Compliance under GST Regime – Returns & ITC Matching

Introduction
The Constitution Amendment Bill on Goods and Services Tax (GST) has
received Presidential assent post its passage in both the houses of Parliament
and ratification by over one-half of the State Legislatures. The GST Council,
headed by the Union Finance Minister with all the State Finance Ministers as
members, is in the process of finalizing and recommending model GST law and
allied rules, rate of tax, threshold limits, exemptions, dispute resolution
mechanism, etc. Based on the recommendations of the GST Council, the
Parliament would pass two Bills for levy of Central GST and Integrated GST by
the Central Government and each of the State Legislatures would pass a Bill for
levy of State GST.
For successful implementation of GST, necessary Information Technology (IT)
infrastructure is required to be put in place by the Government for ensuring
smooth transition from the existing indirect tax structure into the GST regime.
The portal being developed by Goods and Services Tax Network (GSTN) will
act as a common interface between tax payers, tax authorities, banks and the
Reserve Bank of India for exchange of information. While the GSTN is working
relentlessly to ensure that the above authorities get the best of IT infrastructure
for efficient administration of GST, the Government is also progressing promptly
by imparting GST training of its officials at the Central and States. The
Government also intends to kick start Vyapak Abhiyan towards the end of
the year to bring awareness about GST among the public at large.
The burden now shifts on to the taxpayers to assess their level of preparedness
in studying the impact of the new law to their transactions and analyze if their IT
infrastructure matches the compliance requirements of the new regime. The
GST proposes to create a common national market by reducing the cascading
effect of tax on the cost of goods and services. It therefore calls for a change in
the tax functions (including tax structure, tax computation, tax payment, tax
incidence, credit availment and utilization) of existing businesses. It will also
have an impact on other functions of the organization such as IT, Finance,
Marketing, Supply chain, Legal, etc. It is therefore imperative for us to introspect
where we stand and how well we are prepared to comply with the provisions of
the proposed GST law. In this article, we intend to throw some light on the
compliance requirements in filing of various returns and broad concepts of
matching of input tax credit, based on the information presently available in public domain.

Basic overview on GST Returns
While all the returns under GST would be required to be filed electronically, the
details of Central and State taxes would be consolidated together for the
purpose of reporting the details of outward and inward supplies, Input Tax
Credits (ITC), tax payments, etc. A normal registered taxable person is required
to file two basic forms in a month, namely GSTR-1 and GSTR-2. These forms
represent details of outward supplies and inward supplies of goods and services
effected in a particular tax period. A normal registered taxable person is also
required to file a return in form GSTR-3 on a monthly basis, consolidating the
details of outward and inward supplies, ITC availed, Tax payable, Tax paid and
other particulars.

In addition to the above returns, a registered taxable person is also required to file
an Annual Return in form GSTR-9 (not GSTR-8, as provided under the report of the
Joint Committee on business process on GST Return, in October 2015). Specific
provisions have been made for filing the First Return by every assessee. Further,
returns have also been prescribed for followings –
1 – Composition taxpayer (in form GSTR-4)
2 – Non-resident foreign taxpayer (in form GSTR-5)
3 – Input Service Distributor (in form GSTR-6)
4 – TDS deductor (in form GSTR-7).
A registered taxable person is also required to file a Final Return in case of
cancellation of registration. There is no provision for revising the returns, but
rectification of errors/omissions is allowed upto a prescribed time period. It may be
noted that levy for late fee for delay or non-filing of returns are prescribed.
Outward and Inward Supply
Outward supplies include details relating to zero-rated supplies, inter-state supplies,
return of goods received in relation to/in pursuance of an inward supply, exports,
debit notes, credit notes and supplementary invoices. The details of outward
supplies for a tax period must be filed on or before 10th day of the month
succeeding such tax period, in form GSTR-1. The model law contemplates that the
details of each of the outward supply made during a month must be communicated
to the recipient within a specified timeframe. In our view, the communication to the
recipient would be routed through GSTN as such the details would be autopopulated
in the concerned tables of GSTR-2 of the recipient. No rectification can
be carried out in form GSTR-1 after filing form GSTR-3 for the month of September
of the subsequent financial year (FY) or after filing form GSTR-9, whichever is
earlier.
A normal registered taxable person is required to verify, validate, modify or delete
details relating to his inward supplies. He may also provide details of his inward
supplies received by him, which have not been declared by supplier in his Return.
He must furnish details of inward supplies of taxable goods/services, including
inward supply of services on which tax is payable on reverse charge and inward
supply of goods/services taxable under the IGST Act, received during a tax period
on or before 15th day of the month succeeding such tax period in form GSTR-2. Just
like form GSTR-1, no rectification can be carried out in form GSTR-2 after filing
form GSTR-3 for the month of September of the subsequent FY or after filing form
GSTR-9, whichever is earlier.
An assessee is required to enter invoice level details for each of his transactions.Entering invoice level details is necessary for reconciliation of tax deposits and endto-
end reconciliation of ITC. Invoice level detailing would also help the Government
in determining the share of tax attributable to destination state in case of an interstate
supply. This is going to be a cumbersome process for both small and large
scale dealers. Small assessee may find it difficult to manually enter the details of
invoices month on month and large assessee may face infrastructural bottleneck in
uploading huge volume of data. The industry has raised some concern on the
reconciliation of ITC at invoice level detail, calling it cumbersome and impractical.
However, in my view, in order to ensure compliance at all levels of the supply chain,
and to eradicate evasion of tax and fraudulent transactions, the requirement of
entering invoice level details would be imperative and worth the effort.

