PRESS RELEASE-on withdrawal & Amendment in Transfer Pricing Circular

Government of India 

Ministry of Finance 

Department of Revenue 

Central Board of Direct Taxes 

(Foreign Tax and Tax Research-I Division) 

PRESS RELEASE

 Chapter X of the Income-tax Act, 1961 contains special provisions relating to avoidance of tax. Terms such as ‘associated enterprise’, ‘international transaction’, ‘intangible property’, and ‘specified domestic
transaction’ are defined in different sections of the Chapter.

Section 92C provides that the arm’s length price in relation to an international transaction or specified domestic transaction shall be determined by any of the methods listed thereunder, being the most appropriate method, having regard to the nature of transaction or class of transactions or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. The
methods listed are:

(a) comparable uncontrolled price method; 
(b) resale price method; 
(c) cost plus method; 
(d) profit split method; 
(e) transactional net margin method; 
(f) such other method as may be prescribed by the Board.

Sub-section (2) of section 92C provides that ‘the most appropriate method’referred to in sub-section (1) shall be applied, for determination of arm’s length price, in the manner as may be prescribed (emphasis supplied). Section 92CA enables the Assessing Officer, if he considers it necessary or expedient to do so, with the previous approval of the Commissioner, to refer the computation of the arm’s length price in relation to an international transaction 2 or specified domestic transaction under section 92C to the Transfer Pricing
Officer.  Section 92CB provides that the determination of arm’s length price under section 92C or section 92CA shall be subject to safe harbour rules. ‘Safe harbour’ has been defined as circumstances in which the income-tax authorities shall accept the transfer price declared by the assessee.  Rules have been made to carry out the mandate of the above sections. These are contained in Rules 10A, 10AB, 10B and 10C. Attention is drawn to Rule 10B which provides that the arm’s length price shall be determined by any
of the methods listed thereunder, being the most appropriate method, in the manner provided thereunder. The rule further provides how each of the methods will be identified and applied. In so far as it concerns ‘profit split method’ the rule provides that the said method ‘may be applicable mainly in international transactions involving transfer of unique intangibles or in multiple international transactions which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm’s length price of
any one transaction.’

 Rule 10C is extracted fully hereunder:

(1) For the purposes of sub-section (1) of section 92C, the most appropriate method shall be the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm’s length price in relation to the international transaction.

(2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:-

(a) the nature and class of the international transaction; 
(b) the class or classes of associated enterprises entering into the transaction and the functions performed by
them taking into account assets employed or to be employed and risks assumed by such enterprises; 3 
(c) the availability, coverage and reliability of data necessary for application of the method; 
(d) the degree of comparability existing between the international transaction and the uncontrolled 
transaction and between the enterprises entering into such transactions; 
(e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, 
between the international transaction and the comparable uncontrolled transaction or between the 
enterprises entering into such transactions; 
(f) the nature, extent and reliability of assumptions required to be made in application of a method. 

The crux of Rule 10C is that the Assessing Officer or the Transfer Pricing Officer, as the case may be, shall take into account the factors enumerated thereunder and choose the most appropriate method “which is best suited to the facts and circumstances of each particular international transaction” and which provides “the most reliable measure of an arm’s length price” in relation to that transaction. The provisions of the Act and the Rules made thereunder were quite comprehensive and clear and provided sufficient guidance to the Assessing Officer as well as to the Transfer Pricing Officer. Nevertheless, it was felt that it may be desirable to appoint a Committee to review ‘Taxation of Development Centres and the IT sector’. The stated goal was to have a fair tax system in line with best international practice which will promote India’s software industry and promote India as a destination for investment and for establishment of Development Centres.

The Committee under the Chairmanship of Shri N Rangachary, former Chairman, CBDT, submitted its First Report on Taxation of Development Centres and IT Sector in September, 2012. Based on the Committee’s report and after carefully considering the matter, the CBDT issued circular No.2/2013 and circular 4 No.3/2013 on 26th March, 2013. Circular No.2 was titled “Circular on application of profit split method” and Circular No.3 was titled “Circular on conditions relevant to identify Development Centres engaged in contract R&D services with insignificant risk”.

