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The Role of a CFO in Monthly MIS and Book Closure

Monthly MIS reports, Monthly book closure, Financial MIS, Accounting and bookkeeping
Uttarayan
September 3, 2025
10:19 am

One of the most important responsibilities of a CFO is to ensure that the Monthly Management Information System (MIS) is prepared accurately and on time. The MIS consolidates key financial and operational data, giving business owners a clear, structured view of their company’s performance.

Without MIS, leaders often operate in the dark—relying on assumptions instead of facts. With timely MIS, however, they can track revenue trends, monitor expenses, and measure operational efficiency month after month. For example, a retail business can use MIS reports to identify which product categories are driving profits and which ones are draining resources, enabling quicker course corrections.

In addition, the CFO makes sure that the books of accounts are closed every month, leaving no gaps or pending reconciliations. This practice is crucial because if accounts remain open or unreconciled, businesses lose visibility of their true financial position. With proper MIS and timely book closure, you can quickly assess:

  • Are you making profits or incurring losses?

  • Is your business generating enough cash to sustain operations?

  • Are your expenses aligned with your growth plans?

This kind of financial visibility allows you to make informed decisions, avoid compliance risks, and steer your business confidently instead of running it on guesswork.

Why a Shared or Virtual CFO Makes Sense

While large corporations can afford full-time CFOs, startups and SMEs often find it challenging to hire one due to the high cost involved. However, this does not mean smaller businesses should operate without financial guidance. The solution lies in hiring a Shared or Virtual CFO (also known as a Fractional CFO).

A Shared or Virtual CFO provides the same expertise and strategic oversight as a full-time CFO but at a fraction of the cost. This model allows businesses to access top-tier financial leadership without overstretching their budgets.

By engaging a Shared or Virtual CFO, businesses gain access to:

  • Timely and accurate MIS reporting

  • Cash flow monitoring and working capital management

  • Profitability analysis and cost optimization

  • Tax, compliance, and regulatory guidance

  • Strategic financial planning and forecasting

For example, a growing SaaS startup may have recurring revenue but struggle with delayed client payments. A Shared CFO would track receivables, tighten credit policies, and improve cash flow forecasts, ensuring the company never runs out of liquidity. Similarly, a family-owned manufacturing firm may be profitable on paper but face liquidity issues due to poor inventory management—a Virtual CFO can help optimize stock cycles and free up working capital.

The Bigger Picture – Driving Growth with Financial Clarity

The ultimate goal of engaging a Shared or Virtual CFO is to provide business leaders with financial clarity. Once you have a clear view of your profitability, cash position, and future forecasts, you are better equipped to:

  • Scale your business in a sustainable way

  • Raise funding with investor-ready financials

  • Avoid financial surprises or compliance penalties

  • Build a roadmap for long-term success

Consider a mid-sized manufacturing company planning to expand into a new region. Without accurate projections, expansion may drain resources. A Shared CFO will create scenario-based financial models, highlight risks, and provide insights that support informed, confident decisions.

Another example is an SME preparing for external funding. Investors demand clean financial records, forecasts, and compliance history. A Virtual CFO ensures that the business is “investor-ready,” increasing the chances of securing funding on favorable terms.

Why a CFO is Essential for Your Business Growth

Running a successful business goes beyond generating revenue and managing daily operations. True business growth requires financial clarity—knowing whether you are making profits, burning cash, or simply breaking even. Unfortunately, many entrepreneurs and business owners operate without this clarity, leading to missed opportunities, poor decisions, and even compliance penalties.

This is exactly where the role of a Shared or Virtual CFO becomes critical. By combining financial expertise, compliance knowledge, and strategic foresight, they help business owners shift from reactive decision-making to proactive growth strategies.

Instead of worrying about numbers, leaders can focus on building teams, expanding markets, and scaling confidentlyknowing that their finances are under control. In today’s competitive environment, guesswork is a risk no business can afford. With the right financial leadership, even small and mid-sized businesses can achieve clarity, control, and sustainable growth.

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Section 264 Revision Application under the Income Tax Act of India

7 Expert Blogs for Business Solutions | CFO Angle
Uttarayan
May 19, 2025
10:32 am

1. Extract of the Income Tax Act of India for Section 264

Section 264 of the Income Tax Act, 1961, empowers the Commissioner of Income Tax (CIT) to revise any order passed by a subordinate authority. This revisionary power can be exercised by the CIT either suo motu (on their own motion) or on an application made by the taxpayer.
  • Section 264(1): The Commissioner may, either on their own motion or on an application by the assessee, call for the record of any proceeding under this Act in which any order has been passed by any authority subordinate to them and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit.
  • Section 264(2): The Commissioner shall not revise any order under this section in the following cases:
    • Where an appeal against the order lies to the Commissioner (Appeals) or the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or in the case of an appeal to the Commissioner (Appeals) or the Appellate Tribunal, the assessee has not waived their right of appeal.
    • Where the order has been made the subject of an appeal to the Commissioner (Appeals) or the Appellate Tribunal.
  • Section 264(3): An application for revision under this section shall be made within one year from the date the order in question was communicated to the assessee or the date on which they otherwise came to know of it, whichever is earlier.
  • Section 264(4): The Commissioner may, on an application by the assessee for revision under this section, make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit.
  • Section 264(5): Every application by an assessee for revision under this section shall be accompanied by a fee of twenty-five rupees.

2. Purpose and Objective of Section 264

The primary objective of Section 264 is to provide an opportunity for taxpayers to seek relief from any order passed by a subordinate authority that they believe to be unjust or erroneous. This provision aims to ensure taxpayers have a recourse mechanism to correct mistakes or injustices without resorting to lengthy and expensive litigation processes. It also empowers the Commissioner to rectify errors and ensure fair treatment of taxpayers.

3. Proper Reasoning

When applying for a revision under Section 264, it is crucial to present a well-reasoned application. The following points should be considered:
  • Clarity and Precision: Clearly state the specific order being contested and the grounds for the revision.
  • Evidence and Documentation: Provide all relevant documents, evidence, and details that support the claim that the order in question is incorrect or unjust.
  • Legal Grounds: Cite relevant sections of the Income Tax Act and other applicable laws to substantiate the claim for revision.
  • Timeliness: Ensure the application is filed within the stipulated time frame of one year from the date of the order or the date the assessee became aware of it.

4. Legal Recourse and Legal Proceedings

If an assessee is aggrieved by an order passed by a subordinate authority, they can seek revision under Section 264 by following these steps:
  • Filing the Application: The application must be filed within one year from the date the order was communicated or came to the assessee’s knowledge. A fee of twenty-five rupees should accompany it.
  • Submission of Documents: All supporting documents and evidence must be submitted along with the application.
  • Inquiry by Commissioner: The Commissioner may conduct an inquiry or direct a subordinate authority to do so to verify the facts presented in the application.
  • Order by Commissioner: After considering the application and the inquiry report, the Commissioner may pass an order that is not prejudicial to the assessee.

5. Do’s and Don’ts

Do’s:

  • Ensure timely filing of the revision application.
  • Clearly state the grounds for seeking revision.
  • Provide all necessary documents and evidence.
  • Seek professional advice if needed to strengthen the application.

Don’ts:

  • Do not apply if an appeal is pending before the Commissioner (Appeals) or the Appellate Tribunal.
  • Avoid presenting vague or unsubstantiated claims.
  • Do not miss the one-year deadline for applying.

