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ACCOUNTING & TAXATION - NBFCs. BY R ANAND VICE PRESIDENT (CORPORATE AFFAIRS) SUNDARAM FINANCE LIMITED. GENERAL. MANAGING ACCOUNTING vs. MANAGING BUSINESS COST OF COMPLIANCE & DECLINING MARGINS OVER REGULATION Vs. LIBERLISATION. ACCOUNTING - COMPANY LAW REQUIREMENTS.

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ACCOUNTING & TAXATION - NBFCs

BY

R ANAND

VICE PRESIDENT

(CORPORATE AFFAIRS)

SUNDARAM FINANCE LIMITED

RBI - PUNE

general
GENERAL
  • MANAGING ACCOUNTING vs. MANAGING BUSINESS
  • COST OF COMPLIANCE & DECLINING MARGINS
  • OVER REGULATION Vs. LIBERLISATION

RBI - PUNE

accounting company law requirements
ACCOUNTING - COMPANY LAW REQUIREMENTS
  • COMPLIANCE WITH ACCOUNTING STANDARDS MANDATED - SEC 211(3A).
  • NON ADHERENCE REQUIRES DISCLOSURES – SEC 211(3B).
  • TRIPARTITE INVOLVEMENT IN FORMULATION – CENTRAL GOVT, NATIONAL ADVISORY COMMITTEE AND ICAI – SEC 211(3C).

RBI - PUNE

accounting rbi requirements
ACCOUNTING – RBI REQUIREMENTS
  • SEC.45Q UNDER CHAPTER III B OF THE RBI ACT, 1934 OVERRIDES OTHER LAWS
  • RBI PRUDENTIAL NORMS VS. ACCOUNTING STANDARDS AND GUIDANCE NOTES - PARA 5 OF RBI PRUDENTIAL NORMS DIRECTIONS DT.31ST JAN 1998.
  • MANDATORY ACCOUNTING STANDARDS AS APPLICABLE TO OTHER CORPORATES TO THE EXTENT NOT INCONSISTENT WITH RBI’S DIRECTIONS.

RBI - PUNE

accounting income tax requirements
ACCOUNTING – INCOME-TAX REQUIREMENTS
  • CENTRAL GOVT. HAS GOT POWER TO ISSUE ACCOUNTING STANDARDS FOR INCOME-TAX PURPOSE UNDER SEC.145 VIDE AMENDMENT IN 1997
  • SO FAR, ONLY 2 STANDARDS WERE ISSUED (NOTIFICATION NO. SO69(E) DT. 25/01/1996)

- AS I : DISCLOSURE OF ACCOUNTING POLICIES

- AS II : DISCLOSURE OF PRIOR PERIOD & EXTRA ORDINARY ITEMS AND CHANGES IN

ACCOUNTING POLICIES.

RBI - PUNE

disclosure of accounting policies as 1
DISCLOSURE OF ACCOUNTING POLICIES (AS 1)
  • FUNDAMENTAL ACCOUNTING ASSUMPTIONS - GOING CONCERN, ACCRUAL & CONSISTENCY
  • MAJOR CONSIDERATIONS - PRUDENCE, SUBSTANCE OVER FORM & MATERIALITY
  • CHANGE IN RECOGNITION OF HP INCOME -WHETHER AMOUNTS TO CHANGE IN ACCOUNTING POLICY?
  • BROKERAGE ON DEPOSITS / COMMISSION FROM DEALERS - ACCOUNTING TREATMENT.

RBI - PUNE

cash flow statements as 3
CASH FLOW STATEMENTS (AS 3)
  • CLAUSE 32 OF THE LISTING AGREEMENT REQUIRES TO GIVE CASH FLOW STATEMENT ALONG WITH BALANCE SHEET AND P & L.
  • ACTIVITIES TO BE CLASSIFIED INTO OPERATING, INVESTING AND FINANCING.
  • STANDARD RECOMMENDS TWO METHODS OF REPORTING : i.e., (1) DIRECT ; & (2) INDIRECT.
  • LISTING AGREEMENT MANDATES INDIRECT METHOD.
  • DIRECT METHOD: RECEIPTS & PAYMENTS ARE TAKEN AT FULL VALUE.
  • INDIRECT METHOD: NET PROFIT BEFORE TAX & EXTRAORDINARY ITEMS IS THE STARTING POINT AND ADJUSTMENTS ARE MADE THERETO.

