Government enlarges startup definition, Statups to benefit for 7 years

The department of industrial policy and promotion (DIPP), the nodal body for Start-up India, said in a statement that an entity shall now be considered a start-up up to seven years from the date of its incorporation/registration, taking into account the long gestation period in establishing start-ups. Currently, the period of consideration is five years.

However, in the case of start-ups in the biotechnology sector, the period will be up to 10 years from the date of incorporation/registration.

The DIPP statement said start-ups would no longer require a letter of recommendation from an incubator or an industry association for either recognition or tax benefits under Start-up India.

The scope of the definition of a start-up was also broadened to include scalability of business model with potential of employment generation or wealth creation.

“As a constant endeavour to facilitate the start-up ecosystem, the DIPP has been holding extensive consultations with stakeholders. The above changes are an effort to ensure ease of starting new businesses to promote the start-up ecosystem and build a nation of job creators, instead of job seekers,” the statement said.

Start-up India was launched by Prime Minister Narendra Modi on 16 January 2016 to nurture innovation and drive economic growth and employment opportunities.

GST Monthly Returns

GST, which is set to roll out from July 1, is expected to see eight million taxpayers come under the new tax regime, with more than 2 billion invoices expected to be filed every month. India’s biggest tax reform in history is also set to make its small to medium
businesses more transparent.

On July 1, as India rolls out its landmark national sales tax, businesses that make less
than 100 million rupees which the government refers to as micro, small and medium
enterprises will all have to digitise

The GST filings are expected to be one of the most significant data points for flowbased
lending, given the authenticity and complete information of an SME’s financial health. Flow based lending entails lending based on cash flows of a company as opposed to collateral or asset based lending. “GST data will become the largest repository of verifiable cash flows and transactions of business.

While small and medium businesses are expected to face teething trouble in complying with the Goods and Services Tax regime, the new tax system will also open an opportunity for them to access credit as GST filings are set to become a significant
data source for flowbased lending.

Small businesses are the backbone of Indian economics. They drive the velocity of
country’s economics, industrial growth, and catalyst for job creation. However, a large
number of businesses in the country are unorganized and irregular in filing returns and
paying taxes.

This could be due to knowledge gap, situational issue or perception among businessman
that they are small in size, operations and earnings, and it is okay to miss the deadline.
As a result, they end up getting a notice from the tax department demanding tax payment, interest, late fee and penalties for noncompliance.

Especially in case of VAT dealers, the severity of consequence in terms of monetary impact is lesser to extent of additional cash outflow to the extent of default.

GST, a comprehensive indirect tax system is all set to subsume a host of existing indirect
taxes and with its implementation, compliance will become a key factor for the success and credibility of a business. GST works on a selfmonitoring mechanism, which is matching the concept of invoice between supplier and recipient of goods and services.

Only after matching of invoices and payment of tax by the supplier, the input tax credit will be available to the recipient.

Thus, a customer will always want to do business with vendors who are compliant. This results in a change of relationship between supplier and recipient from ‘customercumemotional relationship to compliance relationship’.

Hence under GST, noncompliance will not only affect your cash outflow in paying fines, interest, and penalties but also affect the continuity your business and compliance rating.

There will now be four different rates for indirect taxes on goods and services: five, 12, 18 and 28 percent. Except, of course, there are actually five rates, since some things won’t get taxed at all, so zero percent should also be in that list. An additional surcharge will apply to some high tax products and the rate of that surcharge could be anywhere from three percent (on personal jets) to 12 percent (on sodas), 17 percent, 21 percent, 61 percent, 72 percent, 142 percent, 160 per cent, 204 percent or 290 percent (on pipe tobacco). For a reform meant to introduce a single, simple and low tax rate to India, this bewildering maze is a little farcical.

Monthly Statutory Returns under GST 

Based on the category of registered person such as monthly return is to be filed by Regular, Foreign Non Residents, ISD and Casual Tax Payers whereas Compounding/Composite tax payers has to file quarterly returns:

In the table below, we have provided details of all the returns which are required to be filed under the GST Law.

Return Form What to file? By Whom? By When?
GSTR-1 Details of outward supplies of taxable goods and/or services effected Registered Taxable Supplier 10th of the next month
GSTR-2 Details of inward supplies of taxable goods and/or services effected claiming input tax credit. Registered Taxable Recipient 15th of the next month
GSTR-3 Monthly return on the basis of finalization of details of outward supplies and inward supplies along with the payment of amount of tax. Registered Taxable Person 20th of the next month
GSTR-4 Quarterly return for compounding taxable person. Composition Supplier 18th of the month succeeding quarter
GSTR-5 Return for Non-Resident foreign taxable person Non-Resident Taxable Person 20th of the next month
GSTR-6 Return for Input Service Distributor Input Service Distributor 13th of the next month
GSTR-7 Return for authorities deducting tax at source. Tax Deductor 10th of the next month
GSTR-8 Details of supplies effected through e-commerce operator and the amount of tax collected E-commerce Operator/Tax Collector 10th of the next month
GSTR-9 Annual Return Registered Taxable Person 31st December of next financial year
GSTR-10 Final Return Taxable person whose registration has been surrendered or cancelled. Within three months of the date of cancellation or date of cancellation order, whichever is later.
GSTR-11 Details of inward supplies to be furnished by a person having UIN Person having UIN and claiming refund 28th of the month following the month for which statement is filed

GST Monthly Returns

10th of Subsequent Month Form – GSTR1

In Form GSTR1, you need to declare the details of all the outward supplies of goods and/or services effected during the month. Invoice wise details of outward supplies made to registered dealer and aggregate taxable value of supplies made to consumer are required to be declared. In case, taxable value of supply made to consumer is more than Rs 2.5 lakh and if it is interstate supply, you need to declare invoicewise details.

11th of Subsequent Month Form – GSTR2A
On 11th, the visibility of inward supplies is made available to the recipient in the autopopulated GSTR2A.

This is generated based on the outward supplies declared by your supplier in Form GSTR1. The period from 11th to 15th will allow for any corrections (additions,
modifications and deletion) in Form GSTR2A.

