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*(AAR - Authority for Advance Ruling - Karnataka) Advance Ruling No. KAR ADRG 17/2020, Dated 23rd March, 2020 Clarification required to be sought Whether exemption prescribed under entry number 13 of notification no. 9/2017- integrated tax (rate) dated. 28th June, 2017 can be sought and the lessors (here Ambrish Vasudeva and 4 others) need not charge GST while issuing the invoice for the lease service to M/s. Dtwelve Spaces Pvt Ltd. ? Whether the lease service falls under the Exemption prescribed and can be described as "Services by way of renting of residential swelling for use as residence"? as listed in the aforesaid Notification. Case Overview Sri. Taghar Vasudeva Ambrish have filed an application before the Karnataka Authority for Advance Ruling Goods and Service Tax to sought clarification on GST applicability to Sub-Leasing Services, i.e. whether GST applicable to Sub-Leasing Services would attract Goods and Services Tax. The application have been filed by the applicant for Advance Ruling under Section 97 of the CGST Act,2017 read with Rule 104 of CGST Rules, 2017 and Section 97 of the KGST Act, 2017 read with Rule 104 of KGST Rules 2017 & KGST Rules 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act. Purpose of AAR (Authority of Advance Rulings) To provide certain aid to the taxpayers related to unerring interpretation of the legal provisions under the GST Regime. Applicant's (Sri. Taghar Vasudeva Ambrish) key points He is a proprietary concern registered under the provisions of the GST Act, 2017 Engaged in the business of providing affordable residential accommodation to students on a long term basis (Period starting from 3 to 11 months) Facts represented by Applicant The applicant along with four others collectively has let out a Residential complex to M/s. D. Twelve Spaces Pvt. Ltd which is engaged in the business of providing affordable residential accommodation to students on a long term basis (starting from 3 to 11 months). And the Company is also engaged in providing a host of other services such as maintenance, food, Wi-Fi etc. generally called as a Paying Guest Accommodation. the Company is also engaged in providing a host of other services such as maintenance, food, Wi-Fi etc. generally called as a Paying Guest Accommodation. Schedule II enlists activities to be treated as supply of goods or as supply of services. Entry 2(b) reads as any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services. Under Notification No. 9/2017-Integrated Tax (Rate) dated 28th June, 2017, certain exemptions have been prescribed for specified activities and it provides that: "Services by way of renting of residential dwelling for use as residence" are exempt from GST." Agreement with Students: M/s. DTwelve Spaces Pvt. Ltd. Has entered into sub lease agreement with students for providing residential accommodations with living amenities, security, entertainment facilities for a long stay for a period varying from 3 months to 11 months. Mr. Ambrish Vasudeva along with four others have let out a residential complex to the Company to conduct their business are of the view that GST should be charged for invoices raised towards lease service. Facts of M/s. D. Twelve Spaces Pvt. Ltd. The Company has concluded that Rental accommodation services provided by the Company to the students will not attract GST There would be no GST obligation on the Company in case of lease arrangement with their lessor too (Here Ambrish Vasudeva and 4 others). The lessor should not charge GST to the Company when issuing the invoice for the lease service. Key Definitions relevant to this Case Law Schedule II enlists activities to be treated as supply of services. "Business" - (Section 2(17) of the CGST Act 2017) "business" includes Further any activity or transaction undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities." "supply" - Section 7 of the CGST Act "supply" include all forms of supply such as lease, rental made or agreed to be made for a consideration by a person in the course or furtherance of business. Section 7(1-A) guides in determining whether a supply shall be treated as supply of goods or supply of services as referred to in Schedule II. Key Points discussed by Authority CGST Act and the KGST Act, provisions are the same except for certain provisions. As per Lease Deed: lessors (totally live in number) have collectively leased out their premises to the Company by way of a single agreement. the property consists of "42 room along with the 2400 sq.ft of terrace area" on the execution date. para 7.1 of the agreement shows very clearly that the consideration for the contract is settled at Rs. xxx per month. The consideration payable is paid to the bank accounts at a fixed percentage of that monthly rent. contract is for the entire property and the lessors have pooled their individual properties into a single one para 12 of the agreement also proves that the entire property is let out as the lessee has taken the total property from the lessors and has the right to sub-lease to any third party. applicant is not providing the service in individual capacity to the lessee, but as a part of the group of lessors. Lessors are providing the service of leasing / renting of the immovable property for a consideration due to following reasons: providing the right to use the immovable property without transfer of the ownership of the immovable property. Supply has been defined as – "any lease or letting out of the building including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services." Providing services of leasing of a building for business or commerce to the Company as a group of persons after pooling in their assets. Final Statement by Authority the applicant is not providing service to the Company, but as a part of the group, for the transaction between the Group and the Company, invoice needs to be issued by the Group to the Company. the transaction between the individuals and the Group are a different transactions, as the individuals are distinct from the Group of