RBI - PUNE

provisions contingencies prior period extraordinary items as 4 as 5 as 29
PROVISIONS, CONTINGENCIES, PRIOR PERIOD & EXTRAORDINARY ITEMS - AS 4, AS 5 & AS 29
  • PROVISION TO BE MADE FOR PRESENT OBLIGATON AS A RESULT OF PAST EVENT WHERE PROBABLE OUTFLOW OF RESOURCES CAN BE RELIABLY ESTIMATED.
  • CONTINGENT LIABILITIES / ASSETS SHOULD NOT BE RECOGNISED.
  • EVENTS OCCURING AFTER THE BALANCE SHEET DATE THAT PROVIDE FURTHER EVIDENCE OF CONDITIONS THAT EXISTED AT THE BALANCE SHEET DATE TO BE RECKONED.
  • EXTRAORDINARY ITEMS SHOULD BE SEPARATELY DISCLOSED IN THE P&L ACCOUNT.
  • PRIOR PERIOD ITEMS SHOULD BE SEPARATELY DISCLOSED IN THE P&L.
  • ANY CHANGE IN AN ACCOUNTING POLICY WHICH HAS A MATERIAL EFFECT SHOULD BE DISCLOSED.

RBI - PUNE

depreciation as 6
DEPRECIATION - AS 6
  • SYSTEMATIC BASIS AND USEFUL LIFE ARE THE CRITERIA FOR CHARGING DEPRECIATION.
  • CONSISTENCY IS THE BASIC PRINCIPLE, BUT CHANGE IN THE METHOD IS ALLOWED FOR BONA FIDE REASONS.
  • CHANGE IN THE METHOD – RETROSPECTIVE EFFECT WITH DEFICIENCY / SURPLUS TO BE ACCOUNTED IN THE YEAR OF CHANGE.
  • IN THE CASE OF REVALUATION, DEPRECIATION IS ON THE REVALUED AMOUNT OVER THE REMAINING USEFUL LIFE.
  • ADDITION OR EXTENSION, EXCHANGE FLUCTUATION TO BE DEPRECIATED OVER REMAINING USEFUL LIFE.
  • SCHEDULE XIV RATES ARE TO BE ADOPTED AS THE MINIMUM LEVEL.

RBI - PUNE

fixed assets as 10
FIXED ASSETS - AS 10
  • COST OF FIXED ASSETS = PURCHASE PRICE + COST OF BRINGING THE ASSET TO ITS WORKING CONDITION.
  • SUBSEQUENT EXPENDITURE SHOULD BE ADDED ONLY IF IT INCREASES THE FUTURE BENEFITS.
  • FIXED ASSETS SHOULD BE ELIMINATED UPON ITS DISPOSAL.
  • GAINS OR LOSSES FROM DISPOSAL OF FIXED ASSETS SHOULD BE RECOGNISED IN P & L ACCOUNT.
  • REVALUATION IS PERMITTED FOR A CLASS OF ASSETS OR SELECTION OF ASSETS ON A SYSTEMATIC BASIS.
  • DISCLOSURE :

- GROSS & NET BOOK VALUE WITH DETAILS OF ADDITIONLS, DISPOSALS, ACQUISITIONS & OTHER MOVEMENTS.

- PARTICULARS ABOUT REVALUATION : AMOUNT, METHOD ETC.

RBI - PUNE

depreciation accounting as 6 accounting for fixed assets as 10
DEPRECIATION ACCOUNTING (AS 6) &ACCOUNTING FOR FIXED ASSETS (AS 10)
  • CAPITALISATION AS FIXED ASSETS BY LESSOR NOT PERMITTED FROM 01/04/2001.
  • FOR LEASES PUT THROUGH PRIOR TO 01/04/2001

- DISCLOSURE OF LEASED ASSETS IN THE BALANCE SHEET.

FIXED ASSETS

LESS:ACCUMULATED DEPRECIATION

LESS/ADD: ACCUMULATED LEASE ADJUSTMENT

    • DEPRECIATION AS PER SCH.XIV RATES OR AS PER MANAGEMENT’S ESTIMATE BASED ON USEFUL LIFE OF THE ASSET
    • CONCEPT OF ANNUAL LEASE CHARGE (ALC) FOR LEASES PUT THRO’ PRIOR TO 01.04.2001
    • ALC COMPRISES OF

MINIMUM STATUTORY DEPRECIATION &

LEASE EQUALISATION CHARGE

    • REPOSSESSED HP/LEASE ASSETS SHOULD BE SHOWN AS DISTINCT FROM ‘ASSETS ON LEASE’ OR ‘STOCK ON HIRE’(RBI CIRCULAR DT. 01.02.2002)

