National Savings Certificates (NSC) Tax Treatment

The reliable National Savings Certificate (NSC) looks like it may have lost popularity with countless competing investment options available such as equities, mutual funds, unit linked insurance and fixed maturity plans. However, there is no ignoring the instrument's respectable returns, which are not only assured, but also tax-exempt (under 80C) and government guaranteed.

Compared with the NSC, the Public Provident Fund (PPF) has traditionally been more popular on account of its 8% tax-free interest. However, the PPF has a maximum investment limit of Rs 70,000 per annum (this means the maximum amount one can invest in PPF every year is capped at Rs 70,000).

Investment limit

NSCs do not have a limit of how much one can invest. What's more, interest up to Rs 1 lakh is tax-free. You read that correctly. NSCs offer you the possibility of earning up to Rs 1 lakh fully tax-free.

This is because NSC is the only small saving scheme wherein not only the initial deposit, but also the interest for the first five years, out of its term of six years, is eligible for a deduction under section 80C.

Interest and returns

NSC offers 8% interest compounded half-yearly. Due the compounding, the effective rate per annum works out to 8.16%. It is a cumulative scheme with a term of six years, meaning, though the interest accrues every year, it is paid to the investor together with the initial capital invested at the end of six years. For example, Rs 10,000 invested in NSC today will grow to Rs 16,010 at the end of six years.

Tax treatment

Let’s talk about the tax treatment of the interest paid out . Unlike PPF, where the full amount of interest is tax-free, NSC interest is taxable. However, as it is a cumulative scheme (eg interest is not paid to the investor but instead accumulates in the account), each year's interest for the first 5 years is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year's interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.

Know more about Tax Saving Investments 

Illustration

Example: You invest Rs 1,00,000 in an NSC on April 1, 2010. Interest on this investment for each year is shown in the following table:

  

April 1, 2010 Initial investment 100,000
Mar 31, 2011 interest for Yr 1:   8,160
Mar 31, 2012 interest for Yr 2:   8,830
Mar 31, 2013 interest for Yr 3:   9,550
Mar 31, 2014 interest for Yr 4:   10,330
Mar 31, 2015 interest for Yr 5:   11,170
Mar 31, 2016 interest for Yr 6:   12,070
Total interest 60,110
Total value of investment:   1,60,110

  

What you must ensure while filing tax return

To benefit from this feature of reinvested interest and its deduction, it is important to declare the accrued interest on NSC on a yearly basis in your tax return. In the above example, for FY 10-11, you will include the interest amount of Rs 8,160 in your tax return under the head “Income from Other Sources”. Under deductions, you will claim Rs 8,160 under Sec 80C as reinvested NSC interest. Both cancel each other out, making the interest in effect tax-free.

  

Important detail:

From the above discussion, it is shown that both NSC and PPF interest is tax-free. However, the difference is that PPF interest is tax-free per se, whereas the NSC interest becomes tax-free on account of the deemed reinvestment under Sec 80C. Remember that Section 80C has a limit of Rs 1 lakh. Your NSC interest would only qualify for the deduction provided you have funds left in Sec 80C. Provident fund contributions, insurance premiums, housing loan principal repayments, tuition fees, PPF, tax saving mutual funds and bank deposits --- not to mention any fresh investment in NSC --- are also covered under the same Rs 1 lakh limit. So, if you want to invest and take advantage of the tax-saving feature of NSC interest, remember to make the adjustment so far as the other tax-saving investments are concerned.

    

Where and how to buy?

National Savings Certificates (NSC) are certificates issued by Department of post, Government of India and are available at most post offices in the country in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. NSCs can also be transferred from one person to another by paying a small fee. They can also be transferred from one post office to another.

Press Statement of the FinanceSecretary on VCES

There has been an overwhelming response to the VCES . In the last four days, we have received over 16,000 applications involving Rs. 1500 crores ofservice tax dues. Upto 29-12-2013 we have received over 40,000 declarations involving over Rs 5500 crores. This would broadly correspond to Rs 55,000 crores of services, which have escaped the tax net. I would like to remind all service providers, both registered and unregistered, that this scheme is open till 31-12-2013 only. There will be no extension of the scheme since the last date is laid down in theFinance Act. We are making every effort to help all declarants. Our offices have been open on Saturdays and this last weekend, even on Sunday. Seeing the response, we have decided that today , the 30th of December 2013, the offices will be open well beyond normal working hours , in order to attend to all those who come in to file their declarations . Tomorrow, the 31st December 2013, the offices will be open till midnight to facilitate acceptance of declarations.

Another special measure is that the Government has also extended banking hours in the designated branches , upto 6 pm on 31-12-2013. In addition, all Commissionerates have been advised to accept demand drafts/ pay orders submitted by declarants, under the Receipt Payment Rules.

It is hoped that with all these measures, the service providers would respond and avail the benefits of VCES. The declarants are once again reminded that they have to pay 50% of the declared tax dues by 31-12-2013, failing which they would be ineligible for the scheme.

I would like to advise that from 1st January, 2014, stern action will be taken against service taxevaders and the provisions in the Finance Act relating to arrest and prosecution will be enforced in right earnest.

Govt may delay exporters' duty refunds to maximise revenue, control fiscal deficit

 With the finance ministry being relentless about keeping tax revenues on course so that the fiscal deficit is contained at budgeted levels, exporters could be the next to feel the pinch after oil marketing and fertiliser companies. 

Exporters are unlikely to get any more duty refunds for the rest of the year as field 
officials look to maximise revenues in the remaining three months of FY14. 
 P Chidambaram will meet chief commissioners handling both direct and indirect taxes onJanuary 6 to take stock of mopup. 

"There is no written directive but the message is loud and clear that there should be no letup in meeting tax targets," said an official who deals with indirect tax collections in the field. Going slow on refunds will help inflate collections as money that's due to exporters is pushed to the next fiscal. Exporters claim refunds on duties they have paid to import material used in the manufacture of goods that are then sold overseas. 

As part of a clampdown, the Centre is also not likely to pay any fertiliser and oil subsidy remaining for this year, amounting to nearly Rs 85,000 crore, which would also then get pushed to next fiscal. 

Chidambaram's message to chief commissioners when he meets them is expected to 
focus on energising collections in the last few months. With global rating agencies 
keeping a close watch on India, any slip-up will cost the country dear, not something the government may want to explain in the months leading up the general election. Any hitch in duty refunds would, however, be bad news for Indian exporters. 

"Delay in refunds affects liquidity of exporters," said Ajay Sahai, director-general of the Federation of Indian Export Organisations ( FIEO), a lobby group. "With interest rates being high, this is going to hurt exports." 

Revenue collections have remained sluggish, in line with an economic growth rate that's been below 5% thus far. Gross direct tax collections rose 13.18% toRs 3.68 lakh crore in the April-November period while indirect tax collections were up 4.9% atRs 3,07,568 crore during the first eight months of 2013-14 compared with Rs 2,93,145 crore in the year earlier. Indirect tax estimates may have to be revised downwards by at least Rs 30,000-35,000 crore from the budget estimate of Rs 5.65 lakh crore. .. 

Excise collections dropped 5.1% to about Rs 1,03,629 crore fromRs 1,09,180 crore while customs revenue rose 7% to Rs 1,11,844 crore. Only service tax managed double-digit growth, of 16%, toRs 92,095 crore during the period. The direct tax target of Rs 6.68 lakh crore also looks an uphill task. Although collections have picked up momentum, the growth rate is far from the required 19%. The story on non-tax revenues, especially disinvestment, also doesn't look encouraging. The government has raised only Rs 3,000 crore of theRs 40,000-crore disinvestment target and Rs 15,000 crore from residual stake sales in the current financial year. 

Chidambaram, who unveiled a new fiscal consolidation road map in October 2012, is 
determined not to allow any slippage in the fiscal deficit target of 4.8% of GDP for 2013-14.  On the one hand, a spending squeeze is expected to provide some cushion on the expenditure front when he presents the revised estimates for 2013-14, while on the other, the focus clearly is to ensure that any shortfall in revenues is minimal. For exporters, this won't be the first time there have been difficulties with duty drawback refunds.

