Test of Control (TOC) vs Test of Details (TOD) –

Test of Control
Test of Details

In a process of Statutory Audit, the Test of Control and Test of Details are two important stages and it also makes an important question from the interview pov.

I have discussed a comparison of both gathered from my experience.

TOC is a type of audit procedure we perform to evaluate whether a client’s internal control works effectively. Thus, we perform the test to obtain evidence of effectiveness before we can rely on controls. In case controls are weak, we will need to increase our substantive tests.

So, we take out the samples from SCOT (Significant class of Transactions), test various assertions, capture the details of the given sample, and match them with supporting documents. The sample size depends on the population and frequency of control.

Based on the TOC, we determine the extent of TOD. Test of Details is a substantive procedure used to collect evidence to verify individual transactions or balances.

So, after a combined assessment of risk and control (CRA), we define the tolerable error (TE) for deviations and obtain the samples for transactions to do the testing. The goal here is to confirm that supporting docs match with each other and the source.

I have only explained the surface of it and there are a lot of other things done throughout this.

I hope it was worth a read! Do add your learnings in the comments.

Windfall tax: Will India impose it too?

Windfall tax: Will India impose it too?

This question has been a buzz in Indian media for the past few weeks. But what is this windfall tax that Indian media is going on about?

What is the windfall Tax?

When a company benefits from something that they are not responsible for and, as a result of that, enjoys the financial gain, that gain is referred to as windfall profits.

Governments, typically, levy a one-time tax over and above the normal rates of tax on such profits, and that is called windfall tax.

Why Now?

So what’s happening is global oil and gas prices are at a peak level due to the Russia-Ukraine conflict. If we take the example of any Indian upstream oil companies, say ONGC, or Oil India. They declared an all-time high net profit in the fiscal year 2021-22.

ONGC declared that its net profit grew by 258% to reach ₹40,306 crores. While the Oil India announced a net profit of ₹3,887.31 crore, which is 123% higher than in the preceding year.

As the Indian government has recently gone for the cut in Central Excise Duty and considering that it is spending more on food and fertilizer there is the requirement of any alternate levy to full fill this gap and one of the solutions could be levying a windfall tax on oil companies.

Countries like Italy and the UK have already imposed a windfall tax over the past couple of weeks.

Will such tax increase the Price of the Fuel?

Very unlikely, as this tax is not part of the input or output cost, but levied only on profit.

Is India really considering such a levy of tax?

While there is no formal denial by the government, upstream oil companies have said they have heard nothing about this.

Let me know your thoughts on whether you believe that such a tax should be levied or not?

#oilcompanies#tax#fintaxfirst#indianeconomy

Chartered Accountant in Pimpri Chinchwad

Rotation of Auditor under Companies Act, 2013 – Important Step to Maintain Independence of Auditor

It is mandatory for every company registered under the Companies Act, to get its accounts audited by the statutory auditor and present it before the stakeholders every year. An audit is an important activity for every business and the auditor must present his views in an unbiased way.  

The principle of Audit Rotation implies periodic breaks to audit engagements and is imposed to avoid long-term relationships between an auditor and the client. Audit breaks/rotation is a major provision to enhance the Audit quality and maintain the trust of various stakeholders in the company.

Section 139(2) of the Companies Act, 2013 deals with the mandatory auditor/audit firm rotation principle and provides for the rules and regulations in this regard. 

Auditor Rotation Applicability

Section 139(2) of the Companies Act, 2013 provides for mandatory rotation of auditor or audit firm by listed and certain class or classes of companies. The Section specifies that no listed company or a company belonging to such class or classes of companies as specified shall appoint or reappoint

  1. An individual as auditor for a more than one term of five consecutive years and 
  2. An audit firm as auditor for more than two terms of five consecutive years. 

Therefore rotation of auditor is applicable to all listed companies and such other classes of companies as may be prescribed. The list of “such other class of Companies” is provided in Rule 5 of Companies (Audit and Auditors) Rules, 2014. Except for small companies and one-person companies, rotation of auditors is applicable to the following companies:

Sr. No.Category of companyThreshold limit 
1.Unlisted public companiesHaving paid-up capital of Rs. 10 crores or more
2.Private limited companiesHaving paid-up capital of Rs. 50 crores or more
3Any company having paid-up capital below threshold limits as specified under points (1) and (2) above but having public borrowings from a financial institution, banks, or public depositsRs. 50 crore or more

Therefore from the above explanation, it is clear than Auditor Rotation is not applicable to the following companies:

  1. One Person Company 
  2. Small Company
  3. Unlisted public companies having paid-up capital less than Rs. 10 crore or borrowings less than Rs 50 crore
  4. Private Limited companies having paid-up capital less than Rs. 50 crore or borrowings less than Rs 50 crore

Can the Outgoing Auditor be Reappointed in the same company after the completion of his term of the audit?

First Proviso to Section 139(2) provides that after the completion of the audit term (5 consecutive years or 10 consecutive years as the case may be), the outgoing auditor shall not be eligible for re-appointment in the same company:

In the case of individual AuditorFor a period of 5 years from the completion his term
In the case of an Audit FirmFor a period of 5 years from the completion of his term

Therefore post completion of the term of audit, a cooling period of 5 years is provided to be eligible for reappointment as an auditor in the same company.

Provision related to Common Partner in Audit Firm

Second Proviso to Section 139(2) of the Companies Act, 2013 provides that if Audit Firms i.e. incoming audit firm and outgoing audit firm whose tenure has expired in a company immediately preceding the financial year, are having common partner or partners, then such incoming audit firm is not eligible to get appointed as auditor of the same company for a period of 5 years. 

