Related Party Transaction | Section 188 | Companies Act, 2013

Analysis on Related Party Transaction Under Section 188 of the Companies Act, 2013 – Section 188 of Companies Act, 2013 is been made effective from 01.04.2014 and since than the same been amended nine times till date. In this article Analyses Provision of Section 188-

Meaning of Related Party

Transactions Covered

Some Important Definitions:
1. Goods means every kind of movable property other than actionable claim and money and includes stock and shares, growing crops, grass attached to or forming part of the land which are agreed to be severed before sale or under contract of sale.
2. “office or place of profit” means any office or place—
(i) if the director receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;
(ii) if any individual other than a director or any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;
(iii). “arm’s length transaction” means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

Compliance provisions in regard to Related Party Transaction:

Exception to above:

In the case of Wholly Owned Subsidiary, the resolution passed by the holding company shall be sufficient for the purpose of entering into the transaction between the wholly owned subsidiary and the holding company.

Some Important Notes:

If the transaction is in the ordinary course of business and done on an arm’s length basis it shall not require the approval of the board or the company.

1. No member shall vote on the special resolution if such member is a related party and this clause is not applicable to such Company in which ninety per cent. or more members, in number, are relatives of promoters or are related parties.
2. Details of every contract entered into shall find its reference in the Board’s report along with justification about the same
3. Ratification of the transaction may be done by the Board or the shareholders within three months. If the same is not done, then the contract will be voidable at the option of the Board.
4. If the contract is with anyone related to the director, or is authorized by any other director, the directors concerned shall make good to the company for losses if any caused to the company.

Penalty for Contravention under Section 188
For Directors or any other employee in default:
Listed Company

• Imprisonment – Maximum 1 Year months;

and/or

• Fine – Minimum Rs. 25,000/- and Maximum Rs. 5 Lakhs.

Other than Listed Company

• Fine – Minimum Rs. 25,000/- and Maximum Rs. 5 Lakhs.

FDI in Construction Development sector in India

The Construction/ Real Estate sector is one of the most critical sectors of the Indian economy due to its huge multiplier effect on the economy. Any impact on the Real Estate sector has a direct bearing on economic growth. Due to the well-acknowledged need for foreign investments into this sector because of the sheer demand, the Foreign Direct Investment (FDI) route has attracted foreign investors’ interest in this sector.

In the year 2005, Reserve Bank of India (RBI) issued a notification and the township, housing, construction development project sector and built up infrastructure was opened for 100% FDI with specific terms and conditions.

The Reserve Bank of India has recently relaxed norms on end-use of funds raised via external commercial borrowings, making it more attractive and viable for corporates including non-banking finance companies to raise cheaper offshore funds. With a view to further liberalize the ECB framework, it has been decided to relax the end-use restrictions and allow the use of funds for working capital requirements, general corporate purposes and repayment of rupee loans. ECBs with a minimum average maturity period of 10 years can now be used for working capital purposes and general corporate purposes.

These changes will improve ease of doing business in India.

There have been changes in FDI policy in this sector from time to time and following is the updated policy as of now.

*Real Estate Business
“Real Estate Business” has been defined as dealing in land and immovable property with a view of earning profit there from and does not include development of townships, construction of residential/commercial premises, roads or bridges, educational institutions, recreational facilities, city/regional level infrastructure, townships. Significantly, the earning of rent or income, not amounting to transfer, from lease of a project in which FDI is permitted would not tantamount to ‘Real Estate Business’.

Applicable conditions for FDI in Real Estate Sector in India:

ConditionsApplicability under FDI Policy 2017Minimum CapitalizationNo minimum requirementExit and Lock-in restrictions• The investor is permitted to exit from the investment: (i) after 3 years from the date of each tranche of foreign investment, or (ii) on the completion of the project; or (iii) on the completion/development of trunk infrastructure i.e., roads, water supply, street lighting, drainage and sewerage.• The lock-in period of 3 years will also not apply to Hotels & Tourist Resorts, Hospitals, Special Economic Zones, Educational Institutions, Old Age Homes and investment by NRIs.Transfer of stake from a non-resident investor to another non-resident investorTransfer without any repatriation of investment is not subject to any lock-in or prior RBI approval.Separate Phases/ProjectsEach phase of a project is considered as a separate project for the purposes of the FDI PolicyMinimum Land StipulationThere is no minimum area requirement.Completed Assets• 100% FDI is permitted under automatic route into completed projects for operation and management of townships, malls/ shopping complexes and business centers.• However, there is a lock-in period of 3 years applicable.Transfer of control from residents to non-residentsTransfer of control from residents to non-residents as a consequence of foreign investment is also permitted. However, there is a lock in period of 3 years applicable and no transfer of immovable property is permitted during this period.Earning or rent/income on lease of the propertyFDI is not permitted in an entity which is engaged or proposes to engage in ‘Real Estate Business’. However the earning of rent/ income on lease of the property, not amounting to transfer, does not amount to ‘Real Estate Business’ and hence is permitted.Obligations on Indian Investee company• Indian Investee Company is permitted to sell only developed plots, i.e. the plots where trunk infrastructure has been available.• Indian Investee Company is responsible for obtaining all approvals, payment of development and other charges, and compliance with all other requirements as prescribed by local government bodies.Authority to monitor complianceThe State Government/Municipal/Local Body concerned, which approves the building/development plans, will monitor compliance of all the conditions by the developer.