This is the most critical phase of filing of your return, as any omission or correction not reconciled as per the statement in Form GSTR 2A with your inward supplies register, will impact your Input Tax credit eligibility. To save time, quicker and accurate reconciliation, technology will play a key role in your compliance.

15th of Subsequent Month Form – GSTR 2
After reconciling, any additional claim or correction as per Form GSTR 2A needs to be incorporated and submitted in Form GSTR 2 by
15th of subsequent month. Based on the claim reported in Form GSTR2, ITC will be credited to your Ecredit ledger on provisional basis and post matching of invoice, it will be finalized.

16th of Subsequent Month Form – GSTR1A
The corrections (addition, modification and deletion) reported by you in Form GSTR2
will be made available to your supplier in Form GSTR1A.
The supplier has to accept or reject the adjustments made by the customer by verifying with suppliers outward supply register.

20th of Subsequent Month Form – GSTR3
On 20th, based on the Form GSTR1 and Form GSTR2, an autopopulated return GSTR3 will be available for submission along with the payment.

Final Acceptance of Input tax credit in Form GST MIS1 After the due date of filing the monthly return in Form GSTR3, the inward supplies will be matched with the outward supplies furnished by the supplier, and then the final acceptance of input tax credit will be communicated in Form GST MIS1.

The following details will be considered in the matching of invoices:
GSTIN of the supplier
GSTIN of the recipient
Invoice/or debit note number
Invoice/or debit note date
Taxable value and
Tax amount

The claim of input tax credit will be considered as matched, if the amount of input tax credit claimed is equal to or less than the output tax paid on such tax invoice or debit note by the corresponding supplier.

Also, the mismatch input tax credit on account of excess claims or duplication claims will be communicated to recipient in Form GST

MIS 1 and to supplier in Form GST MIS 2.
Discrepancies not ratified will be added as output tax liability along with interest. However, there will be some breathing space since the law provides a window of two months to ratify the discrepancies before reversing the ITC claim on provision basis.

A Way Forward

Activity. The return cycle under GST will put an end to the existing practice. Today, most of the small business prepare their returns in a day by summarizing their purchase and sales transactions. This will no longer be relevant since GST Return cycle is spread across the month.

Secondly, the businesses need to move from offline data recording to online data recording to file the return. Today, most of the small businesses port the data from their books to offline tools and file their return. This will prove to be a costly affair since, under GST inward supplies and outward supplies will be autopopulated by GSTN and need to be reconciled with books.

Technology will play a pivot role for businesses under GST as GST is highly transaction based compliance system. The technology should help you to seamlessly prevent, detect and correct the exceptions before the filing of return and reconcile your books with GSTN.

With the right technology, businesses will have timely compliance, manage cash flows better and adding up to compliance credibility.

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Goods & Services Tax (GST)

The Union government has shown strong determination in implementing a Goods and Services Tax (GST) that will subsume a majority of the present indirect tax levies in India. This paradigm shift in indirect tax is currently underway and the final GST law is expected to be implemented starting 1 July 2017. As part of this change, every taxpayer or assessee registered under the present indirect tax levies and who meets the criteria laid down in the Model GST Law, is required to register under GST.

The registration process involves migration to the GST portal in a phased manner. The process of GST migration for state value added tax (VAT) assessees began in November 2016 and was extended to cover excise and service tax assessees starting January 2017.

Furthermore, the Central Board of Excise and Customs (CBEC) has recently, via a notice on its website, requested assessees to whom a provisional identification has been issued for migration to GST, to complete the migration process by 31 March 2017.

GST – FAQ’s

Q) Who is required to register under the GST regime?

Persons required to register under GST can be broadly classified into 3 categories:

(a) Persons having a valid PAN (permanent account number issued for tax purposes) and existing registration under present Indirect tax laws (VAT, service tax or central excise).

(b) Persons crossing threshold limit of turnover of GST or desirous to obtain voluntary registration under GST.

(c) Registration for certain key compliance/specified assessees such as causal traders, persons liable to TDS (tax deducted at source), non-resident persons, etc.

Q) What is GST migration?

GST migration means enrolment of existing Indirect tax assessees (i.e. assessees holding registrations under VAT, service tax or central excise) using the GST portal, in order to transfer such assessee to the GST regime.

 

Q) What is enrolment?

Enrolment under GST means validating the data of existing taxpayers and filling up the remaining key information fields on the GST portal. In other words, the GST portal requires assessees holding existing registrations under the present indirect tax regime to validate their data as displayed on the GST portal and upload supporting information.

 

Q) What is last date for enrolment for existing assessees?

As per a notification on the CBEC website, existing assessees have been urged to enrol using the GST website on or before 31 March 2017.

Q) How are existing assesses enrolling on the GST portal?

Assessees have to obtain a provisional identification and password from the state VAT website or ACES website (as the case may be) and use them to access the GST portal. Having accessed or logged into the GST portal the assessee will be required to create a new user ID and password. The assessee can obtain a provisional GST registration number once the new user ID has been created.

Subsequently, the assessee is required to upload prescribed information such as proof of constitution of business, director details, etc. on the portal to generate an Application Reference Number (ARN) to complete the application for migration.

 

Q) What is the provisional ID and provisional GST number?

The provisional ID is a temporary ID provided by current indirect tax authorities to enable existing assessees to access the GST portal for the first time. The provisional GST number is the GST number allotted to the assessee, which will be finalised once the application is processed by the department.

Q) How many provisional IDs shall be granted in case of multiple central excise/service tax registrations on the same PAN in a state?

According to guidance issued by the CBEC, only one provisional ID shall be issued by the central indirect tax authority to assessees holding a valid PAN and not having a provisional ID issued by any state VAT authority.

 

Q) How many provisional IDs shall be granted in case of centralised service tax registration on the same PAN in multiple states?

 

As per documents issued by CBEC in relation to GST registration, one provisional ID shall be issued per state (which will cover all premises in that particular state). However, various centralised service tax assessees are facing issues where only one provisional ID is being issued for all premises under the centralised service tax registration. In such a case, given that GST registration is statewise, assessees are contacting the jurisdictional service tax office for a provisional ID and password for premises in different states.

Q) Is it mandatory that the Digital Signature Certificate (DSC) of an authorised signatory should be PAN-based while authenticating the application?