Manner of Rotation of Auditors by the companies on expiry of their term

  1. Recommendation for an appointment:

The Audit Committee, where there is one of the Board shall consider the matter of rotation of auditors and shall recommend his appointment at the annual general meeting of the company.

  1. Prior Period must be taken into consideration:

While calculating the consecutive 5 years or 10 years, the prior period before commencement of the Act, served as Auditor (whether individual or firm) shall be taken into account.

  1. Not eligible for appointment if belongs to the same Network

The incoming Auditor shall not be eligible for appointment if he or any partner of the firm is associated with the outgoing auditor or auditor firm under the “same network of audit firms.”

Rule 6(3) of the Companies (Audit and Auditors) Rules, 2014, provides that while calculating the period of five consecutive years or 10 consecutive years as the case may be the period for which an individual or firm has held office as auditor prior to the commencement of the Act shall be taken into account. The following illustration will help to understand how an appointment shall be made in the first AGM after the commencement of this Act, i.e., 1st April 2014

Illustration 1 (For individual auditor) :

Number of consecutive years for which an individual auditor has been functioning as an auditor in the same company [in the first AGM held after the commencement of provisions of Section 139(2)] Maximum number of consecutive years for which he may be appointed in the same company (including the transitional period)The aggregate period which the auditor would complete in the same company in view of columns I and II 
IIIIII
5 years (or more than 5 years) 3 years 8 years or more 
4 years 3 years 7 years
3 years 3 years 6 years
2 years 3 years 5 years
1 year 4 years 5 years

Illustration 2 (in case of Audit Firm) 

Number of consecutive years for which an individual auditor has been functioning as an auditor in the same company [in the first AGM held after the commencement of provisions of Section 139(2)] Maximum number of consecutive years for which he may be appointed in the same company (including the transitional period)The aggregate period which the auditor would complete in the same company in view of columns I and II 
IIIIII
10 years (or more than 10 years) 3 years 13 years or more 
9 years 3 years 12 years
8 years 3 years 11 years
7 years 3 years 10 years
6 year 4 years 10 years
5 years 5 years 10 years
4 years 6 years 10 years
3 years 7 years 10 years 
2 years 8 years 10 years 
1 year 9 years 10 years

What is the same network of Audit Firms?

Here the same network includes the firms operating or functioning, hitherto or in the future, under 

1.  Same brand name or
2.  Same trade name or
3. It has a common control.

As per the guidelines issued by the Institute of Chartered Accountants of India, for determining whether the firms or individual auditors are operating or working under the same network, the following factors must be considered:

  1. Ownership or control or management of the firms
  2. Sharing of professional resources amongst the firms
  3. Quality control processes among the firms
  4. Co-operation amongst the Audit Firms.

Other important provisions related to rotation

  1. Change in Audit Firm by Partner who certifies the financial statements of the company

Explanation to Rule 6 provides that a firm shall not be eligible for appointment if a partner of an existing firm (outgoing firm), who certifies the financial statements of the company, retires from the said firm and joins another firm of Chartered Accountants. Such a firm shall be ineligible for an appointment for a period of 5 years.

  1. Consecutive 5 years 

Consecutive years shall mean all the preceding financial years for which the individual auditor has been the auditor until there has been a break by five years or more.

  1. Rotation in case the company has appointed joint Auditors

Where a company has appointed two or more individuals or firms or a combination thereof as joint auditors, the company may follow the rotation of auditors in such a manner that both or all of the joint auditors, as the case may be, do not complete their term in the same year.

  1. Term of Audit amongst Partners

The members of the company may resolve for:

a) in the audit firm appointed by it, the auditing partner and his team to be rotated at such intervals as may be resolved by members; or

(b) the audit shall be conducted by more than one auditor.

Auditors’ right to resignation and the company’s right to remove an auditor

The rights of the company to remove the auditor or the right of the auditor to resign before the expiry of the term are retained. Also, the company can remove the auditor before the expiry of the term.

Applicability of Auditor rotation in case of a private limited company

Rule 5 of Companies (Audit and Auditors) Rules, 2014 provides that, the Rotation of Auditor is applicable in the case of private limited companies if, 

  1. The paid-up share capital of the company is Rs. 50 crore or more; or
  2. Has public borrowings from financial institutions, banks, or public deposits of Rs. 50 crore or more.

The companies below the threshold limits as mentioned above, small companies, and One Person Companies are not required to follow the provisions related to the rotation of Auditor or Audit Firm. The Auditor in such companies can be an auditor for any number of years.

Rights Of Homebuyers under – The Insolvency and Bankruptcy Code, 2016

Rights Of Homebuyers

Rights Of Homebuyers under IBC – The Insolvency and Bankruptcy Code, 2016 (“IBC”), as originally enacted, did not provide adequate protection and recognition of the interests of homebuyers in real estate projects. While the Homebuyers are vital stakeholders in real estate projects, the IBC, as initially crafted, did not protect them. This is because they were treated only as ‘other creditors’, not at par with financial and operational creditors, thus they were not only unable to start proceedings under the IBC but had no statutory voting rights in the Committee of Creditors.

Homebuyers recognized as Financial Creditors – Rights Of Homebuyers

On June 6, 2018, the Insolvency and Bankruptcy Code (Amendment) Ordinance was passed, which was replaced by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 (“2018 Amendment Act”) on August 17, 2018. By way of the said amendment, an explanation of Section 5(8)(f) of the IBC was added, which provides a definition of “financial debt”. It was clarified that the amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing. It was further clarified that the expressions “allottee” and “real estate project” shall have the meanings assigned to them under the Real Estate (Regulation and Development) Act, 2016 (“RERA”). As a result, Homebuyers/allottees were expressly recognized as financial creditors under the IBC, which enabled them to start corporate insolvency resolution proceedings (“CIRP”) against a defaulting developer under Section 7 of the IBC. It may be noted that homebuyers have been recognized as allottees under RERA. [See Section 2(d)].