(Economic Times)

Finance Minister warns of stern action against service tax evaders from Jan 1

The Finance Ministry has warned stern action against service tax evaders from January 1 since the service tax Voluntary Compliance and Encouragement Scheme (VCES) is coming to end on December 31. “I would like to advise that from January 1, 2014, stern action will be taken against service tax evaders and the provisions in the Finance Act relating to arrest and prosecution will be enforced in right earnest,” Finance Secretary Sumit Bose told reporters here.

Service tax assessees There are 17 lakh registered service tax assessee, but only 7 lakh are filing the returns on a regular basis and the Ministry considers the rest as evaders. He also claimed that here has been an overwhelming response to the VCES . “In the last four days, we have received over 16,000 applications involving Rs 1,500 crores of
service tax dues,” he said while adding that up to Decemebr 29 tax authorities got 40,000 declarations involving over Rs 5,500 crore. This would broadly correspond to Rs 55,000 crore of services, which have escaped the tax net.

No extension of VCES

He remided that there would be no extension of the scheme since the last date is laid down in the Finance Act. In order to help the service tax assesses, it has been decided to open the service tax office beyond working hours on Monday and Tuesday. At the same time, the Government has also extended the banking hours in the designated branches up to 6 p.m. on December 31. In addition, all Commissionerates have been advised to accept demand drafts/ pay orders submitted by declarants, under the Receipt Payment Rules.

Service tax dues
The declarants are once again reminded that they have to pay half of the declared tax dues by December 31, failing which they would be ineligible for the scheme. The scheme offers ‘no penalty, no interest’ and provide one-time opportunity to the defaulters to come clean. Under it, defaulters have to pay at least 50 per cent of arrears for the five-year period ending 2012 (October 1, 2001-December 31, 2012) and the balance in another six months without interest.

(The Hindu Business)

Employee Certificate, Bank Certificate, Aadhaar Card for PAN / TAN , Revised Form 49A, 49AA

                                                           NOTIFICATION NO. 96/2013

S.O. 3794 (E)- In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1.(1) These rules may be called the Income -tax (19th Amendment) Rules, 2013.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962,-

(i) in rule 114, for sub- rule (4), the following sub-rules shall be substituted, namely:-

“(4) The application, referred to in sub-rule (1) in respect of an applicant mentioned in column (2) of the Table below, shall be filled in the Form mentioned in column (3) of the said table, and shall be accompanied by the documents mentioned in column (4) thereof, as proof of identity, address and date of birth of such applicant:

Sl. No.	Applicant	Form	Documents as proof of identity, address and date of birth
(1)	(2)	(3)	(4)
1.	Individual who is a citizen of India	49A	(A) Proof of identity-(i)Copy of,(a) elector’s photo identity card ; or(b) ration card having photograph of the applicant; or(c) passport; or (d) driving licence; or (e) arm’s license;or (f) AADHAR Card issued by the Unique Identification Authority of India; or (g) photo identity card issued by the Central Government or a State Government or a Public Sector Undertaking; or (h) Pensioner Card having photograph of the applicant; or (i) Central Government Health SchemeCard or Ex-servicemen Contributory Heath Scheme photo card; or (ii) certificate of identity in original signed by a Member of Parliament or Member of Legislative Assembly or Municipal Councillor or a Gazetted Officer, as the case may be; or (iii) bank certificate in original on letter head from the branch (along with name and stamp of the issuing officer) containing duly attested photograph and bank account number of the applicant. Note: In case of a person being a minor, any of the above documents of any of the parents or guardian of such minor shall be deemed to be the proof of identity. (B)Proof of address- (i)copy of the following documents of not more than three months old – (a) electricity bill; or (b) landline telephone or broadband connection bill; or (c) water bill; or (d) consumer gas connection card or book or piped gas bill; or (e) bank account statement or as per Note 1; or (f) depository account statement ; or (g) credit card statement; or (ii) copy of, (a) post office pass book having address of the applicant; or (b) passport; or (c) passport of the spouse; or (d)elector’s photo identity card; or (e) latest property tax assessment order; or (f) driving licence; or (g) domicile certificate issued by the Government; or (h) AADHAR Card issued by the Unique Identification Authority of India; or (p) allotment letter of accommodation issued by the Central Government or State Government of not more than three years old; or (q) property registration document; or (iii) c ertificate of address signed by a Member of Parliament or Member of Legislative Assembly or Municipal Councillor or a Gazetted Officer, as the case may be; or (iv) employer certificate in original. Note 1. In case of an Indian citizen residing outside India, copy of Bank Account Statement in country of residence or copy of Non-resident External bank account statements shall be the proof of address. Note 2: In case of a minor, any of the above documents of any of the parents or guardian of such minor shall be deemed to be the proof of address. (C) Proof of date of birth copy of, (a) birth certificate issued by the Municipal Authority or any office authorised to issue Birth and Death Certificate by the Registrar of Birth and Deaths or the Indian Consulate as defined in clause (d) of sub-section (1) of section 2 of the Citizenship Act, 1955 (57 of 1955); or (b) pension payment order; or (c) marriage certificate issued by Registrar of Marriages; or (d) matriculation certificate; or (e) passport; or (f) driving licence; or (g) domicile certificate issued by the Government; or (h) affidavit sworn before a magistrate stating the date of birth.
2.	Hindu Undivided Family	49A	(a) An affidavit by the karta of the Hindu Undivided Family stating the name, father’s name and address of all the coparceners on the date of application; and(b) copy of any document applicable in the case of an individual specified in serial number 1, in respect of karta of the Hindu undivided family, as proof of identity, address anddate of birth.
3.	Company registeredin India	49A	Copy of Certificate of Registration issued by the Registrar of Companies.
4.	Firm (including Limited Liability Partnership) formed or registered in India	49A	(a) Copy of Certificate of Registration issued by the Registrar of Firms/Limited Liability Partnerships; or(b) copy of Partnership Deed.
5.	Association of persons (Trusts) formed or registered in India	49A	(a) Copy of trust deed; or(b) copy of Certificate of Registration Number issued by Charity Commissioner.
6.	Association of persons (other than Trusts) or body of individuals or local authority or artificial juridical person formed or registered in India	49A	(a) Copy of Agreement; or(b) copy of Certificate of Registration Number issued by Charity Commissioner or Registrar of Co-operative Society or any other Competent Authority; or(c) any other document originating from any Central Government or State Government Department establishing Identity and address of such person.
7.	Individuals not being a citizen of India	49AA	(i) Proof of identity :-(a) copy of Passport; or(b) copy of person of Indian Origin card issued by the Government of India; or(c) copy of Overseas Citizenship of India Card issued by Government of India; or(d) copy of other national or citizenship Identification Number or Taxpayer Identification Number duly attested by “Apostille”(in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India. (ii) Proof of address:- (a) copy of Passport; or (b) copy of person of Indian Origin card issued by the Government of India; or (c) copy of Overseas Citizenship of India Card issued by Government of India; or (d) copy of other national or citizenship Identification Number or Taxpayer Identification Number duly attested by “Apostille”(in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India; or (e) copy of bank account statement in the country of residence; or (f) copy of Non-resident External bank account statement in India; or (g) copy of certificate of residence in India or Residential permit issued by the State Police Authority; or (h) copy of the registration certificate issued by the Foreigner’s Registration Office showing Indian address; or (i) copy of Visa granted and copy ofappointment letter or contract from Indian Company and Certificate (in original) of Indian Address issued by the employer.
8.	LLP registered outside India	49AA	(a) Copy of Certificate of Registration issued in the country where the applicant is located, duly attested by “Apostille”(in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India; or(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
9.	Company registered outside India	49AA	(a) Copy of Certificate of Registration issued in the country where the applicant is located, duly attested by “Apostille”(in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India; or(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
10.	Firm formed or registered outside India	49AA	(a) Copy of Certificate of Registration issued in the country where the applicant is located, duly attested by “Apostille”(in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India; or(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
11.	Association of persons (Trusts) formed outside India	49AA	(a) Copy of Certificate of Registration issued in the country where the applicant is located, duly attested by “Apostille”(in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India; or(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.
12.	Association of persons (other than Trusts) or body of individuals or local authority or person formed or any other entity (by whatever name called) registered outside India	49AA	(a) Copy of Certificate of Registration issued in the country where the applicant is located, duly attested by “Apostille”(in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by Indian embassy or High Commission or Consulate in the country where the applicant is located or authorised officials of overseas branches of Scheduled Banks registered in India; or(b) copy of registration certificate issued in India or of approval granted to set up office in India by Indian Authorities.]

