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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.

what-are-the-functions-of-management

Place of Effective Management: Concept and Impact

To determine the residential status of foreign companies, the Finance Act 2015 introduced the concept of place of effective management (POEM). By definition in Indian Tax Laws “Place of effective management” means a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made.

The Finance Act, 2016 has changed the effectivity of the said amendment to section 6(3) of the Act. These amended provisions came into effect from 1st April 2017 and are now applicable for Assessment Year 2017-18 and subsequent assessment years.

‘Place of effective management’ (POEM) is an internationally recognized test for determination of residence of a company incorporated in a foreign jurisdiction. Most of the tax treaties entered into by India recognizes the concept of ‘place of effective management’ for determination of residence of a company as a tie-breaker rule for avoidance of double taxation.

Prior to the 2015 amendment, a company was classified as an Indian resident:

  • If company is incorporated in India; or
  • If during that year, the control and management of its affairs is situated wholly in India

Classification as per these provisions provided tax avoidance opportunities to companies. Companies used to artificially escape the residential status by shifting insignificant or isolated events related with control and management outside India. Further, this liberal test resulted in shift of profits by incorporating shell companies outside India, which were substantially controlled from India.

 General Principles of relevance for determining POEM

  • It depends on the facts and circumstances of a given case for each year.
  • Driven by the concept is one of substance over form.
  • An entity may have more than one place of management but it can have only one POEM.
  • The POEM will be required to be determined on a year-to year basis.
  • Review and study of all facts related to the management and control of the company are necessary as the POEM determination cannot be based on isolated facts.
  • If, during the tax year, the POEM is exists both in and out of India, the POEM is presumed to be in India.

Quantitatively, companies with turnover of INR 50 crore or less in a financial year will be exempt from the POEM provisions. Qualitatively, companies with active business outside India will be exempt from these provisions.

 The CBDT has spelled out the criteria for the active business test:

  • Passive income should not be more than 50% of total income;
  • Less than 50% of total assets should be situated in India;
  • Less than 50% of total employees should be situated in India; and
  • Payroll expenses on such employees should be less than 50% of total payroll expenditure.

 “Passive income” of a company shall be aggregate of:

  • Income from the transactions where both the purchase and sale of goods is from / to its associated enterprises; and
  • Income by way of royalty, dividend, capital gains, interest or rental income.

*Interest is not considered as passive income in case of banks and NBFCs

Once your active income is more than 50%, it will be presumed that your place of effective management is outside India, as long as you have majority of the board meetings outside India which is easy to satisfy but they’ve also said that you can’t misuse this rule.

 For companies except those engaged in ABOI, determination of POEM is a two-stage process:

  • Identifying or ascertaining the person or persons who actually make the key management and commercial decisions for conduct of the company’s business as a whole.
  • Determination of place where these decisions are, in fact, being made.

The CBDT has stated that the intent of POEM is to tap shell companies trying to avoid tax compliances in India. The POEM cannot be established to be in India merely because one or more of the following conditions exist:

  • Foreign company is wholly owned by an Indian company.
  • Foreign company has a permanent establishment in India.
  • One or some of the directors of a foreign company reside in India.
  • Local management in India relates to activities carried out by a foreign company in India.
  • Support functions that are preparatory and auxiliary in character in India

The foreign companies having POEM in India have to pay corporate tax at a rate of 40% instead of 25% payable by companies that have status “resident of India”.

 As it may not be possible to provide a detailed list of all the factors that must be considered, we welcome you to clarify your queries regarding the same. Reach us here.

Transfer pricing with APAs

Transfer pricing made easy with APAs

Over the past few years, the number of transfer pricing audits has been increased and aggressive positions have been adopted by the Indian Revenue Authority, which has contributed to long drawn and protracted litigation. The Central Board of Direct Taxes (CBDT) signed nine unilateral advance pricing agreements (APAs) with Indian taxpayers in July, this year, as it looks to reduce litigation by providing certainty in transfer pricing.
The APA program is designed to avoid the conflict arising in an audit and to nurture more effective communication between taxpayers and the Indian Revenue Authority, by helping both the parties to focus on relevant facts and circumstances in advance.

Advance pricing agreement (APA)
An APA is an agreement between the taxpayer and tax authority determining the pricing of intercompany transactions for future years. In case of a roll-back, it would also include past years. The taxpayer and tax authority mutually agree on the transfer pricing methodology (TPM) to be applied for a certain period of time (generally five years) based on the fulfillment of certain terms and conditions. APA is an effective tool used in several countries with established transfer pricing regimes to avoid future disputes in a cooperative manner.

 APAs pin down

  • Transactions covered by an APA
  • Transfer pricing method (TPM)
  • APA term
  • Operational and compliance provisions
  • Appropriate adjustments
  • Critical assumptions regarding future events
  • Required APA records
  • Annual compliance reporting responsibility

 Types of APAs

  • Unilateral: An APA between a taxpayer and the tax administration of the country where it is subject to taxation.
  • Bilateral: An APA entered into by the taxpayers, associated enterprise (AE) of the tax payer in the foreign country, the tax administration of the host country and the foreign tax administration.
  • Multilateral: An APA that involves the tax payer, two or more AEs of the tax payer in different foreign countries, tax authority of the country where the tax payer is located and the tax authorities of AEs.

