Tag: Firmway

Mastering 26AS Reconciliation

Mastering 26AS Reconciliation: Proven Ways to make it a Breeze

Understanding the Need for Mastering 26AS Reconciliation

In recent years tax regulations have undergone humongous change. Many of these are being done with the intention of ensuring that all the transactions are duly reported to the Income Tax. Mastering 26AS Reconciliation amidst these evolving regulations.

Department (IT Department). With the help of this information, the IT Department will be able to analyze and catch hold of tax evaders.

Decoding Section 194Q: Mastering 26AS Reconciliation Amidst TDS On Goods

One such change is the introduction of Tax Deducted at Source (TDS) on the purchase of goods vide Section 194Q of the Income Tax Act (IT Act). The introduction of the same has resulted in flooding of the TDS entries in Form 26AS. It is a form which captures details of the TDS deducted and reported for a particular Taxpayer. Further, the IT Department relies on this form before allowing the TDS refund or adjustment of TDS against Income Tax liabilities. Therefore, it has indirectly become mandatory on the part of the Taxpayer to ensure that the Deductor has reported all the TDS in its Form 26AS. However, to identify the same one needs to first identify the Deductor who has not reported the same. Therefore, it has become necessary to reconcile Form 26AS.

However, Reconcile with what other data source?? There are two options 1) TDS ledger and 2) Sales Register. Let’s try to understand how each of these ways works and which one to select for your organization.

1) 26AS v/s TDS Ledger (Approach 1)

In this way, Form 26AS of Taxpayer is reconciled with the TDS receivable ledger maintained by the Taxpayer. This is a direct approach where we are comparing two different data sets capturing the same information.

2) 26AS v/s Sales Register (Approach 2)

In this way, Form 26AS is compared with what TDS should have been deducted for each and every sales line item. Assuming that the Tax Deductor has diligently deducted the TDS, this is an indirect way.

Both approaches have their benefits and drawbacks, so organizations should choose the one that best suits their needs. Below are the areas which one should consider before choosing the approach:

A) Timing of booking of TDS receivable

Most organizations book TDS Receivable at the time of payment receipt. So while doing reconciliation there will also be a date mismatch and in the scenario where there are ‘000s of line items, this becomes difficult to handle when we are opting for Approach 1. However, if linking of payment with invoice is available then Approach 1 can become very easy to implement.

If the organization books TDS Receivable on an ad hoc basis, it shall opt for Approach 2, provided all the other details are available.

B) Reporting pattern of Tax Deductor

Are the Tax Deductor reporting on the basis of the actual date or are they either putting the date of the end of the month or the end of the quarter? Accordingly, one shall select the approach of reconciliation. If the Tax Deductor is clubbing the amount for the quarter or month and just reporting a single line item then in that case just a TAN level month-wise or quarter-wise reconciliation will suffice.

C) Availability of TDS rate for each sales line item

Approach 2 is possible only when one has proper records of the TDS rate applicable on each sales invoice or each line item of the sales invoice. In many cases, when billing services and goods in a single invoice, each line item of the invoice will have a different TDS rate.

Hence, it is crucial to exercise precision when choosing an approach. Selecting the wrong method can elongate the activity and potentially result in repetition.

Future-Proofing Your Finances: Mastering 26AS Reconciliation for Long-Term Compliance

Organizations can also evaluate various software which are available to automate 26AS reconciliation. One such solution is provided by Firmway. Firmway’s 26AS reconciliation software provides both the approach as mentioned above. Moreover, it also provides the option of line level as well as TAN level reconciliation. To know more about Firmway’s 26AS Reconciliation Click here.

Enhancing Accounting Cash Flow: A Journey from Data Gathering to Data Digging

Boosting Cash Flow: The Power of Data Digging in Accounting

Transforming Accounting: From Data Gathering to Enhancing Cash Flow

Traditionally, the role of accounting has always been the data keeper. The Accounts team has always been regarded as both a booster of cash flow and a cost center for businesses, merely maintaining records of Company activities. However, recent developments have assigned additional roles to account teams, altering this perception from mere data recording to actively boosting cash flow. The 21st Century has realized the importance of data and its analysis. Data analysis is not just limited to operation activities. It has also made its presence felt in account function as well. One such data digging exercise we will be focusing on today is boosting cash flow through Ledger reconciliation.

