budgeting

Budgeting is used to control your spend. This is a periodic exercise which is can be done either on a quarterly or annual basis. Normally, businesses set targets for revenues or expenditure across the entire organisation.Actual versus budgeted numbers provide a clear picture to internal and external stakeholders of the money that is available.

Forecasting

Forecasting is about attempting to predict, as closely as possible, the real financial outcomes you’ll see over a given period. A forecast uses current data to build “What if Scenario’s”. 

So for a robust financial forecast it is necessary to have solid financial data.It is apparent that a dynamic forecast is the result of current business knowledge and reliable data. A forecast, unlike a budget, can be run at anytime viz, monthly, quarterly or yearly. A forecast is an essential part of business intelligence aiding decision making.

Scenario planning is a process of trial and error which is played out in theory. Some examples of scenario’s could be:

  • what if rentals go up by 5%?
  • what if selling prices go up by 5%?
  • what if payroll costs go up by 10%?

The answers to all these have a significant impact on the business. Scenario-planning is there to help you understand the impact of your business decisions, and to reduce the potential risk by showing you the most financially astute pathway to take when it comes to planning for the future.

A better view of the future with cloud accounting

Spreadsheets are not up to the task, being time-consuming to update, tricky to share and generally outmoded by the latest in online accounting software. Having a cloud accounting platform as your main accounting system adds real value, by helping the business to record every single transaction – and giving you a pool of real-time data to dip into.

Having this huge pool of financial information at your disposal allows you to create three-way financial reporting and provides a data source you can integrate with your choice from the latest in financial technology reporting and forecasting apps.

With a forecasting solution incorporated into your forecasting you can turn your numbers into a practical reality that you can then execute on. There’s an ever-growing marketplace of cloud-based apps you can integrate into your core system – and that means you can use budgeting tools, budget managers, KPI dashboards and business intelligence solutions to measure business performance and check out those ‘What if…?’ scenarios across the period.

Look to the future and succeed

If you’re serious about making a success of your business, you need to plan ahead, get your budget in place and run regular forecasts to check that you’re on track.

At Integra Books we believe that cloud based services are the future and to achieve this we have partnered with Zoho. We use Zoho Books as accounting software integrated with Zoho Reports. The sync between Zoho Books and Zoho Reports will enable to track your budgets and build forecasts for the future. 

Integra Books combines the best domain expertise with best in class technology. Get in touch with us to set ball rolling.

 

 

    

 

Conditions for Availing Reduced Corporate Taxes

by Sanjeev Archak Sanjeev Archak No Comments

The Government has introduced the Taxation Laws (Amendment) Ordinance, 2019 for reducing the corporate taxes. Now domestic companies can now opt to pay taxes at 22%  or at 15% subject to conditions which are as under:

1.Reduced rates of taxes shall be applicable from 1.4.2020.

2.Company shall not avail deductions under:

a.Section 10AA: deductions for newly established Special Economic Zones

b.Section 32(iia):additional depreciation for machinery

c.Section 32AD: additional depreciation for machinery used in special states

d.Section 33AB: investments in specified deposits

e.Section 33ABA: deposits into site restoration fund

f.Section 35(2AA)(2AB): expenditure on scientific research

g.Section 35AD: Deduction in respect of expenditure on specified business

h.Section 35CCC: Expenditure on agricultural extension project

i.Section 35CCD: Expenditure on skill development project

3.Further, company shall not avail any deductions under Chapter VIA except the deduction under:

a.Section 80JJA: Deduction in respect of employment of new employees

4.The loss arising from deductions under point 2 shall not allowed to be allowed for any subsequent year.

5.The tax payer has to opt for paying taxes at 25% +cess or 15%+ cess, once the option is availed it cannot be rolled back.