Consolidated Return GSTR – 3
A consolidated return in form GSTR-3 providing details of inward and outward
supplies of goods/services, ITC availed, Tax payable, Tax paid and other relevant
particulars are required to be filed by registered taxable person on or before 20th
day of the succeeding month. A registered taxable person shall not be allowed to
furnish form GSTR-3 for a tax period if valid return for any previous tax period has
not been furnished by him. It may be noted that the tax for the relevant tax period
should be paid on or before the due date of filing of form GSTR-3. Furnishing of
GSTR-3 without payment of full tax due as per such return shall not be treated as a
valid return for allowing ITC in respect of supplies made by such person. The
consequences of such conditional provision for allowing ITC are discussed in
greater detail in later part of this article, under ITC matching.
Filing of GSTR-3 on monthly basis is mandatory whether or not any supplies of
goods/services have been effected during such month. No rectification can be
carried out in form GSTR-3 after due date of filing form GSTR-3 for the month of
September or 2nd quarter of the subsequent FY or after filing form GSTR 8,
whichever is earlier. A Composition taxpayer must furnish form GSTR-4 for each
quarter or part thereof within 18 days after the end of each quarter. An ISD must
furnish form GSTR-6 within 13 days after the end of the month. A registered taxable
person deducting tax at source must furnish form GSTR-7 and pay tax so deducted
within 10 days after the end of the month.

Annual Return GSTR – 9

Form GSTR-9 is required to be furnished by every registered taxable person, other
than ISD, TDS deductor, Casual taxable person and Non-resident taxable person
on or before 31st December following the end of the FY. Persons required to get
their accounts audited must also furnish annual return along with audited copy of
annual accounts and reconciliation statement, reconciling the value of supplies
declared in annual return with annual financial statement.
The Model GST law contemplates that a taxable person cannot take the credit of
tax paid on goods and/or services after filing GSTR-3 for the month of September
following the end of financial year to which such invoice pertains or filing of the
relevant Annual Return (31st December), whichever is earlier.

First and Final Return

The concept of filing a First Return and Final Return have been newly introduced.
These returns play an important role of providing details of the assessee at the time
of entry into and exit from the GSTN. The First return is required to be furnished by
every registered taxable person on whom the levy of GST applies. It contemplates
for providing the details of:
(a) outward supplies from the date on which he became liable to registration till the
end of the month in which the registration is granted, and
(b) inward supplies from the effective date of registration till the end of the month in
which the registration is granted.
A Composition taxpayer is required to furnish the First Return for the period starting
from the date on which he becomes a registered taxable person till the end of the
quarter in which the registration is granted. Every registered taxable person
applying for cancellation of registration shall furnish a Final Return within 3 months
of the date of cancellation or date of cancellation order, whichever is later.The
compliance schedule for filing of returns under GST can be summarized in the form
of a table as under:

Penal Provisions Relating to Returns
If a registered taxable person fails to furnish form GSTR-9 or Final Return, he
shall be served with a notice requiring him to furnish such the Return within a
statutory timeframe. Any registered taxable person who fails to furnish form
GSTR-1, GSTR-2, GSTR-3 or Final Return within the due dates, shall be liable
to pay a late fee of Rs. 100 per day during which such failure continues, subject
to maximum of Rs. 5,000. Similarly, any registered taxable person who fails to
furnish form GSTR-9 within the due date, shall be liable to a late fee of Rs. 100
per day during which such failure continues, subject to maximum of an amount
calculated @ 0.25% of his aggregate turnover.
Matching, Reversal and Reclaim of ITC
The concept of matching of ITC may not be new to the taxpayers, especially for
the dealers who are currently operating under the Value Added Tax (VAT)
regime. However, the same is alien or relatively new to non-VAT taxpayers and
hence there is a need to understand the concepts of ITC matching, ITC
reversals and re-claim of ITC in GST regime.
Before discussing the concept of ITC matching, it is imperative to understand
the concept of Debit Notes in GST regime, as it has a bearing on reclaim of ITC.
The Model GST law provides that:
 Debit note can be issued by a taxable person who has supplied goods
and/or services (Issue of Debit note by the recipient is not contemplated
under GST regime).
 Debit note can be issued when the value and/or tax as shown in the tax
invoice is less than the taxable value and/or tax in respect of supply of
goods and/or services.
 The taxable person must already have issued tax invoice for supply of
goods and/or services by indicating the taxable value and/or tax on the tax
invoice.
Essentially, Debit Notes can be issued by the Supplier to the Recipient for
differential portion of the value or tax or both. Having understood the basic
aspects of Debit Note, let us move ahead to examine and understand the
concepts of ITC matching and its related topics.

ITC Matching

On a broader analysis of the Report of Joint Committee on Business Process
for GST on GST Returns read along with the Model GST law, the matching,
reversal and reclaim of ITC can largely be understood as a fool proof
mechanism to tap revenue leakage in the hands of the Government. In order to
check for duplication of claim of ITC, the details of every inward supply
furnished by the taxable person (i.e. the “recipient” of goods and/or services) in
form GSTR-2 shall be matched:
 With the corresponding details of outward supply furnished by the
corresponding taxable person (i.e. the “supplier” of goods and / or services)
in his valid return for the same tax period or any preceding tax period and
 With the additional duty of customs i.e. IGST paid by the recipient in respect
of goods imported.
Therefore, the quintessential requirement for carrying out matching of ITC is
that the supplier must have filed his valid returns for the corresponding or
preceding tax period and/or the IGST has been paid by the recipient in case of
import of goods.
Failure to file valid return by the Supplier (or failure to pay appropriate IGST by
the recipient in case of import of goods) may lead to denial of ITC in the hands
of the recipient. This is a horrid check proposed to be imposed on every taxable
person in the GST regime. In our view, the precondition relating to payment of
tax dues for allowing ITC in the hands of the recipient of goods/services is
slightly harsh, as it casts an additional burden on the recipient to prove that the
tax has been deposited by the supplier.
The matching of ITC may be better understood in the following steps:
Step 1: The Supplier supplies goods and/or services to the recipient.

