Why Singapore?

 Many Indian startups register in Singapore due to various reasons. One of the main reasons is tax saving for VC investors. In India, capital gains tax can be as high as 15-20%, while in Singapore, it is zero. As most VCs create their returns by selling shares in companies, it's the capital gains they get taxed on and not business profits or dividends.

Summary of updates on Corporate Tax – UAE

 Summary of the following five recent Ministerial / FTA Decisions on UAE Corporate Tax:

1. Ministerial Decision No. 83 of 2023;
2. Ministerial Decision No. 82 of 2023;
3. FTA Decision No. 5 of 2023;
4. FTA Decision No. 6 of 2023;
5. FTA Decision No. 7 of 2023.

Convertible Notes

 

This post provides an overview of how a Convertible Note (CN) converts during a priced round (such as a Series A or B) and how ownership percentage changes as a result. There are several parameters to consider when evaluating a CN, including the discount rate, valuation cap, interest rate, and maturity date. The CN can convert in three ways: the pre-money method, percentage ownership method, and dollars invested method. This post focuses on the pre-money method, where the pre-money valuation of the company is fixed and the conversion price for the note is calculated based on that.

Payment to MSME

 The recent Union Budget 2023 has made headlines due to its unprecedented inclusion of payments to Micro and Small Enterprises (MSE) vendors within the ambit of Section 43B of the Income Tax Act 1961. This inclusion is a significant step towards streamlining the payment receipt process for MSE ventures, which make up a fundamental segment of the Indian business ecosystem.

Sarbanes-Oxley Act (SOX

 

The Sarbanes-Oxley Act (SOX) and compliance are inextricably linked, with the latter referring to adherence to the law's regulations. In 2002, the United States government enacted SOX to enhance corporate governance, financial transparency, and accountability. It is primarily applicable to publicly traded companies in the US, imposing strict regulations on financial reporting and internal controls to prevent fraudulent activities and ensure the accuracy of financial statements. The law holds executives, board members, and auditors accountable for the accuracy of financial reporting and imposes severe penalties for non-compliance.

Non Operating Expenses

 

Non-operating expenses are costs incurred by a business that are not directly related to its core operations or day-to-day activities. These expenses are not part of the company core business & they were not included in the cost of goods sold.

Safe Harbour Rules

 India introduced safe harbor rules for transfer pricing in 2013. Transfer pricing refers to the pricing of goods, services, or intangibles transferred between related parties, such as a parent company and its subsidiary. Safe harbor rules provide certainty and predictability to taxpayers and tax authorities by setting predetermined benchmarks or thresholds that are deemed to be arm's length prices. Under India's transfer pricing safe harbor rules, taxpayers can choose to apply safe harbor margins for certain specified transactions. The safe harbor margins are based on industry-specific parameters, such as operating profit margins, for certain types of transactions. These parameters are designed to provide a level of certainty for taxpayers and reduce the compliance burden for tax authorities. The safe harbor margins apply to various types of transactions, including: 

Understand the deduction of Penalty expense under the Income tax act.

 Under Section 37(1) of the Income Tax Act, any expenditure that is incurred for the purpose of an offense or is prohibited by law cannot be considered as incurred for the purpose of business, and therefore, is not allowed as a business expenditure. It is important to note that this provision applies to both Indian and foreign expenditures.

Inverted Duty Structure

 What is Inverted Duty Structure?

Inverted tax structure simply refers to a condition where the tax rate on inputs used is higher than the tax rate on the outputs for sale.

Whether we get Refund of unutilized excess ITC?
A registered person may claim a refund of unutilized Input Tax Credit (ITC) at the end of any tax period where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies.

How to Analyse Financial Statement.

 When reviewing a company's financial statements, there are various types of analysis that one can perform to gain insights into the company's financial health and performance. In this article, we will discuss the three main types of analysis, namely vertical analysis, horizontal analysis, and key metrics, along with some unique metrics that can be used for further analysis.  

Save tax via Car Lease.

 

If you are in the market for a new car, you may want to consider a company car lease policy as a way to save up to 50% of the car cost. This may sound too good to be true, but it is a practical scenario that has been proven to work. By structuring your salary in a certain way, you can get a brand-new SUV at approximately half the cost.

Secondment of Employees

 

When it comes to tax assignments related to the secondment of employees from a foreign jurisdiction to India, it's important to consider a number of factors. These checkpoints can help ensure compliance with Indian tax laws and avoid any potential penalties or fines.