6. Example of a Section 264 Revision Application under the Income Tax Act of India

Subject: Application for Revision under Section 264 of the Income Tax Act, 1961 To: The Commissioner of Income Tax, [Name of the City], [Address of the CIT Office] Date: [Date of Application] From: [Name of the Assessee] [Address of the Assessee] [Permanent Account Number (PAN)] [Email Address] [Contact Number] Ref: Assessment Year: [Year] Order Date: [Date of the Order] Order Passed by: [Name and Designation of the Assessing Officer]

Application for Revision of Assessment Order under Section 264

Respected Sir/Madam, I, [Name of the Assessee], respectfully submit this application under Section 264 of the Income Tax Act, 1961, seeking revision of the assessment order dated [Date] passed by [Name and Designation of the Assessing Officer] for the assessment year [Year]. The order was communicated to me on [Date]. Grounds for Revision:
  • Incorrect Computation of Income: The Assessing Officer has incorrectly computed my total income by disallowing certain genuine business expenses amounting to INR [Amount]. These expenses were incurred wholly and exclusively for my business, and the necessary supporting documents were provided during the assessment proceedings.
  • Disallowance of Depreciation: The Assessing Officer has disallowed INR [Amount] depreciation on [Asset Description]. The asset in question was duly put to use for business purposes during the relevant previous year, and the depreciation claim was made in accordance with the provisions of the Income Tax Act.
  • Incorrect Addition of Income: INR [Amount] was added to my income on account of unexplained cash deposits. These deposits were duly explained during the assessment proceedings as receipts from my business operations, supported by relevant documentary evidence.

Facts and Circumstances:

  • Business Expenses: During the assessment proceedings, I provided detailed explanations and documentary evidence for the business expenses incurred. Despite this, the Assessing Officer disallowed these expenses without giving any valid reasons. Attached herewith are copies of the invoices, payment receipts, and a detailed explanation of the expenses (Annexure A).
  • Depreciation Claim: The asset for which depreciation has been disallowed was acquired and put to use in the relevant previous year. The disallowance was made without considering the factual details and the applicable provisions of the Income Tax Act. Enclosed herewith is a copy of the invoice and proof of usage of the asset (Annexure B).
  • Cash Deposits: The cash deposits were duly explained as business receipts, supported by sales invoices and receipts. The Assessing Officer’s addition of this amount as unexplained income is unjustified. Attached herewith are copies of the sales invoices and bank statements (Annexure C).

Prayer:

In view of the above grounds and the supporting documents, I humbly request you to kindly revise the assessment order dated [Date] for the assessment year [Year] under the provisions of Section 264 of the Income Tax Act, 1961. I pray for the following reliefs:
  • Allowance of the disallowed business expenses amounting to INR [Amount].
  • Allowance of the INR [Amount] depreciation claim on [Asset Description].
  • Deletion of the addition of INR [Amount] on account of unexplained cash deposits.
I affirm that no appeal against the said order is pending before the Commissioner (Appeals) or the Income Tax Appellate Tribunal, and I have not waived my right of appeal. I appreciate your consideration. Yours sincerely, [Name of the Assessee] [Signature]

Enclosures:

  1. Copy of the assessment order dated [Date]
  2. Annexure A: Details and supporting documents for business expenses
  3. Annexure B: Details and supporting documents for depreciation claim
  4. Annexure C: Details and supporting documents for cash deposits
  5. Proof of filing fee payment of INR 25

7. Conclusion

Section 264 of the Income Tax Act of 1961 serves as a vital mechanism for taxpayers to seek redressal against erroneous or unjust orders passed by subordinate authorities. By understanding the provisions, objectives, and proper procedures associated with Section 264, taxpayers can effectively utilise this tool to ensure fair and just treatment under the law. Proper reasoning, timely action, and adherence to legal requirements are critical to successfully navigating the revision process under this section.
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Section 264 Revision Order by CIT under the Income Tax Act of India

Select Section 264 Revision Order by CIT under the Income Tax Act of India Section 264 Revision Order by CIT
Uttarayan
10:24 am

1. Extract of the Income Tax Act of India – Section 264

Section 264 of the Income Tax Act, 1961 grants the Commissioner of Income Tax (CIT) the authority to revise any order passed by a subordinate authority. This power can be exercised by the CIT either suo motu (on their initiative) or upon an application made by the taxpayer.

Section 264(1)

The Commissioner may, either on their motion or on an application by the assessee, call for the record of any proceeding under this Act in which any order has been passed by any authority subordinate to them, and may make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit.

Section 264(2)

The Commissioner shall not revise any order under this section in the following cases:
  • Where an appeal against the order lies to the Commissioner (Appeals) or the Appellate Tribunal but has not been made and the time within which such appeal may be made has not expired, or in the case of an appeal to the Commissioner (Appeals) or the Appellate Tribunal, the assessee has not waived their right of appeal.
  • Where the order has been made the subject of an appeal to the Commissioner (Appeals) or the Appellate Tribunal.

Section 264(3)

An application for revision under this section shall be made within one year from the date on which the order in question was communicated to the assessee or the date on which they otherwise came to know of it, whichever is earlier.

Section 264(4)

The Commissioner may, on an application by the assessee for revision under this section, make such inquiry or cause such inquiry to be made and, subject to the provisions of this Act, may pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit.

Section 264(5)

Every application by an assessee for revision under this section shall be accompanied by a fee of twenty-five rupees.

2. Purpose and Objective of Section 264

The primary objective of Section 264 is to provide a remedy for taxpayers who believe that an order passed by a subordinate authority is erroneous or unjust. It ensures that taxpayers have a mechanism to correct such mistakes without resorting to expensive and time-consuming litigation processes. It also enables the Commissioner to rectify errors and ensure fair treatment of taxpayers.

3. Proper Reasoning

When a taxpayer applies for a revision under Section 264, it is essential to provide a well-reasoned application. Key points to consider include:
  • Clarity and Precision: Clearly state the specific order being contested and the grounds for seeking revision.
  • Evidence and Documentation: Provide all relevant documents and evidence supporting the claim that the order is incorrect or unjust.
  • Legal Grounds: Cite relevant sections of the Income Tax Act and other applicable laws to substantiate the claim for revision.
  • Timeliness: Ensure the application is filed within the stipulated time frame of one year from the date of the order or the date the assessee became aware of it.

4. Legal Recourse and Legal Proceedings

If an assessee is aggrieved by an order passed by a subordinate authority, they can seek revision under Section 264 by following these steps:
  • Filing the Application: The application must be filed within one year from the date the order was communicated or came to the knowledge of the assessee. It should be accompanied by a fee of twenty-five rupees.
  • Submission of Documents: All supporting documents and evidence must be submitted along with the application.
  • Inquiry by Commissioner: The Commissioner may conduct an inquiry or direct a subordinate authority to do so to verify the facts presented in the application.
  • Order by Commissioner: After considering the application and the inquiry report, the Commissioner may pass an order that is not prejudicial to the assessee.

5. Do’s and Don’ts

Do’s:

  • Ensure timely filing of the revision application.
  • Clearly state the grounds for seeking revision.
  • Provide all necessary documents and evidence.
  • Seek professional advice if needed to strengthen the application.

Don’ts:

  • Do not apply if an appeal is pending before the Commissioner (Appeals) or the Appellate Tribunal.
  • Avoid presenting vague or unsubstantiated claims.
  • Do not miss the one-year deadline for applying.

6. Example

Subject: Application for Revision under Section 264 of the Income Tax Act, 1961

To, The Commissioner of Income Tax, [Name of the City], [Address of the CIT Office]. Date: [Date of Application] From, [Name of the Assessee], [Address of the Assessee], Permanent Account Number (PAN): [●], Email: [●], Contact Number: [●] Ref: Assessment Year: [Year], Order Date: [Date of the Order], Order Passed by: [Name and Designation of the Assessing Officer]

Application for Revision of Assessment Order under Section 264

Respected Sir/Madam, I, [Name of the Assessee], respectfully submit this application under Section 264 of the Income Tax Act, 1961, seeking revision of the assessment order dated [Date] passed by [Assessing Officer] for the assessment year [Year]. The order was communicated to me on [Date].

