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Spotlight-on-GST-Auditor - Copy

Brace yourself for GST Audit

Goods and Services Tax (GST) has proved to have its own pros and cons. Since its introduction it has left ambiguity in the minds of people as to how one should file the returns, what transactions need to be recorded, what all comes under the purview of GST, how much GST rate needs to be charged on what products and who all are required to get their financials audited, etc.

To obliterate uncertainty regarding GST audit, the following procedure should be followed:

  • Filing of annual return: The annual return is an aggregation operation whereas the audit is reconciliation between annual return and audited financial statements. Though, both of them are due on the same date, the annual return becomes a pre-requisite for GST audit. For smooth compliance with GST audit, businesses often submit annual return earlier than the deadline. Submission of annual returns beforehand, may lead to disclosure in errors which in turn will be reconciled. That would require to be separately disclosed in the GST audit reports with specified reasons. The taxpayer would need to ensure the annual returns have accurate disclosures, with no room for errors.
  • Reconciliation of financial statements: Form GSTR-9C solicits reconciliations of turnover or input tax credit (ITC) at the Goods and Services Tax Identification Number (GSTIN) level. It is requisite for taxpayers to maintain GSTIN-level distinction of audited financial statements. Where the organizations fail to maintain branch-wise financial statements, this could be an exhausting activity.
  • Scrutinizing reasons for non-reconciliation of items:The GST audit not only requires reconciliation to be prepared but also mandates mentioning detailed reasons for non-reconciled items to be furnished in the form GSTR-9C. So, a taxpayer will not only prepare rupee-to-rupee reconciliation but also investigate the reasons for any non-reconciled items.
  • Facility for rectification: No mechanism is made available to the taxpayers for rectifying errors made by them in their monthly compliances while filing annual return or undergoing GST audit. This is a setback for legacy laws, where annual return was filed after the submission of Value Added Tax (VAT) audit reports, after giving effect to all mismatches, errors, differentiating items.
  • Awaiting IT facility:Though the procedure, forms and standards have been released to the public, the facility on the GST portal to submit the audit, as well as the annual return has not been made available. Clarity is also awaited on certain intricacies, such as whether physical submissions would be required.
  • Selection of auditor:As per rules mentioned under GST Act, certifications by two different modes forms part of GST audit format as per form GSTR-9C. This includes:
  • Reconciliation statement of books of accounts prepared and certified by statutory auditor; and
  • GST records and documents other than reconciliation statement prepared and certified by a person other than statutory auditor.

Internal auditors are not allowed to be appointed as GST auditors, as per the latest Institute of Chartered Accountants of India (ICAI) announcement. Given the significance of the GST audit and amount of information required by the audit forms, business should select the GST auditors judiciously, as per the policies of relevant professional institutes.

What should you do?
It is highly recommended that businesses not only commence the activity of annual return filing but also simultaneously begin the GST audit process considering past experiences of facing last-minute technical glitches with GST filings as well as the volume of information requisite to be collected and prepared. Given the fact that the due dates for GST audit and GST annual return coincide, also going through the volume and type of data required to comply with both, it is likely that the days to come will be strenuous for businesses and tax professionals alike. To ensure smooth journey through the GST audit phase, a business should appoint the GST auditor well in time, prepare a project plan, start collating documents and information, controls for filing annual returns as well as devise internal checks.

 So to ease your burden and make GST audit a piece of cake, our team can assist you in undergoing the whole audit procedure. To get in touch, please Contact us. We also offer services related to setting up business in India, company formation in India, taxation, accounting and bookkeeping and statutory audits.

To understand the basic concepts of GST audit and related queries, visit GST Audit- eradicating perplexity,  GST Audits- An overview.

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Extensible Business Reporting Language (XBRL)

Developed by XBRL International Inc. (XII), XBRL is defined in Rule 2 of Companies (Filing of documents and forms in XBRL) Rules, 2015 as a standardized language for communication in electronic form to express, report or file financial information by the companies under the Act. It is a language for communicating electronically, financial and business data for business reporting. It has facilitated the process of creating, transmitting, using or analyzing such information.

