Export Finance & Realization

This complete Export guide offers a practical information on how identify the most suitable payment methods and required credit facilities for Exports. There are 3 standard ways of payment methods in the export import trade:

- Clean Payment

- Collection of Bills

- Letters of Credit L/C

1. Clean Payments

In clean payment method, all shipping documents, including title documents are handled directly between the trading partners. The role of banks is limited to clearing amounts as required. Clean payment method offers a relatively cheap and uncomplicated method of payment for both importers and exporters. There are basically two type of clean payments:

Advance Payment - In advance payment method the exporter is trusted to ship the goods after receiving payment from the importer.

Open Account - In open account method the importer is trusted to pay the exporter after receipt of goods. The main drawback of open account method is that exporter assumes all the risks while the importer get the advantage over the delay use of company's cash resources and is also not responsible for the risk associated with goods.

2. Payment Collection of Bills in International Trade

The Payment Collection of Bills also called “Uniform Rules for Collections” is published by International Chamber of Commerce (ICC) under the document number 522 (URC522) and is followed by more than 90% of the world's banks. In this method of payment in international trade the exporter entrusts the handling of commercial and often financial documents to banks and gives the banks necessary instructions concerning the release of these documents to the Importer. It is considered to be one of the cost effective methods of evidencing a transaction for buyers, where documents are manipulated via the banking system. There are two methods of collections of bill:

Documents against Payment D/P - In this case documents are released to the importer only when the payment has been done.

Documents against Acceptance D/A - In this case documents are released to the importer only against acceptance of a draft.

3. Letter of Credit L/C

Letter of Credit also known as Documentary Credit, is a written undertaking by the importers bank known as the issuing bank on behalf of its customer, the importer (applicant), promising to effect payment in favor of the exporter (beneficiary) up to a stated sum of money, within a prescribed time limit and against stipulated documents. It is published by the International Chamber of Commerce under the provision of Uniform Custom and Practices (UCP) brochure number 500. Various types of L/Cs are :

Revocable & Irrevocable Letter of Credit (L/C) - A Revocable Letter of Credit can be cancelled without the consent of the exporter. An Irrevocable Letter of Credit cannot be cancelled or amended without the consent of all parties including the exporter.

Sight & Time Letter of Credit - If payment is to be made at the time of presenting the document then it is referred as the Sight Letter of Credit. In this case banks are allowed to take the necessary time required to check the documents. If payment is to be made after the lapse of a particular time period as stated in the draft then it is referred as the Term/Time Letter of Credit.

Confirmed Letter of Credit (L/C) - Under a Confirmed Letter of Credit, a bank, called the Confirming Bank, adds its commitment to that of the issuing bank. By adding its commitment, the Confirming Bank takes the responsibility of claim under the letter of credit, assuming all terms and conditions of the letter of credit are met.

Payment Collection against Bills - Introduction

Payment Collection against Bills also known documentary collection as is a payment method used in international trade all over the world by the exporter for the handling of documents to the buyer's bank and also gives the banks necessary instructions indicating when and on what conditions these documents can be released to the importer. It is different from the letters of credit, in the sense that the bank only acts as a medium for the transfer of documents but does not make any payment guarantee.

Role of Various Parties in this transaction:

Exporter - The seller ships the goods and then hands over the document related to the goods to their banks with the instruction on how and when the buyer would pay.

Exporter's Bank - The exporter's bank is known as the remitting bank, and they remit the bill for collection with proper instructions. The role of the remitting bank is to:

• Check that the documents for consistency.

• Send the documents to a bank in the buyer's country with instructions on collecting payment.

• Pay the exporter when it receives payments from the collecting bank.

Buyer/Importer - The buyer / importer is the drawee of the Bill. The role of the importer is to:

• Pay the bill as mention in the agreement (or promise to pay later).

• Take the shipping documents (unless it is a clean bill) and clear the goods.

Importer's Bank - This is a bank in the importer's country: usually a branch or correspondent bank of the remitting bank but any other bank can also be used on the request of exporter. The collecting bank acts as the remitting bank's agent and clearly follows the instructions on the remitting bank's covering schedule. However the collecting bank does not guarantee payment of the bills except in very unusual circumstance for undoubted customer, which is called availing. Importer's bank is known as the collecting / presenting bank. The role of the collecting banks is to:

• Act as the remitting bank's agent.

• Present the bill to the buyer for payment or acceptance.

• Release the documents to the buyer when the exporter's instructions have been followed.

• Remit the proceeds of the bill according to the Remitting Bank's schedule instructions.

If the bill is unpaid / unaccepted, the collecting bank:

• May arrange storage and insurance for the goods as per remitting bank instructions on the schedule.

• Protests on behalf of the remitting bank (if the Remitting Bank's schedule states Protest).

• Requests further instruction from the remitting bank, if there is a problem that is not covered by the instructions in the schedule.

• Once payment is received from the importer, the collecting bank remits the proceeds promptly to the remitting bank less its charges.

Documents against Payments (D/P)

This is sometimes also referred as Cash against Documents/Cash on Delivery. In effect D/P means payable at sight (on demand). The collecting bank hands over the shipping documents including the document of title (bill of lading) only when the importer has paid the bill. The drawee is usually expected to pay within 3 working days of presentation. The attached instructions to the shipping documents would show "Release Documents Against Payment"

Risks:

Under D/P terms the exporter keeps control of the goods (through the banks) until the importer pays. If the importer refuses to pay, the exporter can:

• Protest the bill and take him to court (may be expensive and difficult to control from another country).

• Find another buyer or arrange a sale by an auction.

With the last two choices, the price obtained may be lower but probably still better than shipping the goods back. Sometimes, the exporter will have a contact or agent in the importer's country that can help with any arrangements. In such a situation, an agent is often referred to as a Case of Need, means someone who can be contacted in case of need by the collecting bank. If the importer refuses to pay, the collecting bank can act on the exporter's instructions shown in the Remitting Bank schedule. These instructions may include:

• Removal of the goods from the port to a warehouse and insure them.