The purpose of the circulars was to provide additional guidance to the Assessing Officer or the Transfer Pricing Officer, as the case may be, so that there is a degree of certainty and uniformity in assessments of Development Centres that are engaged for providing contract R&D services.

Representations have been received from the IT industry on the two circulars. It has been pointed out that the R&D Centres set up by foreign companies can be classified into three broad categories based on functions, assets and risk assumed by the centre established in India and these are:

1. Centres which are entrepreneurial in nature; 
2. Centres which are based on cost-sharing arrangements; and 
3. Centres which undertake contract research and development. 

It has been represented that there is a need for providing maximum clarity on the principles for distinguishing each of the three categories and identifying the most appropriate method for determining the arm’s length
price/transfer pricing.  The matter has been reviewed in the light of the representations received.

The content and the language of the circular No.2 and circular No.3 have also been reviewed. In the light of the review, the CBDT has decided to:

(1) Rescind circular No.2/2013 dated 26th March, 2013.
(The circular appeared to give the impression that there was a hierarchy among the six methods listed in section 92C and that Profit Split Method (PSM) was the preferred method in the case involving unique intangibles or in multiple interrelated international transactions.)

(2) Amend and reissue circular No.3 dated 26th March, 2013
(While the circular listed the conditions that would be relevant to decide whether a Development Centre is a contract R&D service provider with insignificant risk, the use of the phrase ‘cumulatively complied with’ was perhaps too restrictive. It is also felt that 5 phrases such as ‘economically significant functions’ and ‘low or no tax jurisdiction’ need to be defined or elaborated. Hence the need to amend and reissue the circular.)

CBDT believes that the rescission of circular No.2 and amendment and reissue of circular No.3 will clear all ambiguities in the matter. Safe Harbour Rules under section 92CB of the Act are under consideration and will be issued shortly by the CBDT and the Safe Harbour Rules will bring further certainty in assessment of Development Centres that are engaged in providing contract R&D services.


Link
http://www.incometaxindia.gov.in/archive/PressRelease_Circular_5_30062013.pdf

Circular No.06 /2013

F No. 500/139/2012 

Government of India 

Ministry of Finance 

Department of Revenue 

Central Board of Direct Taxes 

(Foreign Tax and Tax Research-I Division)

New Delhi, the 29th June, 2013 

Circular No.06 /2013 

(amending Circular No.03/2013 dated 26th March,2013)

Subject: Circular on conditions relevant to identify development centres engaged in 
contract R&D services with insignificant risk 

It has been brought to the notice of CBDT that there is divergence of views amongst the field
officers and taxpayers regarding the functional profile of development centres engaged in
contract R&D services for the purposes of determining arm’s length price/transfer pricing. In
some cases, while taxpayers insist that they are contract R&D service providers with
insignificant risk, the TPOs treat them as full or significant risk-bearing entities and make
transfer pricing adjustments accordingly. The issue has been examined in the CBDT.
The Research and Development Centres set up by foreign companies can be classified into
three broad categories based on functions, assets and risk assumed by the centre

established in India. These are:

1. Centres which are entrepreneurial in nature; 

2. Centres which are based on cost-sharing arrangements; and 

3. Centres which undertake contract research and development.

While the three categories are not water-tight compartments, it is possible to distinguish
them based on functions, assets and risk. It will be obvious that in the first case the
Development Centre performs significantly important functions and assumes substantial
risks. In the third case, it will be obvious that the functions, assets and risk are minimal. The
second case falls between the first and the third cases.
More often than not, the assessee claims that the Development Centre in India must be
treated as a contract R&D service provider with insignificant risk. Consequently, the assessee claims that in such cases the Transactional Net Margin Method (TNMM) must be
adopted as the most appropriate method.
The CBDT has carefully considered the matter and lays down the following guidelines for
identifying the Development Centre as a contract R&D service provider with insignificant risk.
1. Foreign principal performs most of the economically significant functions involved in
research or product development cycle either through its own employees or through
its associated enterprises while the Indian Development Centre carries out the work
assigned to it by the foreign principal. Economically significant functions would
include critical functions such as conceptualization and design of the product and
providing the strategic direction and framework;
2. The foreign principal or its associated enterprise(s) provides funds/ capital and other
economically significant assets including intangibles for research or product
development. The foreign principal or its associated enterprise(s) also provides a
remuneration to the Indian Development Centre for the work carried out by the latter;
3. The Indian Development Centre works under the direct supervision of the foreign
principal or its associated enterprise which has not only the capability to control or
supervise but also actually controls or supervises research or product development
through its strategic decisions to perform core functions as well as monitor activities
on regular basis;
4. The Indian Development Centre does not assume or has no economically significant
realized risks. If a contract shows that the foreign principal is obligated to control the
risk but the conduct shows that the Indian Development Centre is doing so, then the
contractual terms are not the final determinant of actual activities;
5. In the case of a foreign principal being located in a country/ territory widely perceived
as a low or no tax jurisdiction, it will be presumed that the foreign principal is not
controlling the risk. However, the Indian Development Centre may rebut this
presumption to the satisfaction of the revenue authorities. Low tax jurisdiction shall
mean any country or territory notified in this behalf under section 94A of the Act or
any other country or territory that may be notified for the purpose of Chapter X of the
Act;

