Company Closure Under MCA: Process, Costs, and Key Compliance Step by Step

A company may apply for closure under the following conditions:

• It has not commenced business within one year of incorporation.

• It has not carried out any business operations for the last two consecutive financial years.

• The company intends to close its business voluntarily.

Pre-requisites for Filing an Application for Closure under FTE

1. Nil Assets and Liabilities

   • The company must have no remaining assets or liabilities before filing for closure.

2. Bank Account Closure

   • The company’s bank account must be closed before submitting the application.

3. Income Tax Compliance

   • The latest Income Tax Return must be filed under the Income-tax Act, 1961.

4. Restrictions on Name and Registered Office Changes

   • The company must not have changed its name or shifted its registered office in the last three months.

5. Restrictions on Property Disposal

   • The company should not have sold any property or rights immediately before ceasing trade to gain profit.

6. No Pending Litigations

   • The company must not have any pending litigations.

7. No Other Business Activity

   • The company must not have engaged in any other business activity except those necessary for closure.

8. No Pending Compromise or Arrangement Applications

   • No application for compromise or arrangement should be pending with the Tribunal.

9. No Winding-Up Proceedings

   • The company should not be under the process of winding up under the Companies Act or Insolvency and Bankruptcy Code, 2016.

Categories of Companies Not Eligible for Strike-Off Under FTE

• Listed companies.

• Companies delisted due to non-compliance with listing regulations.

• Vanishing companies.

• Companies under investigation or pending court proceedings.

• Companies with outstanding public deposits or defaults in repayment.

• Companies with pending charges for satisfaction.

• Companies registered under Section 25 of the Companies Act, 1956, or Section 8 of the Companies Act, 2013.

Procedure for Closure of Companies Under FTE

Step 1: Board Meeting

• Convene a Board Meeting to discuss and approve the closure of the company.

• Obtain approval to call an Extraordinary General Meeting (EGM).

Step 2: Preparation of Documents

• Prepare the closure application along with necessary supporting documents, affidavits, and consents.

Step 3: Extraordinary General Meeting (EGM)

• Convene an EGM to pass a resolution for closure.

• Obtain a special resolution or 75% consent from members in terms of paid-up share capital.

• If regulated under a special Act, obtain approval from the respective regulatory body.

• File Form MGT-14 for special resolution approval.

Step 4: Execution of Documents

• All directors must sign and execute the required documents.

• If documents are executed outside India, they must be notarized and apostilled.

• If any director has been deactivated, removed, or has not resigned, file Form DIR-12 for necessary updates.

Step 5: Filing with ROC

• File an application for removal of the company’s name with the Registrar of Companies (ROC) in the prescribed form.

Step 6: Public Notice and Statutory Intimations

• Upon application submission, the ROC publishes a notice in the Official Gazette, MCA website, and newspapers in English and the vernacular language of the state where the registered office is located.

• ROC notifies various statutory authorities.

Step 7: Striking Off the Company’s Name

• After the notice period, the ROC removes the company's name from the register of companies.

• Upon publication in the Official Gazette, the company stands dissolved.

Forms to be Filed and Fee Structure

Forms Required for Company Closure

1. Form STK-2 (Application for Striking Off)

   • To be filed with the ROC along with the necessary documents.

   • Requires an affidavit and indemnity bond from directors.

2. Form MGT-14 (Approval of Special Resolution)

   • Filed to approve the closure resolution passed at the EGM.

3. Form DIR-12 (Director Changes, if Required)

   • Filed to update director details if any director has been deactivated or not resigned.

Fee for Filing Forms

Form	Filing Fee (INR)
STK-2	10,000
MGT-14	200 to 600 depending on share capital
DIR-12	300 to 600 depending on share capital

Timeline for Closure

Step	Estimated Time
Board Meeting and EGM	7-10 days
Preparation and Filing of Application	15-20 days
Public Notice Period	30 days
Final Striking Off by ROC	60-90 days

This process ensures compliance with MCA regulations and facilitates the orderly closure of non-operational companies.

MCA Extends Deadline for Mandatory Dematerialisation Compliance to June 30, 2025

The Ministry of Corporate Affairs (MCA) has issued the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2025, extending the deadline for mandatory dematerialisation compliance for certain private companies. This move is aimed at facilitating a smoother transition for companies that were facing challenges in meeting the previous deadline. This extension has been granted through Notification dated February 12, 2025, specifically for extending the last date for compliance.

Key Highlights of the Update

• Applicability: Private companies that are not classified as small companies as of the financial year ending on or after March 31, 2023, must ensure their securities are in dematerialised form.

• Revised Deadline: The earlier deadline of September 30, 2024, has now been extended to June 30, 2025.

• Compliance Requirements:

  • All existing securities must be converted into dematerialised form before the new deadline.

  • Any future issuance, transfers, or corporate actions (such as bonus or rights issues) must be conducted in dematerialised form only.

  • Companies must facilitate the dematerialisation process by coordinating with a registered depository (NSDL or CDSL) and obtaining an International Securities Identification Number (ISIN).

The extension provides much-needed relief, particularly for businesses that were struggling with logistical and procedural aspects of dematerialisation. However, it is advised that companies start the process well in advance to avoid last-minute regulatory non-compliance. Ensuring compliance with dematerialisation rules enhances corporate governance and increases transparency in ownership records.

Companies are encouraged to take proactive steps towards dematerialisation compliance to align with regulatory expectations and avoid penalties

GST on E-Commerce: Opportunities, Challenges, and Compliance Framework

The introduction of the Goods and Services Tax (GST) in India has significantly impacted e-commerce operators. GST replaced multiple indirect tax laws, including state VAT, service tax, and excise duties, with a unified system. This has streamlined compliance and brought consistency in taxation across states.

Key Provisions

1. Mandatory Registration:

   • E-commerce operators and sellers supplying through online platforms must register under GST, irrespective of turnover.

   • Unlike traditional businesses, e-commerce sellers cannot avail of the composition scheme.

2. Tax Collection at Source (TCS):

   • E-commerce operators must collect 1% TCS on net taxable sales and remit it to the government.

   • Sellers can claim credit for the TCS deducted while filing returns.

3. Place of Supply Rules:

   • GST is levied based on the destination principle, ensuring tax is paid in the consumer’s state.

   • Special rules apply to services provided through e-commerce platforms.

4. Input Tax Credit (ITC):

   • Sellers can claim ITC on GST paid on purchases, reducing tax liability.

   • ITC mismatches between sellers and e-commerce platforms can lead to compliance issues.

5. Returns and Compliance:

   • E-commerce operators must file monthly GSTR-8 returns for TCS collection.

   • Sellers must reconcile GSTR-8 data with their returns to claim TCS credit.

Challenges and Advantages

Advantages

The introduction of GST has benefited e-commerce operators in several ways:

• Simplified Tax Structure: GST replaces multiple state VAT laws, service tax, and excise duties, reducing compliance complexities.

• Uniform Taxation Across States: Eliminates Central Sales Tax (CST) and entry taxes, lowering logistics costs and improving supply chain efficiency.

• Input Tax Credit (ITC) Benefits: Reduces cascading taxes, lowering overall costs for businesses.

• Enhanced Regulation and Transparency: Mandatory registration and digital record maintenance curb tax evasion.

• Ease of Doing Business: Standardized tax rates and classifications reduce confusion, ensuring consistency.

• Efficient Compliance Through TCS: Ensures tax collection at the time of payment, simplifying revenue tracking.

Challenges

Despite the advantages, e-commerce operators face notable challenges:

• Increased Compliance Burden: TCS requires monthly GSTR-8 filings and complex refund adjustments.

• Multiple State-Wise Registrations: Adds administrative and compliance costs.

• Input Tax Credit (ITC) Mismatches: Affects seller cash flow and requires precise reconciliation.

• Higher Compliance Costs: Frequent filings necessitate tax experts or software.

• Ambiguities in Tax Classification: Varying GST rates and constant policy changes create operational disruptions.

• Complexity in Managing Returns and Tax Credits: Small sellers must register despite low turnover, adding compliance pressure.