• Contact the case of need who may negotiate with the importer.

• Protesting the bill through the bank's lawyer.

Documents against Acceptance (D/A)

Under Documents against Acceptance, the Exporter allows credit to Importer. The importer/ drawee is required to accept the bill to make a signed promise to pay the bill at a set date in the future. When he has signed the bill in acceptance, he can take the documents and clear his goods. The payment date is calculated from the term of the bill, which is usually a multiple of 30 days and start either from sight or form the date of shipment, whichever is stated on the bill of exchange. The attached instruction would show "Release Documents Against Acceptance".

Risks:

Under D/A terms the importer can inspect the documents and, if he is satisfied, accept the bill for payment on the due date, take the documents and clear the goods; the exporter loses control of them. The exporter runs various risk. The importer might refuse to pay on the due date because:

• He finds that the goods are not what he ordered.

• He has not been able to sell the goods.

• He is prepared to cheat the exporter (In cases the exporter can protest the bill and take the importer to court but this can be expensive).

• The importer might have gone bankrupt, in which case the exporter will probably never get his money.

Work Life Balance (WLB)

1. Some factors that may play a major role in WLB are:

- Your Immediate Superior.

- Organizational Culture.

- Time Management.

- Career, and

- Flexi Timings.

2. Have open and honest discussions with your company manager and family about your commitments at work and at home. Open communication helps to set expectations straight right at the beginning.

3. Once this is accomplished, draw boundaries around each responsibility and focus on each task as needed without letting your attention overlap from one to the other.

4. When at work, think work, think deliverables, think productivity. Manage your time efficiently to optimize your work-day. And when at home, think family, think husband/wife, thinks children, as the case may be.

5. Remember that each needs your undivided superior attention and cannot be relegated to being an `afterthought'.

6. Remember every individual has different needs and, therefore, different priorities. Don't be threatened or feel inferior because your best friend is on a different situation. That course may well work for her/his but not for you. You have to listen to your heart and be flexible.

7. The plans often change sooner than you would expect, sometimes even from one week to the next. So balance your goals and expect to make compromises.

8. Flexible work hours can be in two ways. In the first, the total workday remains at the standard 8 / 9 hours, but start and end times are modified to meet the mutual needs of the employer and employee. The second arrangement is employees working longer hours per day but fewer days per week. These types of arrangements allow employees to better plan their time and their availability for life needs.

9. I believe that it’s not the amount of time you spend with your family that matters but the quality. Among other things, make sure that you share at least one meal.

10. In your team, you can make sure that everyone takes off for family time, be it children’s birthdays or anniversaries but ensure that someone can step in when someone else needs to be away.

11. Make a Work / Personal commitment calendar. It helps ensure that your work and personal agendas don't clash.

12. Have confidence in yourself and in the decisions you make. Live in the moment, focus on where you are and be happy with the road you have chosen.

 

Courtesy: caclubindia

Benefits in Conversion of a Company into LLP

1. Taxation

LLPs are taxed like general partnership firms. LLPs pay an effective tax of 30.9%. They are exempted from 10% surcharge (7.50% w.e.f AY 2011-12) as that on Companies. The tax will be imposed only on 10% or 40% of the LLPís income, since the firm will be allowed to pay the balance 90% or 60% to the partners as remuneration. This means, the partners will have to pay tax on the amount paid to them. Unlike Pvt. Or Public companies, no requirement for payment of Dividend distribution/Corporation Tax on distribution of income/profits among partners and there is no requirement as to Minimum Alternate Tax.

2. No Audit requirement

Audit is not required unless capital exceeding Rs. 25 lakhs or turnover exceeding Rs. 60 lakh.

3. Automatic transfer

All the assets and liabilities of the Company immediately before the conversion become the assets and liabilities of the LLP.

4. No Stamp Duty

All movable and immovable properties of the company automatically vest in the LLP. No instrument of transfer is required to be executed and hence no stamp duty is required to be paid.

5. No Capital Gain Tax

No Capital Gains tax shall be charged on transfer of property from Company to LLP, subject to the following conditions:

􀀀 The total sales, turnover or gross receipts in business of the company do not exceed sixty lakh rupees in any of the three preceding previous years;

􀀀 The shareholders of the company become partners of the LLP in the same proportion as their shareholding in the company;

􀀀 No consideration other than share in profit and capital contribution in the LLP arises to partners;

􀀀 The erstwhile shareholders of the company continue to be entitled to receive at least 50 per cent of the profits of the LLP for a period of 5 years from the date of conversion;

􀀀 All assets and liabilities of the company become the assets and liabilities of the LLP; and

􀀀 No amount is paid, either directly or indirectly, to any partner out of the accumulated profit of the company for a period of 3 years from the date of conversion.

6. Carry Forward and Set off for Losses and Unabsorbed Depreciation

The accumulated loss and unabsorbed depreciation of Company is deemed to be loss/ depreciation of the successor LLP for the previous year in which conversion was effected. Thus such loss can be carried for further eight years in the hands of the successor LLP.

7. No Limit on number of shareholders/partners

Unlike private limited companies (shareholders limited to 50), an LLP can have unlimited number of partners.

8. Minimal Compliance Level & Cost effective model

There is no need of compliances related to meetings and maintenance of huge statutory records.

9. Continuation of Brand Value

The goodwill of the Company and its brand value is kept intact and continues to enjoy the previous success story with legal recognition.

Accounting Standards - Basic Information

Disclosure of Accounting Policies: Accounting Policies refer to specific accounting principles and the method of applying those principles adopted by the enterprises in preparation and presentation of the financial statements.

Valuation of Inventories: The objective of this standard is to formulate the method of computation of cost of inventories / stock, determine the value of closing stock / inventory at which the inventory is to be shown in balance sheet till it is not sold and recognized as revenue.