Open Conditions

• Timeline at which stage the foreign investment must come in is not provided in the existing regulations and the clarification on the same is awaited.
• In the absence of any timeline for investment, since the FDI is permitted in construction-development projects, it is to be seen at what stage a project can qualify as being in the ‘construction-development’ phase.
• Real estate being a state subject, any guidelines or regulations by state for the benefit of foreign investors would be a welcome step and is awaited.

Take Away
RBI has been regularly improving the real estate sector for FDI, which will hold great potential for formation of employment and generation of income. Furthermore, considering the urgent need to enhance the affordable housing stock, the government had provided definite relaxations to conditions for FDI in Real Estate sector. It also clarified that real estate broking services do not amount to real estate business and are, therefore, eligible for 100 per cent FDI under the automatic route.

FDI in India | FDI in India

Post Incorporation Compliances For Private Limited Companies

Article explains Post Incorporation Compliances For Private Limited Companies which includes Compliances under Companies Act, 2013, Compliances under GST Law, Compliances under FEMA, RBI/FDI Reporting and Compliances with DGFT (Director General of Foreign Trade).
Part I: Compliances under Companies Act, 2013
♠ Hold first Board Meeting of the Company within 30 days from the date of Incorporation to discuss the agenda as written below in explanation I
♠ Opening of Bank Account within 60 days from the date of Incorporation
♠ Injection of Subscription money in the Bank Account of the Company within 60 days from the date of Incorporation
♠ Upon receipt of Subscription money, the Company shall issue share certificates in form SH-1 to the first subscribers within 60 days from the date of Incorporation
♠ Payment of Stamp Duty on Share Certificates within 30 days from the date of issue of share certificates

Explanation I:
Within 30 days from the date of incorporation of the Company, the company shall hold first Board Meeting of the Company and the following agendas are required to be discussed:

Within 30 days from the date of incorporation of the Company, the company shall hold first Board Meeting of the Company and the following agendas are required to be discussed:
Part II: Compliances under GST Act
GST registration
Company in India is required to register under GST Act i.e Goods & Service Act. The government will issue a GSTIN to be used for the future correspondences of the business of the company
Filing of returns
The Company is required to file the periodical (monthly & annually) returns as prescribed by the government on the prescribed due dates to provide detail regarding sale and purchase of goods & services and for claiming the input credit also.
Part III: Compliances under FEMA, RBI/FDI Reporting

 

Within 30 days from the date of allotment of subscription money, Form FC-GPR has to be filled on FIRMS, RBI Portal. And to report the FDI, the Company should register itself with the Entity User and Business user on FIRMS, RBI Portal.
Filling of Annual Return of Assets and Liabilities (“FLA Return”) by 15th day of July every year in respect of FDI on FLAIR portal of RBI and to file FLA Return, the Company should register itself on the FLAIR portal of RBI
Note: In case the subscribers to the memorandum of association of the Company are foreign nationals or the funds have been received by the Company from the country other than India, then the FDI Reporting under FEMA Regulations, 1999 has to be complied with.
Part IV: Compliances with DGFT (Director General of Foreign Trade)
Application to obtain Import Export Code (“IEC”)
Govt. Fees for application for registration is Rs. 500/-.
Application for modification in IEC
The Company is required to intimate about the changes in the details given initially at time of applying IEC to the department for modification in the IEC.

More Good News in Works for Startups

There could be more measures in the offing for startups following the budget announcements. The government is working on another set of measures that could be rolled out soon to make it easier for them to do business in the country.

A new set of tax return forms, aimed at saving angel investors and startups from any questioning by tax officers, will be rolled out by September.

“We would be modifying the return forms, which will allow the system to check if the investment made in the startup is genuinely made by someone capable of making that kind of investment,” a senior government official said.

The move is in line with the e-verification for angel investors in the budget. E-verification seeks to help establish the identity of the investor and source of his funds. Consequently, funds raised by startups will not require any kind of scrutiny by the income-tax department.

The government has extended the tax benefit to category-II Alternative Investment Funds (AIFs). These would also, like category-1 AIFs, not face scrutiny on the valuation of shares held by them in startups.

EOUs can import from Pakistan without paying Customs duty
We are a 100 per cent EOU and manufacturer-exporter of textile readymade garments. We are getting garment orders from our buyer from USA and we have to import fabric from Pakistan. However, as per notification 5/2019-Cus dated February 16, 2019, duty of 200 per cent is applicable under new HS code no. 9806.00 for imports from Pakistan. Can we import fabric from Pakistan under the EOU scheme without paying duty?

As mentioned by you the said notification 5/2019 has inserted anew tariff entry at 98060000 for all goods originating in or imported from Pakistan. The 200 per cent duty is levied against that entry 98060000, which becomes part of the First Schedule to the Customs Tariff Act, 1975. As an EOU, you claim exemption on imported goods under notification no. 52/2003Cus dated March 31, 2003. That notification grants exemption on goods imported by EOUs from the whole of customs duty leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (besides other duties and taxes). Therefore, you can import fabric from Pakistan under the said notification 52/2003 without payment of duty. We are holding an EPCG authorisation. We did some job-work for an exporter by way of embroidery on garments and invoiced to the exporter for the job-work done.