TDS CREDIT ALLOWED IN CASE THERE IS NO ENTRY IN FORM 26AS

  S.199: Deduction at source-Credit for tax deducted - TDS Credit must be given even if TDS

Certificate is not available/ entry is not shown in Form 26AS. [S.26AS]
The assessee claimed credit for TDS which was denied by the AO on the ground that the claim did not match the entries shown in Form No. 26AS and that there was a discrepancy. On appeal, the CIT(A) held that the assessee would be entitiled to credit to the extent shown in the computer system of the department. On further appeal by the assessee to the Tribunal HELD:
The AO is not justified in denying credit for TDS on the ground that the TDS is not reflected in the
computer generated Form 26AS. In Yashpal Sahni v. ACIT (2007) 293 ITR 539 (Bom) the Bombay
High Court has noted the difficulty faced by taxpayers in the matter of credit of TDS and held that
even if the deductor had not issued a TDS certificate, still the claim of the assessee has to be
considered on the basis of the evidence produced for deduction of tax at source. The Revenue is
empowered to recover tax from the person responsible if he had not deducted tax at source or after deducting failed to deposit with Central Government. The Delhi High Court has in Court On Its Own Motion Vs. CIT(2013) 352 ITR 273(Delhi) directed the department to ensure that credit is given to the assessee even where the deductor had failed to upload the correct details in Form 26AS on the basis of evidence produced before the department. Therefore, the department is required to give credit for TDS once valid TDS certificate had been produced or even where the deductor had not issued TDS certificates on the basis of evidence produced by assessee regarding deduction of tax at source and on the basis of indemnity bond. (A. Y. 2007-08)(ITA No. 8532/Mum/2011, dt. 13.09.2013.)
Citicorp Finance (India) Ltd. v. ACIT. (Mum.)(Trib.)

SERVICE TAX---Over 300 times increase in service tax revenue in two decades

Revenue from service tax has grown by over 300 times in past two decades. According to provisional figures therevenue from service tax touched about 1.32 lakh crore rupees in 2012-13, compared to 407 crore rupees earned in 1994-95, when service tax was introduced.

The number of assessees have also gone up by over 400 times during this period. The total number of taxable services has also increased, from 3 in 1994, to 119 in 2012.

Punjab VAT : VAT on iron, steel items slashed

NEW REGIME RESTRUCTURED FOR IRON & STEEL INDUSTRY UNDER THE PUNJAB VAT ACT 2005 LIKELY TO BE INTRODUCED FROM 01 FEB 2014

Punjab Government has announced to slash VAT rate on Scrap (Melting & Rolling), ingots, billets, blooms or other semi finished goods, finished goods, interstate sales to 2.5% from 4.95% with surcharge of 10% with effect from Feb 01, 2014 as Mr. Badal has announced that Punjab Cabinet will approve new VAT Rate for Iron & Steel industry in 1st week of January & the same will be implemented by issuing a notification with effect from 1st February 2014.

In this new restructured VAT regime the State Government has also decided to calculate VAT on the basis of electricity consumption per unit which is as under:

After the implementation of new system, there should be a minimum commitment of production of 1 tonne of finished items with 250 units of consumption of electricity, whereas for furnace units, a minimum commitment of 1 tonne of ingot production with 750 units of electricity has been made.

This new system (of calculating VAT) will eliminate tax evasion and also lead to increase in production by encouraging flow of scrap and raw material into the state.

S.NO.	Minimum commitment of production	UNITS CONSUMED OF ELECTRICITY
1.	One Ton of Finished item	250 units
2.	For Furnace One Ton of Ingot	750 units

Electronic Accounting System In Excise and Service Tax or EASIEST

Electronic Accounting System In Excise and Service Tax or EASIEST, as it is easily termed, is the procedure for payment of Excise duty and service tax. It requires the tax/ duty payer to submit only 1 copy of GAR-7 challan as against 4 copies of TR-6 challans in the bank as per old procedure. The bank keeps counterfoil of challan and returns to the tax/ duty payer a computerized printout of the data entered by the bank as a receipt/ acknowledgement.

This challan is earmarked with a uniqueidentification number called Challan Identification Number or CIN. The CIN has to be filled in appropriate places while filling excise/ service tax returns. The tax/ duty payer is relieved from attaching a copy of the challan with the return.

It is also important to know that CIN is a combination of three things:-

 7-digit BSR code which is unique for each bank.

 8-digit comprising date of tender/ deposit.

 5-digit challan serial number provided by branch which is unique for every transaction.

It should be understood that EASIEST is entirely a different concept from E-filing and e-payment. E-filing is the facility given by CBEC to file online returns. The user-id and password are obtained from the Systems Manager of the Jurisdictional Commissionerate’s computer section to avail this facility. The taxpayer is not required to visit the central excise and service tax office for filing returns.

E-payment is an online banking mechanism wherein almost every bank nowadays allows making Central excise and service tax payments. The taxpayer need not go to the bank to make payment. This is a cashless transaction.

The receiving bank branches of the nominated banks in EASIEST are to issue computerized challan

receipt as an acknowledgement to the assessee. The collecting/receiving bank branches would hand over this receipt to the assessee as an acknowledgement/proof of the tax payment. This computer generated acknowledgement of GAR 7 challan would be given to the taxpayer after putting the signature and seal of the authorized signatory in token of receipt of the amount. This would serve as the taxpayer’s receipt for payment made. The collecting / receiving bank branch would retain the tear off counterfoil of the GAR7 challan submitted by taxpayer. The words “Taxpayer’s counterfoil” appearing in the GAR 7 challan would be substituted by the word “Counterfoil”. The computerized printout should necessarily have the following information: -

 -Bank code

 -Branch code

 -Date of Tender of challan

 -Challan sequence number

 -Name of the Assessee

 -Assessee code

 -Location code ( Commissionerate  + Division + Range code)

 -Major Head code

 -The eight digit Accounting code for duty / cess in case of payments of Central Excise and Service code in case of Service Tax.

 -Amount of duty / tax paid for each of the Accounting code

 -Total amount

 -Collection indicator / Mode of payment

 -Date of realization of the instrument.

Handbook on Service Tax VCES, 2013

As you are aware, the Indirect Taxes Committee of ICAI had organised a live webcast on Service Tax Voluntary Compliance Encourage Scheme, 2013 on 16th December, 2013, the recordingof which is available at http://icaitv.com/?p=5073 and http://icaitv.com/?p=5130. The Committee has also published e-newsletter on Service Tax Voluntary Compliance Encourage Scheme, 2013 which was inaugurated by Hon’ble Finance Minister during the said webcast. The same can be downloaded from http://220.227.161.86/31643idtc21782.pdf

Further, the Committee, continuing with its efforts to update the members and also to partner the Government in its initiative, has come out with Handbook on Service Tax Voluntary Compliance Encourage Scheme, 2013. The Handbook has been hosted on Indirect Taxes Committee page of ICAI website and can be downloaded from http://220.227.161.86/31675idtc-STVCES-2013.pdf.

We once again request you all to give wide publicity of the Scheme and complement the efforts of the Government by sensitizing the assessees and the various service providers with the benefits of the Scheme.

Let us join hands and work together to make the Scheme successful.

Sincerely Yours

CA. Sanjay Agarwal
Chairman
Indirect Taxes Committee
Source- ICAI

How Transfer Pricing Techniques Improve Profitability

There are five transfer pricing techniques a corporation can choose from to improve profitability of not only business unit level, but the corporate-wide level. Each of the technique has strengths and weaknesses that, any incorrect transfer pricing can cause considerable dysfunctional purchasing behavior and could suffer profitability on corporate-wide level—thus selecting the most suitable transfer pricing techniques is critical.