Tax Benefit of Donations Set to Expire

 NGOs have been recognized as key actors in promoting social justice, human rights, and environmental sustainability, making their work essential for the creation of a more equitable and just society. The funding of NGOs is solely dependent on donations, which underscores the significance of contributions from individuals and organizations alike. To incentivize and encourage donations, the government has introduced 80G tax deduction, which has been instrumental in motivating individuals to contribute to the funding of NGOs.

Applicability of GST on Food offered at concessional rate at Factory Canteen

 

This issue came up for consideration before the Gujarat ARA in the case of Cadila Pharmaceuticals Limited and the following arguments were placed before them   

The Income Tax Department has released JSON Schema ITR 1 and ITR 4 for AY 2023-24 (FY 2022-23) on 11th April 2023

ITR 1: For individuals being a resident (other than not ordinarily resident) having total income upto Rs.50 lakh, having Income from Salaries, one house property, other sources (Interest etc.), and agricultural income upto Rs.5 thousand.

New tax rule (TCS) explained: Foreign transactions under LRS

 

The Finance Minister Nirmala Sitharaman has suggested some changes to the rules about sending money from India to other countries in the Union Budget for 2023. Currently, people in India can use the Liberalized Remittance Scheme (LRS) to send money abroad for things like education, medical treatment, and business purposes. The new proposal will increase the Tax Collection at Source (TCS) rate from 5% to 20% for foreign remittances other than for education and medical purposes, starting from July 1, 2023. However, for education and medical purposes, the TCS rate will remain at 5%. If the money for education abroad comes from a loan from a financial institution, the TCS rate will be 0.5%. You can see the current and proposed TCS rates in the table below:

Audit Trail under the Companies Act, 2013

 

1.  Introduction

 

The Ministry of Corporate Affairs ("MCA") has made changes to the Companies (Accounts) Rules, 2014 ("Accounts Rules") to improve the accuracy of financial reporting. Companies are now required to use accounting software that has certain features, including recording every transaction, keeping a log of any changes made to the books of accounts and when they were made, and making sure that the audit trail cannot be turned off.  For this purpose, the following proviso had been inserted in Rule 3(1) of the Accounts Rules vide the Companies (Accounts) Amendment Rules, 2021, w.e.f. 1-4-2021:

Increase in Tax Rate on Royalty and FTS for Non-Residents

 Following is the key points for payment of overseas Fees for technical service (FTS)

•       Section 115A(5) of the Income Tax Act, provides an exemption from filing ITR by Non-Resident subject to the condition that income is limited to interest, dividend, royalty, FTS, and TDS equal to the rate specified u/s 115A being deducted and paid.

Do you know that

 

• Under Companies Act, even a company or LLP can be a subscriber, as it is a 'person'. 'Government of India' can be a 'subscriber'. However, a partnership firm or HUF cannot be a 'subscriber’.

Understand Liquidated Damages

Liquidated damages refer to a pre-agreed amount of money that a party to a contract is obligated to pay to the other party in the event of a breach of contract. The amount of liquidated damages is typically specified in the contract and is intended to compensate the non-breaching party for the losses or harm suffered as a result of the breach.

International Tax Update

 

• Apex court of Newzeland held that Interest on related party debt liable to be disallowed under GAAR even if funding arrangement complies with Thin Cap &Transfer Pricing.  Revenue justified in invoking GAAR to disallow deduction to interest payments on convertible note where the interest payments were in substance repayments of principal, even though the funding

Indirect Tax case update

• In the tax regime, generally, the tax department rejected the unutilized credit on the ground the same has not been reflected in the return. Means the Department has allowed the credit only when the credit has been reflected in the return. Credit reflected in the books of account has no more relevance in the eyes of department. Henceforth, to overcome this situation, the Hon'ble CESTAT Mumbai Bench in the case of Wardurg Pincus pronounced the wonderful judgment wherein the court has allowed the refund of unutilized cenvat credit which has not been reflected in the return. Meaning thereby, books of account has to be maintained properly in terms of the provision of law so that the unutilized credit has to be claimed.   

FAQ OF ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS

With the growing presence of foreign investments, whether in the form of Foreign Direct Investment (FDI) or Overseas Direct Investment (ODI), compliance with the Foreign Exchange Management Act, 1999 (FEMA 1999) Regulations is a crucial aspect of business operations for many entities. One such compliance requirement is the filing of FLA Return, which must be submitted by entities that have received FDI and/or ODI in any of the previous years, including the current year.