6. Indian Development Centre has no ownership right (legal or economic) on the
outcome of the research which vests with the foreign principal and that this is evident
from the contract as well as from the conduct of the parties.
The Assessing Officer or the Transfer Pricing Officer, as the case may be, shall have regard
to the guidelines above and shall take a decision based on the totality of the facts and
circumstances of the case. In doing so, the Assessing Officer or the Transfer Pricing Officer,
as the case may be, shall be guided by the conduct of the parties and not merely by the
terms of the contract.
The Assessing Officer or the Transfer Pricing Officer, as the case may be, shall bear in mind
the provisions of section 92C of the Act and Rule 10A to Rule 10C of the Rules. He shall
also apply the guidelines enumerated above and select the ‘most appropriate method’.
The above may be brought to the notice of all concerned

(Batsala Jha Yadav) 

Director to the Government of India 

Central Board of Direct Taxes

Copy to:
1. The Chairperson, Members and all other officers of the CBDT of the rank of Under
Secretary and above.
2. All Chief Commissioners/Directors General of Income-tax.
3. The Director (PR, PP & OL), Mayur Bhawan, New Delhi for printing in the quarterly tax
bulletin and for circulation as per usual mailing list (100 Copies).
4. The Comptroller and Auditor General of India (40 copies).
5. All Directors of Income-tax, New Delhi
6. The Director General of Income-tax, NADT, Nagpur
7. Guard File.
8. Joint Secretary and Legal Advisor, Ministry of Law and Justice, New Delhi
9. The Institute of Chartered Accountants of India, IP Estate, New Delhi

(Batsala Jha Yadav) 

Director to the Government of India 

Central Board of Direct Taxes 

Link

http://www.incometaxindia.gov.in/archive/BreakingNews_Circular_Revised_5_30062013.pdf

Withdrawal of Circulars No. 2 dated 26th March, 2013

Withdrawal of Circulars No. 2 dated 26th March, 2013 

Circular No. 05 /2013 [F. No. 500/139/2012-FTD-I], dated 29-06-2013 

1. The Central Board of Direct Taxes had issued Circular No. 2 (hereinafter called "the Circular") on 26th March 2013 regarding application of Profit Split Method.
2. It is noticed the Circular appeared to give the impression that there was a hierarchy among the six method listed in section 92C and that Profit Split Method (PSM) was the preferred method in the case involving unique intangible or in multiple interrelated international transactions.
3. Accordingly, the Central Board of Direct Taxes withdraws Circular No 2 dated 26th March 2013 with immediate effect.

The above may be brought to the notice of all concerned.

(Batsala Jha Yadav) 

Director to the Government of India 

Central Board of Direct Taxes 

Copy to: 

1. The Chairperson, Members and all other officers of the CBDT of the rank
of Under Secretary and above
2. All Chief Commissioners / Directors General of Income-tax
3. The Director (PR, PP & OL), Mayur Bhawan, New Delhi for printing in the
quarterly tax bulletin and for circulation as per the usual mailing list (100
copies)
4. The Comptroller and Auditor General of India (40 copies)
5. All Directors of Income-tax, New Delhi
6. The Director General of Income-tax, NADT, Nagpur
7. Guard file
8. Joint Secretary and Legal Advisor, Ministry of Law and Justice, New Delhi
9. The Institute of Chartered Accountants of India, IP Estate, New Delhi

