Diwali Expenses – Allowed in Income tax or not ? ITC or not ? What is the Correct accounting SOP ?

this question comes up in accountants mind from time to time, also in minds of entrepreneurs

So, all aspects and practical aspects, covered in this circular… at your service.

 

Questions we have answered in the circular below

Can I Debit Diwali Gifts in My books ? All ok ? Will it be disallowed ? Will I get the ITC ? Will I face problem in Income tax ? E Circular.

• Do you know that if you purchase sweets for workers and pay cash to the sweetshop over Rs 10000, it will be disallowed ?
• Do you know that if you pay Bonus to workers and pay cash over Rs 10000, it will be disallowed ?
• Do you know that you can get GST modvat (ITC ) in some cases and some not.
• Do you know there is a possibility of TDS as big as 25% effective (Grossing up u/s 194R ) in case of large gifts without PAN.

for our E-Circular in Nice Presentable PDF format

IMSME ECircular –Diwali expenses GST and Income tax dt 6-11-2023

Dont worry, Laws are good, for Clarity, for safety, for standards. Just follow them properly. You can get the Income tax expense, you can get the ITC credit in some situations, you dont have to worry, if you are complying with the law properly.

With Fond regards, Puneet Gupta and Sangeet Gupta, and all MLG Team members

 

If you have doubts you can Contact us … this will let you know your Risks, your clarity, your safety, what is right, and what is not right, in your kind of business situation, Contact us

Our main site is www.mlgassociates.in

and other site is : www.mlgassociates.org,

AS-7 Construction related Contracts How to do the Costing provisions

We Created this new page to help people who face the problem of
a) Retention Money by customer
b) Long Term Contracts
c) Income and Expense does not happen in same month/Quarter or even same year.

What does the law say ? and how to Follow the correct Accounting Standard. ( AS-7)

 

This is Useful for all companies in Engineering Construction,
companies in Manufacture of Large Machines,
companies in Delivery of Larger Projects

We all know that Engineering Contract companies face this problem. They always have Retention Money coming after months or years.

How to Follow AS-7 ?

Retention Money cases…

How to make  Provision for Service Costs and Warranty Claim Costs ?

 

	Example 1
	Recognition of Contract Revenue and Expense
	purpose : Profit for this year, as per AS-7
					Project A	Project B
					Amount	Amount
	Estimated Contract Price				85,00,000	1,50,00,000
A.	Total Cost Incurred				64,99,000	64,99,000
B.	Expected Cost to be incured				32,01,000	32,01,000
			Total		97,00,000	97,00,000
C.	Percentage of Completion				67.00%	67.00%
D.	Revenue for the year				56,95,000	1,00,50,000
	( this is above percent of total contract)
E.	Less Cost incurred in current Year				64,99,000	64,99,000
F.	Profit or loss for the year				Loss Rs (-) 8,04,000	Profit Rs 35,51,000

( Example on Future loss, provision… in the excel file attached … link at the bottom of this post )

Decision in short

As per Accounting Standard AS-7, you have to accrue the loss for the financial year, as per percent of completion method

As per Accounting Standard AS-7, you have to accrue the loss future years also , during this financial year, as per percent of completion method

 

The Income tax authority is also required to allow “all expenses”
that are normal and shall be incurred
There is no requirement that it must be incurred right now

The provision for future expense is allowed

In case your buyer has already asked for and you have made the Tax invoice for any part of the Contract … ( example 100% billing done), or 50% billing done case,
if the income is already booked

there is no doubt what so ever, that all the connected expenses
both already incurred
and yet to be incurred
must be booked in the books

Please note that if you do not follow the AS-7
your Balance Sheet is not True and Fair
your Auditor Report is also incomplete without the mention of this non compliance

 

Apprehension of Unascertained Expense / Unascertained Liability will not be allowed ??

This doubt or apprehension is not correct. See the link below

Link : https://taxguru.in/income-tax/unascertained-liability-claimed-expense-estimated-mercantile-system-accounting.html

Brief of the Case Delhi High Court held In the case of M/s. Aggarwal And Modi Enterprises (Cinema Project) Co. Pvt. Ltd Vs. CIT that whether a liability is ascertained or contingent is dependent on the facts of each case. Merely because a liability may be contractual or non-statutory would not make it incapable of being ascertained. Where an Assessee follows the mercantile system of accounting it is not necessary that the liability must have actually been incurred during the AY in question to enable the Assessee to claim it as an expense or deduction as the case may be. The crux of the matter is the reasonable certainty with which the liability can be ascertained.

