Raman Aggarwal

Exemption from Filing ITR

2012-02-29T09:47:00.000-08:00

By: Raman Aggarwal

The CBDT has exempted certain class of assesses from filing the Income Tax Return after the accomplishment of following conditions:

Ø Assessee should be an individual.

Ø Income of the assessee does not exceed Rs. 5 Lac.

Ø Income is chargeable under the head Income from Salaries.

Ø Interest income should be less than Rs.10000 from the saving bank account.

If any individual assessee has income from interest of Fixed Deposit or Rental Income from House Property or any Income from Capital Gain or Gain from Business or Profession or any Speculation Income from share transaction, then assessee will not be eligible to claim the benefit of “Exemption from filing Income Tax Return”.

There are some other conditions also for availing this benefit-

Ø Assessee has reported the Permanent Account Number (PAN) to the employer.

Ø Assessee has reported all the income & full details of deduction under section 80C to the employer and employer has deducted the TDS.

Ø Assessee has received TDS certificate in Form No. 16 from their Employer.

Ø Employer has deposited the TDS amount to the Central Government.

Ø Assessee has no claim of refund of taxes.

Ø Assessee has received Salary only from one employer and if any assessee changes their job in middle of the Financial Year, assessee has to file the return.

If any notice u/s 142(1), 148, 153A or 153C of the Income Tax Act, 1961 has been issued for filing an Income Tax Return for the relevant assessment year then the exemption from filing Income Tax Return will not available.

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2012-02-28T20:45:00.000-08:00

Investigative Techniques - Subramanya Bhagirath K

How to Get Credit for TDS

GST - Challenges & Opportunities - R Ganesh

Amendments in Companies Bill 2011 - Akhil Banthiya

Tedious TDS (Practical Issues) - Niraj Mahajan

Rupee's Next Destination - K Venu Babu

Why is the rupee falling - Subhanshu Gupta

C.A. Course- Number of attempts does not matter - Ca Sachin Data

Highlights of The New Company Bill - CA Dhiraj Satnalika

All About XBRL - Gurvinder Singh

Finance Environment - Jeyarajan.R

Speculative Investments - Dhirendra Kumar

Do's and Don'ts in the Stock Market - Ramalingam

Reconciliation of Accounts - Rahul Gupta

GST - Challenges & Opportunities

2012-01-09T05:52:00.000-08:00

R Ganesh

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CHANGING PHASE OF INDIRECT TAXES - CHALLENGES AND OPPORTUNITIES

In the era of the major reform and development taking place in our country, India, the tax reforms is and has been the key to have the change of track in the economic growth of the country. The various stake holders for these happenings are keenly awaiting the tax reforms namely, the introduction of Goods and Services Tax "GST". This phase of transition poses challenges for the stake holders viz., Government both Centre and States, the various industries involved in the mining and manufacturing and the now fast tracked service industry.

To bring in place a unified indirect tax that enables a standardized pricing of the product and services without any cascading effect of all the indirect taxes, the GST is the answer that is much awaited. GST is a well designed value added tax on all goods and services eliminating distortions and taxing consumption. Under this structure, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially sticks on final consumption within the taxing jurisdiction.

GST comprises of the following elements:

1. It should be a dual levy concurrently by the Centre and States, but independently to promote cooperative federalism.

2. Both the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST) should be levied on a common and identical base.

3. The Centre and the States should adopt a consumption-type GST, that is, there should be no distinction between raw materials and capital goods in allowing input tax credit.

4. The tax base should comprehensively extend over all goods and services upto the final consumer point.

5. There should be no classification between goods and services in law so as to ensure that there is no classification of dispute.

6. The GST should be structured on the destination principle. As a result, the tax base will shift from production to consumption whereby imports will be liable to both CGST and SGST and exports should be relieved of the burden of goods and service tax by zero rating.

7. The computation of the CGST and SGST liability should be based on the invoice credit method i.e. allow credit for tax paid on all intermediate goods or services on the basis of invoices issued by the supplier. This will facilitate elimination of the cascading effect at various stages of production and distribution.

8. The CGST and SGST should be credited to the accounts of the Centre and the States separately. Since the CGST and SGST are to be treated separately, taxes paid against the CGST should be allowed to be taken as input tax credit (ITC) for the CGST and could be utilized against the payment of CGST. The same principle will be applicable for the SGST. Cross utilization of ITC between the CGST and SGST should not be allowed.

9. Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods (including GST on capital goods) in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.

10. The consignment sales and branch transfers across States should be subject to treatment in the same manner as if it was a inter-state transaction in the nature of sale between two independent dealers.

To put straight in a simplified note, before a final product and service in put in place, there are various stages and value addition in the production of the manufactured goods and also need professional service coming within the ambit of service tax. As the tax is on an advelorem basis, the costing of the value addition at each stage has to be derived in a professional and standardized manner based on the technology, size of operation and the price of the basic raw material. This standardized working of the value addition at each stage before it passes on to the next level of value addition in the chain of operations is to be done in a professionalized manner so that consistency and uniformity is maintained. The industry forums like the CII, FICCI and professional bodies like Chartered Accountants, Cost Accountants are gearing up to get the derived advantage of the GST Regime.

The Government would want that there are no revenue leakages in the GST regime. The need is therefore to have the enabling agents who can ensure that all these are done in the correct manner. Here lies the opportunity for the Finance Professionals to rise and be the change Manager.

GST - ROLE AND SCOPE FOR FINANCE PROFESSIONALS

GST implementation will lead to immense scope for FINANCE PROFESSIONALS who with expert knowledge about manufacturing, costing and pricing can play an important role once GST is implemented. For Industry:

1. with their good knowledge on manufacturing, costing and pricing can educate the suppliers/vendors about GST and ensure input tax credit is availed correctly.

2. Help in arriving at the cost of the product correctly by considering/availing input tax credit as per the provisions of GST.

3. with their expert knowledge on manufacture can ensure tax compliance, monthly returns, e-filing, availing of credit and payment of taxes.

4. can ensure tax planning and interpretation of the Act correctly and educating the various departments like strategic sourcing, payables, supply chain management, marketing etc.

5. There will be dual structure for GST, there will be levy by the Central Government known as CGST and levy by the State Government known as SGST. CST rate at present is 2% against Form C and CST will be phased out once GST is implemented and there will be another levy on stock transfers and consignment transfers known as IGST. The set-off against these CGST, SGST and IGST will be a complex model which is not clearly spelt out by the Government. Once the same is implemented, Finance professionals with their vast knowledge on Costing, Finance and indirect taxation can ensure proper set-off against these three levies namely CGST, SGST and IGST.

6. CGST will be levied by Central Government and every State will have its own SGST. To understand the complexity of each model of SGST, only Finance Professionals can guide the industry.

7. There are several Central Taxes which are not presently CENVATable viz., additional excise duty, countervailing duty etc and CGST would therefore subsume the following:

a) Central Excise Duty

b) Additional Excise Duty

c) Additional Excise Duty on medicinal and toilet preparations

d) Countervailing duty

e) Additional Duty under Section 3(5) of the Customs Tariff Act

f) Service Tax g) Cesses

h) Surcharges Finance Professionals can ensure set-off for all Central levies as per provisions of GST when implemented.

8. In the present system, Central Excise is levied at the manufacturing level whereas in the GST, tax will be levied on the value addition in the supply chain after the manufacturing level. Finance Professionals with their knowledge of Finance, Costing and SCM will be able to compute the taxes correctly under the GST.

9. In the present VAT system, there is no provision to levy VAT on services. However, GST proposes to levy SGST and CGST on services and Finance Professionals can ensure tax compliance on services both for Central and States.

10. In the present VAT system, even though input tax credit (ITC) is allowed, it does not include other taxes levied by the State Government viz., Luxury tax, Entertainment tax and Entry Tax not in lieu of octroi. Under GST, all these levies would be subsumed in the SGST. Finance Professionals can ensure set-off for all State levies as per provisions of GST when implemented.

11. In the present system, all inter-state transactions are covered by CST Act and administered by the respective State Government. The present rate is 2% CST against Form C or scheduled rate of VAT without Form C. The amount paid as CST is not available for set-off. Under the GST, IGST will be levied on all inter-state transactions like stock transfers and consignment transfers. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST and SGST on his purchases.

