Thursday, September 16, 2021

Small Company - Amended Widened Criteria Under Companies Act 2013


The definition under section 2(85) of Small Company under the Act has not been amended, however, clause (t) of Rule 2 (1) of Companies (Specification of Definitions Details) Amendment Rules, 2021  vide Notification No. G.S.R. 92(E). dated, 1st February, 2021 wef 01st April 2021 reads as follows:

“(t) For section 2 (85) (i)and (ii) of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.”

Therefore, the meaning of Small Company has revised been as follows:

Criteria for Small Company

Old (Maximum i.e not to exceed)

New (Maximum i.e not to exceed)

 

Applicability

F.Y. 2020-21

F.Y.2021-22 onwards

 


Paid-up share capital

Rs. 50 lacs

Rs. 2 crore

 

Turnover (as per profit and loss account for the immediately preceding FY)

Rs. 2 crores

Rs. 20 crores

 

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;


Thursday, September 9, 2021

Procedure for Issue of Employee Stock Option Plan (ESOP)

ESOP (Employees’ Stock Option) is the option given to the directors, officers or employees of a company, its holding or subsidiary which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price.

It is a right and not an obligation, therefore, if the shares of the company are valued at less than the exercise price of the option, then the employee need not exercise its right to buy the company’s shares.

Prerequisite for issue of ESOP:

i.            MOA to have adequate authorised share capital, if not, alter MOA accordingly by convening General Meeting

ii.          AOA to authorise issue of ESOP, if not, alter AOA accordingly by convening General Meeting

Process for issue of ESOP in an Unlisted Company:

i.                     Draft ESOP scheme

ii.                   Draft and send Notice for Board Meeting (min. 7 days’ notice)

iii.                 Convene Board Meeting to authorise via Board Resolution:

a.       Issue of shares under ESOP scheme

b.       Calling of General Meeting for approval of shareholder

c.       Issue of Notice of General Meeting

iv.       Call a General Meeting by sending Notice (min. 21 days’ notice) along with Explanatory Statement annexed therewith with the following disclosures:

a.       Total number of stock options to be granted;

b.       Classes of employees entitled to participate in the scheme;

c.       Requirements of vesting and period of vesting;

d.       Maximum period within which the options can be vested;

e.       Exercise price, exercise period and process of exercise;

f.        Lock-in period, if any;

g.       Maximum number of options to be granted per employee and in aggregate;

h.       Methods used for valuing its options;

i.         Conditions under which option vested may lapse;

j.         Statement that the company shall comply with the applicable accounting standards.

v.             Convene General Meeting and approve the scheme by passing Special Resolution (Ordinary Resolution for private company)

vi.          Separate Resolution is to be approved by the shareholders in case options are being granted to:

a.       Employees of subsidiary or holding company; or

b.   Identified employees, during any one year, equal to or exceeding one percent of the issued capital (excluding outstanding warrants and conversions) of the company

vii.            Grant options to the eligible employees

viii.           File Form MGT-14 with ROC within 30 days of passing the resolution

At the time of exercise of options:

i.                  Convene a Board Meeting to allot the shares under ESOP

ii.                Issue share certificates

iii.              Authorise stamping of shares

iv.            After allotment of shares, file Form PAS-3 (Return of Allotment) with ROC within 30 days of allotment

Disclose details of ESOP Scheme in the Director’s Report for the year:

i.                  Options granted/vested/exercised/lapsed;

ii.                Total number of shares arising as a result of exercise of options;

iii.              Exercise Price;

iv.               Variation of terms of options;

v.                 Money realized by exercise of options;

vi.              Total number of options in force;

vii.            Employee wise details of options granted

Maintain a Register of ESOPs:

To be maintained in Form SH-6 at the registered office of the company or such other place as decided by the Board.

 


Wednesday, September 8, 2021

The Compilation of statement required for Form 10BD for Donation received by Charitable Organisation

 

Filing of Statement of donations in Form 10BD is now mandatory for Charitable Organisations for allowing deduction for donations under sec 80G to the donors.

As per Notification No. 19/2021 [F. No. 370142/4/2021-TPL] / GSR 212(E) dated 26 March 2021, the entities having approval u/s 80G (5) and u/s 35(1) of the Income Tax Act,1961 requires to furnish a statement of Donations received by them wef  1st April, 2021.

Filing of Statement of donations (in Form 10BD) is mandatory for donations received during financial year 2021-22 is to be filed once for the whole year by 31st of May 2022.

Form 10BD shall be e filed by organizations using the digital signature of a person authorized to sign the return of income or through e-verification code (EVC)

The following information is required for filing the statement in prescribed format:



Therefore the done entity should maintain the following details of Donors

1.

