However, the entire income must accrue from a single employer. That is, if an individual has a taxable salary income of less than Rs 5 lakh but had switched jobs in the middle of 2010-11, then he would have to file tax returns, clubbing income from all the employers.  The exemption will also not be available to individuals who have interest income of more than 10,000 in their savings deposits. Those with interest income of less than 10,000 will need to declare such income to their employer and have tax deducted on it to avail of the exemption.

High-value purchase of jewellery, among valuables, have often been feared to be a much favoured route for circulation of black money and quoting of PAN would help the tax authorities in tracking such transactions.

Recently, RBI had also asked the banks to consider the jewellers and bullion dealers as high-risk customers and to keep an enhanced vigil on their transactions.

The business transactions of jewellers and bullion dealers are highly cash intensive in nature and it is feared that they could be used for flow of black money into the system.

In order to check any possible money laundering, the banking sector regulator in January wrote to banks and financial institutions to treat the accounts of entities dealing in the jewellery and bullion trade as ‘high-risk’.

Transition rule:

Point of Taxation Rules effective from 1st April 2011 determining point of tax will not apply where-

• Provision of service is complete prior to 1st April 2011: or
• Invoice is issued prior to 1st April 2011.

An option has been provided to the tax payer to continue to pay service tax on receipt of payment where-

• Provision of service is complete on or before 30 June 2011 or
• Invoice is issued on or before 30 June 201

General rule:

General rule to determine point of taxation shall be earlier of-

• Issuance of invoice; or
• Receipt of payment, including advance; or
• The date of completion of service, where invoice is not issued within 14 days of completion of service

The rule determining point of tax in case of “change of rate of tax” has been amended to mean “change in

effective rate of tax”. It is further provided that such change shall also include a change in taxable value under a notification.

• Individuals, proprietary firms or partnership firms providing taxable services of Architect, Interior Decorator, Chartered accountant, cost accountant, company secretary scientific or technical consulting and legal services.

This rule will have overriding effect over the other rules determining point of tax.

Associated enterprises

For services received from associated enterprise located outside India, the point of tax shall be earlier of-

• Payment date; or
• Date of credit in the books of account of service recipient

Cenvat credit rules 2004

Point of Cenvat credit

Cenvat credit will be allowed on “receipt of invoice” as against on “payment of value of taxable service along with service tax”. It is also provided that if payment of value of input service and service tax thereon remains unpaid for 3 months from the Invoice date, the amount of credit initially availed needs to be paid. The amount so paid will be subsequently available as credit upon payment of value of input service and service tax thereon.

Where  service tax is payable under reverse charge, the Cenvat credit will be allowed only upon payment of value of input service and service tax thereon.

As a transition provision, for invoices  issued prior to 1 April 2011, Cenvat credit will continue to be available upon payment of value of input service and service tax thereon.

Various amendments have been made in Cenvat Credit Rules, 2004 vide Union Budget 2011. Definitions of the terms like ‘inputs’, ‘input services’, ‘exempt services’, etc. have been amended. Also, amendments have been made in the methodology prescribed for credit reversal in case an assessee is engaged in both taxable and non taxable activities.

The purpose of this document is to summarize some of the key clarifications issued vide the Circular (Circular No. 943/04/20 1 1-CX dated 29 April 2011 ) and possible action points on the part of the companies pursuant to these clarifications.

Produced below are the Order issued by the Government. Highlighted Portion of the same gives the insight into the applicability Cost record and cost audit maintenance.

ORDER [F. NO. 52/26/CAB-2010], DATED 2-5-2011

In exercise of the powers conferred by sub-section (1) of section 233B of the Companies Act, 1956 (1 of 1956), the Central Government, being of the opinion that it is necessary to do so, hereby directs that all companies to which any of the following rules apply, and wherein, the

aggregate value of net worth as on the last date of the immediately preceding financial year exceeds five crores of rupees; or wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds twenty crores of rupees; or wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India,

shall get its cost accounting records, in respect of each of its financial year commencing on or after the 1st day of April, 2011, audited by a cost auditor who shall be, either a cost accountant or a firm of cost accountants, holding valid certificate of practice under the provisions of Cost and Works Accountants Act, 1959 (23 of 1959).

