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Funding Compliance


Debt financing means borrowing money and not giving up ownership. Debt financing often comes with strict conditions or covenants in addition to having to pay interest and principal at specified dates. Failure to meet the debt requirements will result in severe consequences. This means that the effective interest cost is less than the stated interest if the company is profitable. Adding too much debt will increase the company’s future cost of borrowing money and it adds risk for the company. The company receives a loan and gives its promise to repay the loan.

It includes both secured and unsecured loans. Security involves a form of collateral as an assurance the loan will be repaid. If the debtor defaults on the loan, that collateral is forfeited to satisfy payment of the debt. Most lenders will ask for some sort of security on a loan. Debt funds are preferred by individuals who are not willing to invest in a highly volatile equity market. A debt fund provides a steady but low income relative to equity. It is comparatively less volatile. Debentures are one of the common long-term sources of finance. They normally carry a fixed interest rate and a certain date of maturity. Interest is paid every year and principal is paid on the date of maturity.

Advantages of Debt Financing:-

(a)     to the Company:

(i) Debentures provide long-term funds to a company.

(ii) The rate of interest payable on debentures is usually, lower than the rate of dividend paid on shares.

(iii) The interest on debentures is a tax-deductible expense and hence the effective cost of debentures (debt-capital) is lower as compared to ownership securities where dividend is not a tax-deductible expense.

(iv)Debt financing does not result into dilution of control because debenture-holders do not have any voting rights.

(v) A company can trade on equity by mixing debentures in its capital structure and thereby increase its earnings per share.

(vi)Many companies prefer issue of debentures because of the fixed rate of interest attached to them irrespective of the changes in price levels.

(vii) Debentures provide flexibility in the capital structure of a company as the same can be redeemed as and when the company has surplus funds and desires to do so.

(viii) Even during depression, when stock market sentiment is very low, a company may be able to raise funds through issue of debentures or bonds because of certainty of income and low risk to investors.

(ix) Benefit of Tax: ‘Debt Financing’ or ‘Issuing of Debenture’ results in interest expense for the borrower which is a tax deductible expense. A company can claim an interest as an expense against its profits whereas dividends paid to equity or preference shareholders are paid out of net profits after taxes. In short, debt financing brings tax benefit to the borrower which is not there in case of equity.

(x)No dilution of control: Issuing of debentures or accepting bank loan does not dilute the control of the existing shareholders or the owners of the company over their business. If the same fund is raised using equity finance, the control of existing shareholders would dilute proportionately.

(Xi) No dilution in share of profits: Opting for debentures over the equity as a source of finance keeps intact the profit-sharing percentage of existing shareholders. Debenture holders or financial institutions do not share profits of the company. They are liable to receive the agreed amount of interest only. Therefore, profits are shared among the same number of hands before and after the new project. The profit sharing percentage of individual shareholders would reduce in case if the equity funds are availed.

(b) to the Investors:

It is not only the company but also the investors who are benefited by investing in debentures or bonds.

(i) Debentures provide a fixed, regular and stable source of income to its investors.

(ii) It is comparatively a safer investment because debenture-holders have either a specific or a floating charge on all the assets of the company and enjoy the status of a superior creditor in the event of liquidation of the company.

(iii) Many investors prefer debentures because of a definite maturity period.

(iv) A debenture is usually more liquid investment and an investor can sell or mortgage his instrument to obtain loans from financial institutions.

(v) The interest of debenture-holders is protected by various provisions of the debenture trust deed and the guidelines issued by the Securities and Exchange Board of India in this regard.


Disadvantages of Debenture Finance:

In spite of many advantages, debenture financing suffers from certain limitations. The following are the major disadvantages of debentures:

(a) From the Point of View of Company:

A company suffers from the following disadvantages of debt- financing:

(i) The fixed interest charges and repayment of principal amount on maturity are legal obligations of the company. These have to be paid even when there are no profits. Hence, it is a permanent burden on the company. Default in these payments, adversely affects the credit-worthiness of the firm and even may lead to winding up of the company.

(ii) Charge on the assets of the company and other protective measures provided to investors by the issue of debentures usually restrict a company from using this source of finance. A company cannot raise further loans against the security of assets already mortgaged to debenture-holders.

(iii) The use of debt financing usually increases the risk perception of investors in the firm. This enhanced financial risk increases the cost of equity capital.

(iv)Cost of raising finance through debentures is also high because of high stamp duty.

(v) A company whose expected future earnings are not stable or who deals in products with highly elastic demand or who does not have sufficient fixed assets to offer as security to debenture-holders cannot use this source of rasing funds to its benefit.


(b) From the Point of View of Investors:

Many investors do not find debentures or bonds as an attractive investment because of the following:

(i) Debentures do not carry any voting rights and hence its holders do not have any controlling power over the management of the company.

(ii) Debenture-holders are merely creditors and not the owners of the company. They do not have any claim on the surplus assets and profit of the company beyond the fixed interest and their principal amount.

(iii) Interest on debentures is fully taxable while shareholders may avoid tax by way of stock dividend (bonus shares) in place of cash dividend.

(iv)The prices of debentures in the market fluctuate with the changes in the interest rates.

(v) Uncertainty about redemption also restricts certain investors from investing in such securities.


Eligibility for Debt Financing:

Anyone who is having funds and want to invest into some business plan can invest in debt. There are various types of debentures like redeemable,  irredeemable, perpetual,  convertible, non-convertible, fully, partly, secured, mortgage, unsecured, naked, first mortgaged, second mortgaged, the bearer, fixed, floating rate, coupon rate, zero coupon,  secured premium notes, callable, puttable, etc.

The debenture classification is based on their tenure, redemption, mode of redemption, convertibility, security, transferability, type of interest rate, coupon rate, etc. Following are the various types of debentures vis-a-vis their basis of classification.


Redemption / Tenure

Redeemable and irredeemable debentures

Redeemable debentures carry a specific date of redemption on the certificate. The company is legally bound to repay the principal amount to the debenture holders on that date. On the other hand, irredeemable debentures, also known as perpetual debentures, do not carry any date of redemption. This means that there is no specific time of redemption of these debentures. They are redeemed either on the liquidation of the company or when the company chooses to pay them off to reduce their liability by issues a due notice to the debenture holders beforehand.

 
Convertibility

Convertible debenture holders have an option of converting their holdings into equity shares. The rate of conversion and the period after which the conversion will take effect are declared in the terms and conditions of the agreement of debentures at the time of issue. On the contrary, non-convertible debentures are simple debentures with no such option of getting converted into equity. Their state will always remain of a debt and will not become equity at any point of time.


Fully and partly convertible debentures

Convertible Debentures are further classified into two – Fully and Partly Convertible. Fully convertible debentures are completely converted into equity whereas the partly convertible debentures have two parts. Convertible part is converted into equity as per agreed rate of exchange based on an agreement. Non-convertible part becomes as good as redeemable debenture which is repaid after the expiry of the agreed period.

Security

Debentures are secured in two ways. One when the debenture is secured by the charge on some asset or set of assets which is known as secured or mortgage debenture and another when it is issued solely on the credibility of the issuer is known as the naked or unsecured debenture. A trustee is appointed for holding the secured asset which is quite obvious as the title cannot be assigned to each and every debenture holder.


First Mortgaged and second mortgaged debentures

Secured/Mortgaged debentures are further classified into two types – first and second mortgaged debentures. There is no restriction on issuing different types of debentures provided there is clarity on claims of those debenture holders on the profits and assets of the company at the time of liquidation. First mortgaged debentures have the first charge over the assets of the company whereas the second mortgage has the secondary charge which means the realization of the assets will first fulfill the obligation of first mortgage debentures and then will do for second ones.

 

Transferability / Registration

 

In the case of registered debentures, the name, address, and other holding details are registered with the issuing company and whenever such debenture is transferred by the holder; it has to be informed to the issuing company for updating in its records. Otherwise, the interest and principal will go the previous holder because the company will pay to the one who is registered. Whereas, the unregistered commonly known as bearer debenture can be transferred by mere delivery to the new holder. They are considered as good as currency notes due to their easy transfer-ability. The interest and principal are paid to the person who produces the coupons, which are attached to the debenture certificate and the certificate respectively.


Type of Interest Rates

FIXED AND FLOATING RATE DEBENTURES

Fixed rate debentures have fixed interest rate over the life of the debentures. Contrarily, the floating rate debentures have the floating rate of interest which is dependent on some benchmark rate say LIBOR etc.

No Coupon Rate

ZERO COUPON AND SPECIFIC RATE DEBENTURES

Zero coupon debentures do not carry any coupon rate or we can say that there is zero coupon rate. The debenture holder will not get any interest on these types of debentures. Need not get surprised, for compensating against no interest, companies issue them at a discounted price which is very less compared to the face value of it. The implicit interest or benefit is the difference between the issue price and the face value of that debenture. These are also known as ‘Deep Discount Bonds’. All other debentures with specified rate of interest are specific rate debentures which are just like a normal debenture.

SECURED PREMIUM NOTES / DEBENTURES

These are secured debentures which are redeemed at a premium over the face value of the debentures. They are similar to zero coupon bonds. The only difference is that the discount and premium. Zero coupon bonds are issued at the discount and redeemed at par whereas the secured premium notes are issued at par and redeemed at the premium.


Mode of Redemption

CALLABLE AND PUTTABLE DEBENTURES / BONDS

Callable debentures have an option for the company to buyback and repay to the investors whereas, in the case of puttable debentures, the option lies with the investors. Puttable debenture holders can ask the company to redeem their debenture and ask for principal repayment.