RBI - PUNE

revenue recognition
REVENUE RECOGNITION
  • INCOME FROM HP & LEASE

FROM 01.04.2001

  • RECOGNITION OF HP AND LEASE INCOME FOR BOOKS -GOVERNED BY AS 19
  • RECOGNITION OF LEASE/HP INCOME - IRR BASIS

PRE 01.04.2001

  • LEASE - GOVERNED BY GUIDANCE NOTE
  • HP - NO SPECIFIC REQUIREMENT
  • OTHER INCOME (AS 9):

- INCOME FROM DIVIDENDS TO BE RECOGNISED WHEN OWNER’s RIGHT TO RECEIVE PAYMENT IS ESTABLISHED

- INTEREST ON LOANS ACCRUES ON TIME BASIS AFTER CONSIDERING AMOUNT O/S AND RATE APPLICABLE

RBI - PUNE

effect of changes in foreign exchange rates as 11
EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES – AS 11
  • FOREIGN CURRENCY TRANSACTION TO BE RECORDED AT THE EXCHANGE RATE ON THE DATE OF TRANSACTION.
  • ON BALANCE SHEET DATE

- FOREIGN CURRENCY MONETARY ITEMS SHOULD BE REPORTED USING CLOSING RATE.

- FOREIGN CURRENCY NON-MONETARY ITEMS TO BE REPORTED AT THE RATE ON THE DATE OF TRANSACTION.

  • EXCHANGE DIFFERENCES SHOULD BE RECOGNISED AS INCOME OR EXPENSES IN WHICH THEY ARISE.
  • PREMIUM OR DISCOUNT ON FORWARD EXCHANGE CONTRACT SHOULD BE AMORTIZED AS EXPENSE OR INCOME OVER THE LIFE OF THE CONTRACT.

RBI - PUNE

accounting for investments rbi directions as 13
ACCOUNTING FOR INVESTMENTS RBI DIRECTIONS & AS 13
  • INVESTMENTS CLASSIFIED AT THE BEGINNING INTO

- CURRENT INVESTMENTS &

- LONG TERM INVESTMENTS

  • INTER CLASS TRANSFER IS PERMITTED ON HALF YEARLY BASIS
  • QUOTED CURRENT INVESTMENTS BE GROUPED INTO EQUITY SHARES, PREF. SHARES ,DEBENTURES& BONDS,GOVT. SECURITIES, UNITS OF MUTUAL FUNDS AND OTHERS
  • QUOTED CURRENT INVESTMENT VALUED AT COST OR MARKET VALUE, WHICHEVER IS LOWER ON SCRIP-WISE AND CATEGORY WISE
  • AGGREGATE MARKET VALUE OF A PARTICULAR CATEGORY IS LESS THAN THE AGGREGATE COST THEN THE SHORTFALL SHOULD BE PROVIDED FOR.
  • SEPARATE TREATMENT FOR UNQUOTED SECURITIES
  • LONG TERM INVESTMENTS ARE VALUED AT COST AND DECLINE IN VALUE OF INVESTMENTS, OTHER THAN TEMPORARY TO BE PROVIDED

RBI - PUNE

borrowing costs as 16
BORROWING COSTS - AS 16
  • BORROWING COST DIRECTLY ATTRIBUTABLE TO THE ACQUISITION, CONSTRUCTION OR PRODUCTION OF A QUALIFYING ASSET SHOULD BE CAPITALISED.
  • QUALIFYING ASSET IS AN ASSET THAT TAKES A SUBSTANTIAL PERIOD OF TIME TO GET READY FOR ITS USE OR SALE.
  • TEMPORARY INVESTMENTS OF BORROWING SHOULD BE REDUCED FROM BORROWING COSTS.
  • CAPITALISATION OF BORROWING COSTS BE SUSPENDED DURING A PERIOD IN WHICH ACTIVE DEVELOPMENT IS INTERRUPTED.
  • CAPITALISATION OF BORROWING COST SHOULD CEASE WHEN SUBSTANTIAL ACTIVITIES ON QUALIFYING ASSET ARE COMPLETE.
  • ACCOUNTING POLICY AND AMOUNT OF CAPITALISATION TO BE DISCLOSED IN THE FINANCIAL STATEMENTS.