 

In case the primary authorised signatory is a citizen of India, PAN is mandatory. However, if the primary authorised signatory is not a citizen of India, then PAN is not mandatory but a passport number is. Accordingly, the DSC of the authorised signatory may or may not be PAN-based.

 

Q) When will the provisional GST number be finalised?

 

The date of finalisation of a provisional GST number has not been prescribed by the tax authorities as of now. However, as per the Model GST law, the provisional GST number shall be valid for a period of six months from the date of issue, that is, implementation date of GST. Given this, it is likely that the finalisation of applications filed will be concluded within six months from the date of implementation of GST.

 

Q) Will the provisional GST number change after finalisation?

 

It is likely that the provisional GST number will not change after finalisation of application.

Q) What is CBEC Mitra?

 

CBEC Mitra is a new CBEC GST helpdesk which has been launched to provide assistance to assessees who face any difficulty or if they have any query relating to GST registration.

This helpdesk is an Interactive Voice Response (IVR) based service and will be operational 24/7.

The assessee can email their difficulties/queries to cbecmitra.helpdesk@icegate.gov.in or call the helpdesk numbers – CBEC: 1800-1200-232 and GSTN: 0124-4688999

 

Q) Has the GST registration process been prescribed for assessee who are not registered under  the present indirect tax levies regime?

No, the procedure for registration of assessees who are not registered under the present IDT regime has not yet been prescribed.

 

Q) What do I do if the legal name of the entity as per PAN and service tax or VAT registration is different?

In case of such a mismatch, the GST portal will not be able to generate an ARN. The GST helpdesk suggests that the relevant authority should be contacted to correct such error in name on respective records as well as request the VAT or CBEC authorities for a new provisional ID and password for access to the GST portal. In case of proprietors, the GSTN portal will allow for the name, as per PAN, editable in the application form.

Q) What should I do if I do not want registration under GST?

Some state VAT authorities are accepting an undertaking from assessees who do not want to register under GST regime along with the reason for not migrating or registering. However, presently, no procedure has been prescribed for the same and most of the state VAT authorities as well as CBEC are mandating assessees to register and migrate to the GST portal and opt for cancellation of registration under the GST regime in case they do not want a GST registration.

What is a meaning of Goods & Services Tax (GST)?

GST is an indirect tax which is applicable on all supply of goods & services in India. GST shall be levied in place of existing sales tax, VAT, excise duty, customs, service tax, luxury tax etc. If you are supplying goods and services in India, then it is mandatory to take the GST registration.

How to register for GST in India?

(1) Creation of User ID & Password on Common Portal: – This is the first step towards enrollment for migration to GST, which start with provisional ID and password as given to the taxpayer by respective State Vat department through dealer’s login. On entering provisional Id & Password, GST Common portal will ask for Email Id and Mobile number of authorized person on which two different onetime passwords shall be sent. Entering one time password of both Email Id & Password simultaneously is mandatory to create a new User Id & Password. Five questions shall be asked to reset the password in the event of forgot password. Taxpayers are therefore advised to take out a print before submitting a list of security questions. Initially i.e. up to 1st April 2016, Email Id and Mobile number of authorized person is Noneditable.

(2) Details of Business: –After successful creation of user Id & Password, taxable person need to login into GST common portal. After login on the dashboard itself a provisional GST number shall be seen, which shall start with state code followed by 10-digit pan number and 3 more system generated digits. In very first tab taxpayer has to enter various business details. Some details like PAN number, Legal Name are auto populated from the system and rest of the details such as various registration details along with the date of registration as provided underCentral Excise, Service tax, VAT, Luxury Tax, Entertainment Tax, IEC, CIN number etc. shall be filled manually.

In addition to above a scanned copy of proof of constitution i.e. Shop Act License/Factory License in case of individual, Partnership Deed in case of Partnership Firm, or Registration Certificate/Proof of Constitution in case of Society, Trust, Club, Government Department, Association of Person or Body of Individual, Local Authority, Statutory Body and Others etc.) shall be attached. Scanned copy of proof of constitution should be in jpeg or pdf format with maximum size of 1 MB.

(3) Details of Proprietor, Partner, Managing and Whole Time Director, Karta: – In this tab details (of Proprietor, Partner, Managing and Whole Time Director, Karta) such as Full Name, Full Name of Father/ Husband, DIN Number, Date of Birth, Mobile Number, Gender, Designation, PAN Number, Aadhar Number shall be entered.

In addition to above details of Residential Address (Building/Flat No, Name of Premises, Road, Locality, State, District, Pin code etc.) and Scanned copy of Photograph (In JPEG format only with maximum size of 100 KB) is also required to be uploaded on common portal. It is important to note that details as specified above such as name, date of birth etc. should be matched with the details mentioned on PAN Card. Validation error may occur in case of mismatch.

(4) Details of Authorized Signatory: – All the details as stated in point no 3 above are also common for authorized signatory. Apart from that a scanned copy of board resolution or authority letter evidencing appointment of such person as an authorized signatory along with acceptance letter shall be uploaded on GST common portal. For this purpose, board resolution or authority letter along with acceptance letter should be in pdf/jpeg format with maximum size of 100KB. Separate board resolution or authority letter should be made for each signatory.

Maximum 10 peoples including Proprietor, Partner, Managing and Whole Time Director or Karta as the case may be can be appointed as an authorized signatory for such business entity. Board resolution or authority letter is also required for Partner, Managing and Whole Time Director or Karta if they want to be act as an authorized signatory

(5) Details of Principal Place of Business: – Details such as Address (Building/Flat No, Name of Premises, Road, Locality, State, District, Pin code etc.), Official Email-Id, Mobile Number, Office Telephone Number, Nature of possession of premises (i.e. Own, Rented, Leased, Consent, Shared), Scanned copy of Proof of Principal place of business i.e. in PDF/JPEG format with maximum size of 1 MB is required to be given under this tab. Following documents can be used a proof of Principle place of business

(a) For Own premises –Any document in support of the ownership of the premises like Latest Property Tax Receipt or Municipal Khata copy or copy of Electricity Bill.
(b) For Rented or Leased premises –A copy of the valid Rent / Lease Agreement with any document in support of the ownership of the premises of the Lessor like Latest Property Tax Receipt or Municipal Khata copy or copy of Electricity Bill.
(c) For premises not covered in (a) & (b) above –A copy of the Consent Letter with any document in support of the ownership of the premises of the Consenter like Municipal Khata copy or Electricity Bill copy. For shared properties, also, the same documents may be uploaded.