Grounds for Revision:

  1. Incorrect Computation of Income: The Assessing Officer has incorrectly computed my total income by disallowing certain genuine business expenses amounting to INR [Amount]. These expenses were incurred wholly and exclusively for the purpose of my business, and the necessary supporting documents were provided during the assessment proceedings.
  2. Disallowance of Depreciation: The Assessing Officer has disallowed depreciation of INR [Amount] on [Asset Description]. The asset in question was duly put to use for business purposes during the relevant previous year, and the depreciation claim was made under the provisions of the Income Tax Act.
  3. Incorrect Addition of Income: An addition of INR [Amount] was made to my income on account of unexplained cash deposits. These deposits were duly explained during the assessment proceedings as receipts from my business operations, supported by relevant documentary evidence.

Facts and Circumstances:

  • Business Expenses: During the assessment proceedings, I provided detailed explanations and documentary evidence for the business expenses incurred. Despite this, the Assessing Officer disallowed these expenses without providing any valid reasons. Attached herewith are copies of the invoices, payment receipts, and a detailed explanation of the expenses (Annexure A).
  • Depreciation Claim: The asset for which depreciation has been disallowed was acquired and put to use in the relevant previous year. The disallowance was made without considering the factual details and the relevant provisions of the Income Tax Act. Enclosed herewith is a copy of the invoice and proof of usage of the asset (Annexure B).
  • Cash Deposits: The cash deposits were duly explained as business receipts, supported by sales invoices and receipts. The Assessing Officer’s addition of this amount as unexplained income is unjustified. Attached herewith are copies of the sales invoices and bank statements (Annexure C).

Prayer:

Given the above grounds and the supporting documents, I humbly request you to kindly revise the assessment order dated [Date] for the assessment year [Year] under the provisions of Section 264 of the Income Tax Act, 1961. I pray for the following reliefs:
  • Allowance of the disallowed business expenses amounting to INR [Amount].
  • Allowance of the depreciation claim of INR [Amount] on [Asset Description].
  • Deletion of the addition of INR [Amount] on account of unexplained cash deposits.
I affirm that no appeal against the said order is pending before the Commissioner (Appeals) or the Income Tax Appellate Tribunal, and I have not waived my right of appeal. Thank you for your consideration. Yours sincerely, [Name of the Assessee] [Signature]

Enclosures:

  • Copy of the assessment order dated [Date]
  • Annexure A: Details and supporting documents for business expenses
  • Annexure B: Details and supporting documents for depreciation claim
  • Annexure C: Details and supporting documents for cash deposits
  • Proof of filing fee payment of INR 25

7. Conclusion

Section 264 of the Income Tax Act, 1961, serves as a vital mechanism for taxpayers to seek redressal against erroneous or unjust orders passed by subordinate authorities. By understanding the provisions, objectives, and proper procedures associated with Section 264, taxpayers can effectively utilize this tool to ensure fair and just treatment under the law. Proper reasoning, timely action, and adherence to legal requirements are key to successfully navigating the revision process under this section.
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Exchange-Traded Fund, Popularly Known As ETF

ETF
Uttarayan
March 30, 2024
4:32 am

What is ETF

An exchange-traded fund (ETF) is an investment fund that tracks the performance of an underlying index or asset and can be bought and sold throughout the day on stock exchanges. ETFs are similar to mutual funds in that they offer investors access to a diversified portfolio of securities but with the added benefit of being traded like individual stocks.

ETFs are available for various investment categories, including stocks, bonds, commodities, and currencies. They are also available in multiple structures, such as physically-backed ETFs, which hold the underlying assets, or synthetically-replicated ETFs, which use derivatives to track the performance of the underlying assets.

One of the main advantages of ETFs is their low cost, as they typically have lower fees and expenses than mutual funds. Additionally, ETFs offer flexibility in trading as they can be bought and sold throughout the day, while mutual funds are priced once a day at the end of trading. 

ETFs are a popular choice for diversification because they expose investors to various stocks or assets, reducing the risk of investing in a single security. They also offer tax efficiency, as they generally have lower capital gains distributions than mutual funds.

The Fundamentals of Exchange-Traded Funds (ETFs)

Exchange-traded funds (ETFs) are financial instruments that hold a basket of assets like stocks, commodities, or bonds. ETFs are designed to trade close to their net asset value (NAV) through an arbitrage mechanism. The NAV is the total value of the ETF assets divided by the number of outstanding shares. The arbitrage mechanism allows authorised participants (APs) to create or redeem ETF shares in exchange for the underlying assets or cash. This helps keep the ETF’s market price aligned with its NAV, though occasionally deviations occur.

Most ETFs are passive investments that track an index, such as a stock or bond index. For example, an S&P 500 ETF will hold all the 500 stocks that make up the S&P 500 index in the same proportion as the index. This makes it easy for investors to gain exposure to a broad market or sector with just one trade. Additionally, ETFs are attractive investments because of their low costs, tax efficiency, and stock-like features.

Since ETFs are traded on an exchange, investors can buy or sell them throughout the trading day at market-determined prices. ETFs also offer diversification benefits since they hold a basket of assets and are less risky than individual stocks. Due to their simplicity, transparency, and low fees, ETFs have become popular investment vehicles in recent years.

The ETF Exchange: A Marketplace for Diversification

The ETF exchange is a specialised marketplace where exchange-traded funds (ETFs) are traded among investors. It functions similarly to a stock exchange, providing a platform where investors can buy and sell shares of ETFs. ETFs are investment funds that contain a diversified portfolio of assets such as stocks, bonds, and commodities. When an investor purchases shares of an ETF from the exchange, they are essentially buying a small portion of the ETF’s entire portfolio, which gives them a proportional interest in the fund’s total assets. This makes ETFs a great alternative to buying individual stocks or mutual funds. ETFs offer a high level of liquidity, one of their most appealing features. This means that investors can buy or sell shares of an ETF quickly and efficiently throughout the trading day at market prices, making it a highly flexible and versatile investment option.

Navigating the Risks in ETFs

While ETFs offer numerous benefits, they are not without their risks. Investors must understand these risks before diving into the ETF market. Here are some of the risks associated with ETF investments:

  • Marker Risk: It is important to note that investing in ETFs involves market risk. This means that the value of an ETF may decline due to fluctuations in the market or changes in the value of the underlying assets. The overall market could experience a downturn, causing the value of the ETF to decrease. Additionally, changes in the value of the underlying assets, such as stocks or bonds, can also impact the value of the ETF. It is essential to carefully consider these factors before investing in an ETF and to be prepared for potential market fluctuations.
  • Liquidity Risk: Exchange-traded funds (ETFs) are generally designed to be highly liquid, meaning that they can be easily bought or sold on the stock market at any time during trading hours. However, there are certain risks associated with ETFs, particularly liquidity risk. This risk arises when the market conditions are unfavourable or there needs to be more interest in certain ETFs, leading to reduced trading activity and lower liquidity. When an ETF faces liquidity issues, investors may need help to buy or sell shares, leading to potential losses or missed investment opportunities. Therefore, it’s essential for investors to carefully evaluate the liquidity of an ETF before investing their capital, especially during periods of market volatility or unusual market conditions.
  • Tracking Error occurs when the ETF fails to accurately replicate the performance of the underlying index or assets it aims to track. Factors contributing to tracking errors include management fees, transaction costs, and rebalancing intervals.
  • Tax Risk: Exchange-traded funds (ETFs) are known for their tax efficiency, one of their main advantages over traditional mutual funds. However, it’s worth noting that certain transactions within the ETF can still have tax implications for the investor. For instance, if the fund engages in frequent trading or employs a specific investment strategy, such as investing in commodities or using leverage, it may result in taxable capital gains distributions at the investor’s ordinary income tax rate. It’s essential for investors to understand the tax risks associated with ETFs and to consult with a tax professional to determine the best course of action for their particular situation.

