Spending of CSR funds for COVID-19 is an eligible 'CSR activity'

Keeping in view the spread of novel Coronavirus in India, its declaration as pandemic by WHO, and decision of Government to treat it as notified disaster, it has been clarified that spending of CSR funds by companies for COVID-19 cause shall be eligible CSR activity under Companies Act, 2013. Funds may be spent for various activities related to COVID-19 relating to health care, including preventive health care and sanitation, and disaster management.

Supreme Court extends limitation for filing appeals until further order
The Apex Court by taking suo-moto cognisance of situation faced by country on account of Covid-19 pandemic has indefinitely extended the ‘limitation period’ for filing appeals against orders of High Courts or any Tribunal to Supreme Court. To obviate such difficulties and to ensure that lawyers/litigants do not have to come physically to file such 2 proceedings in respective Courts/Tribunals across the country including this Court, it is hereby ordered that a period of limitation in all such proceedings, irrespective of the limitation prescribed under the general law or Special Laws whether condonable or not shall stand extended w.e.f. 15th March 2020 till further order/s to be passed by this Court in present proceedings.

Sebi further relaxes compliance norms for listed entities
SEBI, vide circular no SEBI/HO/CFD/CMD1/CIR/P/2020/38 dated March 19, 2020 had provided relaxation from compliance with certain provisions of the LODR. It has been decided to grant the following further relaxations from the LODR.
Regulation and associated filing:

1. Regulation 40(9) relating to Certificate from Practicing Company Secretary on timely issue of share certificates (half yearly): Extended to May 31, 2020
2. Regulation 44(5) relating to holding of AGM by top 100 listed entities by market capitalization for FY 19–20 (annual) : Extended to September 30, 2020

Bill for direct overseas listing of firms tabled
The Centre has introduced the Companies Amendment Bill 2020 in the Lok Sabha to decriminalise procedural and technical lapses and to allow direct listing of securities by Indian firms in permissible foreign jurisdictions.

The Bill has also laid down rules for incorporation, registration, amalgamation, and functioning of producer companies, apart from paving the way for conversion of interstate cooperatives into producer companies.

The proposed amendmen t is in line with the government´s aim to streamline the functioning of farmer producer organisations in order to achieve the goal of promoting 10,000 new FPO in the next five years.

A host of activities have been included into the ambit of producer companies that include financing the need of primary producers largely farmers.

Labour Ministry amends EPF norms in event of Covid-19 outbreak
The notification GSR 225(E) issued by Ministry of Labour and Employment amending the EPF Scheme 1952 allows withdrawal of non-refundable advance by EPF members in the wake of COVID -19 pandemic in the country. The notification permits withdrawal not exceeding the basic wages and dearness allowance for three months or upto 75% of the amount standing to member’s credit in the EPF account in the event of outbreak of epidemic or pandemic.

FM announces Rs 1.70 Lakh Cr. relief package for poor to fight battle against Corona Virus
The Union Finance & Corporate Affairs Minister Smt. Niramla Sitharaman today announced Rs 1.70 Lakh Crore relief package under Pradhan Mantri Garib Kalyan Yojana for the poor to help them fight the battle against Corona Virus. While addressing the press conference here today, Smt. Sitharaman said “Today’s measures are intended at reaching out to the poorest of the poor, with food and money in hands, so that they do not face difficulties in buying essential supplies and meeting essential needs.”

Detailed comparison of CARO 2016 with CARO 2020

In pursuance of its objective of strengthening the corporate governance framework under the Companies Act, 2013 to attain the national objective of becoming a $ 5 Trillion economy, powers conferred under sub-section (11) of section 143 of the Companies Act, 2013 and in supersession of the Companies (Auditor’s Report) Order, 2016, the Central Government has notified the Companies (Auditor’s Report) Order, 2020 (CARO 2020) on 25th Feb, 2020.

The CARO, 2020 is applicable for an audit of financial statements of eligible companies for the financial years commencing on or after the 1st April 2019. The criteria of eligibility of companies on which the CARO, 2020 shall be applicable has not been changed and hence it shall be applicable to all those companies on which CARO, 2016 was applicable. CARO 2020 would necessitate enhanced due diligence and disclosures on the part of auditors of eligible companies and has been designed to bring in greater transparency in the financial state of affairs of such companies.

The CARO, 2020 includes certain additional clauses, as compared to CARO, 2016, and the existing clauses of CARO, 2016 have been re-drafted to elicit detailed comments from the auditors. A brief analysis is given below:

1. Fixed Assets:

• In clause (i)(a): The word “Fixed assets” is replaced by “Property, Plant and Equipment” and “Intangible asset” separately.
• New clause (i)(a)(B) has been inserted to report whether proper records have been maintained showing full particulars of intangible assets.
• New clause (i)©: A specific format has been provided for reporting the details of such immovable properties (other than properties where the company is the lessee and the lease agreements are duly executed in favor of the lessee) whose title deeds are not held in the name of the company but are disclosed in the financial statements.