(Batsala Jha Yadav) 

Director to the Government of India 

Central Board of Direct Taxes 

http://www.incometaxindia.gov.in/archive/BreakingNews_Circular_5_30062013.pdf

I-T revokes circular on transfer pricing-Clarifies 'profit-split' will not be only method to compute tax

Relief to Tech Firms

The income-tax department on Saturday revoked its recent circular (issued on March 26^th 2013 circular no 2) on adoption of profit-split method as a preferred mode for computing tax liability on multinational companies’ development centers in India. It also clarified that another circular (issued on March 26^th 2013 circular no 3), relating to the parameters defining R&D centers, would be suitably modified.

Now the Circular no 2 dated 26^th March 2013 has been rescinded and Circular no 3 dated 26^th march 2013 replaced with Circular no 6 dated June 29^th 2013 loosen the norms.

Circular no 2  was on application of profit-split method for transfer pricing, while the Circular no 3 was for identifying development centers engaged in contract R&D services with insignificant risk.

According to the profit-split method, part of parent company’s profit is taken into account while computing the tax liability of its centers. This would have meant a significant jump in tax demand on research & development centers of foreign companies operating in India.

Circular no 3 issued by tax authority listed five conditions to decide whether or not a development centre was a contract R&D service provider with insignificant risk. According to the earlier circular, the profit-split method would not be applicable on entities that qualified the five parameters under the definition of contract R&D service provider with insignificant risk. “However, it was very difficult for companies to meet all the parameters.”

So far as circular 2 is concerned, the department said, since it was giving an impression that “there was a hierarchy among the six methods” of transfer pricing and that the profit-split was the preferred one, it has “rescind” the circular and amended the circular 3.

A panel formed by the government under former CBDT chairman N Rangachary to resolve these issues had in September last year given its report on ‘Taxation of Development Centers and IT Sector’. These and a few other circulars were based on the panel’s report.

Taking cognizance of this, the government said “the use of the phrase ‘cumulatively complied with’ was perhaps too restrictive”. It has also proposed to define and elaborate on phrases like ‘economically significant functions’ and ‘low or no tax jurisdiction’ to make the definition clear.

Profit Split Method

Profit-split The method, under which part of a parent company’s profit is taken into account while computing the tax liability of its centers, will not be the only way of computing tax liability in case of MNCs’ R&D units in India

Read:
Press Release
Amending Circular 3 dated March 26th 2013
Withdrawal of Circular No 2 dated march 26th 2013

Soon there is No Service Tax on Takeaway & Home-Delivery

The finance ministry may soon clarify that takeaway and home delivery of food will not attract service tax, a move that will be welcomed by the likes of Mcdonalds, Dominoes and Pizza Hut.

"The ministry is examining the issue. There is a strong view that takeaways and home deliveries should not attract service tax," as told by a senior government official.

Finance minister P Chidambaram is also understood to have favored this reading of the service tax rules.

The finance ministry's clarification, if it finally materializes, will bring the much-needed relief to the industry that has made several representations to the government seeking clarity on the issue and even pitching for deferment of the new levy.

The confusion stems from the union budget 2013-14 that had extended service tax to all air-conditioned restaurants from April 1 this fiscal.

As a result air-conditioned restaurants began charging service tax from their customers even if food was delivered at home or packed and carried away.

This is because the Central Board of Excise or Customs, the apex body in charge of administering indirect taxes, did not clearly spell out the applicability of service tax to takeaways and home deliveries.

The confusion has resulted in some service providers imposing tax while others have collected the tax but not deposited it.

Earlier, service tax was levied only on air-conditioned eateries that served alcohol.

No Constitutional Provisions for Such Tax

The finance ministry has now concluded that the tax could not be levied on these services after examining the structure of the tax and constitutional provisions. It has relied on the interpretation of Article 366 of the Constitution, following the 46th amendment that empowered state governments to levy sales tax on supply of food during the course of a service.

Experts also say court judgments clearly spell out that supply of goods would attract states sales tax.

