In the dynamic world of business finance, the quest for operational excellence and financial clarity is never-ending. After having the privilege of guiding over 125 companies through the implementation of Zoho Finance products, our insights have crystallized around a singular piece of advice: the most opportune moment for transitioning to a new accounting system is the present, especially as we edge closer to the commencement of a new fiscal year.

Why Make the Transition Now?

The rationale for this timing is multifaceted, rooted in both strategic foresight and operational pragmatism.

Seamless Transition & Custom Setup

At the heart of Zoho Books lies its unparalleled flexibility, a feature that permits a tailored setup meticulously aligned with your company’s unique operational workflows, reporting requirements, and financial management conventions. This bespoke approach ensures that the transition does not merely replace your accounting system but elevates it, making your financial operations more efficient and aligned with your business goals.

Updation of Critical Data

Masters: The transition provides an excellent opportunity to update your customer, vendor, and item masters in Zoho Books, thereby ensuring that your business is accurately reflected in the new system.

Chart of Accounts: It also allows for a smooth transition of your financial structure, ensuring that your reporting and analysis commence anew with heightened accuracy, setting a solid foundation for insightful financial management.

Accurate Financial Records from Day One

Opening Balances: By updating opening balances as of the cut-off date, you establish a clear financial starting point, which is indispensable for accurate record-keeping from day one.

Detailed AR & AP: Migrating invoice-level details for Accounts Receivable and Payable is crucial for precise ageing reports and financial insights, thereby enhancing the quality of your financial data and insights.

Comprehensive Team Training

A transition to Zoho Books is not just about software implementation; it’s about empowering your team. Comprehensive training ensures that your staff are proficient in leveraging the full suite of Zoho Books’ features, thereby enhancing your financial management capabilities and operational efficiency.

Challenges of a Mid-Year Transition

Opting for a transition at the start of the fiscal year is not just a matter of convenience; it’s a strategic move to avoid the pitfalls associated with mid-year changes. Complex data migration, reconciliation difficulties, and the inherent challenges of acclimatizing to a new system can significantly disrupt operational efficiency if undertaken mid-year. By choosing to transition at the beginning of a fiscal year, you circumvent these challenges, ensuring a smoother changeover and immediate alignment with your financial processes.

Conclusion

The journey towards financial clarity and operational excellence is ongoing, and the adoption of Zoho Finance products represents a pivotal step in this journey. The start of a new fiscal year offers a unique window of opportunity for this transition, a time when the alignment of financial structures and operational workflows can be achieved most effectively. By seizing this moment, businesses can ensure that they not only transition to a superior accounting system but also position themselves for greater efficiency, accuracy, and insight into their financial operations. As we have seen through our extensive experience with over 125 companies, the best time for this transition is now. Embrace the opportunity to redefine your financial management practices with Zoho Books, and set the stage for a year of unparalleled financial clarity and success.

The government has taken steps to support Micro, Small, and Medium Enterprises (MSMEs) through timely payments, underpinned by the MSME Act of 2006. If you’re an MSME or engage with one as a buyer, it’s crucial to understand the protections and obligations in place.

For MSMEs: Know Your Rights
As an MSME-registered entity, you have the right to receive payments within 45 days. In cases of delay, you’re entitled to an interest penalty three times the RBI’s bank rate, which currently stands at 6.50%, translating to an interest claim of 19.50%.

Key Actions for MSMEs:

Invoice Details:
Ensure your MSME registration number is on the tax invoice to affirm your status.

Communicate Your Status:
Proactively inform your customers of your MSME registration.

Document Transactions:
Secure a Purchase Order (PO) and Proof of Delivery (POD) for every transaction, including services, to validate the contract’s terms and completion. PODs can be acknowledged via email or direct sign-off by the client.

For Buyers from MSMEs: Responsibilities

Vendor Tagging:
Identify your vendor as an MSME upon their onboarding.

Addressing Defects:
In case of any service gaps or product defects post-invoice, document these concerns through email and ensure acknowledgment.

