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Income Tax | FEMA | Company Law Matters | Service Tax

Income Tax

Q. What are the benefits of obtaining a Permanent Account Number [PAN] and PAN Card?

A. A PAN number has been made compulsory for every transaction with the Income Tax department. It is also mandatory for numerous other financial transactions such as opening of bank accounts, availing institutional financial credits, purchase of high-end consumer item, foreign travel, transaction of immovable properties, dealing in securities etc. A PAN card is a valuable means of photo identification accepted by all government and non-government institutions in the country. The prescribed form for applying a PAN is form 49A.

Q. What is a return of income, prescribed form for filing return of income etc?

A. It is a prescribed form through which the particulars of income earned by a person in a financial year and taxes paid on such income is communicated to the Income tax department after the end of the Financial year. Different forms are prescribed for filing of returns for different Status and Nature of income, which are as follows:

ITR1 : For Individuals having Income from Salary/ Pension/ family pension & Interest
ITR2 : For Individuals and HUFs not having Income from Business or Profession
ITR3 : For Individuals/HUFs being partners in firms and not carrying out business or profession under any proprietorship
ITR4 : For individuals & HUFs having income from a proprietary business or profession
ITR5 : For firms, AOPs and BOIs
ITR6 : For Companies other than companies claiming exemption under section 11
ITR7 : For persons including companies required to furnish return under section 139(4A) or section 139(4B) or section 139(4C) or      section 139(4D)
ITR8 : Return for Fringe Benefits
ITRV : Where the data of the Return of Income/Fringe Benefits in Form ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6 & ITR-8      transmitted electronically without digital signature

The new return form numbering 1 to 8 is annexure less. Hence no documents need to be attached.

The due dates are as follows:

»   Companies & their Directors : 30th September
»   Other business entities, other than companies, if their accounts are auditable & their working partners 30th September
  In all other case 31st July

Time Period for Maintaining Income Tax Records Intact Since legal proceedings under the income tax act can be initiated up to six years prior to the current financial year, there must be maintained income tax records at least for this period.

Q. Whether ITR filing is mandatory even if all the taxes and interests have been paid and there is no refund due?

A. Amounts paid as advance tax and withheld in the form of TDS or collected in the form of TCS will take the character of tax due only on completion of self-assessment of the income. This self-assessment is intimated to the department by way of filing of return. Only then does the government acquire rights over the prepaid taxes as its own revenue. Filing of return is critical for this process and, hence, has been made mandatory. Failure will attract levy of penalty.

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Foreign Exchange Management (FEMA)

Q. What are the forms in which business can be conducted by a foreign company in India?

A. A foreign company planning to set up business operations in India can set up itself as a foreign entity (Liasion Office/Project Office/Branch Office) or as an Indian Entity (Joint Venture Company/Wholly Owned Subsidiary Company). Such offices can undertake activities permitted under the FEMA.

Q. How does a foreign capital be routed into India? What are the regulations pertaining to issue of shares by Indian companies to foreign collaborators/investors?

A. Automatic Route : Under automatic route, Foreign Direct Investment (FDI) is allowed up to a specified limit. FDI in sectors/activities to the extent permitted under Automatic Route does not require any prior approval from Govt/Reserve Bank of India (RBI).

The investor is required to notify the Regional Office concerned of the Reserve Bank of India within 30 days of receipt of inward remittances and file the required documents along with form FC-GPR with that Office within 30 days of issue of shares to the non-resident investors.

Government Route :
FDI in activities not covered under the automatic route requires prior Government approval and are considered by the Foreign Investment Promotion Board (FIPB), Ministry of Finance.

Q. Can a foreigner set up a partnership/proprietorship concern in India?

A. No. Only NRIs/PIOs are allowed to set up partnership/proprietorship concerns in India. Even for NRIs/PIOs investment is allowed only on non-repatriation basis.

Q. How can foreign companies open Liaison/Project/Branch office in India?

A. Foreign company can set up Liaison/Branch Offices in India after obtaining approval from Reserve Bank of India. Reserve Bank of India has given general permission to foreign companies to establish Project Offices in India subject to certain conditions.

Q. What is the procedure to be followed for obtaining Reserve Bank's approval for opening Liaison Office/Representative Office?