First, here s a quick comparison of the five transfer pricing techniques, each shows four variables: profitability enhancement, performance review process required, ease of use and common problems.
Five Transfer Pricing Techniques Summarized
A comparison of five transfer pricing methods can be summarized as follows:
1. Market Pricing
Profitability Enhancement: Creates highest level of profits for entire company.
Performance Review: Creates profits centers for all divisions.
Ease of Use: Simple applicability.
Problems: Market prices not always available; may not be large enough external market; does not reflect slight reduced internal selling costs; selling divisions may deny sales to other divisions in favor of outside sales.

2. Adjusted Market Pricing
Profitability Enhancement: Creates highest level of profits for entire company.
Performance Review: Creates profits centers for all divisions.
Ease of Use: Requires negotiation to determine reductions from, market price.
Problems: Possible arguments over size of reductions; may need headquarters’ intervention.

3. Negotiated Prices
Profitability Enhancement: Less optimal result than market-based pricing, especially if negotiated prices vary substantially from the market.
Performance Review: May reflect manager negotiating skills more than division performance.
Ease of Use: Easy to understand but requires substantial preparation for negotiations.
Problems: May result in better deals for divisions if they buy or sell outside the company; negotiations are time consuming; may require headquarters’ intervention.

4. Contribution MarginsProfitability Enhancement: Allocates final profits among cost centers; divisions tend to work together to achieve large profit
Performance Review: Allows for some basis of measurement based on profits, where cost center performance is only other alternative.
Ease of Use: Can be difficult to calculate if many divisions involved.
Problems: A division can increase its share of the profit margin by increasing its costs; a cost reduction by one division must be shared among all divisions; requires headquarters’ involvement.

5. Cost Plus
Profitability Enhancement: May result in profit buildup problem, so that division selling externally has no incentive to do so.
Performance Review: Poor for performance evaluation, since will earn a profit no matter what cost is incurred.
Ease of Use: Easy to calculate profit add-on.
Problems: Margins assigned do not equate to market-driven profit margins; no incentive to reduce costs.
This post further discusses each of the transfer pricing techniques in greater details and provides guidance on how to make use of each technique—and improve profitability on the corporate-wide level, instead of department-or-business unit level. But let us start with the basic first. Read on…

What is Transfer Pricing, When Is It Important?
Simply put, transfer pricing is a task of determining prices at which products (or could be components) will be sold between divisions (or department or business units) in a corporation. It is most common in vertically integrated companies, where each division in succession produces a component that is a necessary part of the product being created by the next division in line.
So, if an organization sells its own products internally—from one division to another—then transfer pricing is important.
Next, let us take a look at each transfer pricing techniques and how each technique can be used to improve profitability in the corporate-wide level.

Technique 1. Using External Market Price
Using external market price as transfer pricing technique is the most common. Under this approach, the selling division matches its transfer price to the current market rate. By doing so, a company can achieve four goals:
Goal 1. Maximize profits – A company can achieve the highest possible corporate-wide profit. This happens because the selling division can earn just as much profit by selling all of its production outside of the company as it can by doing so internally—there is no reason for using a transfer price that results in incorrect behavior of either selling externally at an excessively low price or selling internally when a better deal could have been obtained by selling externally.
Goal 2. Profit center structure – Using the market price allows a division to earn a profit on its sales, no matter whether it sells internally or externally. By avoiding all transfers at cost, the senior management group can structure its divisions as profit centers, thereby allowing it to determine the performance of each division manager.
Goal 3. Simplified information sources – The market price is simple to obtain—it can be taken from regulated price sheets, posted prices, or quoted prices, and applied directly to all sales. No complicated calculations are required, and arguments over the correct price to charge between divisions are kept to a minimum.
Goal 4. Outside shopping – A market-based transfer price allows both buying and selling divisions to shop anywhere they want to buy or sell their products. For example, a buying division will be indifferent as to where it obtains its supplies, for it can buy them at the same price, whether that source is a fellow company division or not. This leads to a minimum of incorrect buying and selling behavior that would otherwise be driven by transfer prices that do not reflect market conditions.
However, market prices are not always available. This happens when the products being transferred do not exactly match those sold on the market, or if they are intermediate- level products that have not yet been converted into final products, so there is no market price available for them.

Another problem with market-based pricing is that there must truly be an alternative for a selling division to sell its entire production externally. This is a common problem for specialty products, where the number of potential buyers is small, and their annual buying needs are limited in size. A final issue is that market-based pricing can drive divisions to sell their production outside of the company.
Technique 2. Using Adjusted Market Pricing
Adjusted market pricing involves price setting in order to simplify transfer prices and adjust for the absence of sales-related costs. For example, if market prices vary considerably by the unit volume ordered, there may be a broad range of transfer prices in use, which can be very complicated to track.

A single adjusted market price can be used instead, which is based on the average shipment or order size. If a buying division turns out to have purchased in significantly different quantities from the ones that were assumed at the time prices were set, a company can retroactively adjust transfer prices at the end of the year; or it can leave the pricing alone and let the divisions do a better job of planning their inter-divisional transfer volumes in the next year.

As another example, there should be no bad debts when selling between divisions, as opposed to the occasional losses incurred when dealing with outside firms; accordingly, this cost can be deducted from the transfer price.

The same argument can be made for the sales staff, whose services are presumably not required for interdepartmental sales. However, these price adjustments are subject to negotiation, so more aggressive division managers are more likely to resist reductions from their market-based prices while those managing the buying divisions will push hard for excessively large price deductions. The result may be pricing anomalies that do not yield the optimum profit for the company as a whole.

Technique 3. Using Negotiated Transfer Prices
The managers of buying and selling divisions can negotiate a transfer price between themselves, using a product’s variable cost as the lower boundary of an acceptable negotiated price and the market price (if one is available) as the upper boundary. The price that is agreed on, as long as it falls between these two boundaries, should give some profit to each division, with more profit going to the division with better negotiating skills.

The method has the advantage of allowing division managers to operate their businesses in a more independent manner, not relying on preset pricing. It also results in better performance evaluations for those managers with greater negotiation skills.

However, it also suffers from these flaws:
Sub-optimal behavior – If the negotiated price excessively favors one division over another, the losing division will search outside the company for a better deal on the open market and will direct its sales and purchases in that direction; this may result in sub-optimal company-wide profitability levels.
Negotiation time – The negotiation process can take up a substantial proportion of a manager’s time, not leaving enough for other management activities. This is a particular problem if prices require constant renegotiation.
Brokered deals – Inter divisional conflicts over negotiated prices can become so severe that the problem is kicked up corporate headquarters, which must step in and set prices that the divisions are incapable of determining by themselves.
For all these reasons, the negotiated transfer price is a method that is generally relegated to special or low-volume pricing situations.