Read more at: https://taxguru.in/income-tax/unascertained-liability-claimed-expense-estimated-mercantile-system-accounting.html
Copyright © Taxguru.in

 

Want an Excel format to do this properly ? download from the link below

Excel link : AS-7 Construction related Contracts How to do the Costing provisions

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We Created this new page to help people who face the problem of
a) Retention Money by customer
b) Long Term Contracts
c) Income and Expense does not happen in same month/Quarter or even same year.

What does the law say ? and how to Follow the correct Accounting Standard. ( AS-7)

 

This is Useful for all companies in Engineering Construction,
companies in Manufacture of Large Machines,
companies in Delivery of Larger Projects

 

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

 

What is the Change in GST ?  vs from 1-Oct-2023 ? , what to do. ? Mix up on the social media,

If you are a  MMTO ( Multi Modal Transport Operator), a C and F, and you want to send Quotes to your customers, what do do on GST. ?  Decision of GST on the old orders, already in pipeline ?

and for the normal Manufacturer / Trader / Importer ?

Query in your mind ? What to do ?

So, You have this Question ?  Good.. means you are in active business

and want to do the right thing ? Legally right ? Good. Means you are at the right page

So Let us Start ? Idea ? Very good

Advantage and Disadvantage

What  are the Advantages for the Normal Importer .. ?

You may say … Looks Great. It is exempt… blah blah .. as the media makes it sometimes… without going into the merits

Short Answer : Double GST is gone for the Import Freight portion. from 2017 to 2023, due to the Notification 8/2017 ( details below)…. importers were being forced to pay GST on both (a) product imported on CIF value (b) Freight again on RCM… whereas Freight was included in CIF Value

for details : https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html 

read details below, if required, else skip to next section below

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Earlier, Sl. No. 9(ii) of Notification No. 8/2017-Integrated Tax (Rate) dated June 28, 2017 (“the IGST Service Rate Notification”) provided that on the inter-state supply of services of “Transport of goods in a vessel including services provided or agreed to be provided by a person located in non-taxable territory to a person located in non-taxable territory by way of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India” was leviable to Integrated Tax @5%.

Further, SI. No. 10 of Notification No. 10/2017-Integrated Tax (rate) dated June 28, 2017 (“the Reverse Charge Service Notification”) states that services supplied by a person located in non-taxable territory to a person located in non-taxable territory of transportation of goods by a vessel from a place outside India up to the customs station of clearance in India, is taxable under reverse charge basis.

Accordingly, the importer was liable to pay IGST on ocean freight paid on imported goods under the reverse charge mechanism (“RCM”) in terms of the Reverse Charge Service Notification and the IGST Service Rate Notification irrespective of the fact that ocean freight component having been part of CIF value of imported goods, on which Customs Duty including IGST was leviable.

Read more at: https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html
Copyright © Taxguru.in

This leads to double taxation in the hands of the importer on the same component of ocean freight. This issue was debated and litigated in the past and had divergent rulings.

This aspect was challenged before the Gujarat High Court in Mohit Minerals Pvt. Ltd. & Ors. v. Union of India & Ors. [C/SCA/726/2018 dated January 23, 2020] wherein the High Court in a batch of petitions has declared the Sl. No. 9(ii) of the IGST Service Rate Notification and SI. No. 10 of the Reverse Charge Service Notification as ultra vires to the IGST Act, as the notifications lack legislative competence. However, the Revenue Department challenged the decision of the Hon’ble Gujarat High Court before the Hon’ble Supreme Court. The Hon’ble Supreme Court, in the case of Union of India v Mohit Minerals Pvt. Ltd. [2022 (61) G.STL 25 (SC)], held that:

Read more at: https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html
Copyright © Taxguru.in

Held favourable on the following aspects: The Importer of goods will be considered the recipient as he is the ultimate beneficiary even though the shipping service is provided by the foreign shipping line to the foreign exporter in the CIF contract. The supply of services provided by the foreign shipping line to the foreign exporter in a CIF contract, would necessarily be “made” to the Indian importer who would then be considered a “recipient” under the definition of Section 2(93)(c) of the CGST Act. With regard to the validity of the said entry of the Reverse Charge Service Notification it was held that it clearly specifies a taxable person who is liable to pay a reverse charge that is envisaged in the statute. Thus, the impugned notifications in the case cannot be invalidated for an alleged failure to identify a taxable person.