Step 2: The Supplier declares the details of outward supplies in his valid
return for the same tax period or preceding tax period and/or the recipient has
paid appropriate IGST in respect of import of goods.
Apparent contradictions:
In terms of the provisions of the Model GST law, for the purpose of
allowing ITC, a return may be considered to be a valid return only when
the appropriate GST has been paid in full by the taxable person as
shown in such return for a given tax period. Therefore, whether mere
filing of GSTR-1 (by 10th of the following month) without filing the relevant GSTR-3 (by 20th of the following month) for such tax period by the
Supplier can be considered as valid return?
If the answer to the above question is negative, then what is relevance of
the expression “….in his valid return” under Section 29(1)(a) of the
Model GST law, considering that the matching of ITC should take place
vis-à-vis valid return for a particular tax period?
The Model GST law provides that the ITC matching shall be carried out
for a tax period within the time prescribed. Therefore, it is open
for the Rules to provide whether the unmatched ITC must be
communicated either before filing of GSTR-3 or after filing of GSTR-3 by
the Recipient.

Step 3: Upon filing of form GSTR-1 or GSTR-3 by the Supplier, as the case
may be, the details of outward supplies as filed by the Supplier shall flow as the
details of inward supplies of the Recipient in his GSTR-2 (i.e. auto-population of
details of ITC).

Step 4: The Recipient shall verify, validate, modify or delete the auto-populated
details of ITC at the time of filing his GSTR-2 (by 15th of the following month)
after considering the clerical or non-clerical errors, including changes to be
made on account of issuance of Debit Notes.
It may be noted here that the recipient would be having a 5-day window
period where he can verify, validate, modify or delete the details of his
ITC, having cross reference to the details of outward supplies furnished
by his Supplier.
Further, in terms of the Business Process Report on GST Returns, a
responsibility is casted on the recipient to indicate the eligibility or noneligibility
of ITC in respect of each inward supply at the time of filing form
GSTR-2.

Step 5: Assuming that form GSTR-1 of the recipient has already been filed
within the due date, the recipient shall ascertain the eligible ITC and upload the
details of every inward supplies in Form GSTR-2 within the due date.

Step 6: The recipient shall ascertain the net GST liability after considering his
output tax liability on outward supplies made and eligible input tax credit
available on inward supplies. Such net GST liability would have to be
discharged by the recipient either using Electronic Cash or Credit Ledger (taking
into consideration the Rules for utilization of ITC). Consequent to which, the
recipient would be filing his GSTR-3.
It may be noted that in terms the provisions of Model GST law, in case
the taxable person has not furnished a valid return for the previous tax
period, he shall not be allowed to furnish the return for the current period. Further, a taxable person who has not furnished a valid return shall not
be allowed to utilize the ITC till he discharges the self-assessed tax
liability. Thus, in effect, the utilization of ITC for any given tax period is
always subject to furnishing of a “valid return” for pervious tax period by
such taxable person.

Step 7: The matching of details of outward supplies of the supplier and
corresponding details of inward supplies of the recipient, including IGST paid on
import of goods and Debit Notes issued by the suppliers shall be carried out at
system level.
In case the details match, then the ITC claimed by the recipient in his
valid returns shall be considered as finally accepted and such
acceptance shall be communicated to the recipient.
The question which arises here is whether the ITC as accepted above
can be considered as eligible credit for all practical purposes? The
answer to this lies in Section 29(2) of the Model GST law, which states
that “…., subject to the provision of Section 16, ….”. Thus, the
matched ITC which is finally accepted is only for the limited purpose of
system matching, which can always be subject to manual scrutiny at later
point of time.
The concept of ITC matching is depicted in the form of a flowchart hereunder (From Recipient‟s Perspective):

Reversal of ITC / Mismatch of ITCIn terms of the provisions of Model GST law, the reversal of ITC arises when:

•  there is excess claim of ITC by the recipient as against the tax declared by
  the supplier, or
• the outward supply is not declared by the Supplier, or
• there is a duplication of claim of ITC by the recipient.

Excess claim of ITC
In case the ITC claimed by the recipient is in excess of the tax declared by the
supplier or where the details of outward supply are not declared by the supplier
in his valid returns, the discrepancy shall be communicated to both the supplier
and the recipient. Similarly, in case, there is duplication of claim of ITC, the
same shall be communicated to the recipient. It may be noted that in case the
ITC claimed by the recipient is less than the tax declared by the supplier, there
may not be any communications to either Supplier or the recipient.
The Supplier will be asked to rectify the discrepancy of excess claim of ITC and
in case the Supplier has not rectified the discrepancy communicated in his valid
returns for the month in which discrepancy is communicated then such excess
ITC as claimed by the recipient shall be added to the output tax liability of the
recipient in the succeeding month. Such excess ITC claimed is added back to
output tax liability of the recipient could be for the reason that the Supplier can
issue Debit Note only when the value and/or tax as shown in the tax invoice is
less than the taxable value and/or tax in respect of supply of goods and/or
services. Issuance of Debit Note by the supplier nullifies the effect of excess
availment of ITC by the supplier. Similarly, duplication of ITC claimed by the
recipient shall be added to the output tax liability of the recipient in the month in
which such duplication is communicated.
The recipient shall be liable to pay interest on the excess or duplicate ITC
added back to the output tax liability of the recipient from the date of availing of
ITC till the corresponding additions are made in their returns. In GST regime,
the reversal of ITC refers to adding back either the excess claim of ITC or
duplication of ITC to the output tax liability of the recipient. Thus, the person
who claims the excess ITC shall have bear to brunt of Interest till such excess
ITC is accepted at system level.