Technique 4. Using Contribution Margin
What if there is no market price at all for a product? A company then has no basis for creating a transfer price from any external source of information, so it must use internal information instead.
One approach is to create transfer prices based on a product’s contribution margin. Under this pricing system, a company determines the total contribution margin earned after a product is sold externally and allocates this margin back to each division, based on their respective proportions of the total product cost.
There are several good reasons for using this approach, which:
Converts a cost center into a profit center – By using this method to assign profits to internal product sales, divisional managers are forced to pay stricter attention to their profitability, which helps the overall profitability of the organization.
Encourages divisions to work together – When every supplying division shares in the margin when a product is sold, it stands to reason that it will be much more eager to work together to achieve profitable sales rather than bickering over the transfer prices to be charged internally. Also, any profit improvements that can be brought about only by changes that span several divisions are much more likely to receive general approval and cooperation under this pricing method, since the changes will increase profits for all divisions. These arguments make the contribution margin approach popular as a secondary transfer pricing method, after the market price approach.
Despite its useful attributes, there are a number of issues with it that a company must guard against in order to avoid behavior by divisions that will lead to less-than optimal overall levels of profitability. The contribution margin approach:
Can increase assigned profits by increasing costs – When the contribution margin is assigned based on a division’s relative proportion of total product costs, the divisions will realize that they will receive a greater share of the profits if they can increase their overall proportion of costs.
Must share cost reductions – If a division finds a way to reduce its costs, it will receive an increased share of the resulting profits that is in proportion to its share of the total contribution margin distributed. For example, if Division A’s costs are 20% of a product’s total costs and Division B’s share is 80%, then 80% of a $1 cost reduction achieved by Division A will be allocated to Division B, even though it has done nothing to deserve the increase in margin.
Requires the involvement of the corporate headquarters staff – The contribution margin allocation must be calculated by somebody, and since the divisions all have a profit motive to skew the allocation in their favor, the only party left that can make the allocation is the headquarters staff. This may increase the cost of corporate overhead.
Results in arguments – When costs and profits can be skewed by the system, there will inevitably be arguments between the buying and selling divisions, which the corporate headquarters team may have to mediate. These issues detract from an organization’s focus on profitability.
The contribution margin approach is not a perfect one, but it does give companies a reasonably understandable and workable method for determining transfer prices. It has more problems than market-based pricing but can be used as an alternative or as the primary approach if there is no way to obtain market pricing for transferred products.

Technique 5. Using Cost-Plus Method
The cost-plus approach is an alternative when there is no market from which to determine a transfer price. This method is based on its name—just accumulate a product’s full cost and add a standard margin percentage to the cost; this is the transfer price. This approach has the singular advantage of being very easy to understand and calculate, and can convert a cost center into a profit center, which may be useful for evaluating the performance of a division manager.

The cost-plus method’s flaw is that the margin percentage added to a product’s full cost may have no relationship to the margin that would actually be used if the product were to be sold externally. If a number of successive divisions were to add a standard margin to their products, the price paid by the final division in line—the one that must sell the completed product externally—may be so high that there is no room for its own margin, which gives it no incentive to sell the product. Because of this issue, the cost-plus method is not recommended in most situations.

Words of Caution
A company must set its transfer prices at levels that will result in the highest possible levels of profits, not for individual divisions but rather for the entire organization. Otherwise a division may enjoy maximum profit while the corporate-wide level does not.
For example, if a transfer price is set at a product’s cost, the selling division would rather not sell the product at all, even though the buying division can sell it externally for a profit that more than makes up for the lack of profit experienced by the division that originally sold it the product. The typical division manager will select the product sales that result in the highest level of profit only for his or her division, since the manager has no insight (or interest) in the financial results of the rest of the organization.
Only by finding some way for the selling division to also realize a profit will a company have an incentive to sell its products internally, thereby resulting in greater overall profits.
An example of such a solution is when a selling division creates a by-product that it cannot sell but that another division can use as an input for the products it manufactures. The selling division scraps the by-product, because it has no incentive to do anything else with it. However, by assigning the selling division a small profit on sale of the byproduct, it now has an incentive to ship it to the buying division. Such a pricing strategy assists a company in deriving the greatest possible profit from all of its activities.
Another factor is that the amount of profit allocated to a division through the transfer pricing method used will impact its reported level of profitability—therefore the performance review for that division and its management team.
If the management team is compensated in large part through performance-based bonuses, its actions will be heavily influenced by the profit it can earn on inter-company transfers. For example, an excessively low transfer price will result in low production priority for that item, as long as the selling division has some other product available that it can sell for a greater profit.
Finally, altering the transfer price used can have a dramatic impact on the amount of income taxes a company pays, if it has divisions located in different countries that use different tax rates.
Companies that are frequent users of transfer pricing must create prices that are based on a proper balance of the goals of overall company profitability, divisional performance evaluation, and (in some cases) the reduction of income taxes. The attainment of all these goals by using a single transfer pricing method should not be expected. Instead, focus on the attainment of the most critical goals, while keeping the adverse affects of not meeting other goals at a minimum. This process may result in the use of several transfer pricing methods, depending on the circumstances surrounding each inter-divisional transfer.

Achievements / Initiatives Taken by CBDT to Improve Efficiency of Tax System

Achievements and Initiatives Taken by the Central Board of Direct Taxes ( CBDT ) Helping in Facilitating the Tax Payers, Improving the Efficiency and Equity of the Tax System and Promoting Voluntary Compliance

Following are the major highlights/achievements made by the Central Board of Direct Taxes (CBDT), Department of Revenue, Ministry of Finance over a period of time especially during the last one year :
The Department of Revenue, Ministry of Finance, Government of India focuses on improving the efficiency and equity of the tax system and to promote voluntary compliance both in case of Direct and Indirect taxes. Here we discuss the achievements made in case of direct taxes. Overall objective is to achieve the moderate tax rates, on a broad tax base, which is not diluted by sector specific exemptions. The same is ensured by making all sectors contribute to direct taxes. Accordingly attempts have been made to weed-out exemptions (or allow them to sunset) from the legislation as well as to ensure a minimum level of tax contribution by all taxpayers through levy of Minimum Alternate Tax (MAT) on all companies and firms.

In case of non-residents, a balance has been made to allocate taxation rights between the source State and the State of residence of the non-residents on the basis of the provisions of the Income-Tax Act and the provisions of Double Taxation Avoidance Agreements (DTAAs). Advance Pricing Mechanism (APA) has been notified so as to assist taxpayers to obtain certainty on their transfer pricing matters.

Similarly, Safe Harbour Rules have been notified for the purpose of ensuring certainty in transfer price declared by the taxpayer in respect of eligible international transactions. Safe harbour means circumstances in which the Income-tax Authority shall accept the transfer price declared by the assessee. The rules have been drafted after taking inputs from stake holders.

The General Anti-Avoidance Rules (GAAR) have been incorporated to counter undesirable aggressive tax planning in a moderate tax regime and are to apply for income of the financial year 2015-16 and subsequent years.

Extensive use of technology is being made for collection of information without intrusive methods. 360 degree profiling of taxpayers and potential taxpayers is being done for gathering information regarding their sources of income and spending habits. Information technology tools are being developed for exhaustive collection of information and maintenance of database. Information collected from returns of income and other sources is collated so that specific targeted action can be taken against the tax evaders.

The scope of annual information returns has been expanded, e-payment facility through more banks has been extended, the refund banker system has been expanded and e-filing has been made mandatory for more categories of assessees. The Income-tax department is rapidly moving towards technology-based processing as would be evident from the Central Processing Cell (CPC) set-up at Bengaluru and the Central Processing Cell-TDS at Vaishali, Ghaziabad.