Held in favour of the Taxpayers and concluded that:

The assessee is liable to pay IGST on the ‘composite supply’, comprising the supply of goods and supply of services of transportation, insurance, etc., in a CIF contract.

If there is a separate levy on the assessee for the supply of services’ by the shipping line, then, it would be in violation of Section 8 of the CGST Act and would amount to double taxation. Hence, there cannot be a separate levy of IGST on the component of ocean freight paid by the foreign exporter to the foreign shipping line in the CIF contract.

Therefore, in order to end the dispute on taxation on ocean freight in the CIF contract, the CBIC vide Notification Nos. 11/2023, 12/2023, 13/2023-Integrated Tax (Rate), all dated September 26, 2023 made the following changes:

Read more at: https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html
Copyright © Taxguru.in

Very important

The whole focus of this case, and also the amendment was towards the double GST on the Import Freight , if already in the CIF value of the import

There is no change in the GST on the Direct Import Freight

There is no change in the GST on the Direct Sea Freight, also called Ocean Freight.. paid directly to a C & F Agent , a Shipping line, or MTO ( Multi Modal Transport Operator )

What are the Disadvantages ? Did you think about “incomplete” news coverage ? The importers are arguing with their C & F agents / Shipping lines / MTO that… Ocean Freight is now “Exempt” ?????? ….

But that is NOT CORRECT.

 

You must read this before you go ahead

The whole of this Supreme Court Decision & the changes in the law are pertaining to “double tax situation in CIF only”

What if, the business is IMPORTING on FOB basis, and….. He is paying to the Shipping line seperately — whether directly, or via an agent of Shipping line or to a C & F / MMTO / Freight Forwarder ?

No Change in payment of GST if Freight Forwarder is an Indian Registered entity .. and is charging GST on ocean freight, or Rail Road, IHC etc

No Change in payment of RCM if paid to outsider

Want evidence ? see this …

Source 1 : https://taxguru.in/goods-and-service-tax/amendment-implement-50th-gst-council-decisions-notification-no-11-2023.html

Source 2 : https://taxguru.in/goods-and-service-tax/changes-gst-notified-igst-ocean-freight-cif-contracts.html

Source 3 : https://taxguru.in/goods-and-service-tax/reverse-charge-mechanism-rcm-gst-provisions-notifications.html

Source 4: https://www.taxmanagementindia.com/web/View_discussions_detail.asp?ID=118780

Source 5 : https://taxguru.in/goods-and-service-tax/place-supply-provisions-gst.html

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Can you afford this Risk ?

The supply of services under RCM has been notified vide Notification No- 13/2017 Central Tax (Rate) dated 28-06-2017 as amended from time to time under Section 9(3) of the CGST Act. The list of services covered under this notification is very wide. Further, two additional supply of services has been notified for RCM under section 5(3) of IGST Act vide Notification No- 10/2017 Integrated Tax (Rate) dated 28-06-2017 as under-

Read more at: https://taxguru.in/goods-and-service-tax/reverse-charge-mechanism-rcm-gst-provisions-notifications.html
Copyright © Taxguru.in

First Serial number

Any service supplied by any person who is located in a non-taxable territory to any person other than non-taxable online recipient.

to : –Any person located in a non-taxable territory

by : –Any person located in the taxable territory other than non-taxable online recipient.

So, the clauses 13(2) comes in picture

seperate clause 13(3) to 13(12) apply for specific cases.. and if a clause is removed, then it reverts back to 13(2) master clause

and this means that

Normal RCM applies in case of direct “foreign party” vendor

and Forward charge in case of Indian vendor

Read more at: https://taxguru.in/goods-and-service-tax/reverse-charge-mechanism-rcm-gst-provisions-notifications.html
Copyright © Taxguru.in

for risk reduction

So, again, Watch this area carefully… Do not jump to conclusions that are not true.

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

Ocean Freight is taxable or not ? GST ? RCM ? 1st October 2023 ?

What is the situation now ? GST or RCM on Ocean Freight Mohit Minerals case exempt or taxable

Note 1 : These are the comments  and suggestions as on 30th Sept 2023. ~ 6 pm. We will continue updating this as more information comes to our knowledge.