SUBORDINATED DEBENTURE

In these types of debentures, the debenture is given priority after other debts when company goes into liquidation. They are also known as subordinated loan, subordinated bonds, subordinated debt or junior debt

 

PROCEDURE TO ISSUE DEBENTURES UNDER THE COMPANIES ACT, 2013

Section 56, 72, of the Companies Act, 2013 read with Rule 18 and 19 of the Companies (Share Capital and Debentures) Rules, 2014

  1. Call and hold Board meeting and decide which types of the debenture will be issued by the Company.
  2. If the Company decides to issue secured debenture the company has to comply with the condition prescribed in the Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014.
  3. In case appointment of Debenture Trustee, consent shall be obtained from a SEBI registered Debenture Trustee, who is proposed to be appointed. If debentures to be issued are Secured Debentures, a Debenture Trust Deed in Form No. SH – 12 or as near thereto as possible shall be executed by the Company in favour of Debenture Trusteeswithin sixty days of allotment of Debentures.
  4. In the Board meeting pass resolutions for
i)Approval of Offer letter for private placement in Form No. PAS – 4 and Application Forms (In case of private placement of debentures);
ii)Approval of Form No. PAS – 5 (In case of private placement of debentures);
iii)Approval of Debenture Trustee Agreement and appointment of a Debenture Trustee (In case of Secured Debentures only)
iv)Appointment of an expert for valuation (In case of private placement of debentures);
v)Approval of increase of borrowing powers, if required;
vi)To authorize for creation of charge on the assets of the company;
vii)Approve the Debenture Subscription Agreement;
viii)To fix day, date and time for the extraordinary general meeting of shareholders
   
    5. Prepare the draft of
i)Debenture Subscription Agreement;
ii)Offer Letter for private placement in Form No. PAS – 4 and Application Forms;
iii) Records of a private placement offer in Form No. PAS – 5;
iv)Debenture Trustee Agreement;
v)Mortgage Agreement for creation of charge on assets of the company.
  • Issue notices of extraordinary general meeting along with the explanatory statement.
  • Hold extraordinary general meeting and pass special resolution to issue convertible secured debentures and increase borrowing powers of the company and to authorize the Board to create charge on the assets of the company.
  • File Form No. PAS – 4 and PAS – 5 in Form No. GNL – 2 with the Registrar of Companies.
  • File Offer Letter in Form No. MGT – 14 with the Registrar of the Companies.
  • File copy of Board resolutions, Special Resolution, Debenture Subscription Agreement, Debenture Trustee Agreement etc in Form No. MGT – 14 with the Registrar of Companies.
  • File Form No. PAS – 3 (Return of allotment) with the Registrar of Companies after making allotment of debentures.
  • File Form No CHG – 9 for creation of charge on assets of the Company(in case debenture are secured)

Issue of Debentures, whether redeemable or convertible involves compliance with the substantive and procedural aspects of law, therefore, documentation becomes very important


DOCUMENTS REQUIRED:

Form

Description

Time line

Documents Required

MGT-14

Filling of resolutions and agreements to the registrar

Within 30 days,

from the date of passing of the special resolution for allotment of securities on private placement in general meeting

–       Certified true copy of special resolution

–       Offer letter issue to the shareholders

GNL-2

Form for submission of documents with the Registrar of Companies

within 30 days,

from the issue of offer letter to the recorded person

–       PAS 4 (Offer Letter)

–       PAS 5 (Record of Private Placement)

PAS-3

Return of allotment

Within 30 days,

from the date of passing of the board resolution for allotment and issue of securities

–       Certified true copy of Board minute

–       List of allottees.

 


We at Wazzeer will be glad to help you in this matter, from drafting agreements to issuing share certificates, all funding compliance matter we are equipped to take care of.

 

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Business Formation

To Start FMCG products manufacturing business in India will invite certain scrutiny that comes under policies in fast moving consumer good (FMCG) segment and is having huge scope in the market as an essential product used daily by billions of people. Taking the example of Soap as a product, the soap industry is divided into various segments – personal use, veterinary use and laundry use. Personal care soap segment is dominated by large consumer goods companies, whereas the veterinary use and laundry use segment is fragmented or dominated by a few large players. In this blog we will be looking as an overview on the necessary compliance. The major two:

License & Registration

If you want to start the manufacturing, you need to obtain different registrations and licenses. However, it depends on the location where you are establishing the plant. It is advisable to check the local state laws. Here we put some of the basic considerations.

  • First of all, determine the form of your business. And accordingly, register the business. Like Private Limited company or LLP.
  • Apply for the Trade License from the Municipal Authority.
  • Additionally, apply for MSME Udyog Aadhaar online registration.
  • Apply for the ‘Consent to Establish’ from the Pollution Control Board
  • Obtain the GST registration.
  • Apply for BIS certification.
  • Choose a catchy brand name of the product and secure the name with Trademark

 

Investment Required

The investment required for starting a small soap manufacturing business is minimal. A soap manufacturing unit setup with an investment of about Rs.15 lakhs can generate revenues of up to Rs.50 lakhs and a profit of Rs.8 lakhs, if operated successfully. The breakup of the investment required and the assumptions for revenue are as under:

Land & Building Requirement

A small soap manufacturing unit requires a space of about 750 square feet of which around 500 square feet must be constructed. For the financial model, we have assumed that such a place can be obtained with an investment of about INR 5L with the necessary power and water supply.

Machinery Required

A small detergent soap making business minimal investment in machinery. Typical list of soap making machinery required for soap manufacturing are plodder machine, miller machine, sap stamping machine and soap cutting machine. Based on the type of product to be manufactured and the scale, the type and investment required in machinery would vary. Investment in a small soap manufacturing unit can vary between INR 2L and INR 10L. The typical time for setting up of a unit is about 3 to 6 months for obtaining the necessary licenses, equipment, raw material, act.,

Working Capital

The main working capital expenditure for a soap manufacturing unit is raw material, salaries and wages, power cost and receivables. Raw material to the tune of INR 3L- 4L must be on-stock for operating a soap manufacturing unit smoothly, with additional working capital requirement of INR 1L – 2L required for other expenditures like salaries, power and receivable. Hence, taking into a three month working capital cycle, the promoters must have about Rs.8 to INR 12L of working capital funds to operate smoothly.

Bank Loan for Soap Manufacturing

Bank loan can be obtained for soap manufacturing from various banks in India. Since, the amount of investment required would be less than INR 1C, loan can be obtained under the CGTMSE scheme without any collateral.

Wazzeer is vouched by entrepreneurs as the reliable legal and accounting partner for years now. We are happy that we could be a chapter in your success stories. Let’s connect a get your business takes off. 🙂

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GST

SMEs are stuck in the GST  spider web, why? The regime is simply undergoing changes every now and then, the lack of not having a accounting and secretarial advisory is putting pressure on these businesses. This blog intends to make life easier for these guys, New Rules in the GST Game that Businesses should know.

As per 22nd GST Council meeting of 6th October 2017:

Lesser burden of compliance for small businesses

  • The government has recognised hardship faced by small businesses with turnover of within Rs 1.5cr, by delaying their return filing compliance to once a quarter from once a month. Taxes will be paid quarterly.
  • Small businesses will also have to file monthly returns for three months – July, August, and September – and the switchover to quarterly filing will happen from the cycle starting October 1.

 

Relief for Service Providers

  • Exemption from Registration for a service provider if the aggregate turnover is less than Rs. 20Lacs (10 Lacs in special category state except for J&K) even if they are making inter-state supplies of services.
  • Services provided by a GTA to an Unregistered person shall be exempted from GST.
  • TDS/TCS provisions shall be postponed till 31.03.2018.
  • Small businesses will also have to file monthly returns for three months – July, August, and September – and the switchover to quarterly filing will happen from the cycle starting October 1.

 

Relief for Exporters

  • Refund cheques for July exports will be processed by Oct 10 and refund cheques for August exports will be processed by Oct 18.
  • Every exporter will now get an e-wallet. In the e-wallet, there would be a notional amount for credit. The refund they will eventually get will be offset from that amount. The e-wallet will be introduced from April next year.
  • Merchant exporters will pay a nominal 0.1% GST applicable on exports to enable their suppliers to claim ITC.

 

 

Composition Scheme changes

  • Person otherwise eligible for availing the composition scheme and are providing any exempt services shall now be eligible for the composition scheme.
  • Eligibility of composition scheme raised to INR 1 crore.
  • Traders will pay 1%, manufacturers 2% and restaurants 5% under the composition scheme.
  • Due date of FORM GSTR-4 for the quarter July-September, 2017 is extended to 15th November 2017

 

Under consideration 

  • Finance Minister Arun Jaitley announced that a group of ministers will relook tax on AC restaurants. GST for AC restaurants may become cheaper from 18% to 12%. A group of ministers has been formed to devise the mechanism. The GoM will submit its report in 14 days.
  • GoM will also make the composition scheme more attractive

Next meeting of the council will take place in Guwahati on 9-10 November.

 

RCM postponed

RCM applicable for the purchases from the unregistered dealer shall be suspended till 31.03.2018.

 

No GST on advance receipts for businesses with turnover under INR 1.5cr

Taxpayers having annual turnover upto 1.5 Crore shall not be required to pay GST at the time of receipt of advances on account of supply of goods.