RBI - PUNE

segment reporting as 17
SEGMENT REPORTING - AS 17
  • SEGMENT REPORTING HELPS TO UNDERSTAND THE PERFORMANCE & ASSESS THE RISK AND RETURN OF AN ENTERPRISE.
  • LISTED COMPANIES TO PUBLISH SEGMENT REPORTING ON A QUARTERLY BASIS IN THE FORMAT PRESCRIBED BY SEBI.
  • TYPES OF SEGMENT: (1) BUSINESS ; & (2) GEOGRAPHICAL.
  • DISCLOSURE IS ON REPORTABLE SEGMENT.
  • REPORTABLE SEGMENTS TO SATISFY REVENUE, RESULT AND ASSET BASED CONDITIONS.
  • REPORTING FORMAT IS ON PRIMARY SEGMENT & SECONDARY SEGMENT.
  • DOMINANT SOURCE AND NATURE OF RISK & RETURNS GOVERNS PRIMARY SEGEMENT REPORTING FORMAT.
  • NBFCs ENGAGED PRIMARILY IN FINANCING ACTIVITY IN INDIA HAS SINGLE REPORTABLE SEGMENT AND HENCE NO REQUIREMENT TO DISLCOSE SEGMENT INFORMATION [REFER ASI 20].

RBI - PUNE

related party disclosures as 18
RELATED PARTY DISCLOSURES - AS 18
  • OBJECTIVE IS TO DISCLOSE RELATED PARTY RELATIONSHIPS & TRANSACTIONS.
  • RELATED PARTY RELATIONSHIPS COVERED:

A. ENTERPRISES HAVING CONTROL.

B. ASSOCIATES & JOINT VENTURES.

C. INDIVIDUALS HAVING SIGNIFICANT INFLUENCE.

D. KEY MANAGEMENT PERSONNEL.

E. ENTERPRISES WHERE C & D EXERCISE

SIGNIFICANT INFLUENCE.

  • NAME OF THE RELATED PARTY & NATURE OF THE RELATIONSHIP SHOULD BE DISCLOSED IRRESPECTIVE OF ANY TRANSACTIONS DURING THE YEAR.
  • EXAMPLES OF RELATED PARTY TRANSACTIONS: PURCHASE, SALES, SERVICE, LEASING, HP, LICENCE, AGENCIES, FINANCE, GUARANTEES ETC.
  • AGGREGATION BY TYPE OF RELATED PARTY IS PERMITTED WITH EXCEPTIONS.
  • FORMAT OF DISCLOSURE IS PRESCRIBED BY ICAI.

RBI - PUNE

accounting for leases as 19 applicability
ACCOUNTING FOR LEASES – AS 19 - APPLICABILITY
  • MANDATORY WITH EFFECT FROM 01.04.2001.
  • HIRE PURCHASE TRANSACTIONS ARE COVERED.
  • A FINANCE LEASE TRANSFERS SUBSTANTIALLY ALL RISKS AND REWARDS OF OWNERSHIP OF ASSET TO LESSEE.
  • AN OPERATING LEASE IS SIMPLY AN AGREEMENT FOR HIRE OF ASSET.

RBI - PUNE

as 19 lessee accounting
AS 19 – LESSEE ACCOUNTING

LESSEE’S BOOKS:

  • FINANCE LEASE:

 RECOGNISE LEASED ASSET AS ASSET WITH CORRESPONDING LIABILITY AT FAIR VALUE OF THE ASSET OR THE PRESENT VALUE OF THE MLP.

 ASSET AND LIABILITY SHOULD BE SHOWN SEPARATELY AND NOT NETTED OFF.

 LEASE PAYMENTS = PRINCIPAL + INTEREST

  • OPERATING LEASE: PAYMENT TO BE TREATED AS EXPENSE ON A STRAIGHT LINE OR SYSTEMATIC BASIS.

RBI - PUNE

as 19 lessor accounting
AS 19 – LESSOR ACCOUNTING

LESSOR’S BOOKS

  • FINANCE LEASE:

RECOGNISE ASSET AS RECEIVABLE AT THE AMOUNT EQUAL TO NET INVESTMENT .

LEASE RENT = PRINCIPAL + FINANCE INCOME.

  • OPERATING LEASE :

EXISTING TREATMENT CONTINUES.

RBI - PUNE

as 19 important disclosures
AS 19 - IMPORTANT DISCLOSURES
  • BY LESSEE

- OWN / LEASED ASSETS TO BE SEGREGATED

- NET CARRYING AMOUNT ( W D V ) FOR EACH CLASS

- LEASE PAYMENTS MATURITY AND THE PRESENT VALUE (DUE IN ONE YEAR, BETWEEN 1 TO 5 YEARS AND ABOVE 5 YEARS )

- LEASE PAYMENTS RECOGNISED IN THE STATEMENT OF PROFIT AND LOSS SEGREGATING MLP AND CONTINGENT RENT IN THE CASE OF OPERATING LEASE.