Following specific legislative measures have been taken over a period of time, namely:-
Transactions in immovable properties are usually undervalued and underreported. One-half of the transactions do not carry the PAN of the parties concerned. With a view to improve the reporting of such transactions and the taxation of capital gains, Tax Deduction at Source (TDS) at the rate of one percent on the value of the transfer of immovable property where the consideration exceeds Rs.50 lakhs, has been introduced. However, agricultural land is exempt from this provision.
Closely held companies, which receive funds from shareholders, are required to prove the source of money in the hands of such shareholders for the sum to be accepted as genuine credit. Also, share premium received by a company, not being a company in which the public are substantially interested (subject to certain exceptions), from a resident person in excess of the fair market value may be liable to tax.
In order to curb the practice of introducing unaccounted money provision has been made in the Income-tax Act, 1961 to tax unexplained credits, money, investment, expenditure, etc., at the maximum marginal rate i.e., 30% plus surcharge and cess as applicable (rather than at the marginal tax rate of the individual after allowing basic exemption of Rs. 2 lakhs) and that no deduction in respect of any expenditure or allowance shall be allowed in computing deemed income under the said sections of the Income-tax Act.
It is now mandatory for every resident having any asset (including financial interest in any entity) located outside India or signing authority in any account located outside India to file a return of income giving details of the foreign assets, irrespective of the fact whether such resident taxpayer has taxable income or not.
Penalty provisions on undisclosed income found during the course of a search have been strengthened. Prosecution mechanism has also been strengthened under the Income-tax Act by – (i) providing for constitution of Special Courts for trial of offences; (ii) application of summons trial for some of the offences under the Act to expedite prosecution proceedings as the procedures in a summons trial are simpler and less time consuming; and (iii) providing for appointment of public prosecutors.
A new tax called commodities transaction tax (CTT) is levied on taxable commodities transactions entered into recognised commodity exchanges/associations. The new tax is levied @ 0.01 per cent on the seller on sale of commodity derivatives.
With a view to attract investment in long term infrastructure bonds in foreign currency, the rate of tax on interest paid to non-resident investors who invest in such bonds during the period 1.07.2012 to 30.06.2015 has been reduced from 20 percent to 5 percent. The rate of tax has also been reduced on interest paid during a two year period starting 1st June, 2013 to 31.05.2015 to a Foreign Institutional Investor (FII) or a Qualified Foreign Investor (QFI) in respect of investment in rupee denominated corporate bonds of an Indian company and Government securities.
In order to encourage repatriation of funds from overseas companies, a concessional rate of tax of 15 percent has been introduced for the period 01.04.2011 to 31.03.2014 on dividend received by an Indian company from its foreign subsidiary. Further, the Indian company shall not be liable to pay dividend distribution tax on the distribution to its shareholders of that portion of the income received from its foreign subsidiary subject to fulfilment of certain conditions.
In order to facilitate financial institutions to securitise their assets through a special purpose vehicle, Securitisation Trust has been exempted from income tax. Tax shall be levied only at the time of distribution of income by the Securitisation Trust at the rate of 30 percent in the case of companies and at the rate of 25 percent in the case of an individual or HUF. No further tax will be levied on the income received by the investors from the Securitisation Trust.
Considering the shortage of skilled manpower in the manufacturing sector and to generate employment, weighted deduction have been provided at the rate of 150 per cent of expenditure incurred on skill development in manufacturing sector in accordance with specified guidelines. Similarly weighted deduction of 150 per cent has also been provided on expenditure incurred for agri-extension project in order to facilitate growth in the agriculture sector.

While the Government has successfully implemented the above mentioned provisions as part of the taxation regime, in case of the following two legislative issues, the Government has already taken various steps and both are moving towards their finality:

(i) The Direct Taxes Code Bill, 2010

Direct Taxes Code Bill, 2010 was introduced in Lok Sabha on 30th August, 2010 during the Monsoon Session, 2010 of the Parliament. Lok Sabha had referred the Bill to the Standing Committee on Finance for its examination/consideration. The Standing Committee submitted its report (49th Report) to the Speaker, Lok Sabha on 9th March, 2012. Having considered the recommendations of the Committee, a note for the Cabinet for withdrawal of DTC Bill, 2010 and introduction of DTC Bill, 2013 was sent on 20th August, 2013 to the Cabinet Secretariat for placing it before the Cabinet. Approval of the Cabinet is awaited.

(ii) The Benami Transactions (Prohibition) Bill, 2011

The Government has introduced a new Bill, namely the Benami Transactions (Prohibition) Bill, 2011 (Bill No. 56 of 2011) in Parliament (Lok Sabha) on 18th August, 2011. This Bill proposes to replace the existing Benami Transactions (Prohibition) Act, 1988. The Bill was referred to the Standing Committee on Finance by Lok Sabha for examination. The Report has been submitted by the Standing Committee in June, 2012. The Report is being examined in the Ministry in light of the recommendations of the Standing Committee. Amendment(s), if any, will be placed before the Parliament for its consideration.

Service Tax Rules, 1994--Invoice

Records as per Service Tax Rules, 1994

According to Rule 5 of Service Tax Rules, 1994, records include computerized data and means the record as maintained by an assessee in accordance with the various laws in force from time to time. Records maintained as such shall be acceptable to Central Excise Officer. Every assessee is required to furnish to the Central Excise Officer at the time of filing his return for the first time a list of all accounts maintained by the assessee in relation to Service Tax including memoranda received from his branch offices. This intimation may be sent alongwith a covering letter while filing the service tax return for the first time.

The assessee should maintain such records as would enable him to -

(i) calculate value of taxable services as per provisions of section 67;

(ii) calculate service tax liability correctly;

(iii) ensure that proper credit of service tax on input services is availed.

Invoice

Rule 4A prescribes that taxable services shall be provided and input credit shall be distributed only on the basis of a bill, invoice or challan. Such bill, invoice or challan will also include documents used by service providers of banking services (such as pay-in-slip, debit credit advice etc.) and consignment note issued by goods transport agencies. Rule 4B provides for issuance of a consignment note to a customer by the service provider in respect of goods transport booking services.

These documents should disclose the required information about service provided or agreed to be provided, service provider and receiver of service.

Rule 4A prescribes that taxable services are to be provided or credit has to be distributed on invoice, bill or challan only. Such documents should be serially numbered and shall contain —

(i) name, address and registration number of service provider,

(ii) name and address of service receiver,

(iii) description, classification (omitted w.e.f. 1-7-2012) and value of taxable service, and

(iv) service tax payable thereon.

In case of banking services, such details like serial number and address of person may not be available. In case of goods transport services, consignment note or any other document containing the prescribed particulars will also be included in such documents. Similar requirement will have to be fulfilled by input service distributors. W.e.f. 1st April, 2005, the invoice/challan/bill etc. have to be issued within 14 days from the completion of provision of services or receipt of payment whichever is earlier (vide Notification No. 7/2005-ST dated 1-3-2005).

Notification No. 23/2005-ST dated 07.06.2005 provided that where any payment towards the value of taxable service is not received and such taxable service is provided continuously for successive periods of time and the value of such taxable service is determined or payable periodically, an invoice, a bill, or as the case may be, a challan shall be issued by a person providing such taxable service, not later than fourteen days from the last day of the said period.

Rule 4A was amended vide Notification No. 3/2011-ST dated 1.3.2011 w.e.f. 1.4.2011, prescribing that invoice or bill or challan shall have to be issued within fourteen days of provision of service or receipt of payment towards the value of such taxable service, whichever is earlier. This implies that service provider need not wait for completion of service but raise services at the stage of provision of service. W.e.f. 1-4-2012, invoice is required to be issued within a period of thirty days (45 days in case of banking companies, NBFC). The service shall be deemed to be provided as per Point of Taxation Rules, 2011.

Consignment Note
Rule 4B provides that any goods transport agency which provides goods transport services shall issue a consignment note to the customers in prescribed proforma containing the following information -

(a) Serial number

(b) Name of the consignor and consignee

(c) Registration number of the goods carriage in which the goods are transported

(d) Details of goods transported

(e) Details of the place of origin and destination

(f) Person liable for paying service tax whether consignor, consignee or the goods transport agency.

W.e.f. 1-3-2006, Service Tax Rules, 1994 were amended vide Service Tax (Amendment) Rules, 2006 vide Notification No. 05/2006-ST dated 1.3.2006 to provide as follows:
Rule 5(3) makes it obligatory for an assessee to preserve records at least for a period of five years.
Rule 5(4) makes it obligatory for an assessee to make available records maintained by him to a Central Excise Officer for the purpose of inspection or examination. However, such inspection or examination can be undertaken only after the written approval of the jurisdictional Assistant/Deputy Commissioner. It may also be noted that the assessee is required to make available the records in his registered premises.

Invoice by service provider under reverse charge – Suggestions
Under reverse charge mechanism, service provider should note to also mention the following particulars -

(i) amount of Service Tax based on his share of Service Tax liability, if any, (which service recipient is required to pay to the service provider) – in case of joint or proportionate reverse charge liability.

(ii) fact that entire amount of Service Tax on the invoice is payable by the service recipient under reverse charge (if so).

(iii) invoice amount is inclusive / exclusive of applicable Service Tax.

(iv) alternatively, in case of proportionate reverse charge, service provider should charge Service Tax only on that part of the invoice for which he is liable to pay and wants to recover from the service recipient and mention that balance amount is payable by the service recipient.