 Key benefits of an APA

  • An APA provides certainty on transfer pricing and the TPM to be adopted for intercompany transactions covered under agreement.
  • Certainty with respect to tax outcome of the tax payer’s international transactions.
  • A bilateral or multilateral APA also wipes out the risk of potential double taxation arising from controlled transactions.
  • Removal of an audit threat and deliverance of a particular tax outcome based on the terms of the agreement.
  • Substantial reduction in risk and cost associated with audits and appeals over the APA term.
  • For tax authorities, an APA reduces cost of administration and also provides with additional resources.
  • APA renewal provides an excellent leverage of time and efforts expended during negotiating the original APA. The Indian APA rules also allow the taxpayer to convert a unilateral into bilateral and vice-versa, if required.

Consequently, APAs provide a win-win situation for all the stakeholders involved.

 The APA process in India
In line with APA process in other countries around the world, the Indian APA rules prescribe a process that breaks into the following four phases:

  • Pre-filing consultation: The process for APA would start with pre-filing consultation meeting. The taxpayer can request for a pre-filing consultation meeting which shall be held with the objective of determining the scope of the agreement, understanding the transfer pricing issues involved and examining the suitability of international transactions for an APA. The taxpayer also has an option of applying for a pre-filing consultation on an anonymous basis. This process is non-binding on the taxpayers and the Revenue. Taxpayer is required to fill form (From No. 3CEC) for a pre-filing consultation. It is vital not only to the APA process, but also to determine the course of the APA.
  • Formal APA application: After the pre-filing meeting, if the taxpayer is desirous of applying for an APA, an application would be required to be made in prescribed form (Form No. 3CED) containing specified information. The APA application filing fee is also payable at this stage.
  • Negotiation: Once the application is accepted, the APA team shall hold meetings with the applicant and undertake necessary inquiries relating to the case. Post the discussion and inquiries, the APA team shall prepare a draft report which shall be provided to the Competent Authority (for bilateral / multilateral APA), or DGIT (for unilateral APA).
  • Finalization: This phase involves exchange of feedbacks on draft APA, finalization of the APA and giving effect to the initial years covered under the APA term that have already elapsed.

 Statutory fee for filing an APA application
The APA filing fee, i.e. fee to be paid while filing the formal APA application is dependent upon the amount of the proposed covered transactions over the proposed APA term, as below:

  • INR 1 million for international transactions up to INR 1 billion
  • INR 1.5 million for international transactions up to INR 2 billion
  • INR 2 million for international transactions greater than INR 2 billion

*No fee prescribed for the pre-filing consultation process.

If you require any assistance on transfer pricing documentation including transfer pricing reports, Form- 3CEB and Advance Pricing Agreements (APA), you may reach us.

Audit under GST

GST Audits- An overview

Section- 2(13) of the CGST Act defines Audit as the examination of records, returns and other documents maintained or furnished by the registered person under the Act / rules made there under or under any other law for the time being in force to verify the correctness of turnover declared, taxes paid, refund claimed and input tax credit availed, and to assess his compliance with the provisions of the GST Act or the rules made thereunder.

*No audit is required for businesses with turnover less than INR 2 crore.

Types of GST Audit
There are 3 types of GST audits:

  1. Audit to be conducted by a Chartered Accountant or a Cost Accountant: Every taxpayer with revenue exceeding the prescribed limit of INR 2 crore during a financial year shall get his accounts audited by a Chartered Accountant or a Cost Accountant. Such taxpayers whose audit is conducted by a Chartered or Cost Accountant shall submit:
  • An annual return by filling the form GSTR 9B along with the reconciliation statement by 31st December of the next financial year;
  • The audited copy of the annual accounts;
  • A reconciliation statement, reconciling the value of supplies declared in the return with the audited annual financial statement; and
  • Other particulars as prescribed.
  1. Audit to be conducted by the tax authorities: As per Section 65 of the CGST / SGST Act, the Commissioner or any officer of CGST or SGST or UTGST authorized by him by a general or specific order, may conduct audit of any registered / enlisted individual. Intimation of the audit is provided to the taxpayer at least 15 days in advance in Form GST ADT-01 and the audit is to be completed within 3 months from the date of commencement of the audit. In rare cases, the GST Commissioner has the powers to extend the period by another 6 months, if required.
  2. Special Audits: If at any stage of investigation or any other proceedings, tax authority is of the opinion that the value has not been correctly declared or credit availed is not within the normal limits, department may order special audit under the mandate of Section 66, by its nominated Chartered Accountant or Cost Accountant.

The Chartered Accountant or Cost Accountant so nominated shall submit audit report to tax officer within the period of 90 days. This period may be extended further for 90 days by tax officer on application made by registered person or the chartered accountant. The registered person shall be given an opportunity of being heard in respect findings of special audit. The expenses of the audit of records, including the remuneration of such chartered accountant or cost accountant shall be paid by the Commissioner.

Where the special audit conducted results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the officer may initiate required action.

Obligations of the Auditee
Auditees shall have following obligations during the course of audit:

  • The taxable person will be required to provide the necessary facility to verify the books of account / other documents as required.
  • The auditee needs to furnish the required information and render assistance for timely completion of the audit.

Findings of the Audit
On conclusion of an audit, the officer shall inform the taxable person within 30 days of:

  • Findings of audit;
  • Their reasons; and
  • The taxable person’s rights and obligations.

Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilized, the proper officer may initiate action under section 73 or section 74.

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