“Don’t harass the honest. Don’t spare the dishonest.” This is prominently displayed in the Regional Director, Hyderabad’s office (Ministry of Corporate Affairs). Honestly, I wish this is being implemented in reality. As a professional, I agree we are not to criticise the stringent laws being put in place. Rather our responsibility is to be the conscience keepers of corporates and guide them on the right side of law, failing which they land up paying a heavy price. But more often than not, I do find small enterprises with first time entrepreneurs being either completely ignorant of the law (which I am aware is not excusable !) or ignoring our advice (but at what cost !). In the interest of ‘conserving the resources’ – read working on shoe-string budget or being boot-strapped with hardly any budget for finance and compliance functions, they land up paying eye-popping penalties along with a heavy professional fee.
This said, of late new companies that are struggling to find their feet are being slapped with adjudication notices. What is the crime ?
Not using the words “Registered Office” on the letter head – the registered office address was correctly mentioned in one case but the words “Registered Office” were missing ! The likely damage about Rs. 3 lacs !
Not filing INC20A, a form to indicate completion of all steps for Commencement of Business by a company – in one case, the young entrepreneurs had infused the initial share capital within time but had missed communicating the same to the ROC via filing the form within 180 days. Penalty Rs. 50k to 1 lac per Director & Company !
Not informing to the ROC within 30 days about shifting of Registered Office within a city – Penalty of upto 1 lac per Director & Company !
While I do not dispute the powers of the ROC in sending adjudication notices in above cases, the question is are these such serious crimes that deserve severe punishments which almost make fledgling businesses go bust even before starting ? Agreed that unscrupulous promoters bend the laws and create shell companies to launder money and finance illegal transactions but can there be some mechanism where honest entrepreneurs who have genuinely ‘missed out’ certain compliances be treated less harshly ? In the current circumstances, even if the situation is explained, ROC’s hands are tied by law, once he gives a notice for adjudication. What I am stating here is not imaginary. It is just a microcosm of the multitude of cases shared with me by some of my professional colleagues. On the other hand, several dishonest large corporates continue to commit serious crimes that are not detected even by Big Auditors and Regulators. They don’t deserve to be spared but the small ones must not be ‘harassed’. While penalties must deter offenders they must not be so severe that they deter businessmen from starting up as a company – they must only deter them from committing such offences in future. Else, this regime is surely going to be the death-knell of small enterprises which are already reeling under economic stress. Their flood of woes seems to be on the rise.
As you reflect on the criticality of compliances – big or small – in this 221st issue of Samhita, I would definitely urge all of you to read the article by Mr. Vittal Rao on Payment of Wages and Contract Labour as envisaged under the Code on Wages, 2019. The mere explanation of the definition of Wages makes it amply clear, what far reaching effect the inclusions and exclusions to Wages will have on employee compensation. From employer perspective the costs are definitely going up. Compensation structures have to be redrawn. Employment contracts need to be redrafted bearing in mind the various components of Wages. The implications are far and wide. Yet to emerge and evolve. Please do read to understand – whether as employer or employee.
The 1st article on Code on Wages, 2019 (Code) dealt with Payment of Minimum Wages. In this 2nd article, the focus is on understanding and analysing…Read more
Extension of due dates
The MCA has extended the due dates for filing BEN-2 and DIR-3 KYC as per details below:
Previous Due Date
Extended Due Date
BEN-2 (Significant Beneficial Ownership)
Income Tax updates
Payments to Farmers – No TDS
A commission agent or trader, operating under Agriculture Produce Market Committee (APMC) and registered under any Law relating to Agriculture Produce Market of the concerned State can withdraw cash in excess of Rs. 1 crore for the purpose of making payments to the farmers on account of purchase of agriculture produce subject to certain conditions of disclosure. There will be no TDS under Section 194N.
Taxation Laws (Amendment) Ordinance, 2019
The Ministry of Law and Justice has notified the Taxation Laws (Amendment) Ordinance 2019 on 20.09.2019. Following are the highlights:
Introduction of Section 115BAA – Tax rates for all domestic companies have been reduced to 22% (effective rate 25.17%, including surcharge of 10% and cess of 4%), subject to condition that no tax holidays/ incentives/ exemption are availed. In addition, such companies would not be required to pay Minimum Alternative Tax (MAT).