Name of the Donor as per PAN card and PAN No. (Mandatory)

2.

Latest address of Donor as per ID proof Aadhar or Income tax records

3.

Amount, Section code, Type and mode of Donation received

 

Instructions to fill Section Code



 

After filing  Form 10BD, the reporting entity should download and issue Certificate of Donations in Form 10BE containing the details of reporting entity like PAN , Name of the entity, address of entity receiving the donation, approval numbers u/s 80G & 35(1) and amount  to be issued by 31st May 2022.

Therefore for donor it is not just sufficient to have a donation receipt, but to obtain a certificate of donation in Form 10BE after the end of the financial year for his claim of deduction.

Corrections in Form 10BD

In case of any errors or mistakes in Form 10BE, it may be rectified and hence additions, deletions, or modifications are possible.

Consequences for  Non Compliance for defaults

a)       The  delay to File 10 BD in time will attract a fee of Rs.200/- per day of delay as per newly inserted section 234G.

b)      The failure to file such statement will also attract penalty u/s 271K of not be less than Rs.10,000/- and which may extend up to Rs.1,00,000/-




B




Friday, September 3, 2021

Taxability of Provident Fund and other Fund Contribution and Interest thereon

Finance Act 2021, introduced taxability of interest on various provident fund, contribution exceeding the specified limit exceeds.

Earlier the interest earned on provident fund was fully exempt from tax in the hands of the employees. 

The CBDT Circular dated 31st August, 2021, read with Rule 9 D of Income Tax as applicable wef 1st day of April, 2022 and CBDT Notification dated 15.03.21 for Change in Rule 3B effective from 01.04.2021 the contribution to Provident fund and other funds by employer and interest there on has effected a high bracket salaried persons a lot.

Now through above mentioned Circulars the CBDT has given formulas that how to calculate the taxable portion of Provident Fund contribution and taxable interest on Provident Fund balance. As these guidelines are given by CBDT on 31.08.2021 and having impact on taxable portion in salary on high bracket salaried persons, we are trying to give a brief hereunder to calculate TDS on Salaries accordingly and planning or restructuring salaries.

CBDT NOTIFICATION NO. 11 DATED 5th MARCH, 2021 w.e.f 01 APRIL 2021 [RULE 3B]

AY 2021-22 ONWARDS 

In exercise of the powers conferred by sub-clause (viia) of clause (2) of section 17 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely: -

 1. Short title and commencement. — (1) These rules may be called the Income-tax (1st Amendment) Rules, 2021.

(2) They shall come into force from the 1st day of April, 2021.

 2. In the Income-tax Rules, 1962, after the rule 3A, the following rule shall be inserted, namely: ‒

 3B. Annual accretion referred to in the sub-clause (viia) of clause (2) of section 17 of the Act.

 For the purposes of sub-clause (viia) of clause (2) of section 17 of the Act, annual accretion by way of interest, dividend or any other amount of similar nature during the previous year (hereinafter in this rule referred to as the current previous year) to balance to the credit of the fund or scheme referred to in sub-clause (vii) of clause (2) of section 17 of the Act shall be the amount or aggregate of amounts computed in accordance with the following formula, namely: —

 TP= R*[(PC/2) + (PC1+ TP1)]

 Where,

 TP = Taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the current previous year;

 TP1 = Aggregate of taxable perquisite under sub-clause (viia) of clause (2) of section 17 of the Act for the previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);

 PC = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5

lakh to the specified fund or scheme during the previous year;

 PC1 = Amount or aggregate of amounts of principal contribution made by the employer in excess of Rs. 7.5

lakh to the specified fund or scheme for the previous year or years commencing on or after 1st day April, 2020 other than the current previous year (See Note);

 R = I/ Favg

 I = Amount or aggregate of amounts of income accrued during the current previous year in the specified fund

or scheme account;

 Favg = (Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first

day of the current previous Year + Amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the last day of the current previous year)/2.

 Explanation. — For the purposes of this rule, "specified fund or scheme" shall mean a fund or scheme

referred to in sub-clause (vii) of clause (2) of section 17 of the Act.

 Note: Where the amount or aggregate of amounts of TP1 and PC1 exceeds the amount or aggregate of amounts of balance to the credit of the specified fund or scheme on the first day of the current previous year, then the

amount in excess of the amount or aggregate of amounts of the said balance shall be ignored for the purpose of

computing the amount or aggregate of amounts of TP1 and PC1.”.

 Illustration                                                                                                                      Rs. In lakhs

S No.