Description of propertyGross carrying valueHeld in the name ofWhether promoter, director or their relative or employeePeriod held — indicate range, where appropriateReason for not being held in the name of the company

• New clause (i)(d): will be applicable if there is revaluation of fixed asset by registered valuer. Amount to be specified if deviation is 10% or more.
• New clause (i)(e): Disclosure of details of proceedings against the company for holding Benami Property and whether the company has disclosed the details in its financial statements.

2. Inventory

• Clause (ii)(a) Expanded: Auditor is required to comment on coverage and procedure of inventory verification by management.

Also Materiality has been defined as 10% or more in each class of Inventory.

• New clause(ii)(b): If the company has any working capital facility against current assets in excess of Rs. 5 crores at any time during the year, then the auditor has to confirm whether the quarterly submissions made to the lenders are in conformity with the books of accounts or not.

3. Loans granted

• Modified clause(iii) of CARO, 2020: Details of all loans granted, advances in the nature of loans granted, guarantees/ security given to any entity has to disclosed. This will not be applicable to companies whose principal business is to give loans.
• Details of loans which were renewed, extended or fresh loans are granted to settle overdue of existing loans given to same parties to be given. Inter alia percentage of such loans to aggregate loans granted is also to be given.
• Details of all loans or advances which are repayable on demand or without any stipulated period of repayment has to be disclosed.

4. Loans, investments, guarantees, and security (Section 185 and 186 of Companies Act, 2013) : There is no change in CARO 2016

5. Deposits: There is no change in CARO 2016

6. Cost records: There is no change in CARO 2016

7. Statutory Dues: There is no change in CARO 2016

8. Default in repayment of loan or borrowings:

• Modified clause (ix)(a): Defaults in repayment of principal or interest portion of ANY loan or other borrowings are now to be reported. Earlier defaults in loans from specified lenders like financial institutions, banks, Government or debenture holders were to be reported.

A specific format below has been prescribed to report the period and the amount of default by the company in repayment of loans or other borrowings or in the payment of interest thereon to any lender:

Nature of borrowing including debt securitiesName of lenderAmount not paid on due dateWhether principal or interestNo. of days delay or unpaidRemarks, if any

• Newly inserted:
• Clause(ix)(b): Auditor has to report if the company is declared a WILFUL DEFAULTER by the bank, financial institution or any other lender.
• (ix)© Auditor to report whether term loans are applied for the purpose for which they were obtained
• (ix)(d) Auditor to report if funds raised for short term have been utilized for long term purposes.
• (ix)(e) If the company has taken any funds on account of meeting the liabilities of subsidiaries, joint ventures or associates, then such transaction details are to be reported.
• (ix)(f) Auditor to report if the company has availed loans on pledge of securities held in its subsidiaries, joint ventures or associates.
• 
  

9. Public offer: Clause (xiv) of CARO 2016 regarding preferential allotment of shares has been merged in clause (x)(a) of CARO 2020

10. Fraud by/on company: Modified Clause (xi)

(a) Earlier, auditor had to report on any fraud on the company done by its officer or employee. This specification has been removed. Now ANY fraud by the company or on the company has to be reported by the auditor.

(b) If any reporting of fraud has been filed by the auditor under 143(12) of the Companies Act, 2013 then such reporting has to be disclosed here also.

© Auditor has to disclose if he considered any whistle blower complaint received by the company during the year.

11. Managerial Remuneration: Clause (xi) of CARO 2016 has been removed in CARO 2020.

12. Nidhi Company: Defaults in repayment of principal or interest portion of deposits now to be reported in newly inserted clause (xii)©

13. Related Party Transactions: There is no change in CARO 2016

14. Internal Audit: New clause(xiv) inserted under which auditor has to report whether-

(a) Company has internal audit system commensurate to the size of the company.

(b) Such internal audit report has been considered by the auditor to reach his Opinion

15. Non-cash Transactions: There is no change in CARO 2016

16. RBI Registration: New clause (xvi) has been inserted in CARO 2020. Accordingly, auditor has to comment if the company has done any NBFC activity without valid registration from RBI.

Whether the company is fulfilling the criteria of Core Investment Company (CIC) or exempted CIC, is to be reported by the auditor

If the company has more than one company as part of the group, then the number of CICs which are part of the group are to be reported.

17. Cash losses: New clause (xvii) has been inserted in CARO 2020.

If the company has incurred cash losses for 2 consecutive years, then the amount of such cash losses are to be reported.

18. Resignation of auditor: Newly inserted clause (xviii)

The current auditor to report if he has taken into consideration the issues, objections or concerns raised by the outgoing auditor, in case the outgoing auditor had resigned during the year.

19. Material uncertainty: Newly inserted clause (xix)

Auditor has to comment whether material uncertainty with regards to company meeting its liabilities is existing at the Balance Sheet date as and when they fall due for the next one year on the basis of:

(a) Financial ratios

(b) Ageing & expected realization dates of financial assets & liabilities

© Other information accompanying the financial statements

(d) Knowledge of the Board and Management Plans

20. Corporate Social Responsibility: Newly inserted clause (xx) regarding transfer of unspent CSR funds to a specified fund within 6 months from the expiry of the F.Y. is to be reported.