Higher Surcharge to Impact 40% FPIs: Finmin Math
A quick analysis by the finance ministry shows that about 40% of foreign portfolio investors (FPIs) — those that follow the trust structure — will be impacted by the higher surcharge levied in the budget. The majority 60% of FPIs that use the corporate structure will not be impacted.The finance ministry is trying to ascertain why these FPIs, mostly coming in through tax havens, are using the trust structure and how this benefits them, a government source said. Any decision on this will need to consider that special dispensation for FPIs will distort the tax structure, the person said.

FPIs Mull Going ‘Corporate’, But Changing Won’t be Easy
At least 30 big-ticket foreign portfolio investors (FPIs) have reached out to their advisers, seeking advice on converting themselves from trusts and association of persons (AOPs) to corporates after the budget increased the surcharge on the super-rich, said two people aware of the developments.
The funds that have sought advice include two leading US-based mutual funds and a European hedge fund managing over US1 billion of assets in India.

Lawyers and tax consultants have warned FPIs against carrying out such a change in structure since that could invoke the provisions of domestic tax avoidance laws. As per the General Anti-Avoidance Rules (GAAR), tax implications cannot be the sole reason for a fund to make changes to its structure or jurisdiction. If invoked, GAAR could result in penalties and legal action against these funds.

Breather for Exporters as Centre to Pay ITC Refund for State GST
In a major relief to exporters, the Centre will now pay the input tax credit (ITC) refunds of state taxes, thereby reducing transaction time and costs, and manual interface in claim processing.As per industry, there is a huge difference in the amount claimed, state goods and services tax (SGST) sanction amount received from central tax authority and the amount actually disbursed.
“The central government has been authorised to pay the amount of refund towards state taxes to the taxpayers,” according to the 2019-20 budget.

At present, the taxpayers file refund claims with the central tax officer, who clears half the claims, and the rest are cleared by the state tax authorities, leading to higher time taken in claim processing and refund sanctioning.
Exporters also say that ITC refund is partly electronic and partly manual. The exporter files refund application at the portal, takes a printout along with acknowledgement and carries it to GST authorities in hard copy along with required documents, which too vary from authorities to authorities. The physical interface adds to the transaction time and cost.

Tax Incentive for affordable housing
The Finance (No.2) Bill, 2019 has many measures which are forward looking in the sense that some incentives are given to the taxpayers. At the same time it also contains a bundle of regulatory measures warranting strict adherence / compliance for enjoying the tax benefits provided therein.
One of the measures introduced in the Finance (No.2) Bill, 2019 is directed towards affordable housing. Two sections are the focus of this refresher viz. section 80EEA providing extra deduction for home buyers and section 80-IBA which is amended to enlarge the scope of incentive for housing projects. Thus the measures satisfy the personal taxpayers by giving extra deduction while computing total income and also provide incentive for housing projects by enlarging the towns and cities where the project is located.

Chartered accountant in India

Unlocking GSTR 9C

What is GST Audit?
Audit is examination of records, returns and other documents maintained or furnished by the registered person under GST Law or any other law. The examination is to verify the correctness of:

• Turnover declared;
• Taxes paid;
• Refund claimed; and
• Input tax credit availed;

And to assess his compliance with the provisions of this act or the rules made there under.

Who is required to get his accounts audited?
Every registered person whose aggregate turnover during a financial year exceeds two crore rupees shall get his accounts audited as specified under sub-section (5) of Section 35 and he shall furnish a copy of the audited annual accounts and a reconciliation statement, duly certified, in GSTR 9C, electronically through the common portal.

Who is authorised to do the GST Audit?
Every registered person whose turnover in a financial year exceeds two crore rupees has to get his accounts audited by either a Chartered Accountant or a Cost Accountant.

What is the due date of filling Form GSTR-9C?
The registered person is required to submit electronically a copy of the:

• audited annual accounts(of the legal entity);
• annual return in the prescribed form GSTR 9 (of the registered person);
• reconciliation statement, duly certified, reconciling the value of supplies declared in the return furnished for the financial year along with the audited financial statement in GSTR 9C (refer Appendix for GSTR 9C); and
• such other particulars as prescribed;
• On or before the 31st day of December following the end of the financial year.

However as per the latest notification from GST Council, all registered person are required to file Form GSTR-9C by 31st August, 2019.

CLARIFICATIONS/ QUERIES RELATED TO FORM GSTR-9C
1. What are the pre-conditions for filing Form GSTR 9C?

• User should be registered and should have a valid GSTIN.
• User has filed Form GSTR-9 for the relevant financial year.
• The aggregate turnover of such registered person during the financial year exceeds two crore rupees.
• He should have got his accounts audited as prescribed.

2. What is the role of Chartered Accountant or a Cost Accountant in certifying reconciliation statement?
There are apprehensions that the chartered accountant or cost accountant may go beyond the books of account in their recommendations under FORM GSTR-9C. The GST Act is clearing this regard. With respect to the reconciliation statement, their role is limited to reconciling the values declared in annual return (FORM GSTR-9) with the audited annual accounts of the taxpayer

3. What do you mean by Aggregate Turnover under GST Act?
Aggregate turnover means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.