Re-claim of ITC
Re-claim of ITC refers to taking back the ITC reversed in the Electronic Credit
Ledger of the recipient by way of reducing the output tax liability. Such re-claim
can be made by the supplier only in case the supplier declares the details of
invoice and/or Debit Notes in his valid return within the prescribed timeframe. In
such case, the interest paid by the recipient shall be refunded to him by way of
crediting the amount to his Electronic Cash Ledger.
However, it may be noted that no refund of interest would arise in case the
excess ITC reversed was on account of duplication of ITC claim, as the same
would be considered to be contravention of the GST provisions, where refund is
allowable.
Compliance Rating under GST
GST proposes to bring in a new system of compliance rating score for every
taxable person, based on the record of compliance with provisions of law. This
score shall be determined on the basis of certain parameters such as timely
furnishing of returns, accuracy of data furnished, timely payment of taxes, etc.
The GST compliance rating score is somewhat similar to the concept of the
Denied Entities List (DEL, earlier called „Black List‟) under the provision of Rule
7 of the Foreign Trade (Regulation) Rules, 1993, wherein a total of 14
conditions have been described for invocation DEL before a company can be
refused a license by the Directorate General of Foreign Trade.
The GST compliance rating score shall be updated at periodic intervals and
intimated to the taxable person and also placed in the public domain. A
prospective customer/client can view his supplier‟s GST compliance rating
score and take appropriate decisions whether to deal with a particular supplier
or not. It is therefore important for every taxable person to ensure adequate
level of compliance, which will not only facilitate ease of doing his business, buy
will also have a bearing on his reputation.
“Success will lead your way, if you develop a passion

This article was written by CA Ronak Agarwal in his personal capacity. The opinions/facts/information expressed in this article is the author’s own and do not reflect the view of the aapkaconsultant.com.

Changes in Depreciation under Companies Act, 2013

Useful Life:

Unlike the Companies Act, 1956, Useful life of the asset on the basis of Shift has been prescribed in place of rates of depreciation in the part C Schedule II of the companies Act 2013 as a base for computing depreciation.

Now the Question arises, what’s the meaning of Shift?

The Term Shift has not been specified in the Companies Act, 1956 or Companies Act, 2013, So it should be understood in Common Commercial Parlance. As Per Factories Act, 1948, the term shift means:

“Where Work of the same kind is carried out by two or more sets of workers, working during different periods of the day, each of such set is called group or relay and each of such period is   called a shift”

The basic meaning of extra shift is employment of a different set of worker for a period additional to normal working hours. The extra hour worked by the same set of workers is termed as overtime and not referred to as a shift, why because worker is same and he is continuing his work. However, Manifestation of extra shift can also be the situation where a significant number of extra hour are worked beyond the normal working hour in a day say four or more above a shift of eight hour.

Calculation of Shift has to be with reference to a working day and not with reference to the entire year.

How to calculate Extra Shift Depreciation?

The Calculation of the extra depreciation for double shift working and for triple shift working should be made separately in the proportion which the number of days for which the concern worked double shift or triple shift as the case may be, bears to the normal number of working days during the year.

• In the case of Seasonal Factory or concern, the number of days on which the factory or concern actually worked during the year or 180days, whichever is greater.

• In any other cases the number of days on which the factory or concern actually worked during the year or 240days, whichever is greater.

Extra Depreciation for double shift working should be the difference between the depreciation for double shift working and the depreciation for single shift working, adjusted in proportion which the number of days for which the concern worked double shift bears to the normal working days during the year. The extra shift depreciation so calculated has to be added to the depreciation for single shift working to arrive at the total depreciation for double shift working.

Formula for arriving the depreciation

Depreciation for Single Shift working + (Depreciation for Double/triple Shift working- Depreciation For single Shift Working)x(Number of days worked double or triple shift/normal working days during the year)

Component Accounting:

The Companies Act, 2013 has introduced the concept of Component accounting which was not the case of Companies Act 1956. To understand Component Accounting, we can take guidance from IND AS-16 which Provides as under:

Each Part of an item of an asset with a cost significant in relation to the total cost of the item shall be depreciated separately.

Where cost of the part of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part should be determined separately.

For Example:

X Ltd Purchased a Ship of Rs.30 Crore which Comprises Engine of Rs. 27Crore and Structure and others for Rs.3Crore.The residual value and useful life would be Rs. 7crore and Rs. 1crore respectively. The Useful Life of an asset is 30years.

Ship	Allocated Cost (Rs.)	Residual Value	Useful Life
Engine	27 Crore	7 Crore	10 Year
Others	3 Crore	1 Crore	20 Year

 As per Companies Act 1956

Annual Depreciation of the Ship=(22Crore/30)= 0.73Crore

As per Companies Act 2013

Ship	Depreciable Amount (Rs.)	Useful Life	Depreciation
Engine	27 Crore – 7 Crore= 20 Crore	10 year	2 Crore
Others	3 Crore- 1 Crore=2 Crore	20 Years	10 Lakh
	Total		2.10 Crore

 When at the end of respective useful lives of the component, the components will be replaced, the replacement cost should be capitalized and the existing carrying value, if any, should be decapitalised.