The Impact of Ledger Reconciliation on Cash Flow

Based on the clients that we have served we have observed the following results from the ledger reconciliation activities:

  • Rs 998 cr Vendor unadjusted advances identified.
  • Rs 3,761 cr Debit note raised by Company but not booked by vendor and customers.
  • Rs 2,942 cr invoice was reversed by the vendor even though GST credit was claimed by the Company.
  • Rs 314 cr Credit note issued by vendor but not accounted by Company.
  • Rs 53 cr TDS deducted by customers but not recorded by Company.

All the above can have a direct and/or indirect impact on the cash flow of the Company. If the account team is able to identify such a mismatch on a timely basis and deep dives into it then it can convert itself from a cost center to a profit center.

The Power of Automated Reconciliation

Manual reconciliations, even with Excel – MATCH, HIGHLIGHT, or LOOKUP formulas, bear the risk of human errors. Any inefficiency or deficiency in reconciliation plagues the entire enterprise; it affects the credibility of financials, causes inefficient decision-making, and affects the goodwill of a company. Automated reconciliation is the solution to all the above issues.

Automation can simplify and streamline the tedious reconciliations process. With minimal human involvement, the entire process of vendor communication, follow-ups, tracking, gathering, and summarizing voluminous information works automatically in the background. The added leverage of real-time analytics makes companies proactive and efficient. 

The Role of Technology in Accounting

Above shared observations are the result of use of technology for reconciliation. Therefore, the CFOs and Account teams shall keep adopting the technologies which can help them in analyzing and interpreting the huge data that rests with them.

One such cloud-based automation software is Firmway, started by a team of Chartered Accountants to simplify time-consuming reconciliations. Using the latest technology such as AI, it performs reconciliations at par with industry standards and practices.

Technology makes reconciliations, be it vendor, bank, GST, or TDS, simple and efficient. Furthermore, it simplifies the communication of reconciliation differences through a world-class online action tracker. Therefore, prioritizing the adoption of technology in accounting and reconciliations is crucial for CFOs and Account teams, ultimately leading to a boost in cash flow.

External Confirmations In Audits: Best Practices For Success

External Confirmations In Audits: Best Practices For Success

Consequences of Non-Compliance with SAs

Members of The Institute of Chartered Accountants of India (ICAI) must conduct financial audits following Standards on Auditing (SAs) when fulfilling their attestation function. These standards include procedures for external confirmations. These standards represent widely accepted audit procedures. Deviation from SAs, especially in matters related to external confirmations, necessitates a formal declaration by the member. Failure to do so may lead to disciplinary proceedings under The Chartered Accountants Act, 1949

One such standard is SA 505: External Confirmations. It discusses the use of external confirmations and procedures to obtain direct evidence from third parties as required in SA 330: The Auditor’s Responses to Assessed Risks and SA 500: Audit Evidence

External Confirmation is necessary to provide a true and fair view of a company’s financials. It serves as an extremely crucial piece of the puzzle when determining whether such financials are free from material misstatements or not.

External confirmations

External Confirmations is a substantive procedure used to obtain audit evidence as a direct written response from a third party (customer/ vendor/bank) to the auditor in a paper, electronic or any other form.  Generally, auditors use it to determine account balances, status, or terms of agreements. There are primarily three types of confirmation requests:

1. Positive Confirmation Request:

It requires the confirming party to directly respond to the auditor whether it agrees or disagrees with the information provided in the request. Positive confirmations provide reliable audit evidence.

2. Negative Confirmation Request:

It asks the confirming party to respond directly to the auditor only if the confirming party disagrees with the information provided in the request. They provide less persuasive audit evidence than positive confirmations.

3. Blank Confirmation Request:

It is a type of positive confirmation request where the third party (confirming party) is asked to fill in the amount or provide certain information. It provides persuasive audit evidence since the confirming party must verify the information before responding.

Why external confirmations is needed?

For instance, in Mahavir Jain vs. Disciplinary Committee (Appellate Authority), the auditor formed his opinion without obtaining and examining external confirmations of all bank balances as required by SA 505. Consequently, the Chartered Accountant Act of 1949 held him guilty under Part 1 of the Second Schedule. This was due to his failure to exercise the due diligence expected of him and not obtaining sufficient information to form an opinion.

Further, SA 505 is the 3rd most non-compliant standard as per Quality Review Board in Financial Year (FY) 2020-21.

Process of external confirmations

As we know, obtaining confirmations manually via letters or even e-mails is a cumbersome procedure. One needs to maintain records and follow up continuously. External confirmations involve repetition of the following steps for every audit:

  1. Determine the information to be confirmed;
  2. Choose the appropriate parties;
  3. Design the confirmation requests, properly addressed with a request to send responses directly to the auditor;
  4.  Send and follow-up requests.