21. Qualifications or adverse remarks by auditor in CFS: clause(xxi)

Auditor has to report whether there have been any qualifications or adverse remarks by the respective auditors in the Companies (Auditor’s Report) Order (CARO) reports of the companies included in the consolidated financial statements and details of those companies thereof.

Closing Thoughts

The CARO, 2020 is expected to significantly improve the overall quality of reporting by the Auditors on the financial statements of the Companies and thereby lead to greater transparency and faith in the financial affairs of the companies. This is automatically expected to bring greater inflow of investment by and in Indian companies.

Income Tax Audit in India | Due Diligence Services in India

Compliance under RERA

With the advent of The Real Estate (Regulation & Development) Act, 2016, which came into effect from May 1, 2017, there began a norm for strict compliances that have to be adhered by each and every developer, builder and construction giant in different parts of the country. Most of the states have established their own RERA offices where they work under the established rules and regulations. Though the act is not retrospective in nature it mandates every project to be registered with the respective State RERA offices by the promoters of the company within 3 months of the commencement of the Act.

Objective of RERA

The RERA aims to establish the Real Estate Regulatory Authority that would regulate and promote the real estate sector. The main aim of the Act is to protect the interest of homebuyers and promote timely delivery of properties or projects.

RERA was also enacted to boost investment in the sector. The provisions like timely completion and delivery of projects to the buyers and making the information of the project plan, layout, government approvals, land title status, and sub-contractors available, consent of two-thirds of the allottees on any alteration or addition in the project, and other such provisions, would bring in more transparency and accountability in the real estate sector.

Applicability of RERA and RERA Registration

RERA has been enacted and implemented in all the states as well as Union Territories except the States of Jammu and Kashmir and West Bengal. The State of West Bengal has followed a different path altogether. Instead of RERA, the State of West Bengal has implemented, West Bengal Housing Industry Regulation Act. Separately, the State Advisory Council of Jammu and Kashmir has approved Real Estate (Regulation and Development) Bill, 2018.

RERA makes it mandatory for all commercial and residential real estate projects where the land under development is over 500 square meters or no. of units to be constructed exceeds 8 apartments will have to register with the RERA authority before launching of the real estate project. Every promoter shall make an application to the authority for registration of real estate project. The projects that are ongoing on the date of commencement of this act and for which completion certificate have not been issued have to get registered with RERA. If real estate project fails to register a property, it will attract penalty.

However, renovation, repair or redevelopment projects not involving marketing, advertising, selling and new allotment are not required to get registered.

Compliance under RERA

RERA registration is just a start of RERA compliances of various provision of RERA regulations. It gives complete details of the project to RERA authority and public at large which would try to ensure that all compliances are met. Some of the compliance for builders are as under:

• Uploading of Agreement/Plan/Approval etc. — RERA regulation has mandated to publish the details along-with copy of agreements, approvals etc., on website of RERA Authority for general public viewing purpose.
• Quarterly updating with RERA — Every registered project shall update the prescribed details regarding the project on the website of the respective State RERA authority. Failure to do so may attract heavy penalty and penal proceeding from RERA authority.
• Separate bank accounts for 70% of receipts — As per the RERA law, every developer is required to deposit 70% of the receipts from the customers in a separate RERA designated account which shall be used only for cost the project.
• Comply with Prescribed process of booking and allotment– RERA regulations have prescribed certain obligations and responsibilities on the developers while booking the new flat or allotment, some of them are:
• Ensure that transaction is done through RERA registered agent
• Making available the approved plan to the buyer
• Non-acceptance of advance more than 10% of unit cost
• 
  
• Taking necessary approval and insurance — As per RERA regulation, the builder or developer is required to take all the necessary approvals and insurance, as required by State laws. RERA regulations relating to insurance are very confusing and shall require detailed research.
• Formation of allottee’s association — As per RERA regulations, every builder or developer shall form the society/association or co-operative society as prescribed by respective State Government. If nothing is specifically provided by State Government, then society shall be constituted within 3 months from the month in which majority flats are sold.
• Timely completion and delivery including common areas — Every builder/association is required to complete the project on given time and give possession within 3 months. All the common areas shall be transferred to association of the allottees.
• Review of building quality — The developer need to review the quality of building. As per RERA law, any defects in the structure shall be rectified by the builder within 30 days of intimation without any additional cost.