 

Significant rate changes

  • GST on unbranded Ayurvedic medicines has been reduced from 12% to 5%.
  • Tax rate for man-made yarn has been reduced to 12% from 18%. The decision will have an effect on textiles.
  • GST rate on many job work items reduced from 12% to 5%. GST rate on some stationery items, diesel engine parts also reduced to 18% from the earlier 28%.
  • GST on khakra and unbranded namkeen has been reduced from 12% to 5%. Tax on zari work has been reduced from  12% to 5%.
  • 35% abatement on old leasing contract of vehicle
  • Printing Job work rate revised from 12% to 5%

 

Others

  • E-way bill has been deferred to 1stApril 2018
  • Relief for jewellers as no need to furnish PAN card on jewellery purchase of more than Rs 50,000. The amount of jewellery purchase for which KYC will be required will be determined later.
  • 35% abatement on old leasing contract of vehicle
  • Due date of GSTR-6 (filed by an input service distributor) for the months of July, August and September 2017 has been extended to 15.11.2017

 

Central Tax Rate Notification (28.06.2017)

  • Most of the goods are kept at the same rates as announced by the GST councilearlier but rough or non industrial unworked diamond or precious stones will be charged CGST at the rate of 0.125%.
  • List of goods exempt from CGST. No change in the list.
  • Oil, gas, coal and petroleum licenses and sub-contract licenses and leases will be charged GST at the rate of 2.5%.
  • The person liable to deduct TDS as per the GST law supplying intrastate goods or services to an unregistered person would be exempt from CGST.
  • Cashew nuts, not shelled or peeled, Bidi wrapper leaves (tendu), Tobacco leaves, silk yarn, Supply of lottery would have reverse charge applicable under GST.
  • Refund of the unutilized ITC would not be provided in the case of the tax on output being lower than the tax on inputs for certain goods mainly related to the textile and railways.
  • The supply of goods by CSD to unit run canteens and authorized customers and supply of goods by the unit run canteens to the authorized customers.
  • 50% of the tax paid on inward supplies of goods by the CSD for further supply to unit run canteens or authorized customers can be claimed as refund under GST.
  • Person liable to deduct TDS as per the GST law supplying intra goods or services to an unregistered person would be exempt from CGST.
  1. Intrastate supply of second hand goods by a registered person who deals in selling second hand goods to an unregistered person would be exempt from CGST.

 

News on GST Act

The entire framework of GST is based on GST Act. It was devised by the GST Council, which is a committee consisting of the Union Finance Minister (Chairperson), the Union Minister of State, the minister in-charge of finance or taxation or any other minister nominated by each State Government.

 

E-Way Billing

The GST provision, requiring any good more than Rs 50,000 in value to be pre-registered online before it can be moved, is likely to kick in from October after a centralised software platform is ready, a top official said. 

The provision, called the e-way bill, would be implemented after infrastructure for smooth generation of registration and its verification through hand-held devices with tax officials is ready. 

 

The GST is a constitutional amendment, and any change in the law will also affect the rules therein. Rules for invoicing, rules for penalty, rules defining the point of taxation – these are just some of the examples of any rule change in the model law. We at Wazzeer will be happy to help you out, experience Wazzeer virtual advisory system, let’s connect!

 

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Contracts and Agreement

Do you believe in perfection, so that you could just avoid rework? That is exactly what you could be achieving if Memorandum of Association (MoA) the document that is considered the charter of the company is drafted with perfection and validated by law. Critics, you might just say, entrepreneurs hardly have the time or expertise to quality check these documents.  Well, imagine when you plan to raise funding, and add directors to the company’s board of directors, the investor would hesitate to associate himself with your firm because the MOA that you long back drafted is hardly a valid one. In this blog we shall look into How to validate your Memorandum of Association Document?

MOA comprises of all the objectives, rights, liabilities, mentioned therein, in relation to constitution of proposed Company and which is recognized by law as valid, acceptable and binding on all those subscribing to such Charter and all those who deal with the Company formed.

For every Company which is required to be registered under the provisions of the Companies Act 956 it is mandatory to draft and submit a copy of Memorandum of Association keeping in mind, the provisions of the Act. It may be noted that in terms of provisions of section 13 read with sec 14 and 15 of the Act

A Memorandum of Association generally has following clauses:


Name Clause
: This clause contains full of the Company as incorporated.

  • Complete name of the Company with word Limited in the case of a public limited company or Private Limited in the case of a private limited company;
  • The State in which the registered office of the company is situated

Registered Office Clause: This clause indicates the jurisdiction of Corporate Regulator, under which the Company’s registered office falls.


Objects Clause: This clause indicates the objects for which Company is incorporated. The objects which are part of main business activities which Company wish to attain immediately after it is incorporated. These objects needs to be very clear and should encompass all the activities such as manufacture, sale, trade, import, export, exchange etc.,


Liability Clause: This clause tells about limit on monetary liability of each member towards the Company. Where the proposed Company, is a Company limited by shares, the Memorandum of such Company shall also state that the liability of its members is limited.

In case of Company limited by guarantee, the Liability clause state the amount each member undertakes to contribute to the assets of the company in the event of its being wound up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company, or of such debts and liabilities of the company as may have been contracted before he ceases to be a member, as the case may be, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributors among themselves, such amount as may be required, not exceeding a specified amount.


Capital Clause: This clause denotes the maximum capital which Company can raise at given point of time. In the case of a company having a share capital, the Memorandum shall also state:

(a) The amount of share capital in form of Authorized Share Capital with which the company is to be registered and the division thereof into shares of a fixed amount.

(b) Minimum paid Capital in the form of Paid up


Subscription OR Association Clause: This clause is in the nature of Declaration and Undertaking given by all the subscribers to Memorandum of Association to the effect they have agreed to form a Company and further undertake that they will pay for the shares agreed to subscribe.



Now that you know the clauses that should be verified as the first level of quality check, let’s look at the next level of quality check.



Things you should not make any mistakes:

  • The name of the Company appearing in the MoA should match EXACTLY with the as approved by the Registrar of Companies (RoC)
  • The jurisdiction of RoC to be mentioned in Registered Office (Domicile Clause) should be based on location district of the state.
  • Shareholder while making the investment in any company must possess the information regarding the business plans of the company, these object clauses serve the purpose of providing the information to the shareholder about the prospects of the company
  • The objects which Company wish to attain immediately after it is incorporated. These objects which are part of main business activities needs to be very clear and should encompass all the activities such as manufacture, sale, trade, import, export, exchange, etc.,
  • Covering maximum possible activities as a part of main object provide the clarity for the Company and outsiders dealing with the Company about its exact nature of business. Activities such as seeking mandatory registrations, enrollments, bank accounts, marketing and business promotion, staff welfare, borrowing powers, power to take-over new business, merger & amalgamation empowerment of the Company, if included would be best to maintain transparency.
  • A proposed Company whose main object comprise of : ‘Insurance’ , ‘Bank’ , ‘Stock Exchange’ , ‘Venture Capital’ , ‘Asset Management’ , ‘Nidhi’ , ‘Mutual fund’ the Company will be allowed to be incorporated only after in-principle approval is obtained from concern Sectorial Regulator such as RBI, IRDA, SEBI etc.
  • Where a Foreign Company proposed to incorporate a Company in India, it is mandatory that Certificate of Incorporation of such Company issued in the country of registration and resolution of its Board of Directors duly Apostle/ certified by Indian Consulate Officer is submitted. Further in case Memorandum of Association is executed outside India then such Memorandum of Association and Articles of Association is required to be Appostile/ certified by Indian Consulate Officer.



For the complete validation process, it should ideally take just a few hours, and in case you cannot provide the time, then get it done by an experienced lawyer or a CA that provides a note of guarantee. Something that we at Wazzeer assure our clients. Guarantee.

 

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RoC Filing

The news of Over 2 lakh directors to be barred from board posts for not complying with RoC filing has been driving awareness among startup community and entrepreneurs have started to acknowledge the fact that certain things no matter has to be performed as per law. This blog we shall look into what one has to do during the final countdown of RoC filing.

 

An annual return is a snap-shot of a company’s financial information as they stood on the closing of financial year. It is perhaps the most important document required to be filed by the company with the ROC. Apart from the financial statement, this is the only document which is compulsorily filed with ROC every year irrespective of any event or happenings in the company. While financial statements give information on the financial performance of the company, it is the annual return which gives detailed disclosure and deep insight of the non-financial information of the company viz. operations of the private limited company, funding, control and management.


Filing of the annual return yearly with the registrar of companies is obligation of the management of the company. It helps the stakeholders to ensure that the company is administered in a proper manner.
As per the provisions of Companies Act, 2013; every Company have to file e-form MGT-7 (Annual Returns) within 60 from the date of Annual General Meeting and AOC-4 (Annual Accounts) within 30 days from the date of Annual General Meeting.


Every company prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding –

  1. Its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
  2. Its shares, debentures and other securities and shareholding pattern;
  3. Its indebtedness;
  4. Its members and debenture-holders along with changes therein since the close of the previous financial year;
  5. Its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
  6. Meetings of members or a class thereof, Board and its various committees along with attendance details;
  7. Remuneration of directors and key managerial personnel;
  8. Penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
  9. Matters relating to certification of compliances, disclosures as may be prescribed;
  10. details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
  11. Such other matters as may be prescribed, and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice: Provided that in relation to One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.

 

Guidelines on annual filing

DIN (Director Identification Number) and DSC (Digital Signature Certificate)

Documents Required

Form

Description

Time line



Documents Required


ADT-1

Intimation about the Auditor of the company

Within 15 days of AGM

–       Consent letter from the Auditor.

–       Intimation to the Auditor.

–       Extract of the AGM.

AOC-4

Annual Return

Within 30 days of AGM

–       Financials of the company.

–       Director Report.

–       Auditor’s Report.

–       MGT-9


MGT-7

Financial Statement

Within 60 days of AGM



–       Shareholding pattern of the company.


AOC4-XBRL

For filing XBRL document in respect of financial statement and other documents

Within 29th October

 

–          Financial Statements


Signing of Documents

The Annual return of the Company must be signed by the Directors of the Company. The financial statements filed along with the Annual return must be audited and signed by a Chartered Accountant. Where there is no company secretary, by a company secretary in practice: Provided that in relation to One Person Company and small company, the annual return shall be signed by the company secretary or where there is no company secretary, by the director of the company.