4. Does stock transfer made between two branches having different GSTIN will be included in the Aggregate Turnover?
Yes, the definition of Aggregate Turnover clearly mentions that supplies made between two distinct person having the same Permanent Account Number will be included in the aggregate turnover. Thus stock transfer provided from a branch located in one state to a branch located in another state will be included in the aggregate turnover of the branch supplying the goods or services.

5. Whether Non-GST supplies will be included in the turnover or not?
Non-GST supplies includes supply of alcoholic liquor for human consumption, motor spirit (commonly known as petrol), high speed diesel, aviation turbine fuel petroleum crude and natural gas and transactions specified in Schedule III of the CGST Act.
All above are part of the exempt supplies and the definition of aggregate turnover includes exempt supplies.

6. Whether supplies made between the period April 2017 to June 2017 will be include in the turnover to determine the eligibility for filling of reconciliation statement i.e., Form GSTR-9C?
As per the latest Clarification regarding Annual Returns and Reconciliation Statement, dated 03/07/2019 from the Govt., the aggregate turnover for this purpose shall be reckoned for the period July, 2017 to March, 2018.

7. To determine the limit of aggregate turnover of Rs.2 Crore, GSTIN wise turnover has to be checked?
It may be noted that the aggregate turnover i.e. the turnover of all the registrations having the same Permanent Account Number is to be used for determining the requirement of filing of reconciliation statement. Therefore, if there are two registrations in two different States on the same PAN, say State A (with turnover of Rs. 1.2 Crore) and State B (with turnover of Rs. 1 Crore) they are both required to file reconciliation statements individually for their registrations since their aggregate turnover is greater than Rs.2 Crore.

8. How does turnover of each GSTIN must be derived?
Since the information has to be in the context of each registrant, the Registered Person and the Auditor must be equipped to file the said Form separately for every registration. The Registered Person must be able to carve out a trial balance for every State/UT (viz. every registration) from the consolidated trial balance of the entity for which the financial statements are prepared and audited. If this is not possible, then the Registered Person must derive the transactions of every registration from the single trial balance for the entity which was the subject matter of audit.

9. What other points has to be kept in mind while considering the Turnover from the audited financial statements?
While considering the turnover from the audited financial statements, the Auditor is also Required to include indirect income in the form of dividend, interest, for ex fluctuation, profit on sale of assets, etc. if such income are attributable (based on underlying documents and contracts to relate to the said registered person). Any amount of return supplies credited to purchase or expenditure account would not be considered for the purpose of arriving at the turnover under Sl. No. 5A. Such adjustment has been dealt with under appropriate Sl. No. in this Part.

To ensure completeness and correctness of the details of turnover to be declared, the following checks could be used:
a. turnover in State/UT (in case of single registration) must reconcile to the turnover disclosed in the audited financial statements;
b. turnover in State/UT (in case of multiple registration) must reconcile to the turnover as recorded in the books of accounts of each registration;
c. Master reconciliation to ensure that the details of turnover declared for different registrations (in case of multiple registrations either due to presence in multiple States/UTs’ or due to unit(s) in SEZ) with the total turnover of the entity.

10. What details are to be provided in Sl. No. 5B (Unbilled revenue at the beginning of financial year)?
Unbilled revenue which was recorded in the books of accounts on the basis of accrual system of accounting in the last financial year and was carried forward to the current financial year shall be declared in Sl. No. 5B. In other words, when GST is payable during the financial year on such revenue (which was recognized earlier), the value of such revenue shall be declared here.
(For example, if rupees Ten Crores of unbilled revenue existed for the financial year 2016-17, and during the current financial year, GST was paid on rupees Four Crores of such revenue, then value of rupees Four Crores rupees shall be declared here).

11. What are the adjustments to be included/ excluded from Sl. No.5C of FORM GSTR-9C?
Advances received can be for various purposes. Therefore, the advances on which GST is liable should only be considered for the adjustment. The illustrations of advances to be included/ excluded are as follows:

Include for Adjustment
A. Advance received in respect of services for which the supply has not been made as on 31st March 2018
Revenue not recognized in books, but offered to tax for GST
B. Advance received for Goods before 15th Nov 2017 and the supply of goods not complete as on 31st March 2018
Revenue not recognized in books, but offered to tax for GST

Exclude for Adjustment (GST is not applicable)
A. Advance received for EXEMPTED services as on 31St March 2018
B. Advance received for Goods after 15th Nov 2017
C. Deposits or Loans received

12. How to calculate tax on the Advances Received?
One has calculated tax on advance and paid tax while filing the return for that month. The advance received (if exclusive of tax) would be considered as cum-tax.
Two important points to note:
(a) Whenever the rate of tax cannot be determined during receipt of advance, GST @ 18% has to be charged.
(b) Whenever the nature of supply cannot be ascertained, the advance is considered as inter-State supply and IGST has to be paid.

13. What is the effect of credit notes issued in relation to exempt supplies, zero-rated supplies and non-GST outward supplies?
Supply of exempt, zero-rated and non-GST outward supply of goods and/ or services are not liable to GST. In such a scenario, the credit notes issued for claiming reduction in the taxable value shall be recorded in the audited annual financial statements. Such credit notes should be declared against Part II Sl. No. 5J of FORM GSTR-9C. Where credit notes related to zero-rated supplies are already reported in FORM GSTR-1, in FORM GSTR-9 as well as in books of accounts, such credit notes may not be declared in this Sl. No. 5J.