It is important to note that principle place of business means a place from where major activities of business are carried out. It may happen that the registered office and principle place of business are different. In addition to above nature of activities from such premises such as Factory / Manufacturing, Wholesale Business, Retail Business, Warehouse/Deport, Bonded Warehouse, Service Provision, Office/Sale Office, Leasing Business, Service Recipient, EOU/ STP/ EHTP, SEZ , Input Service Distributor, (ISD), Works Contract etc. are also to be mentioned at the time of registration

(6) Details of Additional Place of Business:- Additional places includes factory, office, godown, warehouse or any other place where taxable person stores his goods or provides or receives any goods and/or services. All the details as specified for principal place of business are equally applicable for additional place of business also.

If principle person send any input/capital goods to job worker for job worker and if he wants to supply such goods after such process from the premises of job worker and if job worker is not registered under GST, then principle has to declare place of business of job worker as his place of business in terms of proviso to Sub clause (b) to Sub Section (1) of Section 55.

(7) Details of Goods & Service supplied: – HSN wise details of 5 top goods should be specified. HSN codes as stated here are the same as stated under existing Central Excise Law. Similarly, details of top 5 services along with the Service Accounting code should also be given under the details of services. For this purpose, service accounting codes are same as stated under existing service tax law.

(8) Details of Bank Accounts: – A taxpayer needs to provide top 10 bank account numbers along with IFSC code and Scanned Copy of first page of Bank Statement/passbook of each bank account. Copy of bank statement can be scanned in PDF/JPEG format with maximum size of 500 KB in case of bank statement and 100 KB in case of bank passbook.

(9) Verification: – After filling an application a person can submit the application using Class-II or Class-III digital signature (DSA). Filling of an application with DSA is mandatory for Companies and Limited liability partnership. Taxpayer other than Company and LLP can also file an application by using e-signature option. i.e. by using Aadhar number of authorized person. GST Common portal shall send a request using inter-portal connectivity to UIDIA system to send one time password (OTP). UIDIA system shall send OTP to registered email ID & Mobile number registered against such Aadhar number.

Before validation of application, applicant must register his DSA on GST portal under register/update DSA. For this he must download Em-signer application, which is available on GST common portal. Apart from this Windows 32/64 bits OS must be installed in to his computer system. Applicant should also see whether browser version which he is using is 10+ in case of Internet Explorer, 49+ in case of Google chrome, and +45 in case of Mozilla Firefox. DSA of following person can be used for validation of GST enrollment application form

Proprietorship Proprietor
Partnership Managing / Authorized Partners
Hindu Undivided Family Karta
Private Limited Company Managing / Whole-time Directors and Key Managerial Persons
Public Limited Company Managing / Whole-time Directors and Key Managerial Person
Society/ Club/ Trust/ AOP Members of Managing Committee
Government Department Person In charge
Public Sector Undertaking Managing / Whole-time Director and Key Managerial Person
Unlimited Company Managing/ Whole-time Director and Key Managerial Person
Limited Liability Partnership Designated Partners
Local Authority Chief Executive Officer ( CEO) or Equivalent
Statutory Body Chief Executive Officer ( CEO) or Equivalent
Foreign Company Authorized Person in India
Foreign Limited Liability Partnership Authorized Person in India
Others Person In charge

After successful verification GST Common Portal system, will generate acknowledgement containing acknowledgement receipt number (ARN) within next 15 minutes after submission& that is the last step of enrollment for migration to GST. This number should be kept into the record for all future correspondence with GST common portal as far as registration of taxpayer is concerned. After the appointment date of GST Act taxpayer can track status of his application using ARN number.

GST registration is a complete online procedure which is done by applying on GSTN website directly. All supporting documents are uploaded on the GSTn directly and once, they are fine, registration is granted. Let us understand it in three steps:

# Arrange documents: The first step is to arrange all documents which are required for GST registration. Further, since GST is a completely new tax, one should get the documents checked by a professional to avoid the rejection from the department.

# File application:After arranging all the documents, one should file the documents along with online application on the GSTN website. Make sure all the documents uploaded are off appropriate size otherwise you will face uploading problem.

# GST registration: If the government officer finds all the documents in place, then they shall issue the GST registration certificate in India. It generally takes 3 to 5 days for GST registration along with DSC.

Documents Required for Online GST Registration in India

Business related proof

  • Passport Size Photo
  • Partnership Deed/Registration Proof like COI
  • Copy of Bank Statement
  • Authorization Form

For Address Proof

  • Ownership Proof (Electricity Bill etc) – if property is owned.
  • Rent Agreement (if property is on rent)
  • NOC (Download format)

GST Registration Procedure in India

We have well prepared and experience team working to decode GST in the most easiest way possible. Therefore, we have divided the GST registration procedure in three steps:

# Step 1 – Arrange all required documents: The first step is to arrange all the required documents as said above. Further, on submitting to us the required documents, you shall be required to pay our fees in advance.

# Step 2 – Application filing and response: After filing the application form along with the required document in form GST Reg 1, we shall wait for at least 3 days for the response on the application.

# Step 3 – GST registration & Compliance: If the documents and application filed in is place, then the department shall be issued the GST registration certificate and after that you need to file 3 monthly returns.

GST Registration Procedure in India

# Step 1 – Arrange all required documents: The first step is to arrange all the required documents as said above. Further, on submitting to us the required documents, you shall be required to pay our fees in advance.

# Step 2 – Application filing and response: After filing the application form along with the required document in form GST Reg 1, we shall wait for at least 3 days for the response on the application.

# Step 3 – GST registration & Compliance: If the documents and application filed in is place, then the department shall be issued the GST registration certificate and after that you need to file 3 monthly returns.

VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.