1. What are the different modes of payment available for making MCA fee payments?
The different modes of payment available are:
Credit card / Debit Card (Pay online)
Net Banking (Pay online)
Challan (Generate the Challan online, fill it and deposit it off-line at an authorized bank branch)

2. Which all banks provide Credit Card facility for making MCA fee payments?
All types of Visa and Master card issued in India are accepted.

3. Which all banks provide Net banking Payment facility for making MCA fee payments?
Net banking payment facility of following bank is available on MCA Portal
Punjab National bank
State Bank of India
ICICI Bank
HDFC Bank
Indian Bank

4. Are Debit Cards accepted for making MCA fee payments?
Yes, Debit Cards are accepted. Following banks / institutions have implemented debit card (Visa) acceptance on the payment gateway:
Andhra Bank
Axis Bank Limited
Barclays Bank Plc
Canara Bank
City Union Bank Limited
Corporation Bank
Deutsche Bank AG
GE Money Financial Services Limited
HDFC Bank Limited
ICICI Bank Limited
Indian Overseas Bank
Kotak Bank (Virtual card)
Standard Chartered Bank
State Bank Of India
Syndicate Bank
The Federal Bank Limited
The Karur Vysya Bank Limited

5. Where can I make MCA Challan Payments?
Selected branches of the following five banks have been authorized for accepting MCA Payments:
Punjab National bank
State Bank of India
ICICI Bank
HDFC Bank
Indian Bank

6. Can I make Challan payments at any branch of the five approved banks?
No, only selected branches of the five banks have been authorized for MCA payments. The details of these branches are available on the MCA portal.
In case payment is made at any bank branch which is not authorized to receive the payments on behalf of MCA, then it shall not be valid and the payment shall not be accounted for.

7. How long does it take for Cheque/ DD payments to get updated in MCA21 system?
It takes 3-4 days for banks to realize the payment made against an instrument. After realization of the payment, the same is reported by the respective banks on the next working day. Thereafter, the status is updated on the MCA portal.

8. How long does it take for Cash payments to get updated in MCA21 system?
It takes approx. two working days.

9. I made cash payment/ deposited a Cheque or a DD after the Challan expiry date and it was accepted by the bank. The payment status is still not updated on MCA portal. What should I do? If the Challan was accepted by bank, the status should be updated.
Since the payment was made after expiry date, it cannot be updated. If the bank has accepted the payment, it would be rejected by MCA. In such a scenario, approach the bank branch where you made the payment and seek refund for it. User should verify that the Challan has not expired while making the payment at the bank.

10. Does MCA levy any additional service charge on online payments?
No, MCA does not levy any additional service charge on online payments.For Credit / Debit Card Payments, user/ compliance seeker needs to pay ICICI Bank a convenience fee charge of 2% on transaction value.

Financial Statements Disclosures Required Under IFRS

As it is required under the US-GAAP, a supplemental disclosure for financial statements is also required under the IFRS—generally shown as notes to the accounts.

To help users to understand the financial statements and to compare them with financial statements of other entities, an entity normally should present notes in the following order:
1. Statement of compliance with IFRS
2. Summary of significant accounting policies applied
3. Supporting information for items presented in the financial statements
4. Other disclosures
More detailed explanations are presented below. Read on…


1. Statement of Compliance with IFRSAn entity might refer to IFRS in describing the basis on which its financial statements are prepared without making this explicit and unreserved statement of compliance with IFRS.
Financial statements, however, should not be described as complying with IFRS unless they comply with all the requirements of IFRS. A reporting entity may only claim to follow IFRS if it complies with every single IFRS in force as of the reporting date.
IAS 1 requires an entity whose financial statements comply with IFRS to make an explicit statement of such compliance in the notes.


2. Accounting Policy DisclosuresBasically, entities should make financial statement users become aware of the accounting policies used by reporting entities—so that they can better understand the financial statements and make comparisons with the financial statements of others.
Financial statements should include clear and concise disclosure of all significant accounting policies that have been used in the preparation of those financial statements. The policy disclosures should identify and describe the accounting principles followed by the entity and methods of applying those principles that materially affect the determination of financial position, results of operations, or changes in cash flows. IAS 1 requires that disclosure of these policies be an integral part of the financial statements.
IAS 8 provides criteria for making accounting policy choices. Policies should be relevant to the needs of users and should be reliable (representationally faithful, reflecting economic substance, neutral, prudent, and complete).
The policy note should begin with a clear statement on the nature of the comprehensive basis of accounting used.
Management must also indicate the judgments that it has made in the process of applying the accounting policies that have the most significant effect on the amounts recognized. The entity must also disclose the key assumptions about the future and any other sources of estimation uncertainty that have a significant risk of causing a material adjustment to later be made to the carrying amounts of assets and liabilities.
IAS 1 also requires an entity to disclose in the summary of significant accounting policies:

The measurement basis (or bases) used in preparing the financial statements; and
The other accounting policies applied that are relevant to an understanding of the financial statements.
Note: Measurement bases may include historical cost, current cost, net realizable value, fair value or recoverable amount.Other accounting policies should be disclosed if they could assist users in understanding how transactions, other events and conditions are reported in the financial statements.


3. Supporting Information for Financial Statement’s ItemsBasically, supporting information is required for nearly all items presented on the financial statements. There is, though, a degree of fluidity between showing information “on the face of the accounts” (=directly in the statement of financial position or income statement) and in the notes (= the main categories have to be preserved, but the detail underlying the reported amounts may be shown in the notes).
The two basic techniques, for the purpose, are:

1. Parenthetical explanations – Supplemental information is disclosed by means of parenthetical explanations following the appropriate statement of financial position items. For example:
“Equity share capital ($10 par value, 150,000 shares authorized, 100,000 issued) = $1,000,000”Parenthetical explanations have an advantage over both footnotes and supporting schedules, as they place the disclosure in the body of the statement, where their importance cannot be overlooked by users of the financial statements.

2. Footnotes – If the additional information cannot be disclosed in a relatively short and concise parenthetical explanation, a footnote should be used, with a cross-reference shown in the statement of financial position. In accordance with IAS 1 the notes should:
present information about the basis of preparation of the financial statements and the specific accounting policies used;
disclose the information required by IFRS that is not presented elsewhere in the financial statements; and
provide information that is not presented elsewhere in the financial statements, but is relevant to an understanding of any of them.An entity should present notes in a systematic manner and should cross-reference each item in the statements of financial position and of comprehensive income, in the separate income statement (if presented), and in the statements of changes in equity and of cash flows to any related information in the notes. For example:
“Inventories (see Note 2) = $2,550,000”The notes to the financial statements would then contain the following:
“Note 2: Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method, and market is determined on the basis of estimated net realizable value. As of the date of the statement of financial position, the market value of the inventory is $2,620,000.”To present adequate detail regarding certain statement of financial position items, or move complex detail from the face of the accounts, a supporting schedule may be provided in the notes.For example:
Current receivables may be a single line item in the statement of financial position, as follows:
“Current receivables (see Note 3) = $2,300,000”A separate schedule for current receivables would then be presented as follows:
Valuation accounts are another form of schedule used to keep detail off the balance sheet. For example, accumulated depreciation reduces the book value for property, plant, and equipment, and a bond premium (discount) increases (decreases) the face value of a bond payable as shown in the following illustrations. The net amount is shown in the statement of financial position, and the detail in the notes.
In addition, an entity should disclose the judgments that management has made in the process of applying the entity’s accounting policies and that have the most significant effect on the amounts recognized in the financial statements. For example: when making decisions whether investments in securities should be classified as trading, available for sale or held to maturity, or whether lease transactions transfer substantially all the significant risks and rewards of ownership of financial assets to another party.
Determining the carrying amounts of some assets and liabilities requires estimating the effects of uncertain future events on those assets and liabilities at the end of the reporting period in measuring, for example, the recoverable values of different classes of property, plant, and equipment, or future outcome of litigation in progress.
The reporting entity should disclose information about the assumptions it makes about the future and other major sources of estimation uncertainty at the end of the reporting period—which have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year.
The notes to the financial statements should include the nature and the carrying amount of those assets and liabilities at the end of the period.