"Prior to the amendment also it was held by courts that in case of takeaways, the dominant intention is supply of goods and services, if any, are only incidental. Hence, it was held that these transactions are liable to sales tax/ VAT," said Prateek Jain, partner, KPMG.

Smita Jatia, Managing Director, Hardcastle Restaurants, which runs McDonald's in the West, said the service tax has not had much of an impact on business. The government's recent imposition has not impacted the demand in our business and we continue to see a steady growth. Value has been the cornerstone of McDonald's, globally. ''

Service tax is levied at 12%. Restaurant service enjoys 60% abatement, implying that tax applies only on 40% of the total billed amount.

Selling ice-cream is service, must be taxed: Tax authorities

Is an ice-cream a product or a service? Well, you are in for a surprise if you think that it's a product. The tax authorities feel that the ice-cream served by the likes of Amul, Vadilal, Kwality Walls, Baskin Robbins and a host of others retail vends or parlours constitute a service and should be taxed accordingly. 

The logic - it is served from air-conditioned facilities. 

The budget this year brought under tax the services provided in relation to food or beverages served by a restaurant, eating joint or a mess having air-conditioning or central air-heating facility in any part of the establishment. 

Ice -cream, which depends on air-conditioning for its very existence, naturally meets this condition. 

The Central Board of Excise and Customs, the apex indirect taxes body under the ministry, is still to issue a directive on implementation of the budget provision. However, field officials, under pressure to meet collection targets, are taking no chances and have turned the heat on ice-cream manufacturers. 

The industry finds itself in a precarious situation. Hit hard by rising raw material costs, it is unable to absorb the burden of double taxation. 

Ice-cream also attracts value added tax and excise duty, being a manufactured goods. 

The industry has represented to the CBEC to give clarity on treatment of ice creams as good or service. 

The implication of the new levy has been examined by finance minister P Chidambaram and the CBEC is now looking if there is a need to clarify the issue. Ice-cream manufacturers are planning to now take up the issue with finance minister's office. 

"This is a too much...Ice cream industry cannot function without air conditioned plant or without AC storage," said Sudhir Shah, secretary, Indian Ice Cream Manufacturers Association.

EPFO plans to settle your PF claims in three days

The provident fund department has set an ambitious internal target to settle most claims in less than three days instead of the 30-day deadline set under its citizen charter, promising a huge relief to employees who are often forced to wait for months on end.

The Employees' Provident Fund Organization (EPFO), which manages over eight cr. accounts with more than Rs 5 lakh cr. of retirement savings, has been struggling to cope with the increasing workload of account transfers and withdrawals arising out of greater mobility in the labor market in recent years.


EPFO has summoned all regional PF bosses to Delhi on 5th July to finalize an action plan for clearing claims expeditiously. The department wants 70-80% of the 1.2 cr. claims expected in 2013-14 to be paid out within three days. 

If this plan is successfully applied then more than 1 cr. Employees get benefited in terms of claiming their own hard earned money from PF department.

Back to Basics-Accounting Standard

Back to Basics-Accounting Standard

What Are Accounting Standards

Accounting standards are written documents, policy documents issued by expert accounting body or by the government or other regulatory bodies covering the aspect of recognition, measurement, treatment, presentation and disclosure of accounting transaction in the financial statement. Accounting standard in India are issued by ICAI.

Objective of Accounting Standards 

Objective of accounting standards is to standardize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statement and add the reliability to the financial statements.

The Institute of Chartered Accountants of India recognized the need to harmonize the diverse accounting policies and practices, constituted an Accounting Standard Board (ASB) on 21^st April 1977. 

Scope of Accounting standard

v  The standard formulated by ASB includes paragraphs in bold italic type and plain type, which have equal authority. Paragraph bold and italic type indicates the main principles.

v  An individual standard should be read in the  in the context of the objective stated in that standard and their preface

v  Any issue in the interpretation of AS will be resolved by the council by issuing interpretation.

v  AS are intended to apply on items which are material

v  All AS are applicable prospectively these cannot apply retrospective unless otherwise mentioned specifically.

v  AS cannot override the local regulations which govern the presentation of financial  statements, however ICAI will determine the extent of disclosure to be made  by way of appropriate notes explaining the treatment of particular item   in financial statement and Auditors Report

v  If a particular AS is found to be not in conformity to the law in force then the provision of said laws will prevail and the financial statements should be prepared in conformity with such law.