Particulars

Tax on Domestic Companies

Tax on New Domestic Manufacturing Companies

Applicable  Financial Year

2019-20

2019-20

Timing of exercising option for lower tax

On or before the due date specified for filing returns

On or before the due date specified for filing returns

Basic Tax Rate

22%

15%

Surcharge Rate

10%

10%

Cess

4%

4%

Effective Rate

25.17%

17.16%

Applicability of Minimum Alternate Tax

Not Applicable

Not Applicable

Conditions

None

Company has been registered on or after the 01/10/2019, and has commenced manufacturing on or before 31/03/2023

None

The company is not engaged in any business other than the business of manufacture or production of any article or thing

6.Savings in Tax Rates:

Income Slabs

Pre–Amendment Scenario

 

Savings in Tax Rates

Companies having turnover Below Rs 400 cr

Companies having turnover of Rs 400 cr or more

Tax Rate
as per
New
option given u/s
115BAA

Companies having turnover Below Rs 400 cr

Companies
having turnover of Rs 400 cr or
more

total income upto Rs 1 Crore

26.00%

31.20%

25.17%

0.83%

6.03%

total income exceeding Rs 1 Crore but not exceeding Rs 10 crore

27.82%

33.38%

25.17%

2.65%

8.21%

total income exceeding Rs 10 crore

29.12%

34.94%

25.17%

3.95%

9.77%

Final Thoughts

India can boast of an optimal tax rate of 22% and incentive tax rate of 15%. These rates are on par with global corporate tax rates and will provide an incentive for manufacturing firms to shift their supply chains to India.

The document shall not be construed as professional advice or an opinion

Changes in GST Law & Return Filing including Annual Returns

by Sanjeev Archak Sanjeev Archak No Comments

The GST Council, in its meeting recommended the following Law & Procedure related changes:

1.Relaxation in filing of annual returns for MSMEs for FY 2017-18 and FY 2018-19 as under:   

a.waiver of the requirement of filing FORM GSTR-9A for Composition Tax payers for the said tax period

b.filing of FORM GSTR-9 for those taxpayers who (are required to file the said return but) have aggregate turnover up to Rs. 2 crores made optional for the said tax periods

2. A Committee of Officers to be constituted to examine the simplification of Forms for Annual Return and reconciliation statement.

3.In order to nudge taxpayers to timely file their statement of outward supplies, imposition of restrictions on availment of input tax credit by the recipients in cases where details of outward supplies are not furnished by the suppliers.

4.New return system now to be introduced from April, 2020 (earlier proposed from October, 2019), in order to give ample opportunity to taxpayers as well as the system to adapt and accordingly specifying the due date for furnishing of return in FORM GSTR-3B and details of outward supplies in FORM GSTR-1 for the period October, 2019 -March, 2020.

5.Issuance of circulars for uniformity in application of law across all jurisdictions:

a.procedure to claim refund in FORM GST RFD-01A subsequent to favorable order in appeal or any other forum

b.eligibility to file a refund application in FORM GST RFD-01A for a period and category under which a NIL refund application has already been filed 

c.clarification regarding supply of Information Technology enabled Services being made on own account or as intermediary

6.Rescinding of Circular No.105/24/2019-GST dated 28.06.2019ab-initio, which was issued in respect of post-sales discount.

7.Integrated refund system with disbursal by single authority to be introduced from 24th September, 2019.

8.In principle decision to link Aadhar with registration of taxpayers under GST and examine the possibility of making Aadhar mandatory for claiming refunds.

9.In order to tackle the menace of fake invoices and fraudulent refunds, in principle decision to prescribe reasonable restrictions on passing of credit by risky taxpayers including risky new taxpayers.

The decisions taken by the GST Council has been reproduced here in simplified language. For the actual notifications it is prudent to refer to the official notifications issued by the Government.The document shall not be construed as professional advice or an opinion

 

Income Tax Grievances-Start Ups

by Sanjeev Archak Sanjeev Archak No Comments

The Finance Minister in her Budget speech in February 2019 had announced the formation of Startup Cell within the Income Tax Department.This announcement was made after several start up’s received income tax demand notices, popularly known as angel tax.

The income tax department had questioned the valuation of start up’s and wanted to tax part of the capital raised by these companies. This move had raised alarm among start up founders and investors. The Department of Industrial Promotion and Planning (DIPP) had issued notification stating that provisions of angel tax shall not apply to a startup company if the startup fulfills certain conditions and is recognised by the DIPP.  