The 2018 Amendment Act was challenged before the Supreme Court in Pioneer Urban Land and Infrastructure Limited v. Union of India on the grounds of it being violative of Article 14 and Article 19(1)(g) read with Article 19(6) of the Constitution of India. The Supreme Court rejected the challenges and upheld the constitutional validity of the 2018 Amendment Act. The Supreme Court on reading and interpreting Section 5(8)(f) of the IBC, observed that Homebuyers/allottees were included in the main provision i.e. Section 5(8)(f) from the very inception of the Code, the Explanation being added in 2018 merely to clarify doubts that had arisen in relation the status of Homebuyers. Therefore, the Court held that the 2018 Amendment Act does not infringe Article 14 and Article 19(1)(g) read with Article 19(6), or 300-A of the Constitution of India.

Chartered Accountant in Pimpri Chinchwad

Minimum threshold requirement – Rights Of Homebuyers

On December 28, 2019, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2019, was promulgated which was replaced by the Insolvency and Bankruptcy Code (Amendment) Act, 2020 (“2020 Amendment Act”) inserting provisos to Section 7 of the IBC. The second proviso states that with Homebuyers, an application for initiating CIRP under Section 7 of the IBC is to be filed jointly by at least 100 allottees or 10% of the total allottees under the said project, whichever is lesser. The third proviso further stated that matters already filed by individual Homebuyers but not yet admitted by the adjudicating authority before the commencement of the 2020 Amendment Act shall be dismissed if they are not modified to fulfill the minimum threshold requirement as stated above within 30 days from the commencement of the 2020 Amendment Act. The Apex Court upheld the constitutional validity of the 2020 Amendment Act in the case of Manish Kumar v. Union of India.

Submission of claims by Homebuyers

The above clarifies that the courts, as well as the legislature, have taken an active approach in not only recognizing but also protecting the rights of homebuyers. There are a host of issues that periodically arise for consideration vis-à-vis their rights, and one such issue is regarding the submission of claims by homebuyers.

Once a Section 7 application is admitted, the adjudicating authority has to pass an order under Section 14 of the IBC, declaring a moratorium and appointing an interim resolution professional (“IRP”). The IRP is required to then make a public announcement which is required to mention the last date for submission of claims by creditors. In terms of Regulation 6 read with Regulation 12 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”), the creditors may submit their claims within 14 days from the appointment of the IRP, failing which the claim may be submitted within a period of 90 days from the insolvency commencement date. In many judgments, the National Company Law Tribunal (“NCLT”) has clarified that rejection of the claim on the grounds of delay beyond the 90-day period is not sustainable, as the aforesaid provision is merely directory and not mandatory.

While this appears to be settled law, on June 1, 2022, the Principal Bench of the National Company Law Appellate Tribunal (“NCLAT”), New Delhi, comprising Justice Ashok Bhushan, Ms. Shreesha Merla, Mr. Naresh Salencha granted further relief to Homebuyers in relation to the filing of their claims. In the said case titled Puneet Kaur v. K V Developers Private Limited,[8] the NCLAT held that even claims of those Homebuyers ought to be included in the information memorandum who did not file their claims if the same were reflected in the record of the corporate debtor. The NCLAT held that non-consideration of such claims would lead to inequitable and unfair resolution.

The Appellate Tribunal further noted the difficulty faced by homebuyers in filing their claims. It was observed that the public announcement inviting claims is normally done in the area where the corporate debtor has its registered office and corporate office, and there is every likelihood that all the Homebuyers who are usually hundreds in number neither come to know about the CIRP nor do they file their claims within the stipulated period. The NCLAT thus observed that non-submission of claims within the prescribed time is a common feature in the insolvency process of almost all real estate projects. The Appellate Tribunal went on to hold that once the allotment letters have been issued to the Homebuyers and payments have been received, there is an obligation on the part of the real estate company to provide possession of the houses along with other attached liabilities. Therefore, the Homebuyers have every right to agitate their claim.

The NCLAT has recognized the difficulties faced by Homebuyers, who, as the NCLAT recorded in its judgment dated June 1, 2022, usually belong to the “middle class of society”, most of whom have taken loans from banks and other financial institutions, saddling them with liability. In doing so, the NCLAT furthered the trend of the courts, viewing homebuyers with a fair mindset and reiterating the need to protect homebuyers from the technical rigors and procedures contemplated in the IBC.

Chartered Accountant in Pimpri Chinchwad

Operational creditors to furnish extracts of GSTR-1, GSTR-3B and e-way bills

Operational creditors to furnish extracts of GSTR-1, GSTR-3B and e-way bills, with the application for initiation of corporate insolvency resolution process.

The Insolvency and Bankruptcy Board of India (IBBI/Board) notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2016 (CIRP Regulations) on June 14, 2022.

The amendment provides the operational creditors to furnish extracts of Form GSTR-1, Form GSTR-3B and e-way bills, wherever applicable along with the application filed under section 9 of the Insolvency and Bankruptcy Code, 2016. These additional set of documents, can be used as evidence of transaction with the corporate debtor, debt and default easing the process of admission. These documents will also to be submitted as part of the claims submitted to the resolution professional to help collation of claims. Further, creditors filing applications under section 7 or 9 of the Code are required to furnish details of their PAN and Email ID to ensure smooth correspondence.