Advantages and disadvantage of Accounting Standard

                           Advantages

v  Standards reduce to a reasonable extent or eliminate altogether confusing variation in the accounting treatment used to prepare the financial statements.

v  There are certain areas where important information are not required by law to be disclosed, standards may call for disclosure beyond that required by law.

v  It facilitates comparison of financial statements of different companies situated at different companies situated at different place.

                            Disadvantages

v   There may be trend towards rigidity and away from flexible in applying accounting standards.

v  Accounting standard cannot override law. The standards are required to be framed within ambit of prevailing statute even though it is not an acceptable standard.

v  The choice between better alternative accounting treatment in a particular situation is eliminated

v  Difference in accounting standards is bound to be because of difference in the traditions and legal system from one country to another.

Compliance with the Accounting Standards

v  The accounting standards are mandatory from the respective dates mentioned in AS. It will be duty of the member of the institute to examine whether the Accounting Standards are complied with in the presentation of financial statements covered under Audit. And if any deviation found it will be the duty of member to make adequate disclosure in their audit reports so that user of financial statements are aware of such deviation.

v  It is responsibility of management that financial statements to comply with Accounting standards.

v  Financial statements cannot be described as complying with the AS unless they comply with all the requirements of each applicable standard.

Let’s Recapitulate

Accounting standards are written documents, policy documents issued by expert accounting body or by the government or other regulatory bodies covering the aspect of recognition, measurement, treatment, presentation and disclosure of accounting transaction in the financial statement and the objective to issue AS  are to eliminate diversification in accounting practices throughout the country. The ICAI recognized the need to harmonize accounting practices constituted ASB  

Applicability of accounting Standard on Entities Carry Special Status

Applicability of accounting Standard on Special Entities

 

What Are Accounting Standards

Accounting standards are written documents, policy documents issued by expert accounting body or by the government or other regulatory bodies covering the aspect of recognition, measurement, treatment, presentation and disclosure of accounting transaction in the financial statement. Accounting standard in India are issued by ICAI.

Objective of Accounting Standards 

Objective of accounting standards is to standardize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statement and add the reliability to the financial statements.

Accounting Standard And

1.      The Auditors

a.       Auditors are duty bound while discharging their attest function to ensure the accounting standards issued and made mandatory by the ICAI are implemented.

b.      Section 227(3) of Companies Act,1956 requires that the auditors to report whether in his opinion the profit and loss account and balance sheet  comply with the Accounting standards referred in sec 211(3C) of Companies Act, 1956 i.e. accounting standard notified by MCA and till date As-1 to As 29 are notified by MCA .

2.      Board’s Report

a.       Sec 217 (2AA)(i) of Companies Act, 1956 states that Directors responsibility statement should include that in the preparation of the annual accounts the applicable accounting standards had been followed along with proper explanations relating to material departure. Or in simple words we can say that it’s a director’s responsibility that he must disclose in his responsibility statement about the compliance of accounting standard in financial statement of Company. 

Applicability of accounting Standard on Special Entities

1.      Co-Operative Societies

a.       The ICAI has explained that the AS issued by Institute shall apply in respect of financial statements of co-operative societies, which carry on commercial ,industrial or business activities, and are subject to the attest  function of the member of ICAI.

b.      The ICAI further clarified that even if a very small proportion of the activities of co-operative society is considered to be commercial, industrial or business in nature, then it cannot claim exemption from the application of AS and the AS would apply to all its activities.

Auditors Responsibility

It’s the responsibility of auditor to qualify their report in case the relevant accounting standards are not followed in the preparation and presentation of the financial statements of the Co-operative societies.

2.      Charitable Entities

a.       Accounting standards are applicable on commercial, industrial or business enterprise. Therefore, they do not apply to purely charitable entities.

b.      Provided that if a charitable entity is also engaged in business or commercial activity (howsoever insignificant indicates that even a very small amount of activity) then   accounting standards would apply to its entire activity, charitable and non charitable.

Auditors Responsibility

It’s the responsibility of auditor to qualify their report in case the relevant accounting standards are not followed in the preparation and presentation of the financial statements of the Charitable Entities.

