Category: Abstract

Promoting Timely Payments to MSMEs in India: A Look at Budget 2023-24

The Indian government has been taking various steps to promote the growth and development of the Micro, Small, and Medium Enterprises (MSME) sector as it plays a crucial role in the Indian economy by contributing significantly to employment, production, and exports
In the recent Budget 2023-24 speech, Finance Minister Nirmala Sitharaman proposed to insert a new clause in section 43B to incentivize timely payments to MSMEs.

The proposed clause (h) in section 43B of the Income Tax Act provides that any sum payable by an assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act 2006, shall be allowed as a deduction only on actual payment.

The MSMED Act 2006 defines the time limit for payments as 45 days from the date of acceptance or the date of deemed acceptance of any goods or services.

The new clause in the Income Tax Act is expected to not only promote timely payments to MSMEs but also increase their bargaining power in negotiations with larger businesses.

However, identifying MSME vendors can be challenging due to the frequent changes in turnover limits and the migration to the UDYAM certificate.

To address this issue, the introduction of Firmway’s MSME confirmation software comes as a great relief for enterprises. The software helps enterprises identify the MSME status of their vendors, collect UDYAM certificates, and validate them using OCR technology.

By using Firmway’s software, enterprises can ensure that they are not only making timely payments to MSMEs but also saving them from incorrect information pass by MSME vendors.

The software streamlines the process of identifying MSMEs, eliminating the need for manual verification, and reducing the chances of making mistakes.

In conclusion, the Indian government’s initiative to promote timely payments to MSMEs and Firmway’s MSME confirmation software go hand in hand in promoting the growth and development of this vital sector. The software provides a simple and efficient solution to the challenge of identifying MSME vendors and helps enterprises take advantage of the tax benefits offered by the government.

• Data collection with customized forms and follow-ups
• MSME confirmations to help you know whether an entity is an MSME or not

It is time for all our readers to accelerate processes in their respective companies through efficient automation. Click here if you wish to take help.

What is Business Process Automation?

Business Process Automation (BPA) is the use of technology to automate business processes and reduce human intervention. It basically automates the workflows of the enterprise to make it faster and more efficient. Automated business is the key digital transformation strategy for today’s businesses. A BPA solution can help businesses as:

• It automates repeatable tasks so that employees can focus on more productive tasks.
• It replaces manual tasks that are prone to human errors. Thus, it increases the accuracy of the tasks.

Types of Business Process Automation

It is upon the organization to decide the level of automation it wants to achieve. Following are the four different types of Business Process Automation that organizations can implement:

• Basic Automation: This involves automating simple and fundamental tasks using basic automation tools. It involves little to no coding and eliminates errors and accelerates the process. Automating file transfer, order entry etc. are examples of basic automation.
• Process Automation: Process automation involves automating business processes for bringing transparency and uniformity. This is handled by dedicated software that enhances productivity and efficiency while also providing valuable insights into the business. Automating the hiring process, employee onboarding, logistics and supply chain management etc. are examples of process automation.
• Advanced Automation: Advanced automation supports more complex processes within the organization. It further coordinates between humans and machines to handle complex tasks. ­­­­­­It relies on machine learning, natural language processing and analysis, etc. for automating business processes. Safety monitoring, error detection and recovery, and repair diagnostics are some examples of advanced automation.
• Intelligent Automation: Powered by Artificial Intelligence, business intelligence automation enables the machine to learn and stimulate human intelligence and make decisions accordingly. Intelligent automation has use cases in several industries. It can pull data from the database, update records etc. Further, it can be used by insurance companies to extract data from claims form and port information to the CRM.

Benefits of Business Automation

Achieving automation with the best automation software for business can unlock the following benefits:

• Lower Operating Costs: As business automation automates manual and redundant tasks, it directly reduces the operating costs of businesses.
• Faster ROI: Automated business improves the speed of operations and processes. This provides a better and faster return on initial  investment in automation.
• Being More Competitive: To remain competitive, it is important that businesses improve operational efficiency and focus on their core competencies and what’s important for meeting the objectives. For this, automation is the key.
• Reduced errors and increase in speed: Business process automation reduces errors due to reduced manual intervention. This further helps in speeding up the reconciliation exercise.
• Increased Profits: Profits tend to increase as the business moves from manual redundant tasks towards more productive tasks.