Individuals. The exact nature of the group cannot be ascertained. applicant himself is not effecting any supply of service to the Company directly. Order by AAR: Advance Ruling No. KAR ADRG 17/2020, Dated 23.03.2020 1. The exemption prescribed under entry no. 13 of Notification No.9/2017 -Integrated tax (Rate) dated 28th June 2017 cannot be sought and the lessors (as an entity) have to charge GST while issuing the invoice for the lease services to M/s DTwelve Spaces Pvt. Ltd, provided they are registered under the GST Act. 2. The lease services does not fall under the exemption "Services by way of renting of residential dwelling for use as residence" as listed in entry 13 of Notification No.9/2017 - Integrated tax (Rate) dated 28th June 2017. Comment by Experts a) Sh. Rajat Mohan AMRG & Associates Senior Partner: "Though ruling has some basic logic to it, still it is expected to open a Pandora's box of litigation for numerous individuals earning passive income". b) Harpreet Singh, partner at KPMG India: "With this ruling, lessors may not have the comfort of presuming GST to be exempt, where end use of the property is residential," Conclusion by AAR GST is applicable on residential accommodation sublet by a tenant. This AAR order dated March 23 is likely to trigger a number of litigations. The exemption prescribed cannot be sought and the lessors have to charge GST while issuing invoice for the lease services." Effects of this Ruling Tax authorities could well begin demanding 18% GST applicable on renting out commercial property from landowners leasing residential hostel-style accommodations to schools, colleges, educational institutions, offices, corporates, or any other establishment. Author View AAR is generally pro-revenue-centric. and is applicable to specific case only Order is binding on the assessee in whose case ruling has been pronounced. This ruling can be challenged at Higher Authority, Appellate Authority for Advance Ruling ('AAAR'). Authority in a view that property given out for sub-renting matched the criteria of a hotel – rooms with attached bathroom and other facilities. Now we need to carefully consider the facts of each case to determine whether the amount paid to a director is with respect to his employment with the company or with respect to an independent professional service in order to determine the liability of GST on such payment. Disclaimer: IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION. Sources: Karnataka AAR Order Copy News Clips Goods and Service Tax Provisions

Income Tax Due Date Compliance Calendar GST Due Date Compliance Calendar #incometax #newgstreturn

APPLICABILITY OF EXTENDED TIMELINE FOR FY 2021-22 Notification No. 18/2022 - Central Tax, dated 28 Sept 2022, is effective from 01st Oct 2022, there is ambiguity over the applicability of the same to FY 2021-22, an immediate clarification from CBIC in this regard is awaited considering the fast-approaching due date for Sept 2022 month.

The capital market today is a reality met in any modern economy. It is a market the necessity of which is unchallengeable, an extremely dynamic and innovative structure, permanently adapting to the economic environment and at the same time an influential factor of it, generating opportunities and to the same extent risk for all categories of participants to the economic activity, being a replica of a national economy to a small scale, but nevertheless especially representative. Tributary to the conditions in which it was formed and developed, the capital market brings together under this syntagma different conceptions. The continental-European conception attributes to this market a more comprising structure, containing the monetary market, the mortgage market and the financial market. In the Anglo-Saxon conception, which the economic practice has also adopted in our country, the capital market is a component of the financial market together with the monetary market and the insurance market. The main objectives of a capital issue are given below. To promote a new company To expand an existing company To diversify the production To meet the regular working capital requirements To capitalize the reverses CAPITAL MARKETS COMPONENTS AND FUNCTION The specificity of this market derives from numerous aspects, but defining and at the same time delimitative in relation to other components of the financial market are the following Traits: It is a market specialized in transactions with medium and long term financial assets, Unlike the monetary market which offers solutions for refinancing through short and medium term capitals; It is a public, open and transparent market, in the sense that anyone can be a participant on this market, without there being notable entry or exit barriers, the transactions having a public character; The dissemination of information on this market, through its volume or, quickness and with the possibility of equal reception by all participants, is probably the best one from the ones existing in the structures of a market economy; The capital circulation vehicle is represented by securities, characterized through negotiability of the price and immediate transferability with very low transaction costs; The transaction is made through intermediaries, who have an essential role in connecting the owners or issuers of securities with the owners of capitals; It is an organized market, in the sense that the transactions are performed according to certain principles, norms and rules known and accepted by participants. In a market economy, the role of the capital market is of first rate. The well functioning of the capital market is vital in the contemporary economy in order to be able to perform an efficient transfer of money resources from those who save towards those who need capital and those who succeed to offer it a higher capitalization; the capital market can significantly influence the quality of the investment decisions. MEANING OF CAPITAL MARKET A capital market is market for securities (Debt or Equity),where business enterprises (Companies) and government can raise long term