Particulars

FY 2020-21

FY 2021-22

1

Opening balance

60

96.35

2

Employer’s contribution to funds*

14.4

23.12

3

Employee’s contribution to funds*

14.4

23.12

4

Total contribution

88.8

142.59

5

Annual accretion

7.55

12.12

6

Closing balance

96.35

154.71

* All Employee benefits funds

 Computation of Taxable perquisites as per formula given in the guidance note:

 TP= R*[(PC/2) + (PC1+ TP1)]

 Where,

                                                                                                                                 Rs in Lakhs

S No.

Particulars

FY 2020-21

FY 2021-22

1

Excess contribution (PC)

6.9

15.62

2

PC/2

3.45

7.81

3

Average of opening & closing balance (Favg)

78.175

125.53

4

Accrued accretion/Favg (R)

0.097

0.097

5

Last year’s excess contribution (PC1)

Nil

6.9

6

Last year’s taxable perquisites (TP1)

Nil

0.33465

7

(PC/2) + (PC1+TP1)

3.45

15.04465

8

Taxable Perquisite (TP) (7*R)

0.33465

1.45933

 CBDT NOTIFICATION NO. 95 DATED 31.08.2021 w.e.f 01 APRIL 2022 [RULE 9D]

(AY 2022-23 onwards)

1. (1) These rules may be called the Income-tax (25th Amendment) Rules, 2021.

  (2) They shall come into force on 1st day of April, 2022.

2. In the Income-tax Rules, 1962, after the rule 9C, the following rule shall be inserted, namely: ‒

9D. Calculation of taxable interest relating to contribution in a provident fund or recognised

provided fund, exceeding specified limit-

(1)    For the purposes of the first and second provisos to clauses (11) and (12) of section 10, income by way of interest accrued during the previous year which is not exempt from inclusion in the total income of a person under the said clauses (hereinafter in this rule referred to as the taxable interest), shall be computed as the interest accrued during the previous year in the taxable contribution account.

(2)   For the purpose of calculation of taxable interest under sub-rule (1), separate accounts within the provident fund account shall be maintained during the previous year 2021-2022 and all subsequent previous years for taxable contribution and non-taxable contribution made by a person.

Explanation: For the purposes of this rule-

a)       Non-taxable contribution account shall be the aggregate of the following, namely-

   i.    closing balance in the account as on 31st day of March 2021;

            ii.   any contribution made by the person in the account during the previous year 2021-2022 and subsequent previous

              years, which is not included in the taxable contribution account; and

            iii.  interest accrued on sub- clause (i) and sub- clause (ii), as reduced by the withdrawal, if any, from such account;

 b)       Taxable contribution account shall be the aggregate of the following, namely-

        i.       contribution made by the person in a previous year in the account during the previous year 2021-2022 and                               subsequent previous years, which is in excess of the threshold limit; and (ii) interest accrued on sub- clause (i) as                   reduced  by the withdrawal, if any, from such account; and

  c)       The threshold limit shall mean:

      i.    five lakh rupees, if the second proviso to clause (11) or clause (12) of section 10 is applicable; and                                  ii.    two lakh and fifty thousand rupees in other cases.”.

 

Clause 11 and Clause 12 of Section 10 of Income Tax Act

 

(11) any payment from a provident fund to which the Provident Funds Act, 1925 (19 of 1925), applies or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette;

 

(11A) any payment from an account, opened in accordance with the Sukanya Samriddhi Account Rules, 2014 made under the Government Savings Bank Act, 1873 (5 of 1873);

 

(12) the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule;

 (12A) any payment from the National Pension System Trust to an employee on closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed forty per cent of the total amount payable to him at the time of such closure or his opting out of the scheme;

(12B) any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder, to the extent it does not exceed twenty-five per cent of the amount of contributions made by him;

               

               In simple words, from AY 2022-23:

a)       interest income relatable to employees’ contributions made to recognised/ statutory provident fund in excess of Rs. 2.5 Lacs / Rs. 5 Lacs in the previous year shall be taxable

b)       the amount of such taxable interest income shall be computed as per the procedure prescribed in newly inserted IT Rule 9D,

c)       there shall be separate maintenance of accounts by the Statutory/ Recognised Provident Fund, in respect of taxable and exempt contributions made by the Members during the previous year 2021-22 and onwards.

Procedure of computing taxable and non-taxable amount of contribution-

·         Taxable contributions = [Excess of contributions made by the person in FY 2021-22 and subsequent years + interest accrued on such contributions – withdrawals from account, if any]       

·         Non-taxable contributions = [Closing balance as on 31 March 2021 + contribution made in FY 2021-22 and subsequent years not included above + interest accrued on above – withdrawals, if any]

        Accordingly, one should ensure that PF contributions do not exceed the specified limits, in a financial year, as mentioned         above, to avoid tax liability on PF interest on contributions in excess of such specified limits.