Legal Obligations:
– Compliance Filings:
Submit the MSME form to the Ministry of Corporate Affairs (MCA) biannually.
-Financial Disclosures:
Reflect dues to MSME vendors in your annual Balance Sheet.
-Tax Considerations:
Non-payment to MSME vendors within the financial year disqualifies the expense for income tax deductions, which can be reclaimed in the year of payment 

The Indian union budget 2022 came with much joy and anxiety for the crypto industry in India. While it is unclear if the much awaited crypto regulations will be tabled in the parliament this month, there is plenty to decode from the tax-related announcements.

The crypto industry & international media was quick to celebrate the tax regime giving some form of legitimacy to the crypto industry in India. One can understand that this comes as a relief to an industry that has had a rollercoaster past with regulations. However, experts were quick to point out that taxation on an activity is different from its legality and by evening, several finance ministry personnel lend their comments on the same lines. Without getting into the legal status of crypto trade in India, let’s decode the tax announcements and its implications.

To start off with lets make it clear that provisions introduced in the bill shall be applicable on income generated from transactions post 1st April 2022. This is because the said provisions are not introduced retrospectively

Let’s take a quick look at the announcements made by the FM:  

• A new terminology is introduced to refer to crypto assets. New term to be used is “Virtual Digital Asset” (referred to as “VDA” or “VDAs” at many places in this article for the sake of brevity) . Virtual digital assets are specifically defined in the Income Tax Act, 1961. The current definition of virtual digital asset include crypto assets/currencies and NFTs
• Income tax of 30% plus applicable surcharge and cess to be levied on income generated by transfer of Virtual Digital Asset
• TDS @1% to be done by buyer at the time of purchase of any virtual digital asset

Defining Virtual Digital Asset

There are 3 limbs of the definition introduced by the government.

• The first limb describes in great detail what in common man’s language we refer to as “crypto currencies”. Government is well informed that there are different types of cryptocurrencies and each may have distinguished underlying technology and use cases. The way the definition is drafted it seems that the government has left no stone unturned to ensure that anything to do with cryptography and of some value falls under the category of virtual digital and as a result is taxed.
• The second limb simply states “a non-fungible token or any other token of similar nature, by whatever name called; ” . By making NFTs as part of the definition of Virtual digital asset, the government has established that tax implications of dealing crypto currencies and NFTs shall remain the same. 

It is to be noted that in the “Explanation” of the of the definition government has stated that (a) “non-fungible token” means such digital asset as the Central Government may, by notification in the Official Gazette, specify;

Hence, it is safe to assume that there will be further notification “specifying” what NFTs shall constitute.

• The third and final limb states “(c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify:”

This is done to keep the definition open-ended and to keep room to amend or add similar type of asset class in future

Taxing Virtual Digital Asset

The Taxable Event

A new section, Section 115BBH is introduced in the Income Tax Act to lay down provisions relating to taxation of VDA transactions. As per the section, gains on transfer of crypto transactions are taxed at a flat rate of 30% plus applicable surcharge and cess. 

It is not uncommon to have a separate rate for a specific type of transaction in Income tax. For example, short term capital gains from dealing in equity securities is taxed at 15%. 

Also, it is not that only crypto transactions are taxed at the rate of 30%. Partnership firms and LLPs pay tax on a flat rate of 30% + applicable surcharge and cess on their profits. Even Individuals and HUFs, pay tax at the rate of 30% on taxable income above Rs. 10 Lacs or Rs. 15 Lacs (if opted to pay tax at new rates).  As far as tax rate is concerned it is more or less in line with normal tax rates for people earning higher taxable income in India

Tax Rate and Computation

A new section, Section 115BBH is introduced in the Income Tax Act to lay down provisions relating to taxation of VDA transactions. As per the section, gains on transfer of crypto transactions are taxed at a flat rate of 30% plus applicable surcharge and cess.

It is not uncommon to have a separate rate for a specific type of transaction in Income tax. For example, short term capital gains from dealing in equity securities is taxed at 15%.

Also, it is not that only crypto transactions are taxed at the rate of 30%. Partnership firms and LLPs pay tax on a flat rate of 30% + applicable surcharge and cess on their profits. Even Individuals and HUFs, pay tax at the rate of 30% on taxable income above Rs. 10 Lacs or Rs. 15 Lacs (if opted to pay tax at new rates). As far as tax rate is concerned it is more or less in line with normal tax rates for people earning higher taxable income in India

Benefit of Basic Exemption Limit not granted

There are few other provisions which force us to think that on a broader level the government does not encourage trading or investing in VDAs. One of them is that even Individuals and HUFs cannot enjoy basic exemption limits on their crypto or VDA income.