In order to improve information availability, the amendment places a duty on corporate debtor, its promoters or any other person associated with the management of the corporate debtor to provide the information in such format and time as sought by the resolution professional.

The amendment places a duty on the creditors to share information regarding the assets and liabilities of the corporate debtor, the financial statements and other relevant financial information from their records and available reports to help the resolution professional in preparation of the information memorandum and relevant extracts from the transaction or forensic audit reports to aid the resolution professional in preparation of the avoidance application.

The Amendment also addresses the issue of treatment of avoidance applications filed with the Adjudicating Authority after closure of the corporate insolvency resolution process (CIRP). It provides that the resolution plan shall provide for manner in which such applications will be pursued after the approval of the resolution plan and the manner in which the proceeds, if any, from such proceedings shall be distributed.

The amendment includes a definition of significant difference in valuations during CIRP and enables the committee of creditors to make a request to the resolution professional regarding the appointment of a third valuer.

The amended regulations are effective from today (June 15, 2022). These are available at www.ibbi.gov.in.

Income Tax Return – Changes in ITR Form – FY 2021-2022 –

Changes in ITR Form

Income Tax Return – Changes in ITR Form – FY 2021-2022

The CBDT has well in advance notified the Income-tax Return (ITR) Forms for the AY 2022-23 vide Notification No. 21/2022 dated 30-03-2022 & Notification No. 23/2022 dated 01-04-2022. There are various changes in the disclosure requirements in the new ITR Forms. Let us have a look at some of the key changes in the ITR that may be relevant to most taxpayers.

1. Applicability of ITR Forms:

The new ITR forms do not tinker with the applicability of ITR forms. The criteria for selecting the ITR forms for the AY 2022-23 shall be the same as that of the AY 2021-22.

2. Schedule of Capital Gain:

New ITR forms require the following additional disclosures in the Schedule of Capital Gain:

(a) Date of purchase & sale of Land/Building (b) Country and Zip Code if the property is situated in a foreign country (c) Disclosure of FMV & consideration received in slump sale transaction (d) Year-wise details of the cost of improvement to land/building (e) Separate disclosure of cost & indexed cost of acquisition
Further, new ITR 5 has been suitably amended for disclosure of deduction allowable u/s 48(iii) in respect of the capital gains of firm u/s 45(4).

3. Disclosure of the taxable EPF interest:

FA-2021 has amended Sections 10(11) and 10(12) to provide that no exemption shall be allowed in respect of interest income from the recognized and statutory provident fund to the extent it relates to the amount of the contribution made by the employee exceeding Rs. 2,50,000 in any year on or after 01-04-2021. The new ITR forms have amended “Schedule OS” (Other Sources) to incorporate specific reporting of such interest income.

4. Change in “Schedule FA” (i.e., Foreign Assets):
Schedule FA requires the reporting of foreign assets. The new ITR Forms have replaced the expression “Accounting Period” with “Calendar Year ending as on 31st December 2021”. As a result, the taxpayers shall be required to furnish the details of all foreign assets held between 01-01-2021 and 31-12-2021 in return to be filed for AY 2022-23.

5. Taxation of ESOP:

New Schedule has been inserted for reporting of tax-deferred on ESOP whereby an employee can defer the payment or deduction of tax in respect of shares allotted under ESOP (Specified Securities) by an eligible start-up referred U/s 80-IAC. The New ITR Forms have inserted a “Schedule: Tax-Deferred on ESOP” to keep a proper track of such transactions.

6. Nature of employment of pensioner:

In earlier ITR forms, an individual receiving a pension was just required to choose the option of ‘Pensioners’ in the dropdown menu ‘Nature of Employment. Now, the following options have been further incorporated for pensioners (i) Pensioners–CG (ii) Pensioners–SC (iii)Pensioners–PSU, and (iv) Pensioners–Others.

7. Taxpayers who have opted for alternative tax regime U/s 115BAC:

Now, taxpayers have an option of a new tax regime of lower tax without any deduction or exemption. The following disclosures are required in ITR 3 and ITR 4:

(a) Whether the assessee has opted for an alternative tax regime, u/s 115BAC & filed Form 10-IE in AY 2021-22;

(b) For the AY 2022-23, the assessee has to choose from the following options:
· Opting in now
· Not opting
· Continue to opt
· Opt-out

8. Taxpayers who have opted for alternative tax regime U/s 115BA/115BAA/ 115BAB/ 115BAD:


All taxpayers who have opted for an alternative lower tax regime are now required to give the details of the year wherein the option was first exercised as well as the details of having filed the prescribed form (like Form No. 10IB, 10 IC etc). Similarly, if the taxpayer is continuing the option, then the details of filing such a prescribed form in an earlier year are also required to be given.

9. Disclosure for a person not opting for audit u/s 44AB:

Audit u/s 44AB is not mandatory for taxpayers with turnover between Rs. 1 crore to 10 Cr if the cash receipt and cash payment do not exceed 5%. Now, for the purpose of computing the limit of 5%, payment or receipt by cheque drawn on a bank or by a bank draft, which is not an account payee, shall be deemed to be the payment or receipt in cash only [FA-2021]. The old ITR Forms required the assessee to furnish the response regarding cash receipts and payments only. Now, the following additional disclosures are required regarding Audit Information:

(a) Whether total sales, turnover or gross receipt is between Rs. 1 Cr & Rs. 10 Cr? If not, is it below Rs. 1 Cr or exceeds Rs. 10 Cr?