Conclusion

Overall, GST provisions for e-commerce, including TCS, mandatory registration, and ITC regulations, have enhanced tax transparency and streamlined revenue collection. While these measures pose compliance challenges, they also offer opportunities for improved tax governance and digital record-keeping. With continuous policy refinements, simplified compliance mechanisms, and greater automation, GST can become even more efficient and supportive of the e-commerce sector’s growth. By leveraging technology and regulatory improvements, businesses can navigate GST requirements more smoothly, fostering a more robust and competitive digital economy.

Optimizing Tax Compliance with Section 44AD: Key Insights and Best Practices

Introduction

Tax compliance can be a cumbersome process for small businesses, requiring extensive bookkeeping and adherence to various tax provisions. To alleviate this burden, the Indian Income Tax Act provides a simplified taxation scheme under Section 44AD, allowing eligible businesses to pay tax on a fixed percentage of their turnover instead of maintaining detailed books of accounts. This article delves into the applicability, benefits, limitations, and key considerations of opting for Section 44AD.

Applicability of Section 44AD

Who Can Opt for Section 44AD?

Section 44AD applies to resident individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) engaged in eligible businesses, provided their total turnover does not exceed:

• ₹2 Crores for businesses with conventional transactions.

• ₹3 Crores if at least 95% of receipts are through electronic modes such as account payee cheques, demand drafts, or digital transactions.

Presumptive Income Calculation

• 8% of Turnover, Sales, or Gross Receipts (for cash transactions and late digital payments).

• 6% of Turnover, Sales, or Gross Receipts (for digital transactions received before the due date under Section 139(1)).

• No other business expenses or deductions (under Sections 30 to 38) can be claimed separately.

Non-Applicability of Section 44AD

This scheme is not available to:

1. Professionals covered under Section 44AA (e.g., doctors, lawyers, consultants, chartered accountants).

2. Businesses earning income from commission or brokerage.

3. Agency businesses.

4. Businesses that claim deductions under Section 10AA or Sections 80IA to 80RRB.

5. LLPs (Limited Liability Partnerships).

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Key Provisions and Compliance Requirements

Advance Tax Liability

Unlike the regular advance tax system requiring quarterly payments, assessees under Section 44AD must pay the entire advance tax liability in one installment by March 15 of the relevant financial year.

Depreciation Treatment and Asset Valuation

• Since deductions under Sections 30 to 38 are not separately allowed, depreciation on assets is deemed to have been already accounted for in the presumptive income.

• The Written Down Value (WDV) of assets is computed assuming depreciation has been claimed and allowed each year.

Losses: Set-Off and Carry Forward

• Current year and brought-forward losses can be set off against presumptive income.

• However, if losses are substantial and profits are below the prescribed presumptive rate, the business may need to opt out of the scheme, triggering additional compliance requirements.

Multiple Businesses Under Section 44AD

• If an assessee runs two or more businesses, the total turnover from all businesses is aggregated to determine eligibility under Section 44AD.

• If the combined turnover exceeds ₹2 Crores (or ₹3 Crores for digital transactions), the assessee cannot opt for Section 44AD for any business.

• However, if the combined turnover remains within limits, presumptive income applies to each business individually at the prescribed rates of 6% or 8%.

Mixed Approach: Audit for One Business & Presumptive for Another

• A taxpayer cannot opt for presumptive taxation under Section 44AD for one business and regular taxation (with audit) for another business.

• The Income Tax Act requires uniformity in the method of accounting. If an assessee opts for audit in one business, they must follow the same for all businesses in that financial year.

• If an assessee opts out of Section 44AD for any business, they cannot opt back into the scheme for five years.

Implications of Opting Out of Section 44AD

• Once a business opts out of Section 44AD, it cannot re-enter the scheme for the next five years.

• If a business declares a profit lower than 8% or 6% and its total taxable income exceeds the basic exemption limit, it must:

  • Maintain books of accounts as per Section 44AA.

  • Undergo tax audit under Section 44AB.

Advantages and Disadvantages of Section 44AD

Advantages:

✅ Simplified Compliance: No need to maintain detailed books of accounts or prepare extensive financial statements. ✅ Reduced Tax Burden: Businesses with high actual profit margins benefit from lower presumptive tax rates. ✅ Ease of Filing: Filing tax returns is straightforward as only gross receipts and turnover need to be reported. ✅ Lower Professional Fees: Less reliance on accountants and tax professionals due to reduced compliance.

Disadvantages:

❌ Ineligibility for Certain Deductions: Businesses cannot claim deductions under Sections 30 to 38 (e.g., rent, depreciation, employee salaries, interest expenses). ❌ Restriction on Re-Entry: Opting out of Section 44AD disqualifies businesses from using this scheme for the next five years. ❌ Mandatory Audit & Books if Profit is Below 8%/6%: If profits are below the prescribed rate and taxable income exceeds the basic exemption limit, a tax audit is compulsory.

Conclusion: Should You Opt for Section 44AD?

Section 44AD is an effective tax-saving and compliance-reducing mechanism for eligible small businesses with high actual profit margins. However, businesses with substantial operating expenses, low-profit margins, or irregular income sources may find the scheme less beneficial due to the inability to claim deductions.

Before opting for Section 44AD, businesses should carefully evaluate their income structure, expenses, digital transaction volume, and future tax planning needs. Consulting a tax professional can help ensure compliance and optimal tax efficiency.

GST Reforms 2025: Impact on Hotels & Restaurants – A Strategic Guide

I. Introduction

The Ministry of Finance, through Notification No. 05/2025-Central Tax (Rate), has introduced significant amendments to the GST rate structure for hotel accommodation and restaurant services, effective April 1, 2025. These amendments eliminate the concept of “declared tariff”, redefine “specified premises”, and introduce a structured opt-in mechanism for hotels to choose a higher GST rate with Input Tax Credit (ITC) benefits.

These changes are expected to streamline tax administration, enhance compliance, and provide greater clarity for taxpayers in the hospitality sector.

II. Key Amendments and Their Impact

1. Omission of “Declared Tariff” Definition

The notification removes the term “declared tariff”, which was previously used to determine the applicable GST rate on hotel accommodation. Instead, the rate will now be determined based on the actual value of supply, providing a more objective and transparent tax structure.

2. Revised Definition of “Specified Premises”

The amendment redefines “specified premises” for a given financial year, linking it to the actual value of hotel accommodation services supplied in the previous financial year. The new definition includes:

• Any hotel premises where the value of any unit of accommodation exceeded ₹7,500 per unit per day in the preceding financial year.

• A premises declared as “specified” by a registered person through an opt-in declaration filed between January 1 and March 31 of the preceding financial year.

• A premises declared as “specified” by a new applicant within 15 days of obtaining acknowledgment for GST registration.

This revision aligns the classification criteria with actual revenue figures, preventing subjective interpretations.

3. GST Rate Structure for Restaurant Services in Hotels

The revised GST rates for restaurant services in hotels are as follows:

Hotel Category (Based on Room Tariff in Previous FY)	GST Rate with ITC	GST Rate without ITC
Room tariff exceeds ₹7,500 per day	18%	5%
Room tariff ≤ ₹7,500 per day	5%	5%

• Hotels classified as “specified premises” (tariff exceeding ₹7,500 per unit per day) will be subject to 18% GST with ITC or 5% without ITC.

• Hotels below the ₹7,500 threshold will continue with 5% GST (without ITC).

This amendment introduces greater predictability in tax rates and removes anomalies related to the earlier declared tariff concept.

4. Opt-In Mechanism for Higher GST with ITC

Hotels can voluntarily opt for the 18% GST rate with ITC for restaurant services, subject to the following conditions:

• The declaration must be submitted before the start of the financial year or within 15 days of GST registration for new applicants.

• The election remains applicable for the entire financial year and continues until an opt-out declaration is filed.

• Separate declarations are required for each hotel premises.

This provision enables businesses to make strategic tax planning decisions, choosing between a lower tax rate with no ITC or a higher tax rate with ITC benefits.

5. Compliance Requirements and Timelines

The amendments introduce three annexures for compliance:

Declaration Type	Purpose	Deadline
Annexure VII – Opt-In Declaration (Registered Hotels)	Opting for “specified premises” status	January 1 – March 31 (preceding FY)
Annexure VIII – Opt-In Declaration (New Registrations)	Declaring “specified premises” status at the time of GST registration	Within 15 days of acknowledgment
Annexure IX – Opt-Out Declaration	Declaring premises as not a “specified premises”	January 1 – March 31 (preceding FY)

Failure to file the necessary declarations within the prescribed timelines may lead to unintended classification and higher tax liabilities.