  • BY LESSOR

- RECONCILIATION BETWEEN MLP AND PV OF MLP

- LEASE RECEIVABLES MATURITY AND PRINCIPAL MATURITY (DUE IN ONE YEAR BETWEEN 1 TO 5 YEARS AND ABOVE 5 YEARS )

- UNEARNED FINANCE INCOME

- GROSS ASSET COST, ACCUMULATED DEPRECIATION & CHARGE FOR EACH CLASS IN THE CASE OF OPERATING LEASE.

RBI - PUNE

earnings per share as 20
EARNINGS PER SHARE – AS 20
  • BASIC AND DILUTED EARNING PER SHARE SHOULD BE DISCLOSED ON THE FACE OF THE P & L STATEMENT.
  • BASIC EARNING PER SHARE = NET PROFIT OR LOSS AVAILABLE TO EQUITY SHAREHOLDERS / WEIGHTED AVERAGE NO. OF EQUITY SHARES OUTSTANDING.
  • DILUTED EARNING PER SHARE MAY ARISE IN THE CASE OF CONVERTIBLE DEBENTURES, OPTIONS ETC.
  • BASIC & DILUTED EARNING PER SHARE SHOULD BE ADJUSTED FOR ALL PERIODS PRESENTED IN BONUS, SHARE SPLIT SITUATIONS.

RBI - PUNE

consolidated financial statements as 21 as 23 as 27
CONSOLIDATED FINANCIAL STATEMENTS – AS 21, AS 23 & AS 27
  • PARENT COMPANY SHOULD PRESENT CONSOLIDATED FINANCIAL STATEMENTS IN ADDITION TO SEPARATE FINANCIAL STATEMENTS.
  • CONSOLIDATION ON THE FOLLOWING BASIS:
  • - SUBSIDIARIES – LINE BY LINE CONSOLIDATION (AS 21)
  • - ASSOCIATES (20% VOTING INTEREST) – EQUITY METHOD (AS 23) &
  • - JOINT VENTURE – PROPORTIONATE CONSOLIDATION (AS 27)
  • GOODWILL / CAPITAL RESERVE ARE TO BE DETERMINED AND ACCOUNTED.
  • INTRA-GROUP BALANCES AND TRANSACTIONS TO BE ELIMINATED.

RBI - PUNE

accounting for taxes on income as 22 scope objective
ACCOUNTING FOR TAXES ON INCOME - AS 22SCOPE & OBJECTIVE
  • MATCHING OF TAXES AGAINST REVENUE.
  • BRIDGE THE GAP BETWEEN REPORTED INCOME AND TAXABLE INCOME
  • IF THE STANDARD IS APPLICABLE TO AN ENTERPRISE THEN ALL OTHER ENTERPRISES OF THE GROUP SHALL FOLLOW THE STANDARD - PROVIDED CONSOLIDATED FINANCIALS ARE BEING PREPARED.
  • IMPORTANT TERMS:

- TAX EXPENSE (TAX SAVING)

- CURRENT TAX

- DEFERRED TAX

- TIMING DIFFERENCE

- PERMANENT DIFFERENCE

RBI - PUNE

as 22 permanent vs timing
AS 22- PERMANENT vs TIMING
  • ORIGINATION AND CAPABLE OF REVERSAL REQUIREMENTS
  • GOING CONCERN CONCEPT VS. ITEM BY ITEM
  • PARTIAL PROVISION VS. FULL PROVISION [BOTH WERE RECOMMENDED IN GUIDANCE NOTE]
  • AS 22 RECOGNISES ONLY FULL PROVISION METHOD
  • TIMING DIFFERENCES LEAD TO DEFERRED TAX ASSETS / LIABILITIES.
  • DEFERRED TAX ASSETS:
    • DISALLOWANCE U/S 43B, PROVISION FOR NON PERFORMING ASSETS [NBFC]
  • DEFERRED TAX LIABILITIES:

- DIFFERENCE IN WDV BETWEEN BOOK & IT, DEFERRED

IN BOOKS VS FULLY ALLOWED IN IT AND VICE VERSA.