14. How common cost incurred for all the GSTIN’s will be allocated?
This could be done based on the turnover of each distinct person, or based on manpower deployed, or any other suitable cost-driver relevant to each such cost to be allocated. Manpower employed by the legal entity must also be allocated to Belong to specific branch (GSTIN-wise allocation of staff cost)
If the registered person has registered himself as an ISD then it will allocate the common input credit by issuing prescribed document for the purposes of distributing the credit of GST on the said services to another branch of the same legal person.

For Example:
Head office of ABC limited is located at Bangalore having branches at Chennai, Mumbai and Kolkata. The head office incurred annual software maintenance expense (service received) on behalf of all its branches and received the invoice for the same. Since software is used by all its branches, the input tax credit of entire services cannot be claimed at Bangalore. The same has to be distributed to all the three locations. Here, the Head office at Bangalore is the Input Service Distributor.
Another concept is of Cross Charge, where transactions between distinct persons are deemed as supplies even when such transactions do not involve supply.
Accordingly, stock transfer of goods between the branches or services between the branches being a transaction between distinct persons comes within the ambit of GST Laws and will become GST Liability for the head branch and input for the other branch to whom the services has been provided.

For Example:
XYZ Limited has Head office in Maharashtra, following centralized billing and payment mechanism. XYZ Limited has 2 registrations at Delhi and Karnataka. HO has availed certain audit services on payment of IGST. However, such audit services shall be used at both the locations i.e. Delhi and Karnataka. Thus, when the HO charges for the said audit services to respective locations, it shall be required to supply under an appropriate invoice and cross charge the value of audit services accordingly.

15. Is there any reconciliation required in FORM GSTR-9C in case of sale of capital goods?
In respect of sale of capital goods, only the profit/ loss arising on the sale of such capital goods is disclosed in the Profit and Loss account. Whereas, the GST on supply of capital goods is leviable on the transaction value or input tax credit is reversed as per the formula prescribed in section 18(6) of the CGST Act. In order to reconcile the difference, the profit/ loss arising on sale of such capital goods has to be adjusted along with the transaction value on which GST has been paid under Sl. No. 5O to reconcile with the amount disclosed in FORM GSTR-9. Data for such transactions can be ascertained from the deletions disclosed in the Fixed Asset Schedule / Fixed Assets Register.

16. Is there a separate reporting to be made in FORM GSTR-9C of ITC accounted in books in the current financial year (i.e. 1-July 2017 to 31-Mar-2018) and not claimed in return in FORM GSTR-3B in 2017-18 but claimed in the next financial year 2018-19?
Separate disclosure should be made in Part IV, Sl. No. 12 C of FORM GSTR-9C in respect of all such supplies. This credit can also relate to goods which are in transit as at the close of financial year and which are received in the next year. Thereby, it is to be availed as a bona fide credit in the next financial year.

17. How would Form GSTR 9C be verified and signed by Chartered Accountant/ Cost Accountant?
Once the Chartered Accountant/Cost Accountant fills up, validates and previews the required details in the GSTR-9C Offline Utility and clicks the Generate JSON File to Upload GSTR-9C details on GST Portal button, popup window appears to save the generated JSON file. When he/she selects the desired location to save the file and clicks “Save”, emSigner window automatically opens in a separate Internet Explorer browser window—if he/she has installed emSigner in the machine—using which he/she can sign the file by affixing his/her digital signature on it.
Note: Make sure, in PT V tab of the Worksheet, you have entered the same PAN with which you had registered your DSC. Otherwise, you won’t be able to e-sign using your DSC while generating JSON file.

18. Can the Internal Auditor of the registered person certify FORM GSTR-9C?
An internal auditor cannot certify FORM GSTR-9C as per the instructions issued by ICAI.

19. Can FORM GSTR-9C be certified by a different Chartered Accountant for another distinct person of the same entity?
There is no restriction under the CGST Act or under the ICAI regulation in relation to certification of FORM GSTR-9C by different Chartered Accountant for another distinct person of the same entity.

Accounting company in India | GSTR 9

New Era of Accounting-Transition to Ind as

1. INTRODUCTION

The Indian Accounting Standards (IND AS) are Accounting Standards, harmonized with IFRS (International Financial Reporting Standards)/IAS (International Accounting Standards) to make Financials Accounts and Reports of Indian Companies internationally accessible, acceptable, transparent and comparable.

Indian Companies have a far more global access as compared to earlier days and also because of leveraged policies of Indian Government toward the flow of FDI, a need was felt to introduce globally accepted Accounting Standards (IFRS). Most of the Countries in the world follow or adopt IFRS/IAS issued by International Accounting Standard Board (IASB). In India the Government has decided to converge and not to adopt IFRS. So, the converged IFRS named as IND AS has been notified by Government to implement it in phased manner by Indian Companies.

In this article we shall discuss the implementation of IND AS and its transitional impact on Indian Companies.

2. APPLICATIONS

The Ministry of Corporate affairs (MCA) has notified the Companies (Indian Accounting Standards) Rules, 2015 for implementation of IND AS on Indian Companies in phased manner. Initially in 2015, the applicability of IND AS was on voluntary basis for the accounting period beginning on or after 1^st April, 2015.