Let us say Mr. Vicky has earned Rs. 1,00,000/- through crypto trading, Rs. 1,20,000/- through trading in equity shares and he has no other income. Now, there are flat rates of taxation for both crypto trading (30%) and short-term capital gain on equity shares (15%). Vicky has to pay tax at 30% on his crypto investments but no tax on short term capital gain as his overall income is less than Rs. 2,50,000/-. However, he is eligible to claim relief of tax upto Rs. 12,500/- U/s 87A as his overall income is less than Rs. 5,00,000/- . To summarize tax computation of Vicky will be as under-

Similar provisions are applicable in case of winnings from lotteries, betting on horse races, etc. One can say that from the government’s point of view as far as taxation is concerned, earnings from crypto trading is as good as winning a lottery!!!

Inter Set off and carry forward of losses

One more thing to be taken into consideration is that losses from crypto transactions cannot be adjusted against any other income. For example, if at the end of the year one has incurred a net loss of Rs. 1 Lac from crypto transactions and income from other sources is Rs. 10 Lacs. That person will have to pay tax on Rs. 10 Lacs of income from other sources, Rs. 1 Lac loss will not be reduced from his income from other sources.

Above is in line with provisions of set off of losses under the head Capital gains. One cannot set off loss under the head of “Income from Capital gain” against the income of any other head. However, loss within the head of capital gain can be set off against each other in following manner-

• Long Term Capital Loss can be set off only against Long Term Capital Gains.

• Short Term Capital Losses are allowed to be set off against both Long Term Gains and Short Term Gains. 

So for example, lets say Vicky has a short term capital loss of say Rs. 5 Lacs because of investing in equity shares and at the same time he also has a long term capital gain of Rs. 20 Lacs on sale of some house property. He has to pay tax only on Rs. 15 Lacs. 

In the same example above if the loss of Rs. 5 Lacs was from crypto transactions. In that case, Vicky would have to pay tax on long term capital gain of Rs. 20 Lacs. He would not have been allowed to adjust loss incurred from crypto transactions against long term capital gain.

It shall be noted that losses incurred on crypto trades can be set off against crypto gains!!! However, if there is a net loss at the end of the financial year because of transactions in VDAs. The said loss cannot be carried forward to next year.

No reduction of Expenses incurred for crypto gains

Generally, any expense incurred to generate any income can be reduced to arrive at Taxable income. For example, let us say if one has sold a house property and for selling the same that person has incurred brokerage expenses. That brokerage expense shall be reduced from gains earned from the sale transaction. This is because it is in direct relation to earn that income.

However, when it comes to VDA transactions only “cost of acquisition” will be allowed as an expense against the sale consideration. Any expenses like service fee, brokerage fees, gas fees etc of exchanges will not be allowed as a reduction from the income. 

Taxing is fine, TDS is a challenge

All buyers except “specified persons” any VDA is required to deduct TDS at 1% if they purchase a VDA of more than Rs. 10,000/- from any seller resident in India. In case of “specified persons” this threshold is of Rs. 50,000/-

Purpose of this provision is to ensure VDA transactions are traced and they don’t escape taxability.

Buyer is not required to obtain TAN in order to comply with this provision. This means there will be a separate form made available for reporting such transactions and filing TDS returns. A similar mechanism is in place to pay TDS on purchase of immovable property. It is worthwhile to note that this provision shall be applicable from 1st July 2022 and not 1st April 2022 like other provisions. 

Managing TDS is possible when buyer and seller know each other and have information of each other’s PAN number but it is not clear how this provision can be complied with when transactions are happening through an exchange. There are very high chances that obligation of TDS will be passed on to exchanges. In that case, it will be in line with current provisions of TDS with respect to transactions through e-commerce platforms. Wherein obligation of TDS/TCS is passed on to e-commerce operators.