When is the due date for filing annual returns?
Annual return is due before the 29th October this year or 6 months from the end of the financial year. In case of newly incorporated Company, an Annual General Meeting should be held within 18 months from date of incorporation or 9 months from the date of closing of financial year, whichever is earlier and an annual return should be filed with the MCA.



Procedure for annual return filing

Step 1: Preparing Financial Statements of the Company:

All companies are required to prepare financial statements of the company based on the Book of Accounts. Financial statements means any statement to provide information about the financial position, performance and changes in the financial position of an assessed and includes balance sheet, profit and loss account and other statements and explanatory notes forming part thereof.

Step 2: Appointing Auditor for the Company

Every Company must appoint its first Auditor within one month of the registration of the company. Any person who is a qualified Chartered Accountant in practice or a firm of Chartered Accountants can be appointed as the Auditors of the Company. However, the following persons / entities cannot be appointed as Auditor of a Company:

  • A body corporate;
  • An officer or employee of the company (irrespective of if he/she is a qualified Chartered Accountant);
  • a person who is a Partner or Director of the company;
  • A person who is indebted to the company;
  • A person who is in whole time employment elsewhere;

It is important to remember that the Auditor of the Company must be independent and not having bias towards the company. The term of an Auditors appointment would end at the conclusion of the Annual General Meeting of the Company; the company may re-appoint the same Auditor or may decide to replace the Auditor.

Step 3: Auditing the Financial Statement of the Company:

Audit plays an important role in the management of the Company. As per Companies Act, 2013 every company should appoint an Auditor to audit the accounts of the company and present their report on the accounts. The Auditor after being appointed by the Company would audit the financial statements of the Company and submit his/her report on the accounts of the Company to the members. The Auditor is also required to state in his report whether the accounts of the Company give a true and fair view of the state of affairs of the Company.

If the Auditor is not satisfied with the information / clarification provided in the financial statements of the Company, or if the Auditor has any reservation in respect of the account or book of accounts maintained by the Company, then he/she can bring the facts to the attention of the stakeholders by Qualifying the Audit report.

Step 4: Conducting Annual General Meeting

An Annual General Meeting is a meeting of the shareholders of a Company held every year. Companies Act, 2013 mandates that all company except One Person Company hold one Annual General Meeting every year. No company is exempt from this requirement. The date of any Annual General Meeting must be within 15 months from the date of immediately preceding Annual General Meeting. However, for a newly incorporated company, the first Annual General Meeting must be held within 18 months from the date of incorporation of the Company.

Step 5: Acquiring Documents

Arranging the documents together like financial statement of the company.  Examples, At the Annual General Meeting, the audited financial statements of the Company with the Auditor’s Report and Directors Report are placed before the members of the Company. The members of the Company on being satisfied about the financial statements of the Company can adopt the Annual Accounts of the company after due consideration. The financial statements of a company are considered final only after it is approved by the Shareholders of the company in the Meeting.

Step 6:  Form Filing

File the respective documents as mentioned on the above table.


Step 7: Pay Fee and charges for forms

Company having Authorized Capital of INR 1 Lakh is INR 300 for each Form AOC-4 and MGT-7, and Company having Authorized Capital of INR 5 Lakh or more is INR 400 for each Form.

Hence, A Company is required to file its balance sheet, profit and loss account, auditor’s report and annual return every financial year before the due date with the registrar of companies. Noncompliance with this provision will attract a fine that is charged while filing the e-Form. And, non-compliant with Income Tax filing, will restrict you from carrying your losses forward.

We at Wazzeer have built a smart platform of Legal and accounting professionals which include Chartered accountants, Company secretaries and corporate lawyers from different parts of the country. We can help your company in taking care of all the compliance related projects so that you can take the back seat and enjoy brainstorming sessions for your venture.

Please go through the below mentioned information which clarifies the list of Documents, Scope of work, Timeline and Pricing for filing the ROC and IT returns for your company.


Entrepreneurs generally are interested in these frequently asked questions :

Q1. What is the scope of work?

  • Annual Returns filing to RoC for the Financial Years ending March 31, 2017
  • Profit & Loss Statement filing to RoC for the Financial Years ending March 31, 2017
  • Audit Report filing to RoC for the Financial Years ending March 31, 2017
  • Income Tax Returns filing to IT Department for the Financial Years ending March 31, 2017

Q2. How much time does it take?

7-8 Working days.

Q3. How much will it cost?

Govt. Fees for the financial year ending March 31, 2017 – INR900/- (AOC-4, MGT-14 and ADT-1)

Professional Fees- In case of 0-10 Transactions – INR 8850 including GST charges (Fees- 7500 INR and 18% GST)

Payment terms: The fees will be collected in advance and kept as a deposit with Wazzeer. The amount will be released to the professional towards the government fees, out of pocket expense and professional fees as required and as the milestones are reached while completing the work. The release of the payment will be done only after confirmation from you (Client).

Please feel free to contact us for any of your queries, will be happy to take the complete authority and get this work delivered before deadline. 🙂

Relevant content for your reference:
Over 2 lakh directors to be barred from being board member in any new venture
How to restore companies that have been stricken off?
Consequences of not filing Annual Return

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Business Formation, Subsidiary in Dubai

Dubai in the UAE has proved to be one of the most attractive places to businessmen from all over the world. Dubai’s law expresses its leniency for free and fair trade with other countries and therefore the procedure for setting up a business, compliance mechanisms etc. are relatively simpler than in other countries. The Department of Economic Development (“DED”) has laid down a vision whereby the business owners are actively assisted by the good administration and simple procedural requirements. On this blog we will look into major stuffs that would resolve a simple question on “How to start a business in Dubai?”

Branch office v. Subsidiary:

A business in Dubai may be set up by a parent company located outside the territory of Dubai either as a Branch office or as a Subsidiary Company. While the former is related to the parent company and cannot function independently, the latter is an arm of the parent company but functions as an independent unit. The branch office of the company in Dubai will have to register itself with the Ministry of Economic Affairs and will be allowed to perform only limited activities as per the law of the country and that are similar to those of its parent company.

A subsidiary on the other hand is a separate legal entity than its parent company. The parent company will not be liable for any functions or actions of the subsidiary in Dubai and will be free to practice any business activities independent of its parent provided that all the rules and regulations of the country are complied with.

Free Zone v. outside free zone:

A subsidiary company in Dubai may be set up either in the mainland of Dubai or in the Free Zones. The location of the business may be chosen depending upon the nature of the business, the activities to be undertaken, the scale of these activities, capital requirements, capital structure etc. Setting up a company in the free zone of Dubai entails various benefits. Some of these include:

  • Ownership by a foreign national to the extent allowed by the law.
  • A complete exemption from all kinds of corporate taxes, duties imposed on import and export of goods and services for a period of fifteen years from the year of establishment.
  • The laws of Dubai also allow repatriation of all the 100% invested capital and profits.

However, on the contrary, it must be noted that though the benefits of setting up a unit in the free zone is plenty, it comes with its own drawbacks. Such a unit is not allowed to transact and indulge in any business activities with the companies statute on the Dubai mainland, involves extensively high translation and notarization costs, and mandatory presence of the office in the free zone that has been chose.

If you set up an office in the mainland, the permission of the DED authorities by way of a license to carry out business activities in the territory will have to be obtained.

Below is an account of all the requirements that must be fulfilled in order to establish a subsidiary in Dubai:

Choosing an area of business: The business activities that a subsidiary company may choose have been categories under tourism, commercial, professional and industrial. The list encompasses a total of about 2,100 business activities under the above stated heads. In case the activity that you wish for your business to undertake is not listed under any of these, you may write to the concerned authorities by emailing at info@dubaided.gov.ae for seeking a clarification for this purpose.

Pre-application requirements


Prior to a formal application having been made, a subsidiary under the company law of Dubai is set up as a limited liability company. For this purpose, a company must choose a unique name that has not already been registered and also not the intellectual property of any other entity. In addition to this, an approval from the DED authorities may also be applied for, Memorandum and Articles of Association are required to be drafted and notarized etc.

Documents required:


Along with the application to the Ministry of Economic and Commerce, the parent company shall also submit the following documents:

  • Certificate of Incorporation of the company
  • Memorandum and Articles of Association drafted and notarized according to the laws of Dubai.
  • Board Resolution of the parent company approving the establishment of the subsidiary company.
  • Audited Financial Accounts for the previous financial years.
  • Power of Attorney in favour of a locally appointed agent to carry out functions on behalf of the parent company.
  • A ‘Service Agreement’ for this purpose may also be entered with any UAE national.
  • Approval for the location of the office must also be obtained.
  • Bank Guarantee of AED 50,000 drawn in favour of the Minister of Economy and Planning, renewable annually.

An application for a license to carry out business activities in the chosen area shall be filed with the Ministry of Economy and Commerce with the required documents such as the executed and signed Service Agreement. The Ministry classifies the application depending upon the business activity that the subsidiary proposes to undertake. This application is then forwarded to the concerned department and the local government’s approval is sought.

It is also then sent for approval to the Federal Foreign Companies Committee after which, the license is issued by the Ministry of Economy and Commerce after entering it in the register of Economic Department. It also specifies the kind of activities that may be undertaken by the subsidiary company in the chosen area of functioning.

Last but not the least, this office is registered with the Dubai Chamber of Commerce and Industry.

Applying for a license


Once the area of business activity is chosen, the next step is to file an application with the relevant authority according to your chosen area of practice. For example, for the purpose of starting a road transport activities business- the permission of the Road and Transport Authority must be taken. Similarly, for Oil related and legal services to be rendered- by His Highness the Ruler’s Court’s authority must be taken, for telecommunications- the Telecommunications Regulatory Authority must be obtained etc.