The major advantages of IGST Model are:

a) Maintenance of uninterrupted ITC claim on inter-State transactions.

b) No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer

c) No refund claim in exporting State, as ITC is used up while paying the tax

d) Self monitoring model

e) Model can take "Business to Business" as well as "Business to Consumer" transactions into account. The process of paying IGST and claiming set-off can only be done by a Finance professional with his immense knowledge on Finance & Accounting, computer and knowledge of GST.

12. In the present system, no VAT or excise duty is payable on imports. Under GST, SGST and CGST is payable on imports and set-off can be taken. This can be done by Finance Professionals.

13. Under GST, tax exemptions, remissions etc related to industrial incentives should be converted, if at all needed, into cash refund schemes after collection of tax, so that the GST scheme on the basis of a continuous chain of set-offs is not disturbed. In such cases, the Central and State Governments could provide reimbursement after collecting GST.

This scheme of payment of GST and reimbursement from Central or State Governments can be administered by Finance Professionals who are well versed with Finance & Accounting and indirect taxation.

For Government: Finance Professionals with their knowledge on Finance & Accounting and indirect taxation can ensure following:

1. Taxpayers under GST need to submit periodical returns, in common format as far as possible, to both the CGST authority and to the concerned State GST authorities. All registered dealers to make the payment by electronically furnishing the return, which would be a combined monthly payment and return form for all intra-state and inter-state transactions.

2. CGST and SGST should be credited to the accounts of the Centre and States separately. Since CGST and SGST are to be treated separately, taxes paid against the CGST should be allowed against the payment of CGST. The same principle will be applicable for the SGST. Cross of utilization of ITC between the CGST and the SGST will not be allowed.

3. Full and immediate input credit should be allowed for tax paid (both CGST and SGST) on all purchases of capital goods in the year in which the capital goods are acquired. Similarly, any kind of transfer of the capital goods at a later stage should also attract GST liability like all other goods and services.

4. Small dealers with annual aggregate turnover of goods and services between Rs.10 lakh to Rs.40 lakh may be allowed to opt for a compounded levy of one percent each towards CGST and SGST.

However, no input credit will be allowed against the compounded levy or purchases made from exempt dealers.

For Finance Professionals:

1. For practicing Finance Professionals there is immense potential in the form of tax compliance, filing of returns, interpretation of law, advising dealers about the correct procedure for availing ITC, annual audit etc.

2. There will be immense opportunities in the industry as they can ensure that all the complexity in GST can be understood and implemented in the industry where they are employed.

3. Under the GST, new sectors are likely to be covered like real estate sector, power sector, transportation by road, rail, air and sea which will have vast scope and opportunities.

The GST will be a word class model which will consist of the following:

1. The base should extend to all goods and service including immovable property

2. There should be a single low rate

3. The tax should be destination based

4. The tax should be designed on invoice-credit method

5. Full and immediate input tax credit in respect of capital goods

6. The GST must replace all transaction based taxes on goods and services and factors of production

7. There should be seamless flow of the tax through all stages of production and distribution so as to stock on "final" consumption

8. The exports should be zero rated and imports should be fully taxes

9. There should be a threshold exemption for small dealers

10. Full computerization of the compliance and administrative system GST will overcome all the present inefficiencies and inadequacies of the indirect taxes.

This will be a win situation for all the stake holders.

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Investigative Techniques

2012-01-07T23:17:00.000-08:00

By: Subramanya Bhagirath K

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INTRODUCTION:

I take the privilege to present the paper on “Investigative Techniques” in fraud investigation. In today’s scenario, there is a growing need for fraud awareness and separate considerations towards preventing Occupational Fraud.

Recent cases of fraud like in the case of an European hacker nicknamed as Poxxie, in the mid-September 2011, hacked into the computer systems of an US company and grabbed 1400 credit card numbers, the account holder names, and the security code that comes with the card. With a little trouble he just sold them for $3.50 each on his own seller’s site called “CVV2s.in” to underworld buyers who come to trust the quality of his goods. Thieves annually steal 8.4 million credit card numbers and cause a potential loss to the holders which accounts for $114 billion a year.

Olympus fraud is another case that struck the world in mid-October. This time the Camera maker, Olympus corp., a Japanese corporate overstated its earnings and the initial report was that there was an estimate of $1.7 billion worth of accounting fraud.

The REPORT TO THE NATIONS, 2010 issued by The Association of Certified Fraud Examiners reported that annually there is a loss of 5% of total turnover. This estimate was a result of survey of 1,843 cases of fraud reported during the year 2009 and 2010.

This is the kind of world that we are conducting our business in. A mere research on the fraud and reporting it to the media is not the correct step to control fraud. Fraud is like a virus, which no one knows when it enters the corporate system and damages its reputation. There has to be a clear investigation and detection of fraud.

Each detection of fraud needs a thorough investigation of such fraud to reach towards the actual perpetrator. Although it is not entirely possible to recover the entire losses, a well performed investigation helps in recovering maximum losses. Also, a good investigation throws lessons to cover up the weakness which paved way for occurrence of such fraud. Because, it is not weakness of the internal control but absence of adequate internal control in an organization for occurrence of fraud in maximum cases.

We have to appreciate the fact that there is no accurate or approved method of investigating a fraud. It completely relies on the examiner’s tact and professional competence in formulating a sequence of investigation. However, there are certain aspects which can be commonly applied in investigation of a fraud.

WHAT IS AN INVESTIGATION?

Investigation is the examination of physical evidence, documents, E-Mails, Computer storage, access log reports, inventory verification etc., to gather evidence and catch the actual perpetrator.

WHY AN INVESTIGATION?

- To find out the ultimate perpetrator.

- To recover losses

- To find out the internal control flaws

- To create a fraud awareness in the organization, to see it doesn’t repeat.

LIMITATIONS OF AN INVESTIGATION

We have to accept the fact that every investigation will not meet the desired end result i.e. there is no surety that every investigation will become successful. It is also not possible to recover the entire loss of a fraud. There are some legal limitations and political influences which act like a bottle-neck to the investigation process.

PRE-REQUISITES:

GAIN AN UNDERSTANDING:

It is of utmost importance to gain an understanding before the start of an investigation with the management authorities. The following are a set of question which needed to be answered before accepting an investigation.

1. What is the time frame under review?

2. What is the nature of concerns and allegations?

3. Who are the possible targets?

4. Have other investigations have been carried out prior to this investigation?

5. Are back ground checks of the employees are conducted before the employment?

6. How long the problem persisted before being detected?

7. Is there any employee, vendor or any other person related to the organization with a personal problem or an addiction (drugs, alcohol, gambling), who might seek additional financial resources at any potential cost and risk?

8. Does the company have a fraud policy?

TIMING:

Timing is an important aspect in investigation. A fraud investigator normally in most of the cases will have less time to gather evidence. Let us not forget the fact that the perpetrator of a fraud will always see to get away with fraud. He will be always on upper hand at the start of an investigation. So the investigator has to plan his investigation along with his team so that no single area of investigation is left out without being dealt appropriately.

COMMUNICATION:

Communication, although is a very common aspect, fraud investigators need to concentrate more on this issue as effective communication, including setting clear expectations etc., are required.This is an essential skill of investigative team. Clear, frequent and timely communications are critical aspects for a fraud investigator. An investigator’s communication should never conclude or transmit an information which is lethal to his investigation.

PREDICATION:

The totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe a fraud has occurred, is occurring, will occur is predication.

Predication is the basis upon which an examination is commenced. Predication may take any form like, anonymous tips, complaints, and audit enquiries etc., However, fraud examiners should not conduct an investigation without proper predication.

Some examples of predication may be like:

1. Not able to obtain timely reports from a personnel, department, location, division or subsidiary.

2. An investment is made in a location or product, and early performance reports are troubling despite our upfront due-diligence efforts.

3. Internal audit team has reported some serious discrepancies.

4. A particular manager insists that we use a certain vendor which strikes as a red flag.

5. We noticed that a new customer has made a Rs. 3, 00,000 purchases this month, but the identity of the supplier is not reached. The management might ask us to conduct a survey about theissue and report.

6. One of the employees was reported to be living in the standards beyond his financial status.

7. One of the high level executives has died all of a sudden immediately after he took some serious action on a sub-ordinate of his.

8. The management received some anonymous tips from its competitors or business partners or some public acquaintances.

9. Conflict of interest issues like – one of the employees has seen a late-night television commercial for a new restaurant in the town where the general manger or an executive might be the owner of such restaurant.