Business Automation with Firmway

Business automation software that allows you to automate accounting functions. This includes:

• Automating sending manual emails and documenting the response for balance confirmations
• Integrating with ERP for ledger reconciliations
• Unique algorithm enabling businesses to achieve 95% GST reconciliation between the purchase register and GSTR-2B
• Collection management by sending weekly outstanding and automating reminders
• Data collection with customized forms and follow-ups
• MSME confirmations to help you know whether an entity is an MSME or not

It is time for all our readers to accelerate processes in their respective companies through efficient automation. Click here if you wish to take help.

What is the Meaning of Struck Off Companies?

Struck-off meaning implies that the Registrar of Companies (ROC) has removed the name of a company from the register of companies for certain reasons. Once the company’s name is removed from the register, the company loses its legal existence and cannot continue its operations until it restores its name in the register.

The striking of a company’s name can happen either voluntarily or due to a compulsory strike-off by the ROC.

• Voluntary Striking Off: Here, the company decides to shut down its operations and liquidate the company. The company shall file an application with the ROC for dissolution and consequent striking off the name of the company.
• Compulsory Striking Off: If the company fails to comply with the requirements of the law or any rules or regulations made thereunder, the ROC may strike off the name of the company from the register considering the intensity of the contravention. 

Disclosure Requirements for Struck-Off Companies

While we understood the struck-off meaning, it is important to understand the associated disclosure requirements. As per the requirements of the Ministry of Corporate Affairs (MCA), the companies undertaking transactions with struck-off companies are required to disclose their transactions with such struck-off companies beginning from FY 2021-22. Further, they shall disclose their relationships with the company as part of additional regulatory information. The following are the disclosures required:

• Name of the company being struck off
• Nature of transactions. This can include:

1. Receivables
2. Investment in securities
3. Payables
4. Shares held by the struck-off company
5. Any outstanding balance

• Balance outstanding
• Relationship with the company being struck off

Steps to Identify Struck-Off Company on MCA

If you want to identify companies whose name has been struck off from the register, then you can do so by visiting the Ministry of Corporate Affairs website. Follow the below steps to identify the struck-off companies:

1. Visit the MCA portal
2. Navigate as follows: MCA Services >> Master Data >> View Company / LLP Master Data
3. Add a company name or CIN number and enter the captcha
4. Check the status of the company.

How Firmway Identifies Struck-Off Companies?

Finding the struck-off companies from the MCA website can be cumbersome and time taking if you transact with multiple companies. The solution is to identify such companies with Firmway!

Firmway allows you to conduct a bulk search using the list of struck-off companies to help you determine whether the name has been struck off or not. Following are the steps to identify struck-off companies using Firmway:

1. Download the template, Input & upload the party list with the Name or PAN
2. Automate Matching the Name with the list shared by MCA
3. Highlight the risk associated in the percentage
4. Automate scrutinize the data highlighted with the MCA list for 100% verification

Firmway has a data repository storing 1-year data. Its software checks and share the probability % and helps you identify how many companies are there in the list of struck-off companies. Ease your search with Firmway and ensure accurate disclosures!

What, Why & How for the New TDS Rules That Will Be In Effect From July 1, 2021

Background

The Assessment Year (AY) 2020-21 accumulated 6.83 crores Income Tax Returns (ITR) out of a working population of about 66.22 crores. And these are only individuals. With 10.07 lac active companies in India, the number of ITRs filed is alarmingly low.

In order to bring an end to this menace, the Government of India in its Union Budget 2021 has proposed to levy a higher rate of tax deducted at source (‘TDS’) and tax collected at source (‘TCS’) on non-filers of the income tax return.

According to the Finance Minister’s Budget, this new TDS rule will take effect from July 2021.

TO WHOM DO THE NEW PROVISIONS APPLY

-All Companies who are liable to deduct TDS on Vendors

-Companies with a turnover of more than 10 crores who are liable to collect TCS from customers

WHAT DO THE PROVISIONS SAY?

Section 194Q (TDS) & Section 206C(1H) (TCS)

– Section 206C(1H) – w.e.f 01st July 2021, a seller with a turnover of more than Rs. 10 Cr in the previous financial year needs to collect 0.1% TCS on sale made to a resident buyer over and above 50 Lakhs

– Section 194Q – w.e.f 01st July 2021, a buyer having a turnover of over Rs. 10 Crore in a previous financial year need to deduct 0.1% TDS on purchase made from a resident seller over and above 50 Lakhs

Exemptions

Section 194Q shall not apply to a transaction on which:

(a) tax is deductible under any of the provisions of this Act; and

(b) tax is collectable under the provisions of section 206C other than a transaction to which section 206C(1H) applies.