III. Strategic Advisory for Hotels and Restaurant Operators

1. Impact Assessment for Hoteliers

• High-end hotels (Tariff > ₹7,500 per unit per day) should evaluate whether opting for 18% GST with ITC is beneficial compared to 5% without ITC.

• Hotels close to the ₹7,500 threshold must monitor revenue trends to assess potential classification changes in the next financial year.

• Regular assessment of hotel occupancy, pricing strategy, and revenue forecasting is essential for optimal tax planning.

2. Restaurant Businesses within Hotels

• Hotels offering restaurant services should analyze ITC benefits on input costs (e.g., food supplies, operational expenses) and compare them against a lower tax rate without ITC.

• Restaurants operating within non-specified premises will continue to attract 5% GST without ITC, minimizing compliance complexities.

• Hotels should educate customers on applicable GST rates to prevent disputes or confusion in billing.

3. Compliance Checklist for Hotel and Restaurant Operators

✅ Review Previous Year’s Room Tariff Data – Identify if any unit exceeded ₹7,500 per day. ✅ Evaluate ITC Utilization – Assess potential savings under 18% GST with ITC. ✅ Timely File Opt-In/Opt-Out Declarations – Ensure compliance with Annexures VII, VIII, and IX. ✅ Update GST Invoices and POS Systems – Reflect revised tax rates in billing software. ✅ Customer Communication – Inform guests about GST implications for transparency.

IV. Conclusion and Way Forward

The 2025 GST amendments bring much-needed clarity and structural reforms to the hospitality sector’s tax regime. By eliminating the declared tariff ambiguity, introducing a revenue-based classification, and allowing voluntary opt-ins for ITC benefits, these changes are poised to enhance transparency and compliance.

Key Takeaways:

• Hotels must proactively assess their classification and file opt-in/opt-out declarations in a timely manner.

• The ability to choose between 18% GST with ITC and 5% GST without ITC empowers businesses with flexible tax planning options.

• Strict compliance with declaration timelines and proper documentation will be critical to avoid disputes and penalties.

By adopting a proactive approach to tax strategy and compliance, hotel operators can leverage these changes for better financial management, ensuring tax efficiency while maintaining regulatory adherence.

Decoding Section 40(b) & 194T: A Comprehensive Guide for Partnership Firms

I. Introduction

Section 40(b) of the Income Tax Act, 1961, lays down conditions and limits for the deduction of partner remuneration in computing the taxable income of a partnership firm. It ensures that only working partners’ remuneration, duly authorized by the partnership deed and within specified limits, is eligible for deduction. The Finance Act 2024 has amended these provisions to align with contemporary business profitability levels. Additionally, Section 194T has been introduced to mandate tax deduction at source (TDS) on partner remuneration, enhancing tax transparency but posing reconciliation challenges.

II. Comparative Analysis of Amendments in Section 40(b)

Provision	Pre-Amendment Limits	Post-Amendment Limits (Effective April 2025)
Deductible Remuneration	Rs. 1,50,000 or 90% of first Rs. 3,00,000 of book profits, whichever is higher	Rs. 3,00,000 or 90% of first Rs. 6,00,000 of book profits, whichever is higher
Remaining Book Profits	60% of remaining book profits	60% of remaining book profits
Eligible Partners	Only working partners with remuneration authorized by the deed	No change
Disallowed Remuneration	If not authorized by the deed or paid for a period before authorization	No change

Impact:

• Increased Deduction Limits: The revised thresholds reflect the increased scale of business operations and provide greater flexibility in structuring partner remuneration.

• No Change in Eligibility Criteria: Only working partners remain eligible, ensuring that remuneration does not become a tool for tax evasion.

• Enhanced Compliance Requirements: Firms must carefully document remuneration payments to ensure eligibility under the revised limits.

Illustration: A partnership firm with book profits of Rs. 10,00,000 in FY 2024-25 can claim the following remuneration deduction:

• Pre-Amendment: Rs. 1,50,000 (fixed) + 60% of Rs. 7,00,000 = Rs. 5,70,000

• Post-Amendment: Rs. 3,00,000 (fixed) + 60% of Rs. 4,00,000 = Rs. 5,40,000

While the revised structure benefits firms with lower profits (Rs. 6,00,000 or below), those with higher profits see minimal impact.

III. Introduction of Section 194T – TDS on Partner Remuneration

1. Key Features of Section 194T

• Applicability: Firms paying salary, remuneration, commission, bonus, or interest to partners must deduct TDS.

• Threshold: TDS at 10% applies if payments exceed Rs. 20,000 annually.

• Timing: Deduction occurs at the earlier of:

  • Credit of the amount to the partner’s account (including the capital account), or

  • Actual payment.

2. Rationale and Implications

Aspect	Pre-Amendment	Post-Amendment (With Section 194T)
TDS on Partner Remuneration	No specific provision	TDS @10% on amounts exceeding Rs. 20,000 p.a.
Tax Transparency	No direct tracking	Enhanced traceability and reporting
Impact on Partners	No automatic TDS deduction	TDS deduction may lead to reconciliation issues

Challenges and Considerations:

• Reconciliation Issues: If a portion of remuneration is disallowed under Section 40(b), but TDS is deducted on the full amount, discrepancies may arise in Form 26AS.

• Compliance Burden: Firms must ensure correct computation of allowable and taxable remuneration to avoid tax credit mismatches for partners.

• Tax Liability Distribution: If a firm is taxed on disallowed remuneration while partners have TDS credits, adjustments will be necessary.

Illustration: Consider ABC Firm with three partners. The firm pays Rs. 2,50,000 to each partner as remuneration.

• Total Payment: Rs. 7,50,000 (Rs. 2,50,000 x 3)

• TDS Deducted: 10% of Rs. 2,50,000 = Rs. 25,000 per partner

• Allowed Remuneration under Section 40(b): Rs. 6,00,000

• Excess Remuneration Disallowed: Rs. 1,50,000 (taxable in firm’s hands)

Despite disallowance, Form 26AS of partners will reflect full TDS credit, leading to reconciliation challenges.

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IV. Consideration of Cash Basis Accounting for Firms and Partners

• Firm Follows Cash Basis, Partners Follow Accrual Basis:

  • If the firm follows cash accounting but partners report on an accrual basis, a timing mismatch may arise.

  • TDS under Section 194T will be deducted when the firm pays the remuneration, but partners may recognize income when it is credited in their books.

  • This can lead to a situation where TDS is deducted in one financial year but the partner recognizes income in the next, affecting tax computation.

• Firm Follows Accrual Basis, Partners Follow Cash Basis:

  • If the firm recognizes remuneration on an accrual basis while partners recognize it on a cash basis, a disallowance under Section 40(b) may occur due to a mismatch in timing.

  • Partners may not be able to claim the TDS credit in the year of deduction if income is not reported simultaneously.

• Both Follow Cash Basis:

  • This ensures consistency but can create a delay in recognizing deductions and credits, impacting advance tax planning.

• Both Follow Accrual Basis:

  • This leads to the least reconciliation issues, ensuring that TDS and income recognition align.

Illustration: If XYZ Firm follows cash accounting and pays Rs. 3,00,000 to a partner in April 2025 for work done in FY 2024-25:

• If the partner follows accrual accounting, they will report this income in FY 2024-25, while TDS will be deducted in FY 2025-26, leading to a tax credit mismatch.

• If the partner also follows cash accounting, they will report the income in FY 2025-26, aligning with the TDS deduction.

V. Conclusion

The Finance Act 2024 amendments to Section 40(b) and the introduction of Section 194T signify a balanced approach between increasing deductible limits and ensuring tax transparency.

• Positive Impacts: Firms benefit from increased allowable remuneration deductions, reducing their taxable income.

• Challenges: The introduction of TDS on partner remuneration could lead to reconciliation difficulties, requiring clarity from tax authorities on handling discrepancies between firm and partner tax liabilities.

• Strategic Implications: Firms must revise partnership deeds and remuneration structures to maximize benefits while ensuring compliance with TDS provisions.