Companies filing financial statements in AOC-4
With reference to Companies (Filing of documents and forms in XBRL) Rules, 2015 following companies are required to file their financial statements as well as documents under section 137 of the Act with the Registrar in e-form AOC-4 XBRL:

  • Companies having paid-up capital of INR 5 crores or above
  • Companies having turnover of INR 100 crores or more
  • All companies which were covered under the companies (Filing of documents & forms in XBRL) Rules, 2011

Therefore, companies coming under the purview stated under Companies (Filing of documents & forms in XBRL) Rules, 2015, shall file its financial statements and other documents in e-form AOC-4 XBRL. However, as per proviso to Rule 3, companies in sectors like insurance, banking, non-banking financial companies, housing finance and power sector companies are exempted from XBRL filing.

Documents to be filed in AOC-4
The following documents must be filed with AOC-4:

  • Authenticated copy of financial statements
  • Statement of reasons and facts for not holding the annual general meeting (AGM), if any
  • Approval letter of extension of financial year or AGM
  • Statement of subsidiaries in form AOC-1
  • Statement of reasons and facts for not adopting financial statements in the AGM, if any
  • Company corporate social responsibility (CSR) policy
  • Details of remaining CSR activities
  • Test or supplementary audit report
  • Details of other entity(s), if any
  • Secretarial audit report
  • Details of comments of Comptroller and Audit General (CAG) of India
  • Directors’ report
  • Details of salient justification and features for entering into contracts / arrangements / transactions with related parties in form AOC-2
  • Optional attachment(s), if any.

Financial Statements of a company is inclusive of balance sheet, statement of change in equity (if applicable), profit and loss account, cash flow statement (if applicable) as well as any explanatory notes annexed to the financial statements. Financial statements along with board report must be filed for all companies registered in India to provide the shareholders, government, stakeholders and the public a broad financial picture of the affairs of the company during a financial year.

Due dates of XBRL filing
Within 30 days of conducting an AGM, all the companies registered under the Companies Act, 2013 shall file a copy of financial statements including all the requisite documents to be attached, duly adopted at the annual general meeting of the company. Since, holding an AGM is not the compliance stated for a One Person Company (OPC), it must file a copy of its financial statements duly adopted by the member, within 180 days of conclusion of the financial year.

If any company did not hold the AGM, the financial statements as well as the documents required to be attached duly signed along with the statement of facts and reasons for not holding the annual general meeting should be filed with the Registrar within 30 days of the last date before which the annual general meeting should have been held. Filing of Financial Statements with the Registrar of Companies in form AOC-4 XBRL (if applicable) for the financial year 2017-18 is 31st December’ 18.

If you think this is a lot to handle and you need a professional to guide you through the filing process, please click here

We also provide supplementary services including setting up business in India, company incorporation, trademark registration, accounting, auditing and taxation service, statutory compliances, monthly / quarterly / annual filings, etc.

gst audit in india

GST Audit- eradicating perplexity

What is GST Audit?
Audit means the critical examination of returns, records and other documents maintained and furnished by the registered person under CGST Act or the rules made thereunder or under any other law for the time being in force. It is also executed to verify the authenticity of turnover declared, refund claimed, taxes paid, and input tax credit availed, and to affirm compliance with the provisions of this Act or the rules made thereunder.

What are the rules of compliance for GST Audit?
GST audit is requisite for registered taxpayers with an aggregate annual turnover exceeding INR 2 crores. Aggregate turnover is computed considering the Permanent Account Number (PAN) under GST. An entity having an aggregate turnover exceeding the minimum prescribed limit is required to obtain a Goods and Services Tax Identification Number (GSTIN) registration in each state or union territory where place of business lies.

An audit is required to be conducted for all GSTINs obtained for a PAN. Thus, in a situation where an entity has obtained 10 GSTINs, 10 GST audits will be required to be submitted if the aggregate turnover during the financial year exceeds prescribed limit of INR 2 crores on a PAN-India basis.

Are there any forms requiring submission under GST audit?
Form GSTR-9C is required to be submitted for audit under GST in conformity with the format released by the government. The notified Form GSTR-9C contains 10 page divided in two parts – the reconciliation statement and certification from the auditor.

At what date GST audit needs to be submitted for FY 18?
As per Section 44 of the Central GST Act (CGST Act), the GST audit form for FY 18 is to be submitted by December 31, 2018.