3.      Partnership and Proprietorship

a.       Accounting standards are applicable to all commercial, industrial or business enterprises in spite of their status therefore accounting standards are also applicable to partnership firm or proprietorship.

Auditors Responsibility

It’s the responsibility of auditor to qualify their report in case the relevant accounting standards are not followed in the preparation and presentation of the financial statements of the individual and non-cooperative entity (wherever applicable).

Summary

The Preface to the statement of accounting standards clarifies that the AS are issued “for use in the presentation of General Purpose Financial statement issued to general public by such entity involved in commercial, industrial or business activities and subject to the attest function of its members”.

Accounting Standards are designed to apply to the general purpose financial statements and other financial reporting, which are subject to the attest function of the members of the ICAI. Accounting Standards apply in respect of any enterprise (whether organized in corporate, co-operative or other forms) engaged in commercial, industrial or business activities, irrespective of whether it is profit oriented or it is established for charitable or religious purposes. Accounting Standards will not, however, apply to enterprises only carrying on the activities which are not of commercial, industrial or business nature, (e.g., an activity of collecting donations and giving them to flood affected people). Exclusion of an enterprise from the applicability of the Accounting Standards would be permissible only if no part of the activity of such enterprise is commercial, industrial or business in nature. Even if a very small proportion of the activities of an enterprise is considered to be commercial, industrial or business in nature, the Accounting Standards would apply to all its activities including those which are not commercial, industrial or business in nature.

General Purpose financial Statements includes balance sheet, income statement (profit & loss statement), other statements and notes to accounts (explanatory notes), which form part thereof.

  Hence compliance with AS is required to be examined by an auditor in an audit of financial statements of individual and non-cooperative entity like sole proprietary concern, partnership firms, societies under societies registration act, trusts, HUF and AOP.

TDS on immovable property (194-IA)

From the June 1^st, 2013 all the buyer of property 50 lakh or more than will get ready to pay TDS @1%.However the rural agriculture land and compulsory land acquisition deals are out of its scope. As well those who are planning to buy property less than 50 lakh are also out of the purview of this section.

Provision Related to Tax Deduction and Taxability

 The Finance Act 2013 had provided that purchaser of an immovable property (other than agricultural land) worth over Rs 50 lakh is required to pay withholding tax at the rate of 1% from the consideration payable to a resident transferor.  The rate at which tax is to be cut is 1%, but it would go up to as high as 20% if the seller does not disclose his permanent account number.  This amendment is effective from 1st June, 2013

CBDT has notified the new provision of TDS on immovable property………………..

The provision will apply even when the property has been financed through bank loan. Buyer has to ensure that he himself or the bank must deduct tax before disbursing the loan.

These provisions will also apply in cases where buyer bought an under construction property prior to 1^st June 2013 but has to make balance payment after June 1^st 2013.

The tax deducted is to be paid electronically on the website of income tax department by filling a form online but if a person does not have online banking facility he can take the printout and submit physically  to the authorized bank branches of any of the nationalized bank.  

Points must  be known  

Income tax department has done away the entire mandatory requirements of tax deduction and Tan account number. In other words the tax authorities made hassle free tax deposition by individual on tax on property. The buyer will be able to generate the TDS certificate from I-T department’s website and provide to seller. The seller would also able to see the TDS credit in 26AS.    

TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART-II, SECTION 3, SUB-SECTION (ii)] GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(DEPARTMENT OF REVENUE)

(CENTRAL BOARD OF DIRECT TAXES)

NOTIFICATION NO. 39/2013

New Delhi, the 31^st May, 2013

S.O.1404(E) - In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax (Fifth Amendment) Rules, 2013.