Cash Flow Statements: Cash flow statement is additional information to user of financial statement. This statement exhibits the flow of incoming and outgoing cash. This statement assesses the ability of the enterprise to generate cash and to utilize the cash. This statement is one of the tools for assessing the liquidity and solvency of the enterprise.

Contingencies and Events occurring after the balance sheet date: In preparing financial statement of a particular enterprise, accounting is done by following accrual basis of accounting and prudent accounting policies to calculate the profit or loss for the year and to recognize assets and liabilities in balance sheet. While following the prudent accounting policies, the provision is made for all known liabilities and losses even for those liabilities / events, which are probable. Professional judgment is required to classify the likelihood of the future events occurring and, therefore, the question of contingencies and their accounting arises. Objective of this standard is to prescribe the accounting of contingencies and the events, which take place after the balance sheet date but before approval of balance sheet by Board of Directors.

Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies: The objective of this accounting standard is to prescribe the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced. Profit and loss account being a period statement covers the items of the income and expenditure of the particular period. This accounting standard also deals with change in accounting policy, accounting estimates and extraordinary items.

Depreciation Accounting: It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time, etc. Depreciation is nothing but distribution of total cost of asset over its useful life.

Construction Contracts: Accounting for long term construction contracts involves question as to when revenue should be recognized and how to measure the revenue in the books of Contractor. As the period of construction contract is long, work of construction starts in one year and is completed in another year or after 4-5 years or so. Therefore question arises how the profit or loss of construction contract by contractor should be determined. There may be following two ways to determine profit or loss: On year-to-year basis based on percentage of completion or on completion of the contract.

Revenue Recognition: The standard explains as to when the revenue should be recognized in profit and loss account and also states the circumstances in which revenue recognition can be postponed. Revenue means gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of an enterprise such as:- The sale of goods, Rendering of Services, and Use of enterprises resources by other yielding interest, dividend and royalties. In other words, revenue is a charge made to customers / clients for goods supplied and services rendered.

Accounting for Fixed Assets: Fixed Asset is an asset, which is held with intention of being used for the purpose of producing or providing goods and services, not held for sale in the normal course of business and expected to be used for more than one accounting period.

The Effects of changes in Foreign Exchange Rates: Effect of Changes in Foreign Exchange Rate shall be applicable in Respect of Accounting Period commencing on or after 01-04-2004 and is mandatory in nature. This accounting Standard applicable to accounting for transaction in Foreign currencies in translating in the Financial Statement Of foreign operation Integral as well as non- integral and also accounting for forward exchange. Effect of Changes in Foreign Exchange Rate, an enterprise should disclose following aspects:

• Amount of Exchange Difference included in Net profit or Loss;

• Amount accumulated in foreign exchange translation reserve;

• Reconciliation of opening and closing balance of Foreign Exchange translation reserve;

Accounting for Government Grants: Government Grants are assistance by the Govt. in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. Government assistance, which cannot be valued reasonably, is excluded from Govt. grants,. Those transactions with Government, which cannot be distinguished from the normal trading transactions of the enterprise, are not considered as Government grants.

Accounting for Investments: It is the assets held for earning income by way of dividend, interest and rentals, for capital appreciation or for other benefits.

Accounting for Amalgamation: This accounting standard deals with accounting to be made in books of Transferee Company in case of amalgamation. This accounting standard is not applicable to cases of acquisition of shares when one company acquires / purchases the share of another company and the acquired company is not dissolved and its separate entity continues to exist. The standard is applicable when acquired company is dissolved and separate entity ceased exists and purchasing company continues with the business of acquired company.

Employee Benefits: The scope of this accounting standard has been enlarged, to include accounting for short-term employee benefits and termination benefits.

Borrowing Costs: Enterprises are borrowing the funds to acquire, build and install the fixed assets and other assets. These assets take time to make them useable or saleable. Therefore the enterprises incur the interest (cost of borrowing) to acquire and build these assets. The objective of the Accounting Standard is to prescribe the treatment of borrowing cost (interest + other cost) in accounting, whether the cost of borrowing should be included in the cost of assets or not.

Segment Reporting: An enterprise deals in multiple products/services and operates in different geographical areas. Multiple products / services and their operations in different geographical areas are exposed to different risks and returns. Information about multiple products / services and their operation in different geographical areas are called segment information. Disclosure of such information is called segment reporting.

Related Party Disclosure: Sometimes business transactions between related parties lose the feature and character of the arms length transactions. Related party relationship affects the volume and decision of business of one enterprise for the benefit of the other enterprise. Hence disclosure of related party transaction is essential for proper understanding of financial performance and financial position of enterprise.

Accounting for leases: Lease is an arrangement by which the lesser gives the right to use an asset for given period of time to the lessee on rent. It involves two parties, a lessor and a lessee and an asset which is to be leased. The lessor who owns the asset agrees to allow the lessee to use it for a specified period of time in return of periodic rent payments.

Earnings Per Share: Earnings per share (EPS) is a financial ratio that gives the information regarding earning available to each equity share. It is very important financial ratio for assessing the state of market price of share. The statement is applicable to the enterprise whose equity shares or potential equity shares are listed in stock exchange.

Consolidated Financial Statements: The objective of this statement is to present financial statements of a parent and its subsidiary (ies) as a single economic entity. In other words the holding company and its subsidiary (ies) are treated as one entity for the preparation of these consolidated financial statements. Consolidated profit/loss account and consolidated balance sheet are prepared for disclosing the total profit/loss of the group and total assets and liabilities of the group.

Accounting for Taxes on Income: This accounting standard prescribes the accounting treatment for taxes on income. Traditionally, amount of tax payable is determined on the profit/loss computed as per income tax laws. According to this accounting standard, tax on income is determined on the principle of accrual concept. According to this concept, tax should be accounted in the period in which corresponding revenue and expenses are accounted. In simple words tax shall be accounted on accrual basis; not on liability to pay basis.

Accounting for Investments in Associates in consolidated financial statements: The accounting standard was formulated with the objective to set out the principles and procedures for recognizing the investment in associates in the consolidated financial statements of the investor, so that the effect of investment in associates on the financial position of the group is indicated.