Hence, the process of the registering and starting a business in the form of a subsidiary company in Dubai. In case of a need for any assistance, our associates and affiliates from Wazzeer will be happy to guide you through the process.

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Business Formation, One Person Company

When Ministry of Corporate Affairs introduced 5 entity types as options to incorporate one’s business under ‘for profit organization’, they sure knew the players very well. One such player is the single entrepreneurs; these guys are the ones who just don’t find the right match for a co-founder post.  You think they did not try enough? I have personally seen some of these guys having sleepless nights, by hunting where not places, for the right match, it wouldn’t hurt if I would say it was tougher job than finding a date. There are still over 17% of entity types that are registering themselves as One Person Company. In this blog let’s unleash the answer to Is OPC still in fashion?


One Person Company, commonly known as OPC, is a kind company which has only one person as member. It is a type of Private Company, this concept of company came into force under companies act, 2013. It is mixture of sole proprietor and private company. It enjoys the complete ownership like sole proprietor and has limited liability like a company. It has been provided with concessional/relaxed requirements under the Act. It is one of the emerging concept for those people who have a great idea but do not want to share it with anyone. It can be incorporated for any kind of business like a private company but having one director. After the death of sole proprietor the business profit and loss transfer to his legal hire while in case of OPC, the nominee will get the business irrespective of legal hire of the person.

Incorporation of OPC:

Now, there is a Single Application for Incorporation of Company, Form INC-32 (SPICe), which shall be filed with the Registrar of Company, along with consent of nominee obtained in Form INC – 3 and fee as provided in the Companies (Registration offices and fees) Rules, 2014, at the time of incorporation of the company along with its memorandum and articles of association. Form DIR-12 shall be filed after INC-32.

The company shall file form INC-22 within 30 days if in case the address of correspondence and registered office address are not same.

Features of OPC:

  1. Only One Shareholder: 

    Only a natural person, who is an Indian citizen or resident in India shall be eligible to incorporate a One Person Company. Explanation: The term “Resident in India” means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one calendar year.

  2. Nominee for the Shareholder:  
    The Shareholder can nominate another person who shall become the shareholders in case of death/incapacity of the original shareholder.  Such nominee can give his/her consent and such consent for being appointed as the Nominee for the sole Shareholder. Only a natural person, who is an Indian citizen and resident in India, can be a nominee for the sole member of a One Person Company.
  3. Director:
    Must have a minimum of One Director, the Sole Shareholder can himself be the Sole Director. The Company may have a maximum number of 15 directors.

Restrictions on OPC:

  1. A person shall not be eligible to incorporate more than a One Person Company or become nominee in more than one such company.
  2. Minor cannot become member or nominee of the One Person Company or can hold share with beneficial interest.
  3. An OPC cannot be incorporated or converted into a ‘not profit company’ of the Act.
  4. An OPC cannot carry out Non-Banking Financial Investment activities including investment in securities of any corporate. 
  5. An OPC cannot convert voluntarily into any kind of company unless two years have expired from the date of incorporation of One Person Company, except threshold limit (paid up share capital) is increased beyond Rs.50 Lakhs or its average annual turnover during the relevant period exceeds Rs.2 Crores i.e., if the Paid-up capital of the Company crosses Rs.50 Lakhs or the average annual turnover during the relevant period exceeds Rs.2 Crores, then the OPC has to invariably file forms with the ROC for conversion in to a Private or Public Company, with in a period of Six Months on breaching the above threshold limits.
  6. Requirement to appoint a nominee for incorporating a One Person Company.

Relaxation to OPC:

  1. No need to prepare a cash-flow statement,
  2. The annual return can be signed by the Director and not necessarily a Company Secretary,
  3. There is no necessity for an Annual General Meeting (AGM) to be held,  
  4. Specific provisions related to general meetings and extraordinary general meetings would not apply,
  5. Compliance can be said to have been done if the resolutions are entered in the minute’s book of the company,
  6. It would be sufficient if one director signs the audited financial statements,
  7. OPC gets six months from the close of the financial year to file its financial statements,
  8. One meeting of the Board of Directors has to be conducted in each half of a calendar year and the gap between the two meetings should not be less than ninety days.
  9. Where the OPC is limited by shares or by guarantee enters into a contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract.

Benefits of OPC:

  1. Limited Liability Protection to Directors and Shareholder

All unfortunate events in business are not always under an entrepreneur’s control and hence it is important to secure the personal assets of the owner, if the business lands up in crises.

While doing business as a proprietorship firm, the personal assets of the proprietor can be at risk in the event of failure, but this is not the case for a One Person Private Limited Company, as the shareholder liability is limited to his shareholding. This means any loss or debts which is purely of business nature will not impact, personal savings or wealth of an entrepreneur.

  1. Legal Status and Social Recognition for Your Business

One Person Company is of Private Limited Structure, this is the most popular business structure in the world. Large organizations prefer to deal with private limited companies instead of proprietorship firms.

Pvt. Ltd. business structure enjoys corporate status in society which helps the entrepreneur to attract quality workforce and helps to retain them by giving corporate designations, like directorship. These designations cannot be used by proprietorship firms.

  1. Complete Control of the Company with the Single Owner

This leads to fast decision making and execution. Yet he/she can appoint as many as 15 directors in the OPC for administrative functions, without giving any share to them.

  1. Helps for Testing of business model and enables Funding

The OPC business helps Startup Entrepreneurs to easily test the business model, a prototype and upon building a marketable product approach Angel investors, Venture capitalists for funding and easily convert into multi shareholder Private Limited company.

  1. Easy to Get Loan from Banks

Banking and financial institutions prefer to lend money to the company rather than proprietary firms. In most of the situations Banks insist the entrepreneurs to convert their firm into a Private Limited company before sanctioning funds. So it is better to register your startup as a One Person private limited rather than proprietary firm.

  1. Tax Flexibility and Savings

In an OPC, it is possible for a company to make a valid contract with its shareholder or directors. This means as a director you can receive remuneration, as a lessor you can receive rent, as a creditor you can lend money to your own company and earn interest. Directors’ remuneration, rent and interest are deductible expenses which reduces the profitability of the Company and ultimately brings down taxable income of your business.

  1. Adequate safeguards:

In case of death/disability of the sole person should be provided through appointment of another individual as nominee director. On the demise of the original director, the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member.

  1. Easy To Manage:
  • No requirement to hold annual or Extra Ordinary General Meetings: Only the resolution shall be communicated by the member of the company and entered in the minutes book and signed and dated by the member and such date shall be deemed to be the date of meeting.
  • Board Meeting: A One Person Company may conduct at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than ninety days.
  • Quorum: The provisions of Section 174 (Quorum for meetings of Board) will not apply to One Person Company in which there is only one director on its Board of Directors.
  • Minutes: Where the company is having only one director, all the businesses to be at the transacted meeting of the Board shall be entered into minutes book maintained under section 118. No need to hold Board Meeting in this case.
  1. Filling with ROC:
  • Very few ROC filing is to be filed with the Registrar of Companies (ROC).
  • Mandatory rotation of auditor after expiry of maximum term is not applicable.
  • The provisions of Section 98 and Sections 100 to 111 (both inclusive), relating to holding of general meetings, shall not apply to a One Person Company. 
  1. Perpetual Succession:

An OPC being an incorporated entity will also have the feature of perpetual succession and will make it easier for entrepreneurs to raise capital for business. The OPC is an artificial entity distinct from its owner. Creditors should therefore be warned that their claims against the business cannot be pressed against the owner.

  1. Middlemen eliminated: 

One Person Companies enable small entrepreneurs to set up a company by allowing the shareholders to directly access the target market and avail credit facilities, bank loan rather than being forced to share their profits with middlemen. Thus, such companies will provide an opportunity to various small entrepreneurs like weavers, artisans etc. to start their own ventures with a formal business structure.

Disadvantages of OPC:

  1. Members:
  • One person Company can have Minimum or Maximum no. of 1 Member.
  • A minor shall not be eligible to become a member or nominee of the One Person Company or can hold share with beneficial interest.
  • Only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a One Person Company and shall be a nominee for the sole member of a One Person Company.
  1. Suitable only for small business:

OPC is suitable only for small business. OPC can have maximum Paid up share capital of Rs.50Lakhs or Turnover of Rs.2 Crores. Otherwise OPC need to be converted into Private Ltd Company.

  1. Business Activities:
  • One Person Company cannot carry out Non – Banking Financial Investment activities including investment in securities of anybody corporates.
  • One Person Company cannot be incorporated or converted into a company under Section 8 of the Act.
  1. Tax Liability:

The concept of One Person Company is not a recognized concept under IT Act and hence such companies will be put in the same tax slab as other private companies for taxation purposes. As per the Income Tax Act, 1961, private companies have been placed under the tax bracket of 30% on total income. On the other hand, sole proprietors are taxed at the rates applicable to individuals, which mean that different tax rates are applicable for different income slabs. Thus, from taxation point of view this concept seems to be a less lucrative concept as it imposes heavy financial burden as compared to a sole proprietorship.

The basic income tax rate for a one person company is 30% which may result in a higher tax as compared to the income tax slab rates of an individual (i.e. 10% to 30%).

(Proprietorships have a clear advantage here in that a proprietor is subject to individual income tax slab rates from 10% to 30% and get benefits of basic exemptions. Hence, if you select a one person company over a proprietorship you will have to give up these advantages.)

  1. Perpetual Succession:

This is Very concept of a separate legal entity being created for a perpetual succession that is continuation of the company even after the death or retirement of a member is also challenged. Because the nominee whose name has been mentioned in the memorandum of association will become the member of the company in the event of death of the existing member. However it is doubtful that it would do any good for the company because the person is not being a member of the company and also not involved in the day to day operation of the company, would not be able to succeed the business after the death of the member.