funds. The primal role of this market is to make investment from investors who have surplus funds to the ones who are running a deficit. Capital Market is a place where different financial instruments are traded between different entities. On one side there are entities that have abundant capital, much more than they require and on the other side, there are entities who need capital for various purposes. Capital markets are used to sell equities (stocks), debt securities. Why do we need the capital market? Capital market is a cog in the wheel of the modern economy since capital markets move money from the entities that have money to the entities that require money for productive use. Which are the most common capital markets? Stock market and Bond market are considered as the most common capital markets. CAPITAL MARKET – STRUCTURE Capital markets structure is made of primary and secondary markets. Primary markets consist of companies that issue securities and investors who purchase those securities directly from the issuing company. These securities are called Initial Public Offerings (IPO). Whenever a company goes public it sells its stocks and bonds to large institutional Investors like hedge funds and mutual funds. The main investors in this type of market are financial institutions, banks, HNIs, etc Secondary markets are places where the trade of already issued certificates between investors are overseen by regulatory bodies. Issuing companies play no part in the secondary market. The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions.”- Seth Klarman FEATURES OF CAPITAL MARKET Serves as a link between Savers and Investment Opportunities: Helps in Capital formation: Long-term Investment: Helps Intermediaries: Rules and Regulations: Indian capital Market The Indian Capital Market is one of the oldest capital markets in Asia which evolved around 200 years ago DEVELOPMENTS IN THE INDIAN CAPITAL MARKET The Indian Capital Markets have been going through various developments over the years and the most significant of them have been listed below: – 1. + 2 Settlement Cycle Currently in the Indian Capital market, the settlement cycle is in the “T+2” cycle. Here, ‘T’ means the trading day, and the ‘T+2’ settlement means the settlement and delivery of the shares takes place on the 2nd trading day after the trade takes place. 2. Ban on Insider Trading Individuals possessing confidential information of a particular company can use the information to unethically profit from the stock markets. SEBI has made it clear and mandatory to restrict all kinds of insider trading in the Indian Capital Markets. 3. Investor Awareness Campaign To make the markets more secure for the investors, SEBI introduced the Investor Awareness Campaign by making an official site for this. 4. New Measures of Risk Management Investments in Capital Markets are exposed to various risks. Though some are systematic risks, others happen as a result of unsystematic market activities. Measures to reduce Price Volatility Circuit Breakers 5. Investigations In case of any violation of the rules and regulations of the SEBI Act 1992, the investigation is carried out by SEBI. ROLE OF SEBI IN INDIAN CAPITAL MARKET With the bloom of the scale of actions in the financial markets, there were a lot of malpractices taking place. Practices like a false issue, delay in delivery, violation of rules and regulations of stock exchanges are on a rise. In order to curb these malpractices, the Govt. of India decided to set up a regulatory body known as the Securities Exchange Board of India (SEBI). The roles and objectives of SEBI are elaborate and have been described as below: SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI fixed the time of trading 9 AM and 5 PM in stock market. SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers. It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market. It can impose the penalties on capital market intermediaries if they involve in insider trading. SEBI sees whether this merge or acquisition is for development of business or to harm capital market. SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges. To develop a code of conduct for the intermediaries such as brokers, mutual fund sellers etc Ensuring the safety of the investments and Protecting the rights of investors. REFORMS IN CAPITAL MARKET OF INDIA The Major Reforms undertaken in capital market of India includes- Establishment of SEBI Establishment of Creditors Rating Agencies Increasing of Merchant Banking Activities FII and performance of Indian Economy Rising Electronic Transactions Growing Mutual Fund Industry Growing Stock Exchanges Investor’s Protection Growth of Derivative Transactions Insurance Sector Reforms Commodity Trading ACTS GOVERNING THE CAPITAL MARKET 1. The Depositories Act,1996 The Act regulates the depositories in Securities. The primary objective of this Act is to ensure free transferability of securities with speed, accuracy and security 2. Securities Contract (Regulation) Act, 1956 The regulatory Act deals in all types of issues related to Stock trading. The Act aims at smooth functioning of the stock exchanges. It prevents any kind of defective transactions. It especially deals in listing of stock exchanges and contracts in securities. 3. Security and Exchange Board of India Act,1992 This Act provides the statutory powers to the SEBI organisation. The Act provides wide powers and scope to the SEBI in order to effectively and efficiently run the capital market. CONCLUSION The Indian capital market has undergone many changes after the challenges and the irreparable loss faced over years. There have been massive and revolutionary changes over years, and some significant changes that have reduced the financial scam cases. There has been a reduction of malpractices of trade over the years. The capital market has made tremendous progress in terms of institution building. They have transformed and developed the lives of investors and market intermediaries. The market has been friendlier by boosting performance and eliminating the challenges.