Note 2 : The views are for information dissemination only. And for benefit of society at large. Please contact your CA / Consultant first before taking any action on the same.

Tax ALERT

 

This is normal yearly Quarterly SOP. Nothing new. But sending this reminder only for ready reference.

We all know that we must pay advance tax before the financial year ends in 4 instalments: 15th June, 15th September, 15th December and 15th March.

This is not applicable if your Tax due is nil, of Tax due is less than the TDS already deducted by your customers etc.

Points to remember

1. Is this on estimate basis ? Yes, make your best estimate .
2. For September month, the amount is calculated as follows: (a) Calculate 45% of the Annual Tax payable . And reduce the Advance tax, you have already paid in the instalment of 15th June.
3. This is not applicable if your Tax due is nil, of Tax due is less than the TDS already deducted by your customers etc.
4. What will happen if you don’t pay in time ? Govt will charge a bit of interest… this is approx 1% p.a. ( for a block of 3 months, in 1 go ). And Note, that interest is “disallowed”. Hence effective interest comes to 15% p.a. And comes to 3 months at a go. So, miss the date by just 2-3 days and pay interest for full next 3 months.
5. How to pay  ? Online only.
6. Site name = either your Bank account will have a link, or
7. Official sites are : https://incometaxindia.gov.in/ and https://incometaxindia.gov.in/Pages/tax-services/pay-tax-online.aspx

Benefits of Paying Advance Tax
1. Avoidance of interest cost
2. Better cash flow management
3. Avoidance of last-minute stress in March ( end of the year )
4. Avoidance of default notice by the tax department

SO
PLS AVOID LAST DATE. and pay in time, as per normal annual SOP.

 

 

Advance tax Due date Sept 2023 – Income Tax India

Have you paid your Advance tax for FY 23-24 ( AY 24-25 ). Do you know you can pay monthly also. Yes, try it.

 

So, again, Make your company more “marketable” in Banking Industry.

A Tax paying company is of course better “loan-worthy” .  and if you pay advance taxes in time.,,. you actually end up paying lower taxes… since you save the interest costs

Start go Ahead. And Enjoy the new way of doing business.

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

 

Proprietorship vs Partnership vs Pvt Ltd vs LLP, what to do. ? Advantages vs Disadvantages, what to make for a Startup / New Venture ?

Want to open a new Company or LLP ? What are the Advantages and Disadvantages ?

Query in your mind ? What to do ?

So, You have thought of a new idea. Good

and want to start New Joint Venture ? Good

or a New Startup Idea ? Very good

Advantage and Disadvantage

What  are the Advantages… ?

You may say … Looks Great. Ok. Feels Big, OK, Get visiting card of a Director….hmmm…. anything else ?

What are the Disadvantages ? Did you think about it ? 

You must read this before you go ahead

First, Closing down the company ?

What if, the business idea does not work ?

or, What if you and your new friend / Partner cannot work together due to any reason ?

or, What will happen if you are in LOSSES ?  and there is no Hope of revival in near future ?

Answer to the first set of three questions is …

the Company can be given birth in a week / month… but takes many months/even a year to close down.

Source : https://www.compliancecalendar.in/close-llp

This site also says.. every year Tens of Thousands of Companies and LLP are made but … this site and we ourselves know that average 70% don’t start business or dont continue beyond the first 2 years

Second, Big Risk of being DisQualified and removed from your own Main company ?

What if, the New Company / LLP is not able to file its Annual return ? due to any reason ?

Effect : You will stand Disqualified from all your other companies also .. including your running “existing businesses”.

 

Want evidence ? see this …

Source : https://cleartax.in/s/director-disqualification-removal-disqualification

• Where he/she is the director of a company that has either –
• a. Failed to file the annual returns for 3 years running
• b. Failed to pay interest on/repay the deposits for over a year
• c. Failed to pay any dividend that was declared for over a year
• d. Failed to redeem debentures or pay interest on debentures for over a year

In short, if your this new Company does not file its return due to mis-up between the partners… you become disqualified to remain director of your main business also.

 

Can you afford this Risk ?

What is the Probability.. that new business will not work ? ….

you might say it will work 100%… but market past shows that only 30% work and 70% do not work. So, better get somebody else in the family to become the Director till the company becomes of a significance and can be seen as a working company.