TDS in case of non INR transactions

TDS is to be done even if one VDA is exchanged with another VDA. For eg. if Vicky buys BTC from Angad and pays to Angad with ETH. In this case, INR value of the transaction will have to be derived. Let’s assume the INR value of the transaction derived is Rs. 1,00,000/- . In this scenario, Vicky is required to collect Rs. 1,000/- over and above the transaction value and pay the same to the government in the form of TDS.

Interestingly, if we look at the above scenario from Angad’s point of view he is buying ETH from Vicky and has given BTC in exchange. So in a way both are buyers as well as sellers. Whether both parties will be required to comply with TDS obligation is still not clear. 

Liquidity crunch for frequent traders

TDS may also pose a significant challenge to frequent traders as 1% gets deducted from every sale transaction that they do. Just to give a parlance, TDS and TCS was introduced on trading of goods. TDS Rate for the same is only 0.10% and only businesses having turnover of more than Rs. 10 Crores are required to comply with it. 

A lot of liquidity will be blocked in taxes and will remain with the government. 1% of transaction value for a trader will accumulate in a big amount leading to liquidity crunch.

Virtual Digital Asset added in the definition of “property”

If one receives gifts in the form of VDAs for value of more than Rs. 50,000/- such gift shall become taxable in the hand of receiver under income from other sources. However, there will be no tax if such gift is received from a relative defined under Income Tax Act. 

An attempt has been made to decode tax provisions as introduced in the Union Budget, 2022 but it seems there is a long way to go. Procedural aspects are still not clear and are yet to be notified. Implications of VDA transactions under GST is not clear yet. There are high chances that there will be additional disclosure requirements in Income Tax form with regards to VDA holdings. There are many platforms which enable earning of interest income on crypto holdings. How will that income be taxed? Is it legal to provide such services? 

A draft bill on crypto transactions, “Cryptocurrency Bill, 2021” was published in 2021 for inputs from stakeholders. It was a draconian one hinting at a complete ban of crypto transactions in India. However, the same was never tabled in the parliament. Going forward, it is very likely that soon we will have detailed regulations in respect to Crypto transactions and the overall crypto ecosystem. 

“Virtual Digital Asset” is referred to as “VDA” or “VDAs” at many places in this article for the sake of brevity. Further, the term virtual digital asset and crypto transactions or cryptocurrency transactions are used interchangeably for the sake of simplicity.

Before we dive into taxation of cryptocurrency in India let us have a look at the currency of crypto world

At the time of writing this article in October 2021 Bitcoin price has skyrocketed to USD 64000 up from USD 32000 in July 2021. Also in this week First Exchange Traded Fund (ETF) linked to Bitcoin got listed on Wall Street, El Savador became the first country to adopt bitcoin as a legal tender few months back (what this essentially means that in El Savador no one can deny to accept bitcoin against sale of goods or delivery of services), on the domestic front in India CoinDCX became the first unicorn in the country in Crypto space, we have started seeing cryto exchanges signing up Bollywood stars as brand ambassadors, more and more advertising in the main stream media, etc.

Let me confess, what I have written so far makes the article sound like one of those ads pushing people to buy into crypto frenzy. However, that is not the point that I am trying to make over here. The point I am trying to make is that at this juncture and the direction in which we are heading, it seems very unlikely that there will be a “ban” on crypto currencies in India. Yes, there will be regulation and there must be a regulation but the uncertainty of there being a blanket ban is fading out. 

There are around 5000 types of cryptocurrencies in the world; Bitcoin, Ethereum, Litecoin being some of the most popular ones.  

1. Before going further let us look into the “legality” of transactions in cryptocurrency A lot of people have this misconception that cryptocurrencies are banned / are illegal in India. 

• RBI did issue a circular in April 2018 putting a ban. The ban was not on cryptocurrencies but on regulated financial institutions from providing services to businesses dealing in exchange / trading of cryptocurrencies. Basically, RBI told that banks cannot give services to any crypto exchanges making it practically impossible to buying or selling crypto currencies through Indian bank accounts  
• However, in March 2020, Supreme Court, in its decision in Internet and Mobile Association of India v. Reserve Bank of India struck down this circular. 
• Cryptocurrencies are absolutely legal. However, they are not yet recognized as a legal tender in India. 