Advise for contacting VidyaSunil & Associates;

E Mail ID : vidyasunilassociates@gmail.com

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No more rejection for start-ups seeking tax sops

In what could be a morale booster for start-ups, the government has decided to do away with the practice of rejecting applications for tax sops.tax-3

Instead, start-ups will get an opportunity to apply again after making changes to the proposal based on the explanation given to them on the initial one.

Supportive policy

The Department of Industrial Policy and Promotion is also re-working the qualification criteria for start-ups for non-tax benefits, a government official told.

“Instead of dismissing proposals that do not meet the mark for tax-sops with a simple ‘rejected’, the inter-ministerial group examining it will give details of where they fell short. This will give the start-ups an opportunity to re-work their proposals, and apply again for tax benefits,” the official said.

“There has been no change in the criteria of judging whether a start-up qualifies for tax benefits. It still depends on how innovative the idea is.”

In the last meeting of the Inter-Ministerial Group (IMG) on start-ups which met on May 1, about a dozen applications were approved.

The change in the Central government’s stance has been triggered by a general sense of dissatisfaction among start-ups with the new policy, as only about 10 proposals had qualified for tax sops till last month out of the 140 proposals vetted by the inter-ministerial group since the policy was announced in 2016.

“The DIPP has decided to be a bit more empathetic while dealing with start-ups. After all, what good are tax sops if very few are able to benefit from it,” the official said.

The 130 applicants for tax applications, who were rejected over 2016, will also get a detailed note on why their cases did not pass the test. As per the existing rules, start-ups (companies and Limited Liability Partnerships or LLPs) can get income tax exemption for three years in a block of seven years, if they are incorporated between April 1, 2016 and March 31, 2019.

Expanding definition

An IMG, including officials from the Department of Bio-technology, Department of Science and Technology and the DIPP, examine the proposals on the basis of innovation and use, and determine whether they qualify for tax sops or not.

“An official from the Ministry of Electronics, IT and Technology has been added to the IMG from May 1,” the official said.

DIPP will come up with a new set of rules over the next few weeks, tweaking the definition of a start-up that will result in more companies and LLPs coming under in the category.

Source: The Hindu Business Line

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‘Fund of Funds’ for start-ups takes off

After almost a year since the Union Cabinet gave its green signal, the Centre’s ambitious ₹10,000-crore ‘Fund of Funds’ (FFS) for financing start-ups over a nine-year period is finally off to a roaring start.

In the first few weeks of April 2017, venture capital funds (VCFs) have lapped up the entire ₹1,100 crore that had collected in the fund’s kitty over the last two years following a change in some stringent guidelines that were not allowing them to take funds from the FFS earlier , a government official. “The DIPP now wants the Finance Ministry to increase its allocation for the FFS this year from the prescribed annual ₹1,100 crore to a higher amount to compensate for the lower allocations in the past two years,” the official said, adding that it may demand a total of ₹2,200 crore.

Stiff guideline

The main reason why the FFS had not taken off was a particular guideline which said that if a VCF was given some amount, say ₹20 crore, from the FFS, and it had a total corpus of ₹100 crore, it would have to invest the entire corpus, which includes the ₹80 crore it raised from other sources, in start-ups.

“It was not proper to force them to put their entire money only in start-ups, which are high risk ventures.

“They need to be allowed to spread their risks by also offering part of their corpus to low risk areas. That is why the guidelines were changed,” the official said.

As per the new guidelines, if a VCF with a corpus of ₹100 crore is given ₹20 crore from the FFS, it will have to invest twice that amount, which in this case would be ₹40 crore, in start-ups, and the remaining ₹60 crore can be invested in other low-risk ventures.

“The VCFs thought that it was a reasonable demand as in this case their obligation towards start-ups equals the government’s and they are also able to balance their risk by putting the rest of the fund in safer ventures,” the official said.

The Union Budget announced this February did not make any allocation for the FFS as the funds allocated earlier had not been used.

Talks with FinMin

“Now that all the funds have been given to VCFs, we can get our yearly allocation in the Supplementary Budget. We have already intimated the Finance Ministry and will hold detailed discussions soon,” the official said.

The Union Cabinet last June had approved the proposal to establish a FFS with a total corpus of ₹10,000 crore, with contribution spread over the 14th and 15th Finance Commission cycles based on progress of implementation and availability of funds.

It was decided that the FFS shall contribute to the corpus of Alternative Investment Funds (such as VCFs) for investing in equity and equity-linked instruments of various start-ups at early stage, seed stage and growth stages.

The FFS is being managed and operated by the Small Industries Development Bank of India.

                                                      Press Information Bureau
Government of India
Cabinet
22-June-2016 16:02 IST

Establishment of Fund of Funds for funding support to Start-ups

The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, has approved the establishment of “Fund of Funds for Startups” (FFS) at Small Industries Development Bank of India (SIDBI) for contribution to various Alternative Investment Funds (AIF), registered with Securities and Exchange Board of India (SEBI) which would extend funding support to Startups. This is in line with the Start up India Action Plan unveiled by Government in January 2016.

The corpus of FFS is Rs.10,000 crore which shall be built up over the 14th and 15th Finance Commission cycles subject to progress of the scheme and availability of funds. An amount of Rs.500 crore has already been provided to the corpus of FFS in 2015-16 and Rs.600 crore earmarked in the 2016-17. The Fund is expected to generate employment for 18 lakh persons on full deployment.

Further provisions will be made as grant assistance through Gross Budgetary Support by Department of Industrial Policy and Promotion (DIPP) which will monitor and review performance in line with the Start up India Action Plan.

The FFS emanates from the Start up India Action Plan, an initiative of Department of Industrial Policy & Promotion (DIPP). The expertise of SIDBI would be utilized to manage the day to day operations of the FFS. The monitoring and review of performance would be linked to the implementation of the Start Up Action Plan to enable execution as per timelines and milestones.

A corpus of Rs. 10,000 crore could potentially be the nucleus for catalyzing Rs. 60,000 crore of equity investment and twice as much debt investment. This would provide a stable and predictable source of funding for Start up enterprises and thereby facilitate large scale job creation.

Background:

Accelerating innovation driven entrepreneurship and business creation through Start-ups is crucial for large-scale employment generation. An expert committee on Venture Capital (VC) has opined that “India has the potential to build about 2500 highly scalable businesses in the next 10 years, and given the probability of entrepreneurial success that means 10000 Start ups will need to be spawned to get 2500 large scale businesses”.