How and where to submit GST Audit?
Technically, Form GSTR-9C is to be filed electronically through the common Goods and Services Tax Network (GSTN) portal.

Do you need professional assistance in GST Audit or other services related to GST registration, returns, refunds, litigation, opinion, etc.? If yes, click here . We also offer services related to setting up business in India, company formation in India, statutory accounting and bookkeeping and other regulatory requirements.

If foraging for more information on GST related queries, visit GST Audits- An overview

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FDI in retail sector

Foreign Direct Investment (FDI) for a developing country like India is a major avenue of forex influx in the economy. It not only boosts the market performance but also provides a sense of security in case of unforeseeable events.

FDI in retail sector in India was restricted initially, but the dire need for forex lead to government liberalizing the policies of making investment upto 51% by way of FDI in ‘single brand’ retail sector and upto 49% equity participation in ‘multi brand’ retail sector, which further escalated steadily in retail sector.

Defining Retail Sector
Retail Sector is inclusive of small, medium to large shops that sell goods to the ultimate consumers for their personal consumption. Retailing to a customer who further sells those goods is not treated as consumer here. It encompasses all kinds of shops, from small groceries to supermarket chains and large departmental stores. In computing the definition of retail sector, traditional bricks-and-mortar shops mail-order and online businesses is also included.

Pros and cons of FDI in retail sector
Following are some advantages which will take place as a result of FDI entering the economy:

  • Overall economic growth: Entry of foreign companies in India will boost the infrastructure and real estate sector will be equally benefitted. Banks and Financial Institutions will also gain momentum as a result of FDI infusion in the economy.
  • Employment Opportunities: Following the trend and analyzing the vast possibility of business expansion, more business ventures will enter the market and create job opportunities for the vast population of the country.
  • Eliminating middlemen: Intermediaries dominate articulation between manufacturers or producers and final consumers resulting in loss of maximum share of profits of manufacturers or producers to the intermediaries. With the introduction of FDI, manufacturers or producers might be offered contractual supply of products, thus, eliminating the loss of profits to middlemen.
  • Benefitting ultimate consumers: Customers or end consumers will get access to a variety of international quality products at lower rates, compared to what they used to pay earlier in the market.

Introduction of FDI in the markets may lead to the following disadvantages:

  • Country’s share of revenue drained: FDI will drain out the country’s fair share of profits by diverting them to foreign countries, causing negative impact on India’s overall economy.
  • Domestic players crushed: Entry of big international players in the market might affect the performance of small domestic companies / individuals negatively. Small companies are not fully equipped to tackle the international company’s strategies and might lose their market share.
  • Jobs in other sectors affected: Many of the small business owners and workers from other functional areas may lose their jobs, as lots of people are into unorganized retail business such as small shops.

FDI policy in India:
Administration of Foreign Investment in India is regulated by the provision of the Foreign Exchange Management Act (FEMA) 1999 and FDI policy announced by the Government of India. The Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000 are issued by the Reserve Bank of India (RBI) via a notification. From time to time, this notification has been amended.

The Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP) notified the FDI policy through Press Notes. Foreign investments are freely allowed in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (FIPB) would be mandatory.

It is believed that FDI can prove to be powerful catalyst which can spur competition in retail industry. Also, organized retail sector is a budding phenomenon in India and leads to exponential growth of markets, despite all the downturns. Need some assistance or more information for investment in India, please click here.

Also, we can assist you in setting up your presence in India, company formation in India, statutory accounting and bookkeeping and other regulatory requirements at click here 

stock-buyback

Buybacks: acing the pace?

Defining buy-back
When a company procures its own outstanding shares i.e. quantum of stock in the open market along with shares held by institutional investors and restricted shares held by insiders and company officers, to reduce the number of shares available for General Public.