Section 206AB – Escalated TDS & Section 206CCA – Escalated TCS

TDS is to be deducted and TCS is to be collected at twice the rate specified, or twice the rate in force or 5%, whichever is higher, if

– The person to whom payment is being made (Section 206AB) OR to whom the sale is being made (Section 206CCA) has not filed ITR for the last two FY for which the ITR filing deadline has expired, and

– In these two FY’s, TDS deducted and/or TCS collected of that person was Rs 50 thousand or more in each FY.

Exemptions

– Section 206AB shall not apply where the tax is required to be deducted under the following sections of the Act:

CHECKLIST FOR COMPLIANCE

*The above requirement (Pt 1 & 2) is not applicable to vendors.

Further, with ITR acknowledgements and PAN Number, you can search the ITR filing status on the Income-tax website – https://www1.incometaxindiaefiling.gov.in/e-FilingGS/Services/ITRStatusLink.html?lang=eng

As evident from the above checklist, fulfilling compliance with these provisions is no mean task. The most cumbersome part of it would involve reaching out to all customers and vendors, endless follow-ups, validating the data, which is imperative to the compliance process. For large organizations, this could easily take weeks, putting their finance team under undue pressure.

With Firmway, you can save significant time and efforts by automating the entire process of collection of ITR acknowledgements and declarations. It will reach out to all your party, follow up with them, collect and validate the data through smart forms and give you a dashboard to track the response. This will ensure your compliance procedure is complete well within the deadline.

Budget 2021 On Corporate Finance

Budget measures: Direct and Indirect Tax changes

1. Relief granted on dividend income earned by shareholders:
   1. Advance tax liability will now be computed on dividends only after declaration or receipt whichever is earlier;
   2. TDS exemption on dividends paid by SPVs to REITs and InvITs;
2. TDS related provisions have been made more stringent:
   1. TDS at 0.1% to levied on the purchase of goods above INR 5 mn a year, where the turnover of the buyer exceeds INR 100 mn
   2. The rate of TDS/ TCS shall be higher than 2x actual rate, or 5%, in case of non-filing of ITR for the last 2 years
3. Late deposit of employee contribution to labor welfare funds would not be allowed as a deduction to the employer.
4. Tax Audit applicability based on turnover limit has been increased from INR 50 mn to INR 100 mn, with 95% of receipts and payments being digital;
5. GST minor compliance changes – Form 9 substituted with self-reconciliation and Form 9C being scrapped.

Has the Budget made managing Corporate Finance somewhat easier?

1. Relief on dividend income is a welcome move since this helps CFOs to pay dividends more tax-efficiently, making future investments in their companies more lucrative;
2. Additionally, dividend relief to REITs and InvITs shows the government’s commitment to continue providing support to the conglomerates operating in real estate and infrastructure space (eg. Logistics);
3. However, the government seems to be more and more unforgiving to defaults in TDS/ TCs norms. Companies/ CFOs ought to take note and ensure compliances accordingly;
4. With easing of tax audit norms (both income and GST), it has reduced the compliance burden for smaller and subsidiary companies of larger MNC groups, whose turnover is within the limits, helping the CFOs to focus on running financing operations of the group.

Conclusion

CFOs ought to take note of the changes in the Budget and plan their next financial year accordingly. The budget may come off as somewhat bittersweet, however, relief in dividend provisions, including for REITs and InvITs, is an indicator for the government’s push to bring more investment into India. TDS provision becoming more stringent comes as no surprise given the current risk of non-compliance (monetary penalties in addition to the risk of prosecution of managerial personnel of the defaulting companies).

BENEFITS FOR MSME
DEFINITION OF MSME CHANGED (EXISTING AND REVISED DEFINITION OF MSMES)

Existing MSME Classification

Criteria: Investment in Plant & Machinery or Equipment

Revised MSME Classification

Composite Criteria : Investment And Annual Turnover

Major Benefits for MSME

• Collateral Free automatic loan to MSME up to 20% of entire outstanding credit as on 29^th February 2020. Borrowers up to Rs 25 crore outstanding & turnover up to Rs. 100 crore are eligible. Loans for 4 years with a moratorium of 1 year of principal repayment. No guarantees required. Scheme can be availed till 31^st October 2020.
• CGTMSE with the support of 4000 Cr from Govt, will give partial credit guarantee to bank to allow them to give debt to promoters of MSME, who then will infuse the fund as equity.
• 50,000 crore equity infusion for expansion of MSME through Funds of Funds.
• Government will facilitate provision of Rs 20,000 crore subordinate debts for Stressed MSME which are NPA or stressed.
• Receivables from Govt and CPSEs to be released in 45 days.
• Global tenders will be disallowed in Government procurement tender upto Rs 200cr.
• E market linkage for MSME to be promoted.