STARTING AN INVESTIGATION:

EARLY ADMINISTRATIVE MATTERS:

a) Relationship review and conflict check: There might be some relationship issues in victim organization where some of the employees are close relatives of the possible suspect. There might be friends, love interests, family relations etc., An investigator before carrying forward his investigation, has to conduct a thorough back ground check of the employees and the management personnel. This helps him in gathering some serious information which helps him in his investigation. Often there might be some possible red flags waving around the relationships too.

b) Engagement letter: It is always better to resolve the engagement issues like details of fee, communication issues and consultancy matters before accepting the investigation at first.

c) Secure Yourself: Secure yourself with compliance to the local laws and formalities before starting your work. There might be some cases which you might need help of a legal practitioner in tackling some legal issues put up by the suspect.

d) Whistleblower Protection: Whistleblower is a person who informs that a fraud had been perpetrated. Confidentiality of the particulars of the whistle blower is a serious issue. Often there are cases where there was a loss of life of the whistleblower from the suspect. Some of the instances are like in the case of S.Manjunath, a 27 year old Lucknow IIM graduate working as a sales officer with Indian Oil Corporation, paid with his life for attempting to ensure that people do not get adulterated fuel. Like wise in the case of 30 year old engineer’s tragic death in Bihar in the construction of the giant Golden Quadrilateral road project.

INVESTIGATION PROCESS:

GATHERING EVIDENCE:

It is always better to start an investigation by gathering available evidence as immediately as the case comes to us. The main objective is to secure as much information, evidence and detailing as possible before the perpetrator destroys it. There are often many cases reported where even the perpetrator destroyed the files at the cost of the entity. Believe the fact that perpetrator has also some acquaintance behind him to serve private information of management. In gathering evidence, the investigator can take the help of a computer forensics expert. Because often in many cases, where fraudster thinks that he had deleted information from computer hard disks, there has been cases where a computer forensics expert recovered most of the information with his expertise in the field. So investigator may take his help. There are also some common recovery software like RECUVA, which helps in recovering the deleted files. Digital data analysis is also an important aspect which is important in gathering evidence for the purpose of investigation.

HELP OF COMPUTER SOFTWARE:

If there is a computer based software taking care of the internal control in an organization, the investigator’s work becomes easier because the software provides him some useful information like –

- In cases of authority misuse, usually there will be high number of transaction just below the authorized limit. Software helps in compiling such information just on a click of a mouse.

- High number of manual disbursements in spite of fully computerization of transactions.

- Frequently occurring large round-off amounts.

- Unusual patterns of write-offs or adjustments.

- Evidence of payment of duplicate invoices.

- Identification of suspicious addresses when comparing data.

COORDINATION:

There are certain issues like –

- How often should the team meet?

- Desirable frequency of internal reports.

- Communication mode.

- Confidentiality of the evidences and information.

SURVEILLANCE:

Depending on the type of case being investigated, surveillance of people can be a particularly effective way of gathering information. Many states require those who are engaging in surveillance to be licensed private investigators, so it is important to make sure that you are following thelaws before you start watching people.

Surveillance in general means observing people, places, and movements. It is common to videotape almost in all surveillance work these days, but that is optional. An investigator could engage in surveillance and just take notes or rely on her or his memory of the events. Videotaped evidence is more difï¬cult to refute, which is why it is so common to capture these things on video.

COMPUTER FORENSICS:

A computer forensics expert is typically well-versed in securing digital evidence to preserve it for future courtroom activity, as well as recovering data that may have been accidentally or purposely deleted or destroyed. Even when someone intends to delete ï¬les from a computer, pieces of evidence may remain on that computer for a long time. Harvesting these bits of data may be critical to a fraud investigation.

RATIO ANALYSIS:

Ratio analysis as a tool helps in detecting financial statement fraud in the most of the cases. Usually the period, in which a financial statement fraud is perpetrated, the ratios will deviate from their ideal figures, par se, normal figures in maximum cases. They also help in arriving at the time period in which the actual fraud was taken place.

INTERVIEWING TECHNIQUES:

Interviewing is a process of obtaining the required information and evidence with the help of a series of questions posed on the persons involved with the victim organization.

Interviews are the most effective tool for an investigator. Interviews provide a platform for the interviewer to face the possible suspects face to face and gather evidence with his tactical questions.

Some techniques that have to be followed while interviewing can be as illustrated –

- It is always better to prepare some questions before start of an interview. However, when circumstances force, an investigator should be always ready to ask questions on situational demands.

- Interview only one person at a time. It should never happen that a person’s response influences others.

- Try to allow the interviewee ample time to respond. Do not force him to hurry.

- Do not reveal too much evidence to the interviewee.

- “Can you explain?” questions always reap good benefits than “Do you Know?” type questions.

- Take help of a gadget or an assistant in recording the interview proceedings for investigative process.

- Confirm the answers given by the interviewees with customers, vendors and other stakeholders.

- Try to avoid “yes” or “No” questions as far as possible. These questions will help the possible suspect in escaping and coping with a fraudulent issue.

- Conduct the interview in a separate room far from disturbance and window peepers.

- There is no need to assure the interviewee about keeping him unpunished if he discloses the truth. Because in most of the cases, suspects initially co-operate, but later they tend to escape once they get secured.

- Avoid arriving at the conclusion without proper series of interviews

- Do not promise confidentiality

- Do not negotiate with interviewee.

- Do not hold the respondent to hold against his or her will. If he wants to leave, let him leave.

Sample Interviewing questions:

1. How you came to know about the fraud?

2. Whom do you think might the possible perpetrator and why?

3. Can you explain how the cash payments to the invoices are made in your organization?

DOCUMENT REVIEW:

It is the physical examination of the records and the documents. It is an essential tool in investigating billing schemes, expense disbursements frauds, check frauds, etc., It requires thorough examination and professional judgment.

Document review can be critical to a case. Relatively inexperienced people may overlook a feature of a document, while an experienced forensic accounting investigator will view that feature as a potential red flag.

CLOSING AN INVESTIGATION:

WHEN TO CLOSE AN INVESTIGATION?

It is not advisable to continue investigation when there is no chance or very less chance of recovering the losses which needs more financial sources to investigate the same. Fraud investigator has to make this professional judgment based on his experience and expertise whether to continue or to close, and report the same to the management. But, on the other hand, if the management wants to continue the investigation even after the knowledge of these constraints, it is not advisable to say NO.

CONCLUSION:

These are some few sample techniques of an Investigation. Note that Investigation is a process and not a function to have a single formulated plan. Investigation takes transformation into new techniques and methods as the time progresses. So you have to act now –

“If you aren’t, the fraudster will gladly find, and exploit, your weakness for you”.

Because, as P.T.Barnum says,

“There is a sucker born every minute”.

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How To Get Credit For TDS

2012-01-07T07:13:00.000-08:00

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The person who will be receiving the income should file a declaration with the payer of the income, stating that such income is taxable as the income of the specified persons who are supposed to be taxed on such income

How often have you had the frustrating experience of receiving a tax demand on account of the fact that credit has not been given for the entire amount of tax deducted at source (TDS) from your income? Earlier, this was not so much of a problem as you had to file physical certificates of TDS from your income and credit was given on the basis of such certificates. However, with the computerization of the tax information network (TIN), credit for TDS is given on the basis of information filed with the TIN in the form of quarterly statements by tax deductors.

The computerized TIN system aggregates the details of TDS by the permanent account numbers (PANs) of the persons to whom the payments are being made and accordingly all deductions made from your income by all deductors is supposed to be aggregated against your PAN. In theory, this is an excellent system, but in practice you often find that various TDS made from your income are not reflected against your PAN (you can check your form 26AS—a statement of tax deductions and tax payments—online by registering at www.incometaxindiaefiling.gov.in). What are the reasons for this?

The problems

Very often, the bank or the other person deducting tax at source from your income either does not mention your PAN in the quarterly statement of tax deduction that it files, or makes an error in entering your PAN. In such a situation, the only remedy that you have is to approach the deductor, point out that the tax deducted at source by him is not reflected against your PAN and request him to file a revised statement after correcting your PAN. Again, this is a Herculean task in most cases, particularly if you are dealing with a large bank, which has thousands of customers. More often than not, the bank or another deductor merely gives you an assurance that it will do so, but does not bother to make the necessary corrections. Unfortunately, you have no power to ensure that the deductor rectifies its mistake and accordingly you then have to request your income-tax officer to carry out the rectification on the basis of the tax deduction certificate given by the tax deductor.