Dual Residency -

 The issue of dual residency is becoming increasingly common due to cross-border deputations and frequent international travels. Dual residency occurs when an individual qualifies as a resident of two countries under the respective domestic tax laws, whereby both countries seek to tax the global income of such an individual, leading to double taxation. The conflict of dual residency is resolved by applying Article 4(2) of the tax treaty, which is based on certain tests referred to as 'tie-breaker rules'. These tie-breaker rules help establish the preference of residency of one country over the other country. If an individual shifts his residency at the end or the beginning of the fiscal year of either country, there should not be an issue in determining the tax residential status of the individual under Article 4(2) of the tax treaty.

Understand Bank Realization certificate.

 Exporters who want to avail benefits under various export-related schemes offered by the government of India are required to provide the Bank Realisation Certificate (BRC) or Export Realisation Certificate (ERC). This certificate confirms that the exporter has received payment from the buyer in foreign currency, and it is issued by authorized dealer banks (AD banks) in India.

Which is better - Superannuation vs NPS

 The National Pension Scheme has been available to the public for over eight years, and more and more investors, business owners, and self-employed people are showing interest in it. This article aims to discuss why this is happening and also compare NPS to superannuation, which is a kind of pension benefit provided by employers but often ignored by employees.

SEBI revised guidelines for AIF

 

The Securities and Exchange Board of India (SEBI) has issued guidelines for 'excuse and exclusion' of investors in an Alternative Investment Fund (AIF) to mitigate inconsistency in industry practices and prescribe adequate disclosure to investors in AIFs.

The guidelines now prescribe the following for excluding an investor from participating in a particular investment proposed to be made by an AIF:

1. The investor should confirm that its participation in the investment opportunity would be in violation of an applicable law or regulation, based on the opinion of a professional/legal advisor.

2. The investor, as part of contribution agreement (or other agreement with the AIF), should disclose to the manager that participation of the investor in such investment opportunity would be in contravention to the internal policy of the investor. The said agreement should provide a condition that the investor must report any change in the disclosed internal policy to the AIF within 15 days of such change.

3. An AIF (for reasons to be recorded by the manager) may exclude an investor from participating in a particular investment opportunity, if the manager of the AIF is satisfied that the participation of such investor in the investment opportunity would lead to the AIF being in violation of applicable law or regulation or would result in material adverse effect on the AIF.

4. In the context of an investor in an AIF or other investment vehicle that in turn is an investor in an AIF, such investor may be partially excused or excluded from participation in an investment opportunity, to the extent of the contribution of the AIF/investment vehicle’s underlying investors who are to be excused or excluded from such investment opportunity (for reasons to be recorded by the manager).

The proposed guidelines are broadly consistent with the industry’s current practices. It would be helpful if other regulators, especially the insurance regulator, taking a cue from this SEBI circular, formally clarifies that insurance companies can contribute capital to AIFs that may invest in overseas companies as part of their investment strategy so long as the insurance company is excused from participation in those specific overseas investment opportunities. This would release the much needed capital for investments in AIFs that is awaiting such formal clarity from the IRDAI.

Which one should I opt. old or new tax regime.

 

There is a lot of uncertainty among taxpayers about which tax regime to choose following the recent 2023 Budget. The government has included several incentives in the budget to encourage taxpayers to adopt the new tax regime. This suggests that the government's aim is to have taxpayers switch to the new regime and gradually phase out the old one. While the new regime is now the default option, the old tax regime will still be available. Let's examine both regimes and determine which one to select in 2023.

Owner's equity

 Owner's equity, also known as shareholders' equity or capital, refers to the portion of a company's assets that is owned by the owners or shareholders. It represents the residual interest in the assets of the company after deducting liabilities.

Queries to pose to HR during ESOPs negotiation?

When negotiating ESOPs (Employee Stock Ownership Plans) with an HR representative, it's essential to ask the right questions to ensure that you understand the terms and conditions of the plan fully. Here are some important questions to consider:

Time limit to report E Invoicing.

 Government has decided to impose a time limit on reporting ‘old invoices’ on the e-invoice (IRP) portal for taxpayers having aggregate annual turnover (AATO) greater than or equal to INR 100 crores. 

Understand customer of section 194R.