Reasons for buy back
Buy back of shares is undertaken for numerous reasons, like to strengthen the value of remaining shares available by cutting the supply or preventing other stakeholders from taking a controlling share. Few reasons for companies buying back their shares are discussed as follows:

  • Preserving stock price: Company operates with the intention of maximizing shareholder’s wealth which in turn is related to the quantum of dividend supplied to them. But the increasing stream of dividends is difficult to maintain during recession. If the economy slows or dips into recession, there are chances of cutting down on the volume of dividends to preserve cash, leading to shareholders selling off their stocks. Instead, if buy back of fewer shares is considered, the stock price will likely take less of a hit. Share buy backs can be modified according to the conditions prevailing in the market, thus, preserving the stock price.
  • Undervalued stock: Due to investor’s inability to see beyond a business’ short lived presentations, bearish performance and lurid news statements, undervaluation of stock of a company is common. In such a situation, company might repurchase a part of its shares at reduced price and then re-issue the same once the market gains momentum, thereby raising its equity capital without issuing any additional shares.
  • Instant anchor to financial statements: Declining number of outstanding shares results in increasing Earning Per Share (EPS) of a company as the net income is now divided by reduced number of outstanding shares; this in turn lures small investors looking for quick money to invest in that company. This rapid influx of investors artificially leads to inflation in the stock price. All this leads to appreciation in the financial health of the company, thus, stemming the total inflows enjoyed by the company.

Buyback implementation
Buybacks are carried out by following two methods:-

  • Tender offer: It refers to a process whereby shareholders might be conferred with a tender offer and given the option to tender or submit all or a portion of their shares within a given time period at a premium to the current market price. The premium given compensates investors for advancing their shares rather than holding onto them.
  • Open market purchase: Companies buy back their shares on the open market over an extended frame of time and may even organize an outlined share repurchase program that purchases shares at certain times or at regular intervals.

Dividend v/s Buyback: Contrasting taxes
The mode of attaining satisfied shareholders is by rewarding them with a steady stream of dividends. But now dividends are being taxed at three different levels, namely:

  • Being post tax appropriations, dividends are distributed after taxes are paid to the government on the total revenue influx, leading to multiple tax imposition on same amount.
  • Payment of Dividend Distribution Tax (DDT) on dividends, paid by the company declaring dividends.
  • Dividends exceeding INR 10 lakhs earned in a year will pay an additional tax at 10%.

On the other hand, tax criteria in case of buybacks is different for listed as well as unlisted companies, the same is discussed as under:

  • For listed companies: Buyback can be executed via following two channels:-
    1. Buyback directly from the shareholders: If gain from buyback is Long-Term Capital Gain (LTCG), the tax will be payable on the lower of two amounts, which are, 20% with indexation or 10% without indexation. No Security Transaction Tax (STT) is paid by the shareholders. Hence, LTCG on buyback is taxable.
    2. Buyback through Stock Exchange: Buying back of shares through stock exchange leads to payment of STT on transaction. Since STT is already paid in this case, LTCG will be entirely exempt.
  • For unlisted companies: No tax imposition on the person who benefits from the buyback of shares irrespective of whether the gain from the buyback is short-term or long-term.

As compared to dividends, buybacks has emanated as a smart instrument for large investors and companies. Though, the introduction of tax on LTCG without benefit of indexation lead to diminishing advantages of buyback, it still has an upper hand with its implications comparatively serviceable than those of dividends.

Need more information on buybacks in India, you may reach us.

At AJSH, we offer you a variety of services including company registration, accounting and bookkeeping, statutory audits, tax compliances, trademark registration and setting up of SEZ, for any assistance, please click here.

investment require to start a business

Originating Businesses

Investment required to start a business

“The Entrepreneur always searches for change, responds to it and exploits it as an opportunity!”

Quoted above is not only a saying but a true exhibit of how a man aspiring to establish his own business should retaliate to the dynamic environment we live in. As risk and reward go hand-in-hand, it is crucial for an entrepreneur to estimate the cost involved and income generated for any new business, whether you’re a fast moving start up or still weighing the pros and cons of whether or not to set up a new venture.

Though, the funds needed to ignite and propel a business may vary depending on the nature and type of business, here is a gist that lays down common steps to work it out.

Funds available with you: Initially, you should analyse the fact whether you have sufficient funds to start a business or not. Scrutinizing your income after deducting all your personal expenses will automatically lead you to the figure of funds that you have in hand, accordingly cut down the payments which you think can be avoided and add necessary expenditure which cannot be circumvented. These numbers will help you decide if your business is viable or not, and show you a quicker path to breaking even and long-term profitability.