(a)  Cost Accounting Records (Bulk Drugs) Rules, 1974

(b)  Cost Accounting Records (Formulations) Rules, 1988

(c)  Cost Accounting Records (Fertilizers) Rules, 1993

(d)  Cost Accounting Records (Sugar) Rules, 1997

(e)  Cost Accounting Records (Industrial Alcohol) Rules, 1997

(f)  Cost Accounting Records (Electricity Industry) Rules, 2001

(g)  Cost Accounting Records (Petroleum Industry) Rules, 2002

(h)  Cost Accounting Records (Telecommunications) Rules, 2002

2. Every company to which these orders apply shall follow the revised procedure for appointment of cost auditor as laid down vide Ministry of Corporate Affairs’ General Circular No. 15/2011 [52/5/CAB-2011], dated 11th April, 2011.

3. The audit shall be conducted in such manner as will enable the cost auditor to prepare the report in accordance with the Cost Audit (Report) Rules, 2001 as amended from time to time. The report of the cost auditor shall be forwarded to the Central Government in the prescribed format within the time stipulated under the said Rules.

4. These orders do not apply to a company which is a body corporate governed by any special Act.

5. All companies covered by these orders and wherein cost audit orders have been issued so far in respect of products/activities covered by the above mentioned rules shall continue to comply with the said orders until these orders become applicable on them.

6. If a company contravenes any provisions of these orders, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of section 209 of the Companies Act, 1956, shall be punishable as provided under sub-section (2) of section 642 read with sub-section (11) of section 233B of the Companies Act, 1956 (1 of 1956).



ORDER [F. NO. 52/26/CAB-2010], DATED 3-5-2011

In exercise of the powers conferred by sub-section (1) of section 233B of the Companies Act, 1956 (1 of 1956), the Central Government, being of the opinion that it is necessary to do so, hereby directs that all companies to which any of the following rules apply, and

wherein the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year exceeds hundred crores of rupees; or wherein the company’s equity or debt securities are listed or are in the process of listing on any stock exchange, whether in India or outside India,

shall get its cost accounting records, in respect of each of its financial year commencing on or after the 1st day of April, 2011, audited by a cost auditor who shall be, either a cost accountant or a firm of cost accountants, holding valid certificate of practice under the provisions of Cost and

Works Accountants Act, 1959 (23 of 1959).

(a)  Cost Accounting Records (Cement) Rules, 1997

(b)  Cost Accounting Records (Tyres & Tubes) Rules, 1967

(c)  Cost Accounting Records (Steel Plant) Rules, 1990

(d)  Cost Accounting Records (Steel Tubes and Pipes) Rules, 1984

(e)  Cost Accounting Records (Paper) Rules, 1975

(f)  Cost Accounting Records (Insecticides) Rules, 1993

2. Every company to which these orders apply shall follow the revised procedure for appointment of cost auditor as laid down vide Ministry of Corporate Affairs’ General Circular No. 15/2011 [52/5/CAB-2011], dated 11th April, 2011.

3. The audit shall be conducted in such manner as will enable the cost auditor to prepare the report in accordance with the Cost Audit (Report) Rules, 2001 as amended from time to time. The report of the cost auditor shall be forwarded to the Central Government in the prescribed format within the time stipulated under the said Rules.

4. These orders do not apply to a company which is a body corporate governed by any special Act.

5. All companies covered by these orders and wherein cost audit orders have been issued so far in respect of products/activities covered by the above mentioned rules shall continue to comply with the said orders until these orders become applicable on them.

6. If a company contravenes any provisions of these orders, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of section 209 of the Companies Act, 1956, shall be punishable as provided under sub-section (2) of section 642 read with sub-section (11) of section 233B of the Companies Act, 1956 (1 of 1956).

Feature of the FTE Guidelines ( Effective from  3 July 2011 )

FTE Guidelines are applicable to a defunct company. For the purposes of the FTE Guidelines, any company will be called as “defunct company”, which has nil asset and liability and

has not commenced any business activity or operation since incorporation; or

is not carrying over any business activity or operation for last 1 year before making application under FTE.

Any defunct company which has active status or identified as dormant by the MCA may apply for getting its name struck off from the ROC.