RBI - PUNE

as 22 recognition
AS –22 RECOGNITION
  • TAX EXPENSE (CURRENT TAX + DEFERRED TAX ) BE INCLUDED IN P & L ACCOUNT
  • DEFERRED TAX LIABILITIES - TO BE FULLY PROVIDED FOR
  • DEFERRED TAX ASSETS - TO BE RECOGNISED ON THE BASIS OF “PRUDENCE”
  • PRUDENCE:

- DEFERRED TAX ASSET - REASONABLE CERTAINTY (FAIR/

PREDICTABLE AND SENSIBLE )

- UNABSORBED DEPRECIATION & CARRY FORWARD LOSSES - VIRTUAL CERTAINTY (VERY NEARLY THE THING DESCRIBED)

  • VIRTUAL CERTAINTY - SUPPORTED BY CONVINCING EVIDENCE
  • NATURE OF EVIDENCE TO BE DISCLOSED
  • IAS-12 - “PROBABLE” APPROACH [GENERALLY 70% AND ABOVE]
  • FAS-109 - “MORE LIKELY THAN NOT” APPROACH [ JUST OVER 50%]

RBI - PUNE

as 22 measurement disclosure
AS-22 - MEASUREMENT & DISCLOSURE
  • DEFERRED TAX ASSETS BE REVIEWED EACH YEAR .
  • CURRENT TAX - APPLICABLE TAX RATES
  • DEFERRED TAX - TAX RATES ENACTED/ SUBSTANTIVELY ENACTED BY THE BALANCE SHEET DATE.
  • NETTING OFF IS PERMISSIBLE.
  • DEFERRED TAX ASSETS AND LIABILITIES SHOULD BE DISCLOSED UNDER A SEPARATE HEADING FROM CURRENT TAX ASSETS AND LIABILITIES
  • MAJOR COMPONENT WISE BREAK-UP TO BE DISCLOSED IN THE NOTES TO ACCOUNTS.

RBI - PUNE

interim financial reporting as 25
INTERIM FINANCIAL REPORTING – AS 25
  • CLAUSE 41 OF THE LISTING AGREEMENT MAKES IT MANDATORY FOR LISTED COMPANIES.
  • RECOGNITION AND MEASUREMENT BY AS 25 AND DISCLOSURE BY SEBI’S FORMAT IN THE CASE OF LISTED COMPANIES.
  • SAME ACCOUNTING POLICIES AS ANNUAL TO BE FOLLOWED IN PREPARING INTERIM REPORTS.
  • MATERIALITY DETERMINES RECOGNITION OF AN ITEM FOR INTERIM REPORTING.
  • TAX EXPENSE IS DETERMINED ON THE BASIS OF ESTIMATED AVERAGE ANNUAL INCOME-TAX RATE – INTEGRAL METHOD.
  • APPLICABILITY OF CHANGE IN THE TAX RATES (SUCH AS EDUCATION CESS) IN THE INTERIM PERIODS – POSITION CLARIFIED BY ICAI.

RBI - PUNE

intangible assets as 26
INTANGIBLE ASSETS – AS 26
  • INTANGIBLE ASSETS SHOULD SATISFY THE TESTS OF IDENTIFIABILITY, CONTROL & FUTURE ECONOMIC BENEFITS.
  • INTANGIBLE ASSETS SHOULD BE RECOGNISED ONLY IF FUTURE ECONOMIC BENEFITS WOULD FLOW AND COST CAN BE MEASURED.
  • DEPRECIATION ON INTANGIBLE ASSET SHOULD BE ALLOCATED ON A SYSTEMATIC BASIS OVER USEFUL LIFE (REBUTTABLE PRESUMPTION IS LIFE WILL NOT EXCEED 10 YEARS).
  • DISTINCTION BETWEEN RESEARCH PHASE & DEVELOPMENT PHASE IS CRUCIAL.
  • SEPARATE DISCLOSURES TO BE MADE FOR ACQUIRED AND SELF-GENERATED INTANGIBLE ASSETS.

RBI - PUNE

impairment of assets as 28
IMPAIRMENT OF ASSETS – AS 28
  • IMPAIRMENT TEST TO BE MADE AT EACH BALANCE SHEET DATE.
  • BOTH EXTERNAL & INTERNAL SOURCES OF INFORMATION TO BE RESORTED TO DETERMINE IMPAIRMENT LOSS.
  • IMPAIRMENT LOSS = CARRYING AMOUNT – RECOVERABLE AMOUNT.
  • IF ASSET IS NOT INDEPENDENT, THEN IMPAIRMENT SHOULD BE ASCERTAINED FOR CASH GENERATING UNIT TO WHICH THE ASSET BELONGS.
  • IMPAIRMENT LOSS CAN BE REVERSED IN SUBSEQUENT PERIOD IF NO LONGER EXISTS.
  • FINANCIAL ASSETS EXCLUDED FROM ITS APPLICABILITY – POSITION REGARDING FINANCE LEASE, HIRE PURCHASE, HYPOTHECATION LOAN ?