Conclusion

Exchange-traded funds offer a compelling option for investors looking to diversify their portfolios while maintaining the flexibility of trading individual stocks. However, like any investment, they carry risks that should be carefully considered. By understanding the fundamental workings of ETFs, the ETF exchange, and the potential risks involved, investors can make informed decisions to align with their investment goals and risk tolerance. As always, consulting with a financial advisor before making investment decisions is advisable to ensure that your investment strategy meets your financial objectives.
For more info follow: CFOAngle.com

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Understanding Dividend Distribution Tax

Dividend Distribution Tax
Uttarayan
4:22 am

Dividend Distribution Tax (DDT) is a tax levied by the Indian government on dividends, which a company pays its shareholders out of its profits. It is a form of tax paid by the company distributing the dividend, not by the shareholder receiving it. DDT is levied at a fixed rate, currently set at 15% (plus surcharge and cess) of the gross amount of dividend declared by the company. 

The tax applies to all companies, including domestic companies, foreign companies, and mutual funds. The company deducts the tax at source before the dividend is paid to the shareholder.

The calculation of DDT is based on the gross dividend amount declared, and no deduction is allowed for any expenses or costs incurred by the company. This means the company has to pay tax on the entire dividend declared, even if it has incurred losses during the year.

It is important to note that the tax treatment of dividends received from a company differs from the tax treatment of other forms of income, such as interest income or capital gains. Dividends received from an Indian company are exempt from tax up to Rs. 10 lakhs in a financial year. However, any dividend income above this limit is taxable at 10% (plus surcharge and cess) under the head ‘Income from Other Sources’.

What is Dividend Distribution Tax (DDT)?

  • Definition of DDT: DDT (Dividend Distribution Tax) is a tax the government imposes on companies that issue dividends to their shareholders. The tax is levied on the company’s distributable profits and is calculated at a fixed rate. Its purpose is to encourage companies to retain their profits instead of distributing them as dividends, allowing them to invest in their business and grow over time.
  • Purpose: The Dividend Distribution Tax (DDT) is a tax levied on the distributed profits of companies. The primary aim of this tax is to collect revenue from the shareholders of a company by taxing the profits distributed to them as dividends at the source itself. In other words, the DDT is levied on the company that distributes the dividend rather than the shareholders who receive it. This helps avoid the need for the shareholders to pay tax on their dividend income, as the tax is already deducted at the source. The DDT rate may vary depending on the type of company and can be subject to changes in government policies and regulations.
  • Abolishment and Changes: It’s important to note that, as of my last update in April 2023, DDT was abolished in India for the fiscal year 2020-21 onwards. Before its abolition, companies were required to pay DDT on dividends distributed to their shareholders. Post-abolition, dividends are taxed in the hands of the recipients at their applicable income tax rates.

Rates and Calculations

  • Pre-Abolishment DDT Rate: DDT in India was charged 15% on dividends paid before its abolishment. However, with surcharge and cess, the effective rate was approximately 20.56%.
  • Post-Abolishment Scenario: After the abolishment of DDT, dividends are taxed at the individual tax rates of the shareholders. There is no standard rate, and it varies according to the tax slab of the recipient.
  • Calculation Method (Pre-Abolishment): The DDT was calculated on the gross dividend amount. For example, if a company planned to distribute ₹100 as dividends, it had to gross up the amount to cover the DDT and pay the tax before distributing the net amount to shareholders.

What is Dividend?

  • Dividends are the profits distributed to the company’s shareholders during the year or from the reserves. As per the Income Tax Act section 2 (22), the following activities are also included in the dividend.
    • When a company makes a profit, it can distribute some or all of that profit to its shareholders. This process involves releasing the company’s assets to its shareholders.
    • Distributing debentures or deposit certificates to shareholders from accumulated profits and issuing bonus shares to preference shareholders. 
    • A company may distribute its accumulated profits to shareholders when it is liquidated. This payment type is made to shareholders as part of the company’s winding-up process.
    • Distribution of accumulated profits to shareholders upon capital reduction by the company and
    • When a closely held company grants a loan or advances to its shareholders using its accumulated profits, it is considered a dividend paid.

Tax Treatment of Dividend Received from Company

  • For Individual Shareholders: Post-abolishment of DDT, dividends are taxed at the individual’s applicable income tax rate. The dividend income must be reported under the “Income from Other Sources” head in the individual’s tax return.
  • TDS on Dividends: Companies must now deduct tax at source (TDS) on dividend payments exceeding a certain threshold. This rate can vary, and shareholders need to provide their PAN to avoid a higher rate of TDS.
  • Corporate Shareholders: For corporate shareholders, dividend income is taxable at the corporate tax rate applicable to their income. Specific provisions, such as deductions or exemptions, may apply depending on the jurisdiction and tax laws.
  • Non-Resident Shareholders: Dividends paid to non-resident shareholders are subject to TDS. The rate of TDS can vary based on the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the shareholder’s country of residence.

Section

Assessee

Particulars

Tax Rate

Section 115AC

Non-resident

Dividend on GDRs of an Indian Company or Public Sector Company (PSU) purchased in foreign currency

10%

Section 115AD

FPI

Dividend income from securities (other than units referred to in section 115AB)

20%

 

Investment division of an offshore banking unit

Dividend income from securities (other than units referred to in section 115AB)

10%

Section 115E

Non-resident

Dividend income from shares of an Indian company purchased in foreign currency.

20%

Section 115A

Non-resident or foreign co

Dividend income in any other case

20%

Conclusion

  • The shift from taxing dividends at the company level (DDT) to taxing them in the hands of shareholders aligns with global practices. It aims to make taxing dividends more equitable.
  • This change necessitates that shareholders and companies adjust their tax planning and compliance strategies accordingly.
  • Both corporate and individual shareholders must understand these changes and consult tax professionals to ensure compliance and optimise their tax liabilities.

This overview provides a foundation for understanding DDT, its rates and calculations, and the tax treatment of dividends post-DDT abolishment. Tax laws frequently change, and it’s essential to stay updated with the latest regulations and consult with tax professionals for specific advice.

For more information follow: CFOAngle.com

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Introduction to Minimum Alternate Tax (MAT)

Minimum Alternate Tax
Uttarayan
March 19, 2024
7:30 am

Minimum Alternate Tax (MAT) is a tax mechanism introduced by the Indian Income Tax Act to ensure that companies paying minimal or no income tax through legal tax exemptions and incentives pay a certain minimum amount of tax to the government. The rationale behind MAT is to bring tax equity, ensuring profitable companies cannot entirely avoid paying tax by utilising various deductions.

Features of Minimum Alternate Tax

MAT has several key features that distinguish it from the regular income tax calculation:

  • Applicability to Companies: MAT primarily applies to companies, including those with significant income but low taxable income due to exemptions, deductions, or incentives. It ensures these companies pay a minimum amount of tax.
  • Calculation on Book Profits: Unlike regular income tax, which is calculated on taxable income, MAT is computed on a company’s book profits. Book profits are the net profits, as shown in the profit and loss account, adjusted according to specific provisions under Section 115JB of the Income Tax Act.
  • MAT Rate: The rate of MAT has varied over time. My last update set it at 15% of book profits, plus applicable surcharge and cess. This rate is subject to change as per government regulations and budget announcements.
  • Credit for MAT Paid: Companies paying MAT can claim credit for the tax paid over and above the regular income tax. This MAT credit can be carried forward and set off against future tax liabilities when regular tax exceeds MAT for a period not exceeding fifteen years.
  • Mandatory for All Companies: All companies, including foreign companies with income accruing or arising in India, are subject to MAT. However, certain types of income, such as income from life insurance businesses, are exempt.
  • Impact on Tax Planning: The imposition of MAT requires companies to revisit their tax planning strategies. Companies must now consider the MAT implications of their transactions and choose strategies that minimise their tax liability while remaining compliant with the tax regulations.
  • Reporting Requirement: Companies must furnish a report from a Chartered Accountant certifying the book profit and the computation of MAT, ensuring transparency and compliance.
  • Exemptions and Adjustments: Certain incomes are adjusted to calculate book profit, including the amount transferred to any reserves, revenue from the life insurance business, and dividends from foreign subsidiaries.
  • Incentive for Investment: Despite its primary role as a minimum tax guarantee, MAT still allows for specific incentives and deductions, encouraging companies to invest in particular sectors or projects aligned with government priorities.