The application received by the ROC pursuant to the FTE Guidelines will be processed by ROC and some of the key steps of the process are as under:

a) The ROC shall examine the application and if found in order, shall give a notice to the company under section 560(3) of the Act giving time of 30 days stating that unless cause is shown to the contrary, its name be struck off from the Register and the company will be dissolved;

b) The name of applicant and date of making the application under the FTE Guidelines shall be displayed on the MCA portal www.mca.gov.in giving time of 30 days for raising objection, if any, by the stakeholders to the concerned ROC;

c) In case of company like Non-Banking Financial Company, Collective Investment Management Company which are regulated by other Regulator namely RBI, SEBI, respectively, the ROC, at the end of every week, shall send intimation of such companies availing of the FTE Guidelines during that period to the concerned Regulator and also an intimation in respect of all companies availing of the FTE Guidelines that period to the office of the Income Tax

Department giving time of 30 days for their objection, if any.

The FTE Guidelines are not applicable to the following companies:-

i.  listed companies;

ii.  companies that have been de-listed due to non-compliance of Listing Agreement or any other statutory Laws;

iii. companies registered under section 25 of the Act;

iv. vanishing companies i.e. a company, registered under the Act and listed with Stock Exchange which, has failed to file its returns with the ROC and Stock Exchange for a consecutive period of 2 years, and is not maintaining its registered office at the address notified with the ROC or Stock Exchange and none of its Directors are traceable;

v. companies where inspection or investigation is ordered and being carried out or yet to be taken up or where completed prosecutions arising out of such inspection or investigation are pending in the court;

vi. companies where order under section 234 of the Act has been issued by the Registrar and reply thereto is pending or where prosecution if any, is pending in the court;

vii.  companies against which prosecution for a non-compoundable offence is pending in court;

viii. companies accepted public deposits which are either outstanding or the company is in default in repayment of the same;

ix. company having secured loan;

x. company having management dispute;

xi. company in respect of which filing of documents have been stayed by court or Company Law Board (CLB) or Central Government or any other competent authority;

xii.  company having dues towards income tax or sales tax or central excise or banks and financial institutions or any other Central Government or State Government Departments or authorities or any local authorities.

The FTE Guidelines is an improvement over the previous Easy Exit Scheme (EES) and will provide an opportunity to the defunct companies to exit with minimal compliance.

The Registrar of Companies would now be able to issue direct licences to not-for-profit organisations making their registration easier. The new rules issued by the Ministry of Corporate Affairs has done away with some mandatory provisions which will make incorporation as a Section 25 company much faster. “Now, the power to issue licence under Section 25 has been delegated to Registrar of Companies… It will reduce the time taken in incorporation of Section 25 companies (not-for-profit companies). The 30-day mandatory notice period before incorporating such a company has also been done away with, “said Avinash Srivastav, joint secretary with the Ministry of Corporate Affairs, on the sidelines of an event. While easing the rules for non-profit organisations, the government, amidst rising concerns of misuse of funds raised by companies through private placement of shares, said that it will come up with new rules to regulate the use of such funds. “Something is being worked out. By June-end, we will be coming out with formal draft rules or set of guidelines for unlisted companies raising money through private placements of shares, “said Srivastav. The decision of the Ministry of Corporate Affairs to come up with new guidelines comes against the backdrop of the controversy surrounding the Sahara group of firms raising funds through similar instrument. The fund raising act of the company was objected to by the Securities and Exchange Board of India.