Project Account (70:30 rule)

• Developers are required to deposit 70% of project funds in a designated bank account. Of the total collections, only 30% can be withdrawn / used without any restriction.
• In the event where the estimated receivables of the ongoing project are less than the estimated cost of completion of the project, then 100% of the amount to be realized from the allottees shall be deposited in the said separate account.
• Withdrawal from the RERA Account to be certified by Engineer, Architect, and Chartered Accountant
• Withdrawals from the RERA Account to be in proportion to the % completion method
• Withdrawals from the RERA Account can be made for the purpose of payment of construction and land cost of that project only
• Amount in RERA designated account cannot be used for Admin and Marketing expenses

Penalties for non-compliance under RERA

The RERA Act gives explicit and mentions of specific penalties for offences by promoters, real estate agents, builders and other parties who are involved under the ambit of this act:

• For non-registration of the project with the RERA Authority: 10% of the total estimated cost of the project. However, agent is charged a penalty of Rs. 10,000 per day during default tenure up to 5% of property cost
• Where information or advertisement regarding the project is found to be false: Penalty for promoter is 5% of the estimated cost of the project
• Where any provisions of the Act (except above) have been contravened: Penalty for promoter and agent is 5% of the estimated cost of the project/ property
• Where an order of the RERA has been contravened or has not been executed: Daily penalty for every day after passing of the order which has been contravened up to 5% of the estimated cost of the project/ property for promoter, agent and the allottee.
• Where an order of the Appellate Tribunal has been contravened: Penalty up to 10% of the estimated cost of the project/ property for promoter, agent and the allottee.

Prosecution and Compounding

• Non-compliance of penalty order by Promoter (for non-registration of Project) issued by the Authority entails imprisonment up to 3 years or further penalty of 10% of estimated cost or both
• Non-compliance with the order of the Appellate Tribunal by Promoter entails imprisonment up to 3 years or further penalty of 10% of estimated cost or both
• Non-compliance with the order of the Appellate Tribunal by Agent entails imprisonment up to 1 year or daily fine of 10% of estimated cost of apartment or plot of land
• Non-compliance with the order of the Appellate Tribunal by Allottee entails imprisonment up to 1 year or daily fine of 10% of estimated cost of apartment or plot of land
• Imprisonment punishment could be compounded (before or after the institution of prosecution) by the Court

ConclusionThe legislative regime was not strong enough to render the developer and the builder guilty of misconduct and also for breaching the terms and conditions of the builder buyer agreement in the long run. Introduction and enforcement of RERA comes further to protect the interest of the homebuyers as well as save them from any kind of financial burdens.

Transfer Pricing Audit in India

E-FRRO compliance for foreign nationals in India

Under Indian law, the legal rights and the restrictions imposed on foreign nationals depend on whether they are categorized as residents or non-residents.

Entry into India generally requires a valid visa granted by an Indian Mission (that is, consulate of the Indian embassy) abroad. Furthermore, foreign nationals who enter India must register themselves with the Foreign Regional Registration Office (FRRO) within 14 days of arrival if they intend to reside in India for a consecutive period of more than 180 days.

The entry, stay and exit of foreign nationals into India are primarily governed by the following laws (among others):

• Passport (Entry into India) Act 1920, read with the Passport (Entry into India) Rules 1950.
• Foreigners Act, 1946.
• The Registration of Foreigners Act 1939, read with the Registration of Foreigners Rules 1992.

What is e-FRRO?

• It is web-based application aimed to build centralized online platform for foreigners for visa related services. Its key objective is to provide Faceless, Cashlessand Paperless services to the foreigners with user friendly experience.
• Using this application, foreigners are required to create their own USER-ID by registering themselves. Afterwards, they would apply online through registered user-id for various Visa and Immigration related services in India viz. Registration, Visa Extension, Visa Conversion, Exit Permit etc, without any hassle and obtain the service(s) without coming to FRRO office.
• The necessary immigration/Visa document e.g. Registration Permit/Certificate (RP/RC), Visa Extension Certificate etc will be sent by post on the address mentioned. It would also be electronically sent to the foreigner to his registered email ID.
• Foreigners would not be required to mandatorily visit FRRO/FRO office for grant of service. However, in certain exceptional cases, the foreigner will be intimated to visit the FRRO/FRO on scheduled date and time for interview.
• In case of an exigency, the foreigner can visit the FRRO/FRO office directly for grant of service.

Foreigners’ Registration in India

• All foreigners (including foreigners of Indian origin) visiting India on long term (more than 180 days) Student Visa, Medical Visa, Research Visa and Employment Visa are required to get themselves registered with the Foreigners Regional Registration Officer (FRRO)/ Foreigners Registration Officer (FRO) concerned having jurisdiction over the place where the foreigner intends to stay, within 14 days of arrival (except Pakistan and Afghanistan).
• All Business Visa holders are required to register themselves with the FRRO/FRO concerned in case the aggregate stay in India on Business visa exceeds 180 days during a calendar year.

Foreigners other than those mentioned above will not be required to get themselves registered, even if they have entered India on a long term visa provided their continuous stay in India does not exceed 180 days. If the intention of the foreigner is to stay in India for more than 180 days, he/she should get himself/ herself registered well before the expiry of 180 days from the date of arrival with the FRRO/FRO concerned.

Children below 16 years of age are exempted from Registration if they have entered on PIO card or on any type of Visa and except where specified otherwise. It is mandatory for all foreigners to personally appear at the concerned FRRO office for obtaining any Visa related services.

Requirements for Extension of VisaForeigners must submit application for extension of residential permit/ visa at least 60 days before the date of expiry of respective residential permit/visa.