Mandatory Application

The Government has notified the mandatory application and preparation of financial statements of certain class of Indian companies, other than Banking Companies, Insurance Companies and NBFC’s, in the phased manner;

Notes:

a. Companies listed on SMEs Exchange are not required to apply IND AS.

b. Once IND AS becomes applicable it becomes applicable in all the subsequent financial statements even though it has been voluntary applied.

c. Net worth shall be checked for past three financial Year and it shall be calculated on standalone accounts of the company.

d. Companies not covered by the above roadmap shall continue to apply Accounting Standards notified in Companies (Accounting Standards) Rules, 2006.

a. IND AS will be applicable for both the consolidated and Individual Financial statements.

b. NBFCs having net worth below Rs. 250 crores shall not apply Ind AS.

c. Adoption of Ind AS is allowed only when required as per the roadmap. Voluntary adoption of Ind AS is not allowed

From the above, it seems that the Government of India is intentionally implementing IFRS converged Ind AS in the phased manner on Indian Corporates to bring the Financial Accounts and reports of the Indian corporates, its subsidiary, Associates and JV more transparent, comparable and globally acceptable. In so far as 39 Ind AS have been notified by the Ministry of Corporate Affairs in consultation with ICAI.

3. CHALLENGES AND OPPORTUNITY

There are a lot of challenges and opportunities in implementing Ind AS on Indian Corporates. There is a saying that “Challenges bring new opportunities” only the need is to understand the challenges and convert them into opportunities”.

The Challenges of implementing Ind AS before the Indian Corporates could be well understood and minimized by knowing the impact of implementing Ind AS.

	Challenges of Ind AS	Opportunity in Ind AS
1.	Shift from conventional cost method of Accounting to Fair Value Method of Accounting.	Fair Value Method of Accounting brings the transparency and true and fair presentation of financial transactions.
2.	Changes in the various laws like The Companies Act, SEBI Regulations, Taxation Laws Banking and Insurance Laws/ Regulations etc.	Better Comparability and enhanced linkage to International trade and Business. It makes Cross Border acquisition and Joint Venture possible.
3.	Lack of Expert and awareness about international practices.	New opportunities for Professionals and Business at large.
4.	Change of Management Reporting System and Internal Control.	Reduction in reporting Cost, especially, in case of multinational companies.
5.	Lack of awareness among users and stakeholders at Large.	New opportunities in service sector and professionals.

4. IMPACT OF IMPLEMENTATION OF IND AS ON INDIAN COMPANIES:

Implementation of Ind AS has changed the base and face of Financial Statements and Reports of Indian Corporates. It has changed not only the manner of presentation of Financials statements but also the principle of recognition and measurement of financial transactions and records. Therefore, we can say the conversion or transition to Ind AS is going to impact in both way qualitatively as well as quantitatively.

In this section we will discuss the impact of Ind AS on Indian Companies and their effect in comparing Indian Accounting Standards (IGAAP). Ind AS are different from existing Indian GAAP framework in three key aspects, i.e. measurement bases, substance over legal form and emphasis on the Balance sheet.

√ TRANSITIONAL PROVISIONS:

IND AS-101 (First Time adoption of Indian Accounting Standards)