• Accounting Method Considerations: Firms and partners should align accounting methods to avoid timing mismatches and ensure smooth tax compliance.

While the amendments encourage fair taxation and revenue traceability, their practical application demands careful tax planning and compliance adjustments to avoid unintended tax mismatches.

Statutory Due Date Calendar - February 2025

As the year progresses, it's crucial for businesses, tax professionals, and individuals to stay on top of their compliance obligations. Timely fulfillment of tax and GST obligations ensures smooth operations and avoids penalties. This post covers the key Income Tax and GST compliance deadlines for the month of February 2025.

Statutory Compliance Calendar for February 2025

Table 1: Monthly Compliance Obligations – February 2025

Due Date	Compliance Area	Description	Form Name
7-Feb-2025	Income Tax (TDS/TCS)	Deposit of TDS/TCS for January 2025. Government offices must deposit without an Income-tax Challan on the same day.	Not Applicable
7-Feb-2025	FEMA (Form ECB-2)	Filing Form ECB-2, a monthly return reporting External Commercial Borrowings for January 2025.	Form ECB-2
7-Feb-2025	Income Tax (Equalization Levy)	Deposit of Equalization Levy for January 2025.	Not Applicable
10-Feb-2025	GST (GSTR-7)	Filing of GSTR-7 for January 2025 by entities required to deduct GST TDS.	GSTR-7
10-Feb-2025	GST (GSTR-8)	Filing of GSTR-8 for January 2025 by E-Commerce Operators (GST TCS).	GSTR-8
11-Feb-2025	GST (GSTR-1)	Filing of GSTR-1 for January 2025 for taxpayers with turnover exceeding INR 5 crores in the previous year.	GSTR-1
13-Feb-2025	GST (GSTR-6)	Filing of GSTR-6 by Input Service Distributors for January 2025.	GSTR-6
13-Feb-2025	GST (GSTR-1/IFF)	Uploading outward supplies by quarterly filers opting for the Invoice Furnishing Facility (IFF) under QRMP scheme.	GSTR-1/IFF
13-Feb-2025	GST (GSTR-5)	Filing of GSTR-5 for January 2025 by non-resident taxable persons.	GSTR-5
14-Feb-2025	Income Tax (TDS Certificate)	Issuance of TDS Certificate for tax deducted under sections 194-IA, 194-IB, 194M, and 194S in January 2025.	Form 16B, 16C, 16D
14-Feb-2025	SEBI (Regulation 33(3)(a))	Due date for furnishing Financial Results (Form A) for listed entities for the quarter ending December 2024.	Not Applicable
14-Feb-2025	SEBI (Regulation 32(1))	Due date for furnishing Statement of Deviation(s) or Variation(s) for the quarter ending December 2024.	Not Applicable
15-Feb-2025	Income Tax (Form 24G)	Due date for furnishing Form 24G by Government offices for January 2025 TDS/TCS paid without a challan.	Form 24G
15-Feb-2025	Income Tax (TDS Certificate)	Quarterly TDS certificate for non-salary payments deducted in Q3 (Oct-Dec 2024).	Not Applicable
15-Feb-2025	ESI	Payment & Return filing for January 2025.	Not Applicable
15-Feb-2025	EPF	Payment & Return filing for January 2025.	Not Applicable
20-Feb-2025	Karnataka Professional Tax	Payment of Employees' Salary Professional Tax & Return filing for January 2025.	Not Applicable
20-Feb-2025	GST (GSTR-3B)	Filing of GSTR-3B for January 2025 for taxpayers with turnover exceeding INR 5 crores.	GSTR-3B
20-Feb-2025	GST (GSTR-5A)	Filing of GSTR-5A for Non-resident OIDAR service providers for January 2025.	GSTR-5A
25-Feb-2025	GST (PMT-06)	Due Date for GST payment for taxpayers with turnover up to INR 5 crores who opted for QRMP.	PMT-06
28-Feb-2025	GST (GSTR-11)	Filing of GSTR-11 for UIN holders for claiming GST refunds.	GSTR-11
28-Feb-2025	MCA (Form MGT-7/7A)	Filing Form MGT-7 with ROC for Private, Public, and Small Companies for FY 2024-25 (if AGM was held on 31st Dec).	MGT-7/7A

Conclusion:

Adhering to the statutory deadlines is key to maintaining compliance with the Income Tax and GST regulations. This statutory calendar for February 2025 provides clarity on all key deadlines. Mark these dates in your calendar to ensure all filings and payments are completed on time and avoid penalties.

Guide to GST E-Invoicing Registration & Credit Note Processing for Service Providers

Introduction

With the introduction of e-Invoicing under GST, businesses crossing the turnover threshold must comply with the structured electronic invoicing system. For service providers who have just exceeded the Rs. 5 crore limit, understanding the GST e-Invoicing process, registration, invoice generation, and credit note handling is crucial. This guide simplifies the entire procedure with actionable steps, links to utilities, and Excel templates to facilitate seamless compliance.

1. GST E-Invoicing Registration Process

Eligibility

• Mandatory for businesses exceeding Rs. 5 crore turnover (from 1st August 2023).

• Applicable to both goods and service providers.

• E-invoices are generated through the Invoice Registration Portal (IRP) and verified by the GST system.

Step-by-Step Registration on the GST Portal for E-Invoicing

1. Visit the GST E-Invoicing Portal: https://einvoice1.gst.gov.in/

2. Click on ‘e-Invoice Registration’.

3. Login using GST credentials (GSTIN, registered mobile, and OTP verification).

4. Enter details as per GST profile and submit.

5. Generate username and password for accessing e-Invoicing services.

6. Registration confirmation will be sent to the registered email and mobile number.

7. Post-registration, use the API or Excel tool for bulk e-Invoice generation.

For bulk upload and JSON file conversion, download the e-Invoice JSON Preparation Utility from: https://einvoice1.gst.gov.in/download

2. Process for Generating E-Invoice for Services

Step 1: Invoice Preparation in Excel

Prepare the invoice details in an Excel file with the following columns:

Field Name	Description	Example
GSTIN	GST Identification Number	07AABCU9603R1ZV
Invoice Number	Unique invoice number	INV001
Invoice Date	Date of issuance	05-02-2025
Recipient GSTIN	GSTIN of the recipient	06AAACD1234F1Z2
Invoice Value	Total invoice amount	50,000
Taxable Value	Value before tax	42,372.88
IGST/CGST/SGST	Tax components	IGST - 7,627.12
SAC Code	Service Accounting Code	998314
Description	Service description	IT Consulting

Step 2: Convert Excel into JSON Using GST Utility

• Upload the Excel file in the GST Offline Utility Tool.

• Convert into JSON format.

• Upload JSON on the IRP portal.

• Receive IRN (Invoice Reference Number) and QR Code.

3. Credit Note Handling in E-Invoicing & IMS System

When to Issue a Credit Note?

• Reduction in invoice value due to a service dispute.

• Correction of errors in original invoices.

• Post-sale discount adjustments.

Credit Note Workflow on IMS System

1. Create a Credit Note in Excel (format below).

2. Convert to JSON using GST Utility Tool.

3. Upload JSON to the IRP portal to generate IRN for Credit Note.

4. Validate credit note details in IMS (Invoice Management System).

5. Ensure acceptance by the recipient.

6. Reconcile with GSTR-1 filings automatically.

4. Sample Excel Format for Credit Note Upload

Field Name	Description	Example
GSTIN	GST Identification Number	07AABCU9603R1ZV
Credit Note Number	Unique credit note number	CN001
Credit Note Date	Date of issuance	10-02-2025
Original Invoice No	Invoice against which CN issued	INV001
Taxable Value	Value being adjusted	5,000
IGST/CGST/SGST	Tax reduction components	IGST - 900
SAC Code	Service Accounting Code	998314
Reason for Credit	Adjustment reason	Service Error

For converting to JSON, download the GST Credit Note JSON Utility Tool from: https://einvoice1.gst.gov.in/download

5. Conclusion

This guide simplifies the GST e-Invoicing process for service providers crossing Rs. 5 crore turnover. By following the structured steps, businesses can efficiently register, generate invoices, and manage credit notes within the IMS system. Utilizing the provided Excel formats and GST utilities ensures compliance while reducing manual errors.