Many believe that crypto is still at the infancy stage and there is a lot more which is to be explored. Many also believe that it is one of the greatest wealth creating opportunities and where there is “possibility” of wealth creation there is “certainty” of taxation. 

2. Currently, there are no specific provisions w.r.t cryptocurrency in the Income Tax Act. Lack of clarification has puzzled many as to how the transactions would be taxed, whether the transactions would be taxable or not in the first place. 

• Please mind that not having specific provisions in the Act and lack of clarifications does not eliminate cryptocurrency transactions from the purview of Income Tax. 
• As per the current tax regime these transactions can be briefly classified in 4 categories: 

1. Investment in cryptocurrency – Capital Asset 

2. Trading in cryptocurrency – Business Income 

3. Mining of cryptocurrency – Business Income 

4. Freelancing – Business Income 

The categorization would depend on the intention with which a person deals in cryptocurrency. 

3. Taxation under different scenarios 

In the below mentioned cases, if cryptocurrency is exchanged for INR or any other foreign currency, there would be no difficulty in determining the sale value and purchase value. But when it comes to transfer of cryptocurrency as cryptocurrency itself, the question of valuation of the transaction arises. In such cases, value of the cryptocurrency as on date of transfer should be considered to be sale value / purchase value. 

1. Investment in Cryptocurrency: 

• Cryptocurrency purchased with the intention of investment (lets say holding period of over a year) could be considered a Capital Asset Income from transfer of capital asset is taxable as capital gains If the Cryptocurrency is sold after holding for a period more than 3 years, it would amount to Long Term Capital Gain and would attract tax @ 20% (plus cess and surcharge as applicable). 

• If the transfer is made within 3 years of purchase, the gain would be taxable as Short Term Capital Gain and would attract tax @ applicable slab rate (plus cess and surcharge as applicable). 
• Losses, if any, shall be set off against the gains and only net gain (if any) would be taxable. In case of net loss, the same can be carried forward for 8 subsequent years. 

2. Trading in Cryptocurrency: 

• If a person trades in cryptocurrency on a regular basis, income from the same could be taxable under the head Profits & Gains from Business & Profession. 
• Further, just like intra-day trading of shares, if both purchase and sale of cryptocurrency are done on the same day, it could be considered as Speculative Business Income. 
• Business income (whether speculative or normal) would attract tax @ applicable slab rate (plus cess and surcharge if applicable). 

3. Mining of Cryptocurrency: 

• Crypto mining, sounds simple but is a bit complex concept to understand. It is a process in which the data blocks are validated and added to the blockchain by solving cryptographic equations. 
• People carrying out this process are called Miners. These miners receive free cryptocurrency as a reward for carrying out this process. 
• One point of view could be that crypto mining leads to creation of capital asset and the same being self-generated asset, cost of which is not determinable, cannot be computed under the capital gains provision and hence may be exempt from tax. This may lead to litigations as the IT department might not accept the above contention. 
• Thus, such cryptocurrencies received should be taxed as business income after deduction of expenses incurred in relation to the same. 

• Such Net Profit would be taxable @ applicable tax rate (plus cess and surcharge if applicable). 

4. Freelancing: 

• Here we are talking about people running any kind of business, consultancy or are working as a freelancer and receive payments for their sales / services in cryptocurrency. 
• Just because the receipts are not received in INR or any other foreign currency does not eliminate it from taxation as Income Tax clearly states that all kinds of income are taxable. 

• Thus, the entire business / freelancing receipts in cryptocurrency must be disclosed as income under the head Profits & Gains from Business & Profession. 
• Of course, all business expenses would be allowed as a deduction and only the Net Profit will be taxable. 
• This Net Profit would be taxable @ applicable tax rate (plus cess and surcharge if applicable). 

5. Miscellaneous income: 

• Apart from the aforesaid four main categories, one can also earn miscellaneous and trivial income from cryptocurrency by way of interest on yield farming*, airdrops** received, referral bonus, etc. 
• Such income, if earned as an ancillary income along with the primary business income from trading in cryptocurrency, could be clubbed and disclosed under the head Profits & Gains from Business & Profession. 
• If it is the primary and only source of income earned from cryptocurrency, then the same could be disclosed as Income from Other Sources. 
• These incomes shall be taxable @ applicable tax rate (plus cess and surcharge if applicable). 