Discontinuing Operations: The objective of this standard is to establish principles for reporting information about discontinuing operations. The focus of the disclosure of the Information is about the operations which the enterprise plans to discontinue rather than disclosing on the operations which are already discontinued. However, the disclosure about discontinued operation is also covered by this standard.

Interim Financial Reporting (IFR): Interim financial reporting is the reporting for periods of less than a year generally for a period of 3 months. As per clause 41 of listing agreement the listed companies are required to publish the financial results on a quarterly basis.

Intangible Assets: An Intangible Asset is an Identifiable non-monetary Asset without physical substance held for use in the production or supplying of goods or services for rentals to others or for administrative purpose.

Financial Reporting of Interest in joint ventures: Joint Venture is defined as a contractual arrangement whereby two or more parties carry on an economic activity under 'joint control'. Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefit from it.

Impairment of Assets: The meaning of 'impairment of asset' is weakening in value of asset. In other words when the value of asset decreases, it may be called impairment of an asset. As per AS-28, asset is said to be impaired when carrying amount of asset is more than its recoverable amount.

Provisions, Contingent Liabilities And Contingent Assets: Objective of this standard is to prescribe the accounting for Provisions, Contingent Liabilities, Contingent Assets, Provision for restructuring cost etc. Provision is a liability, which can be measured only by using a substantial degree of estimation. Liability is present obligation of the enterprise arising from past events and the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Financial Instrument: This Accounting Standard will become mandatory in respect of Accounting periods commencing on or after 1-4-2011 for all commercial, industrial and business Entities except to a Small and Medium-sized Entity. The objective of this Standard is to establish principles for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in Accounting Standard.

Financial Instrument: presentation: The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset.

Financial Instruments, Disclosures and Limited revision to accounting standards: The objective of this Standard is to require entities to provide disclosures in their financial statements that enable users to evaluate:

• the significance of financial instruments for the entity’s financial position and performance; and

• the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

Tax Saving Tips for Salaried Individuals

We have two options to save tax in the case of Salaried Income. First is salary restructuring and second is tax saving instruments.

Salary restructuring: As the term implies, salary restructuring allows you to redesign your salary, so as to reduce your total tax liability. Here are some steps you can take in order to reduce your tax liability.

• Do you need a house? Does your employer offer Rent Free Accommodation or House Rent Allowance? Then go for it, as the amount gets deducted from your total taxable income.

• Does your company expect you to wear uniform at work? If so, the expenses incurred on buying and maintenance the uniform will not be taxed.

• Does your employer provide you with allowance for your children’s education and hostel accommodation? Then use it to claim exemption under section 10 (14).

• Does your company provide you with a telephone facility in your home? Then it not taxed. However be warned against taking telephone allowance, since it is totally taxable and will increase your taxable income.

• Opt for the car facility, since the value of the perk is much lower than the actual expenditure incurred on the car.

• As we all have to visit the doctor at some point of time, save tax by claiming medical reimbursements up to Rs.15,000/- p.a. But don’t take any medical allowance, since it is completely taxable.

• Always ask your employer to include dearness allowance and dearness pay along with commissions earned in your salary. It will lower your tax liability on house rent allowance, gratuity and pension.

• If you are eligible for a pension, always get it commuted, as commuted pension is tax-free for government employees and partially exempted for others. You can get tax relief under section 89(1).

• If your current employer is participating in an authorized provident fund, and you change your employer within 5 years of joining the firm, ensure your new employer is also a member of the authorized provident fund. It will let you transfer the corpus in your provident fund to the new company without paying any tax. Further, insist your employer to fix the contribution to your provident fund as 12% of your salary, as it is the highest limit for tax exemption.

• Plan your retirement or resignation at the start of the financial year in order to lower the tax on retirement benefits.

• As leave travel concession is not taxed if certain criteria are fulfilled, try to claim this incentive to the highest possible level, without having to pay any tax.

Tax saving instruments: While these instruments do help you save tax, they have a maximum limit of Rs. 1,20,000/-, out of which Rs.20,000/- should be Infrastructure bonds.

• Insurance: All payments made towards both life and health insurance are eligible for tax benefits. Even contributions made towards pension payments can be eligible for tax benefits.

• PPF (Public Provident Fund): It is one of the safest tax saving investments available. Both interest and capital withdrawals from the fund are tax free. However its drawback is the lock-in period of 15 years.

• NSC (National Savings Certificate), Post office (CTD) accounts: These are government savings schemes available at post office, with a lock-in period of 5 years.

• Bank deposits: These are special tax saving FDs offered by banks with a lock-in period of 5 years.

• ELSS (Equity Linked Savings Scheme): These are tax savings instruments offered by mutual funds, with a lock-in period of 3 years. They invest in various quality stocks.

• Investments in approved Infrastructure bonds up to a maximum of Rs.20,000/- (w.e.f. the A.Y.2011-12).

All these instruments carry different degrees of risks. While PPF, NSC, Post office accounts, insurance (except ULIPs) and FDs are safer, they offer lower returns and are not very liquid, due to their long lock-in period. On the other hand, ELSS ( (Equity Linked Savings Scheme) has a short lock-in period but is more risky, while ULIPs carry the risk of ELSS but without the liquidity benefit. So while investing for tax saving purpose, take into account factors like your risk appetite, returns generated by the instrument, liquidity, capital appreciation and safety of capital. Remember, younger you are, riskier options are better for you, since over a long time, these instruments can generate higher returns for you, and minimize the risk of capital erosion. Also diversify your investment portfolio.

If these options are not enough for you, then here are some more:

• Housing loan and education loan:

• Donation to charities/religious trusts.

To summarize, first thing to do is to restructure your salary so as to minimize your tax liability. This will minimize the need to invest for tax saving.