Analysis of India-UAE Taxation: DTAA Benefits, PoEM Risks, and Withholding Tax Strategies

The taxation of income earned by companies incorporated in the United Arab Emirates (UAE) with business connections in India has been a subject of regulatory scrutiny and judicial interpretation. The Double Taxation Avoidance Agreement (DTAA) between India and the UAE plays a crucial role in determining tax liabilities, but the Place of Effective Management (PoEM) rules and withholding tax provisions introduce complexities that businesses must navigate carefully.

Legal Framework: DTAA Between India and UAE

The DTAA between India and UAE, signed in 1993 and amended periodically, aims to prevent double taxation and promote economic cooperation. The agreement provides that income earned in one contracting state by a resident of another is taxed according to the provisions of the treaty, subject to exemptions and relief mechanisms. Key provisions include:

• Article 7 (Business Profits): A UAE entity's income is taxable in India only if it has a Permanent Establishment (PE) in India. The landmark ruling in Formula One World Championship Ltd. v. CIT (2017) clarified the conditions under which PE is established in India.

• Article 13 (Capital Gains): Gains from the sale of shares in an Indian company by a UAE-based company are taxable in India, as reaffirmed in Azadi Bachao Andolan v. UOI (2003), which upheld treaty benefits for foreign investors.

• Article 25 (Relief from Double Taxation): Indian residents paying tax in UAE can claim a credit in India, and vice versa, as interpreted in Wipro Ltd. v. DCIT (2015), where credit eligibility was scrutinized.

Withholding Tax Considerations

Indian companies making payments to UAE entities must evaluate whether Tax Deducted at Source (TDS) applies under Indian law and the DTAA. The key considerations include:

1. Interest Payments: Taxable at 12.5% under DTAA, unless a lower rate applies under the Indian Income Tax Act.

2. Dividend Payments: Taxable at a maximum rate of 10% in the source country.

3. Royalty and Fees for Technical Services: Capped at 10% as per the DTAA, but subject to Indian domestic law conditions, as ruled in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021).

Failure to deduct applicable TDS can lead to interest, penalties, and disallowance of expenses under Section 40(a)(i) of the Income Tax Act, 1961. The CIT v. Eli Lilly & Co. (2009) case reinforced the employer's liability for non-deduction.

Place of Effective Management (PoEM) and Its Tax Implications

The introduction of PoEM rules in India (Finance Act, 2015) has widened the scope of taxation for foreign companies. If a UAE-based entity is effectively managed from India, it can be deemed a tax resident of India and subjected to full taxation on global income. Key indicators of PoEM include:

• Location where key managerial and commercial decisions are taken.

• Frequency and location of board meetings.

• Delegation of management functions and financial control in India.

Case Law Precedents:

• Radha Rani Holdings v. ACIT (ITAT Delhi, 2021) - Held that a foreign company with strategic decision-making in India was taxable as an Indian resident.

• BCD Ltd. v. CIT (Supreme Court of India, 2020) - Clarified that incidental business presence does not establish PoEM.

• Shell India Markets Pvt. Ltd. v. ACIT (2012) - Examined the control and management test to determine foreign tax residency.

Precautionary Measures to Avoid Defaults and Penalties

Businesses can mitigate risks of tax liability and non-compliance by adopting the following strategies:

1. Ensuring Substance Over Form: Decision-making should be demonstrably outside India to avoid triggering PoEM, as emphasized in Cairn UK Holdings Ltd. v. DCIT (2013).

2. Structuring Transactions Carefully: Payments to UAE entities must be analyzed for TDS applicability to prevent disallowances, considering GE India Technology v. CIT (2010).

3. Maintaining Proper Documentation: Board meeting minutes, financial records, and tax filings should align with the intended jurisdiction of control, as required in Vodafone International Holdings B.V. v. UOI (2012).

4. Seeking Advance Rulings: Where ambiguity exists, obtaining a ruling from the Authority for Advance Rulings (AAR) can provide certainty, as seen in AAR ruling on XYZ Ltd. (2019).

5. Regular Compliance Audits: Periodic reviews of business activities to ensure adherence to tax laws and treaty provisions are critical to avoid litigation, as observed in Morgan Stanley v. DIT (2007).

Tax Planning and Cost-Benefit Analysis

Cost Considerations:

• Tax Compliance Costs: Ensuring adherence to PoEM and DTAA rules involves legal and advisory costs, estimated at 2-5% of total revenue.

• Withholding Tax Adjustments: Businesses need to evaluate whether grossing up taxes on payments to UAE entities is beneficial, affecting net profits.

• Transfer Pricing Adjustments: If intra-group transactions are involved, TP documentation and arm’s length pricing must be maintained to avoid penalties under Indian tax law.

Benefits:

• DTAA Benefits: Availing reduced tax rates and exemptions on certain income streams reduces the overall tax burden.

• Avoiding Litigation: Proper structuring can prevent lengthy disputes and potential tax demands, as evidenced in the Vodafone and Shell India cases.

• Business Continuity: Ensuring tax compliance enhances credibility, enabling seamless operations in both India and UAE.

Conclusion

With India tightening its tax regulations on cross-border transactions, UAE-based companies engaging with Indian entities must carefully evaluate their tax positions under the DTAA, PoEM rules, and withholding tax requirements. A proactive approach in structuring transactions, maintaining documentation, and seeking expert advice can help mitigate risks and avoid unintended tax exposures.

Guide to Forms A, B, C, and D under the Payment of Bonus Act, 1965

The Payment of Bonus Act, 1965 mandates that employers in certain industries pay a bonus to employees based on the company’s profits and employee earnings. This system ensures that employees receive a share in the business's success. The act also specifies the various forms and reporting requirements to ensure transparency in bonus payments.

In this article, we will cover the important forms under the Payment of Bonus Act, namely Form A, Form B, Form C, and Form D. These forms serve as essential compliance tools for employers, helping them maintain records of surplus calculations, bonus payments, and related returns.

Forms under the Payment of Bonus Act, 1965: Key Overview

Table at a Glance: Forms Under the Payment of Bonus Act, 1965

Form	Purpose	Key Information Required	Submission Deadline
Form A	Computation of Allocable Surplus	Gross profits, deductions, available surplus, allocable surplus	Within 8 months from the end of the accounting year
Form B	Set-on and Set-off of Allocable Surplus	Excess allocable surplus (set-on), deficit in surplus (set-off)	Carried forward up to 4 years
Form C	Details of Bonus Paid to Employees	Employee details, salary, bonus payable, deductions, net bonus	Within 8 months from the end of the accounting year
Form D	Annual Return of Bonus Payments	Total bonus payable, bonus actually paid, reasons for non-payment, employee details	Within 30 days after the expiry of the bonus payment period

1. Form A – Computation of Allocable Surplus

Purpose: Form A is used to calculate the allocable surplus of the company for the given accounting year. This is the portion of the profits that is available for the payment of bonuses to employees.

Key Details in Form A:

• Gross Profits: The total profits of the company before deductions.
• Deductions: As per Section 6, deductions may include depreciation, taxes, and other statutory deductions.
• Available Surplus: This is the gross profit minus allowable deductions.
• Allocable Surplus: Based on the available surplus, 67% is allocated for non-banking companies, and 60% is allocated for other companies.

Deadline for Submission: Employers must calculate and report the allocable surplus within 8 months from the end of the accounting year.

2. Form B – Set-on and Set-off of Allocable Surplus

Purpose: Form B tracks the set-on and set-off of the allocable surplus. This is necessary when the available surplus for a year does not meet the required bonus amount.

• Set-on: If the allocable surplus exceeds the maximum bonus payable, the excess can be carried forward (set-on) for future years. The excess can be carried forward for up to 4 years.
• Set-off: If there is a deficiency in the allocable surplus for the current year, the shortfall can be carried forward (set-off) to be utilized in the following years.

Deadline for Submission: Employers must maintain this record for up to 4 years, ensuring the proper carry-forward mechanism is followed.

3. Form C – Details of Bonus Paid to Employees

Purpose: Form C is a detailed report of the bonus payments made to employees for the accounting year. It is used to track individual payments, including deductions and adjustments for pre-paid bonuses.