The problem was more acute in cases where the investment was made in one name, but the whole income was taxable in the hands of another person. For instance, income of minor children is clubbed with the income of the parent, income of a trust may be taxable in the hands of the beneficiary, income received in the name of a partner may be taxed as the income of the partnership firm and so on. The problem was also acute where the entire income was received by one person, but only a part of the income was taxable as his income, the remaining being taxable in the hands of others. For instance, where a property which is jointly owned is let out, the rent may be received by only the first holder for convenience, but would be taxable as income of the joint owners in the proportion of their respective holding of the property. In all these cases, the PAN number of the person to whom payments were being made would have been mentioned in the tax deduction certificate, and would be reflected in their form 26AS alone. The person who was ultimately taxable in respect of such income was not getting credit for the TDS, while the person in whose name the TDS certificate was issued would get credit only for the proportionate TDS in relation to the income offered for tax by him.

The way out

Fortunately, the rules (rule 37BA) have been amended to provide that in all such cases, the person who will be receiving the income should file a declaration with the payer of the income, stating that such income is taxable as the income of the specified persons who are supposed to be taxed on such income. There is no specific form prescribed for such declaration. Though the rule does not require it, the PAN and address of such other persons should be given with their respective shares of income. The payer of the income is then required to give details of such other persons in his TDS quarterly return, and such TDS will then be reflected in their respective form 26AS.

If you have fixed deposits of your minor children with a bank, interest on which is subject to TDS, and the children’s income is to be clubbed with your income, you should ensure that you file such a declaration with the bank at the beginning of the year, giving your name and PAN, and stating that the children’s income will be taxable in your hands. The bank will have to take cognizance of this declaration and show that tax has been deducted from your income. You should, therefore, be able to claim credit for such TDS on your children’s investments.

While this change in the TDS rules is welcome, there are still various other problems in the process of granting credit for TDS on the basis of the online information contained in the TIN, which the government needs to take care of. After all, the deductors are human beings, and to err is human. Mistakes do happen on the part of deductors and there needs to be a process whereby a deductee is not penalized by non-grant of TDS credit for no fault of his.

Beyond The Tax Book | Gautam Nayak

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Tedious TDS - Practical Issues

2012-01-06T06:38:00.000-08:00

By: Niraj Mahajan

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In business parlance these days, the word ‘TDS’ has become synonymous with ‘tedious’. The deductor and the deductees who are the affected parties in these transactions are having a tough time. They not only have to ensure their role and play it well, they also have to take care that the other party (deductor/deductee ) have played their roles efficiently.

Although the provisions of TDS were inserted so as to have a regular source of revenue for the Govt. throughout the year, it is at the cost and headache of many taxpayers. It has originated from pay-as-you-earn-scheme initiated by the CBDT. Let us have a look as to why and how this draconian compliance is such a pain in the neck.

Anomaly in law :

There remains darkness in certain areas so far as the TDS laws are concerned. In spite of issuing clarificatory Circulars and Notifications, one cannot take crystal clear decision whether TDS on certain transaction is attracted or not and even if TDS is attracted, on what amount TDS needs to be made and at what rate.

There are many instances where the vendors issue invoices on a gross basis i.e. bifurcation for particular items or enough details in the invoice is not provided. Thus, to be on a safer side TDS is made on the gross amount instead of a particular amount related to the invoice. Advice is given these days to vendors to issue separate invoices for separate transactions so as to avoid the need to deduct excess TDS.

Commission agents and related business that raise invoices for their reimbursement of expenses and commission income in a single invoice have to bear the brunt because TDS in this case is done not only on the income part but on the reimbursement amount as well. Lately exemption was granted for non-deduction at source for income of transporters (only if they provide a PAN) . The definition of transporters in the law was such that it could accommodate courier agency services as well, which was however not the intention of the Budget.

Also, progressive decisions given by Tribunal, Courts etc which throws some more light on issues where there is no clarity change the compliance procedures of many businesses. Suddenly, one fine day, an unfavourable decision by Court/Tribunal is delivered, and the taxpayers are caught in a net to deduct TDS and suddenly a decision reversing the unfavourable decision is delivered and taxpayers stop deducting TDS. Thus, one cannot distinguish between black and white where TDS is concerned. Not to mention the professional cost burden involved for distinguishing between this black and white.

Also, the threshold limits provided in the provisions are not practical and inflation linked. So if you are paying rent to someone providing home/office space etc of more than Rs.15,000/- per month, don’t be surprised if you receive a notice stating there is default regarding non-deduction.

Procedural Poison:

Compliance part to be ensured by the taxpayers is a different ball-game in itself. After understanding whether TDS is to be deducted or not on certain transactions, the deductor needs to deduct the same, deposit it in time or else pay interest to the Revenue. In order that the database of the Revenue is filled automatically, the burden of filing the Etds Returns is conveniently shifted on to the deductors.

Deductors also take great pain to follow up with the deductees to provide their correct PAN and other details. Thus, it is not an easy affair for the deductors as well. Think of huge companies which have thousands of deductees every quarter. Unless it is a 12 sigma compliant company, the chances of error(s) in any details provided cannot be ruled out. Now imagine the deductee whose credit was not entered or was incorrectly entered by a deductor. He will have to request the deductor to revise the return only for him! Give a thought whether such revision is commensurate with the amount of claim involved.

Very recently the Tax authorities have invented another harassment named – TAN Registration. A deductor assessee who wants to revise any earlier Etds Return now needs to first of all register his TAN with the online portal. Needless to mention, the details to be filled while registering the TAN are not so easily and readily available and of course they need to match to the last digit. Once you have registered and you are requesting for the already filed files, you have only 3 attempts in a day so to request the file correctly. If you fill the wrong details twice, bang goes the day!

Other issues:

By and large, in most of the assessees’ cases, there is always a mismatch between the amount of TDS claimed and the TDS shown in books as per the TDS Certificates received. The mismatch of TDS credit as per computation and as per books now has become an inherent part and parcel of life. This is because the deductor has not issued the TDS Certificates with correct amounts, PAN or name. In such cases, the deductee has many difficulties convincing the tax authorities that the claim made in the computation is correct in spite of an incorrect TDS Certificate. It is worthwhile mentioning that Rule 37BA has given the authority to the Tax Department to allow or disallow the quantum of TDS claim to the deductee based on their own risk assessed judgement.

It is also generally seen that the TDS amount as reflected between Etds Returns, TDS Certificates and Form 26AS never go hand in hand. Such instances arise due to inefficiency of either deductor or the bank which uploads the CIN. What is important to note is that it is the deductee who feels the brunt of these cumbersome procedures.

Luckily, effective FY 2011-12, the TDS Certificates have to be generated online on the basis of Etds Returns filed reducing the chances of mismatch between the Etds Returns and TDS Certificates. This welcome step should receive a warm response from the taxpayers.

There needs to be a fine tuning between the deductor and the deductee. Since the deductee would be making a claim of the credit, the deductor should ensure that correct details are entered in the Etds Returns. Also it is the responsibility of deductee to provide correct PAN and other details as and when required by the deductor.

The responsibility as a deductor is felt by an assessee when his own TDS on Income is not correctly reflected in Form 26AS. Thus, it is an inter-linked and inter-dependent process between the deductor and the deductee to make and claim correct TDS. It is not a miracle that one in a million transactions may be reported incorrectly. Thus, the cumbersome task of making correct TDS for the benefit of the deductee is very much important because the deductor at the same time might be deductee for some other assessee.

The Tax authorities should also take into consideration the pain the taxpayers are going through. TDS credit should not ideally be withheld just because it is not reflected in 26AS or Etds Returns. And finally the deductee does not become free by discharging his roles; he should enquire and follow up with the deductor whether correct details are provided in the Etds Returns on a regular basis.

In light of the above, I feel the procedures related to Etds Returns should not be taken lightly by both the deductors and the deductees for their own good.

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Reconciliation of Accounts

2012-01-05T06:12:00.000-08:00

By: Rahul Gupta

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Reconciliation of Accounts is one of the important day to day activity, enables the assigned personnel to complete its job. There are lot of reasons behind the differences arise in Account Balances of various types. Although practically mismatching of Accounts are unavoidable aspect but it can be avoided through a Effective Reconciliation Process.

Let us discuss the three different aspects of Reconciliation of Accounts i.e.