Can the procedure to close the LLP or Company be done with single party signatures ?

Of Course not. Both Parties , or say 100% of the Partners  , Directors, and shareholders must sign  the MOU for “closure”.

So, you are in a problem. Yes.

Sad part is that if both parties are not on talking terms,… and other party has nothing to lose…

Reasons ? maybe he has got a job somewhere, or he has left India for job outside India…. or ….. he does not want to pay for the LLP / Company closing expenses……he just wants to tease you …. 

in this case, you are saddled for life.

Daily rate penalty starts in all laws : GST, TDS, ROC, and Income Tax.

Let us see TDS first

 

https://taxguru.in/income-tax/section-201-consequences-non-compliance-tds.html

TDS starts at first first professional payment in case of a LLP , a company and a Partnership..  but you are EXEMPT from TDS net as a payee.. till you have last year turnover over Rs 1 crore… so, you are surely free for first year.. maybe for many many years

So, daily penalty of  Rs 200 per day for TDS return non filing alone. 100 days = 20000 Rs, …and 365 days= about 73000 Rs penalty for one Quarter TDS return alone (subject to max of TDS )

Need some latest  masala ?

https://timesofindia.indiatimes.com/city/mumbai/film-producer-gets-3-months-ri-for-delay-in-depositing-rs8l-tds/articleshow/69065185.cms

so, even the smallest of thing = TDS is not easy

 

LLP Returns last date ?

LLP Form 11 Annual Return Due Date

Form 11 is due on 30th May of each year. … just 60 days… that is very tight time schedule…..

All LLPs enrolled under the limited liability act, of 2008 need to yearly furnish two forms- Form 11 and Form 8.

Annual Return: Form 11 is needed to be submitted within 60 days of the closure of the fiscal year which is 30th May of each year. (Fiscal year closes on 31st March.)

Account and Solvency Statement: within 30 days from the expiry of 6 months LLP form 8 is needed to be submitted from the closure of the financial year which is 30th October of each year.

Filing of LLP Form 11 is a mandatory annual compliance for all LLPs, irrespective of turnover or profit or business activity. Hence, even a LLP that has no activity must file LLP form 11 or pay a penalty of Rs. 100 per day of delay in filing Form 11.

So, daily penalty of  Rs 100 per day for TDS return non filing alone. 100 days = 10000 Rs, …and 365 days= about Rs 36,500 penalty for one year one form (Form-11) return alone (.. .no maximum limit = unlimited

Need some latest  masala ? https://fastlegal.in/blog/llp/reduced-late-fee-for-llps/

The new amended rules will be applicable from the 01st day of April 2022. as per this site

but why go into all this ?

Similar problem in Income Tax, for non filing of income tax returns.

for risk reduction

So ordinary “Proprietorship” , and “Partnership” gives Freedom, to start and to close

Rule 1 : Start as a Propreitorship / Partnership, and upgrade to a Company or LLP… when you reach a critical cut off point of Turnover

say Rs 10 Crores p.a. or even Rs 5 crores p.a.

so usually, dont Saddle yourself with making a LLP or Company if you are small at this point of time.

 

Idea 2 : Start ths new business as a “Division” of the existing Business .. as Unit 2 of your main company…. 

this way, same GST number, same TDS number, same PAN, Same CIN, same IE code, same Bank, same limits…

and no extra return , no much extra formality,

Just accounts can maintained separate… you know the Profit and Loss account of that new division separately .

If there is a Loss, it gets adjusted in the first existing running business.

If there is a Need of Funds,  the first existing running business funds it. No need to take out money, pay tax on Dividend, and then invest into 2nd company.  Single unit helps.

There is a risk of Deemed Dividend, if one business is funding a second business… sometimes promoters end up risk of Section 2(22)(e).. Deemed Dividend…. Loan to related party… This is also reduced to ZERO, if the new business is a unit of the same existing profit making company.

So, again, Start new business entity as a Unit of your existing Company. …. Do not create a new entity….unless you reach a critical cut off point of Turnover

Contact us page click here

www.mlgassociates.org and www.mlgassociates.in

Proprietorship vs Partnership vs Pvt Ltd vs LLP, what to do. ? Advatanges vs Disadvantages, what to make for a Startup / New Venture ? Hope this comparison was well taken in positive light.