Fuelling the business: After facing the crisis of financial crunch, take notes on how much is needed to keep the business going for a longer period. This process of incorporating a business is followed by taking account of the application of such funds at various stages:

  • Initial Cost: These tend to be one-off cost items, including:
  1. Lease or purchase of buildings or land
  2. Permits, licenses or other compliance costs
  3. Equipment and/or machinery
  4. Vehicles
  5. Shop fittings and/or office furniture
  6. Branding
  7. A website and domain name
  • Fixed Costs: These are bills and other costs you need to pay on an on-going basis, also known as overheads. These tend to be time-related like monthly phone bills or quarterly rates payments. Common fixed costs include:
  1. Insurance
  2. Utilities, e.g., electricity and internet
  3. Rent or mortgage payments
  4. Wages/ Salaries
  • Variable Costs: These are expenses that vary depending on how much, or how little, your business produces and include:
  1. Raw ingredients
  2. Production materials
  3. Stock orders

In case of insufficient funds, investors and lenders can prove to be of utmost help, but their decision mostly depends on the history of your business. In case you step foot in the business market for the first time, only exceptional idea or skills can induce them to invest their money in your business.

Take expert opinion:  An expert in the field of financing can give you clear insights into how much money is required to start and run the business. Try to find an accountant or advisor who has a good track record with business similar to your own.

Analysing established businesses: An intelligent move to estimate profits and costs is by studying and analysing other businesses in the same industry. This could not prove to be full proof at all times, but still serves the purpose.

Critical evaluation of sources and application of funds of last 12 months is necessary to keep a check on what was planned and how far the business has come. It’s common to operate at a loss when first business is started. One has to make sure that they have enough money in reserve to sustain during this period. A cash flow forecast will help predict whether you’ll need to borrow money, and if you are financially prepared for running the business.

Still uncertain on how to start a business or run already established business? Feel free to consult our experts for this or regarding any other information you are sceptic about AJSH & Co. LLP

To facilitate the process of setting your business, we offer a wide range of services including company registration, accounting and bookkeeping, statutory audits, tax compliances, trademark registration and setting up of SEZ.

Income tax adviser in India

Income Tax: Skepticism eliminated

What is Income Tax?
A tax imposed on taxable income or profits of persons (whether individual, firm, company, Artificial Juridical Person, Association of Persons, Body of Individuals or Local Authority). Taxation rates may vary by type or characteristics of tax payers.

Tax trend followed in India:
In India, two types of tax trends are followed:

  • Progressive Rates: When the tax rate increases as the taxable income increases.
  • Proportional Rates: When the tax rates are uniform, irrespective of the person or their incomes.

Income tax in itself is a vast concept and cannot be understood in entirety by a layman, so here are few answers to drive away all ifs’ and buts’ that usually arise:

  • Are gifts from relatives always tax free?
    The provisions of Section 56 of Income Tax Act, 1956, state that the section provides for a cap of INR 50,000 on gifts received from non-relatives and if gifts exceeded the amount, the same would be taxable under the head “income from other sources.” But there was no such cap on gifts received from a relative.
  • What is the meaning of Presumptive taxable scheme?
    As per section 44AA of the Income-tax Act, 1961, a person engaged in business is required to maintain regular books of account under certain circumstances. In order to provide relief to small taxpayers, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44ADA and 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from the job of maintenance of books of account. ​
  • Is occasion a necessary condition for receiving any sum from a relative as a gift?
    The need to provide an explanation on the occasion for which gift was received is not mandatory, as per the provisions of Section 56 of Income Tax Act, 1956.
  • How is long-term capital gain from NABARD bonds taxed?
    Long-term capital gains (LTCG), after indexation, from zero-coupon bonds of NABARD are taxable at 20.8% and without indexation they are taxable at 10.40%, after taking into account basic exemption limit.
  • Is deduction allowed on money invested in Senior Citizens’ Saving Scheme (SCSS)?
    Amount deposited in SCSS is eligible for deduction under section 80C of the Income Tax Act, subject to the maximum limit of Rs 1.5 lakh.
  • What are Equity Oriented Mutual funds?
    Mutual Funds that apply 65% or more of their corpus to equity or equity related securities at all times.
  • How Equity Oriented Mutual Funds are taxed?
    1. Gains on equity oriented mutual funds held for less than a year are treated as short-term capital gains and taxed at 15%.
    2. Gains on equity oriented mutual funds held for a year or more are treated as long-term capital gains and taxed at 10% for gains exceeding Rs 1 lakh in a year.
    3. For equity oriented mutual funds invested on or before 31 January 2018, gains till that date will be considered as grandfathered and will be exempt from tax.
  • Is maintaining proof or records of earnings necessary? ​​
    For every source of income one should maintain proof of earning and the records specified under the Income-tax Act. In case no such records are prescribed, reasonable records with which one can support the claim of execution of income should be maintained.
  • Is relief available from double taxation, if income is earned in both India as well as abroad?
    A person can claim relief in respect of income which is charged to tax both in India as well as abroad. Relief is granted either, as per the provisions of double taxation avoidance agreement entered into with that country (foreign country) by the Government of India or by allowing relief as per section 91 of Income Tax Act in respect of tax paid in the foreign country.
  • When are incomes deemed to be received in India?
    Following incomes are treated as incomes deemed to be received in India: ​