(b) The new ITR forms require aggregation of receipts and payment in cash and non-account payee cheque or DD while computing the limit of 5% as mentioned above.

10. Residential Status:

In the new ITR, it is now mandatory to choose the suitable option in support of residential status in India. Few more options have been added to the ITR forms so as to ascertain the exact nature of the residential status of the taxpayers.

11. Disclosure of Deemed Dividend Separately:

Until last year, there was no separate disclosure of dividend income taxable u/s 2(22)(e) i.e., Deemed Dividend. Now, in the new ITR forms, dividend income taxable u/s 2(22)(e) has to be reported separately.

12. Capping the surcharge on dividend income:

In the case of individuals, HUF, AOP, BOI, or AJP, the surcharge on tax on dividend income is attracted @ 10% if it exceeds Rs. 50 lakh but does not exceed Rs. 1 Cr and @ 15% if it exceeds Rs. 1 crore. The consequential change has been done in Schedule Part B–TTI (Computation of tax liability on total income).

13. Exempt Income Disclosure:

The New ITR Form now requires disclosure of exempt income u/s 10(23FB), 10(23FBA), 10(23FC)/10(23FCA), etc. Earlier there was no need to make specific disclosure of the applicable section.

14. Disclosures in respect of Significant Economic Presence:

In the new ITR forms, the non-resident has to confirm if there is a Significant Economic Presence (SEP) in India or not. If there is a SEP in India, the details of the transactions & users are to be incorporated into the ITR Form.

Conclusion:

The information in the database of the income tax department has increased drastically and so are the reporting requirements of the reporting in the ITR forms. Artificial intelligence is going to play a vital role in tax administration. Taxpayers need to be all the more careful and cautious while filing their income tax returns.

Contact us for filing Income Tax Return, Tax Returns, Tax Planning, Tax Refund, Capital Gain Returns, and Tax Audits.

Chartered Accountant in Pimpri Chinchwad

Chartered Accountant in Wakad

Specified Person u/s 206AB (TDS) & 206CCA (TCS)

CBDT has notified Section 206AB (TDS) & 206CCA (TCS) on 1st July 2021 for deducting a higher rate of TDS & TCS for persons not filed their Income Tax Returns for the last 2 assessment years to which the due date for filing ITR has been expired, provided that this provision will apply only when the TDS & TCS credit of that person during those assessment years are more than Rs. 50,000 each.

The rate of TDS will be: (Higher Rate of the following) – TDS

  1. 1. 5% (or)
  2. 2. Twice the original rate specified in the respective sections.

The above provisions are not applicable to:

  • ⦁ 192 – TDS on Salary Payments
  • ⦁ 192A – TDS on Provident Fund Withdrawals
  • ⦁ 194B – TDS on Lottery (or) Crossword Puzzle Payments
  • ⦁ 194BB – TDS on Horse Races Winnings
  • ⦁ 194LBC – TDS on Income of Investment Securitization Trust
  • ⦁ 194N – TDS on Cash Withdrawal

Amendment in Finance Act, 2022 (From 1st April 2022):

CBDT has bought down the conditions to last one assessment year instead of 2, i.e., TDS & TCS has to be deducted at a higher rate as specified above if a person has TDS & TCS credit of more than Rs. 50,000 and doesn’t file his ITR for the last assessment year to which the due date for filing ITR has expired. The higher rate of TDS mentioned above remains the same as before.

List of Sections to which S. 206AB & 206CCA are not applicable:

  • ⦁ 192 – TDS on Salary Payments
  • ⦁ 192A – TDS on Provident Fund Withdrawals
  • ⦁ 194B – TDS on Lottery (or) Crossword Puzzle Payments
  • ⦁ 194BB – TDS on Horse Races Winnings
  • 194-IA – TDS on transfer of Immovable Property other than Agricultural Land
  • 194-IB – TDS on rent by certain individuals (or) Hindu Undivided Family
  • ⦁ 194LBC – TDS on Income of Investment Securitization Trust
  • 194M – TDS on Payment of Contract, Commission, Professional Charges, or Fees for Technical Services by certain individuals (or) Hindu Undivided Family
  • ⦁ 194N – TDS on Cash Withdrawal

Source:

  1. 1. Provisions of 206AB – up to 31st March 2022 & After 1st April 2022
  2. 2. Provisions of 206CCA – up to 31st March 2022 & After 1st April 2022
  3. 3. Other Notifications & Circulars for 206AB & 206CCA – Circular No. 11 of 2021 dated 21st June 2021 & Notification No. 1 of 2021 dated 22nd June 2021 (Directorate of Income Tax – Systems).

Thanks for reading! Have a Good Day!

Chartered Accountant in Pimpri Chinchwad

What is Startup India Seed Fund Scheme?

Startup India Seed Fund Scheme (SISFS) provides financial assistance to startups for proof of concept, prototype development, product trials, market entry, and commercialization. Eligible startups can apply for the scheme on the Startup India portal. The Seed Fund will be disbursed to selected startups through eligible incubators across India.

Who can apply to SISFS?

A startup, recognized by DPIIT, incorporated not more than 2 years ago at the time of application is invited to apply for the scheme. Detailed eligibility criteria can be found at https://seedfund.startupindia.gov.in/about.
To get DPIIT-recognized, please visit https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html

How much seed funding can a startup receive under the scheme?

Seed Fund to an eligible startup by the incubator shall be disbursed as follows:

  1. Up to Rs. 20 Lakhs as a grant for validation of Proof of Concept, prototype development, or product trials. The grant shall be disbursed in milestone-based installments. These milestones can be related to the development of prototypes, product testing, building a product ready for market launch, etc.
  2. Up to Rs. 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments
  3. A startup applicant can avail of seed support in the form of grants and debt/convertible debentures each once as per the guidelines of the scheme.