Over stayIn the event of overstay foreigner is liable for prosecution under Foreigners Act 1946 and imprisonment up to 5 years with fine & expulsion from India.

Late Renewal of Residential PermitA foreigner who has delayed for renewal of RP, on application, if delay is condoned will be charged a penalty in Indian currency equivalent to US $30/- for late renewal.

Report of absence from Registered AddressIf at any time a foreigner proposes to be absent from his / her registered address for a continuous period of eight weeks or more or change his / her registered address, then the foreigner is required to inform in person or through an authorized representative or by registered post to his / her Registration Officer of his / her intention to change his registered address or to leave either temporarily or permanently under the jurisdiction of the Registration Officer. In case of return, the foreigner should inform the Registration Officer of the date of return and in case the foreigner is moving away inform the change of address. Any changes made subsequently should also be intimated to the Registration Officer. Every foreigner, who stays for a period of more than eight weeks at any place in any district other than the district in which his / her registered address is situated, shall inform the Registration Officer of that district of his / her presence. This can be made in writing and the requirements deemed to have been fulfilled if, prior to arrival the foreigner furnishes to the Registration Officer of the said district intimating the dates of his proposed arrival and departure from the district.

Change in Registered addressA foreigner shall be deemed to have changed his registered address, if he changes his residence from one place to another place in India and if having no residence, he leaves his registered address knowing that he is not likely to return within six months of leaving it.

Reports of other changes except addressEvery foreigner is required to furnish to the Registration Officer of the district in which his registered address is situated, particulars of any circumstances affecting in any manner the accuracy of the particulars recorded in his certificate of registration within fourteen days after the circumstance has occurred, and generally shall provide to the Registration Officer all information as may be necessary for maintaining the accuracy of the certificate.

Surrender of certificates of registration on departureEvery foreigner who is about to depart finally from India shall surrender his certificate of registration either to the Registration Officer of the place where he is registered or of the place from where he intends to depart or to the Immigration Officer at the Port/Check post of exit at the time of final departure from India. If the certificate is surrendered other than to the Immigration Officer of the port or check post of exit, a receipt indicating such surrender of the document may be obtained and shown to the Immigration Officer at the time of final departure

Duplicate certificate of registrationIf any certificate of registration, issued under existing Acts / Rules is lost or destroyed, the foreigner to whom it was issued, shall make or send to the Registration Officer of the district of his registered address a report of circumstances in which it was so lost or destroyed along with an application in writing and a copy of police report in order to issue a duplicate copy of the certificate of registration.

Person of Indian Origin (PIO)

• As per the Gazette of India (Part-I, Section-I) published on 09.01.2015, all the existing Persons of Indian Origin (PIO) card holder registered as such under new PIO Card scheme 2002, shall be deemed to be Overseas Citizens of India Cardholder.
• All PIO card holders with valid PIO cards as on 09.01.2015 are advised to apply for conversion of their PIO card to OCI card.
• Bureau of Immigration would accept PIO card as valid document till March 31, 2019 along with valid foreign passport. Machine-readable electronic document is mandated by the International Civil Aviation Organization (ICAO) guidelines.

Overseas Citizen of India (OCI) Cardholder(a) The following categories of persons (except Pakistan and Bangladesh) are eligible to apply under OCI scheme:

• Who is a citizen of another country, but was a citizen of India at the time of, or at any time after, the commencement of the constitution; or
• Who is a citizen of another country, but was eligible to become a citizen of India at the time of the commencement of the constitution; or
• Who is a citizen of another country, but belonged to a territory that became part of India after the 15th day of August, 1947; or
• Who is a child or a grand-child or a great grandchild of such a citizen; or

(b) A person, who is minor child of a person mentioned in clause (a); or

© A person, who is a minor child, and whose both parents are citizens of India or one of the parents is a citizen of India; or

(d) Spouse of foreign origin of a citizen of India or spouse of foreign origin of an Overseas Citizen of India Cardholder registered under section 7A, Citizenship Act 1955 and whose marriage has been registered and subsisted for a continuous period of not less than two years immediately preceding the presentation of the application under this section.

Foreigners Possessing Entry (X) Visa / Journalist (J) Visa

• Foreigners visiting India on long term Entry(X) visa or J visa would not require registration with the concerned FRROs/FROs if the duration of his/her stay does not exceed 180 days on a single visit. In case a foreigner intends to stay for more than 180 days on a single visit he should get himself registered well before the expiry of 180 days.
• Foreigners visiting India are also required to adhere to the Special Endorsement made on the Visa by the Indian Mission.
• Every foreigner at the time of Registration, shall furnish, such information in registration report, as may be in his possession for the purpose of satisfying the Registration Officer and shall, on being required, shall sign the registration report in the presence of the said officer and shall thereupon be entitled to receive from the said officer a certificate of registration in Part III of Form A.