Further, the income tax department issued a notification stating that:

  1. the angel tax provisions (Section 56(2) (viib) of the Income Tax Act) will not apply to any capital received by a startup company recognised by DIPP.
  2. the angel tax provisions will not apply to consideration received by a company for issue of shares that exceeds the face value of such shares, if the consideration has been received from a person being a resident or company which fulfills conditions prescribed by DIPP
  3. where the startup company is selected under “limited scrutiny” or “complete scrutiny” the contention of startup shall be summarily accepted
  4. where the startup company is selected under “limited scrutiny” or “complete scrutiny” the applicability of Section 56(2)(viib) shall be inquired into by the Assessing Officer only after obtaining approval of the supervising officer
  5. where the startup company selected for “limited scrutiny” or “complete scrutiny” the applicability of Section 56(2)(viib) shall be inquired into by the Assessing Officer only after obtaining approval of the supervising officer

The Finance minister in her Budget speech had also announced the formation of a Startup Cell to address the grievances of Startup’s. The Income Tax Department has now formally constituted this Cell.

The Cell will work towards redressal of grievances and mitigate tax-related issues in case of Start-up entities with respect to administration of the Income-tax Act, 1961.

Grievances relating to Start-ups may be filed with the O/o Under Secretary, ITA-I, Room No.245A, North Block, New Delhi – 110001 as well as online at startupcell.cbdt@gov.in. The Cell will also be accessible telephonically on 011- 23095479 /23093070 (F).

Start-up entities can approach the Cell for speedy resolution of their grievances. This initiative is the latest amongst the recent initiatives taken by CBDT to further ease the compliance issues pertaining to Start-ups.

 

       

Reduction in Corporate Taxes

by Sanjeev Archak Sanjeev Archak No Comments

In a major relief to all corporates in the country the Finance Minister announced a significant tax reduction. The Government of India has brought in Taxation Laws (Amendment) Ordinance 2019 to make amendments to the Income Tax Act to lower tax rates for Corporate tax payers.

Salient features of these amendments are as under:

  1. A domestic company in India has now an option to pay income-tax at the rate of 22% subject to condition that they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. In a further relief, it has been announced that such companies shall not be required to pay Minimum Alternate Tax.
  2. A domestic company incorporated on or after 1stOctober 2019 making fresh investment in manufacturing, has now an option to pay income-tax at the rate of 15%. This benefit is available to companies which do not avail any exemption/incentive and commences their production on or before 31st March, 2023. The effective tax rate for these companies shall be 17.01% inclusive of surcharge & cess.  Also, such companies shall not be required to pay Minimum Alternate Tax.
  3. A domestic company which does not opt for the concessional tax regime and avails the tax exemption/incentive shall continue to pay tax at the pre-amended rate. After the exercise of the option they shall be liable to pay tax at the rate of 22% and option once exercised cannot be subsequently withdrawn.
  4. Further, in order to provide relief to companies which continue to avail exemptions/incentives, the rate of Minimum Alternate Tax has been reduced from existing 18.5% to 15%

These are very significant announcements which are designed to restart the private investments in the country. The reduction in corporate taxes was due for a while as countries like Singapore & the USA had reduced their corporate taxes.

In order to boost the Make in India initiative the Government has set a tax rate of 15% for manufacturing industries set up on or after 1.10.19. This is a historic move to give a boost to the struggling manufacturing sector. The slowdown in consumption had resulted in massive job losses in this sector.

The Minimum Alternate Tax (MAT) has been removed for domestic companies in the new tax regime. Further, in case of companies opting old rate of taxes, the MAT has reduced to 15%. We only hope that in the future MAT is completely removed and India moves towards taxing only actual profits.

The conditions for availing reduced taxes will have to be looked in detail once they are notified by the Central Board of Direct Taxes.

Final Thoughts

India can boast of an optimal tax rate of 22% and incentive tax rate of 15%. These rates are on par with global corporate tax rates and will provide an incentive for manufacturing firms to shift their supply chains to India.