A. A Liaison office is not allowed to do any business activity in India and can act as a channel of communication between Head Office abroad and parties in India.

The companies desirous of opening a liaison office in India may make an application in prescribed form along with the documents mentioned therein to Foreign Investment Division of Reserve Bank of India.

Permission to set up such offices is initially granted for a period of 3 years and this may be extended from time to time by the Regional Office in whose jurisdiction the office is set up.

Liaison/Representative offices have to file an Activity Certificate on annual basis from a Chartered Accountant to the concerned Regional Office of the Reserve Bank of India, stating that the Liaison Office has undertaken only those activities permitted by Reserve Bank of India.

Q. What is the procedure for setting up Project Office?

A. Foreign companies are granted projects in India by Indian entities. General Permission has been granted by Reserve Bank of India to foreign companies to open Project Office/s subject to eligibility conditions.

However, if the eligibility criteria is not met, or if the parent entity is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such applications have to be forwarded to Central Office of the Foreign Exchange Department of the Reserve Bank at Mumbai for approval.

Q. What is the procedure for setting up Branch office?

A. Reserve Bank permits companies engaged in manufacturing and trading activities abroad to set up Branch Offices in India for the some specific purposes.

An application in the prescribed format along with prescribed documents is to be filed with RBI for obtaining approval.

Permission for setting up branch offices is granted by the Reserve Bank of India. Reserve Bank of India considers the track record of the Applicant Company, existing trade relations with India, the activity of the company proposing to set up office in India as well as the financial position of the company while scrutinising the application.

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Company Law Matters

Q. About Name Approval for a company?

A. Form 1A needs to be filed along with a payment of fees of Rs.500/- (to be filed online with digital signature of the applicant proposing to incorporate the company). The name once approved remains valid for a period of 6 months from the date of approval.

Q. What is the minimum number of directors and subscribers required to form a company?

A. Minimum no. of directors for Private Limited Company: Two. For Public Limited Company: Three.

Minimum number of subscribers for Private Limited Company: Two. For Public Limited Company: Seven.

Q. What is the minimum Paid-up Capital at the time of registration of a company?

A. The minimum paid up capital for Private Limited Company: Rs.1,00,000/- For Public Limited Company: Rs.5,00,000/- This limit is not applicable to company having licence under section 25.

Q. What are the documents to be filed with RoC every year?

A. Invariably, the Balance Sheet and Annual Return have to be filed every year. Other documents such as, Return of Allotment (Form-2), Change of Registered office (Form-18), Change among the Directors (Form-32), Charges (Form-8, 10, 17, 13)etc., have to be filed within the due date from the events taking place in the company as per the Companies Act, 1956.

Q. What is Director Identification Number (DIN)?

A. It is an unique Identification Number allotted to an individual who is an existing director of a company or intends to be appointed as director of a company.

Q. What is the procedure of DIN compliance?

A. The process of obtaining DIN consists following steps
  • Obtain provisional DIN (DIN 1)
  • Pay Din application fee
  • Dispatch of DIN application
  • Approval of DIN
  • Intimate approved DIN to your Companies (DIN 2)
  • Company to intimate DIN to ROC (DIN 3)
  • Post-approval changes in particulars of DIN 1 (DIN 4)
Q. What are the documents required to be filed for allotment of DIN ?

A. Following Documents are required to be filed for the allotment of DNI
  • DIN Form-I (with provisional DIN generated) along with a high resolution photograph of the applicant and his signatures appended at the appropriate place;
  • Proof of identity;
  • Proof of residence;
  • Certification of the photograph and the photocopies of proofs by an approved authority;
  • The particulars of the certifying authority along with his seal must be clearly indicated. (father’s name must be indicating in ID Proof/Residence Proof)
Q. What is a Digital Signature Certificate?

A. Digital Signature Certificates (DSC) are the digital equivalent (that is electronic format) of physical or paper certificates. DSC is a pre-requisite for e-filing of documents with Registrar of company. DSC is issued by a licensed Certifying Authority (CA). Certifying Authority (CA) means a person who has been granted a license to issue a digital signature certificate. The time taken by CAs to issue a DSC may vary from three to seven days. The validity of a DSC may be one year or two years.