Can I apply for the scheme as an individual entrepreneur, or do I need a team?

No, individual entrepreneurs are not eligible to apply for support under the scheme. Only DPIIT-recognized startups can apply for the SISFS. To get DPIIT-recognized, please visit https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html

Does the scheme support startups from specific sectors?

SISFS is a sector agnostic scheme, which means that startups from any sector can apply for the scheme. However, preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defense, space, railways, oil and gas, textiles, etc. This list of sectors is indicative and not exhaustive.

Are there any minimum education qualification criteria for founders to apply for SISFS?

There is no minimum education qualification required for founders to apply for SISFS.

Are there any exemptions to any of the eligibility criteria?

No, there are no exemptions to any of the eligibility criteria. All the criteria must be met on the date of application submission.

What is a DPIIT-recognized startup?

An entity shall be considered a “Startup” –

  1. If it’s incorporated as either a Private Limited Company or Registered Partnership Firm or Limited Liability Partnership. A sole proprietorship or a public limited company is not eligible for the startup
  2. If it is up to 10 years from the date of its incorporation/ registration,
  3. If its turnover for any of the financial years has not exceeded INR 100 crore
  4. If it is working towards innovation, development, or improvement of products or processes or services, or if it is a scalable business model with a high potential for employment generation or wealth creation
  5. Should not have been formed by splitting up or reconstructing a business already in existence.

To get DPIIT-recognized, please visit
https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html

What all can I use the seed fund for?

Seed fund shall strictly not be used by startups for the creation of any facilities and shall be utilized for the purpose it has been granted for. A grant can be used for validation of Proof of Concept, prototype development, or product trials. A debt/ convertible debenture can be used for Market entry, commercialization, or scaling up.

Application Process

How can I apply to SISFS?

An online call for applications is hosted on an ongoing basis on the Startup India portal and will be opened soon. DPIIT-recognized startups can log in using the credentials used during the startup recognition process to apply for the scheme.

Is the SISFS application process completely online?

The application submission is completely online, and no physical submission of documents is required.

Is there a fee for applying to this scheme?

There are no application fees for the scheme. Even after the selection of a startup by an incubator for assistance under this scheme, the startup shall not be charged any fees. The incubator or any of its staff members shall not charge any fee in cash or in-kind from applicants or beneficiaries under the scheme for any process of selection, disbursement, incubation, or monitoring.

Why is the application form allowing me to apply to 3 incubators?

The scheme aims to maximize the chances of each startup applicant getting supported through seed funds. It also aims to give startups an opportunity to get supported by a relevant incubator that can give the necessary guidance to them. Thus, we give startups an option to apply to 3 different incubators according to their preference. For example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by the Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by the incubator at Preference 2, and so on.

How do I choose the incubators to apply to?

The incubator preference should be filled at the startup applicants’ discretion. Applicants can choose incubators basis their sector, stage, business needs, and strategic goals. Details of the incubators which are part of the scheme will be available on the Seed Fund Portal soon.

I can see an option to apply either for a grant or convertible debenture or loan instruments. What is the difference between these? How do I choose?

A grant and debt/convertible debenture are different financing instruments to cater to different startup needs. The following table can help an applicant startup decide which instrument shall suit their needs better. The final decision on this should be at the startup applicants’ discretion.

ParameterGrantDebt/Convertible Debenture
StageIdeation StageCommercialization & Scale-up stage
Need to be Catered by the fundValidation of Proof of Concept, Prototype development, or Product trialsMarket entry, commercialization, or scaling up
Max. funding amountUp to Rs. 20 LakhsUpto Rs. 50 Lakhs
Financing TermsUnder this scheme, the grant will be disbursed in milestone-based installments. These milestones can be related to the development of prototypes, product testing, building a product ready for market launch, etc.For startups being supported through convertible debentures, debt, or debt-linked instruments, funds shall be provided at a rate of interest of not more than the prevailing repo rate. The tenure should be fixed at the time of sanctioning the loan by the incubator, which shall be not more than 60 months (5 years). A moratorium of up to 12 months may be provided for the startups. Because of the early stage of the startups, this shall be unsecured and no guarantee from the promoter or third party will be required.

What are the terms and conditions of seed fund under the scheme?

The scheme guidelines are available at https://www.startupindia.gov.in/content/dam/invest-india/Templates/public/Guidelines%20for%20Startup%20India%20Seed%20Fund%20Scheme.pdf

Is the information provided by me in the application form kept confidential? – Startup India Seed Fund Scheme

We maintain the confidentiality of all the proposals we receive under the scheme. I only shared your application with the incubators you apply to for the purpose of evaluation, and with the EAC for the purpose of monitoring.

Do I need to be physically present at an incubator’s premises to avail of seed funds under this scheme?

To apply for the scheme, it is not mandatory to be physically present at the incubator’s location. For startups being monitored virtually by the incubator, it is required for both parties to touch base every 30 days. This is to ensure that an incubator will be able to keep a check on the progress of the startup and a startup will take guidance for their business from the incubator.

Can I apply to the Startup India Seed Fund Scheme again after receiving a rejection?

Yes, you can apply to the SISFS again after 3 months of receiving a rejection. This buffer time is given to ensure that you have worked on the feedback received from incubators and are ready to be considered again.

Evaluation Process

Who is going to review my application?