Thus, although the overall amount that will be charged to the statement of profit and loss will be same during the entire life of the ship, the annual charge to the statement of profit and loss will differ significantly.

Impact of Component Accounting on replacement of Component

Let us explain this with an example:

A Company has recently acquired a new factory for a cost of Rs.23Lakh with a residual value of Rs.3 Lakh. This factory has a flat roof, which need to be replacing every ten year at a cost of Rs.5 Lakh. The useful life of new factory would be 20 year.

Now Think, if we applies Companies Act 1956, the new factory will be considered as an one asset and depreciate the whole factory over its useful life of 20 year, charging Rs. 1 Lakh Per Annum

The Cost and accumulated depreciation of the old roof will be Rs.5 Lakh and Rs.2.5 Lakh respectively.  There will be a loss of Rs.2.5 Lakh which is to be recognized in the Income Statement.

However if we applies Companies Act 2013, The Factory roof will be treated it as a separate asset and the factory would be treated as another asset.

Now How Depreciation would be calculated?

Now you have to derecognize the cost of roof, so that it could be treated as an another asset i.e. Rs.23 Lakh (original value of an asset)-Rs.5Lakh (replacement cost of factory roof)= Rs.18 Lakh – Rs.3 Lakh(Residual Value)=Rs.15Lakh, The depreciation would be Rs.15 Lakh/20=Rs.75,000 Per annum. Plus depreciation of Factory roof is Rs.5Lkh/10= Rs.50000/- Per Annum. Hence total Depreciation Would be 1.25lakh Per annum.

The carrying amount of the old roof in year 10 will be Nil under the second approach. The cost and accumulated depreciation of Rs. 5lakh are written off, with no profit or loss on disposal arising.

The Second approach more accurately reflects the consumption of economic benefits of the factory with an even charge to the income statement over the 20years of the useful economic life of the factory.

Residual Value:

If residual value is considered as an insignificant, it is normally regarded as NIL. On the Contrary, if the residual value is likely to be significant, it is estimated at the time of acquisition/installation, or at the time of subsequent revaluation of an asset. One of the basis for determining the residual value would be realizable value of similar assets which have reached to end of their useful lives and have operated under conditions similar to those in which the asset will be used.

Ordinarily, the residual value of an asset is often insignificant, but it should generally be not more than 5% of the original cost of the asset.

Can it be possible to take different residual value and useful life as prescribed in companies act 2013

Basis	Regulated Entities	Such class of CompaniesAs may be prescribed and Whose financial statements comply with the accounting standards	For other companies
For	The useful life or residual value of any specific asset, as notified for accounting purposes by a regulatory authority constituted under an act of parliament or by central government should be applied in calculating depreciation irrespective of the requirements of the schedule.	Useful life or residual value shall not be different as indicated in Part-C of schedule-II of Companies Act, 2013, otherwise disclose the justification for the same	Useful life shall not be longer and residual value shall not be higher than the prescribed in Part-C of schedule-II of Companies Act, 2013,
Explanation	Mandatory	Management can take differ useful life or residual value, the only thing is that give justification for the same.	Management can take only shorter useful life and lower residual value.

 Transitional Provisions

From the date schedule-II comes into effect, the carrying amount of the asset as on that date:

• Shall be depreciated over the remaining useful life of the asset as per schedule-II
• After retaining the residual value, shall be recognized in the opening balance of retained earning where the remaining useful life of an asset is Nil.

For Example

A Company acquired a building at accost of Rs. 10 Crore. The Company was depreciating the building according to schedule XIV SLM rate i.e. 1.63%. Now In August 2013 Schedule-II was introduced via the companies Act 2013 in which the useful life specified is 30 year.

If the building is acquired on 01/04/2000

Depreciation charges till FY 2012-13, depreciation on SLM Basis for 13 year

Rs 10Crore X1.63%X13 Year=Rs.21190000/-

Carrying Value=10 crore-2.11 Crore=7.88Crore approx.

Now the carrying value as on 01 April 2013 will be depreciated over the remaining useful life of the asset as per schedule II of the companies Act 2013. The remaining useful life is 17 year (30-13)

So annual depreciation to be charged to the profit and loss account from FY 2013-14 would be Rs7.88 crore/17= Rs.46.35 Lakh approx.

If the building is acquired on 01/04/1980            

The useful life of an asset as per new schedule has already expired if the building was acquired on 01 April 1980. In such case, the carrying value as on 01 April 2013 would be recognized in the opening balance of retained earnings.

Depreciation charged till FY 2012-13, depreciation on SLM basis for 33 year

Rs 10CroreX1.63%X33 Year=5.37Crore

Carrying Value as on 01 April 2013 was Rs 10 Crore-Rs 5.37Crore= Rs.4.62 Crore Would be recognized in the opening balance of retained earnings. Suppose there is an residual value of Rs. 10lkh, then only 4.52 crore will be adjusted through retained earnings and Rs. 10 Lakh will remain in the carrying amount of the asset.

This article was written by Pankaj Goenka in his personal capacity. The opinions/facts/information expressed in this article is the author’s own and do not reflect the view of the aapkaconsultant.com.