What if you currently reside in the UK, have invested in India, and are getting profits? Now, both India and the UK may impose taxes on this income. However, you won't be subject to taxation in both nations for the same income because of the DTAA. One of the essential components in any nation's development is tax, and the nation's expansion and growth in every sector depend on input from the citizen. #taxatoin #dtaa #incometax #agreement # What is DTAA, and how does it helps? Taxing the same income or subject matter more than once for the same reason, over the same period, and in the same jurisdiction is known as double taxation. When such income is taxed in two different nations, the total tax obligation will constitute a sizable portion of the overall income. And This may put the taxpayer in a tough spot. The mismatch in tax collection on individual taxpayers' worldwide income drives the demand for DTAA. If someone wants to start a business abroad, they may have to pay income taxes in the country where the income is earned and where they have citizenship or permanent residency. India has signed a double taxation avoidance agreement (DTAA) with multiple countries. The goal of this treaty is to avoid double taxation on the same income Institutions and people who earn money outside their residences. The DTAA (Double Taxation Avoidance Agreement) assists NRIs who work outside of India in avoiding paying double taxes on income earned in India and their residency country. What are the types of relief DTAA? Depending on the type of treaty between the countries, The relief is available in two ways under DTAA. Bilateral Treaties: When two countries form a DTAA agreement, the relief is determined per their mutual understanding. The methods used to grant bilateral relief are; Exemption method: The tax is levied only in one country under this method. Tax credit: The income is taxed in both countries, but the relief is granted in the resident country. Unilateral Relief: The Resident country offers relief when there is no bilateral agreement. What are the benefits of DTAA? There are multiple benefits of DTAA for taxpayers, such as: Tax Exemptions Tax credits Avoiding double taxation on the same income. Lower Withholding Tax, Taxpayers benefit from lower withholding tax since they can pay less TDS on their income from interest, royalties, or dividends in India. Low chances of tax evasion in either the two signatory countries or both. How to claim DTAA benefits in India? The procedure to claim DTAA differs depending on your residence country. Let us see how to claim the benefit in India if your Resident country is different. Depending on how the countries have agreed to the DTAA. A tax residency certificate (TRC) or Form 10F received from the tax authorities of the other nation where the non-resident assessee resides must be submitted. As previously stated, the income will either be wholly exempt or subject to a reduced tax rate. If it is taxable under the DTAA agreements, the non-resident assessee must pay the tax in India before claiming a refund against the tax debt in his residence. Also, Tax relief may be requested under Section 90 if there is a DTAA with the country, or If there is no DTAA, tax relief under Section 91 may be requested. What are the documents required for an NRI to claim the benefit? To take advantage of the tax benefits offered by the DTAA, non-resident Indians who live in any of the DTAA nations must timely submit the following documents each fiscal year by the deadlines: Indemnity or self-declaration form Tax Residency Certificate PAN card copy (self-attested) Self-attested visa Passport xerox(self-attested) PIO proof copy Also, to request a Tax Residency Certificate under sections 90A and 90 of the Income Tax Act, Form 10FA. The certificate will be issued under Form 10FB following the application's successful verification and processing. The DTAA (Double Taxation Avoidance Agreement) helps NRIs who work abroad avoid paying double taxes on income earned in both their residency and India. Its main goal is to allow taxpayers in these nations to avoid paying taxes on the same income twice.

In this article author has tried to brief the procedures to be followed while conducting a statutory audit in a brief manner: There are lots of audit procedures which are required to be followed as per various standard on auditing. Please refer Standard on Auditing and Guidance Note issued by ICAI for different audit procedures. Some of them are as follows: #audit #taxservices #auditing #tax #finance #management #statutoryaudit Please read audit assertion as given in SA 315 for which link is given below. Complete set of financial statements in accordance with Accounting Standard including BS, P&L, CFS, notes to accounts and Accounting policies Copy of All information's sent to ROC during the period till March 2022 and all filings made. List and transactions with Related parties for the FY 2021-2022. Please map these to ledgers of the respective related parties to demonstrate completeness. Last year Statutory & Tax Audit report and ITR Management representation letter, Cash certificate, Bank Statement signed from respective banks Assets and Inventory physical verification report Direct confirmation as per SA 505 from third parties Banks, Debtor & Creditors List of additions and deletions during the year in Fixed Assets Advance Tax Challan if any 26 AS- reconciliation of TDS assets appearing in the books with Form 26AS. And explanations for variances Aging of debtor and creditors Bank reconciliation statement for all the banks along with the subsequent clearance date as per the bank statement Fixed Deposits Schedule and All FD Certificates. Details of capital structure of the Company during the year, along with the copies of statutory forms filed Repayment schedule of loan from banks or financial institution Ageing details of trade payables Statutory dues payable- Challans for subsequent payment, Reconciliation with the returns filed and trial balance and Returns filed with respective authorities Details of all contingent liabilities along with supporting documents Reconciliation of sales and purchase from GST portal and duties and taxes Vouching of Various account balances and transaction List of all debit and credit notes Salary sheets, reconciliation and working of ESI, PF, Gratuity etc. with challan deposited and return filed with respective authorities CARO and IFC will cover in another article Please refer page number 40 & 41. Link for Audit Assertion is given below: Disclaimer: The information provided by the author in the article is for general informational purposes only. All information provided is in the good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information in the article.