The application of each startup will be reviewed by an Incubator Seed Management Committee (ISMC) formed by the incubators you apply to. The committee will also be responsible for future assessment of the performance of the startup and disbursement of further tranches. Each ISMC constitutes of the following members:

  1.  Nominee of Incubator (Chairman)
  2.  A representative from the State Government’s Startup Nodal Team
  3.  A representative of a Venture Capital Fund or Angel Network
  4.  A domain expert from the industry
  5.  A domain expert from academia
  6.  Two successful Entrepreneurs
  7.  Any other relevant stakeholder

What are the parameters for the evaluation of startup applicants?

CriteriaDetails
Is there a need for this Idea?Market size, what market gap is it filling, does it solve a real-world problem?
FeasibilityFeasibility and reasonability of the technical claims, the methodology used/ to be used for PoC and validation, a roadmap for product development
Potential ImpactCustomer demographic & the technology’s effect on these, national importance (if any)
NoveltyUSP of the technology, associated IP
TeamStrength of the team, Technical and business expertise
Fund Utilization PlanRoadmap of money utilization
Additional ParametersAny additional parameters considered appropriate by the incubator
PresentationOverall assessment

What is the process of evaluation?

The startups shall be selected through an open, transparent, and fair process, comprising, inter-alia:

  1. Startups submit their application on the Startup India portal and an email confirmation is shared with them. Applicants can apply for seed funds to any three incubators selected as disbursing partners for this scheme in order of their preference.
  2. All applications received will be shared online with respective incubators for further evaluation.
  3. For all incomplete applications, a prompt for resubmission will be sent to the startup.
  4. The incubators shall shortlist applicants as per eligibility criteria
  5. Eligible applications will be evaluated by Incubator Seed Management Committee (ISMC) using the following criteria:
CriteriaDetailsWeightage (%)
1Is there a need for this Idea?Market size, what market gap is it filling, does it solve a real-world problem?p
2FeasibilityFeasibility and reasonability of the technical claims, methodology used/ to be used for PoC and validation, roadmap for product developmentq
3Potential ImpactCustomer demographic & the technology’s effect on these, national importance (if any)r
4NoveltyUSP of the technology, associated IPs
5TeamStrength of the team, Technical and business expertiset
6Fund Utilization PlanRoadmap of money utilizationu
7Additional ParametersAny additional parameters considered appropriate by the incubatorv
8PresentationUSP of the technology, associated IPOverall assessment
100%
  1. The incubator may shortlist applicants based on their evaluation for a presentation before ISMC
  2. ISMC shall evaluate applicants based on their submissions and presentations and select startups for Seed Fund within 45 days of receipt of the application
  3. Selected startups shall receive seed funding under the respective incubator that selects them as beneficiaries as per their preference shared during application (for example, if incubators at Preference 1 and Preference 2 both select a startup, the funding shall be given by the Preference 1 incubator. If Preference 1 incubator rejects and Preference 2 incubator selects, the funding shall be given by the incubator at Preference 2, and so on.)
  4. All applicants will be able to track the progress of their application on the Startup India portal on a real-time basis
  5. Applicants who are rejected will also be notified through email.

How much time will it take for my application to get processed?

After the receipt of the application, each Incubator shall evaluate applicants based on their submissions and presentations and select startups for the Seed Fund within 45 days.

How can I track the status of my application?

Once the startup has submitted its seed fund scheme application, a dashboard can be accessed using their login credential to check the real-time application status.

After Selection of Startups

I had filled the order of preference for incubators while applying. Can I change this preference order after the application?

Applications once filled and submitted are final. The preference order of the incubator cannot be changed at a later stage.

I have been selected for a seed fund, but the quantum of fund/ terms and conditions being set by the incubator are not agreeable to me. What should I do?

The quantum and terms for the seed fund assistance are to be negotiated between the startup and the incubator only. The mandatory elements of the scheme can be seen in the Guidelines on https://dipp.gov.in/sites/default/files/Guidelines-FundScheme-Startup-29January2021.pdf, anything beyond this can be negotiated. In case of any issue, kindly reach out to us using the grievance form at https://seedfund.startupindia.gov.in/contact

I need to hire a legal or financial consultant for my seed fund discussions with the incubator. Who will bear the cost of these services?

The startup shall bear the cost of any consultants required to guide them through documentation, negotiations with incubator, signing of the agreement with incubator, reporting progress after approval of seed fund, etc. Hiring such an external consultant is not mandatory at all, and shall be at the discretion of the startup.

I have been selected for a seed fund. Is it mandatory to sign a legal agreement with the incubator?

Yes, it is mandatory to sign a legal agreement with the incubator to avail of the seed fund you have been granted.

I had applied for a certain amount of seed fund, but the approved amount is lower/higher. Can I negotiate this?

The applicant can discuss the quantum of the seed funds and the milestones associated with the tranches to be disbursed by the Incubator Seed Management Committee. The decision of the Committee shall be final.

Will my living expenses be borne if I want to be physically incubated at the incubator that is funding me?

The selected incubator shall provide physical infrastructure to the selected startups for regular functioning, support for testing and validating ideas, mentoring for prototype or product development or commercialization, and developing capacities in finance, human resources, legal compliances, and other functions. They are also expected to provide networking with investors and opportunities for showcasing at various national and international events. Any other expenses, including living expenses, shall be borne by the startup.

How much time will it take for the first installment of the seed fund to be released to me?

For grants, the first installment to any selected startup shall be released not more than 60 days from receipt of application from the startup. The startup shall submit the interim progress update and utilization certificate to initiate the release of a subsequent installment of the grant. For debt or convertible debentures, a similar timeline will be aimed, but it is understood that due diligence and documentation in these cases can be sometimes time-consuming.