    1. Interest credited to recognised provident fund account of an employee in excess of 9.5% per annum.
    2. Employer’s contribution to recognised provident fund in excess of 12% of the salary of the employee.
    3. Transferred balance in case of re-org​anization of unrecognised provident fund.
    4. Contribution by the Central Government or other employer to the account of the employee in case of notified pension scheme referred to in section 80CCD​.​
  • What is the eligibility for being taxable under Presumptive taxable Scheme under section 44AD?
    The scheme cannot be adopted by a non-resident and by any person other than an individual, a HUF or a partnership firm (not Limited Liability Partnership Firm). Further, a person who has made any claim towards deductions under section 10A / 10AA / 10B / 10BA or under  sections 80HH to ​80RRB in the relevant year, cannot come under the purview of this scheme.We believe that income tax cannot be illustrated and explained with few questions because of its vast dominion. Still confused and have questions regarding your income tax filing, you can reach our team of experts.

If you require any assistance in filing income tax returns, corporate returns, tax assessments, tax planning, structuring, transaction advisory, please click here.

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Rupee sliding: Reasons & Forecast

What is value of currency for an economy?
An economy is often represented by the people who live there and the value its currency has, further the value of a currency depends on factors that affect the economy like imports and exports, performance of equity markets, foreign exchange reserves, macroeconomic policies, inflation, employment, interest rates, growth rate, trade deficit, foreign investment inflows, banking capital, commodity prices and geopolitical conditions. Currencies are often influenced by income levels through consumer splurge. When income increases, people tend to expend more. Demand for imported goods increases demand for foreign currencies, thus, weakening the local currency.

Reasons for Rupee depreciation against USD:

  • Crude oil- US restricted all countries, including India to import crude oil from Iran. Iran being the second most largest exporter of crude oil to India due to geographic proximity that saves  shipping cost as well as the favourable financial terms offered by Iran, including the longest credit period among all of India’s suppliers is losing its rupee value further.
  • Trade war- US and China have been involved in heated up trade war as they are imposing import tariffs on goods from either of these countries and such a situation is not viable for a country like India.Trade war is leading the markets into period of risk off where prices of all assets are moving lower. US Dollar and Japanese Yen are observed to be the major beneficiaries from trade war. Indian Rupee is already under pressure from high crude oil prices and on-going trade war sparked another bout of capital outflows.
  • Fiscal deficit blues- As a result of hike in crude oil prices, crude oil imports from Iran and trade war between US and China India’s fiscal deficit might get hurt over the upcoming quarters as India is a net importer of crude oil and also heavily dependent on it. It is further expected that weakness in Indian Rupee might persist as it will be difficult to fund the widening current account deficit given the increased return by way of higher US Dollar rates offered by other emerging market debtors.
  • FPI outflows: FPIs (Foreign Portfolio Investors) have surfaced as net sellers in the months of FY2018 and have already sold-off around INR14,000 crores worth of equity and debt securities so far, leaving Rupee to a downslide.