HIGHLIGHTS OF UNION BUDGET 2010

1. IT SLAB RATE FOR INDIVIDUALS REVISED:

i) General tax payer

Up to Rs 160,000 - NIL

Rs 160,001 to Rs 500,000 - 10 per cent

Rs 500,001 to Rs 800,000 - 20 per cent

Rs 800,001 and above - 30 per cent

ii) For women

Up to Rs 190,000 - NIL

Rs 190,001 to Rs 500,000 - 10 per cent

Rs 500,001 to Rs 800,000 - 20 per cent

Rs 800,001 and above - 30 per cent

iii) For senior citizens of 65 years & above

Up to 240,000 - NIL

Rs 240,001 to Rs 500,000 - 10 per cent

Rs 500,001 to Rs 800,000 - 20 per cent

Rs 800,001 and above - 30 per cent

2. Additional Deduction u/s 80C : Rs. 20,000/-for Investment in Infrastructure
Bonds , in addition to existing limit of Rs.1,00,000/ - .

3. Corporate Assesses : Surcharge reduced to 7.5%

4. Minimum Alternate Tax : Rate : 18% of Book profit.

5. Limit for Turnover for Compulsory Audit u/s 44AB increased
    To Rs. 60,00,000/- for Business and Rs. 15,00,000/- for Professionals.
6. Increase in Weighted deduction for Expenditure towards Research &
    Development activities increased to 200%.

7. New Saral Form -2 proposed for Salaried Assesses.

8. Disallowance u/s 40a for Payment without deduction of tax and remittance –amended – payment can be made before the due date of filing the return of income in order to claim allowance of such expenditure.

9. Conversion of LLP’s into Partnership will not be subject to Capital Gains tax.

10. Charitable Purpose – amended - to provide relief for such institutions carrying on Business or professional income which is below Rs. 10 lacs.

11. INDIRECT TAXES:

 - Excise duty on Non-petroleum goods increased to 10%

 - Duty on Petrol, Diesel increased - Rs. 1 / litre.

 - Duty o Cigar, cigarettes etc. increased

 - Duty on Cars, SUVs increased by 2 %

 - Duty on Fluorescent lamps (CFL) and LED reduced to 4%

 - No change in Service tax rate - 10% retained

 - New services added in the tax net.

12. Direct Tax Code and Goods and Services Tax likely to be effective from 01.04.2011.


13. Fiscal deficit at 5.5% of GDP.


14. In addition to Bengaluru, CPC 2 more centres are proposed to process returns.

Export of Services under Service Tax Rules, 2005

A taxable service shall be treated as an export service only if-


(a) the order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office located outside India;


(b) the service so ordered is delivered outside India and used in business outside India; and


(c) the payment for such service provided is received by the service provider in convertible foreign exchange.


The following services also will be considered as export services:


1) Service provided to an exporter for transport of the said goods by road from any container freight station or inland container depot to the port or airport, as the case may be, from where the goods are exported;

                                               OR

2) Service provided to an exporter in relation to transport of said goods by road directly from their place of removal, to an inland container depot, a container freight station, a port or airport, as the case may be, from where the goods are exported.

- Provided the exporter shall produce the consignment note, by whatever name called, issued in his name.

3) Service provided by a commission agent located outside India and engaged under a contract or agreement or any other document by the exporter in India, to act on behalf of the exporter, to cause sale of goods exported by him.


- provided,

(a)The exporter shall declare the amount of commission paid or payable to the commission agent in the shipping bill or bill of export, as the case may be.


(b) The exemption shall be limited to one per cent of the free on board value of export goods for which that said service has been used.


(c) The exemption shall not be available on the export of canalized item, project export, or export financed under lines of credit extended by Government of India or EXIM Bank, or export made by Indian partner in a company with equity participation in an overseas joint venture or wholly owned subsidiary.


(d) The exporter shall submit with the half yearly return after certification of the same with (i) the original documents showing actual payment of commission to the commission agent; and (ii) a copy of the agreement or contract entered into between the commission agent located outside India and the exporter in relation to sale of export goods, outside India:

Goods and Services Tax (GST) - An overview.

Introduction

GST is a tax on goods and services with comprehensive and continuous chain of set-off benefits from the producer's point and service provider's point up to the retailer's level. It is essentially a tax only on value addition at each stage, and a supplier at each stage is permitted to set-off, through a tax credit mechanism, the GST paid on the purchase of goods and services as available for set-off on the GST to be paid on the supply of goods and services. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the previous stages.

Illustration:- Let us suppose that GST rate is 10%, and a manufacturer is using goods and services worth Rs.100/- in the manufacturing process. He is making a value addition of Rs.30/- on this to sell the goods to the wholesaler. The manufacturer will then pay net GST of Rs.3/- after setting-off Rs.10/- as GST paid on his input goods and services worth Rs.100/-(i.e. Input Tax Credit) from gross GST of Rs.13/-. When the wholesaler sells the same goods after making value addition of (say), Rs.20/-, he pays net GST of only Rs.2/-, after setting-off of Input Tax Credit of Rs.13/- from the gross GST of Rs.15/- (10% of Rs.150/-) to the manufacturer. Similarly, when a retailer sells the same goods after a value addition of (say) Rs.10/-, he pays net GST of only Re.1/-, after setting-off Rs.15/- from his gross GST of Rs.16/- (10% of Rs.160/-) paid to wholesaler. Thus, the manufacturer, wholesaler and retailer have to pay only Rs.6/- (=Rs.3+Rs.2+Re.1) as GST on the value addition along the entire value chain from the producer to the retailer, after setting-off GST paid at the earlier stages. The overall burden of GST on the goods is thus much less.

Features of the proposed GST model

The salient features of the proposed model are as follows:

(i) Consistent with the federal structure of the country, the GST will have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). This dual GST model would be implemented through multiple statutes (one for CGST and SGST statute for every State). However, the basic features of law such as chargeability, definition of taxable event and taxable person, measure of levy including valuation provisions, basis of classification etc. would be uniform across these statutes as far as practicable.