Indians visiting abroad
ECNR/ECRAs per the Emigration Act, 1983, Emigration Check Required (ECR) categories of Indian passport holders, require to obtain “Emigration Clearance” from the office of Protector of Emigrants (POE), Ministry of Overseas Indian Affairs for going to following 18 countries.

United Arab Emirates (UAE), The Kingdom of Saudi Arabia (KSA), Qatar, Oman, Kuwait, Bahrain, Malaysia, Libya, Jordan, Yemen, Sudan, Afghanistan, Indonesia, Syria, Lebanon, Thailand, Iraq (emigration banned).

However , the Ministry of Overseas Indian Affairs (Emigration Policy Division) have allowed ECR passport holders traveling abroad for purposes others than employment to leave the country on production of valid passport, valid visa and return ticket at the immigration counters at international airports in India w.e.f. 1st October 2007.

If the RPO has issued Indian passport either with endorsement of “Emigration Check Required” or no endorsement of “Emigration Check Required” in the passport, POE clearance is required only when there is “Emigration Check Required” endorsement in the passport.

Auditing services in India

Stock Audit in India

Stock audit is a region of specialization and core competence for PK Chopra & Co. . Internal Audit Services are our greatest due to our unparallel reach and every one India network. Assets e.g. Stocks and physical assets like raw materials are important real assets and wish repeat watch. As a large number of companies are operating across the borders through multiple locations, some even with various channel partners, ensuring this watch is challenge. we provide our focused services to companies to stay them assured of their physical assets.

In other words, stock audit may be a statutory process which each business institution must perform a minimum of once during a fiscal year . As far the stock audit process cares , the method mainly involves the counting of physical stock presenting the required premises and verifying an equivalent with computed stock maintained by the corporate . the rationale and purpose behind executing this is often to correct the discrepancies present within the book stock in comparison to physical stock by passing necessary adjustment entries.

Fixed Assets Audit in India

Fixed assets are the long term assets that record within the record and showing balance at the top of the reporting date. Fixed assets are non-current assets that have a useful life for quite one years.

Fixed assets aren’t recognized as expenses within the earnings report at the time of buying but it’s recognized as expenses when the entity uses them.

Fixed assets are normally large if we compare to other assets like current assets. and that they are generally considered as sensitive areas from the audit perspective. The auditor responsible on these areas should be the one that has experiences and knowledge enough otherwise the detection or audit risks could be increasing.

Major Tax Benefits for a salaried taxpayer

Salaried taxpayers form a major chunk of the overall taxpayers in the country and the contribution they make to the tax collection is quite significant. Income tax deductions offer a gamut of opportunities for saving tax for the salaried class. With the help of these deductions and exemptions prescribed under Income Tax Act, 1961, one could reduce his/her tax substantially.

In this article, we list some of the major deductions and allowances for the FY2019–20 available to the salaried persons, using which they can minimize their tax burden and plan their salary structure and savings accordingly.

A. Allowances (sec 10)
 Allowances are part of salary given to employees to meet some particular requirements connected with the services rendered by the employee. They may be fully taxable, partially taxable or fully exempt.

♦ House Rent Allowance (HRA)
 This component of salary helps take care of rent paid by an employee for the premises in which he lives. To be able to claim this deduction, it is essential that it forms a part of one’s salary. Amount paid as HRA can be claimed as tax exempt, subject to certain terms and conditions as below.

Least of the following is exempt:

• Actual HRA Received
• 40% of Salary (50%, if house situated in Mumbai, Kolkata, Delhi or Chennai)
• Rent paid minus 10% of salary [* Salary= Basic + DA (if part of retirement benefit) + Turnover based Commission]

It is fully taxable, if HRA is received by an employee who is living in his own house or if he does not pay any rent. Further, it is mandatory for employee to report PAN of the landlord to the employer if rent paid is more than Rs. 1 lakh.

♦ Entertainment Allowance:
 It is taxable as salary income. In case of government employees, it is first added to salary and thereafter least of following is deductible from salary in respect of entertainment allowance:

• Rs. 5,000/- or
• 20% of Salary or
• Amount of entertainment allowance

*Salary for this purpose excludes any allowance, benefit or other perquisites.

♦ Special Allowances: Under Special Allowances, allowances are divided in following two categories:

I) When exemption depends upon actual expenditure incurred by the employee (Official Allowances): In this category, allowances are exempt u/s 10 to the extent of amount of allowance is used for the purpose for which the amount is received. The amount of exemption under this category is least of following:

• Amount of allowance; or
• Amount used for the purpose for which allowance is given

On the above basis, exemption is available in case of the following allowances:

• Travelling Allowance / Transfer Allowance
• Conveyance Allowance
• Daily Allowance
• Helper/ Assistant Allowance
• Research Allowance
• Uniform Allowance

II) When exemption does not depend upon actual expenditure incurred by the employee (Special Allowances): In this category, the amount of exemption does not depend upon actual expenditure incurred by the employee but depends upon amount specified in the income tax rule in respect of concerned allowance specified under this category. Allowances received under this category exempt to the extent of lower of following:

• The amount of allowance; or
• The amount specified in the income tax rules

Such allowances are as below:

♦ Children education allowance
 An education allowance of Rs. 100 per month or Rs. 1,200 per annum per child (maximum of 2 children) paid to an employee by an employer is allowed as deduction from taxable income to the employee.