1. Reasons behind the differences

2. Reconciliation Process to avoid mismatching of Account Balancing

3. Points to Remember

Reasons Behind the Differences

Here the topic is not just limited to Reconciliation of Account Balances and but also the reconciliation of all transactions whether they are suffering from Balance Mismatching or not. As we know for every management it is important that the work should be carried out through a proper mode as prescribed in procedures & policies. In order to ensure all that reconciliation is required. Such as:-

1) Whether the payment has been made / Receipt has been taken by a Authorized person.on.

2) Duties and Responsibilities are properly secreted.

3) Payments / Receipts recorded but not yet cleared / credited.

4) Wrong entry (Wrong posting is not practical now as computerized accounting software doesn't have any space for it)

5) Appropriate Approvals obtained by the management for the Payments where ever required.

6) Wrong Adjustment entry.

Effective Reconciliation Process

For every type of organization, in order to perform the reconciliation of accounts they must have to draft or opt some Process. The process must be efficient to fulfill the requirements. While drafting a process following points must be remembered:-

1) Timely Clearing of Reconciling Items.

2) Reconciliations performed on Scheduled Basis.

3) Formal Reconciliation Policy and Procedures.

4) Centralized Control, Tracking and Reporting.

5) Segregation of Duties and Responsibilities.

6) Management Oversight, Commitment and Authorizations.

7) Reconciliation Schedule Based on Risk of Account Activity.

The process must benefits the operations and will not effect the smooth working of an organization. Efforts should be made to avoid all possible deficiencies.

Points to Remember

Well we all are aware about the procedures to be followed in case reconciliation is required on part of management and operations such Inappropriate Authorizations, etc. I will share the basic tips to reconcile the Account Balances.

1) Basic Rule = Calculate difference and try to find out the equivalent entry.

2) Advance Rule = Try to find out the entry equivalent to Double the difference

3) If still the difference is unidentified than Tally all Account Balances individually. Efforts should be made to find the deficiency from the all other final account balances. If not than monthly/quarterly basis should be followed.

Reconciliation of Accounts is not just the reconcile of balances, it has a wider scope as it's process includes the part of management, procedures, policies, plans, etc. So it should be performed with intensive care.

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Finance Environment

2012-01-04T07:29:00.000-08:00

By : Jeyarajan.R

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Finance:

When we talk about finance whether it is limited to money or something more than money, to decide we have to consider the following points.

As many activities are associated with finance, like savings, paying, giving or getting credit, these activities can be done without the use of money just like what we done during barter system. Further money just like other goods or services can be bought and sold i.e., when we day a person earn a sum of money, means, he sold his service to buy a sum of money.

Hence finance can be defined as “the study of nature and use of payments not as nature of money”

Objective of Financial System:

when we consider some subject as a system it should contains various parts combined by common objective. For healthy financial system of a capitalistic economy should have the following objectives

1. Maximum employment opportunities

2. Stable price level

3. Maximum sustainable growth

4. Satisfactory balance of international payments

5. Maximum scope for individual freedom and decision making.

Parts of Financial System:

The various parts through which financial system function are as follows

1. The central Bank, which creates reserves for banking system

2. The commercial Banks, which create working money through their loans and investments.

3. The Non-bank intermediaries, which assist in transfer of funds from savers to investors.

4. The money and capital market, which links savers and users of funds through sale and resale of securities.

5. The foreign exchange markets, which exchange and price one nation money against other s.

6. The users of financial system, users and suppliers of funds, who rely on the financial system for their economic activities.

Money:

Even though study of finance is not solely attributable to money, it is inevitable to study the role of money in financial system to understand finance, as money act as an intermediary for all kind off transaction like blood in human body. Money issued as a factor to measure the value of various goods produces and services provided by people with various skills and specialization.

Real Flow and Money Flow:

All economic activities can be represented by two matching flows.

I. Real Flow:

The flow of material, machine and labor service, its final output and the final flow of goods and services from producers to customers are known as Real flow. These flows accounts for the satisfaction of wants and needs, as utilities that use the end purpose of economic effort.

II. Money Flow:

This flow involves innumerable payments and receipts of currency or financial instruments that assist the production, exchange, consumption of real wealth moving.

Almost every economic transaction involves a double movement in parallel, one part in the movement of goods from seller to buyer and other is movement of money from buyer to seller.

Still money is only a facilitating agent as increase in supply of money without increase in real production of goods and services has no value instead it inflate the price of goods and services not matched to money flow. A million rupees in mid of desert can be taken away by a single glass of water.

Supply and Velocity:

How much economic activity money can support depend on both how much money available (supply) and how fast that money turnover (velocity). A small amount of money turning over rapidly can serve on economy as effectively as large amount of money turning over sluggishly.

Most of the new money is created in the banking system and finds its way into circulation by bank loans or investments. The part of the money that the bank lends to spenders will be invested by buying bonds and securities.

Classical Interest Rate Theory:

Classical interest rate theory brings as near the heart of wealth creation when people receive income, they can either spend for immediate enjoyment or differ spending by saving.

To the extent people save or differ spending, they release economic resources from having to produce for current needs. These resources then available for capital formation, investment in goods, which take time to build and which people will use up in future period. Capital goods are thus produced through saving and savings are thus identical to investments.

Fundamentals of interest rate depend upon two factors; they are Time preferences and Productivity. These two factors are interrelated while deciding the interest rate. Time preference represent the period for which the money invested, as people requires money immediately rather than later.

Money saved is money invested, while invested, user of funds (borrower) will earn profit either by way of investing in finished goods as inventory or purchase as raw material, convert into finished goods and selling the same as finished goods. The income earned on above process is the productivity of money.

The share for money lender/saver/investor is based on the productivity of the money saved/invested during a specific period is represented by interest.

Savings, Credit and Investment:

Credit adds much power to the power and flexibility of economic life. It makes possible new cycle of production and consumption, distribution and exchange by doing two things

1. It activates the idle money and by doing so

2. It activates the idle resources men, machine and materials.

The extension of credit by commercial banks plays particularly important part adding to the nation’s money supply and velocity.

The Financial Market:

A market is a set of facilities where goods are exchanged for money as money exchanged for goods. In financial market securities are the goods, exchanged on regular basis. The following are the functions of financial market

1. Shifting funds from suppliers to users

2. Pricing securities

3. Discounting the future

4. Liquefying securities

5. Allocating funds add economic resources.

The first task of financial market is to gather and mobilize perhaps from large number of individuals and separate financial institution to a large part of the vast sum of money needed for each day either in short term or on long term basis for government bodies, business and consumers.

It permits the owners of the money to exchange it for securities and enabling user of money to buy money by selling securities.

Non-bank Intermediaries:

In above points we discussed almost all the parts of financial system such as commercial banks, central bank, financial market, savings, credit and investment and users of financial system briefly except non-bank intermediaries, whose role is to make money available to the needs of the users of money where commercial bank not able to reach.

They act as intermediary between less qualified capitalist (savers) and users of money (borrowers), knowing better than the ordinary public which loans are better and which loans are worse, they borrow from him, and gain a profit by charging to the public more than they pay to him.

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Speculative Investments

2012-01-04T06:46:00.000-08:00

By: Dhirendra Kumar

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Oh my God! Speculation! “The stock market is nothing but speculation”, often hisses my friend, who is a leftist intellectual. And after he reads this he will be transformed into an angry and irritated leftist intellectual who will have to be placated over some liquid refreshments. But that’s okay because this whole routine is something we’ve been doing for many years now.

However, that doesn’t quite change the fact he firmly believes in this speculation business. That the stock market is nothing but speculation is an article of faith in some circles. The strange thing is that this belief extends to circles far wider than my friends. Large swathes of media, political and official circles believe this. Even though the so-called ‘investing community’ doesn’t seem aware of this, this view permeates much of the general attitude in our country about stock investing. The curious thing is that few people are at all clear about the definition of ‘speculation’. What exactly is this ‘speculation’ that stock investors are accused of and how is it different from non-speculation?

The dictionary lists the following words among the synonyms of speculation: conjecture, rumour, gossip, assumption, guesswork, hearsay and supposition. It’s clear that the word has a bad reputation, but that doesn’t help us figure out what is speculation and what is investment. One definition that’s surprisingly common is that speculation is ‘engagement in business transactions involving considerable risk but offering the chance of large gains, esp. trading in commodities, stocks, etc., in the hope of profit from changes in the market price.’