To simplify and streamline this process, major firms are adopting automated confirmation procedures. This enables audit teams to concentrate on analyzing results and identifying exceptions rather than investing time in evidence collection.

A team of Chartered Accountants started Firmway, a web-based SaaS software company, to help auditors automate the confirmation process in compliance with auditing standards. They digitized the entire confirmation process. Auditors benefit from automating the time-consuming external confirmation process in the following way:

  • Save 90 % man-days by automating the process of sending, receiving, and tracking confirmations using our portal
  • Complete audit documentation as highlighted in peer review process 
  • Increase response rate by 2x
  • Send 1000+ confirmation requests in compliance with standards on auditing
Section 43B

Understanding the practical applicability of Section 43B MSME payments amendment

Introduction to Section 43B Amendment

The recent Union Budget 2023 stirred discussions, especially regarding the unprecedented inclusion of payments to MSE vendors. This falls within the ambit of Section 43B of the Income Tax Act 1961. Section 43B contains provisions pertaining to “Income from Business and Profession.” It lists all the expenses a given business entity can seek as deductions from their business income only in the financial year when they make the actual payment, disregarding the year when the entity incurred such expenses. Thus, it advocates deduction of spending on an actual payment basis.

Section 43B: An Overview

 The inclusion of payments to MSE vendors in the above regulatory framework strives to address the key issues MSEs counter as a result of prolonged payments. MSEs make up a fundamental segment of the Indian business ecosystem. According to quantitative analysis estimates by the Economic Times, delayed payments to MSMEs in India have resulted in approximately Rs 10.7 lakh crore being held up, which represents around 6% of India’s Gross Value Added (GVA) for the financial year 2020-21. 

MSE Inclusion in Section 43B

The addition of the MSE payments clause (h) in Section 43B can prove as a cornerstone amendment to streamline the payment receipt process for MSE ventures. Business organizations dealing with MSE suppliers, need to duly comprehend the applicability of the amended Section 43B on your payments. You also need to pay attention to the requirements of Section 15 of the Micro, Small, and Medium Enterprises Development Act (MSMED), 2006. The latest Finance Bill 2023 permits the deduction of expense paid to MSEs in line with Section 43B only when it abides by the time limit specified in Section 15 of the MSMED Act 2006. Thus, one can claim deduction on payment to MSE vendors if they are paid within 15 days in cases where there is no agreement. Or 45 days or as per the time period in a pre-defined written agreement, whichever comes first.

Practical Insights and Illustrations

We provide practical insights on the treatment of payments to MSE vendors in various scenarios, assuming a predefined written agreement. Let’s explore specific situations to determine eligibility for deductions on MSE vendor payments based on the new clause addition.

Illustration 1:

A made a payment to a MSE after the time limit set by section 15 of the MSMED Act, 2006, but within the same financial year in which the expense was incurred. 

In this situation, A settled the payment after the specified time limit of Section 15 of MSMED Act, 2006. This activates the revised provisions of Section 43B. However, as the payment was made within the same financial year that the expense was accrued, deduction shall be permitted in that financial year as outlined by the regulations of the Income Tax Act, 1961.

Illustration 2:

Within the specified time limit under Section 15 of the MSME Act, 2006, B completes payment to an MSE and accrues the expense in the same financial year.

The provisions of section 43B of the Act would not apply to the payment that B made to the MSE. In the financial year in which the expense accrued, he will be permitted to take a deduction.

Illustration 3:

C dealt with an MSE where he had expenses that accrued in March 2024. However, he paid the vendor during the subsequent financial year in April 2024, within the deadline specified under Section 15 of the MSMED Act, 2006.

In this situation, C made the payment as per the time limit specified under section 15 of the MSMED Act, 2006. In the financial year 2023-2024, C will be able to calculate the payment in its tax on an accrual basis.

Illustration 4: 

D incurred an expense in the financial year 2023-2024 that was payable to an MSE. However, he settled it in the subsequent financial year, 2024-25. After the expiration of the time limit specified in Section 15 of the MSMED Act, 2006.

In this situation, because D made the payment beyond the time limit specified in Section 15 of the MSMED Act, 2006, and in the subsequent year, 2024-25, D will not be eligible to claim a deduction for that payment in the financial year 2023-2024 when the expenses initially accrued.