 Although the issue discussed in this article is almost a year old, its effects are still significant for trade and industry, and thus is being highlighted again. The Indian Income Tax Act, 1961, was amended by the Finance Ministry, by inserting sub section 2 to Section 194 R, with effect from 1st July 2022. The objective of this amendment was to plug revenue leakage on various kinds of payments, perks, gifts, incentives, and discounts that are prevalent in the normal course of business. However, subsequent Guidelines and Additional Guidelines issued by the Finance Ministry have not clarified one aspect of the amendment, which is highlighted in this article.

Green Deposit.

 

Green Deposits, a fixed deposit for a specific tenure, where the amount deposited by you will be used for lending to renewable energy projects, green building projects and projects in smart agriculture, water or waste management projects etc.

Questions you should ask HR while Negotiating ESOPs

 When negotiating ESOPs (Employee Stock Ownership Plans) with an HR representative, it's essential to ask the right questions to ensure that you understand the terms and conditions of the plan fully. Here are some important questions to consider:

1. What percentage of the company's ownership will the ESOP represent?
2. How long will it take for the ESOP to fully vest?
3. Will there be any performance metrics or milestones that need to be achieved before vesting occurs?
4. How will the value of the ESOP be determined?
5. What happens to the ESOP if the company is acquired or goes public?
6. Can the ESOP be transferred or sold?
7. What are the tax implications of participating in the ESOP?
8. Are there any restrictions on when the ESOP can be exercised or sold?
9. What happens if the employee leaves the company before the ESOP fully vests?
10. What are the risks associated with investing in the ESOP, and how can those risks be mitigated?

Remember that ESOPs are complex financial instruments, and it's crucial to fully understand the terms and conditions before accepting an offer. Don't hesitate to ask questions and seek professional advice if necessary.

JUSTIFYING THE GLOBAL CORPORATE MINIMUM TAX

 

In October 2021, the Global Corporate Minimum Tax (GLoBE) rate was set at 15% for Multinational Enterprises (MNEs) under the Pillar 2 of the OECD/IF BEPS 2.0 proposal. The same rate and base were adopted for the new US corporate alternative minimum tax (CAMT). Although the Single Tax Principle suggests that the rate should be around 23%, this compromise was justified as it aligns with the three goals of the corporate tax: revenue, redistribution, and regulation.

Understand ESOP & RSU.

An ESOP, short for Employee Stock Option Plan, and an RSU, short for Restricted Stock Unit, are forms of compensation provided to employees in exchange for their services rendered to an organization. These schemes also grant the employee ownership in the organization they work for. ESOPs and RSUs are typically granted at a discounted rate to employees, with the differential amount between the exercise price and the fair market value (FMV) being borne by the organization. After the grant of an ESOP or RSU, a certain vesting period is required before the employee can exercise their options. It is important to note that these options can only be exercised if the employee remains on the organization's payroll during the vesting period.  

Biometric Based Aadhaar Authentication and Risk-Based Physical Verification in GST Registration

 Important Update on CBIC notifies Amendments to implement Biometric Based Aadhaar Authentication and Risk-Based Physical Verification in GST Registration

The Central Board Of Indirect Taxes and Customs (CBIC) has notified amendments to implement biometric based aadhaar authentication and risk-based physical verification in GST registration. The amendments to the Central Goods and Services Tax (Amendment) Rules, 2023 aim to enhance the efficiency and security of the GST registration.

By the latest amendment, the Board has substituted Rule 8(4A) of the CGST Act, 2017 which suggested that the date of submission of the application in cases shall be the date of authentication of the Aadhaar number, or fifteen days from the submission of the application in Part B of FORM GST REG-01 under sub-rule(4), whichever is earlier.

As per sub-section 4A of Rule 8, the application undergoes authentication of the Aadhaar number for the grant of GST registration.

The notification stated that every application made under sub-rule (4) by a person, other than a person notified under section 25 (6D), who has opted for authentication of an Aadhaar number and is identified on the common portal, based on data analysis and risk parameters.

The above-said procedure shall be followed by biometric-based Aadhaar authentication and taking photographs of the applicant where the applicant is an individual about the applicant where the applicant is not an individual, along with the verification of the original copy of the documents uploaded with the application in FORM GST REG-01 at one of the Facilitation Centres notified by the Commissioner.

It is important to note that as per the CBIC notification the application shall be deemed to be complete only after the completion of the process laid down under the above-said provision.