Key Details in Form C:

• Employee Information: Name, designation, and salary of each employee.
• Bonus Payable: As per Sections 10 and 11, this includes both the minimum bonus and the maximum bonus.
• Deductions: Any pre-paid bonuses, such as Puja bonus or interim bonus, should be deducted from the total bonus payable.
• Net Bonus: The final bonus amount payable after deductions.
• Signature/Thumb Impression: Acknowledgment of payment by the employee.

Deadline for Submission: This form must be submitted within 8 months from the end of the accounting year.

4. Form D – Annual Return of Bonus Payments

Purpose: Form D is the annual return that employers submit to the Inspector of the Payment of Bonus Act. This form summarizes the total bonus paid, the percentage of bonus declared, and any non-payment reasons.

Key Details in Form D:

• Establishment Details: Name of the company, address, and industry.
• Total Employees: Total number of employees who received a bonus.
• Bonus Details: Total bonus payable and actual bonus paid.
• Settlement Details: If any dispute was settled under the Industrial Disputes Act, the form should specify the settlement amount and date.
• Non-payment Reasons: If some employees did not receive their bonus, the employer must mention the reasons for non-payment.

Deadline for Submission: Employers must submit Form D within 30 days after the expiry of the bonus payment period.

Key Compliance and Reporting Deadlines

1. Bonus Payment Deadline: The bonus must be paid in cash within 8 months from the close of the accounting year.
2. Return Filing: Employers must submit Form D within 30 days after the expiry of the bonus payment period, which could be before the filing of income tax returns or during the Diwali or Durga Puja season, depending on the practice in the establishment.
3. Record Keeping: Employers must maintain proper records of Form A, Form B, and Form C for internal compliance and future audits.

Conclusion

The Payment of Bonus Act, 1965 ensures that employees receive their rightful share of profits in the form of a bonus. The correct filing of Form A, Form B, Form C, and Form D helps employers stay compliant with the law, avoiding penalties and disputes. By adhering to the guidelines set forth in these forms and paying bonuses on time, employers can maintain good employee relations and ensure smooth operations within the legal framework.

Annual Return for Bonus Payments under the Payment of Bonus Act, 1965: Form D Compliance and Reporting

As per the Payment of Bonus Act, 1965, every employer is required to submit an Annual Return to the Inspector within 30 days after the expiry of the time limit specified in Section 19. The return must contain details of the bonus paid to employees for the accounting year. The bonus amount must be paid in cash to employees within eight months from the close of the accounting year.

Below is the format of Form D, which must be filled out by the employer to comply with the regulations:

FORM D: Annual Return – Bonus Paid to Employees for the Accounting Year Ending on [Insert Date]

S. No.	Details	Information
1	Name of the Establishment and Its Complete Postal Address:	[Insert Establishment Name and Address]
2	Name of Industry:	[Insert Industry Name]
3	Name of the Employer:	[Insert Employer Name]
4	Total Number of Employees:	[Insert Total Employee Count]
5	Number of Employees Benefited by Bonus Payments:	[Insert Number of Employees]

Details of Bonus Payment:

S. No.	Particulars	Amount/Details
1	Total Amount Payable as Bonus under Section 10 or 11 of the Payment of Bonus Act, 1965	[Insert Total Amount of Bonus Payable]
2	Settlement, if any, Reached Under Section 18(1) of the Industrial Disputes Act, 1947 with Date	[Insert Settlement Details, if any]
3	Percentage of Bonus Declared to be Paid	[Insert Percentage]

Bonus Payment Details:

S. No.	Particulars	Details
4	Total Amount of Bonus Actually Paid	[Insert Amount Paid]
5	Date on Which Payment Was Made	[Insert Date of Payment]
6	Whether Bonus Has Been Paid to All Employees?	[Yes/No]
7	If No, Reasons for Non-Payment	[Insert Reasons]
8	Remarks	[Additional Remarks, if any]

Signature:

Signature of the Employer or His Agent: [Employer’s Signature or Agent's Signature]
[Date of Submission]

Important Points to Remember:

• The Annual Return should be submitted to the Inspector within 30 days from the expiry of the time limit specified under Section 19 of the Payment of Bonus Act, 1965.
• The bonus must be paid in cash within eight months from the close of the accounting year.
• The return must include details of the bonus paid to employees, settlements made under the Industrial Disputes Act, and whether all employees have received the bonus.
• If bonus payments have not been made to certain employees, the reasons for non-payment should be clearly mentioned in the return.

By maintaining proper records and filing the return within the stipulated time, employers can ensure compliance with the Payment of Bonus Act and avoid penalties for non-compliance.

Maintaining a Register for Bonus Payments: Compliance with the Payment of Bonus Act, 1965 - Part 3

In accordance with the Payment of Bonus Act, 1965, employers are required to maintain a register containing detailed information about the bonus due to each employee, any deductions made, and the amount actually disbursed. This ensures transparency in bonus payments, helps track the applicable provisions for bonuses, and provides clarity on any pre-paid bonuses (such as Puja bonuses) or customary bonuses deducted from the total payable bonus.

Below is the format for maintaining the register that includes the required details for each employee and any deductions made. It is important to note that if any Puja bonus or other customary bonus is paid to an employee before the bonus under the Act is payable, the employer is entitled to deduct such amounts from the total payable bonus.

Format for Maintaining Register (Form C)

S. No.	Name of Employee	Father's Name	Whether Employee Completed 15 Years of Age at the Beginning of the Accounting Year	Designation	No. of Days Worked in the Year	Total Salary or Wage in Respect of the Accounting Year	Amount of Bonus Payable under Section 10 or Section 11	Deduction Amount (Puja Bonus/Interim Bonus/Other Customary Bonus Paid)	Net Amount Actually Paid (Amount Payable Minus Deductions)	Date on Which Bonus Paid	Signature/Thumb Impression of Employee
1	[Employee Name]	[Father's Name]	[Yes/No]	[Designation]	[Number of Days]	[Salary/Wage Amount]	[Bonus Payable]	[Puja Bonus or Other Deduction]	[Net Bonus Paid]	[Date of Payment]	[Employee Signature]
2	[Employee Name]	[Father's Name]	[Yes/No]	[Designation]	[Number of Days]	[Salary/Wage Amount]	[Bonus Payable]	[Puja Bonus or Other Deduction]	[Net Bonus Paid]	[Date of Payment]	[Employee Signature]
...	...	...									...

Explanation of Columns in the Register

1. S. No.: Serial number for each employee.
2. Name of Employee: Full name of the employee entitled to receive the bonus.
3. Father's Name: Father's name of the employee.
4. Whether Employee Completed 15 Years of Age at the Beginning of the Accounting Year: A confirmation whether the employee had completed 15 years of age as of the beginning of the accounting year (important for eligibility to receive the bonus).
5. Designation: The job title or designation of the employee.
6. No. of Days Worked in the Year: The total number of days the employee worked during the accounting year.
7. Total Salary or Wage in Respect of the Accounting Year: The total salary or wages earned by the employee during the accounting year, which is the basis for calculating the bonus.
8. Amount of Bonus Payable under Section 10 or Section 11: The amount of bonus payable to the employee under Section 10 (minimum bonus) or Section 11 (maximum bonus) of the Payment of Bonus Act, 1965.
9. Deduction Amount (Puja Bonus/Interim Bonus/Other Customary Bonus Paid): Any bonuses (Puja, interim, or other customary bonuses) paid in advance or during the accounting year. This amount will be deducted from the total bonus payable.
10. Net Amount Actually Paid (Amount Payable Minus Deductions): The final amount of bonus that is paid to the employee after deducting the bonuses that were paid in advance (such as Puja bonus).
11. Date on Which Bonus Paid: The date on which the bonus is paid to the employee.
12. Signature/Thumb Impression of Employee: The signature or thumb impression of the employee to acknowledge the receipt of the bonus.

Key Points to Remember:

• Puja Bonus/Interim Bonus: If any bonus is paid before the final bonus (such as Puja bonus or customary bonus), it must be deducted from the final amount payable to the employee under the Act.
• Eligibility for Bonus: The employee must have completed 15 years of age at the beginning of the accounting year to be eligible to receive the bonus.
• Total Salary or Wage: The total salary or wage is used to calculate the bonus, and deductions are made from the amount of bonus payable.
• Payment of Bonus: The bonus can be paid before the Income Tax Return filing date, but the full and final payment should follow the prescribed date according to the Act.