(ii) The Central GST and the State GST would be applicable to all transactions of goods and services except the exempted goods and services, goods which are outside the purview of GST and the transactions which are below the prescribed threshold limits.

(iii) The Central GST and State GST are to be paid to the accounts of the Centre and the States separately.

(iv) Since the Central GST and State GST are to be treated separately, in general, taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST.

(v) Cross utilization of ITC between the Central GST and the State GST would, in general, not be allowed.

(vi) To the extent feasible, uniform procedure for collection of both Central GST and State GST would be prescribed in the respective legislation for Central GST and State GST.

(vii) The administration of the Central GST would be with the Centre and for State GST with the States.

(viii) The taxpayer would need to submit periodical returns to both the Central GST authority and to the concerned State GST authorities.

(ix) Each taxpayer would be allotted a PAN-linked taxpayer identification number with a total of 13/15 digits. This would bring the GST PAN-linked system in line with the prevailing PAN-based system for Income tax facilitating data exchange and taxpayer compliance. The exact design would be worked out in consultation with the Income-Tax Department.

(x) Keeping in mind the need of tax payers’ convenience, functions such as assessment, enforcement, scrutiny and audit would be undertaken by the authority which is collecting the tax, with information sharing between the Centre and the States.

Central and State taxes proposed to be subsumed under GST

The various Central, State and Local levies were examined to identify their possibility of being subsumed under GST. While identifying, the following principles were kept in mind:

(i) Taxes or levies to be subsumed should be primarily in the nature of indirect taxes, either on the supply of goods or on the supply of services.

(ii) Taxes or levies to be subsumed should be part of the transaction chain which commences with import/ manufacture/ production of goods or provision of services at one end and the consumption of goods and services at the other.

(iii) The subsumation should result in free flow of tax credit in intra and inter-State levels.

(iv) The taxes, levies and fees that are not specifically related to supply of goods & services should not be subsumed under GST.

(v) Revenue fairness for both the Union and the States individually would need to be attempted.

On application of the above principles, the Empowered Committee on GST as recommended that:

The following Central Taxes should be, to begin with, subsumed under the Goods and Services Tax:

(i) Central Excise Duty

(ii) Additional Excise Duties

(iii) The Excise Duty levied under the Medicinal and Toiletries Preparation Act

(iv) Service Tax
(v) Additional Customs Duty, commonly known as Countervailing Duty (CVD)
(vi) Special Additional Duty of Customs - 4% (SAD)
(vii) Surcharges, and
(viii) Cesses.


The following State taxes and levies would be, to begin with, subsumed under GST:


(i) VAT / Sales tax
(ii) Entertainment tax (unless it is levied by the local bodies).
(iii) Luxury tax
(iv) Taxes on lottery, betting and gambling.
(v) State Cesses and Surcharges in so far as they relate to supply of goods and services.
(vi) Entry tax not in lieu of Octroi.

Purchase tax: Some of the States felt that they are getting substantial revenue from Purchase Tax and, therefore, it should not be subsumed under GST while majority of the States were of the view that no such exemptions should be given. The difficulties of the food grain producing States was appreciated as substantial revenue is being earned by them from Purchase Tax and it was, therefore, felt that in case Purchase Tax has to be subsumed then adequate and continuing compensation has to be provided to such States. This issue is being discussed in consultation with the Government of India.

Tax on items containing Alcohol: Alcoholic beverages would be kept out of the purview of GST. Sales Tax/VAT could be continued to be levied on alcoholic beverages as per the existing practice. In case it has been made Vatable by some States, there is no objection to that. Excise Duty, which is presently levied by the States may not also be affected.

Tax on Tobacco products: Tobacco products would be subjected to GST with ITC. Centre may be allowed to levy excise duty on tobacco products over and above GST with ITC.


Tax on Petroleum Products: As far as petroleum products are concerned, it was decided that the basket of petroleum products, i.e. crude, motor spirit (including ATF) and HSD would be kept outside GST as is the prevailing practice in India. Sales Tax could continue to be levied by the States on these products with prevailing floor rate. Similarly, Centre could also continue its levies. A final view whether Natural Gas should be kept outside the GST will be taken after further deliberations.

Taxation of Services: As indicated earlier, both the Centre and the States will have concurrent power to levy tax on goods and services. In the case of States, the principle for taxation of intra-State and inter State has already been formulated by the Working Group of Principal Secretaries /Secretaries of Finance / Taxation and Commissioners of Trade Taxes with senior representatives of Department of Revenue, Government of India. For inter-State transactions an innovative model of Integrated GST will be adopted by appropriately aligning and integrating CGST and IGST.


Taxation of Imports


With Constitutional Amendments, both CGST and SGST will be levied on import of goods and services into the country. The incidence of tax will follow the destination principle and the tax revenue in case of SGST will accrue to the State where the imported goods and services are consumed. Full and complete set-off will be available on the GST paid on import on goods and services.


Tax benefit for exporters


The subsuming of major Central and State taxes in GST, complete and comprehensive set off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will increase the competitiveness of Indian goods and services in the international market and give boost to Indian exports. The uniformity in tax rates and procedures across the country will also go a long way in reducing the compliance cost.


Inter-State Transactions of Goods and Services


The Empowered Committee has accepted the recommendations of the Working Group of concerned officials of Central and State Governments for adoption of IGST model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of taxable goods and services with appropriate provision for consignment or stock transfer of goods and services. The inter-State seller will pay IGST on value addition after adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit of IGST while discharging his output tax liability in his own State. The Centre will transfer to the importing State the credit of IGST used in payment of SGST. The relevant information will also be submitted to the Central Agency which will act as a clearing house mechanism, verify the claims and inform the respective governments to transfer the funds.


Land and Real Property transactions


Under the ‘old’ VATs (such as those in Europe), land and real property supplies are excluded from the scope of the tax. To minimize the detrimental impact of an exemption under a VAT, business firms are given the option to elect to pay tax on land and real property supplies.