Start-ups face several challenges – limited availability of domestic risk capital, constraints of conventional bank finance, information asymmetry and lack of hand holding support from credible agencies. A large majority of the successful Start-ups have been funded by foreign venture funds and many of them are locating outside the country to receive such funding.

A dedicated fund for carrying out Fund of Funds operations would address these issues and enable flow of assistance to innovative Start ups through their journey to becoming full fledged business entities. This would encompass support at seed stage, early stage and growth stage. Government contribution to the target corpus of the individual Fund as an investor would encourage greater participation of private capital and thus help leverage mobilization of larger resources.

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Foreign Residents in India : Important Provisions In The Companies Act 2013 for Doing Business In India

An entrepreneur willing to expand his/her business abroad must abide by the tax laws of the home country as well as of the particular foreign country and accordingly pay the required taxes. Taxes (or duties) are defined as the financial charges levied by the Government upon an individual or an organisation or property in return for the government services received by them.

These taxes may be broadly classified into direct and indirect taxes. Direct taxes are those where the tax payer pays the taxes directly to the imposing authority like income tax and corporate tax. Whereas, indirect taxes are those which are not paid directly to the imposing authority but paid to someone else who acts as an intermediary link between the tax payer and the tax levying authority like customs duty and service tax. In India, the power to levy taxes and duties is distributed among the three tiers of Government, in accordance with the provisions of the Constitution.

The most important tax which an entrepreneur is subjected to is the ‘customs duty’ which is a type of indirect tax levied on goods imported into India as well as on goods exported from India. In India, the basic law for levy and collection of customs duty is Customs Act, 1962. It provides for levy and collection of duty on imports and exports, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences, etc. The Central Board of Excise & Customs (CBEC) is the apex body for customs matters. It is a part of the Department of Revenue under the Ministry of Finance, Government of India.

But due to different tax laws and rules prevailing in different countries, a businessmen faces the problem of ‘double taxation’. Double taxation refers to a situation where the same income becomes taxable in the hands of the same company or individual (tax-payer) in more than one country. This puts unnecessary and prohibitive burden on the tax-payer. In India, the liability under the Income tax Act arises on the basis of the residential status of the assessee during the previous year. Hence, if the assessee is resident in India, he/she has to pay tax not only on the income which is received in India but also on that income which accrues, arises outside India or received outside India. Thus he becomes liable to pay double taxes. The relief against such double taxation in India has been provided through, bilateral relief and unilateral relief.

Companies / Business having operations in countries other than india can set up wholly-owned subsidiary in India under those sectors where in 100% foreign direct investment is permitted under the Foreign Direct Investment Policy issued by Government of India. A foreign company or business can start their wholly-owned subsidiary in India may be either of the following business types like, Private Limited Company, Public Limited Company. These companies have to register their subsidiary companies with Registrar of Companies which can undertake any permitted business activities.

It is vital to choose the right kind of business consultant who have expertise in starting a subsidiary company in india which best suits its purposes and takes care of liability issues and tax planning issues.

The Companies Act 2013 brings a lot of new features, compliances, disclosures for foreign companies operating in India in any mode. The Central Government of India is promoting foreign investment in India and by coming out with a law, which is based on the principle of “Self Regulation Heavy Penalties”, it seems that corporate culture and discipline will improve in the system. The government has liberalized many provisions in the act and given powers to the Board and shareholders to take a conscious and compliant decision without intervention of the Central Government in the best interest of company and its stakeholders.

1. Modes of entry for foreign Residents desiring to setup business in India

Foreign company can carry on business in India by the formation of a wholly owned subsidiary, subsidiary, a joint venture or a place of business as branch/liaison/project office after obtaining permission from Reserve Bank of India, if applicable. Below are different types of options with a foreign entity to operate their business in India which are permissible under Companies Act, 2013 read with the provisions of Foreign Exchange Management Act, 1999.

1.1 Company under the provisions of Companies Act 2013

1.1.1 Wholly Owned Subsidiaries

Wholly-owned subsidiaries are the result of the parent company owning all (100%) of the subsidiary’s shares. Since the parent company owns all of the subsidiary’s shares, it has the right to appoint the subsidiary’s board of directors, which controls the subsidiary. Wholly owned subsidiaries may be part of the same industry as the parent company or part of an entirely different industry. A company operating in more than one country may choose to operate a business through a wholly owned subsidiary. The Investment is subject to compliance of FDI Policy.

1.1.2 Subsidiary

A foreign company can open up a subsidiary company in India. This can be done either by acquiring the majority of shares (more than 50%) of the company or by controlling the composition of board of directors of the company. Both holding and subsidiary companies are separate legal entities and they are related to each other by virtue of subsidiary –holding company relationship. The Investment is subject to compliance of FDI Policy.

1.1.3 Joint Venture

A foreign company can enter into India by forming a strategic alliance with an Indian partner. In general parlance, it is defined as a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. The ratio of foreign party in shareholding can be anywhere between 0 to 50%. By mutual agreement they may exercise control over the enterprise and consequently share revenues, expenses, assets & liabilities. It can be incorporated either as private limited company or public limited company which has to be registered under the Companies Act, 2013 and subject to exchange control regulations and Foreign Direct Policy of the Government of India. The Investments are subject to compliance of FDI Policy.

2.1 Limited Liability Partnership under Limited Liability Partnership Act, 2008

LLP is a hybrid between a corporate and partnership structure as it encircles elements of both. A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in a flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership. This entity has to get registered under the Limited Liability Act, 2008. No foreign investment can be made in LLP unless prior approval of Foreign Investment Promotion Board is obtained.

3.1 Place of Business under Companies Act 2013 with the permission of RBI

3.1.1 Branch Office- A branch office refers to an establishment, which carries on substantially the same business and activity as is carried out by its Head Office. Such offices help the company in spreading its business to diverse locations and thus help in increasing the customer base and bringing its product closer to the customers by increasing their accessibility to it. Such Branch office can be opened only with the prior approval of RBI.