Unfortunately, this is a somewhat circular idea that isn’t much use unless one can define what is ‘considerable risk’. In any case, at the end of the day, all investment hopes to ‘profit from changes in market price’ so that’s not much of a distinguishing factor.

In my view, the difference between an investment and speculation boils down to not what an investor does but to what he wants and what his level of knowledge is. Think about it. Someone tells you that X stock is going to go up and you go ahead and buy it without any further thought. By comparison, someone else could know everything about X, it’s prospects, the industry, it’s peers and come to the conclusion that it’s a good buy. Clearly, the very same action, depending on how much an investor knows, could be intensely speculative or could be a carefully considered investment.

Speculation really is a state of mind, but unfortunately it’s one which generally has poor self-awareness. Are you, in this sense, a speculator? Here are a few checkpoints. The more of these you answer yes to, the closer you are to being a speculator:

a) You never try to balance risk between different investments.

b) You buy stocks of companies without a clear idea of how their businesses work.

c) You choose which new issues to invest in based on the ads of those new issues.

d) You buy stocks because they’ve gone up.

e) You sell stocks because they’ve gone down.

f) You think a stock with a lower price is cheaper than one with a higher price.

g) You think the previous checkpoint is a mistake.

h) You answered yes to most of these checkpoints and yet you are sure you are an investor and not a speculator.

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Do's and Don'ts in the Stock Market

2012-01-01T07:28:00.000-08:00

By Ramalingam K

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Let’s introduce do’s and don’ts of investing:

Most of us have our own perception of investment based on our experiences, but also tend to be confused with the opinions given by others. Knowing the do’s and don’ts of the stock market would help us turn really as a smart investor.

The do’s and don’ts in the stock market are:

Slow, steady, and boring wins the race:

It is best not to panic over information about stocks on the media. Being slow and steady with looking at the activities that your money is to be used for would ensure that you invest in ventures that are good, useful and profitable.

Reading good books on personal finance will help you in taking right financial and investment decision. In addition, finding good financial advisors would help you get advice regarding stocks and mutual funds, along with entrusting the custody and management of your funds to them.

All this may seem too boring and time consuming, but it is better to be cautious than bitten too hard.

Don’t give any weight to market forecasts. All opinion pro and con is already built into the price of equities today:

Market forecasts on the media has got good entertainment value but doesn’t have any investment value. It is just enough for long-term investors to invest in good stocks, and mutual funds that would appreciate in the long run.

It is best to understand that market forecasts only show you the expected direction in which the market is heading based on the available information. This forecast is only a forecast and need not become reality.

In addition, market fluctuations are the very nature of share markets and should mean nothing to long term investors. Making accurate market forecasts is tough, as they are influenced by various factors like the outcome of political elections, the direction of the economy, interest rates and world events. It is also wise to know that these fluctuations are incorporated in the price of the share, stock or mutual fund.

Do make your own analysis of the stocks, shares and mutual funds:

It is unadvisable to place your full faith on analysis of others regarding stock, shares and mutual funds. No wise man would always tell you all about his market beating strategy. Making one’s own analysis keeping your financial goals in view and framing a strategy would help.

This involves studying the performance of top performing stocks and mutual funds over 5 years and existing mutual funds over a period of 3 months to decide on which stock to maintain and which to dispose off. All this would ensure that you are investment smart.

Don’t think you can successfully engage in short-term market timing:

As a long- term investor you should never contemplate taking advantage of short-term market dealings and speculations. Playing with shares and mutual funds in the short-term market may give you a profit in a few transactions but will not give you profits forever. So you can’t have an investment strategy which gives profit inconsistently. We need a strategy which can bring profits consistently so as to be a successful investor in the long run.

It is true that playing in the share market is neither entertainment nor fun. It is also futile to borrow or work on short-term margins to make money.

Don’t assume that if anyone were genius enough to devise a market-beating strategy he would be stupid enough to share it with anyone:

Stock tips are good to learn, but not to act on for speculations. It could prove dangerous to act on speculation tips given by one and all, as they may not be correct. In addition, everyone has his or her own perception of investment, with other not having full knowledge or skills.

You need to take time to think over each tip and analyze if it contributes to your long-term objective of capital appreciation. Similarly it is not advisable to subject your money to risk with investing in investment fads that may or may not earn you huge profits.

The final advice:

You need to make a calculated decision considering the pros and cons whenever you make an investment. In addition abstain from trading often in the stock and mutual funds market. Always think in terms of long term investing.

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All About XBRL

2011-12-31T06:31:00.000-08:00

By: GURVINDER SINGH

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INTRODUCTION

XML stands for extensible markup language. Extensible means language that can be extended by anyone who wants to create additional ways to use it. Markup means that XML’s primary task is to give definition to text and symbols. Language means that XML is a method of presenting information in understandable formats.

XBRL was created with a view to develop a consistent method of reporting business event information. The initial goal of XBRL is to provide an XML-based framework that the global business information supply chain will use to create, exchange, and analyze financial reporting information.

HOW DATA DISPLAY IN XML FORMAT

XML-Coded data:

New England
02312000
Wal-Mart

XBRL in INDIA

A separate company, under section 25 has been created, to manage the operations of XBRL India. The main objectives of XBRL India are:

To create awareness about XBRL in India
To develop and maintain Indian Taxonomies
To help companies, adopt and implement XBRL.

XBRL in MCA

Ministry of Corporate Affairs vide its General Circular No. 09/2011 dated 31.03.2011 mandated certain class of Companies who are covered under Phase I. Following class of companies are required to file their Balance Sheet and Profit and Loss Account in XBRL Format:-

Listed Companies and their subsidiaries;
Companies having paid up capital of Rs. 5 Crores and above;
Companies having turnover of Rs. 100 Crores and above.

However, banking, insurance, power Companies and NBFCs are exempt for XBRL Filing in Phase I.

Time Limit :-

To provide adequate time and flexibility to become familiar with the new Format, time limit has been extended to 30^th December, 2011.

All the above entities are allowed to file their balance sheet upto 30/12/2011 or within 60 days of due date of Filling.

Steps for Creation and filling of Instance Documents

Companies covered under First Phase are required to file their Instance Document created according to the xbrl Rules after converting the same in .xml file. MCA has declared Taxonomy for the purpose of XBRL. Taxonomies for Indian companies are developed based on the requirements of:

Schedule VI of Companies Act,
Accounting Standards, issued by ICAI
SEBI Listing requirements.

Taxonomy can be referred as an electronic dictionary of the reporting concepts. Taxonomy consists of all the data definitions, the basic XBRL properties and the interrelationships amongst the concepts. It includes terms such as net income, EPS, cash, etc. Each term has specific attributes that help define it, including label and definition and potentially references. Taxonomies may represent hundreds or even thousands of individual business reporting concepts, mathematical and definitional relationships among them, along with text labels in multiple languages, references to authoritative literature, and information about how to display each concept to a user.

Instance document is a business report in an electronic format created according to the rules of XBRL. It contains facts that are defined by the elements in the taxonomy it refers to, together with their values and an explanation of the context in which they are placed. XBRL Instances contain the reported data with their values and “contexts”. Instance document must be linked to at least one taxonomy, which defines the contexts, labels or references.

Creation of Instance Document is nothing but mapping of company’s data into XBRL Taxonomy. The Process used for mapping the Data into Taxonomy is known as Tagging. Tagging is just a task to convert the language used in Financial Statement into the language used in Taxonomy. Once the tagging of financial statement elements with the published taxonomy elements is done, the next step is to create the instance document.

Separate instance documents need to be created for the following:

Stand Alone Balance sheet of the company
Stand Alone Profit and Loss Account of the company
Consolidated Balance sheet of the company
Consolidated Profit and Loss Account of the company

The instance document should contain the financial information for both the current as well as the previous financial year. Consolidated balance sheet and Profit and Loss instance documents to be created only in case the same is applicable to the company.

VALIDATION OF FILE USING MCA VALIDATION TOOL

After successfully generating .xml file, the next step is to validate the file using MCA Validation Tool provided on MCA website. If errors occur then rectify the same in instance Document and try to validate the same again.

PRESCRUTINY OF FILE

After validating, the File is need to be Prescrutinize with the help of MCA Validation Tool. If no error occurs then Message displayed “No Prescrutiny errors occurred”. The File is ready to be uploaded.

E Forms

The Prescrutinized .XML file can be uploaded to the MCA site as an attachment with the eForm23ACXBRL and eForm23ACAXBRL after filling the same.