Under a modern GST/VAT (e.g., in Australia, New Zealand, Canada, and South Africa), housing and construction services are treated like any other commodity. Thus, when a real estate developer builds and sells a home, it is subject to VAT on the full selling price, which would include the cost of land, building materials, and construction services. Commercial buildings and factory sales are also taxable in the same way, as are rental charges for leasing of industrial and commercial buildings. There are only two exceptions: (1) resale of used homes and private dwellings, and (2) rental of dwellings:

• A sale of used homes and dwellings is exempted because the tax is already collected at the time of their first purchase, especially for homes acquired after the commencement of the tax. If the sale were to be made taxable, then credit would need to be given for the tax paid on the original purchase and on any renovations and additions after the purchase. Except where the prices have gone up, the net incremental tax on resale may not be significant. Theoretically, this system does create a windfall for the existing homes build and acquired prior to the commencement of the tax. In practice, the windfall is not significant as the home construction would have attracted other taxes on construction materials and services that prevailed at the time.


• Residential rentals are also exempted for the same reason. If rents were to be made taxable, then credit would need to be allowed on the purchase of the dwelling and on repairs and maintenance. Over the life of the dwelling, the present value of tax on the rents would be approximately the same as the tax paid on the purchase of the dwelling and on any renovation, repair, and maintenance costs. In effect (and as with other consumer durables), payment of VAT on the full purchase price at acquisition is a prepayment of all the VAT due on the consumption services that the house will yield over its full lifetime. A resale of a dwelling is exempted for the same reason: the tax was pre-paid when the dwelling was initially acquired.


• Many private individuals and families own residential dwellings (including their homes and summer residences) which they may rent to others. They are generally not in the VAT system, so do not get a credit for the VAT paid when they initially acquire their new home. Nor do they claim any credit for any repairs or renovations they may have made to the existing homes. If the rental of such dwelling were subject to tax, owners should also be given a credit for the taxes paid on such costs-which would be complex, and difficult to monitor.


Thus, virtually all countries exempt long-term residential rents and resale of used residential dwelling. However, short-term residential accommodation (in hotels, for example) is normally subject to VAT. Any commissions charged by the agents and brokers for the sale or rental of a dwelling are treated as a service separate from the sale or rental of the dwelling and attract tax regardless of whether paid by the buyer or the seller.

Sale or rental of vacant land (which includes rental of car parking spaces, fees for mooring of boats and camping sites) is also taxable under the ‘modern’ VAT system.

It would make sense to incorporate these concepts in the design of GST in India as well.


• Conceptually, it is appropriate to include land and real property in the GST base. To exclude them would, in fact, lead to economic distortions and invite unnecessary classification disputes as to what constitutes supply of real property.


• In the case of commercial and industrial land and buildings, their exclusion from the base would lead to tax cascading through blockage of input taxes on construction materials and services. It is for this reason that even under the European system an option is allowed to VAT registrants to elect to treat such supplies as taxable.


• Housing expenditures are distributed progressively in relation to income and their taxation would contribute to the fairness of the GST.


• The State VAT and the Service Tax already apply to construction materials and services respectively, but in a complex manner. For example, there is significant uncertainty whether a pre-construction agreement to sell a new residential dwelling is a works contract and subject to VAT. Where the VAT does apply, disputes arise about the allocation of the sale price to land, goods, and services. While land is the only major element that does not attract tax, the tax rates applicable to goods and services differ, necessitating a precise delineation of the two. Extending the GST to all real property supplies, including construction materials and services, would bring an end to such disputes, simplify the structure, and enhance the overall economic efficiency of the tax.

One potential argument against the levy of GST to land and real property would be that they already attract the stamp duty. This argument can be quickly discarded as the purpose and structure of the stamp duty is quite different from that of the GST. Stamp duty is a cascading tax on each conveyance of title to real property, whereas the GST is a tax on final consumer expenditures. The GST does not impinge on commercial property transactions, after taking into account the benefit of input tax credits. It does not result in tax cascading. Under the model described above, in the case of residential dwellings, the GST would apply to the first sale only. Thus, the two taxes cannot be viewed as substitutes. However, the application of GST to real property transactions does warrant a review of the structure and rates of stamp duties and registration fees. The rates should be lowered and the structure rationalized when the GST is introduced.

EPF rates and calculation

Employees Provident Fund Organization, India ( EPFO )

The EPF& MP (Miscellaneous provision) act was came in to existence from March 14th 1952.The act is applicable all over India except the state of Jammu and Kashmir. Presently the following three schemes are providing to employees under this act.
1. Employees’ provident fund scheme (EPF) 1952.
2. Employees’ pension scheme (EPS) 1995.
3. Employees deposit linked insurance scheme (EDLIS) 1976.

An establishment with 20 or more workers should register with Employees provident Fund organization which comes under any of the 180 industries mentioned. Here we mainly aimed for EPF rates and its calculation.

EPF, EPS, EDLIS rates in India
EPF, EPS and EDLIS are calculated on the aggregate of Basic salary, dearness allowances, cash value of food concession and retaining allowances, if any.
“Retaining allowances means an allowance payable for the time being to an employee of any factory or other establishment during any period in which the establishment is not working, for retaining his services.”
Most of the organizations are following Basic+ DA Method. Below table tells you the rates of contribution of EPF, EPS, EDLI, Admin charges in India, except for sick industries.

Inspection charges payable by employer
Inspection charges must be paid by the employer in the following Cases:
1. Some establishment are exempted from EDLI contribution as they are providing the same nature of benefit without any contributions from employee, such establishments are liable to pay 0.005% on Basic salary
2. The establishments exempted under the scheme should pay 0.18% of Basic salary towards inspection charges.

EPF Ceiling Limit
EPF ceiling limit is fixed to 6500/-.The employer is liable to pay contribution only on 6500/- Whatever is the basic salary.