RBI - PUNE

tax issues direct taxes
TAX ISSUES - DIRECT TAXES
  • STANDARD VS CBDT CIRCULAR [ NO. 2 OF 2001 ]
  • LESSOR CONTINUES TO CLAIM DEPRECIATION
  • TWO DIFFERENT SETS OF ACCOUNTS REQUIRED
  • VEHICLE LEASING & DEPRECIATION

- COMMERCIAL VEHICLE ENTITLED TO HIGHER DEPRECIATION

- MADAN & CO 254 ITR 445 (MAD.)

DEPT. SLP DISMISSED BY SUPREME COURT IN CIT vs. MGF (INDIA) LTD [2003] 262 ITR 2 [STAT.]

  • DEPRECIATION ALLOWABLE TO HIRER (CBDT CIRCULAR NO.9 OF 1943)

RBI - PUNE

tax issues direct taxes contd
TAX ISSUES - DIRECT TAXES[contd]
  • DUAL METHOD OF RECOGNISING HP INCOME

- CHENNAI TRIBUNAL’S DECISION IN ASHOK LEYLAND FINANCE CASE -80 ITD 560 (CHE.)

  • PROVISION FOR NPA AND ITS ALLOWABILITY

- CHENNAI TRIBUNALS’ DECISION IN OVERSEAS SANMAR DECISION

- AMENDMENT IN 36 (1) (VII)

- WRIT PETITION IN MADRAS HIGH COURT & STAY ORDER.

  • INCOME DEFERMENT ON NPA

- SEC 43D BENEFIT DEPRIVED

- WRIT PETITION IN MADRAS HIGH COURT & STAY ORDER.

- RECENT DECISION OF DELHI TRIBUNAL – TEDCO INVESTMENT & FINANCIALS SERVICES PVT LTD vs. DCIT [2003] 87 ITD 298 [DEL]

RBI - PUNE

slide34

TAX ISSUES - DIRECT TAXES[contd]

  • ADDITIONAL FINANCE CHARGES

- NOTIONAL VS. ACTUAL ACCRUAL

  • SOFTWARE GIVEN ON LEASE

- REVENUE OR DEFERRED REVENUE

  • TDS ON HP FINANCE CHARGES

- NOT APPLICABLE

- INSTRUCTION OF CBDT DATED 16/11/1981.

  • TDS ON INTEREST ON HYPOTHECATION LOAN

- ALL CATEGORIES OF BORROWERS EXCEPT INDIVIDUALS / HUF WITH TURNOVER LESS THAN RS.40 LAKHS LIABLE TO DEDUCT TAX ON INTEREST PORTION OF THE INSTALMENT AT THE APPLICABLE RATES.

  • REPAYMENT OF LOAN IN EXCESS OF RS.20,000/- SHALL NOT BE IN CASH – BORROWERS TO TAKE CARE OF COMPLIANCE OF SEC 269T.
  • TDS ON PUBLIC DEPOSITS

- DECLARATION FOR NON-DEDUCTION OF TDS - FORM 15H BY SENIOR CITIZEN AND FORM 15G BY OTHERS.

- DTAA RATES FOR NRIS

RBI - PUNE

tax issue sales tax hire purchase
TAX ISSUE - SALES TAX HIRE PURCHASE
  • ‘DELIVERY’ - AFTER 46TH AMENDMENT
  • SINGLE POINT LEVY AND LOCALISATION OF `SALE’
  • INTER-STATE FORMALITIES
  • WHETHER FINANCE CHARGES FORMS PART OF TURNOVER - SC DECISION IN JAI BHARAT CASE (120 STC 001)
  • USED HP TRANSACTIONS/HYPOTHECATION – SUNDARAM FINANCE VS STATE OF KERALA – 17 STC 489
  • REPOSSESSION AND SALE.
  • RESALE TAX – MAHARASHTRA (0.5%), KARANATAKA (1.5%) & TAMIL NADU (1%).
  • VAT & ITS EFFECT ON HIRE PURCHASE.