AMENDMENTS IN POLITICAL FUNDING – A WRONG DOSE NOT CAPABLE OF CURING THE DEADLY CANCER OF CORRUPTION

The government has once again succeeded in keeping the masses confused for one more year by completing the annual ritual of budget exercise . The intellectuals are still debating the long term gains of demonetisation which has certainly caused short term irreversible PAIN to already struggling SME sector and our large farmer community . The swift availability of information has educated the common man more what government would have desired for so any government in power can no longer afford to ignore the loopholes and pitfalls in our fiscal and economic policies glaringly written on the wall . The budget 2017 certainly addresses most of such pitfalls and passé the test of presenting a GOOD BUDGET with a very good score by maintaining stability in Tax rates , giving marginal relief to honest tax payers , burdening a bit the high income earners who are virtually TAX EVADERS because only 24 lakhs people declare their income more than Rs.10 lakhs per annum , spending more for agriculture and infrastructure , pushing less cash economy , budgeting more safety of our railways and so on . By that standard , it is the least controversial budget which pleases almost all sections of society apparently because there is nothing harsh even for those (TAX EVADERS ) who have been benefiting from impartial , inefficient and unjust tax system in the country . So we can see captains of industry , economists , politicians and well positioned people lauding the Budget-2017 as there is a status quo at least. We all owe a gratitude to the government in power for not adding miseries to our economic life . However undoubtedly It has miserably failed to address the cancer of corruption and black money generations except making some inconsequential changes in political Funding and cash transaction . In his own admission of our Honourable Finance Minster –‘ India on the whole is a non tax complaint country .’substantiated by smart data analysis also . ‘The ratio of Indirect tax and Direct tax to GDP is alarmingly disturbing signifying an unjust tax system in the country .’ The biggest irony of today is though there is repeatedly an open acceptance of such fatal ills in our tax system destroying the economic dividend of higher GDP earned but the actions taken are counterproductive .They do nothing much except creating sensational headlines of undertaking revolutionary REFORMS for some time .They end up further complicating the issue which is the real hidden agenda of such wild declarations . Let me now focus only with steps announced for curbing black money getting into the hands of politicians (our rulers ) legitimately by way of political Funding .

EXISTING TAX IMPLICATION FOR POLITICAL PARTIES

Section 13A of the Income-tax Act, 1961 confers tax-exemption to recognized political parties for income from house property, income by way of voluntary contributions, income from capital gains and income from other sources. In other words, only income under the head salaries and income from business or profession are chargeable to tax in the hands of political parties in India. These political outfits can enjoy the above-said tax-exemption if they maintain proper books of accounts and other documents along with a record of contributions in respect of donations to the party in excess of Rs 20,000. Further, the accounts of such political party are to be audited by a chartered accountant and the party must be registered with the Election Commission of India. Under section 139(4B) of the Income tax Act, 1961, political parties are however under a statutory obligation to file return of income in respect of each assessment year. Further, the amendment made in 2003 to the Representation of the People Act, 1951 requires that the treasurer of every political party must file a declaration in respect of donations exceeding Rs. 20,000 at a time. The party treasurer of a political party must file a report of contributions received to the Election commission before the due date for furnishing the return of income under Section 139 of the Income tax Act. More importantly, section 13A has been amended and tax exemption for a political party is contingent upon the submission of the report by the party treasurer. The compliance of above legal requirement by the political parties is already pathetically poor which is not more than 50% with no serious penal action affecting their functioning . Section 80GGB was a new insertion in the Income-tax Act, 1961. This enables Indian companies to get full deduction in their income-tax assessments for contributions made to political parties. Interestingly, there is no ceiling fixed on the amount of such contribution. Section 80GGC gives similar deduction for non-company taxpayers. Advertisements in souvenirs published by political parties would also be eligible for deduction. For this purpose, the term “political party” means a political party registered under section 29A of the Representation of the People Act, 1951. What justifies allowing unlimited amount of donation to political parties as an expense whereas there are several restriction for giving donations to other charitable trust and Non profit companies under section 80 G of Income Tax .Thus political parties commands undisputed higher meritorious status than the charitable outfits dedicated to some noble cause and enjoy permanent immunity from Income tax as well.

AMENDMENTS PROPOSED IN BUDGET 2017

In order to discourage the cash transactions and to bring transparency in the source of funding to political parties , it is proposed to amend the provisions of section 13A to provide for additional conditions for availing the benefit of the said section which are as under:

(i) No donations of Rs.2000/- or more is received otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bonds,

(ii) Political party furnishes a return of income for the previous year in accordance with the provisions of sub-section (4B) of section 139 on or before the due date under section 139. Further, in order to address the concern of anonymity of the donors, it is proposed to amend the said section to provide that the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond .

 Apparently on a plain reading one might infer that government has taken some measures in the right direction . However , the devil is in detail , thus these are completely eye wash amendments to generate hype that war against black money generation is on .

 What stops any political party to raise more number of cash receipts to accommodate as much cash it wants to receive as donation from millions of anonymous sources ?The answer is NO BODY ? They can continue to do it legally .

 As per statistics available in public domain , the cash collection from anonymous source ranges from 65% to 100% of the total collection which is several hundred crores for most of the political parties ?

 What is the rationale for giving income tax exemption to political parties ? Are they formed to serve society in today’s time ? The answer is big NO . People by and large enter into politics to make a career out of it . MP , MLA and ministers draw handsome salaries & allowances besides enjoying unlimited perquisites and power .

 There are always a few people in business community who run their commercial enterprise for social service only so by that standard the entire business community must be given income tax exemption .

 Why anonymity of the donor to a political party should be kept ? We contradict our basic premise of doing public good by political parties for giving them exemption from Income tax .Thrust on anonymity in itself is an evidence of ulterior motives of donor and donee thus giving birth to crony capitalism .Every donor to any NGO or charitable trust would take a pride if donor is given a recognition for the contribution .Here it is other way round , Donor does want to reveal it’s identity . It is legalised now .