*Yield farming involves lending of cryptocurrency. The returns on the same is earned by way of interest 

**Airdrops is a promotional activity in which cryptocurrency token or coin are distributed to numerous wallet addresses, usually for free. 

• Cryptocurrency Traders will have to maintain and get their books audited if they cross the threshold limit u/s 44AB of the Income Tax Act. 

4. Disclosure of Cryptocurrency in the IT Return 

The following clauses in the Income Tax Act could mandate disclosure of Cryptocurrency in the IT Return: 

• In case where Total Income exceeds Rs. 50 lakhs, disclosure of movable and immovable assets along with liabilities incurred in relation to such assets is mandatory. 
• Every person who is a Resident in India as per the Income Tax Act and holds any foreign asset, the same must be compulsorily disclosed. 
• If the Cryptocurrency is held as a Business Asset, the same must be disclosed in the ITR Balance Sheet. Further, if the same is held by a Partnership Firm or a Company, even as Investments, it must be disclosed in the ITR Balance Sheet. 

As per the existing provisions of the Income Tax Act, we can determine the nature of Cryptocurrency and offer the income to tax as above. However, due to lack of clarifications from the Revenue Department, it could lead to plenty of litigations. The department should provide clarifications or make appropriate provisions in the Act regarding the its nature and tax treatment. 

The government is planning to introduce “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”. The bill aims at creation of an official digital currency issued by RBI and regulate crypto transactions in the country. Cryptocurrency is an emerging market and has huge potential in India. India has around 350 Start-ups in this space. The Government should take expeditious decision and provide appropriate clarifications at the earliest. This would prevent investment losses and would enable such businesses to cease the opportunity of becoming global Start-ups taking India to next levels of growth. 

Basic terminologies used throughout the article:

• NRI- a “person resident outside India” who is a citizen of India or is a person of Indian origin [as per FEMA regulations]
• Designated Bank Branch- Branches of Authorized Dealer Bank to conduct business under PIS on behalf of NRIs.
• Portfolio Investment Scheme (PIS)- Scheme of RBI under which NRIs can purchase/sell shares/convertible debentures of Indian companies on Stock Exchange
• Repatriation – This means NRIs can take funds out of India
• Non – Repatriation – This means NRIs cannot take funds out of India and the same must be utilized in India

Can NRIs invest in Indian stock market?

• NRIs are eligible to purchase shares and convertible debentures issued by Indian companies under PIS. The investment can be made through designated Authorized Dealers, on repatriation and/or non-repatriation basis.
• NRIs can also invest in Exchange Traded Funds on repatriation and/or non-repatriation basis. However, investment in Exchange Traded Derivative Contracts shall be made only on non-repatriation basis.
• NRIs can even participate in IPOs. The issuing company shall issue shares to NRIs on the basis of specific or general permission from the GOI/RBI.
• The investments can be made on delivery basis only. Intra-day trading/short selling is not permitted.

How can NRIs transact?

• NRIs shall open NRE/NRO account with the Designated branches of any one of the Authorized Dealer Banks.
• NRI can register with only one Authorized Dealer Bank and all investment transactions shall be routed through that bank itself.
• If the NRI wishes to repatriate the proceeds the he/she must open a NRE account. Funds from NRO account can be used in case of non-repatriation only.

Are there any restrictions on investment?

• Yes, NRIs are not allowed to invest in companies that are engaged/propose to engage in:
  • Business of Chit Fund
  • Nidhi Company
  • Agricultural or plantation activities
  • Real estate business* or construction of farm houses
  • Trading in Transferable Development Rights

*Real estate business does not include construction of housing / commercial premises, educational institutions, recreational facilities, city and regional level infrastructure, townships

What is the difference between NRE and NRO Account?

Both Non Resident External A/c and Non Resident Ordinary A/c are type of bank accounts that can be opened by a Non Resident to park their earnings in India. Following are some of the points in which both accounts differ in nature:

What are the documents to be submitted?