RBI - PUNE

tax issues sales tax lease
TAX ISSUES - SALES TAX LEASE
  • INCIDENCE OF TAX –TAXABLE EVENT – ‘TRANSFER OF RIGHT TO USE GOODS
  • TAXABLE EVENT – EXECUTION OF AGREEMENT IN CASE OF ASCERTAINED GOODS OR DELIVERY IN THE CASE OF UNASCERTAINED GOODS.
  • INTER-STATE AND IMPORT LEASE TRANSACTION – NOT LIABLE FOR TAX UNDER THE STATES SALES TAX LAWS.
  • SALE AFTER TERMINATION - ANY SALE MADE ON NORMAL/ FORECLOSURE OF THE CONTRACT IS A SALE MADE BY THE FINANCE COMPANY TAXABLE, IF NOT SUFFERED LOCAL TAX ALREADY - SALE TO BE MADE NORMALLY TO NOMINEE OF LESSEE
  • CONSEQUENT UPON RECENT CST AMENDMENT, INTER-STATE LEASE TRANSACTION EXIGIBLE TO CST.
  • C FORMS CAN BE ISSUED FOR THE PURPOSE OF PURCHASE OF ASSET FOR LEASING.

RBI - PUNE

tax issues service tax
TAX ISSUES - SERVICE TAX
  • LEVY APPLICABLE TO HIRE PURCHASE & LEASE TRANSACTION W.E.F 16/07/2001.

- SEC 65 (72) (ZM) OF THE FINANCE ACT 1994 & TRU INSTRUCTION DATED 09/07/2001

  • LEVY AT 8% (PROPOSED 10% + CESS 2%) ON FINANCE CHARGES, PROCESSING FEE, DOCUMENTATION CHARGES, LEASE MANAGEMENT FEE.
  • PAYABLE ON RECEIPT BASIS.
  • WRIT PETITIONS FILED CHALLENGING THE CONSTITUTIONAL VALIDITY OF LEVY AND STAY OBTAINED.

- SIHPA & ELAI – STAY IN FORCE

- ALFS & MADRAS HP ASSN – STAY VACATED

  • SC DECISION IN TAMIL NADU KALYANA MANDAPAM ASSN. VS. UNION OF INDIA [2004] 267 ITR 9 [SC] - SUPPORTS OUR ASSOCIATIONS’ CLAIM.
  • LOANS ARE BROUGHT INTO THE TAX NET BY THE FINANCE (NO.2) BILL, 2004. BUT INTEREST SPECIFICALLY EXCLUDED.

RBI - PUNE

kelkar s task force report direct taxes
KELKAR’s TASK FORCE REPORT – DIRECT TAXES
  • TASK FORCE REPORT ON FRBM ACT, 2003, RELEASED ON 16.07.2004.
  • BASIS FOR NEXT YEAR BUDGET PREPARATION.
  • TWO ALTERNATE SETS OF POLICY MEASURES ON CORPORATE TAX REFORM.
  • MAIN DIFFERENCE BETWEEN THE TWO SETS OF MEASURES IS:

- OPTION 1: GRANDFATHER TREATMENT IN THE CASE OF EXEMPTIONS / DEDUCTIONS FOR EXISTING UNITS ON 1ST SEPTEMBER 2004 & DIVIDEND DISTRIBUTION TAX CONTINUES.

- OPTION 2: EXEMPTIONS FOR DEDUCTIONS TO BE PHASED OUT OVER A PERIOD OF 2 YEARS & NO DIVIDEND DISTRIBUTION TAX.

  • COMMON MEASURES – CORPORATE TAX RATES TO BE REDUCED TO 30% FOR DOMESTIC COMPANIES & 35% FOR FOREIGN COMPANIES.

RBI - PUNE

kelkar s task force report indirect taxes
KELKAR’s TASK FORCE REPORT – INDIRECT TAXES
  • AN INTEGRATED GOODS AND SERVICES TAX [GST] IS RECOMMENDED.
  • GST WILL REPLACE EXCISE DUTY, SERVICE TAX, SALES TAX, OCTROI, ENTRY TAX, STAMP DUTIES ETC.
  • UNDER GST BOTH CENTRE & STATES EXERCISE CONCURRENT BUT INDEPENDENT JURISDICTION (GRAND BARGAIN).
  • THREE TYPES OF RATE STRUCTURES PRESCRIBED i.e. STANDARD, FLOOR & HIGHER RATE.
  • STANDARD RATE SHOULD NOT EXCEED 12% & 8% FOR CENTRAL - GST & STATE – GST.
  • SEPARATE SCHEME OF TREATMENT FOR FINANCIAL SERVICES INDUSTRY WHICH INCLUDES ALL REGULATED FINANCE COMPANIES REGISTERED WITH RBI.

RBI - PUNE

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THANK YOU

RBI - PUNE