♦ Hostel expenditure allowance
 Hostel expenditure allowance of Rs. 300 per month or Rs. 3,600 per annum per child paid to an employee is also allowed as a deduction from taxable income towards meeting hostel expenditure for the child. This deduction is granted up to a maximum of 2 children for the employee.

An optimum salary structure is that which enables you to meet your day-to-day expenses while leaving sufficient money in your hands for long-term financial goals. Hence, in each individual case, you have to gauge whether the benefits offered by the employer holds value for you and accordingly, you should structure your salary package.

♦ Leave Travel Allowance (LTA)
 An employer provides LTA to employees to help them meet travel expenses incurred for travel with family to any place in India. Exemption from tax is only for an amount equal to the cost of travelling the shortest distance to the destination whether by air, rail or recognized public transport system.

♦ Food coupons
 Food allowance can be given by the employer through the provision of food at working hours or through pre-paid food vouchers/coupons. For instance, vouchers (not transferable) are tax-exempt to the extent of Rs 50 per meal.

♦ Gifts or vouchers provided by employer
 Gifts or vouchers given by an employer in cash or in kind are tax exempt up to Rs 5,000 per year.

♦ Others
 Others are Special Compensatory Allowance, Border/ Tribal Area Allowance, Compensatory/ Highly Active Field Area Allowance, High Altitude Allowance, Island Duty Allowance and Underground Allowance.

B. Deduction from salary (sec 16)

♦ Standard Deduction:
 Rs. 50,000 or the amount of salary, whichever is lower

♦ Entertainment Allowance
 Entertainment Allowance received by the Government employees (Fully taxable in case of other employees)

♦ Employment Tax/Professional Tax:
 Amount actually paid during the year is deductible. However, if professional tax is paid by the employer on behalf of its employee than it is first included in the salary of the employee as a perquisite and then same amount is allowed as deduction.

C. Perquisites (sec 17)
 Perquisites are fringe benefits that are received over and above the salary as a result of their official position. This is taxed separately for accountability and taxability. They may be provided in cash or in kind. Perquisites may be fully taxable, partially taxable or fully exempt. They are discussed as below:

♦ Rent free accommodation:
 The rent free accommodation provided to employees by their employer is taxable. Since the employees are provided rent free accommodation, the amount of income accruing to them cannot be determined by them. Accordingly, there is prescribed manner for calculating income chargeable to tax as perquisite.

♦ ESOP/ Sweat Equity Shares:
 The Companies in appreciation of its employees or with an aim to achieve a particular objective grants an option to the employees to subscribe equity shares at nil value or at concessional rates than the current market prices to its workforce. If the employee exercises such option and subscribes to such shares at nil or concessional rates, then it forms part of perquisites.

♦ Employer’s contribution towards superannuation fund:
 Employer’s Contribution up to Rs. 1,50,000/- is exempt in the hands of the employee. Employee’s Contribution to Superannuation Fund is allowed as deduction under Chapter VIA.

♦ Interest free loan or Loan at concessional rate of interest:
 The value of the benefit to the employee as a result of interest-free loan or concessional loan for any purpose provided to the employee or any member of his household is a taxable perquisite.

♦ Payment by the employer in respect of an obligation of employee:
 In this case, the amount is liable to be paid by the employee and the employer pays the same. However, if the employer pays taxes on behalf of employees on non-monetary perquisites provided to them, then such taxes are exempt in the hands of the employee.

♦ Others

• Furnished accommodation in a Hotel
• Motor Car / Other Conveyance
• Supply of gas, electricity or water for household purposes
• Services of a domestic servant including sweeper, gardener, watchmen or personal attendant
• Education Facilities
• Free food and beverages
• Gift or Voucher or Coupon on ceremonial occasions or otherwise
• Medical facilities in/ outside India

D. Retirement Benefits (sec 10(10))

♦ Gratuity

Gratuity is a payment received by an employee by his employer as a gratitude for the employee’s services to the organization. It is over & above normal salary & other retirement benefits received by an employee.

♦ Pension

Pension means the employer provides to the employee a fixed monthly amount after his retirement in consideration of past services. Pension can also be called as annuity.

It also covers pension under National Pension System (NPS).

♦ Leave Encashment

In employment, the employer allows a few number of paid leaves to the employees. If the employee fails to take leaves, then the employer may allow him to either accumulate the leaves for future or lapse the leaves. If the employee does not take such leaves then the balance of leaves accumulates. On retirement, the employer pays to the employee the salary that would accrue to him on the accumulated leaves. This is known as leave encashment. Leave Encashment is also known as leave salary.

♦ Retrenchment Compensation

If the employer relieves an employee of his duties for reasons other than death, retirement or disciplinary action against the employee, then the employer is liable to compensate the employee. The compensation received is known as Retrenchment Compensation.