Authentication of XBRL Document:-

Earlier it was decided that only Statutory Auditors will certify the XBRL document. However, it was further clarified that CA / CS/ CWA in whole time practice can certify XBRL documents.

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Amendments in Companies Bill 2011

2011-12-30T07:37:00.000-08:00

By: Akhil Banthiya

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Companies bills 2011

What’s new?

Following has been introduced in the new company’s bill 2011

1. Provision for e-governance:-

i. Participation of directors and shareholders through video conferencing is allowed in general meeting and board meeting.

ii. Voting in GM’s through electronic mode-: NSDL and CSDL are given approval by the MCA for providing electronic platform to capture the electronic votes of the shareholders in the GM’s.

iii. Registrar of the company shall issue digital certificates to every company.

iv. Maintenance of documents in electronic form is allowed.

v. Inspection of such documents in electronic form is allowed.

2. Corporate social responsibilities:-

A. Any company doing business of more than following threshold limits shall have to constitute, a “corporate social responsibility committee”

i. Net worth of more than 500 crores or;

ii. Turnover of more than 1000 crores or;

iii. Net profit of Rs 5 crores or more

B. Bill suggests that the companies doing business more than above specified thresholds limits shall mandatorily earmark at least 2% of average net profits for preceding 3 years for CSR activities.

C. Schedule VII of amended company’s act 2011 specifies the activities which shall constitute the part of such company’s corporate social responsibility policy.

D. The committee shall consist of 3 directors including one independent director.

3. Investor protection measures:-

i. “Professional institute of trade and business chambers” shall be established across the country during 2010-11 to ensure the investor protection.

ii. Acceptance of deposits from public shall be under more stringent regime.

iii. Central government shall have the power to specify the companies in which proxies shall not be allowed in the shareholders meeting.

iv. Minimum number of members, depositors or debenture holders filing class action suits against any company u/s 245 has been revised to such percentage as may be prescribed.

4. Changes in the concept of independent directors (Tenure, Code of conduct and liabilities):-

i. Minimum 1/3 of the total no. of directors shall be independent directors; however CG shall have the power to increase or decrease such minimum no. of independent directors in any public company.

ii. Independent directors shall not retire by rotation.

iii. Independent director shall be appointed by the company from the data bank of independent director as maintained by the CG and put on their website for the use of the companies making appointment of such independent directors.

iv. Any resolution passed in the absence of independent director shall be final only on ratification of such resolution by at least one independent director.

v. Audit committee shall consist of minimum 3 independent directors

vi. Schedule IV prescribes the code of independent directors (Role, function, manner of appointment, reappointment, removal, resignation, and separate meetings of independent directors.)

5. Mandatory appointment of women directors in every company accept one person company.

6. Introduces new concept of One Person Company.(Sec 122, 193):-

(a) All the provision of private company shall apply to one Person Company.

(b) Provision of section 98 and Sec 100 to 111 shall not apply to one person Company.

(d) Ordinary business shall be deemed to be transacted by the company if they are entered by such member in the minute book, they shall be deemed to be passed on the date when the minute books are dated and signed.

(e) No. of board meetings to be conducted-: One board meeting should have been conducted in each half year of a calendar year (Jan – Dec) and the gap between 2 board meetings should be at least more than 90 days.

(f) Similarly the business transacted in board meeting shall be deemed to have been passed on the date when they are entered into minutes of board meeting.

(g) The concept of Producer Company is still retained in companies act.

(h) More stringent regime for not for profit companies to check the misuse.

(i) No restrictions on the number of subsidiaries a company can have.

7. Vigil mechanism shall be established in the every listed company to safeguard and reward whistle blowers.

8. Rotation of auditors and audit firms:-

i. An auditor shall be appointed for a minimum period of 4 yrs. With a minimum cooling of 4 years between 2 fixed terms of 4 yrs. Each and

ii. During such fixed tenure the concerned partner authorizing the financial statement shall change every year

iii. LLP of CA’s (as auditors) shall be treated as body corporate under section 226(3A) of the companies act.

iv. Following disclosures need to be given in the financial statements:-

a. Development and implementation of risk management policy

b. Corporate social responsibility policy of the company

c. Evaluation of the performance of the board of directors of the company

9. Formation of national financial reporting authority (NFRA) in place of the existing (NACAAS); with added quasi-judicial powers to exercise independent oversight over the professionals.

10. Serious fraud investigation officer (SFIO)

i. Statutory status has been granted to SFIO.

ii. Investigation report filled by SFIO to the court shall be treated as report filled by police officer.

iii. Serious fraud investigation officer shall have the powers to arrest against any offences which comes under the definition of fraud.

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Highlights of The New Company Bill Tabled in Lok Sabha

2011-12-28T02:15:00.000-08:00

By: CA Dhiraj Satnalika

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Corporate Social Responsibility
2% of average profit of last three years.
Only disclosure mandatory.
Mandatory CSR committee.

Auditors
Rotation in four years.

Independent Directors
Five-year fixed term.
No stock options.
Board to have one woman director.

Serious Fraud Investigations Office
To get power to arrest.
No suo moto powers.

Investor protection
Mandatory “Unpaid Dividend” account to be opened by companies in scheduled banks.

Unpaid/Unclaimed
30 days dividends to get transferred under Investor Education Protector Fund.

Benefit to Minority Shareholders
Majority Shareholders shall deposit equal value of shares obtained from minority in a separate bank account.

Others Observations of the new Bill:

1. The Bill enhances the accountability for those incorporating a company, and directors on the board, by framing additional disclosure norms.

2. At the time of incorporation, it is now mandatory to file the consent of directors associating with the company. The director will also have to give particulars of other firms which they are associated with. This will make promoters and directors more accountable. It will also address the problem of bogus directors on company boards.

3. In case of fraud, the defaulter can get an imprisonment of anywhere between six months to 10 years along with a fine.

4. The new Bill also proposes that persons signing the memorandum of association—document that regulates a company’s activities—will have to state upfront that they have not been associated with any fraud or mismanagement or breach of duty under the companies law.

5. With scams such as companies vanishing after raising public monies as also opting for liquidation, the new Bill was designed with the aim of sensing frauds early and, therefore, these provisions have been incorporated. These will ensure that maximum responsibility is put on the companies when they register.

6. The Bill also proposes to strengthen the Serious Fraud Investigation Office, a multi disciplinary body constituted by chartered accountants, company secretaries, revenue and corporate law officials.

7. It will also introduce concepts that are new to India, including the one-person company and class-action suits. The proposed regulation will also make it easier to start and shut companies.

8. The new regulations, if cleared by both houses of parliament, will apply to more than 800,000 companies registered in India.

9. The structure of the Bill is contemporary, sound and visionary rather than just an attempt to address shortcomings.

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Rupee's Next Destination

2011-12-23T07:08:00.000-08:00

By : K Venu Babu
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Volatility continues in the currency market with the rupee losing heavily or gaining handsomely every day for the past few days. This fluctuation has sparked a debate on the government’s intentions, the RBI’s role and the likely impact on the economy at large. After dipping close to Rs 47 to a dollar, the Indian currency recovered smartly for the past few weeks. The recent escalation in international crude prices leading to a heavy pressure on Balance of Payments had battered the Indian currency. Meanwhile, a study conducted recently by Institute of Economic Growth (IEG) has revealed that the rupee-dollar exchange rate is expected to break yet another psychological level of Rs 47 in four months' time. And the Indian government has predicted the rupee to cross 50 level by 2002. What are the various factors that affect the rupee movement?

After crossing the barrier of 40 mark against a dollar during the nuclear tests in 1998, the rupee gradually depreciated to 45 level in 2000 and had touched a low of around 47 in the same year, though recovered later. However, RBI did not enter the market, and it had asked nationalised banks to sell more than $500 million this financial year to steady the rupee which plunged by over 1.5 per cent. This year it has shed more than 5 per cent of its value in terms of the dollar.

The recent international crude price has crossed $32 per barrel resulting in the increase in the oil pool deficit at Rs.85 billion ($1.88 billion). Other economic indicators, barring agriculture, look bleak and the country might be in for difficult times in future. Had the same prices continued, the deficit would have stood at Rs.120 billions ($2.66 billion) by March 2001. The subsidy bill on kerosene, diesel and LPG had been rising. A fall in the rupee against the dollar has made the entire fiscal calculation awry.