In Short	Provisions	Impact
Applicability	This Indian Accounting standard is applied in preparation of first Ind AS financial statements and its interim financial reports for part of the period covered by those financial statements.	An entity adopts Ind AS on its applicability first time with an explicit and unreserved statement of compliance with  Ind As. This is applicable to first time adopter transitioning to Ind AS.
Opening Ind AS Balance Sheet	An entity shall prepare opening Ind AS Balance sheet on  the date of transition of Ind ASs.	It provides a suitable starting point for Accounting in accordance with Indian Accounting Standards (Ind AS) for the Companies in which the Companies (Indian Accounting Standards) Rules, 2015 becomes applicable first time.
Accounting policies	An entity shall use the same accounting policies in its opening Ind AS Balance Sheet and throughout all periods presented in its first Ind AS financial statements. Those accounting policies shall comply with each Ind AS effective at the end of its first Ind AS reporting period.	The accounting policies that an entity uses in its opening Ind AS Balance Sheet may differ from those that it used for the same date using its previous GAAP. The resulting adjustments arise from events and transactions before the date of transition to Ind ASs. Therefore, an entity shall recognize those adjustments directly in retained earnings on  the date of transition to Ind AS in its opening Balance Sheet.
Recognition	An entity shall, in its opening Ind AS Balance Sheet:(a) recognize all assets and liabilities whose recognition is required by Ind AS; (b) not recognize items as assets or liabilities if Ind AS do not permit such recognition; (c) Reclassify items that it recognized in accordance with previous GAAP as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with Ind Ass.	This requires to recognize and reclassify items of assets, liabilities and equity as per Ind AS.A comprehensive analysis of existing assets, liabilities and equity is to be made in the financial statement prepared as per IGAAP to recognize and reclassify those items in opening Balance sheet as per Ind AS. It requires to prepare a reconciliation and disclosure of items recognized, derecognized and reclassified.
Measurements	Apply principles set out in Ind AS in measuring all recognized assets and liabilities.	Principles set out in Ind AS would be applied in measuring all recognized assets and liabilities except for the exceptions and exemptions provided for.
Designation of Financial Assets and Liability	Previously Recognized Financial Assets and Liability to be measured or recognized at Fair Value Through profit or Loss	The Entity need to disclose the Fair Value of Financial Assets or Liability at the designated date and the carrying amount and classification of the same in previous financial statements.
Use of Fair Value as deemed Cost	An Entity shall disclose the aggregate of Fair Values and adjustment to the Carrying Amount as per previous GAAP for each line items.	Of;a. Property, Plant and Equipment, an intangible assets or right-of –use assets; b. Investment in subsidiaries, Joint Venture and associates;
Presentation and Disclosures requirement	There is no exemption for presentation and disclosure requirement of other Ind AS and specifies the minimum requirement of presentation.	First Ind AS Financial Statements shall include at least;a. Three Balance Sheet; b. Two Statement of Profit and Loss; c. Two statement of Cash Flows; Two statement of changes in equity; and d. Related Notes e. Including Comparative information for all the statements presented.
Reconciliation and Explanations	An Entity shall explain how the transition from previous GAAP to Ind AS effected its reported Balance Sheet, Financial performance and Cash Flows	To Comply with this requirement, the entity shall prepare;a. Reconciliation of equity as per IGAAP and as per Ind AS on the date of transition as well as at the end of the latest period presented in the entity’s most recent financial statements. b. Reconciliation of comprehensive Income for the most recent annual financial statements. c. Disclosure of material adjustment to cash flows. d. Notes on First Time adoption of Ind AS.
Exceptions to the retrospective application of Ind ASs	An Entity Shall apply principles set out in Ind AS prospectively and not retrospectively while preparing its first Ind AS financial statements	In respect of some specified principles of;a. De-recognition of financial assets and financial liabilities; b. Hedge Accounting; c. Non-controlling Interest; d. Classification and measurement of financial assets; e. Impairment of Financial assets; f. Embedded Derivatives; g. Government Loans
Exemptions to the Applications of Principles set out in Ind ASs	An Entity may use exemptions in respect of principles set out in Ind AS in  its first Ind AS financial statements	In respect of one or more of the followings;a. Exemptions in respect of Business past Combinations; b. Share Based payment transactions; c. Insurance Contracts; d. Deemed Cost; e. Leases; f. Cumulative Translation Difference; g. Investment in Subsidiary, Joint Venture and Associates; h. Assets and Liabilities of Subsidiaries, Joint Venture and Associates. i. Compound Financial Instruments; j. Fair Value measurement of Financial Assets, Financial Liabilities at initial recognition; k. Decommissioning Liabilities included in cost of PPE; l. Financial Assets or intangible assets accounted for in accordance with Ind AS-115; m. Borrowing Costs; n. Joint Arrangements; o. Designation of Contracts to buy –sell non-financial items;

New Format of Financial Statements:

The Ministry of Corporate affairs has inserted Division-II in schedule-III of the Companies Act, 2013 vide notification dated 6^th April, 2016 which specifies minimum presentation and disclosure requirements in the financial statements of Companies complying with Ind AS.

Significant Requirement of Financial Statements complying with IND AS in comparison with financial statements prepared as per Accounting Standards (IGAAP).