LLP is an internationally followed tax-efficient structure that is spared of dividend distribution tax and minimum alternative tax (MAT) on gains from sale of shares. Though the new law was aimed to help small businesses and outfits like law and audit firms, large firms were quick to sense the opportunity. Promoters who are partners in LLPs end up collecting more dividend in the absence of DDT. The AMT, introduced subsequently, has not robbed the LLP of its charm. “Despite the levy of AMT, LLP is gaining popularity among the promoters due to its flexible structure. LLP structure allows non-applicability of deemed dividend provisions, deductibility of interest on capital, cash method of accounting and no compulsory audit. There is a difference between MAT and AMT. The starting point for MAT is to book profit, which includes all kinds of income, while for AMT is taxable income and is adjusted for income-related deductions. The long-term capital gains (LTCG) are thus not liable to AMT for LLPs.
Besides the exemption on DDT, it could make succession planning easier as handing over reins of LLPs to the next generation would be inexpensive. Since any transfer of shares during a succession would be seen as a transfer between partners of the firm, it would not be taxed. Most Indian promoters hold stakes in their companies through a clutch of private limited firms that are liable to pay DDT and MAT.
Many promoters are now a days looking for this option. The attractiveness of LLP still remains as there is no DDT, and AMT levied in this budget does not cover income, which are exempt from tax. “Companies are liable to MAT at 18.5% (effective rate: 20.01%) on long-term capital gains (LTCG) on sale of equity shares, which is otherwise tax-exempt if sold on a recognised stock exchange. Holding companies are also liable to pay DDT as and when they declare dividend at 15% (effective rate: 16.22%). This is very harsh for holding companies as shareholders effectively get 68.83% of the income in their hand after paying MAT and DDT, which is otherwise tax-exempt for LLP and its partners. A holding firm with potential earning of . 1,000 crore by way of LTCG will end up paying . 312 crore as MAT and DDT,” said Ambavat. A year ago RIL rejigged its promoters’ shareholding by transferring substantial stake from promoter group entities to LLPs. As per the March shareholding pattern, around 29 LLP firms hold around 33% shares of the company, valued at around 1 lakh crore.

In a ruling last week, the Mumbai bench of ITAT said that gains arising from PMS transactions are capital gains and not business profits. Short-term capital gains are taxed at 15%,against 30% for business income. While the tax department had laid down the features to differentiate between the two kinds of transactions, there were grey areas that left room for interpretations by assessing officers. Thanks to conflicting rulings and views, the issue sparked multiple legal disputes in the past few years. PMS, offered by brokerages and fund houses, are sold to HNIs who are willing to take extra risks.

PMS industry handles funds worth.20,000 crore for more than 70,000 rich clients. The ruling is expected to cheer fund managers as well as investors. The clarity provided by the ruling on how PMS needs to be treated under tax will be a relief to large number of PMS investors and PMS providers. While hearing the dispute between Radha Birju Patel, an investor, and IT department, the ITAT ruled in favour of tax payers on the issue of characterization of income earned on sale of securities. It supported the proposition that an investment portfolio managed by a fund manager is an investment asset in the hands of the tax payer. The gains derived by the taxpayer from the sale of securities belonging to such an investment portfolio should be treated as capital gains. These transactions are undisputedly carried out by the assessees portfolio manager and items are clearly in the nature of transactions meant for maximization of wealth rather encashing the profits on appreciation in value of shares, the ruling said. But while the ruling favours the concerned investor in this particular case,

The issue of characterization of income from investing / trading in securities, said Russell Gaitonde, partner, BMR Advisors, is a mixed question of fact and law. The issue has become highly litigious, owing to a plethora of conflicting rulings on the matter. Indian courts have ruled that one would need to consider multiplicity of factors before formulating a view. In this particular case, the assessing officer had argued that the gains are business profits as the assessee was trading in shares and there were a large number of transactions, among others. But the factors that went in favour of the taxpayer were, the investor was a working lady, earning a retainer fee, and chose ASKRJ to manage her funds in a discretionary PMS and had no control over the investment decisions. But it may not come as a relief to all PMS investors, said Jiger Saiya, partner, direct tax, MZS & Associates. The tribunal has specifically stated that the taxation would depend on facts of the case. We need to see the entire facts in order to determine whether the taxpayer is engaged in the business of trading in shares or investing in it. The tribunal has left it to the tax officer to determine taxation of such transactions on the basis of facts.

The proposal comes after the ministry found that many companies were filing only “event based” information under the ministry’s e-governance database but were not submitting the statutory annual and financial audit reports. It has also decided to implicate key officials of companies company secretary and auditors by prohibiting them from signing any document for filing with the MCA-21 system, the government’s electronic platform made mandatory five years ago.

The proposal would make the functioning of defaulters difficult and also compound their offences as they will not be able to meet regulatory requirements of submitting all necessary forms, allowing the ministry to take stronger action.

“The idea is certainly to bring more discipline into the process, “said a senior official in the ministry, which has sought suggestions to the proposal from its regional directors, registrar of companies and official liquidators.