Is the fall of a rupee good for anyone? Economists are a divided lot. Some favour a cheaper rupee to spur exports and to make imports costly and thus discourage the flow of consumer goods under the WTO rules. That and higher import duty should partly shield small scale industries from fierce competition from Chinese and South Korean manufacturers. Others fret that costly imports will add to the inflationary pressure and make nonsense of industrial growth revival and lower interest regime.

The debate of rupee depreciation and appreciation continues as it is not easy to determine the equilibrium real exchange rate of the rupee. Ideally this is defined as the value that equates the current account and the capital account of the balance of payment, over the time. That is, current account deficits must be financed by sustainable capital account deficits. Since future periods are involved, market expectations enter the fray. Before the eighties the determination of the exchange rate was simpler. It was dominated largely by trade flows. But now capital transactions dominate. The exchange rate behaves more like an asset price; expectations of market traders and bandwagon effects, as they learn from each other, can lead to large price movements.

Sustaining the nominal exchange rate above the value expected by the market requires high interest rates to prevent capital from flowing out of the country. Over the time this harms domestic investment, output and productivity and therefore causes a depreciation in the equilibrium real exchange rate. To maintain the level of the nominal exchange rate will then require even higher interest rates; it is not a sustainable strategy. South East Asian countries made this mistake: nominal exchange rates were fixed in the nineties and did not vary sufficiently while their interest rates exceeded world interest rates.

A rupee on a roller-coaster dampens inflow of capital; this year foreign exchange reserve has come down by 7 per cent — from $38.34 billion to $ 35.67 billion. NRIs have deposited over $10 billion and could take it out any time. Foreign funds dealing in the stock market brought in another $10 billion. Then there is trade deficit. A wary RBI has asked exporters to bring back half of the balance in foreign banks. This meant an addition of $1 billion to the reserve. But its psychological effect in market nervousness would be strong. It is plain that the usual lag and lead factors are behind the value swings and not speculative activities. Once this works itself out, the rupee is expected to remain stable around the present level.

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Why is the rupee falling

2011-12-22T07:10:00.000-08:00

By : Subhanshu Gupta

The roller coaster ride of rupee was witnessed in the last month when it touched an all time low of Rs 46.07. All the while Reserve Bank of India kept assuring us that the fundamentals of the economy are intact. It was only a few days back when it pushed the panic button and asked all corporate sector borrowers in the markets abroad (external commercial borrowings), exporters and holders of American Depository Receipts to repatriate their dollars. RBI hopes to garner $2 billion in this way.

But the falling rupee has to be seen against a broader perspective, against the news of a fall in business confidence index, fall in industrial growth, a rise in trade deficit and a rise in inflation. The volatile political climate and its repercussions on the stock market, which has been on the decline since February, should not be forgotten either. There is news of millions of dollars being withdrawn ($545.7 million in June and July alone) from the market by the Foreign Financial Institutional Investors (FIIs). With America being India’s biggest trading partner, the rupee fall against the dollar is serious even if the rupee does not fall as much against other currencies. The average person on the street may not be directly affected by it (unless he is planning foreign travel or sending a child abroad to study), but because the fall in the value of rupee is going to result in inflation, everyone, sooner or later will feel the impact, specially the elderly and the poor. The fear of inflation usually triggers central banks into action and it did so in India also recently when the rupee’s value breached the psychological barrier of Rs. 46.

However, the fall in rupee may be a blessing for some sections of the society. They are the exporters. They have been able to sell their products cheaper in markets abroad. They are happy because a lower rupee value for dollar will enable them to compete with China and South East Asia. In fact, ever since the rupee started to slide, the export performance started to improve dramatically. A low rupee will also prevent “dumping” of goods by neighboring countries, which has been creating problems for some major domestic industries. Others who will be happy with the rupee’s fall are those receiving money from relatives abroad. Each dollar will give them more rupees.

The question that haunts our mind is that why is the rupee depreciating against the dollar? Well...like any other price, the price of the dollar is determined by its demand and supply. If the demand goes up, then the price of the dollar also goes up. Recently, the demand for the dollar went up mainly because of the government’s own demand on account of its heavy oil and defense import bill. The corporate sector’s demand also went up because it wanted dollars for imports already in the pipeline. The supply of dollars at the same time, dwindled as the FIIs started withdrawing money from the Indian stock market. Many returned to America since the interest rate hike by the Federal Reserve recently. Foreign direct investment inflows too have been meager and a mismatch between the demand and supply occurred and consequently the rupee fell.

The RBI intervened promptly in its usual manner by raising the bank rate and the cash reserve ratio of banks. It also raised the rates of bank refinance. It believed that people were borrowing rupees in order to speculate in the Forex market. The RBI, however, did not intervene in a big way by selling dollars from its reserves though most central banks would have done so.

The rise in the bank rate, meanwhile prompted commercial banks to hike their own lending rates, sending adverse signals to the corporate sector, namely a higher borrowing cost. Surprisingly, despite RBI’s recent intervention, the rupee kept falling and it reached Rs. 46 on August 11.

Earlier, the RBI stopped its attempts to arrest the fall realizing its futility and instead issued a long explanatory note. It declared that there was to be no more targeting of the rupee to any specific value and the market was going to decide where the rupee would stabilize though monitoring was promised. Seeing it cross Rs. 46 however made it panic.

The rupee will pick up in value once the market has calmed down and more dollars come into the market. While this drama was being enacted, exporters who had been doing brisk business on account of the rupee’s depreciation, stopped bringing back their dollars earned abroad and further exacerbated the shortage of dollars. Once exporters start bringing back the dollars especially after the RBI’s edict, the market would come back to normal. For the rupee to stabilize, inflation has to be brought under control.

RBI is reviewing the Export Earner Foreign Currency (EEFC) scheme to ensure more dollar remittances from abroad. The current reserves of $2 bn in the EEFC account is sizable, which will help it to stand off a further fall in the rupee.

As per the scheme, exporters are allowed to park 50%-70% of their foreign exchange earnings abroad for a period of 180 days under the Foreign Exchange Regulation Act. This is to help them in meeting their day-to-day overseas expenditure. However some exporters are parking their funds beyond this limit. RBI is expected to ask for repatriation of the proceeds of ADRs and ECBs from abroad if they have been parked there for a long time.

Since several corporates have raised over a billion dollars through the ADR route, repatriation of the proceeds could help stabilize the rupee, which has lost over 5% during the current financial year.

The other positive news for the rupee is that during the month of August, Foreign Institutional Investors have turned to net buyers with their current net purchases of Rs 1.4 bn. They were net sellers in the equity market to the tune of Rs 14.1 bn in the month of July. Further the RBI has cleared foreign direct investment (FDI) worth Rs 9.5 bn. With the increasing FII investment, although at a slower pace, clearance of FDI and repatriation of proceeds of ADRs will lead to an increase in the supply of dollars and one can expect it to bring some relief to the falling rupee.

A lower rupee will enable exporters to rake in more dollars in the future. But as oil imports and other essential inputs used in export production will cost more, there will be an escalation of costs for exporters too. Unless they raise their efficiency and productivity, they may wish that the rupee would depreciate further. But what a way to go! From Rs 4.765 to a dollar, the rate before 1966 to Rs. 46 today, all in a matter of a few decades. Yet we are lucky as there were worse cases in South East Asia, when the same amount of depreciation took place within a few weeks.

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Chartered Accountancy Course- Number of attempts does not matter. The value of a CA always remain the same.

2011-12-11T06:38:00.000-08:00

By : Ca Sachin Data

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A well known speaker started off his seminar by holding up a Rs.1000 note. In the room of 200, he asked, "Who would like this Rs.1000 note ?"

Hands started going up.

He said, "I am going to give this Rs.1000 note to one of you but first, let me do this." He proceeded to crumple (make wrinkle) the note .

He then asked, "Who still wants it?"

Still the hands were up in the air.

"Well," he replied, "What if I do this?" And he dropped it on the ground and started to grind it into the floor with his shoe.

He picked it up, now all crumpled and dirty. "Now who still wants it?" Still the hands went into the air.

"My friends, you have all learned a very valuable lesson. No matter what I did to the money, you still wanted it because it did not decrease in value. It was still worth Rs.1000 . Many times in our lives, we are dropped, crumpled, and ground into the dirt by the decisions we make and the circumstances that come our way.

Many a times the students think that they are contemptible and have again landed into the hands of the failure.

They feel as though they are worthless. But no matter what has happened or what will happen, you will never lose your value. You are special - Don't ever forget it!