Introduction of section 115BAB – Domestic manufacturing companies (including Indian companies with foreign direct investment) incorporated on or after 1st October 2019 shall be required to pay corporate tax @ 15%, (effective rate 17.16% including surcharge and cess). This is subject to the condition that no tax exemption/ incentive is availed and company commences production before 31st March, 2023. Further, such companies shall not be required to pay MAT.
Companies not opting for concessional tax regime and availing tax exemption/incentive shall continue to pay tax at pre-amended rate. In order to provide relief to such companies, rate of MAT has been reduced from existing 18.5% to 15% (i.e, effective MAT reduction of ~4.076% after considering surcharge and cess).
Companies can opt for the concessional tax regime (i.e. 22% tax rate) after expiry of tax holiday/exemption period. Option once exercised cannot be subsequently withdrawn.
The Budget 2019 announcement of expanding the scope of buy-back tax to include buybacks by listed companies has been grandfathered to the extent of shares of such listed companies which have already made a public announcement of buyback before July 5, 2019. Such shares would not be subjected to the buy back tax U/s 115QA.
Income Tax (9th Amendment) Rules, 2019
CBDT (Central Board of Direct Taxes) has notified the Income Tax (9th Amendment) Rules, 2019 which shall have deemed to have come into effect from the 23.08.2019. Following are the highlights:
The depreciation on Motor Cars for personal use has been increased to 30% on WDV basis for purchase of vehicles from 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020.
The depreciation on Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August, 2019 but before the 1st day of April, 2020 and is put to use before the 1st day of April, 2020 has been increased to 45% on WDV basis.
RCM – CGST
W.e.f 01.10.2019, following are the changes in RCM-CGST:
Supply of services by a music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under clause (a) of sub-section (1) of section 13 of the Copyright Act, 1957 relating to original dramatic, musical or artistic works to a music company, producer or the like has been amended to exclude the services by an author relating to original literary work.
Supply of services by a music composer, photographer, artist or the like by way of transfer or permitting the use or enjoyment of a copyright covered under S.13 (1)(a) of the Copyright Act, 1957 relating to original dramatic, musical or artistic works to a music company, producer or the like, has been inserted. UTGST must be levied by the Author subject to certain exceptions.
Services provided by way of renting of a motor vehicle provided to a body corporate by any person other than a body corporate, paying union territory tax at the rate of 2.5% on renting of motor vehicles with input tax credit only of input service in the same line of business to any Body corporate located in the taxable territory has been inserted.
Services of lending of securities under Securities Lending Scheme, 1997 (“Scheme”) of Securities and Exchange Board of India (“SEBI”), as amended by a Lender i.e. a person who deposits the securities registered in his name or in the name of any other person duly authorised on his behalf with an approved intermediary for the purpose of lending under the Scheme of SEBI to a Borrower i.e. a person who borrows the securities under the Scheme through an approved intermediary of SEBI has been inserted.
Clarification w.r.t Place of Supply – R&D services
Place of supply in respect of supply of R&D Services related to pharma sector has been clarified as follows :
Nature of supply : Supply of research and development services related to pharmaceutical sector as specified in Column (2) and (3) from Sl. No. 1 to 10 in the Table B by a person located in taxable territory to a person located in the non-taxable territory.
Place of supply in respect of above: The place of supply of services shall be the location of the recipient of services subject to fulfilment of the following conditions:-
Supply of services from the taxable territory are provided as per a contract between the service provider located in taxable territory and service recipient located in non-taxable territory.
Such supply of services fulfils all other conditions in the definition of export of services, except sub- clause.
provided at clause (6) of Section 2 of Integrated Goods and Services Tax Act, 2017 (13 of 2017).
Note: The contents of this Newsletter are only a summary and has not dealt with any issue in detail. Any action taken or proposed to be taken must be in consultation with professionals and not merely based on the articles / news updates. S. C. Sharada & Associates disclaims all liability on action taken without professional advice.