The term 'litigation' is officially defined as the process of taking legal action in a court of law. There are two main types of tax litigation - Direct Tax and Indirect Tax. GST Litigation falls under the indirect tax litigation in India. In this article, we will discuss the basics of GST litigation and how to deal with it. What is GST Litigation? When a taxpayer files a GST return, there are several things that get converted to litigation later on which may be related to claiming ITC and GST refunds. In simple words, GST litigation includes all the litigation like carry forward of transitional credits from the previous indirect tax system, eligibility for the input tax credit on various goods/services and denial of refund claims, non or short payment of output tax liability. The taxpayers must be aware that they are prone to the risk of being audited by the tax authorities during which all their tax positions, payments and compliances would be verified. Further, the revenue department has the necessary infrastructure to conduct such audits in a seamless manner. Moreover, the litigation process and conducting of audits are governed by the GST Act and rules made thereunder. In case of defaults noticed during audits, penalties would be levied. Interest implications could also arise for non-payment or short payment of taxes. In a situation where the taxpayers do not agree with the outcome of audits or assessments, a fair appeal mechanism is in place. Such appeal mechanisms are independent and unbiased towards the parties. Types of Notices that GST department can issue Pre-Litigation Notices under Section 61: Scrutiny of Returns Section 65: Notice to Conduct Audit by tax authorities Section 66: Special Audit by Chartered Accountant appointed by Tax authorities Section 67: Inspection, Search & Seizure . Section 70: Summons litigation Notices under Section 73: Show Cause Notice (SCN) for Demand under Normal Period - Can be issued within 33 months of the GSTR-9 due date. Section 74: SCN for Demand under Extended Period - Can be issued within 54 months of the GSTR-9 due date Section 76: Notice for the demand of Tax collected but not deposited Other Notices under GST Litigation Blocking of Credit under Rule 86A - 20%/10%/5% ITC Rule - 2A Reco Notice under Sec 79 for remitting - outstanding amount due to a Vendor - to the department on account of Vendor default E-Way Bill Notices Investigations by: Intelligence/Preventive/Anti- Evasion/CAG What is the GST Litigation Process? The assessee can follow the below process in order to streamline multiple ongoing cases/litigations. Analyzing the Notice/ SCN/ Order: After receiving the notice or show cause notice (SCN) from the GST department, it is important for the company to analyze it and verify it. Briefing the company and discussing the way forward: The next step is to prepare the company brief and decide how to deal with the notice, and make a plan of action to ensure defending the company at all costs. Collating required data/information/reconciliations: In order to prove your company's case, you will need a lot of pieces of evidence, documents, data and related information that you need to collate and produce before the officials. Verifying and Validating the aforesaid data/information: After collecting the data, it is also necessary to verify and validate it so as to maintain accuracy. Drafting suitable Reply/Appeal after in-depth research for legal precedence: Once the information and documentation is in place, now you need to draft a suitable reply to the notice received. Submitting the Reply/Appeal: Once the reply or your appeal is ready, you need to submit it to the department. No Appearance before Adjudicating Authority/Commissioner (A)/Tribunal: The last part of the process is taking part in the case appearance before the Adjudicating Authority to defend your case.

A special notice from a member of the company proposing an ordinary resolution for removing the director is necessary. Send forthwith a copy of the special notice to the director proposed to be removed. Decision to call a general meeting through the Board resolution. Issue notice of the general meeting in writing at least twenty-one clear days before the date of the meeting informing about the special notice and proposing the ordinary resolution for removal. In the notice of the meeting, state the facts of the representation made by the director concerned and also send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after the receipt of the representations by the company). If the representation is received too late and it could not be sent to the members, the director concerned may require that the representation shall be read out at the meeting. The director concerned has also the right of being heard at the meeting. However, the National Company Law Tribunal on an application of the company or any other person who claims to be aggrieved, on having satisfied, may dispense with the procedure of sending a copy of representation and reading thereof at the meeting if it is being used to secure needless publicity for defamatory matter. In case of listed company, send notice of the general meeting to the stock exchange(s) within 24 hours of the occurrence of the event where the company is listed [Refer regulation 30(6) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015]. Hold the general meeting and pass the proposed resolution by ordinary resolution. In case of listed company, forward a copy of the proceedings of the meeting within 24 hours of the occurrence of the event to the stock exchange(s) where the company is listed. The company has to file particulars of director in Form DIR – 12 with the Registrar of Companies within thirty days of the removal after paying the requisite fee electronically. For the purpose of filing Form DIR – 12, the following attachments are required: (a) Notice of resignation; (b) Evidence of Cessation; (c) Interest in other entities; Ensure that said Form is digitally signed by managing director or manager or secretary of the company and also certified by a Company Secretary or Chartered accountant or Cost accountant in Whole time practice by digitally signing it. The particulars of the director and other aspects of the director have accordingly to be modified in the registers maintained under Sections 170 and 189. Give a general public notice in newspaper regarding removal of the director if it is so warranted for the protection of the company and benefit of the general public.