Tax Changes

• All TDS and TCS rates reduced by 25% for Non-Salaried Resident Payments. Reduction is applicable from 14^th May 2020 to 31^st March 2021.
• All refunds to non-corporate business & profession to be issued immediately.
• All Income tax returns due date extended to 30^th November 2020.
• Tax audit due date extended to 31^st October 2020.
• All assessment getting barred on 30^th September 2020 extended to 31^st December 2020
• All assessment getting barred on 31^st March 2021 extended to 30^th September 2021
• Vivid Se Vishwas Scheme extended to 31^st December 2020 without any additional payments.

EPF Benefits

Establishment Under Pradhan Mantri Garib Kalyan Package (PMGKP):

• EPF relief extended for the month of June, July & August and will be paid by Government.

Other Establishment covered by EPFO

• Statutory PF contribution of both employer and employee will be reduced to 10% from 12% for next 3 months (except CPSEs & PSU’s employer’s contribution).

NBFCs

• Government will launch a Rs 30,000 crore Special Liquidity Scheme for NBFCs/HFCs/MFIs. Under this scheme investment will be made in both primary and secondary market transactions in investment grade debt paper of NBFCs/HFCs/MFIs. Securities will be fully guaranteed by Government.
• Rs 45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFCs/HFCs/MFIs. First 20% of loss will be borne by Government. AA paper & below will be eligible for investment.
• PFC/REC to infuse liquidity of Rs 90,000 cr to DISCOMs against receivables
• Central Public Sector Generation Companies shall give rebate to Discoms which shall be passed on to the final consumers (industries).

RERA

• Treat COVID-19 as an event of ‘Force Majeure’under  RERA.
• Extend the registration and completion date suo-moto by 6 months.
• Regulatory Authorities may extend this for another period of upto 3 months, if needed.
• Issue fresh ‘Project Registration Certificates’ automatically with revised timelines.
• Extend timelines for various statuary compliances under RERA.

Contractors

• PSU contracts to be extended for upto 6 months so that contract may be completed including for PPP contracts.

One of the most unprecedented order in the country “Price Waterhouse banned from auditing listed firms for 2 years”

SEBI on January 10, 2018, has barred all 11 Price Waterhouse (PW) firms practicing as Chartered Accountants in India from issuing audit certificates and compliance certificates for listed companies and intermediaries for two years.

SEBI has also imposed penalty of Rs.13 crores along with 12% interest in wrongful gains by Price Waterhouse and its two erstwhile partners S Gopalakrishnan & Srinivas Talluri

Few findings from the investigation carried out by SEBI in Satyam Computers Services Limited (SCSL) wherein “systemic problem” in the audit processes were noted, have been excerpted below:

1. Inflated cash/bank balances of Rs 5,040 crores:

• The auditors did not carry Independent verification of bank statements and fixed deposit.
• The auditors did not maintain necessary control over the process of sending and receiving balance confirmations from banks directly in complete disregard of the Auditing and Assurance Standards (AAS) prescribed by ICAI.
• Even a single copy of balance confirmation request was not sent by them directly to the Bank of Baroda, New York Branch (75% of all current account balances).
• They chose to rely on the balance confirmations received from SCSL which had glaring anomalies and huge differences without any further examination or inquiry into the matter and ignored the balance confirmations received directly from banks which were showing true balances.

2. Inflated sales revenues using 7,588 fake invoices: Sales revenues in the audited accounts were inflated by accounting for 7,561 fake invoices raised in respect of fake transactions and 27 invoices with respect to non-existent customers. 

3. Overstated debtors’ position by Rs.490 crores: The auditors, while conducting the audit of SCSL did not seek external confirmation of debt from the debtors in violation of its own audit manual and various provisions in AAS and the Guidance Note on Audit of debtors, loans, and advances.

SEBI’s order comes into force with immediate effect but for removal of operational difficulties, the order will not impact audit assignments for FY 2017-18. However, Price Waterhouse has said that it is confident of obtaining a stay against the SEBI order.

SEBI’s Order

SEBI has set a strong message that wrong practices and market abuse would not be tolerated in India. We at Firmway strongly believe in supporting auditors in complying to the Auditing Standard as external confirmations are extremely powerful audit practice and are more reliable audit evidence. Over past two years, we have built a robust high-quality audit tool which helps auditors in getting direct confirmation from the parties. Further, to identify and fake entities we also provide verification service. To know more about our services please visit  firmway.in