4. Other Required DisclosuresIFRS also requires entities to include other disclosures such as related party, contingent liabilities and unrecognized contractual commitments; and nonfinancial disclosures (e.g., the entity’s financial risk management objectives and policies).

a. Related-party DisclosuresA related party is essentially any party that controls or can significantly influence the financial or operating decisions of the company to the extent that the company may be prevented from fully pursuing its own interests. Such groups would include:
Associates
Investees accounted for by the equity method
Trusts for the benefit of employees
Principal owners
Key management personnel
Family members of owners or management According to IAS 24, financial statements should include disclosure of material related-party transactions that are defined by the standard as “transfer of resources or obligations between related parties, regardless of whether a price is charged.”Disclosures should take place even if there is no accounting recognition made for such transactions (e.g., a service is performed without payment). Disclosures should generally not imply that such related-party transactions were on terms essentially equivalent to arm’s-length dealings.
Additionally, when one or more companies are under common control such that the financial statements might vary from those that would have been obtained if the companies were autonomous, the nature of the control relationship should be disclosed even if there are no transactions between the companies.
The disclosures generally should include:
Nature of relationship
Description of transactions and effects of such transactions on the financial statements for each period.
Financial amounts of transactions for each period for which an income statement is presented and effects of any change in establishing the terms of such transactions different from that used in prior periods.
Amounts due to and from such related parties as of the date of each statement of financial position presented together with the terms and manner of settlement

b. Comparative Amounts For The Preceding PeriodIAS 1 requires that financial statements should present corresponding figures for the preceding period. When the presentation or classification of items is changed, the comparative data must also be changed, unless it is impracticable to do so.
When an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements, at a minimum, three statements of financial position, two of each of the other statements, and related notes are required. The three statements of financial position presented are as at:
The end of the current period;
The end of the previous period (which is the same as the beginning of the current period); and
The beginning of the earliest comparative periodWhen the entity changes the presentation or classification of items in its financial statements, the entity should reclassify the comparative amounts, unless reclassification is impractical. In reclassifying comparative amounts, the required disclosure includes:
The nature of the reclassification;
The amount of each item or class of items that is reclassified; and
The reason for the reclassification. In situations where it is impracticable to reclassify comparative amounts, an entity should disclose (a) the reason for not reclassifying the amounts; and (b) the nature of the adjustments that would have been made if the amounts had been reclassified.The related footnote disclosures must also be presented on a comparative basis, except for items of disclosure that would be not meaningful, or might even be confusing, if set forth in such a manner.
Although there is no official guidance on this issue, certain details, such as schedules of debt maturities as of the year earlier statement of financial position date, would seemingly be of little interest to users of the current statements and would be largely redundant with information provided for the more recent year-end.
Accordingly, such details are often omitted from comparative financial statements. Most other disclosures, however, continue to be meaningful and should be presented for all years for which basic financial statements are displayed.
Many companies include in their annual reports five- or ten-year summaries of condensed financial information—to increase the usefulness of financial statements. This is not required by IFRS. The presentation of comparative financial statements in annual reports enhances the usefulness of such reports and brings out more clearly the nature and trends of current changes affecting the entity.

c. Subsequent Event DisclosuresThe statement of financial position is dated as of the last day of the fiscal period, but a period of time will usually elapse before the financial statements are actually prepared and issued. During this period, significant events or transactions may have occurred that materially affect the company’s financial position. These events and transactions are usually referred to as subsequent events. IAS 10 refers to these as “events after the date of the statement of financial position.”
If not disclosed, significant events occurring between the date of the statement of financial position and the financial statement issuance date could make the financial statements misleading to others not otherwise informed of such events.
IAS 10 describes two types of subsequent events, as follows :

Adjusting Events – These are events that provide additional evidence with respect to conditions that existed at the date of the statement of financial position and which affect the estimates inherent in the process of preparing financial statements; these are called.
Non-adjusting Events – These are events that do not provide evidence with respect to conditions that existed at the date of the statement of financial position, but arose subsequent to that date (and prior to the actual issuance of the financial statements); these are called.The principle is that the statement of financial position should reflect as accurately as possible conditions that existed at date of the statement of financial position, but not changes in conditions that occurred subsequently, even though they have the potential to influence investors’ decisions. In the latter case disclosure is to be made.
Examples of post-balance-sheet date events:

(1). A loss on an uncollectible trade account receivable as a result of a customer’s deteriorating financial condition leading to bankruptcy subsequent to the date of the statement of financial position.

(2). A loss arising from the recognition after the date of the statement of financial position that an asset.

(3). Nonadjusting events, which are those not existing at the date of the statement of financial position, require disclosure but not adjustment. These could include:
Sale of a bond or share capital issue after the date of the statement of financial position, even if planned before that date.
Purchase of a business, if the transaction is consummated after year-end.
Settlement of litigation when the event giving rise to the claim took place subsequent to the date of the statement of financial position.
Loss of plant or inventories as a result of fire or flood.
Losses on receivables resulting from conditions (such as a customer’s major casualty) arising subsequent to the date of the statement of financial position.
Gains or losses on certain marketable securities.

d. Contingent Liabilities and AssetsProvisions are recognized as liabilities (if reliably estimable), inasmuch as these are present obligations with probable outflows of resources embodying economic benefits needed to settle them. Provisions are accrued by a charge against income if:
The reporting entity has a present obligation as a result of past events;
It is probable that an outflow of the entity’s resources will be required; and
A reliable estimate can be made of the amount.If an estimate of the obligation cannot be made with a reasonable degree of certitude, accrual is not prescribed, but rather disclosure in the notes to the financial statements is needed.
For a provision to be made, the entity has to have incurred a constructive obligation. This may be an actual legal obligation, but it may also be only an obligation that arises as a result of an entity’s stated polices. However, to preclude the use of reserves for manipulative purposes, provisions for restructuring are subject to additional restrictions, and a provision may only be made once a detailed plan has been agreed and its implementation has commenced.
Contingent liabilities are not recognized as liabilities under IFRS because they are either only possible obligations or they are present obligations that do not meet the threshold for recognition.
IAS 37 defines provisions, contingent assets, and contingent liabilities. Importantly, it differentiates provisions from contingent liabilities.
At the present date, the key recognition issue for contingent liabilities is the probability of a future cash outflow. The probability of this occurring is the threshold condition for recognition: a probable outflow triggers recording a provision, while an unlikely or improbable outflow creates only the need for a disclosure.
In its ongoing business combinations project, the IASB appears likely to conclude that a contingency is usually a combination of an unconditional right or obligation which is linked to a conditional right or obligation.
The unconditional element is always to be recognized, although its value will be a function of the probability of the conditional element occurring. For Example:
If a company is being sued for $10 millions, and it considers that it has a 10% chance of losing, under the existing financial reporting rules, NO provision would be made. If the new approach under consideration were to be adopted, this could be analyzed as an unconditional obligation to pay what the court decides, and this obligation would be measured as 10% of $10 millions. The probability of the loss then shifts from being a recognition criterion to being a measurement tool.
Following the general guidelines on constructive obligations, instead of recognizing one major restructuring provision at a specific time, entities would need to recognize different liabilities relating to the different costs occurring in the restructuring, which costs can occur at different points in time.
e. Share Capital DisclosuresAn entity is required to disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies, and processes for managing capital. This information should include a description of what it manages as capital, the nature of externally imposed capital requirements, if there are any, as well as how those requirements are incorporated into the management of capital.
Additionally, summary quantitative data about what it manages as capital should be provided as well as any changes in the components of capital and methods of managing capital from the previous period.
The consequences of noncompliance with externally imposed capital requirements should also be included in the notes. All these disclosures are based on the information provided internally to key management personnel.
An entity should also present either in the statement of financial position or in the statement of changes in equity, or in the notes, disclosures about each class of share capital as well as about the nature and purpose of each reserve within equity.
Information about share capital should include:
The number of shares authorized and issued;Par value per share or that shares have no par value;The rights, preferences and restrictions attached to each class of share capital;Shares in the entity held by the entity or by its subsidiaries or associates; and
Shares reserved for issue under options and contracts