SHORT SUMMARY In exercise of the powers conferred by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 ("CA, 2013"), the Central Government, vide Notification GSR 700(E) dated 15th September2022 has amended the Companies (Specification of Definitions Details) Rules, 2014 which shall come into force on the 15thSeptember, 2022. Earlier MCA has made amendment in definition of Small Company w.e.f. 01st April 2021. It seems that MCA frequently amending the definition of Small Company to provide many advantages to Corporates. This move of MCA is expected to lighten the compliance burden of about 400,000 companies in India. The move is likely to get more companies under the 'small' category and benefit them in terms of the compliance requirements. As due to this move, many Companies will get exemptions of so many compliances of Companies Act, 2013. This move would benefit Start-ups in India. Therefore, we can state that the decision to amend the definition of small company is a pragmatic and growth-oriented step of the government. Small Company "Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner. LIMITES TO IDENTIFYING SMALL COMPANY: The concept is furnished by the Companies Act, 2013 that defines a Small Company- I. Meaning of Small Company - AS ON 01.04.2014 Small companies mean a company, other than a public company which has: - Paid up share capital of not more than 50lakhs rupees and Turnover of which as per its last profit and loss account does not exceed 2 crore rupees. II. Meaning of Small Company - AS ON 01.04.2021 Small companies mean a company, other than a public company which has: - Paid up share capital of not more than 2 Crore rupees and Turnover of which as per its last profit and loss account does not exceed 20 crore rupees. III. Meaning of Small Company - AS ON 15.09.2022: New Definition Small companies mean a company, other than a public company which has: - Paid up share capital of not more than 4 Crore rupees and Turnover of which as per its last profit and loss account does not exceed 40 crores rupees. A Small company demands no form to transform itself into a non-small Company A small company is not mandated to file any form to convert itself into a non-small company.Until the Company is under the eligible bracket of a small company definition, it will continue to be a small company. When the Company crosses the limits given in the definition, the Company will spontaneously be converted to a non-small company. Individual traits of a Small Company Inferior profitability and earnings: Finite Employees: Smaller Market Area Fewer locations: Fewer locations Advantages of a Small Company to Corporates 1. Fewer Mandatory Board Meetings Every Small Company shall hold a minimum number of Two meetings of its Board of Directors every year in such way that the Minimum gap between the two meetings should not be Less than 90 (Ninety) days. {Section 173} In Case of Non-Small Company, it is required to hold four Board Meetings in a year. 2. No CARO needed As per provisions of the Companies Act, 2013, Small Companies are not mandated attach CARO Report along with Auditors Report. Therefore, Auditors of small Company no need to prepare CARO. Quick Bite: If Turnover of Company was Rs. 35 Crore as on 31.03.2022. Whether such Companies Needs to prepare CARO report along with Auditor Report for FY 2021.22. 3. No Cash Flow Statement needed As per provisions of the Companies Act, 2013, Small Companies are not mandated to frame the Cash Flow Statement as part of Financial Statement. 4. E-forms Certifications: As per the provisions of the Act, there is no necessity of certification of the the e-forms of a Small Company from Professional (CA/CS/ADV). 5. Abridge Directors report MCA, by amendment in the Companies Act, 2013, has introduced the abridged format of the Directors' Report for a Small Company. There will be less disclosures in the Director's Report of a Small Company with the introduction of the Abridge Director's Report. Directors Report of Small Company shall be prepared as per Rule 8A of Section 134 of Companies Act, 2013. In other words, Directors Report of Small Companies are not required to give disclosures as mentioned in Section 134(3). 6. No IFC Reporting A Small Company is not required to report the Internal Financial controls and the operating effectiveness of the company in its Audit Report. 7. Lesser Penalties (446B) Notwithstanding anything contained in this Act, if a penalty is payable for non-compliance of any of the provisions of this Act by a small company or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be. 8. Rotation of Auditor (139(2)) Provisions of Section 139(2) concerning to rotation of auditor are not applicable on a Small Company.There is no obligation on a Small Company tochange the auditor by rotation. An auditor firm or individual auditor can obtain charge as auditor in small Company ever after 5years or 10years of appointment as well. Key Takeaway about Small Company Only a Private Company can be classified as a Small Company. If a Company doesn't cross the mentioned limits, yet, such a Company is a holding Company or a Subsidiary Company of any other Company, then such a Company cannot be regarded as a Small Company. A Public Company cannot be a Small Company. A Section 8 Company cannot be a Small Company. CONCLUSION The government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies. In recent times, the government has taken various measures, including Decriminalisation of various provisions under the Companies law, to further improve the ease of doing business in the country.

The MCA vide its Notification No. G.S.R. 700(E) Dated 15th September, 2022 has yet again revised the definition of Small Company [Section 2(85) of The Companies Act, 2013]. Accordingly, the definition of Small Company under section 2(85) shall be read as under: Small Company means a company, other than a public company- paid-up share capital of which does not exceed four crore rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees and turnover of which as per profit and loss account for the immediately preceding financial year does not exceed forty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees: The focal point of this definition which is often not paid attention to is that the turnover criteria is to be seen for the immediately preceding financial year. Provided that nothing in this clause shall apply to- (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act; Note: It is to be noted that the amended provisions are applicable with immediate effect i.e., from 15th September, 2022 onwards. It is also pertinent to note that this is the second amendment to the definition of Small Companies in the last 18 months. Earlier, the definition was amended in the Budget 2021 which was effective from 1st April, 2021. A simple comparison of the new and old definitions of a Small Company is explained hereunder- The idea of the government seems to increase the pool of small companies by 10-20% and the higher thresholds will allow several start-ups to avail the lenient regime," said Sanket Jain, partner, Pioneer Legal. How does it impact the Ease of doing Business? The basic idea behind the concept of recognition of small companies is reducing the compliance burden leading to improvement in the Ease of Doing Business. Let us look in detail, with the relevant provisions under play, the exemptions that the small companies have been provided under the Companies Act, 2013- 1. No need to prepare Cash Flow Statement as a part of Financial Statements As per the proviso to section 2(40) of the Companies Act, 2013 which deals with definition of "Financial Statement", "the financial statement, with respect to One Person Company, Small Company and dormant company, may not include the cash flow statement" Hence, a Small Company is not required to prepare Cash Flow Statement as a part of its Financial Statements. 