Tax Planning Under Minimum Alternate Tax

Tax planning under MAT requires careful consideration, as traditional tax-saving strategies might only sometimes result in tax savings under MAT. Businesses need to:

  • Evaluate Tax Incentives: While planning investments and expenditures, consider their impact under MAT to ensure they are still beneficial.
  • Leverage MAT Credit: Efficient use of MAT credit can significantly reduce tax liability over time. Ensure that the MAT credit is optimally claimed and utilised.

Minimum Alternate Tax (MAT) Calculation

Calculating MAT is a straightforward process but requires careful attention to detail. The steps involve

  • Identification of Book Profit: Start with the net profit per the company’s financial statements.
  • Adjustments: Add back expenditures and incomes exempt under the regular tax provisions but not exempt under MAT, and deduct incomes included in the financial statements but exempt under MAT.
  • Apply MAT Rate: As of the last update, the current MAT rate is 15% plus applicable surcharge and cess. Add this rate to the adjusted book profit to arrive at the MAT liability.

How is Book Profit calculated in MAT?

Calculate book profit, which is the Net Profit per the P&L Account made per the guidelines of the Companies Act 2013. Once the profit has arrived, plus and minimum adjustments will be made. Let’s understand each adjustment: 

Plus Adjustments:

Plus adjustments are the ones that are added to the profits calculated. Some positive adjustments include

    1. Any income tax paid or payable or a provision created per the Income Tax Act.
    2. Other than reserves specified under Section 33AC, all reserves are added to the Profit.
    3. Any provision is made for the Bad and Doubtful debts, but the actual write-off is not added back. 
    4. Any dividend paid or proposed is added back.
    5. Provision created for unrealised or notional losses is added back
    6. Add back the depreciation charged for the year on the assets, including revaluation.
    7. Losses booked in the subsidiary company have been added back.
    8. Expenses related to exempt income under sections 10, 11, and 12 (excluding sec 10(38)) are subject to MAT. 
    9. When a foreign company earns income through capital gains transactions in securities or interest, royalty, or fees for technical services that are chargeable to tax at a specific rate, the amount of expenditure related to that income is calculated. If the income tax payable on this income is less than the Minimum Alternate Tax (MAT) rate, then the expenditure will be subject to the MAT rate.
    10. The amount of deferred tax and provision, therefore, is
    11. The amount of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF.
    12. The revaluation reserve amount should be credited to the profit and loss account upon retirement or disposal of revalued assets.

Minus Adjustments:

These are the amounts to be deducted from the net profit. Some negative adjustments can be:

    1. The sum of money taken out from any reserve or provision.
    2. Minus the value of the deferred tax
    3. Depreciation excluding the depreciation on revaluation of assets
    4. Amount of income relating to an exemption under section 10,11,12 (except under section 10(38))
    5. The amount of income relatable to income by way of royalty regarding patent chargeable to tax under section 115BBF.
    6. The amount of notional gain.
    7. If a taxpayer’s share of income from an association of persons or body of individuals is exempted from income tax as per section 86, and if such exempted amount is included in the statement of profit and loss, then it will not be liable for income tax.
    8. If a foreign company receives income from capital gains transactions in securities, interest, royalty, or fees for technical services, and if the income tax payable on such income is less than the rate of Minimum Alternate Tax (MAT), then such income should be credited to the statement of profit and loss.
    9. The amount credited to the statement of profit and loss from the revaluation reserve will not exceed the depreciation resulting from the revaluation of assets.
    10. An industrial company is considered sick when its profits are consistently decreasing, decreasing its net worth. Once the company’s net worth reaches zero or turns positive, it is no longer considered sick.
    11. The amount of loss brought forward or unabsorbed depreciation, whichever is lower, as per the books of account (for companies other than those undergoing insolvency proceedings)
    12. The amount of Unabsorbed depreciation and losses brought forward (excluding unabsorbed depreciation) can be reduced from the book profits if a company’s application for corporate insolvency resolution process under IBC, 2016, has been admitted by AA.

Conclusion

MAT is essential in the Indian tax system, ensuring profitable companies contribute a fair minimum to the national exchequer. While it presents challenges in tax planning, it encourages transparency and equity. Navigating the MAT landscape through strategic tax planning and using MAT credits is crucial for optimising tax liabilities. Remaining informed and seeking professional advice is essential for compliance and fiscal prudence.

For more info follow: cfoangle.com

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Learn Everything About Banking Regulation Act 1949

Banking Regulation Act 1949
Uttarayan
February 23, 2024
8:33 am

Banking Regulation Act 1949, including specific details like Section 35A and a reference to the Bare Act:

Banking Regulation Act 1949 

The Banking Regulation Act of 1949 stands as a cornerstone in the banking regulation framework in India, enacted to oversee and streamline the operations of banking institutions within the country. Introduced on March 10, 1949, and initially known as the Banking Companies Act, it was later renamed through an amendment in 1965 to reflect its broader regulatory scope. The Act’s genesis was motivated by the imperative need to establish a robust regulatory environment amid banking crises and failures witnessed in the pre-independence era, underscoring the absence of a unified regulatory authority and coherent banking laws.

Serving as the legislative backbone for the banking sector in India, the Banking Regulation Act 1949 empowers the Reserve Bank of India (RBI) to: 

    • License banks, 
    • Oversee their operations and 
    • Ensure their solvency and integrity. 

It encompasses comprehensive provisions concerning the management and administration of banking companies, including: 

  • Guidelines on capital adequacy, Restrictions on certain types of lending and investments and measures for the protection of depositors. 
  • The Act also delineates banking entities’ amalgamation, reconstruction, and liquidation process, ensuring the banking system remains stable, efficient, and resilient against economic fluctuations.
  • The significance of the Banking Regulation Act of 1949 extends beyond regulatory measures; it symbolises a commitment to maintaining a secure and trustworthy banking environment. By mandating transparency, accountability, and prudent operational practices, it aims to foster a climate of trust among the public, thereby encouraging savings and investments. Moreover, as the banking landscape evolves with advancements in technology and the emergence of new financial products, the Act continues to be adapted and amended to address these changes, ensuring its relevance and effectiveness in safeguarding the interests of the banking sector and its customers.

Historical Context and Objectives 

Pre-Independence Banking Challenges:

      • Before India’s independence, the banking sector was marked by instability and numerous bank failures.
      • Lack of regulatory oversight and fragmented banking laws contributed to financial instability.

Need for Regulation:

      • The recurrent bank failures highlighted the urgent need for a comprehensive regulatory framework to govern banking operations.
      • There was a critical requirement to protect depositors’ interests and ensure the systemic stability of the banking sector.

Enactment of the Banking Regulation Act 1949:

      • Introduced on March 10, 1949, the Act was a legislative response to the banking sector’s challenges.
      • Initially known as the Banking Companies Act, it aimed to consolidate and amend banking laws in India.

Objectives of the Act:

  • To Regulate Banking Companies: Establish norms for banking entities’ operation, management, and winding up.
  • To Ensure Financial Stability: To provide a stable and secure banking environment, preventing bank failures and protecting the economy.
  • To Protect Depositors: To safeguard the interests of depositors through regulatory oversight and ensure the integrity of banking operations.
  • To Empower the Reserve Bank of India (RBI):To authorise the RBI to act as the central regulatory body capable of licensing, inspecting, and overseeing banks.
  • To Encourage Banking Expansion: To facilitate the growth and diversification of the banking sector while maintaining financial stability and public trust.