Where can I receive the seed funds?

Startups will receive the funds in their company bank accounts.

How often do I have to report back on my progress after receiving a seed fund?

Each startup will be required to touch base with the incubator team and share updates with them at least once in 15 days via videoconferences or physical meetings. These updates should be shared on the scheme dashboard, at least on a monthly basis. In the case of milestone-based disbursements, the startup shall submit the interim progress update and utilization certificate to initiate the release of a subsequent installment of the grant. The startup shall also submit the final report and audited utilization certificate at the end of the project’s duration.

I have been selected for a seed fund, but I would not like to take the process forward. What do I do?

A startup can choose to not avail of the support being offered to them under the scheme. The procedure for the same depends on the stage of the startup in the application process.

  1. If the startup has been selected and the seed funding has been approved, they will be required to write a short letter mentioning the reason to pull out of the process. Post the acknowledgment of the letter, they will find a cancel application button on the application tracker tab of their dashboard, which will allow them to cancel their application.
  2. If the startup has already received any seed fund, it will be required to write a short letter mentioning the reason to pull out of the process. Post acknowledgment of the letter, they will be required to return the fund within 15 days. Post the acknowledgment of the refund, they will find a cancel application button on the application tracker tab of their dashboard.

What if my startup fails after receiving the seed fund? Will there be any liability on me or my company?

It is understood that every startup cannot be successful. The legal agreement that you sign with the incubator will have provisions related to the failure of startups supported under the scheme. For failed ventures, the entrepreneur shall share his/her learnings and the reasons for failure in the report and submit this, along with the utilization certificate for the fund amount.

I have some complaints regarding the incubator funding for me. Who shall I reach out to?

In case of any issue, kindly reach out to us using the grievance form at https://seedfund.startupindia.gov.in/contact

Chartered Accountant in Pimpri Chinchwad

What will happen if you don’t file your ITR (Income Tax Return) within the due date?

The taxpayers for whom the tax audit is not required have to file the income tax return of their income earned during the period of 1st April 2020 to 31st March 2021 on or before 31st July 2022 unless extended.

Let’s discuss the implications of the late filing of Income Tax Return:

Unable to set off Losses – Income Tax Return

Losses incurred (other than house property loss) are not allowed to be carried forward in subsequent years. You cannot set off these losses against future gains if the return has not been filed within the due date. However, if there are losses under house property, carry forward of losses is permitted.

Interest on the delay of filing a return

If the taxpayer fails to file the ITR by the due date, then under section 234A penalty interest at the rate of 1% per month or part thereof is levied on the outstanding tax until the payment of tax.

Late filing fees u/s 234F

A late filing fee is applicable for filing your returns after the due date under Section 234F. The maximum penalty of Rs 5,000 will be levied if you file your ITR after the due date. However, there is a relief given to small taxpayers–if their total income does not exceed Rs 5 lakh, the maximum penalty levied for delay will be Rs 1000.

Delayed Refunds

If one is entitled to receive a refund from the government for excess taxes paid, he/she must file the returns before the due date to receive the refund at the earliest.

Prosecution–As per Section 276 CC

As per Section 276 CC, the income tax officer can initiate proceedings for prosecution if the person willfully fails to file a return, even after issuing notices. The imprisonment can be for a term of three months to two years with a fine. If the tax you owe to the income tax department is higher, the prosecution period may extend to seven years.

#Incometax #incometaxindia #incometaxreturn #incometaxindia #incometaxreturnfiling #itrfiling

Chartered Accountant in Pimpri Chinchwad

CBDT Notifies Conditions for Compulsory filing of Income Tax Return

CBDT Notifies Conditions for Compulsory filing of Income Tax Return

CBDT Notifies Conditions for Compulsory filing of Income Tax Return

Filing of Income Tax Return – Section 139(1) of the Income Tax Act, 1961 prescribes the categories of the person who is required to file their return on or before the due date of filing return. Such a person includes:

  • 1. A company or a firm
  • 2. Any person other than a company or firm, if his total income during the previous year exceeds the maximum amount chargeable to the Income Tax.

In addition to the above, the following persons are also required to file income tax returns compulsorily as per clauses (i) to (iv) of the seventh proviso to section 139(1):

ClauseCompulsory filers category
Clause (i)The person depositing Rs. 1 crore or more in one or more current accounts with a bank or co-operative bank
Clause (ii)The person who has incurred expenditure on foreign travel for self or any other person exceeding Rs. 2 Lakhs
Clause (iii)The person who has incurred expenditure exceeding Rs. 1 Lakh towards electricity consumption
Clause (iv)The person who fulfills such other conditions as may be prescribed

The CBDT issued Notification No. 37/2022 dated 21st April 2022 by which a new Rule 12AB has been inserted referring to clause (iv) as above by which following persons have also been notified who shall be required to file their income tax return compulsorily:

RuleConditions for compulsory filing of ITR
12AB(i)If the total sales, turnover or gross receipts in the business exceeds Rs. 60 Lakhs during the previous year
12AB (ii)If the gross receipts from profession exceed Rs. 10 Lakhs during the previous year
12AB (iii)If the aggregate of TDS/TCS during the previous year is Rs. 25,000 or more (Rs. 50,000 or more in the case of senior citizens),
12AB (iv)If the deposits in one or more saving accounts in the aggregate are Rs. 50 Lakhs or more during the previous year.

If you fall under any of these categories, you should prepare all the necessary documents and file your ITR on or before the due date of filing the return i.e. 31st July.

Chartered Accountant in Pimpri Chinchwad