2. Exemption to CARO 2020 Reporting (Caution!) The Ministry of Corporate Affairs (MCA) issued Companies (Auditor’s Report) Order, 2020 (CARO 2020) applicable for each report issued by auditors of specified class of companies under section 143 of the Companies Act, 2013 for financial year commencing on or after 1st April, 2021. The Order provides that it shall not apply to: (i) a banking company; (ii) an insurance company; (iii) a company licensed to operate u/s 8 of the Companies Act; (iv) a One-Person Company as defined in Sec. 2(62) of the Companies Act and a Small Company as defined in Sec. 2(85) of the Companies Act; and (v) a private limited company, not being a subsidiary or holding of a public company, having a Paid-up capital & Reserves & Surplus not more than Rs. 1 crore as on the balance sheet date, and which does not have total borrowings exceeding Rs. 1 crore from any bank or financial institution at any point of time during the financial year, and which does not have a total revenue as disclosed in Schedule III to the Companies Act, 2013 (including revenue from discontinuing operations) exceeding Rs. 10 crore during the financial year as per the financial statements. If a company is covered under the definition of Small Company, it will remain exempted from the applicability of the Order even if it falls under any of the criteria specified for private company. Important considerations in relation to the provisions of CARO Reporting and Small Companies definition: The limit of Rs. 4 crores as per 2(85) (Small Company definition) is for Paid Up Capital, whereas the limit of Rs. 1 crore in case of CARO Reporting is the combined total of Paid Up Capital and Reserves and Surplus. The turnover limit of Rs. 40 crores in case of Small Company definition is to be checked for the immediately preceding financial year, whereas the limit of Rs. 10 crores is to be checked during the financial year. 3. Mandatory rotation of auditor not required As per section 139(2) of the Companies Act, 2013, which deals with the mandatory rotation every 5 years (individual auditors) and every 10 years (firm of auditors), in case of certain prescribed classes of companies, this rotation requirement is not applicable in case of Small Companies and One person companies. 4. An Auditor of a Small Company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the Auditor’s Report. As per provisions of Section 143(3)(i) of companies Act, 2013, the Auditor Report shall state whether the Company has adequate internal financial controls system in place and comment on the operating effectiveness of such controls. MCA vide its notification dated 13th June 2017 provide exemption from Internal Financial Controls to prescribed classes of private companies which includes a one person Company (OPC) or a Small Company, provided it has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the ROC. 5. Holding of only two board meetings in a year As per Section 173 of the Companies Act, 2013, which deals with meetings of Board- "A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days." 6. Advantage of preparing and filing an abridged annual return By the amendment w.e.f. 5th March 2021, in the Companies (Management and Administration) Rules, 2014, sub-rule (1) of Rule 11 has been substituted for – "(1) Every company shall file its annual return in Form No. MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file annual return from the financial year 2020-2021 onwards in Form No. MGT-7A." One of the key highlights of Form MGT-7A is that Details of directors and KMP i.e., the composition of the board of directors, details of directors and KMP are not required in the abridged form. Also, where other companies require providing details of remuneration to directors and key managerial personnel, small companies are required to provide details of the only aggregate amount of remuneration drawn by directors in their annual return. 7. Annual Return of the company can be signed by the company secretary, or where there is no company secretary, by a director of the company What this essentially means is that in Form MGT-7A, there is no mandatory requirement of pre-certification of Company Secretary. Instead, a self-certification of directors would be sufficient. 8. Lesser penalties for small companies As per Section 446B of the Companies Act, 2013, f penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, Small Company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, shall be liable to a- penalty which shall not be more than one-half of the penalty specified in such provisions – subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person.

In layman language, Internal control is a proactive approach that balance risk and control in the company & helps to achieve its objectives. Internal control may also be defined as a process comprises of Organisation, People and Information Technology. In other words, Internal control is a process that is affected by Organisation, people and information technology, which is designed to protect the organisation against risk of fraud, non-compliances & scams. What does effective internal control provide? Ans: Operational effectiveness Prevention & detection of fraud Reliability of financial information Reasonable assurance for safeguarding the assets whether physical or intangible. Compliances with laws and regulations FEATURES OF INTERNAL CONTROL Helps business in explaining opportunities Ensuring that an organisation is not unnecessarily exposed to avoidable risk Ensures that information used within organisation & for publication is reliable Whether the scope of internal control restricted to financial control only? Ans: No, financial control is a part of internal control and internal control is a wider term because it is at the organizational level. It also includes - Administrative control Accounting control Operational control of Management control CLASSIFICATION OF INTERNAL CONTROL Internal control can broadly be classified into two categories i.e. Accounting or Financial control - It comprises of all plan or method or procedures of the organisation which safeguard the assets & reliability of financial information of an organisation. It aims at ensuring:- Authorisation & Approval Separation of duties concerned with Book keeping & accounting reports. Physical Controls over assets Internal Auditing Internal checks Accounting control and internal control are same? Ans: Internal checks, internal audit, quantitative controls, budgetary controls etc. can be said to be a part of the Accounting Controls, in so far as they deal with quantitative aspects. On a wider footing, accounting controls, operational controls, policy planning/review, reporting etc. can be said to be a part of Internal Control. It can safely be said that scope of internal control is much wider than that of accounting controls. Administrative or Operational control Administrative control are very wide in their scope they include all other managerial control concerns with decision-making process. They include control such as Time and Motion study Quality control through inspection Performance budgeting Accounting Performance evaluation COMPONENTS OF INTERNAL CONTROL 1. Control environment: It describes a set of standards, processes, and structures that provide the basis for carrying out internal control across the organization. According to the Institute of Internal Auditors (IA), a control environment is the foundation on which an effective system of internal control is built and operated in an organization that strives to- achieve its strategic objectives, provide reliable financial reporting to internal and external stakeholders, operate its business efficiently and effectively, comply with all applicable laws and regulations 2. Entities risk assessment process: The risk assessment forms the basis for determining how risks will be managed. A risk is defined as the possibility that an event will occur and adversely affect the achievement of organizational objectives. Risk assessment requires management to consider the impact of possible changes in the internal and external environment and to potentially take action to manage the impact. 