Evolution of the Act:

Over the years, the Act has been amended several times to adapt to the changing landscape of the banking industry, including the digital banking revolution and globalisation of financial markets, ensuring its objectives remain relevant and met.

Key Provisions of the Banking Regulation Act 1949

Licensing of Banks:

      • Banks must obtain a license from the Reserve Bank of India (RBI) to operate in India.
      • Ensures only entities that meet specific criteria can provide banking services.

Capital Requirements:

      • Stipulates minimum capital requirements and mandates maintenance of a reserve fund.
      • Aims to ensure banks are financially stable and can absorb losses.

Restrictions on Loans and Advances:

      • Limits exposure to individual borrowers to prevent defaults and maintain asset quality.
      • Prohibits banks from granting large loans against their shares.

Regulation of Bank Management:

      • Sets qualifications for the board of directors and management to ensure competent leadership.
      • Requires RBI approval for the appointment of chairpersons and managing directors.

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR):

      • It mandates banks to maintain a certain percentage of their deposits as cash reserves with the RBI (CRR) and liquid assets (SLR).
      • Ensures liquidity and mitigates the risk of sudden withdrawal demands.

Inspection and Supervision:

      • Authorises the RBI to conduct inspections and bank audits to ensure regulatory compliance.
      • Facilitates early detection of problems and corrective measures.

Control over Mergers and Amalgamations:

      • Requires RBI approval for any merger or amalgamation between banks.
      • Ensures that mergers do not adversely affect the banking sector’s stability.

Prohibition of Certain Activities:

      • Bars banks from engaging in non-banking activities to focus on core banking operations.
      • Prevents conflicts of interest and ensures banks do not undertake risky ventures.

Penalties and Winding Up:

      • Provides for penalties against banks violating provisions of the Act.
      • Outlines procedures for the winding up banks, either voluntarily or compulsorily, under certain conditions.

Empowerment of the RBI:

    • Grants the RBI comprehensive powers to issue directives to banks for the proper functioning and stability of the banking system.
    • Enables the RBI to take prompt corrective action to address issues within banks.

Detailed Analysis of Section 35A

Introduction to Section 35A:

      • Section 35A of the Banking Regulation Act 1949 empowers the Reserve Bank of India (RBI) to issue directions to banks.
      • Implemented to provide the RBI with the authority to ensure the proper management and operation of banks.

Scope and Purpose:

      • Enables the RBI to take preemptive measures to prevent banking crises.
      • Aims to protect depositors and maintain the overall stability of the financial system.

Issuance of Directions:

      • Allows the RBI to issue directions to banks regarding various aspects of banking operations.
      • Directions can cover issues related to interest rates, loan disbursement, and internal administration.

Corrective Measures:

      • Section 35A is pivotal for the RBI to implement corrective actions in banks showing signs of distress.
      • Facilitates restructuring and recapitalisation efforts to ensure banks’ viability.

Regulatory Oversight:

      • Strengthens the RBI’s oversight over banks, enhancing its ability to monitor and regulate the banking sector.
      • Ensures banks operate within the bounds of prudent banking practices.

Legal Framework:

      • Provides a legal basis for the RBI to enforce compliance among banking institutions.
      • Serves as a deterrent against malpractices in the banking sector.

Impact on the Banking Sector:

      • Has significantly contributed to the prevention of banking failures in India.
      • Reinforces depositor confidence in the stability and integrity of the banking system.

Contemporary Relevance:

      • Continues to be a crucial tool for the RBI in managing modern banking challenges.
      • Adaptable to address emerging issues in digital banking and financial innovation.

Conclusion:

    • Section 35A of the Banking Regulation Act 1949 is a testament to the proactive and adaptive approach of Indian banking regulation.
    • Ensures the RBI has the necessary powers to maintain a stable, efficient, and responsive banking sector.

Impact and Relevance of the Banking Regulation Act 1949 Today

  •  

Foundation for Banking Stability:

      • The Banking Regulation Act of 1949 has been pivotal in establishing a stable and secure banking framework in India.
      • Provides the basic legal structure for the regulation and supervision of banks, ensuring their soundness and operational integrity.

Adaptation to Modern Banking Needs:

      • Continuously amended to address the evolving landscape of the banking sector, including digital banking and fintech innovations.
      • Ensures that the regulatory framework remains relevant in the face of technological advancements and changing market dynamics.

Enhancement of Consumer Protection:

      • Strengthens safeguards for depositors through stringent regulatory standards and oversight mechanisms.
      • Promotes transparency and accountability in banking operations, enhancing consumer trust and confidence in the banking system.

Empowerment of the Reserve Bank of India (RBI):

      • Empowers the RBI with comprehensive regulatory and supervisory powers over banks, enabling effective oversight.
      • Facilitates the RBI’s role in maintaining financial stability and preventing banking crises.

Promotion of Financial Inclusion:

      • Supports government initiatives for financial inclusion by ensuring that banks serve the broader objectives of economic policy.
      • Enables the RBI to guide banks in extending services to underserved and unbanked segments of the population.

Framework for Resolution of Banking Issues:

      • Provides mechanisms for the resolution of banking crises, including restructuring and liquidation, if necessary.
      • Helps in maintaining the overall health and stability of the financial system by preventing systemic risks.

Global Compliance and Competitiveness:

      • Aids Indian banks in meeting international banking standards and practices, enhancing their global competitiveness.
      • Ensures that the Indian banking sector is well-positioned to attract foreign investment and participate in international finance.

Conclusion:

The Banking Regulation Act of 1949 remains a cornerstone of the Indian financial system, adapting to ensure the banking sector’s growth, stability, and resilience. Its ongoing relevance and impact reflect its foundational role in supporting a robust, inclusive, and forward-looking banking industry.

For more info follow: CFOAngle.com

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A Deep Dive into the Strategies and Benefits of Taxes Saved by Businesses

Taxes Saved
Uttarayan
January 18, 2024
5:40 pm

Saving on taxes or understanding tax-saving tips is a crucial aspect of managing business finances effectively. A common question often arises about how to save ta in a private limited company in India. Can we do something legally so that taxes are saved? Some tax planning tips can be implemented in today’s business life to derive immediate and long-term benefits. Some of the tips below are best suited for Startup Tax Strategies.

Here are some tax benefits for entrepreneurs in India:

  • Utilise Section 10AA for SEZ Units:
      1. Businesses operating in Special Economic Zones (SEZs) can avail of a deduction under Section 10AA of the Income Tax Act.
      2. There are many SEZs in India, and to name a few are: 
        1. Visakhapatnam Special Economic Zone,
        2. Noida Special Economic Zone
        3. Kandla Special Economic Zone
        4. Cochin Special Economic Zone
        5. Mangalore Special Economic Zone
        6. And many other zones across various parts of India.
      3. Key benefits of having a unit in SEZs
        1. Exemption from GST
        2. Dutyuty-free import of raw materials for production 
        3. 100% income tax exemption on export income for SEZ units for the first 5 years, after that 50% for the next 5 years 
        4. Setup of businesses without any hassles of licenses or lengthy procedures
        5. Good banking setup for funding
        6. Easy acquisition of land for the setting up factor and other facilities
        7. Access to labour as the government promotes the ecosystem around the SEZs
  • Optimise expenses in the business:
      1. Ensure costs are incurred in the company so that all expenses are allowable. 
      2. For Example, A car should be purchased in the business, allowing it to depreciate, along with fuel and repair costs.
      3. Interest paid on the loan taken for the car is also an allowable expense.
  • Leverage Research and Development (R&D) Credits:
      1. Businesses investing in research and development activities may be eligible for tax credits and deductions. Ensure compliance with relevant provisions.
      2. For example, contributions paid to national laboratories and spending money on scientific research are some of the expenses that are 100% allowable.
      3. Contribution paid for the use of research done for social science or statistical research
      4. Many specific research activities are allowable expenses.
  • Explore Capital Allowances:
      1. Businesses can claim depreciation on assets and capital expenditures as per the rates prescribed by the Income Tax Act. Be aware of the different depreciation rates for various assets.
      2. Buy assets in the business and claim depreciation.
      3. Buy property in the business, and rental income and expenses can be claimed.
  • Claim Input Tax Credit under GST:
      1. Ensure proper documentation and compliance with Goods and Services Tax (GST) regulations to claim input tax credits on GST paid for business expenses.
      2. Businesses often take 100% of the GSTR 2A populated input credits and then pay interest and penalties for ineligible input credits.
      3. For example, a car purchased for official use by the business can be depreciated, and all expenses are eligible for expenses. Still, the input credit paid on the vehicle and expenses is unavailable for ITC.
  • Utilise Section 35AD for Capital Expenditure:
      1. Businesses investing in specified sectors like hotels, hospitals, and scientific research can claim deductions under Section 35AD.
      2. The government announces investment-linked income tax benefits to increase capex investment in some industries. Under these schemes, a new setup is done to increase the investment and not by splitting the existing business. Any expenses incurred for such investment are allowed for 100% exemption.
  • Avail of Start-up Tax Benefits:
      1. Start-ups can benefit from tax exemptions for a specified period under the Start-up India initiative. Ensure eligibility and compliance with the prescribed criteria.
      2. Tax holidays allowed for startups in a block period when they started earning profits.
  • Maintain Proper Accounting Records:
      1. Accurate and timely maintenance of accounting records helps correctly compute income, deductions, and compliance with tax regulations.
      2. Businesses often don’t give proper importance to accounting and bookkeeping; thereby, improper reconciliation of books calculates wrong profits and wrong tax, which can lead to interest and penalties for no reason. 
  • Pay timely Advance Taxes:
      1. Paying accurate advance taxes on the due dates helps to bring down interest and penalties under section 234 of the income tax for short and delayed payment of income tax.
      2. Compute the Advance tax quarterly and ensure it is trueup and rechecked every quarter to ensure the correct tax is paid. Some prudent businesses pay slightly higher taxes and take a refund on completion than paying less. 
  • Optimise Business Structure:
      1. Evaluate the most tax-efficient business structure, considering factors like proprietorship, partnership, Limited Liability Partnership (LLP), or private limited company.
      2. If the business threshold increases for a proprietor or a partnership, they should convert to a Company to save substantial taxes on the profit. The average rate of taxes for Properitership when the profits are more than 5 Cr is 47% vs in the company it is 27%.
  • Take Advantage of Presumptive Taxation:
      1. Small businesses can opt for presumptive taxation schemes, like the Presumptive Taxation Scheme under Section 44AD, to simplify tax compliance.
      2. Professionals use this as a tool to bring down more partners in LLP and company structure to bring down overall tax by dividing it effectively between the parties.
  • Claim Deductions for Charitable Contributions:
      1. Businesses contributing to eligible charities can claim deductions under Section 80G.
  • Stay Updated on Tax Reforms:
    Keep abreast of changes in tax laws, exemptions, and incentives introduced by the government to adapt your tax strategy accordingly.
  1.  

It’s advisable to consult with a tax professional to ensure compliance with current tax laws and regulations and to tailor strategies based on the business’s specific circumstances. www.cfoangle.com is the company that helps different sets of legal entities generate the best tax structure and save substantial taxes for taxpayers.

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Income Tax E-Filing – The Complete Guide to Income Tax Filing

Income Tax
Uttarayan
January 9, 2024
6:00 pm

Streamlining Your Tax Affairs: The Complete Guide to Income Tax E-Filing

In an era driven by digitalisation, the filing of income tax returns has substantially transformed. The traditional method of physically filling out tax forms and standing in queues has gradually given way to electronic filing, or e-filing, as it’s commonly known. E-filing offers a convenient, efficient, and secure way for taxpayers to submit their income tax returns to the government. This comprehensive guide sheds light on the nuances of income tax e-filing, its benefits, procedures, and essential considerations.

Evolution of Income Tax E-filing:

The Income-tax e-file India was introduced in 2004 to simplify the tax filing process and improve compliance, but it was made mandatory from July 2006 onwards for all corporate firms to do e-file. In the past, taxpayers had to manually fill out paper forms, leading to a cumbersome and time-consuming process. However, with the advent of technology, electronic filing platforms emerged, enabling taxpayers to do income tax online filing of returns, thus revolutionising the taxation landscape.

Benefits of Income Tax Return filing Online or E-filing:

E-filing offers a plethora of advantages over traditional filing methods:

  1. Convenience: Taxpayers can file their returns from the comfort of their homes or offices, eliminating the need to visit tax offices physically.
  2. Accuracy: E-filing platforms often come with built-in validation checks, reducing the chances of errors common in manual filings.
  3. Faster Processing: Electronic submissions are processed much quicker than paper filings, enabling quicker refunds or assessments.
  4. Accessibility: E-filing platforms are accessible 24/7, allowing taxpayers to file their returns at their convenience within the specified deadline.
  5. Environmentally Friendly: E-filing significantly reduces paper usage, contributing to a greener environment.

 

Understanding the Process of Income Tax E-filing:

  1. Preparation:
  • Gather all necessary documents, including Form 16, bank statements, investment details, and other relevant records.
  • Also, collect all financial records 
  • Choose a reliable e-filing portal approved by the government.
  1. Registration:
  • Create an account on the chosen e-filing portal by providing required details such as PAN (Permanent Account Number), email ID, and contact information.
  1. Filing of Returns:
  • Enter all income details, deductions, and taxes paid in the appropriate sections of the online form.
  • Review and verify the information before submission.
  1. Verification:
  • After filing, the taxpayer needs to verify the return. Verifying can be done electronically through Aadhaar OTP, net banking, or by sending a signed physical copy to the Centralized Processing Center (CPC).
  1. Acknowledgment:
  • Upon successful verification, the taxpayer receives an acknowledgement confirming the submission.

 

Important Considerations and Tips for E-filing:

  1. Stay Updated: Be aware of changes in tax laws, deadlines, and new provisions to ensure compliance.
  2. Maintain Records: Preserve all relevant documents and receipts digitally or physically for future reference.
  3. Accuracy Matters: Ensure accuracy in providing income details, deductions, and other particulars to avoid discrepancies.
  4. Security Measures: Use strong passwords and secure networks while accessing e-filing portals to prevent data breaches.
  5. Seek Professional Help if Needed: In cases of complex income sources or doubts regarding filing, consulting a tax professional can be beneficial.

 

Challenges and Solutions:

While income tax e-filing offers numerous benefits, challenges like technical glitches, network issues, or unfamiliarity with online platforms may arise. To address these challenges, e-filing portals often provide customer support services, tutorials, and FAQs to assist taxpayers in navigating through the process smoothly.

Conclusion:

Income tax e-filing has emerged as a game-changer in simplifying the tax compliance process. Its convenience, accuracy, and efficiency have made it globally’s preferred method for taxpayers. As technology evolves, e-filing platforms are expected to become more user-friendly and secure, enhancing the taxpayer experience. Embracing e-filing streamlines the tax filing process and contributes to a more transparent and efficient taxation system.

In conclusion, by understanding the process, leveraging the benefits, and being vigilant about compliance, taxpayers can harness the power of income tax e-filing to manage their tax affairs effectively in today’s digital age.

For More Info follow: cfoangle.com

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Tax Consultancy

Tax consultancy
Uttarayan
December 30, 2023
7:23 am

What is the role of a Tax Consultant?

The Chartered Accountants, Income Tax practitioners and Accountants do tax consultancy in India. The widely used are Chartered Accountants.