Conclusion

Maintaining a Register for Bonus Payment is an essential practice for employers to ensure full compliance with the Payment of Bonus Act, 1965. The register must include comprehensive details of each employee’s bonus entitlement, any deductions (such as pre-paid bonuses), and the actual amount paid. This system helps employers stay compliant and ensures employees receive the correct bonus payment while also tracking any advances or deductions from the total payable bonus.

Set On and Set Off of Allocable Surplus under the Payment of Bonus Act, 1965 - Part 2

In accordance with Section 15 of the Payment of Bonus Act, 1965, the provisions related to the set on and set off of allocable surplus are designed to ensure that any surplus in one year can be carried forward or made up from previous years, subject to certain limitations. These provisions help in balancing the distribution of the bonus to employees over multiple years, especially when the available surplus fluctuates. The law provides guidelines on when the surplus is carried forward and how it is utilized in future years.

Key Provisions of Set On and Set Off:

1. Set On:

   • Definition: If in a particular accounting year, the allocable surplus exceeds the maximum bonus payable to employees, the excess surplus (after meeting the maximum bonus requirement) may be carried forward and used to set on in the subsequent accounting years.
   • Limit for Set On: The excess that is carried forward for set on is subject to a cap of 20% of the total salary or wages of the employees employed in the establishment for that year. This ensures that the surplus set on does not exceed a certain proportion of the employees' total salary or wages.
   • Period of Carry Forward: The surplus carried forward as set on can be carried forward for a period of up to four accounting years.
   • Utilization of Set On: In subsequent years, if there is a shortfall in the allocable surplus for paying bonuses, the set on amount can be utilized to meet the bonus payments.

2. Set Off:

   • Definition: If in a particular accounting year, the available surplus or allocable surplus falls short of the minimum bonus payable to employees (as per Section 10 of the Act), or if there is no available surplus in that year, the shortfall can be carried forward from the surplus of previous years, which has been set on.
   • Minimum Bonus (Section 10): The minimum bonus payable to employees is 8.33% of their salary or wages, or INR 100, whichever is higher. If the current year's allocable surplus is insufficient, this deficiency can be set off from the surplus carried forward (set on) from previous years.
   • Period of Carry Forward for Set Off: Like the set on, the deficiency can be carried forward for up to four accounting years.
   • Utilization of Set Off: The deficiency in the current year’s bonus payments is covered by the set off amount, which will be utilized in future years.

Set On and Set Off Calculation Process

1. Calculate Allocable Surplus:

   • Start by calculating the allocable surplus as per the provisions under Section 6. This is done by subtracting deductions from the gross profit.

2. Determine Maximum and Minimum Bonus:

   • Compare the allocable surplus with the maximum bonus (20% of salary or wages) and the minimum bonus (8.33% of salary or wages or INR 100, whichever is higher).

3. Excess Surplus (Set On):

   • If the allocable surplus exceeds the maximum bonus, the excess amount is set on.
   • The excess is limited to 20% of the total salary or wages of employees.

4. Deficiency in Bonus (Set Off):

   • If the allocable surplus is insufficient to pay the minimum bonus, the shortfall is set off from the surplus carried forward (set on) from previous years.

5. Track Surplus and Deficiency:

   • Maintain a register that tracks both set on (excess surplus carried forward) and set off (deficiency covered) for each year.

Format for Tracking Set On and Set Off of Allocable Surplus

Register for Set On and Set Off

The employer must maintain a detailed register to record both the set on and set off amounts, ensuring compliance with the Payment of Bonus Act. The format should include the following fields:

Year	Allocable Surplus (INR)	Maximum Bonus Payable (20%) (INR)	Excess Surplus (Set On) (INR)	Minimum Bonus Payable (8.33%) (INR)	Deficiency (Set Off) (INR)	Surplus Carried Forward (Set On)	Deficiency Carried Forward (Set Off)
FY 2023-24	15,00,000	5,00,000	1,00,000	1,25,000	0	1,00,000	0
FY 2024-25	10,00,000	4,00,000	0	1,00,000	0	0	1,00,000
FY 2025-26	12,00,000	4,80,000	0	1,00,000	0	0	1,00,000

Key Points for the Register:

• Excess Surplus (Set On): If the allocable surplus exceeds the maximum bonus payable, the difference is carried forward as set on.
• Deficiency (Set Off): If the allocable surplus is insufficient for the minimum bonus, the deficiency is covered using the set-off amount carried forward.
• The amounts are carried forward for a maximum period of four years.

Draft Form A for Set On and Set Off of Allocable Surplus

Form A is a declaration summarizing the set on and set off of allocable surplus, and it should be signed by a Chartered Accountant (CA) to confirm its accuracy and compliance with the law.

[Employer’s Name]
[Employer’s Address]
[Financial Year]

Subject: Computation of Set On and Set Off of Allocable Surplus for the Financial Year [Year]

1. Allocable Surplus Calculation:

   • Gross Profits (After Deductions): [Amount]
   • Less: Sums Deductible as per Section 6: [Amount]
   • Allocable Surplus: [Amount]

2. Maximum Bonus Payable:

   • 20% of Salary/Wages of Employees: [Amount]
   • Excess Surplus (Set On): [Amount]
     (If allocable surplus exceeds the maximum bonus)

3. Minimum Bonus Payable:

   • 8.33% of Salary/Wages or INR 100 (whichever is higher): [Amount]
   • Deficiency (Set Off): [Amount]
     (If allocable surplus falls short of the minimum bonus)

4. Surplus/Deficiency Carried Forward (Set On/Set Off):

   • Excess Surplus Set On from Previous Year: [Amount]
   • Deficiency Set Off from Previous Year: [Amount]

Chartered Accountant’s Certification:

I, [Name of CA], certify that the calculation of the allocable surplus, set on, and set off has been done in compliance with the provisions of the Payment of Bonus Act, 1965.

Conclusion

In conclusion, set on and set off provisions under the Payment of Bonus Act, 1965 play a crucial role in ensuring that employers manage their surplus and deficiency for bonus payments effectively over multiple years. By maintaining a proper register and filing accurate Form A, employers can ensure that they are in compliance with the legal requirements while distributing the bonus to employees in a fair and transparent manner.

Guide to Computation of Allocable Surplus for Non-Banking Companies under the Payment of Bonus Act, 1965 - Part 1

Introduction to Allocable Surplus Calculation

In India, the Payment of Bonus Act, 1965 mandates that employers calculate and distribute a bonus to employees based on the allocable surplus from the company’s profits. For non-banking companies, it is vital to calculate the allocable surplus correctly for each financial year, ensuring compliance with statutory requirements.

The allocable surplus is computed based on the company’s gross profits for the financial year, adjusted for specific deductions under Section 6 of the Payment of Bonus Act. These deductions may include tax provisions, employee provident fund contributions, and other prescribed statutory payments.

Non-banking companies are required to allocate 67% of the available surplus towards the bonus pool, which is then distributed among eligible employees.

The bonus payment is traditionally made during festive periods like Diwali or Durga Puja or before the Income Tax Return is filed, with companies generally ensuring that the bonus is paid within 8 months from the close of the financial year. In practice, provisions for bonus are also made during the year, based on estimations of the allocable surplus.

Period of Calculation and Payment of Bonus

• Period for Calculation: The allocable surplus is calculated based on the financial year (April 1st to March 31st). The final calculation is done after the company’s financial statements are prepared and finalized. However, companies may provision for bonus during the year in anticipation of the surplus.

• Payment of Bonus: As per the Payment of Bonus Act, the bonus must be paid to eligible employees within 8 months from the end of the financial year (i.e., by November 30th for a financial year ending on March 31st). Companies generally prefer to pay the bonus during festive seasons such as Diwali or Durga Puja to enhance employee satisfaction.

• Provisional Calculation: Although the final allocable surplus is based on actual financials, companies often make provisions for the bonus in the interim period. This provisional calculation should be reviewed and adjusted when the final figures are available.

Steps for Calculation of Allocable Surplus

1. Gross Profits for the Year

• Action: Obtain the final Profit & Loss (P&L) statement for the financial year.
• Important Consideration: Ensure that the gross profits reflect all adjustments, including any changes in revenue or expenses at the year-end.