Ways to protect the depreciating currency:

  • The country should sell more goods in overseas market than it buys from them and have a trade surplus, which leads to more foreign currency into the country than what is paid for imports. Thus, strengthening the local currency.
  • As the difference in interest rates between countries is one of the major factors for rupee depreciating, RBI’s move to deregulate interest rates on savings deposits and fixed deposits held by Non-Resident Indians (NRIs) proved to be a successful part of a series of steps to stem the fall in the rupee. By allowing banks to increase rates on NRI rupee accounts and bring them on a par with domestic term deposit rates, the RBI expects fund inflows from NRIs, resulting in a rise in demand for rupees and strengthening value of the local currency.
  • Some ways through which the RBI controls the movement of the rupee are:
    1. Changes in interest rates
    2. Relaxation or tightening of rules for fund flows
    3. Tweaking the cash reserve ratio (the proportion of money banks have to keep with the central bank)
    4. Selling or buying dollars in the open market
    5. Fixation of the statutory liquidity ratio, that is, the proportion of money banks have to invest in government bonds
    6. The repo rate, at which RBI lends to banks.

While an increase in interest rates makes a currency expensive, changes in cash reserve and statutory liquidity ratios increase or decrease the quantity of money available, impacting its value in the positive direction.

Forecast:
Increased customs duty on total 19 categories of “non-essential items” such as washing machines, refrigerators, radial tyres, and aviation turbine fuel (ATF) witnessed an import of around INR 86,000 crores in 2017-18, leading to improvement in Current Account Deficit and attracting inflows. The Indian rupee will also be benefited from any inclusion of local government bonds in the JP Morgan government bond index for emerging markets. Also, citing the $1 billion rupee-linked bond issuance launched by World Bank’s private sector arm International Finance Corp, rise in value of rupee can be speculated.

We are a Chartered Accountants firm rendering a gamut of services related to accounting & bookkeeping, auditing and assurance, taxation, business process outsourcing and company formation in India. If you require any assistance, please click here.

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India: The nucleus for FDIs

Foreign businesses often channelize their funds to reap the benefits of fast growing economy, cheap labor and wide scope of earning increased returns in India. To capture and relish such benefits, FDIs are superintended towards India in huge proportions by different countries around the world. 

What is FDI?
Foreign Direct Investment (FDI) is generally termed as an investment made by a firm or individual in one country into business interests located in another country. Generally, FDI takes place when an investor establishes foreign business operations or acquires foreign business assets, including establishing ownership or controlling interest in a foreign company.

India amidst top destinations for FDI
India ranks among the top 10 host economies for FDI, according to the United Nations Conference on Trade and Development (UNCTAD) 2018 World Investment Report. FDI inflows hit an all-time high of USD 44.5 billion in 2016, however, following the global downward trend, flows to India declined in 2017 to USD 39.9 billion.

In January 2018, the Indian government gave its approval to a number of major amendments aiming to further liberalise and simplify the national FDI policy. In the last three years, the government had already eased 87 FDI rules across 21 sectors. In 2018, India ranked 100th out of 190 countries in the Doing Business report published by the World Bank.

Russia contemplating investments in India
One such major step can be sighted by the Russian Direct Investment Fund (RDIF) moving towards investing in India eyeing to boost infrastructure funding. As mentioned by Kirill Dmitriev, CEO, RDIF in an interview that RDIF will sign two key deals at this annual summit on October 5, 2018:

  • Agreement with their partners in India to jointly invest in ports & logistics; and
  • Joint investment in mineral fertilisers, including the construction of production facilities and related infrastructure, as well as the introduction of advanced technologies in Russia and India. The agreement also provides for the supply of PhosAgro products to Indian partners on a long-term basis.

Growth spotted
The sectors attracting the greatest amounts of FDI in India include the services sector, followed by IT services and software, construction, the automobile industry and wholesale and retail trade.

FDI Equity Inflows by Country

Main Investing Countries 

 (January – March 2018)

%

 (April – June 2018)

%

Mauritius 34 33
Singapore 18 19
Netherlands 6 6
United States 6 6
Japan 7 7
Germany 3 3
United Kingdom 7 7
Cyprus 3 2
France 2 2
U.A.E. 2 2

Discerning the consistent and steady growth in the influx of FDIs, one can identify these to be a secure source of foreign funds entering in the economy subsequently. Thus, promoting all sectors in India.

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Source:

  1. https://en.portal.santandertrade.com/establish-overseas/india/foreign-investment
  2. http://www.dipp.nic.in/fdi-publications