Requirement	Previous GAAP	INDIAS
Applicability	Companies not required to comply with IND AS shall prepare its financial statements as per the requirement of  Part-I of the Schedule-III of the Companies Act, 2013.	Companies Preparing Financial Statements in compliance with the Companies (Indian Accounting Standard) Rules, 2015 shall prepare its financial statements as per the requirement of Part-II of the Schedule-III of the Companies Act, 2013.
Components of Financial Statements	> Balance Sheet> Statement of Profit & Loss > Statement of Cash Flow > Notes to Accounts, comprising a summary of significant accounting policies and other explanatory information.	> Balance Sheet> Statement of Profit & Loss along with Statement of Comprehensive Income. > Statement of Change in Equity (SOCE) > Statement of Cash Flow > Notes to Accounts, comprising a summary of significant accounting policies and other explanatory information.
Statement of Comprehensive Income	In IGAAP , there is no concept of other Comprehensive Income but the concept of Exceptional items and Extraordinary Items.	In Ind AS and the applicable Schedule of Financials the concept of Exceptional items and Extraordinary items have been dispensed with and New concept of other Comprehensive Income have been introduced. This will include;a. Items that will not be reclassified to profit and Loss Account. b. Items that will be reclassified to Profit and Loss Account.
Statement of Change in Equity	In IGAAP and applicable standards and schedule, there is no concept of Statement of change in Equity.	In Ind AS and applicable schedule, there is requirement of preparing a Statement of Change in Equity by way of Note to the Balance Sheet. It does have two sections;a. Equity Share Capital; b. Other Equity; It will be further sub classified for i. Share Application Money Pending allotment. ii. Equity Component of Compound Financial Instruments. iii. Reserves and Surplus iv. Items of Other Comprehensive Income v. Money Received against share and warrants. A Reconciliation of each item in the beginning and end of the period is to be disclosed.
Consolidated Financial Statements	“Minority interests” in the Balance sheet within equity shall be presented separately from the equity of the owners of the parent.	Non-controlling interests’ in the Balance Sheet and in the Statement of Changes in Equity,within equity, shall be presented separately from the equity of the ‘owners of the parent’.
Property, Plant and Equipment’s	Classifications are as below:Tangible assets Classification shall be given as: (i) Land; (ii) Buildings; (iii) Plant and Equipment; (iv) Furniture and Fixtures; (v) Vehicles; (vi) Office equipment; (vii) Others (specify nature) Intangible Assets included Goodwill.	Classification shall be given as:(i) Land (ii) Buildings (iii) Plant and Equipment (iv) Furniture and Fixtures (v) Vehicles (vi) Office equipment (vii) Bearer Plants (viii) Others (specify nature) Goodwill is shown separately on the face of the Balance Sheet and remaining shall be shown as Other.
Investments Classification	Under each classification of investments details shall be given of names of bodies corporate indicating separately whether such bodies are> Subsidiaries > Associates > Joint ventures > Controlled special purpose entities The following shall also be disclosed. (a) The basis of valuation of individual investment (b) Aggregate amount of quoted investments and market value thereof (c) Aggregate amount of unquoted investments (d) Aggregate provision made for diminution in value of investments	Under each classification ofinvestments details shall be given of names of bodies that are > Subsidiaries > Associates > Joint ventures > Structured entities The following shall also be disclosed. (a) Aggregate amount of quoted investments and market value thereof (b) Aggregate amount of unquoted investments (c) Aggregate amount of impairment in value of investments Note: Under Classifications of Investments details, the term Structured entities has been used instead of controlled special purpose entities. Investment are impaired rather than making Provision of diminishing in the value of Investment.
Non-Current Loans and Advances	Long-term loans and advances shall be classified as:(a) Capital Advances; (b) Security Deposits; (c) Loans and advances to related parties (giving details thereof); (d) Other loans and advances	Loans shall be classified as-a) Security Deposits; (b) Loans to related parties (c) Other loans (specify nature). Note: Capital Advances have to be separately disclosed under other non-current assets.
Bank Deposits	Bank depositsBank deposits with more than 12-month maturity to be classified under Other bank balances	Bank depositsBank deposits with more than 12 months maturity to be classified under Other Financial Assets.
Investment Property	Investment property to be disclosed as part of Investment	Investment Property is disclosed as separate line item on the face of balance sheet.Also the following disclosure needs to be given A reconciliation of the gross and net carrying amounts of each class of property at the beginning and end of the reporting period showing additions, disposals, acquisitions through business combinations and other adjustments.  Therelated depreciation and impairment losses or reversals shall be disclosed separately.
Trade Receivables	Trade ReceivablesAggregate amount of Trade receivable outstanding for a period exceeding six months from the date they are due for payment should be separately disclosed	Trade ReceivablesNo Such Requirements
Reserve and Surplus/Other Equity	Reserve and Surplus/Other Equity(i)Reserves and Surplus shall be classified as: (a) Capital Reserves; (b) Capital Redemption Reserve; (c) Securities Premium Reserve; (d) Debenture Redemption Reserve; (e) Revaluation Reserve; (f) Share Options Outstanding Account; (g) Other Reserves-(specify the nature and purpose of each reserve and the amount in respect thereof); (h) Surplus i.e., balance in Statement of Profit and Loss disclosing allocations and appropriations such as dividend, bonus shares and transfer to/ from reserves, etc.;	Reserve and Surplus/Other Equity(i) ‘Other Reserves’ shall be classified in the notes as- (a)Capital Redemption Reserve; (b) Debenture Redemption Reserve; (c) Share Options Outstanding Account; and (d) Others– (specify the nature and purpose of each reserve and the amount in respect thereof); (Additions and deductions since last balance sheet to be shown under each of the specified heads) Note: Retained Earnings represents surplus i.e. balance of the relevant column in the Statement of Changes in Equity(SOCE). Instead of Reserve and Surplus term, the term other equity is to be used.
Contingent Liabilities	Contingent liabilities Includes all Guarantees	Contingent liabilities pertaining to guarantees excluding financial guarantees.
Revenue	In respect of a company other than a finance company revenue from operations shall disclose separately in the notes revenue from-(a) Sale of products; (b) Sale of services; (c) Other operating revenues; Less: (d) Excise duty	Revenue from operations shalldisclose separately in the notes (a) sale of products (including Excise Duty); (b) sale of services (c) other operating revenues
Dividend	Under IGAAP and applicable standards declaration of dividend is an adjustable event and related liability is to be recognized in the financials.	Under Ind AS The amount of dividends proposedto be distributed to equity and preference shareholders for the period and the related amount per share shall be disclosed separately. Arrears of fixed cumulative dividends on irredeemable preference shares shall also be disclosed separately. Note: It is to be disclosed by way of separate notes to the financials rather than to be recognized in the financial.
Materiality	A Company shall disclose by way of notes additional information any item of expenditure and income which exceeds one per cent of the revenue from operations or Rs. 1,00,000 whichever is higher.	A Company shall disclose by way of notes additional information any item of expenditure and income which exceeds one per cent of the revenue from operations or Rs. 10,00,000 whichever is higher.Also disclosure is to be made of all material items i.e. the items if they  could, individually or collectively, influence the economic decisions that users make on the Financial Statements

Conclusively, it can be said that first attempt of preparation of Financial Statements complying with Ind AS requires expert knowledge of all notified Indian Accounting Standards, notified schedules, professional judgments and notes requiring disclosure thereof in first time preparation of Financial statements. It is the starting point of New era of Accounting and presentation and disclosure of financial transactions which requires a fair transition from historical cost method of accounting to the fair value of accounting.

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