(2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962, (hereinafter referred to as the said rules) in rule 30,–

(a) after sub-rule (2), the following sub-rule shall be inserted, namely:-

“(2A) Notwithstanding anything contained in sub-rule (1) or sub-rule (2), any sum deducted under section 194-IA shall be paid to the credit of the Central Government within a period of seven days from the end of the month in which the deduction is made and shall be accompanied by a challan-cum-statement in Form No.26QB.”;

(b) after sub-rule (6), the following sub-rule shall be inserted, namely:-

“(6A) Where tax deducted is to be deposited accompanied by a challan-cum-statement in Form No.26QB, the amount of tax so deducted shall be deposited to the credit of the Central Government by remitting it electronically within the time specified in sub-rule (2A) into the Reserve Bank of India or the State Bank of India or any authorized bank.”;

(c) after sub-rule (7), the following sub-rules shall be inserted, namely:-

“(7A) The Director General of Income-tax (Systems) shall specify the procedure, formats and standards for the purposes of remitting the amount electronically to the Reserve Bank of India or the State Bank of India or any authorized bank and shall be responsible for the day-to-day administration in relation to the remitting of the amount electronically in the manner so specified.”;

3. In rule 31 of the said rules,–

(a) after sub-rule (3), the following sub-rule shall be inserted, namely:-

“(3A) Notwithstanding anything contained in sub-rule (1) or sub-rule (2) or sub-rule (3), every person responsible for deduction of tax under section 194-IA shall furnish the certificate of deduction of tax at source in Form No.16B to the payee within fifteen days from the due date for furnishing the challan-cum-statement in Form No.26QB under rule 31A after generating and downloading the same from the web portal specified by the Director General of Income-tax (System) or the person authorized by him.”;

(b) after sub-rule (6), the following sub-rule shall be inserted, namely:-

“(6A) The Director General of Income-tax (Systems) shall specify the procedure, formats and standards for the purposes of generation and download of certificates and shall be responsible for the day-to-day administration in relation to the generation and download of certificates from the web portal specified by him or the person authorized by him.”;

4. In rule 31A of the said rules, after sub-rule (4), the following sub-rule shall be inserted, namely:-

“(4A) Notwithstanding anything contained in sub-rule (1) or sub-rule (2) or sub-rule (3) or sub rule (4), every person responsible for deduction of tax under section 194-IA shall furnish to the Director General of Income-tax (System) or the person authorized by the Director General of Income-tax (System) a challan-cum-statement in Form No.26QB electronically in accordance with the procedures, formats and standards specified under sub-rule (5) within seven days from the end of the month in which the deduction is made.”;

5. In Appendix-II of the said rules,-

(a) after Form No.16AA, the following Form shall be inserted, namely:-

         Form No 16B 

                  Notes:

          1. Salary includes wages, annuity, pension, gratuity [other than exempted under section 10 (10)], fees, commission, bonus, repayment of amount deposited under the Additional Emoluments (Compulsory Deposit) Act, 1974, perquisites, profits in lieu of or in addition to any salary or wages including payments made at or in connection with termination of employment, advance of salary, any payment received in respect of any period of leave not availed [other than exempted under section 10 (10AA)], any annual accretion to the balance of the account in a recognized provident fund chargeable to tax in accordance with rule 6 of Part A of the Fourth Schedule of the Income tax Act, 1961, any sums deemed to be income received by the employee in accordance with sub-rule (4) of rule 11 of Part A of the Fourth Schedule of the Income tax Act, 1961, any contribution made by the Central Government to the account of the employee under a pension scheme referred to in section 80CCD or any other sums chargeable to income tax under the head 'Salaries'.

           2. Where an employer deducts from the emoluments paid to an employee or pays on his behalf any contributions of that employee to any approved superannuation fund, all such deductions or payments should be included in the statement.”;

(b) for Form No.24Q, the following Form shall be substituted, namely :—

     Form No 24Q

(c) after Form No.26QAA, the following Form shall be inserted, namely:—

      Form No 26QB

[F.No.133/23/2013-SO(TPL)(Pt.)]

RAJESH KUMAR BHOOT

DIRECTOR (TPL-III)

Note: - The principal rules were published in the Gazette of India vide notification number S.O. 969(E), dated the 26th March, 1962 and last amended vide notification number S.O. 1393(E), dated the 30th May, 2013.

Notifications-NOTIF39_2013

Summary

Every person buying property of 50 lakh or more than would required to deduct tax @1% and deposit with income tax department within 7 days of deduction. In case seller does not provided the PAN number the rate of tax will be 20% maximum.

Out of Scope area

           a)            Property transaction below 50 lakh

b)     Agriculture land in rural/village area

c)     Compulsory acquisition of land

d)     No need to obtain TAN