 The bigger devil is in further detail , by this amendments , The election commission would not have access to the donors contributing more than Rs.20,000 than and now Rs.2000 because the requirement of furnishing the annual return by the treasurer of political party with Election commissioner has been done away with .

 It puts party in power at an advantage by being privy to the information of donations done through bearer Electoral Bonds purchased from digital payment or cheque being encashed at only one designated branch of a political Party .

 Thus party in power can black mail both donor and donee ( opposition political parties) which has damaging implications for already distorted format of democracy we are practicing in India .

 In effect , This proposed amendments would deprive Election Commission of critical information about donors which it could use to do any monitoring . We know ‘Information is power .’ Now with this proposed amendment the power of Election Commission gets diluted for want of information It is now between the political parties only to barter/ pardon crimes for mutual benefit .So there is no pleasant surprise that every political party has welcome this so called reduction in amount of cash collection disguised to benefit them by coming out of clutches of Election Commission at least to some extent .

 There are already more than 1892 political parties (including 1837 regional unrecognised political parties ) registered with Election commission as at 11th Jan, 2017 as per gazette by ECI. Majority of them are habitual and wilful violators of giving the required details to EC and filing income tax return since ages . Surprisingly , more than 90% of the unrecognised regional political parties registered have no elected representative in Parliament or state legislative assembly .

 The point of great concern is why unrecognised regional parties having no representation continue to exist and collect donations ?

 The ongoing exemption to political party is an open incentive to every money hoarders to hide under the cover by forming a political party The seriously interested folk in Government for bringing genuine reform would –

1) Ban any cash payment of even a rupee to any political party . When we are advocating that our milk man , vegetable vendor, tax driver and so on should be paid digitally so why not Political party who are not even covered under ESSENTIAL SERVICES ACT .

2) Make the income of every political party subject to Income tax provisions with immediate effect like any commercial outfit . At best they can be given liberal deductions for certain valid expenses .

3) The requirement of furnishing annual return of donations with Election Commission, An Independent watch Dog having teeth as well from the constitution of India for political parties before filing Income Tax Return MUST be maintained . The position of Election Commission MUST be made more independent with irrevocable powers .

4) There MUST be a maximum ceiling for any company can donate to political party(s) .

5) Any violation wilful or not wilful by the political party would empower election commission to cancel the registration of political party .

6) There are several other non fiscal reforms which are also over due for cleansing the electoral system in India .That is not the scope of this article thus they are not dealt with . Anything lesser than is not going to treat the cancer of corruptions widely rampant in political parties which is a mother of all corruption . CONCLUSION – The proposed amendments for political funding is not well intentioned as it is going to further facilitate the acceptance of donation from anonymous sources by keeping it’s details away from the purview of Election Commission . We have witnessed similar experience during the experiment of demonetisation done with 1.3 billion Indians in one go where political parties grossly abusing the exemption under income tax by acting as one of the big time money changers . We cannot expect cleansing of corruption from other economic activity sphere when the controller of it has prospered to it’s existing powerful position by riding on the road of corruption made of black money from anonymous sources . There was an urgent need for doing major surgical strike on political funding and what has been given is stale coloured pill not meant for this ailment thus leaving the disease ( Black Money ) to advance to it’s next higher critical stage for fulfilling the aspirations of certain select class of people .

This article is written  by CA Anil Kumar in his personal capacity. The opinions / facts / information expressed in this article is the author’s own and do not reflect the view of the aapkaconsultant.com.

Cost of Sole Proprietorship Firm Registration

Cost of Sole Proprietorship Firm Registration in India

The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts i.e. unlimited liability of the sole proprietor. Sole proprietorship firm needs no legal registration like Limited liability partnership or partnership firm. The main motive of a sole proprietor is to open a current bank account for which banks ask for any legal certification for the business so, a tax certificate or any local registration certificate is required to carry on business in India.

As per guidelines of Reserve Bank of India (RBI), banks mainly ask for minimum two legal proofs i.e.  Shop Act License or Gumasta License and VAT/CST Registration or Service Tax Registration. Costs for such registrations are:-

• Shop Act License or Gumasta License is the local municipal shop act licence certificate. This requires basic ID proofs such as PAN card, address proof, or No Objection Certificate (NOC) etc. The cost for such licence in India is around 3000 Rupees it varies as per professionals.

• VAT/CST Registration is state wise, so its cost varies state to state. VAT/CST Registration number is also required when you are selling at online marketplace. This registration is required when you are dealing as trader, manufacturer, supplier etc. Its cost is around 5000 rupee to 15000 rupee varying state to state apart from the Security.

• Service Tax Registration is required when the overall taxable turnover of the firm exceeds 9 lakh rupees in a financial year. If we talk about the CA Firms and Lawyers Firms then they charged nearby 3000/- Rupees to 4000/- Rupees or in many case of the companies it charges even more along with Fees. So Generally Acceptable Quote is nearby 2500/- Rupees to 3000/- Rupees.

Author: This blog is written by  Ms. Ankana Mukherjee , student of Dr. Ram Manohar Lohiya National Law University,(RMLNLU) Lucknow, a passionate blogger & intern at  Aapka Consultant.