2. Deductible Sums under Section 6

• Action: Identify and deduct sums specified under Section 6 of the Payment of Bonus Act. These include:
  • Income tax provisions for the year.
  • Employee Provident Fund (EPF) contributions.
  • Gratuity provisions.
  • Other statutory deductions as prescribed.
• Important Consideration: Be thorough in reviewing the statutory dues and other deductions, as these directly affect the available surplus.

3. Available Surplus

• Action: Calculate the available surplus by subtracting the deductible sums from the gross profits.
• Formula: $$\text{Available Surplus} = \text{Gross Profits} - \text{Deductible Sums}$$
• Important Consideration: Verify that all statutory deductions have been accurately deducted to arrive at the correct available surplus.

4. Allocable Surplus Calculation

• Action: Calculate the allocable surplus by applying 67% of the available surplus (specific to non-banking companies).
• Formula: $$\text{Allocable Surplus} = \text{Available Surplus} \times 67\%$$
• Important Consideration: Double-check that the applicable 67% of available surplus has been correctly applied.

Excel Format for Calculation of Allocable Surplus

Sl. No.	Particulars	Amount (INR)	Calculation Formula	Checklist for Calculation
1	Gross Profits for the Year	[Amount]	Direct input from P&L	✓ Confirm with finalized P&L statement
2	Less: Deductible Sums (Section 6)	[Amount]	Direct input	✓ Include statutory deductions (PF, taxes, etc.)
3	Available Surplus	[Amount]	=Gross Profits - Deductible Sums	✓ Ensure deductions are correctly accounted for
4	Allocable Surplus (67%)	[Amount]	=Available Surplus * 67%	✓ Apply 67% for non-banking companies
5	Final Allocable Surplus	[Amount]	Use Line 4	✓ Verify final allocable surplus calculation

Checklist for Calculation of Allocable Surplus

1. Gross Profits for the Year:

   • Ensure that the final Profit & Loss statement is used for calculating the gross profits.
   • Confirm that all entries are accurate and final, with no adjustments pending.

2. Deductible Sums (Section 6):

   • Check for all deductions specified in Section 6, including taxes, employee provident fund contributions, and other statutory payments.
   • Ensure that these deductions are up-to-date and verified.

3. Available Surplus:

   • Confirm that the available surplus is correctly calculated by subtracting the deductible sums from the gross profits.
   • Ensure the final available surplus is in compliance with the provisions of the Bonus Act.

4. Allocable Surplus:

   • Verify that the allocable surplus is calculated as 67% of the available surplus, in line with the statutory requirement for non-banking companies.

5. Provisional vs. Final Surplus:

   • If provisional figures were used earlier in the year, ensure that they are updated once the final financial statements are available.

Draft Form A – Computation of Allocable Surplus

Form A
Computation of Allocable Surplus for the Financial Year [Year]

To,
[Name of the Company]
[Address of the Company]

Subject: Computation of Allocable Surplus for the Year [Year]

I, [Name of the Chartered Accountant], having been appointed as the statutory auditor of [Name of the Company], hereby certify that the allocable surplus for the financial year [Year] has been computed as follows:

Particulars	Amount (INR)	Remarks
Gross Profits for the Year	[Amount]	As per final P&L statement
Less: Deductible Sums (Section 6)	[Amount]	Includes PF, tax provisions, etc.
Available Surplus	[Amount]	Gross Profits - Deductible Sums
Allocable Surplus (67%)	[Amount]	Available Surplus * 67%

Certification

I confirm that the allocable surplus has been calculated in accordance with the Payment of Bonus Act, 1965 and applicable laws. The allocable surplus has been computed at 67% of the available surplus, and is being used for the purpose of determining the bonus payable to employees.

For [Name of the Firm]
[Name of the Chartered Accountant]
[Signature]
[Date]

Conclusion

The calculation of allocable surplus is a critical compliance requirement for non-banking companies under the Payment of Bonus Act, 1965. It ensures that the company fairly distributes a portion of its profits to employees as a bonus. While the final bonus payment must be made within 8 months of the close of the financial year, the provisioning for bonus should be done in advance, based on an accurate calculation of the allocable surplus. By following the steps outlined above and adhering to the statutory guidelines, companies can ensure compliance, transparency, and employee satisfaction.

Guide to Amending the Memorandum of Association (MOA) Under the Companies Act, 2013

The Memorandum of Association (MOA) is the charter document of a company, defining its legal identity, scope of operations, and fundamental objectives. It acts as a constitutional framework that binds the company, its shareholders, and regulatory authorities.

Importance of MOA Realignment for Companies Incorporated Under the Companies Act, 1956

With the enactment of the Companies Act, 2013, companies originally registered under the Companies Act, 1956 must realign their MOA to comply with updated statutory provisions. The 2013 Act introduced significant changes, including revised object clause structures, compliance requirements, and governance norms. Failing to amend the MOA in line with the new Act can lead to regulatory non-compliance, operational inefficiencies, and legal challenges.

Key Amendable Clauses in the MOA

Under Section 13 of the Companies Act, 2013, companies may amend the following MOA clauses:

• Name Clause – Changing the official name of the company.

• Situation Clause – Altering the registered office location.

• Object Clause – Expanding, modifying, or restricting business activities.

• Liability Clause – Changing the liability structure of members.

• Capital Clause – Revising the authorized capital structure.

Note: The Subscription Clause (which records initial shareholders and their holdings) cannot be amended.

Step-by-Step Procedure for MOA Amendment

Step 1: Board Approval

• The Board of Directors must pass a resolution approving the proposed MOA amendment.

• A decision is taken to convene an Extraordinary General Meeting (EGM) for shareholder approval.

Step 2: Drafting and Issuing EGM Notice

• The company must issue a clear and comprehensive EGM notice at least 21 days in advance.

• The notice must include:

  • The text of the proposed amendment.

  • An explanatory statement detailing the rationale for the amendment.

Step 3: Passing a Special Resolution in the EGM

• The amendment must be approved by a three-fourths majority of shareholders present and voting.

• Shareholder dissent, if any, must be appropriately addressed, particularly for companies with public investments.

Step 4: Regulatory Filings with the Registrar of Companies (RoC)

• The company must file Form MGT-14 within 30 days of passing the special resolution.

• Required attachments:

  • Certified copy of the special resolution.

  • The revised MOA.

  • Explanatory statement from the EGM.

Step 5: Approval from RoC and Effective Implementation

• The RoC examines the amendment for compliance with statutory norms.

• Upon approval, the changes are formally recorded, and the revised MOA becomes enforceable.

Specific Considerations for Different Amendments

1. Name Clause Amendment

• The new name must comply with MCA’s naming guidelines.

• If the name includes restricted words like "India," prior approval from the Central Government is required.

2. Situation Clause Amendment (Change of Registered Office)

• Within the same city: Simple RoC approval is sufficient.

• Interstate relocation: Requires Regional Director (RD) approval in addition to RoC filings.

• Mandatory Filing: Form INC-22 must be submitted.

3. Object Clause Amendment

• If the company has raised public funds, additional requirements include:

  • Publishing notices in two newspapers (one English, one local language).

  • Providing dissenting shareholders an exit route per SEBI guidelines.

4. Capital Clause Amendment

• Any changes in authorized capital require Form SH-7 to be filed with the RoC.

• Proper disclosures must be made to shareholders and regulators.

5. Liability Clause Amendment

• Any alteration in liability terms must be explicitly approved by shareholders through a special resolution.

• The revised structure must be communicated transparently.

Common Pitfalls to Avoid

• Missed Regulatory Deadlines: Delayed filings of MGT-14, INC-22, SH-7 attract penalties.

• Inadequate Shareholder Approval: A three-fourths majority is mandatory; non-compliance renders the amendment invalid.

• SEBI Non-Compliance for Listed Companies: Publicly listed companies must follow additional disclosure norms.

• Rejection of Proposed Name Changes: Ensure the new name aligns with MCA approval guidelines to avoid rejection.

Conclusion

Amending the MOA is a strategic and compliance-critical process. Companies incorporated under the Companies Act, 1956 should proactively realign their MOA with the Companies Act, 2013 to ensure smooth business operations and legal compliance. A structured approach, timely filings, and strict adherence to legal requirements will facilitate a hassle-free amendment process and safeguard the company from regulatory risks.