“Some of the filings that will be stopped include application for giving loan, providing security or guarantee. Filing in respect of consolidation, division or increase in share capital or increase in number of members will also be not allowed. Defaulting firms will also not be able to apply for approval for change of name or conversion of a public company into a private company. These limitations will make it difficult for companies to interact with other stakeholders.

“Further, banks and others who are expected to see compliance before sanction or disbursement for other contractual arrangements would not proceed further and look to insist for compliance,Over 50% of companies that are required to file their annual reports and balance sheet do not do so, government data show. Defaulting companies face penal action under the Companies Act from the registrar of companies after a show cause notice is issued. As per provisions of the Companies Act, non-filing of annual accounts and annual returns makes the company and all its officers liable to a fine up to Rs 500 per day. The non-filing has frustrated ministry’s attempt to create records of companies in electronic form that can be quickly accessed in suspected cases of money laundering and fraud. Electronic records enable appropriate software to mine data and provide early warning about sudden changes in the financials of a company that could suggest some manipulation.

The government had also announced an amnesty scheme-Company Law Settlement Scheme (CLSS) 2010-that allowed companies to update their filings by paying a 25% extra fee. Such companies were given immunity from further prosecution. Defunct companies were also provided an exit scheme-Easy Exit Scheme (EES) 2010-under which they could get their names struck off the Register of Companies after providing their up to date statement of accounts. Both the schemes failed.

The ministry has said it will also seek the help of stock market watchdog SEBI and the Reserve Bank of India in taking action against errant companies.

The ministry has found that many listed companies were regular in filing their documents with the stock exchanges but were not submitting documents with the registrar of companies. The ministry’s facility of electronic filing of documents is aimed at lowering compliance cost for companies and brings transparency in their affairs.

Allowed in sectors where 100% FDI is allowed and that too subject to approval of the CCEA

The government has partially opened limited liability partnerships to foreign investments, ending months of wrangling over the extent of foreign ownership in this new form of business structure. Foreign direct investment in LLPs will be allowed only in those sectors where 100% foreign ownership is permitted. Even this permission will take the approval route, the cabinet committee on economic affairs, or CCEA, decided on Wednesday. The CCEAs approval will benefit the Indian economy by attracting greater FDI,creating employment and bringing in international best practices and latest technologies in the country, an official statement said. LLPs with foreign investments will not be allowed in agricultural or plantation activity, print media and real estate business or downstream investments. The government has also imposed stringent conditions to prevent its misuse.

An Indian company having foreign direct investment will be permitted to make downstream investment in LLPs only if both the company as well as the LLP are operating in sectors where 100% FDI is allowed, through the automatic route and there are no FDI-linked performance related conditions. Foreign participation in the LLPs will be allowed only by way of cash considerations, received by inward remittance through normal banking channels. Foreign Institutional Investors and Foreign Venture Capital Investors will not be permitted to invest in LLPs. LLPs have also been barred from accessing overseas debt through external commercial borrowings. These rules are consistent with the regime in many countries where LLPs face certain restrictions. In some countries, for instance, they are not allowed to make investments in sensitive sectors such as aviation. The government has also imposed stricter norms for conversion of companies that have FDI into LLP.

Conversion of a company with FDI into an LLP will be allowed only conditions laid down by the government are met with the prior approval of the foreign investment promotion board. The designated partner of an LLP should only be a company registered under the Companies Act and not any other body, such as an LLP or a trust. However, experts say enabling provision for conversion would allow foreigners to restructure their businesses here. Enabling window for conversion on exisiting companies to LLPs will give opportunities to foreign investors to restructure their business to migrate to a more efficient entity platform. The designated partners will be responsible for compliance with the above conditions and liable for all penalties imposed on the LLP for their contravention. Industry analysts say the move will help the country attract foreign capital. Foreign investors will now get a window to operate in a simpler and tax-efficient environment. The DIPP had put out a discussion paper in September last year for public comments on whether 100% FDI should be allowed in LLPs.The move comes in the backdrop of the UPA governments decision to have a simpler regulatory framework to attract FDI inflows, which declined by 25% in the first 11 months of the current financial year to only $18.35 billion in FDI. Foreign investors can now use the flexibility this form of business structure that has less stringent norms on meetings and maintenance of statutory records. It would also help Indian partnership firms, especially in consultancy business to corporatize and bring in professional practices. Currently, FDI is not permitted in partnerships firms.