  1. Higher incorporation costs:

As compared to proprietorships: One person companies need to be registered with the registrar of companies under the Companies Act, 2013. This would entail upfront expenditure on government charges and professional fees which you will have to pay your CA or CS. Proprietorships don’t need to register with the government and hence don’t incur these incorporation charges.

Though the Act extends slew of exemptions to a One Person company in terms of conducting AGM, EGM, Quorum of meetings, restriction on voting rights or filing its financial statements, yet the incorporation of such a company requires lots of paper work as compared to a sole proprietorship. These procedural complexities with respect to incorporation of One Person Company might make this concept less attractive for sole entrepreneurs

  1. Higher compliance costs:

Compared to proprietorships, a one person company would have recurring compliance costs yearly, as it will need to get its accounts audited and will need to file returns every year with the registrar of companies like any other company.

  1. Separation of Owner and Control:

This is one of the characteristics of the company, which is seriously challenged by the new Companies Act, 2013, where the line between the ownership and control is blurred.


Conclusion:

The concept of One Person Company is advantageous both for the regulators and the market players. From regulators perspective, One Person Companies by organizing the unorganized sector of proprietorship will make the regulation of these entities convenient and effective.

Wait! we can get your venture registered as a OPC in 7 working days, project powered by technology and delivered by a qualified CA, let’s connect any time soon to figure out the best for your business, happy to help, with Best regards, Wazzeer.

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property

The Real Estate Act makes it mandatory for all commercial and residential real estate projects where the land is over 500 square meters, or eight apartments, to register with the Real Estate Regulatory Authority (RERA) for launching a project, in order to provide greater transparency in project-marketing and execution. For ongoing projects which have not received completion certificate on the date of commencement of the Act, will have to seek registration within 3 months. Application for registration must be either approved or rejected within a period of 30 days from the date of application by the RERA. On successful registration, the promoter of the project will be provided with a registration number, a login id, and password for the applicants to fill up essential details on the website of the RERA. For failure to register, a penalty of up to 10 percent of the project cost or three years’ imprisonment may be imposed. Real estate agents who facilitate selling or purchase of properties must take prior registration from RERA. Such agents will be issued a single registration number for each State or Union Territory, which must be quoted by the agent in every sale facilitated by him. In this blog you will be unleashing the necessity and How to register as an Real Estate Developer under RERA Act

 

Impact on the Real Estate Developer:

 

  1. Major impact of RERA is on on-going projects. The builders who have not received completion certificate they have to register with RERA and have to give their status of the project at the time of the registration as well as they have to update the department from time to time about the project.. Projects at various stages got impacted because of new rules and regulations and in return there will be delay in project deliveries.
  2. The major delays and cost escalations are created not by developers but by various governmental authorities which sanction requisite projects and monitor during the course of development. Everybody is aware of the long drawn battle to firstly avail sanctions which now-a-days takes over 12-18 months and during the course of project, there are several challenges which affect projects.
  3. Cost for developers will increase as sales can only happen post registration which is possible only post approvals. So gone are the days of pre-launches where first set of buyers benefitted with a reasonable price during early stages of projects. With higher holding costs, these increases would eventually be transferred to consumers and hence prices are bound to increase.
  4. Refund in 60 days is unjustified as developers are not banks with liquidity. All the money is pumped into construction and incase of cancelations, there should be a re-allotment clause and not strict 60 day guideline for refund as it will be impossible for developers to do so in such circumstances. Infact, with RERA, there will be strict monitoring of monies via escrow account and this refund timeline is not relevant. If several buyers seek to cancel at one go, it may jeopardize the entire project.
  5. With RERA, there will be a consolidation in the market and hence only fewer players may exist. This is not good for market as prices for consumers are bound to increase with decrease in competition. Competition already keeps prices in check and small developers who were able to offer that additional buck might cease to exist and buyers will have limited choices to choose out of.

 

Some of the important compliance are:

  1. Informing allottees about any minor addition or alteration.
  2. Consent of 2/3rd allottees about any other addition or alteration.
  3. No launch or advertisement before registration with RERA
  4. Consent of 2/3rd allottees for transferring majority rights to 3rd party.
  5. Sharing information project plan, layout, government approvals, land title status, sub-contractors.
  6. Increased assertion on the timely completion of projects and delivery to the consumer.
  7. An increase in the quality of construction due to a defect liability period of five years.
  8. Formation of RWA within specified time or 3 months after majority of units have been sold.

 

Documents Required:

The registration process in some states is through online mode and in some state its offline, the documents required may differ from state to state. Following is the list of documents required:-

 

To register as a developer with RERA

 

  1. Brief details of his enterprise including its name, registered address, type of enterprise, proprietorship, societies, co-operative society, partnership, companies etc;
  2. Particulars of registration including the bye-laws, memorandum of association, articles of association etc. as the case may be;
  3. Name, address, contact details and photograph of the real estate agent if it is an individual and the photograph of the partners, directors etc. in case of other entities;
  4. Self-attested copy of the PAN card;
  5. Self-attested copy of the address proof of the place of business.

 

Registration Process for Real Estate developer

 

  1. File an application form along with fee and documents to get registered with RERA.
  2. You will receive a registration number from the regulator. This need to be mentioned in every property sale.
  3. On a quarterly basis, you are required to maintain the books of account, records and documents related to the transactions.
  4. Share all the information and documents about the project with the buyer.
  5. Agent may be suspended for the misrepresentation or fraud during the registration process.

 

How can a builder be RERA compliant?

 

  • Project registration.
  • Withdrawal – POC method.
  • Website updation/ Disclosures.
  • Carpet area.
  • Alteration in project – approval of 2/3 allottees.
  • Project accounts – Audit.
  • 70% of the funds collected from allottees needs to be deposited in the project account. Withdrawals to cover construction and land cost.
  • Withdrawals to be in proportion to the percentage completion method.
  • Withdrawal to be certified by an engineer, architect, and CA.
  • Provision for RERA to freeze project bank accounts upon non-compliance.
  • Interest on delay will be same for customer and promoter.

 

What information does a builder need to provide under RERA

 

  • Number, type and carpet area of apartments.
  • Consent from affected allottees for any major addition or alteration.
  • Quarterly updating of RERA website with details such as unsold inventory and pending approvals.
  • Project completion time frame.
  • No false statements or commitments in advertisement.
  • No arbitrary cancellation of units by promoter.

 

We at Wazzeer believe that Real Estate Developers registering with RERA will enhance customer success, we will be glad to help you register under RERA Act seamlessly. Let’s connect to build a better relationship.

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Post Incorporation

The global market is growing at an incredible pace with the countries recognizing the importance of globalization and open economies that facilitate easy trade between countries. At this point in time where the export and import between traders across borders is at its peak, it is essential to understand the array of options available with the buyer and seller as regards the payment for the goods so imported or exported. This blog talks about the available Payment Systems in international trade- options for Importers and Exporters.

Some of the most widely options have been discussed briefly below:  

  • Cash in Advance: this is the most common and traditionally used method. Usually, wire transfers, immediate bank transfers etc. While it ensures that the seller is absolutely secure, the factor of security as regards the quantity, quality and time of delivery of goods is not in favor of the buyer and also cause a liquidity problem as regards the cash flow. Accordingly, negotiating these terms with the buyer is usually tricky if the whole payment is demanded prior to the execution of the contract. A token payment is therefore resorted to as an advance payment while the balance is paid after the goods have been delivered.

  • Letters of Credit: This option is relatively better in terms of security of payment to the traders as a third party guarantee is involved. The buyer, in this case approached a bank to provide the seller a guarantee of payment in case the buyer fails to do so. The bank after analysing the credit worthiness of the client, presentation of the required documents to the satisfaction of the bank grants him a letter of credit that is forwarded by the buyer to the seller. This option not only protects the seller as regards the payment for his goods but also provides him/her with an assurance about the party that he/she is transacting with. On the other hand, it is also a viable option for the buyer as he agrees the effect the payment for the goods only after the goods have been received as per the terms of the Contract between them.

  • Open Account: This is another system whereby the seller allows the buyer to avail the credit facility and make the payment for the sale of the goods at a later date after they have been delivered to the buyer. Usually, this period runs in multiples of 30 days such as 30, 60 or even 90 days’ worth of credit as may be negotiated by the parties to the contract. Like Letters of Credit, Open Account also provides the benefit of liquid of cash to the buyer; although, it is riskier for the seller of the goods. However, the risk may be mitigated by employing appropriate techniques such as insurance, financing the transaction with the help of an export credit agency etc.

  • Documentary Collections: This method has recently become very popular amongst the trading class and is gradually overtaking the other forms of payments in international trading. One of the most striking features that is facilitating the use of this method is the uniform method by the International Chamber of Commerce (“ICC”) with is being followed in most of the countries. These principles have been codified under the Uniform Rules for Collections, 1995 Revision, ICC Publication No. 522 and apply to all collections as defined in Article 2. Article 2 defines Collections as the handling by banks of documents, in accordance with instructions received, in order to – obtain payment and/or acceptance, deliver documents against payment and/or against acceptance, or deliver documents on other terms and conditions.

There are two main instruments that may be drawn in accordance with these rules depending upon the facts and circumstances of each and every case. Before we delve into the kinds of instruments available as options to the traders, it is critical that we understand the role of each of the parties that are involved in the transaction and thereby, also understand the process that is followed in securing the payment.



The exporter sells the goods who draws the instrument and approaches the bank (“Remitting Bank”) for the purpose of sending it to the importer’s bank as per the instructions of the exporter along with the documents required to take possession of the goods. The bank of the importer (“Collecting Bank”) receives this instrument on behalf of the importer. The importer then approaches the Collecting bank to honour the terms of the instrument and accordingly collect the documents so as to take possession of the goods so delivered. The payment or the bill of exchange as the case may be is then transmitted to the Remitting Bank that then transfers the same to the Exporter.