3.1.2 Liaison/ Representative Office– Foreign companies can also start their Indian operations by setting up a liaison (representative) office in India. The role of liaison office is limited to collecting information about possible market opportunities in India and providing information about the parent company and its products to the prospective Indian customers. It acts as a communication channel between the parent company and Indian companies. Such Liaison office can be opened only with the prior approval of RBI.

3.1.3 Project Office-‘Project Office’ means a place of business to represent the interests of the foreign company executing a project in India but excludes a Liaison Office. Foreign companies planning to execute specific projects in India can set up temporary project and site offices for this purpose. The RBI has granted general permission to a foreign entity for setting up a project office in India, subject to the fulfillment of certain conditions

3.1.4 Place of Business in electronic mode- A new dimension under Companies Act, 2013 The Companies Act 2013 has also widened the definition of foreign companies to include those having a place of business in India via an agent or through electronic mode, which means online services provided by foreign companies without opening a physical office in India also covered under the provisions of companies Act 2013. This would require foreign companies to comply with the maintenance of financial records and reporting requirements in India.

4.1 Other Important & Material changes under Companies Act, 2013

  • Foreign companies will now have an option to form private or public limited companies in India at their choice without any limitation like sec 4(7) of the companies Act 1956;
  • The Articles of Association may contain entrenchments provisions, regarding the alteration of specified provisions of articles, which means that they may be altered only if conditions restrictive than special resolution are met. So there is indirect recognition to veto powers provisions as contained in articles of association for protecting the interest of minority.
  • The subscribed capital has to be received by company within 180 days of such subscription.
  • Shares of a public company are freely transferable, provided any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract, which means “Tag along” or “Drag Along” rights as mentioned in shareholders’ agreement will be enforceable as contract.
  • The minimum number of directors in case of public company and private company are same , however the Act, introduced a concept of One Person Company, where minimum 1 (one) director is mandatory, however as per rules no foreign resident can form a One Person company in India.
  • Mandatory one woman director on the board of every listed company and as per rules every other public company having a paid-up share capital of INR 100 crore or more or turnover of INR 300 or more.
  • Each Company to have at least one resident director who has stayed in India for a minimum period of 182 in previous calendar year.
  • Participation of director through video conferring is the welcome steps, which allow directors to attend the meeting from anywhere in the world, however it is also been stated that every director has to attend at least one board meeting physically in each 12 months.
  • The Board may appoint alternate director, if authorized by its articles or by a resolution passed by company in general meeting, not being a person holding any alternate directorship for any other director in the company, during the absence of a director, for a period of not less than three months from India.
  •  Director Responsibility Statement in Board report shall state that they had devised proper systems to ensure compliance with the provisions of all applicable laws and that such system were adequate and operating effectively.
  • CEO and CFO has been defined in the Act and covered in the category of KMP with wider responsibilities and liabilities.
  • The company can maintain its book of accounts in electronic mode.
  • A consolidated financial statement shall be produced at the Annual General Meeting, if the company has any subsidiary, associate company, joint venture in India or abroad along with the financial statement of the company and also attach with it a statement containing salient features of the financial statement of its subsidiary or subsidiaries.
  • The definition of financial year has been provided under the Act, where a company has to adopt a financial year starting form 1 April to 31 March. A period of two years as a transitional phase has been provided under the Act to comply with this provision, however companies having foreign subsidiary or are subsidiary of body corporate have an option to maintain different financial year to match the same with holding or subsidiary company with the permission of Tribunal.
  • An audit firm cannot be appointed for more than 2 consecutive terms of five years and individual auditor has to be rotated after the expiry of period of 5 years.
  • Cross Border Merger, means amalgamation of Indian Company with foreign company or vice versa has been allowed as per provisions of Companies Act 2013 subject to certain conditions.
  • Registered Valuer, with such qualification as prescribed by the Central Government, shall be appointed to do the valuation of property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its liabilities.
  • Class Action Suit under which a prescribed class of members or deposit holders will have the right to file a Class Action suit with the Tribunal.
  • Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction such a company or an inactive company may make an application to the Registrar in such manner as may be prescribed for obtaining the status of Dormant company.
  • A document may be served on a Company by sending it to the registered office of the company by registered post, speed post, courier service, leaving it at its registered office, electronic means any other mode as may be prescribed.
  • A company with net worth of Rs. 500 crores or more or turnover of Rs 1000 crores or more or net profit of Rs 5 crores or more during any financial year shall have to constitute a CSR committee and implement CSR policies. Such companies will have to spend at least 2% of the average net profits made by the company in the preceding three financial years in accordance with the CSR policy.

VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.

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Annual Returns of the Companies Act 2013

INTRODUCTION:

Section 159,160,161,162 & Schedule V deals with the Annual Return & related Provisions under Companies Act, 1956. But in Companies Act, 2013 all these Sections are combined together in one Section namely – 92.

Annual return is a yearly statement, required to be filed by every company irrespective of their nature, i.e. private, public, listed, unlisted, or status, i.e. active, dormant or under amalgamation. It is perhaps the most important document required to be filed by every company with the Registrar of Companies. Apart from the Financial Statements, this is the only document to be compulsorily filed with the Registrar every year irrespective of any events / happenings in the company.

It is not a tax return: it is simply a corporate law requirement and every company is legally obligated to file this return with Registrar of Companies (ROC).

Section 92 of the Companies Act, 2013 requires every company to prepare an annual return, a comprehensive document which contains information of a company relating to its share capital, indebtedness, directors, shareholders, changes in directorships corporate governance disclosures etc.

The Companies Act, 2013, a historic legislation which intends to improve corporate governance and empower shareholders. The Act has incorporated a framework which is based on self-regulation but with enhanced disclosures and accountability on the part of companies and their managements.

The Ministry of Corporate Affairs vide General Circular 8/2014 dated 04th April 2014 clarified that annual return in terms of section 92 of the Companies Act, 2013 will be in form MGT 7 and will be applicable for financial years commencing on or after 1st April, 2014

Annual return is the snapshot of certain company information as they stood on the close of the financial year. Section 92 of the Companies Act, 2013 deals with Annual Return of the Company.