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Service Tax

Q. What is Service Tax? Who is liable to pay service tax ?

A. Service Tax is a form of indirect tax imposed on specified services called “taxable services”. Service tax is payable by any person providing the taxable service(s).

At present Service Tax is collected at an uniform rate of 8% (effective from 14.05.2003) on the value of taxable services rendered, in respect of all 58 Services notified so far  The applicability of the tax @ 8% is attracted w.e.f. from 14.05.2003 only if the bill for the service rendered was raised after 14.05.2003 as per Board’s Circular No:56/5/2003 dated:25.04.2003.Value  of taxable service shall be the gross amount charged by the service provider.   However in case of services introduced this year, Service Tax @ 8% is leviable from 01.07.2003.

Q. What is the rate of Service Tax? What is the applicability of Service Tax ?

A. 8% on the value of taxable service (i.e) gross amount received by the service tax provider for the services rendered by him.

Q. Is it compulsory to register as a service provider ?

A. All the persons providing taxable services shall register with the Central Excise Department of the concerned jurisdiction. The registration shall be for each premise where billing is done. Only one registration is needed even if the service is provided in more than one premises provided the bills are raised in one place. If bills are raised in different premises, the registration should be obtained separately for each such premise where billing is done.

Q. Whether registration should be done for each service provided by the service provider ?

A. No. Only one registration is required even if the service provider provides more than one taxable service.

Q. How to get registration ?

A. An application should be filed in Form ST-1 (in duplicate) before the jurisdictional Service Tax Officer. On verification of particulars, the registration will be granted within 7 days. If registration is not given within 7 days, the registration is deemed to have been granted.

Q. What is the rate of Service Tax and its applicability ?

A. At present Service Tax is collected at an uniform rate of 8% (effective from 14.05.2003) on the value of taxable services rendered, in respect of all 58 Services notified so far  The applicability of the tax @ 8% is attracted w.e.f. from 14.05.2003 only if the bill for the service rendered was raised after 14.05.2003 as per Board’s Circular No:56/5/2003 dated:25.04.2003.Value  of taxable service shall be the gross amount charged by the service provider.   However in case of services introduced this year, Service Tax @ 8% is leviable from 01.07.2003.

Q. How to pay Service Tax ?

A. The Service Tax shall be paid in the specified branches of designated banks. The amount shall be deposited along with a TR-6 Challan containing the prescribed particulars. The Head of Account which is different for each service shall be correctly filled in the Challan.

Q. What is the time limit for payment of Service Tax ?

A. In the case of individual or proprietary concern or partnership firm, the service tax shall be paid on a quarterly basis. The payment should be made by 25th day of the month following the quarter. In case of other categories, such as companies, the Service Tax shall be paid on a monthly basis before 25th of the following month. It would be sufficient if cash or cheque is deposited on the 25th.

Q. On what basis service tax is payable – on the amount billed or received ?

A. Service Tax is payable on the amount actually received.

Q. What is the rate of Service Tax in respect of services provided abroad ?

A. Services rendered abroad are outside the purview of Service Tax.

Q. In case of delayed payment, whether interest is to be paid ?

A. In case of delay in payment of service tax, interest @1.25% per month or part thereof should be paid.

Q. What are the records to be maintained by the service provider ?

A. No specific mention is made in the Act. However, records like invoice copy and books of account which constitute sufficient evidence for calculation of service tax liability and payment of service tax shall be maintained.

Q. What are the returns to be filed ?

A. On a half-yearly basis, Service Tax Return in Form ST-3 or ST-3A should be filed in Triplicate with the concerned office. The returns should be filed within 25 days of the close of the half-year and shall be accompanied by copies of TR-6 Challan evidencing payment of service tax. If no service is provided during the half-year, a nil return should be filed.

Q. Whether credit is available for input services used ?

A. Yes. An output service provider can avail Service Tax Credit in respect of Service Tax Paid on all the input services. For availing credit proper records shall be maintained relating to payment of input service tax so as to satisfy the authorities for admitting such service tax credit. For availing credit, a return in the prescribed form should be filed along with the half-yearly service tax return.

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