Finally, coming to the kinds of instruments that are available as options are:

  1. Documents against Payment (“DP”): The DP terms of payment provide that the documents for obtaining the goods that have been delivered are handed over to the Importer only upon the entire payment having been made by him. For this reason, this draft is also often referred to as a ‘Sight Draft’ as the documents are made available after the actual payment is received on sight of the importer. It is, therefore, one of the most secure options available with the seller.
  2. Documents against Acceptance (“DA”): The DA terms of payment, on the other hand, allow the buyer of the goods to procure the credit facility for the goods. Under these terms, the documents for securing the goods so transported to the importer’s country by the seller are handed over to him against his assurance that the payment will be made in the decided number of days. Usually, this period also runs in multiples of 30, according to the terms of the agreement such as 30, 60, 90 or even 180 days. Accordingly, a DA is also more commonly known as a ‘time draft’.

While the options are many, an informed decision by the parties to the trade contract should be made. They both should take into consideration various factors such as the security of payment, credit worthiness of the buyer, laws of the countries where the parties are located, whether the payment is being made in lump sum or is it deferred etc.


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GST

The main reason to implement GST was to abolish the cascading effect on tax, with GST there is only  simplified and cost saving system as procedural cost reduces due to uniform accounting for all types of taxes. Only three type of account; CGST, SGST & IGST have to be maintained. GST implications are observed on almost all sectors, through this blog we would be looking into the Impact of GST on Trading Sector. 

  1. For Wholesalers:

The wholesale market is fundamental to extending the reach of goods and services to the interiors of the country, especially the rural markets. Most wholesalers operate in cash transactions because of which there is a good chance that some transactions are not accounted for, which was previously a concern but ceases to be one under GST.

Given below are the main advantages that GST brings to wholesalers.

  • Transparent tax management: The introduction of technology into the taxation system can be a blessing in disguise, an opportunity to bring about transparency in tax management. Rather than relying on cash transactions, wholesalers will now get an opportunity to go digital. They will also be able to avail the facility of input tax credit. Input tax credit is where the businessman will be able to claim tax on all input goods and/or services.
  • Financial streamlining: Because the entire supply value chain including tax flows will be on GST records, wholesalers will be better connected to retailers and suppliers. This will make it easier to process payments and get tax returns in a timely manner, thereby improving the cash flows of traders. A reliable positive cash flow will help build confidence in the new regime, by making working capital available and aiding opportunities to grow the business.
  • Reorganization of supply chain: GST will enable high visibility and streamlining of the supply chain, providing wholesalers with a transparent view of supply movements. This will aid business efficiency in the long run.
  • Ease of borrowing through digital lending: Because financial and tax transactions will now be recorded in the GST system, even small traders will have digital records of their company finances and credit status. These digital records will act as a ready reckoner of information when a trader opts for a loan. Financial institutions and online lenders like Capital Float can now easily assess the loan eligibility of small traders such as Kirana owners by accessing this data, and provide them quick and easy loans. Borrowing funds online and doing business will now be easier.
  1. For Retailers:

Almost 92% of the retail sector in India is unorganized, operating in cash payments. They are, essentially, the tangible representation of FMCG multinationals to end-consumers; yet they are challenged by chronic issues such as the lack of technology enablement and low operating margins. A majority of the retail market consists of “kirana stores”, which are often the smallest link of the trade chain.

Here are the benefits of the new taxation system for retailers.

  • Input tax credit facility: As mentioned for wholesalers, retailers too would be able to claim taxes paid for input products and services availed. This will present a cost advantage to retailers.
  • Ease of entry into the market: The market is expected to become more business-friendly due to the clarity of processes related to procurement of raw materials and better supply logistics. This is a good opportunity for new suppliers, distributors and vendors to enter the market. The registration process has also become very clear under the GST, aiding entry into the market.
  • Retailer empowerment through information availability: Small retailers often do not have complete visibility into their stock receipts, payments, etc. and are forced to blindly rely on the word of the supplier. GST will streamline these supply and cost challenges and empower the retailer with readily available information through digital systems.
  • Better borrowing opportunity: The retailer scope for business growth can be increased by increasing the retailers’ access to finance.

However, like any new reform, there are certain challenges that need to be addressed. We see that both retailers and wholesalers must manage the following eventualities of GST implementation.

–  Higher costs of input services: Input services such as manpower, legal, professional services, auditor services, travel expenses, etc. will now be taxed at 18% as against the earlier bracket of 15%, leading to higher costs to the wholesaler.

– Additional costs to upgrade technology: Many wholesalers, especially rural ones, are not technology-savvy and will need to rely on help from their supplier companies to undergo a technological transformation. This means that supplier companies may need to increase commissions for wholesalers, an added cost to the company, or wholesalers and retailers themselves will need to invest in new systems, incurring additional expenses.

  1. For Importers and Exporters
  • Imports Taxation: Every import will be treated as an interstate supply, and will be subject to Integrated Goods and Services Tax (IGST) along with Basic Customs Duty (ranging between 5% and 40% depending on the good imported). This implies that IGST will be levied on any imported item, based on the value of the imported goods and any customs duty chargeable on the goods (say 10%). IGST is a combination of SGST (say 9%) and CGST (say 9%).

             Thus, imports taxation is an added tax liability for retailers who import goods or services.

  • Exports Taxation: Exports will be treated as zero-rated supply, i.e., no GST will be charged on exports. This is in line with the “Make in India” campaign that aims to make India a global manufacturing hub, for which exports are important.
  • Import of Services: The new clause of import of services places the onus of tax payments on the service receiver when the services are provided by a person residing outside India. This mechanism is called reverse charge and will apply in certain scenarios. For example, if the assesse has no physical presence in the taxable area, then the representative of the assesse will be required to pay tax. In the absence of representation, the assesse has to appoint a representative who will be liable to pay GST. Another example is when a registered dealer is buying goods or services from an unregistered dealer. In this case, the registered dealer will have to pay the tax on supply.
  • Need for restructuring working capital: A major shift is that GST is based on “transaction value” rather than MRP. In the old system, CVD was charged as a percentage of the MRP. Under GST, IGST will be charged as a percentage of the transaction value. This will affect the cash reserves of retailers and wholesalers, and they will need to reassess their working capital needs.

On the whole, GST is expected to bring domestic players at par with large multinational corporations due to the renewed import and export norms and the rules for FMCG suppliers. This is a good sign for Indian trade and exports in general, and thus the implementation of GST shows promise to propel India onto the international trade arena.

  1. Impact on Traders

Positive Impact on Traders

  1. No dispute good Versus Service:

In present regime of tax structure, the big issue is whether the transaction amount to sale of good or service. Though this dispute still may arise from view of time/place of supply from good or time/place of supply of services as both are separately given. However, net impact is neutral, on either of them needs to pay GST.

  1. Composition levy Increased

In current regime of taxation the limit under Composition Scheme is 40 lakhs whereas under GST it is increased up to 50 Lakhs. It is beneficial as 10 lakhs in turnover is a big thing from trader point of view.

  1. Credit of Excise Duty and Service tax:

In current regime of taxation then a trader is not eligible to take credit of input service as well as the Excise duty. However, in GST regime he will be eligible to take all credits and it will make positive impact on trader.

  1. No Margin to Disclose

Currently a trader who wants to pass on the CENVAT Credit of excise duty needs to obtain dealer registration and have to disclose the margin. But now this is no more relevant as trader is eligible to take credit as well as no requirement of separate dealer registration.

  1. No Reversal of Credit on goods sent for stock transfer

Currently as stock transfer is not liable to Vat as well as CST hence, credit pertains to goods sent to stock transfer needs to be reversed. However, in GST Regime stock transfer got made taxable, hence No reversal of credit is required.

  1. Credit of CST

In current regime of tax, on inter- state purchases CST paid became the cost to the trader as the Credit was not available whereas under GST regime it will be available as IGST Credit.

Negative Impact on Traders

  1. Stock transfer made taxable

In current regime of tax, stock transfer are not taxable on being made available “Form F” where as in current regime stock transfer made taxable. Due to this Warehouse decision to be taken more appropriately.

  1. No Form “C”

In current regime of tax, on being made available the Form C, CST rates charged at the rate of 2% instead of 14.5% which is local tax rate, however in GST regime interstate will be taxed at standard rate i.e IGST.

  1. Goods sent to job work are taxable

In current regime of tax, the goods sent for job work are not liable to CST on being made available of Form “H” whereas in Current GST regime it became taxable.

  1. Increased burden of Compliances

Instead of 4/12 Returns (state wise vary), now a trader needs to file 37 returns in year and much more compliances.

5. Impact on Manufacturers

Positive Impact on Manufacturers

  1. One Tax

In present structure of tax, there is various kind of taxes such as excise duty, Service tax, VAT, Entry tax, Central Sales Tax etc. But in GST regime there is only one tax i.e GST however, there will be three parts such CGST, SGST, IGST. This is measure relief for the manufacturer.

  1. Rate of tax

In current tax regime the consumer pays approximately 25-26% more than the cost of production due to excise duty (at 12.5%) and value added tax (almost 14.5%).In GST, goods may become cheaper marginally which a good sign for manufacture to compete with international market. The Impact of rate of tax depends on industry wise, but mostly it is beneficial.

  1. No Concept of Manufacture

In Non-GST regime the biggest litigation and issues are whether the transaction amount to manufacture or not. The interpretation related to term “Manufacture” will no more be relevant. It may result in ease of doing business without having litigation about the process.