3. Information system including the related business process relevant to financial reporting & communication: Information is obtained or generated by management from both internal and external sources in order to support internal control components. Communication-based on internal and external sources is used to disseminate important information throughout and outside of the organization, as needed to respond to and support meeting requirements and expectations. The internal communication of information throughout an organization also allows senior management to demonstrate to employees that control activities should be taken seriously. 4. Control activities: Control activities are actions (generally described the organization starting at the board level and senior in policies, procedures, and standards) that help management mitigate risks in order to ensure the achievement of objectives. Control activities may be preventive or detective in nature and may be performed at all levels of the organisation. 5. Monitoring of controls: These are periodic or ongoing evaluations to verify that each of the five components of internal control, including the controls that affect the principles within each component, are present and functioning around their products. Why are Internal Controls important? Ans: Internal controls are the mechanisms, rules, and procedures implemented by a company to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud. Besides complying with laws and regulations and preventing employees from stealing assets or committing fraud, internal controls can help improve operational efficiency by improving the accuracy and timeliness of financial reporting. The Sarbanes-Oxley Act of 2002, enacted in the wake of the accounting scandals in the early 2000s, seeks to protect investors from fraudulent accounting activities and improve the accuracy and reliability of corporate disclosures. LIMITATIONS OF INTERNAL CONTROL No matter how well your internal controls are designed, they can only go so far as to provide reasonable assurance that objectives are being achieved. While internal controls are effective in preventing, detecting and rectifying many problems, they cannot provide organizations with absolute assurance. This means that internal controls can't detect and prevent all cases where problems may exist. There will always be unforeseen circumstances for which internal controls simply can't compensate. Here are some of the most common inherent limitations of internal controls: Human error Breakdown Management override Collusion Unforeseen circumstances "One common internal control framework is the Committee of Sponsoring Organizations (COSO) framework, known as Internal Control-Integrated Framework. The COSO framework provided the first common definition of internal control: "a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting and compliance." Strong internal controls can improve efficiency and ensure accuracy in financial reporting during external and internal audits.

An income tax raid is an operation of search and seizure which is conducted by the income tax department on the business or residential premises of taxpayers with an objective to reveal all the undisclosed income of the assesses. This is one of the most important powers given to the Income Tax Department whereby the tax authorities can exercise their right to conduct raids on individuals or groups who are suspected of evading tax during the financial year in any manner. Objectives Of Income Tax Search and Seizure The Income Tax Department exercises its right of search and seizure due to the following reasons: To ensure to avoid any threat to social security or integrity of the country by smuggling, public disorder, fraud, terrorism, etc. To address any problems and issues that may arise due to tax evasion and avoidance of tax To unearth or reveal any black money held in the custody of the assessee exceeding the value of Rs. 1 crore To uphold the provisions of laws laid down by the constitution of India Where the department has acquired any information relating to tax evasions by any state or central government law enforcement agency. Who Can Conduct a Raid? According to Section 132(1) of the Income Tax Act, the Additional Director, or Additional Commissioner, or Joint Director, or Joint Commissioner, or Assistant Director, or Deputy Director, or Assistant Commissioner, or Deputy Commissioner, or any other income-tax Officer on being authorized by Principal Director General or Director-General, or Principal Director or Director, or Principal Chief Commissioner or Chief Commissioner, or Principal Commissioner or Commissioner can conduct a tax raid if he has a "reason to believe" that A taxpayer has failed to comply with any summons or notices sent to him by the Department or He has in his possession either wholly or partly any income or property which has not been disclosed while filing his ITR. Powers of Tax Authorities During a Raid The officer authorized to carry out the raid can: Enter and search any building, place, etc. where he has a reason to suspect that any valuable article or thing which has been undisclosed is kept. Break the locks, where the keys are unavailable. Carry out a personal search of a person or seizure of several items which is suspected to have some disclosed items in possession Take extracts or copies of the books of account and other relevant documents. Make a note or inventory of the valuables found during the search. Rights Of an Assessee During a Raid To insist on the personal search of ladies being taken only by a lady, with strict regard to decency To have at least two respectable and independent residents of the locality present in the premises as witnesses To call a medical practitioner in case of emergency To allow the children to go to school, after checking their bags To have meals, medicines, etc. at the normal time To have a copy of the panchanama together with all the relevant annexures To have a copy of any statement that can be used against him by the Department. Rights Available to The Person After the Raid If an assessee feels that he or she has been wrongly raided by the income tax department, he or she can challenge the raid carried out by filing before the Commissioner of Income Tax (Appeals). The person can even file a writ petition of Mandamus with the High Court under article 226 of the constitution. After the Income Tax Department has conducted a seizure of all documentation or undisclosed property under suspicion, it can re-conduct an assessment for the six years prior to the conclusion of the raid for any reason it deems fit. The author Sushant Gangurde is a legal analyst who aims to educate people about various tax laws and financial planning.