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7 Subsidies of Entrepreneurs

7 Subsidies of Entrepreneurs

Government of India provides financial support to the economic sectors in form of subsidies to various departments in the country for upliftment of the particular section. One such section for which the government provides subsidies is that of the new and upcoming entrepreneurs. The motive behind providing subsidy for the same is to encourage the investment of the new entrepreneurs so that it adds up to the economic growth of the country. Enterprises are business which can be categorised into two types i.e. one which manufactures and produces goods pertaining to a particular kind of industry and the other that is engaged in production of services. Since starting a business is a risk taken, these subsidies provide for security which can be counted on by the risk taker. It helps the entrepreneurs to develop their business and thereafter provide services to the country like increasing employment, providing goods to the market. There are various kinds of inputs required to start a company some of which can be classified as, raw material, land, machinery, management, capital etc. The government therefore provides subsidies in the aforementioned criteria so that the entrepreneur can use them to set up their new business. There are a few subsidies that must be known by the new entrepreneurs in order to obtain the benefits from the same. Following are the subsidies that must be known to the upcoming businessmen.

1. Credit Linked Capital Subsidy Scheme

Small Scale Industries (hereinafter referred to as SSI) manufacture and produce their products with outdated technology as they are not well aware of the latest technology due to shortage of capital therefore this scheme aims to provide the latest technology so that the output is within the norms of the fast changing world as is required by the global market. The Ministry of Small Scale Industries therefore came up with the particular scheme which provides 15% capital subsidy to the SSI units on institutional finance availed by them for the induction of well-established and improved technology approved under the scheme for a loan of upto Rs. 1 crore.

2. Textile Industry

In this country textile is the industry which provides maximum number of employment to the people after agriculture. It is a whole sector in its own as it provides livelihood to many live from various sects of the country. Since textile industry is very much dependent on technology, the Ministry of Textiles through its Technology upgradation fund provides financial aid to the textile industry for upgradation in its technology. Upgradation in the technology makes the output accepted and eligible for competition in global market. The scheme provides for various benefits in matters of interest reimbursement, credit linked capital subsidy etc. ISBI, SIDBI and IFCI were the nodal agencies for providing the subsidies, however, w.e.f. 1st October 2005 additional nodal banks have been appointed under TUFS for determining eligibility and releasing subsidy for the cases.

3. Patent

The department of IT, MCIT and the government started a scheme to provide subsidy to the various SME and technology start-ups for international patent filing to encourage their innovation and capture growth opportunities in areas of IT. The scheme provide for subsidy of 50% of the patent cost incurred by the industry, encouraging them to get the invention patented.

4. Subsidy to Acquire Quality Management System

With the increasing global market, there is a need for quality standards for MSME units to compete in the market, therefore in order to encourage the same, subsidy is provided by the government to adopt quality standards in the Indian MSME units by subsidising the cost of acquiring ISO certificates like ISO 9000 and ISO 14001. This scheme provides reimbursement of charges of acquiring ISO-9000/ ISO-14001 certifications to all industries registered as SSI, upto an extent of 75% of expenditure subject to max. of Rs 75,000/-.

5. Market Development Assistance Schemes for MSME and Assistance on Bar Code

This scheme offers funding for participation and representation of MSME in international trade fairs where subsidy is given for air fares, and space rental charges.

Also in order to promote the system of Bar code and increase competition there is financial assistance given to the MSE by providing one time registration fee and annual recurring fee for the first 3 years.

6. Cold Chain subsidy

The main source of employment in the country is always considered to be agriculture i.e. the food processing sector. This sector plays a vital role in enhancing the shelf-life of food products, thereby securing the income of the farmers. If the food are stored properly then it leads to surplus allowing export of agro and processed food. In order to do the same the Ministry of Food Processing Industry provides a subsidy to establish a cold chain. This particular subsidy provides for proper cooling and storing of the food products i.e. providing infrastructure facilities without any mediators from the farmers to the consumers. This way the scheme covers pre-cooling facilities at production sites allowing no wastage of the food before value is added to that product. Financial assistance of 50% is provided from the total cost of plant and machinery & technical civil works in all areas except in North Eastern Region including the difficult areas where a maximum of Rs. 10 crores is provided as financial assessment under this scheme.

7. Jawaharlal Nehru National Solar Mission

The Government of India after launching the aforementioned scheme promotes sustainable energy generation and provides subsidy and soft loans for promotion of solar energy generation in the nation. The JNNSM provides for capital subsidy of upto 40% of the approved unit cost for solar lighting systems, whereas in special categorised states capital subsidy of 90% would be allowed.

Some of the extra subsidies that one should be aware about is that of Integrated Development of Leather Sector where the scheme aims at upgradation of the existing tanneries, footwear components and leather products by granting 30% of cost of plant to SSI and 20% to the other units. Another such industry is that of coir industry where the coir board runs subsidy schemes for the improvement in the same sector.

Furthermore there are various schemes that are being set up to encourage new entrepreneurs to come together and solve their problems. Thereafter Rajiv Gandhi Udyami Mitra Yojana aims at facilitating technology up gradation by providing capital subsidy to SSI units, including tiny, khadi, village and coir industrial units, on institutional credit availed of by them for modernization of their production equipment. With every scheme there is an opportunity to avail the same and uplift the country in the global economy.

Author: This blog is written by Ms. Anmol Srivastava, student of Damodaram Sanjivayya National Law University, Visakhapatnam, a passionate blogger & intern at  Aapka Consultant.

How Aapka Consultant can help you:-

• Get free expert consultancy from experts.
• We available every time to solving your legal queries.
• Get one stop solution for all legal compliances.
• Process application within 24 Hours.
• Trusted by Most Valuable Startups.
• We Understand Startup Budget & their needs.
• Get quality services at pocket price.

Visit: Aapka Consultant to get Online Services of CA CS & Lawyers.