  1. Reduction In Cost

In GST regime there will be reduction in cost of production as credit will be eligible of tax on purchases made from interstate purchases and no cascading effect. Hence, a manufacturer need not take the decision regarding purchase from point of view of tax implication as credit is eligible on all purchases.    

  1. Minimization of Classification issues

In current regime of tax there are numerous issues on classification of goods due to separate rates on different goods and exemptions on certain goods. But in regime of GST there shall be minimization of classification issues due to uniform rate and less expected exemptions.

  1. Speedy Movement of Goods

In GST Regime of tax structure there will be minimization of trade barriers, such as filing of way bills/entry permits. Compliance under entry tax will be abolished. There is much compliance in current regime on interstate movements or locally such as way bills, statutory forms etc which lead to slow movements of goods whereas this concept is going to be abolished though check points will still be eligible.

  1. CENVAT Credit

In regime of present tax, the manufacturer is unable to utilize the credit of Central Sales tax and VAT provided output is charged under Composition Scheme, which becomes the cost for him. But in Regime of GST, a manufacturer will be eligible to take Credit of SGST (VAT) as well as IGST (CST) on the purchases. There will be seamless flow of Credit in GST.  

  1. Valuation of Samples

In current law goods removed on sample basis, tax needs to pay by adopting the nearest aggregate value. However, in GST regime, time up to six months is granted to decide whether the good sold on sample basis has been approved or not which beneficial thing for manufacturer. However, after 6 months tax needs to be paid if the same is still in process of approval.

  1. State Wise Registration

Generally it has been observed that many manufacturers have two premises of factory within same locality or in same state and they are liable to take separate registration for each factory. But in GST Regime, registration has to be taken state wise and not factory wise. This will abolish the difficulties which have been faced due to separate registration.

  1. No assessment by multiple tax authorities

Generally, manufacturers are facing many difficulties in handling the assessments done by the Separate authorities for VAT, Service Tax, Central Excise, CST, etc. In GST regime it is expected that assessment will be done by State authorities for SGST, Central Authorities for CGST, and Interstate authorities for IGST.

  1. Electronic Mode for Forms

In current regime of tax there is very much manual filing of documents such as initial declaration, Numbering of Invoices etc. But in GST regime there will be less manual filing of documents and more through electronic mode. Further, the communication with department also could be through electronic mode.

Negative Impact on Manufacturers

  1. Time of Supply

In current regime of tax the time of duty on manufacture attracts at the time of removal where as in GST regime it will earliest of the four such as (Date of Issue of Invoice, Date of Payment, Date of Removal, Debit in the books of Receiver).

  1. Increase in Working Capital

In GST regime of tax, stock transfer has been made taxable, which requires the huge working capital because the realization of tax going to be on final supply tills that It may block the capital.

  1. No Credit of Petroleum Product

Petroleum Product has been kept out of GST hence; the tax paid on Petroleum Product is not eligible as credit and same became the cost. Each industry requires the Petroleum Product such as Fertilizer Industry, Power Sector, and Logistic Sector etc.

  1. Introduction of Reverse Charge on Goods

 In current regime of tax structure there was reverse charge on specified services but in case of GST even the reverse charge will be applicable on goods.

  1. Post supply Discount

If the discount has to be given post supply than it must be known to both the parties at the time of supply or pre-supply and the proof of being known is the clause of discount must be there either in contract or agreement or offer etc.

  1. Matching Concept of Returns

In current regime, if the tax has been made the purchaser to supplier then he is eligible to take the Credit it is immaterial whether the same has been credited to Central Government by the supplier or not. But in GST Regime, the matching concept if tax credit will be there, if credits pertaining to supplier does not match with purchaser than it will not be accepted in return unless it is rectified by both the parties.

  1. Denial of CENVAT Credit on purchases made from unorganized/unregistered Person

In GST regime if the goods have been purchased from the register person then only credit will be given otherwise the credit will not be allowed.

  1. No Compliance of “C” and “F” Forms

As stock transfer has been made taxable in GST Regime hence Concept of “F” Forms is no more relevant and IGST has been levied on all inter-state purchases or sale and credit will be allowed, hence No Concept of form “F” is relevant.

  1. Increase in Compliance-burden

There is going to be huge compliance burden in GST Regime such as 37 returns for one office in a year.

 

à Point of Caution

In the GST regime, compliance in general and Input Tax Credit in particular will be dependent on invoice level information – as invoice matching will be the key to avail the correct Input Tax Credit. One of the genuine concerns hitting the trader under GST, will be the scenario of non-payment of tax by his supplier. As per the GST law, a recipient will get his due ITC, only if his supplier has uploaded all the correct sales invoices, which is matched and acknowledged by the recipient; and, any missing purchase invoices uploaded by the recipient are also similarly matched and acknowledged by the supplier. In short, if a supplier chooses to default, this will lead to loss of Input Tax Credit for the trader. Ideally, this will lead to ‘compliant’ traders not dealing with ‘non-complaint’ ones – but at the cost of a one-time loss of tax credit. However, traders can potentially avoid such scenarios, by effective vendor management in advance – identifying vendors who will be compliant, and keeping a watch out for credit rating before doing business with any entity.

In the current regime, stock transfers are not taxable – provided Form F is furnished, VAT is not charged. However, input VAT credit is reversed at a certain percentage (4% in most states), and the rest is available as credit to the trader. In the GST regimestock transfer will become a taxable event. While the tax paid will be available fully as credit and also, there will be no need for credit reversals – this will have an impact on the working capital. This is because, for the tax paid on the date of the stock transfer, the ITC is available only when the stock is liquidated by the receiving branch. Thus, in case the logistics planning is poor, leading to overstocking at branches, working capital will be blocked for a long time – a direct challenge for SMEs who operate with thin working capital. With the seamless availability of credit on inter-state purchase and effective removal of state business boundaries going forward, there could be a potential reduction in the number of branches / warehouses – as they would exist solely for operational reasons rather than for compliance. This could lead to reduction in stock transfers, which will of course nullify the impact of stock transfer on the working capital of a trader.

Compliance activity for a trader will seemingly go up under GST – 4 VAT returns per year (quarterly) in some states to 12 VAT returns per year (monthly) in some, will be replaced effectively by 37 returns per year (3 monthly and 1 annual) in the GST regime. However, if we analyze the current compliance activity – it is usually submission of monthly returns via forms, followed by submission of annexures with details of sales / purchase transactions to calculate the correct Input Tax Credit. Thus, the activity per say remains the same, even when GST comes in. However, the depth at which the activity will be done will be more under GST, as all transactions will need to be matched and filed accurately for the right compliance to happen, and the right Input Tax Credit to be availed. The complexity only increases if one has operations across states, since each state will require a separate registration. Service providers are bound to bear the brunt of this change as they shift from a centralized service tax regime to a decentralized supply of services under GST. Traders, will thus need to invest in the right GST software and technology to ensure that the work gets done accurately, yet timely – which of course, will entail additional costs.

àPoint of Contention

For traders on e-commerce platforms, GST certainly brings cost reductions in the form of availability of input credit and the levy of a single tax on supplies across the nation. It is expected that it will be easier to do business in the GST regime with greater clarity on the treatment of e-commerce transactions and uniformity in the taxes levied. However, traders must also be prepared for the impact on their cash flows – due to tax collection at source (TCS) by e-commerce operators, non-compliance by their vendors and payment of taxes on a monthly basis. Most importantly, compliance activities will also increase for e-commerce traders in the GST regime due to mandatory registration; in short, they cannot opt for composition levy even if their aggregate turnover is less than INR 75 Lakhs. Awareness of the compliance requirements under GST, proper training of resources to handle these requirements and use of technology to make all this easier will ensure that e-commerce traders can capitalize on the new era of e-commerce in India.

Under VAT, on purchases made from unregistered dealers, the recipient (registered dealer) of goods has to pay a tax called Purchase Tax. Under GST, the same concept has been retained by the Government under the name of Reverse Charge – primarily to ensure, that the tax is collected on the sale of goods or supply of services from various unorganized sectors. Under this, the liability to pay tax rests with the recipient. This is applicable on specific supply of goods and services, specified by the Government. However, a person liable to pay taxes under reverse charge mechanism will require mandatory registration.

In the GST regime – while, there will be a minimization of trade barriers as the corresponding taxes would have been subsumed under GST, the implementation of the same will be easier said than done. Under GST, a registered person who intends to initiate a movement of goods of value exceeding INR 50,000 will need to generate an e-Way bill. While the intent is to unify the Indian market and assist smooth flow of goods, the entire process is cumbersome. It requires participation by the supplier, the transporter and even the recipient – who has to communicate his acceptance or rejection of the consignment covered by the e-way bill within a short span. Thus, there is a fair chance that whatever savings are generated by virtue of reduced inventory costs, may get evaporated while covering compliance and associated technology implementation costs. However, once the initial barriers have been crossed and with greater adoption of technology, the current logistical complications are expected to reduce over a period of time. As such, the government has decided to stall the implementation of e-way bill, till the systems are ready, as per the recent notifications.

Conclusion

The introduction of the Goods and Services Tax will be a very noteworthy step in the field of indirect tax reforms in India. By merging a large number of Central and State taxes into a single tax, GST is expected to significantly ease double taxation and make taxation overall easy for the industries. For the end customer, the most beneficial will be in terms of reduction in the overall tax burden on goods and services. Introduction of GST will also make Indian products competitive in the domestic and international markets. . However, technology will surely be a game-changer in this regard, as this will be the only way the compliance burden of GST can be effectively absorbed, translating into more business benefits for the Indian trader. Last but not least, the GST, because of its transparent character, will be easier to administer. Once implemented, the proposed taxation system holds great promise in terms of sustaining growth for the Indian economy.

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