Calculation of Employees provident fund
Let us calculate the contribution of an employee who is getting a basic salary of Rs.3500/-
EPF Employees share = 3500 x 12% = 420
EPS Employer share = 3500 x 8.33% = 292
EPF employer share = 3500 x 3.67% = 128
EDLI charges = 3500 x 0.5% = 18
EPF Admin charges = 3500 x 1.1% = 39
EDLI Admin charges = 3500 x 0.01% = 0.35 (Round off to Rs 1/-)

Calculation of EPF for employees getting a basic salary over and above the ceiling limit Rs.6500/-
In such cases companies uses different method for calculation as per their pay roll policy.

Consider an employee getting a basic salary of Rs.7500/-
We can calculate it in different ways. The only thing we should take care is, EPS is calculated only up to Rs.6500/- that means the maximum amount is fixed to Rs 541.00. The three methods mentioned below are based on the above example.
Method-1
If the company consider total basic salary above the limit fixed Rs.6500/- for PF calculation.

EPF Employees share = 7500 x 12% = 900
EPS Employer share = 6500 x 8.33% = 541
EPF employer share = 7500 x 3.67% = 359 OR (7500 x 12% - 541)
EDLI charges = 7500 x 0.5% = 38
EPF Admin charges = 7500 x 1.1% = 83
EDLI Admin charges = 7500 x 0.01% = 0.75 (Round off to Rs 1/-)

We will discuss how Employer contribution of EPS and EPF is calculated. Employer is decided to contribute on total basic salary which is 12 % on Rs.7500.00 equal to Rs.900.00. EPS Share is fixed to Rs.541.00. Balance (900-541) goes to EPF account Rs.359.00.

Out of Rs 900.00, EPS share is RS 541/- which is fixed for a basic salary greater than 6500/-. The balance amount is 900-541 = 359.00 which will go to EPF account.

Method-2
Some companies follows the below method in which employee share is calculated on Rs.7500/- and employer share is calculated on up limit Rs 6500/-.

EPF Employees share = 7500 x 12% = 900
EPS Employer share = 6500 x 8.33% = 541
EPF employer share = 6500 x 3.67% = 239
EDLI charges = 6500 x 0.5% = 33
EPF Admin charges = 6500 x 1.1% = 72
EDLI Admin charges = 6500 x 0.01% = 0.65 (Round off to Rs 1/-)

Method-3
Some are calculating both employer and employee shares on Rs 6500/- in spite of higher basic salary.

EPF Employees share = 6500 x 12% = 780
EPS Employer share = 6500 x 8.33% = 541
EPF employer share = 6500 x 3.67% = 239
EDLI charges = 6500 x 0.5% = 33
EPF Admin charges = 6500 x 1.1% = 72
EDLI Admin charges = 6500 x 0.01% = 0.65 (Round off to Rs 1/-)

Remittance of contribution
It is the duty of employer to remit the contribution to the government account before 15th of the following month.

Employer's interest Liability
Employers are liable to pay @12% interest on late payment of EPF, EPS, EDLI, Administrative charges.

Damage liability
An employer is remitting EPF, EPS, EDLI, and Admin charges late shall be liable to pay damages as penalty ranging from 17% to 37% depending up on delay.

Audit Check List - People Services

I. Personnel / HR Department.
- Verify the Service Records / Personal Files / Joining records for qualifications/date of birth/experience/terms and conditions for offer etc.
- Verify the HR policies, training details (both external and internal), KRA Appraisal procedure etc.
- Verify the appointment procedure of contractors for various duties, records maintained by them and the copies of statutory payment challans made directly by the Contractors.
- Verify the personal files of employees relieved under VRS / retirement / resignation for settlement details.
- Verify the files pertaining to Vehicles given on subsidized scheme / loan and its insurance / copy of RC book / hypothecation etc.
- Verify the register for Identity cards / Punching cards and check whether the same is collected back from the separated employees.
- Verify procedure for giving LTA and the Leave taken for that. (Minimum 3 days PL)
- Verify the procedure / time frame for procurement and issue of Uniforms, Shoes etc. and the issue register of that.
- Verify the copies of statutory returns filed under various Acts like PF/ESI/PT/Labour/Arms&Explosives / Apprentice /Workmen compensation etc.
- Verify the pending labour cases and its present status, if any.

II. Security.

1) Main gate:
- Verify the Gate passes and check whether the entries are properly made and its authorization procedure – both returnable and non-returnable.
- Verify the procedure on keeping the godown/stores keys.
- Verify the system of issuing Visitor’s pass and its register.
- Verify the Movement Authorization requests and register of Company staffs either for OD or Personal work.

2) Material Gate:
- Verify the procedure for despatch of material and weighment details, if any, for that.

III. Time Office.
- Verify the attendance marking / regularisation system.
- Verify the procedure for Overtime marking and attendance for two continuous shifts.
- Verify the procedure for Special Leave, if any, after two continuos shifts.
- Verify the Out Gate – pass Register and Muster Roll Register and cross verify.
- Verify the deductions made from the wages for attendance less than 6 hours in a shift.
- Verify the procedure for change in shifts, if any.
- Verify the leave eligibility, leave credits, procedure for availing leave etc. and cross check the same with the leave rules.
- Verify the procedure for giving Compensatory Off, its carry forward, if any, and the application for the same.

IV. Health Centre.
- Verify the agreement with the present agency, if any.
- Verify the physical stock of medicines and compare the same with the Stock register.
- Check the expiry dates of medicines stored on random basis.
- Verify the no. of First Aid Boxes and the requirement of the same under Factories Act, 1948.
- Verify the accident record register and daily treatment register.
- Verify the logbook of Ambulance.

V. General Admn. Department.
- Verify the challans for payment of Property tax for timely deposit / penalty for delay etc.
- Verify the contract agreements for Gardening, Courier, Vehicles etc. and AMCs for the assets like Photocopier, EPABX etc.
- Verify the logbook of Company vehicles and Fuel consumption.

VI. Guest House.
- Verify the visitor’s register, asset register etc.
- Verify the guesthouse expense details and its approval.
- Verify the general maintenance and cleanliness of the guesthouse.
- Physical verification of Imprest cash.