♦ Voluntary Retirement Receipts

Sum received by an employee who opts for a Voluntary Retirement Scheme is known as Voluntary Retirement Receipt. The employer provides such option to the employees in order to reduce his surplus workforce.

♦ Employees’ Provident Fund

It is a savings scheme wherein employer and employee contributes a certain amount of money every year and employee receives the cumulative amount of money on retirement. There are various types of Provident Funds:

• Public Provident Fund (PPF)
• Statutory Provident Fund
• Recognized Provident Fund
• Unrecognized Provident Fund

Maturity amount and interest earned are fully exempt from tax.

Major Tax Benefits for a salaried taxpayer

Inventory audit in India

Inventories are tangible property held for sale in the ordinary course of business, or in the process of production for such sale, or for consumption in the production of goods or services for sale, including maintenance supplies, consumable stores and spare parts meant for replacement in the normal course. Inventories normally comprise raw materials including components, work-in-process, finished goods including by-products, maintenance supplies, stores and spare parts, and loose tools.
Inventories normally constitute a significant portion of the total assets, particularly in the case of manufacturing and trading entities as well as some service rendering entities. Audit of inventories, therefore, assumes special importance.

ICAI Guidance Note on Audit of Inventories

The Guidance Note deals with procedures of the auditor in respect of audit of inventories. It outlines the peculiar features of inventories, which impact the audit procedures.
The following is a gist of the important aspects of audit of inventories covered by the Guidance Note:

• Internal Control Evaluation: It involves segregation of incompatible functions, standard form for recording movement of inventory, cross checking of data generated by different departments. The auditor should also review specific controls over receipts, issues, physical inventories, and inventory records.
• Verification: It is the management’s responsibility for physical verification. In carrying out an audit of inventories, the auditor is particularly concerned with obtaining sufficient appropriate audit evidence to corroborate the management’s assertions regarding the following:

Verification of inventories may be carried out by employing the following procedures:

• Examination of Records: The extent of examination of records by an auditor with reference to the relevant basic documents (e.g., goods received notes, inspection reports, material issue notes, bin cards, etc.) depends upon the facts and circumstances of each case. The auditor may come across cases where the entity does not maintain detailed stock records other than the basic records relating to purchases and sales. In such situations, the auditor would have to suitably extend the extent of application of the audit procedures.
• Attendance at Stock Taking: The need for auditor’s attendance at stock taking would depend upon his assessment of the efficacy of relevant internal control procedures. The procedures concerning the auditor’s attendance at stock-taking depend upon the method of stock-taking followed by the entity (i.e. Periodic or continuous method). The auditor should observe the procedure of physical verification adopted by the stock-taking personnel to ensure that the instructions issued in this behalf are being actually followed. He should also examine whether the entity has instituted appropriate cut-off procedures.
• Confirmation from Third Parties: Where significant stocks of the entity are held by third parties, the auditor should examine that the third parties are not such with whom it is not proper that the stocks of the entity are held. The auditor should also directly obtain from the third parties written confirmation of the stocks held.
• Examination of Valuation and Disclosures: The auditor should satisfy himself that the valuation of inventories is in accordance with the normally accepted accounting principles and is on the same basis as in the preceding year. The generally accepted accounting principles involved in the valuation of most types of inventories are dealt with in Accounting Standard (AS) 2, “Valuation of Inventories”, issued by ICAI. Also, he should examine the evidence supporting the assessment of net realizable value. The auditor should satisfy himself that the inventories have been disclosed properly in the financial statements.
• Analytical Review Procedures: The following analytical review procedures may often be helpful as a means of obtaining audit evidence regarding the various assertions relating to inventories:

(i) reconciliation of quantities of opening stocks, purchases, production, sales and closing stocks;
(ii) comparison of closing stock quantities and amounts with those of the previous year;
(iii) comparison of the relationship of current year stock quantities and amounts with the current year sales and purchases, comparison of the composition of the closing stock, comparison of significant ratios relating to inventories, etc.

• Work in Progress: the auditor has to carefully assess the stage of completion of the work-in-process for assessing the appropriateness of its valuation. For this purpose, the auditor may examine the production/costing records (e.g., cost sheets), hold discussions with the personnel concerned, and obtain expert opinion, where necessary.
• Management Representations: The auditor should obtain from the management of the entity, a written statement describing in detail, the location of inventories, methods and procedures of physical verification and valuation of inventories. However, it does not relieve the auditor of his responsibility for performing audit procedures to obtain sufficient appropriate audit evidence to form the basis for the expression of his opinion on the financial information.
• Documentation by the auditor: The auditor should maintain adequate working papers regarding audit of inventories. He should maintain on his audit file a summary of each inventory as also the details regarding the extent of his verification. The management representation letter concerning inventories should also be maintained on the audit file.

The nature, timing and extent of audit procedures to be performed is, however,
a matter of professional judgement of the auditor.
responsible for stock taking, illustrative letter of confirmation of inventories held by others, illustrative letter of confirmation of inventories held by the entity on behalf of others and an illustrative management representation letter for inventories.