Tax consultants help companies, LLPs, and individuals save taxes in the best way. A good tax consultant must have a degree in accounting and taxation with experience working in the industry that helps him use it effectively in all situations. The typical situations in which the Tax Consultant is required are:

  1. Tax Planning 
  2. Tax Savings
  3. Annual tax filing
  4. Mid-year advance tax calculation and payment
  5. Reply to Tax Department notices and queries

     

Type of Tax in India

  • Indirect Tax – GST

This tax is levied on the goods and services sold in India and Globally from India. The tax is indirect as it is collected from the buyer of the services, who, in turn, can claim the tax, and the final consumer pays the tax. The taxes are added on each value added to the goods and services, and the input is received for the already paid taxes. Thus avoiding double taxation.

  • Direct Tax – Income Tax

Income Tax is levied on the income earned by the companies, LLP and individuals in the capacity of an artificial person or individual. 

Let’s understand each other in a detailed manner.

  • Tax Planning

Tax planning is the activity performed so that all the activities per the act are used to ensure tax is only paid when necessary or optimised. The act has defined how various sections of the Income Tax Act are levied correctly to plan for lower taxation. Income tax consultants ensure that they use all the avenues to ensure lower taxes are deducted. www.cfoangle.com is a tax consultant in Bangalore and one of the leading tax consultants in India who is helping with proper tax planning.

  • Tax Saving

Tax saving is an activity larger than tax planning, and it also includes the re-organisation of the entity to create an overall tax scenario, which helps to use the Income Tax Act effectively to divide the tax liability so that lower taxation is applied. www.cfoangle.com is a tax consultant in Bangalore that has helped proprietors move to a company setup where, from a 47% tax structure, their effective tax rate was reduced to 26%, thus saving a few crores in the company cash flows. Our expert tax consultants help companies understand the issue’s core and suggest and advise them on structural changes to ensure long-term savings. Our team provides contact focus and works closely with the companies for long-term gains. 

  • Annual Tax Filing

Timely and correct filing of annual taxes ensures no penalties and interest. A responsible taxpayer provides advanced tax filing and accurate tax calculation and pays it before the due date. Also, ensure all filings cover all the correct income and finance numbers. Annual filing ensures the completion of the financial and assessment year. Section 143 for self-assessment confirmation received from the Income tax department when they acknowledge and process refunds or additional taxes, if any. www.cfoangle.com helps companies file annual taxes and ensures that there would be no notices once we file it, and if it comes for the same assessment year, it would be attended free of cost. We have resolved cases where 10 cr GST liabilities are cleared with the authorities in less than 10 days.

  • Mid-year advance tax calculation and payment

We must estimate our advance income taxes as required so that the tax is self-assessed and paid promptly to avoid interest. The department sets due dates for each quarter where a specific portion is deposited. An interest is leviable for the default period and a short amount if not paid. Any interest paid is not an allowable expense and is a straight loss. At www.cfoangle.com, we help you make correct estimations and deposit money promptly to the Income Tax Department.

  • Reply to Tax Department notices and queries.

Even after the best work is done, there are chances that the departments will send notices that need to be responded to promptly. At www.cfoangle.com, we deliver detailed responses to the notice with our experts, who help respond and attend personal meetings with the department team to resolve issues. 

Instead of searching for a tax consultant near me, we advise you to search for www.cfoangle.com for the best income tax advice. Nevertheless, you will still find us even if you search for tax consultants near me.

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Tax collected at source on the sale of goods

TDS
Uttarayan
December 26, 2023
7:12 am

Tax deductions at source, primarily called as TDS (Withholding Tax in some countries), are collected for making the payment of services. Likewise, Tax collected at sources (TCS) is a significant method employed by the tax authorities to gather taxes on the sales of certain goods. The government ensures all sellers collect TCS at the point of sale and minimizes the possibility of tax evasion.

What is Tax Collected at Sources (TCS)

When the government levies a tax on specific transactions, the seller collects a particular tax % from the buyer at the time of sale. TCS collects the time of sale and then deposits the same to the government. The primary objective of TCS is to have upfront tax revenues and prevent tax evasion.

Implementation and Applicability

TCS typically applies to specific goods and services defined by the tax authorities. In many countries, it applies to transactions involving alcoholic beverages, luxury cars, certain minerals, etc. The applicability and the rate of TCS can vary based on the nature of goods, the total value of the transaction, and the prevailing tax regulations.

Mechanism of Tax Collected at Source

When a seller conducts a transaction under TCS’s purview, they collect the tax amount from the buyer on the total sale consideration. TCS collected Tax is then deposited with the government within a specified period. The seller issues a TCS certificate to the buyer as proof of tax collection, which the buyer can use to claim credit against their tax liability. TCS amount is deducted from the buyer’s PAN, reflected in their 26AS, and is allowable as a credit in the final income tax of the assessee.

Objectives and Advantages of Tax Collected at Source

  1. Preventing Tax Evasion: TCS helps curb tax evasion by ensuring that Tax is collected at the time of the transaction.
  2. Enhanced Revenue Collection: Governments benefit from a steady flow of revenue through TCS, contributing to effective fiscal management.
  3. Simplified Tax Administration: By collecting taxes at the source, the administrative burden is reduced, making tax collection more efficient.
  4. Expanding the Tax Base: TCS aids in expanding the tax base by capturing taxes from a broader range of transactions.

Challenges and Limitations

Despite its advantages, TCS also presents specific challenges and limitations:

  1. Compliance Burden: Sellers must ensure compliance with TCS provisions, which can sometimes be cumbersome.
  2. Impact on Businesses: TCS might affect cash flows for sellers, especially small businesses.
  3. Complexity in Implementation: Determining the applicability and rates of TCS for various goods and services can be complex, leading to confusion among stakeholders.

Coverage of Goods

  • Trading of goods is where a purchase and sale transaction happens, so the seller has to apply TCS.
  • TCS is not applicable when the above-purchased goods are used for further processing and manufacturing and are exempt from TCS.

Type of goods and rate of TCS applicable

  • Liquor/Scrap/Minerals/Bullion over 2 lakhs/Jewellery exceeds 5 lakhs/Purchase of motor vehicles over 10 lakhs @ 1%
  • Parking lot, Toll Plaza and mining and quarrying companies to apply @ 2%
  • Timber wood under forest leased/Timber wood with any other mode/ @2.5%
  • Tendu Leaves @ 5%

Who is classified to collect TCS?

  • Companies/LLP registered under the Companies Act.
  • Partnership Firms & Cooperative Societies
  • Central/State/Local and Statutory Authorities and government
  • Any other company or individual has to be audited under the Income Tax Act.

TCS due Dates for filing the return

Like TDS, TCS return filling is also after the close of each quarter, like:

  • April to June quarter by 15th July
  • July to September quarter by 15th October
  • October to December quarter by 15th January
  • January to March quarter by 15th May

Due date of making the payment

Like TDS, the TCS due date is on or before the 7th of the subsequent month.

Interest Charged on the delayed payment

The tax collector or TC is responsible as per the act for collecting and paying the Tax to the government. If the tax collector fails to collect and deposit the TCS to the government or collects and not paid on the due dates, the TC will be liable for a 1 % interest per month or part of the month.

Penalty for incorrect filling of the TCS return

A minimum penalty of 20,000 or a maximum of 100,000 can be levied u/s 271H for the wrong filing of a TCS return.

Conclusion

Tax collected at source is crucial for governments to gather taxes efficiently and combat tax evasion. While it offers advantages in terms of revenue generation and simplification of tax administration, there are also challenges associated with its implementation. Striking a balance between effective tax collection and minimizing the burden on businesses is essential for the success of TCS. Governments must periodically review and refine TCS provisions to ensure they align with the evolving economic landscape while maintaining fairness and effectiveness in tax collection.

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