Illustration 5:

On March 16, 2024, E received an invoice from the MSE (Micro and Small Enterprise) for the supply of goods. E dealt with the MSE. The delivery person delivered the goods on the same day. On March 18, 2024, E communicated concerns about the quality of the supplied goods to the MSE vendor. Both parties resolved the dispute on April 30, 2024, and E made the payment on May 31, 2024.

Regulatory Compliance

It’s important to note that the disputing party raised the invoice dispute within 15 days of the delivery date. Therefore, the time limit defined in section 15 of the MSMED Act 2006 starts from the resolution of the dispute. E can claim a deduction for the payment in the financial year 2023-24. If E makes the payment within 45 days from the resolution of the dispute when the expenses accrued.

In summary, to ensure timely deductions and optimize your tax liability. It’s crucial to adhere to the regulatory requirements outlined in both the Income Tax Act 1961. The MSMED Act 2006. Failure to confirm your vendor’s MSME registration status could result in disallowed payment deductions and late payment penalties.

Firmway’s MSME Status Confirmation Tool

Collaborate with Firmway to gain an avante-garde solution in the form of an MSME status confirmation software. By using Firmway’s MSME Status confirmation tool, you can seek MSME status from your vendors and verify the same through MSME government databases and OCR technology. It simplifies the process of getting your vendor’s MSME status validation by leaps and bounds. 

Reach out to know more about this software.

Firmway is a SaaS based startup that has successfully automated Balance Confirmation and Ledger Reconciliation, for well-known companies such as Sodexo, Asian Paints, IPCA, Bluestar, Gati Logistics, and 500 more.

MSMEs

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

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

Introduction

The Indian government’s unwavering commitment to promote Micro, Small, and Medium Enterprises (MSMEs) growth remains a cornerstone of economic development. This sector significantly contributes to employment, production, and exports, making it a focal point in the recent Budget 2023-24.

Budget 2023-24 Highlights

In her recent Budget 2023-24 speech, Finance Minister Nirmala Sitharaman introduced pivotal measures, consequently aiming at incentivizing timely payments to MSMEs. Now, let’s delve into the key proposals, thereby shaping the landscape for MSMEs in India.

Understanding the Proposed Clause

A critical aspect of the budget is the proposed insertion of clause (h) in  section 43B of the Income Tax Act. This clause dictates that any sum payable 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 is deductible only upon 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.

Empowering MSMEs

The new clause not only promotes timely payments but also bolsters the bargaining power of MSMEs in negotiations with larger businesses. This is a significant stride towards creating a more equitable business environment.

Challenges in Identifying MSMEs Vendors

Despite these positive developments, identifying MSME vendors poses challenges due to turnover limit fluctuations and UDYAM certificate migrations. The need for a reliable solution is evident.

Firmway’s MSME Confirmation Software

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 efficiently streamlines the process of identifying MSMEs, consequently eliminating the need for manual verification and significantly reducing the chances of making mistakes.

Conclusion

In conclusion, the Indian government’s initiative to promote timely payments to MSMEs. Firmway’s MSME confirmation software and, consequently, go hand in hand in promoting the growth and development of this vital sector. Additionally, the software provides a simple and efficient solution to the challenge of identifying MSME vendors. Consequently, it aids enterprises in taking 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.

Struck off Companies

Identifying Struck Off Companies: A simple Guide to What You Must Know

What is the Meaning of Struck Off Companies?

The term struck-off on the other hand, implies that the Registrar of Companies (ROC) has removed the name of a company from the register of companies for certain reasons. Once the register removes the company’s name, the company’s legal existence is lost. Then it cannot continue its operations until it restores its name in the register.

The striking of a company’s name can happen either voluntarily; furthermore, it can occur 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. However, 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 henceforth, 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, however, it is important to understand the associated disclosure requirements. As per the requirements of the Ministry of Corporate Affairs (MCA) then companies need to disclose their transactions with struck-off companies. This disclosure requirement is effective 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:

  1. Name of the company being struck off
  2. Nature of transactions. This can include:
    • Receivables
    • Investment in securities
    • Payables
    • Shares held by the struck-off company
    • Any outstanding balance

3. Balance outstanding

4. Relationship with the company

Steps to Identify Struck-Off Company on MCA

To identify struck-off companies from the register firstly, you can visit the Ministry of Corporate Affairs website. Follow the below steps to identify:

  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 companies on the MCA website can be cumbersome and time-consuming, especially if you transact with multiple companies. The solution, therefore, is to identify such companies with Firmway!

Firmway allows for bulk searches using the list of struck-off companies; consequently this helps in determining if it hasn’t been struck off. Following are the steps to identify 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!

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