Annual return in a layman’s term means a return which a company is required to file annually and further it is a snapshot of company information as they stood on the close of the financial year. Section 92 of the Companies Act, 2013 and the Companies (Management and Administration) Rules, 2014 deals with filling of Annual Return of a Company

The basic purpose of filing annual return with the Registrar of Companies (‘ROC’) is to provide the annual information about the Company to the ROC and its members about the Company’s general  compliances.

B. TIME PERIOD:

Earlier in the Companies act, 1956 Annual return was prepared for the period from the date of last AGM to date of current AGM. But there is a major change under Companies Act, 2013 i.e. now Companies are required to prepare Annual Return for the financial year i.e. 1st April to 31st March.

C. ANNUAL RETURN OF FOREIGN COMPANY:

As per section 384(2), the provisions of section 92 shall also apply to a foreign company, subject to such exceptions, modifications and adaptations as may be made therein by rules. Rule 7 of the Companies (Registration of Foreign Companies) Rules, 2014 provides that every foreign company shall prepare and file, within a period of sixty days from the last day of its financial year, to the Registrar annual return in Form FC.4 along with fee, containing the particulars as they stood on the close of the financial year

D. EXTRACT OF ANNUAL RETURN:

As per sub-section (3) of section 92, the companies are also required to prepare extract of Annual Return in Form No. MGT-9 which shall form part of Board’s Report.

E. PENALTY:

If a company fails to file its annual return under section 92, before the expiry of the period specified under section 403 with additional fee, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lacs rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than fifty thousand rupees but which may extend to five lacs Rupees, or with both.(Section 92).

F. FILING OF ANNUAL RETURN WITH THE REGISTRAR (SECTION 92(4)

The return has to be filed with the Registrar of Companies within 60 days from the date of Annual General Meeting. If the Annual General Meeting is not held in any year, the return has to be filed within 60 days from the date on which Annual General Meeting should have been held together with the statement specifying the reasons for not holding the Annual General Meeting, on payment of such fee or additional fee as prescribed (Rule 12 of the Companies (Registration Offices and Fees) Rules, 2014.

Other Event Based Filings

Besides Annual Filings, there are various other compliances which need to be done as and when any event takes place in the Company. Instances of such events are:

  • Change in Authorised or Paid up Capital of the Company.
  • Allotment of new shares or transfer of shares
  • Giving Loans to other Companies.
  • Giving Loans to Directors
  • Appointment of Managing or whole time Director and payment of remuneration.
  • Loans to Directors
  • Opening or closing of bank accounts or change in signatories of Bank account.
  • Appointment or change of the Statutory Auditors of the Company.

Different forms are required to be filed with the Registrar for all such events within specified time periods. In case, the same is not done, additional fees or penalty might be levied. Hence, it is necessary that such compliances are met on time.

Other Key Points

The private limited company can be formed by minimum 2 persons whereas, there are 50 maximum shareholders. And those persons must be friends or relatives.

  • The minimum paid up capital should be at Rs. 1 lakh.
  • However, if the paid up capital is above Rs 10 lakhs, no third party loan from private lenders could be collected except the shareholders, directors and their relatives.
  • If the paid up capital is above 5 cr, the internal audit, cost audit, and report of company secretary are mandatory. However, those services should be obtained from engaging outside professional agencies.
  • The board of directors of the company is formed with minimum 2 directors and the maximum limit should be governed by the Articles of Association of the company.
  • The directors remuneration can be paid within the limit prescribed by the companies Act however, the rules & regulations thereof should be incorporated in the Articles of Association.
  • The meeting of the Board of Directors must be held once in each quarter. However, it may exceed than that number as per the rules framed in Articles of Association.
  • The company should hold an Annual General Meeting. However, any extraordinary general meeting could be held as per the regulations framed by companies act and incorporated in the Articles of Association.
  • The company could not pay interest or any consideration of any type except dividend on the paid up capital of the shares holders.
  • Normally, the company could raise loans from shareholders and directors, their relatives and the firms and companies in which such shareholders and directors have vested interest. The reasonable interest as per the provisions of Articles of Association could be paid.
  • The company can distribute dividend after paying dividend tax twice a year i.e., interim and final. However, there should be accumulated profit in the form of reserves in the books of the company. Accordingly there should be provision in the Article of Association.
  • The company cannot pay any amount to directors except remuneration. It is a very severe thing to have a debit balance of the directors in the books of accounts of the company who is holding shares 10% or more. In income tax this will be treated as income of the director. Even any firm or company in whom a director is holding more than 20% interest also could not take any loan or advance from the company except any other transaction with specific nature.
  • The company has to file annual return and balance sheet to the registrar of companies before 30th September of every  year. There are no other documents required to be submitted to ROC except in specific circumstances such as, change in RO, change in directors, change in authorized capital, creation of charge of bank or financial institution and the assets of the company etc.
  • In the case of dispute the director can refer the matter to the arbitrator as per the provision of Articles of Association regarding the appointment of arbitrators.
  • However, the aggrieved shareholders can also approach to the company law board from the wind up of the company in severe circumstances. Even the creditors have also right to do so.
  • The rights & duties of the directors are framed & governed by the Articles of association of the company. Therefore, the Articles of Association must be complied very carefully.
  • The company can raise loans from bank or institutions as prescribed by companies Act 1956 and framed accordingly in the Articles of Association.
  • Under old Companies Act (Prevailing Act) and the new company bill which is yet to be come into operation the electronic filing of all the requisite documents and payments to be made electronically thereof had been made compulsory.
  • The share of the private limited company cannot be transferred to anybody else other than the present shareholders and with the sanction of the company in the board meeting. The rules for this are incorporated in the articles of Association.
  • It is not easy to expel or debar any director from the board of directors it can only be happen as per the charges framed on the said director as mentioned in the Companies Act and rules thereof framed in the Articles of Association. Even the shareholders can remove any director in general meeting or extraordinary general meeting.
  • Since the company is an artificial judicial person different from the directors and shareholders therefore, the shareholders and directors have no excess over the assets of the company. Whereas, for the liabilities of the company the director of the company can be held liable jointly or severally.
  • VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.

    Advise for contacting VidyaSunil & Associates;

    E Mail ID : vidyasunilassociates@gmail.com

    Cell No. : +91 9739834819