1. Document ensuring status of entity
   • In case of Indian passport – Valid passport, Place of birth as India, Valid Visa – Work/Student/employment/resident permit etc.
   • In case of foreign passport : Valid passport and any of the following
     • Place of Birth as India in foreign passport
     • Copy of PIO / OCI Card as applicable in case of PIO/OCI
2. PIS Permission Letter from the respective designated bank
3. PAN Card
4. Overseas Address: Driving License/ Foreign passport /Utility Bills/Bank statement (not more than 2 months old)/ Notarized copy of rent agreement/ leave & license agreement/ Sale deed.
5. Photograph of Investor.
6. Proof of respective bank accounts & depository accounts.

What if the NRI becomes a Resident later on?

The NRI will have to inform the DADB (where PIS investments made) and the DP (where demat a/c is opened). A new demat account will have to be opened, the securities shall be transferred over to this account and the NRI demat a/c shall be closed.

How are the transactions taxed in India?

• In case of listed equity shares and equity traded funds long term capital gain is:
  • exempt upto Rs.1,00,000.
  • @ 10%* over and above Rs.1,00,000/-
• In case of unlisted equity shares long term capital gain is taxable:
  • @ 20%* if cost of acquisition is indexed.
  • @ 10%* without indexation of cost of acquisition.
• Short term capital gains in both cases is chargeable to tax:
  • @ 15%* if the security is STT paid.
  • @ applicable slab rates* in other cases.
• The proceeds received are subject to TDS. TDS is deducted on the capital gain amount at the aforesaid rates, as applicable.

*plus 4% cess and surcharge as applicable

CA Swati Bhat loves Income Tax and is hands on with taxation provisions applicable to NRIs.

She can be reached out to on tm17.skrathi@gmail.com

This video deals with learning tally to become an accountant. Is that enough? About the switch to cloud software and also will Artificial Intelligence take away our jobs? At the same time we ask CA Jigar if work from home will work for such jobs in the foreseeable future. His replies are very helpful and would help anyone building a career in accounting and finance.

I am sharing my experience in this article and there are chances that reader might have different experience in similar situations described below. Further, considering I am part of a CA firm my experience would be more relevant for service organizations. If you have a shop or factory, WFH cannot be an option for you but yes you can consider shifting your backend operations to WFH environment.

Background

It was March 2020 last year when we all were forced under an abrupt (like most things now a days) lockdown. When it was announced we never thought the battle would be so long. In fact, initially many of us rejoiced because of the mini vacation. People were discussing listening to birds singing, playing ludo and playing other silly games with friends and family members. However, as time went on businesses were forced to adopt to the new normal.

We started hearing about online events, home delivery of products, businesses pivoting to other areas, online classes being accepted (huge boom in this sector – White Hat got acquired for approx Rs. 2200/- Crores during lockdown, Reliance was able to raise Rs. 1.65 Lac Crores from foreign investors, if there was an award for most efficient WFH employee in the country, Mr. Mukesh Ambani would have received it. People spending time on online platforms like you tube, OTT platforms have skyrocketed increasing revenue for all stake holders like content creators, the platforms, digital marketing agencies, etc.   News channels and news anchors had a gala time (remember Sushant Singh Rajput and Tablighi Jamat issue?). They had a license to move around and they made most of it.

Lets dive into the aspects that will impact your decision when it comes to decide whether to Work from Home or not:

The world is your play ground

Once you have adopted to work from home environment. The world becomes your playgroud. I know a CPA in United States who gets his work done from a back office in Ajmer, Rajasthan. Another CA firm that I know of has got lot of work from Bahrain and has a Backoffice in Roha, Maharashtra.  It is not just about getting work irrespective of geographic location but you can also get good team members from remote locations.

In our firm, we have got work from cities like Pune, Hyderabad, Ahmedabad and Bangalore. All clients got closed without any personal meetings and I have not met them personally even once. We also get a small assignment of Zoho Books from United States. Considering, Zoho Books is a cloud platform we get lot of enquiries from out of Mumbai for its implementation, training and accounting services. We have hired one team member from Ajmer and another from Jaipur. In fact, we have got two professionally qualified female team members who cannot travel for work because of family responsibilities but can spare some time for doing work from home. Hiring such team members is affordable vis-à-vis hiring full time paid employees. In my experience, sincerity of such team members is very high as they know they have got a limited time to complete their work.

In this scenario, you yourself might not work from home but you are creating a structure in your organization where your team members can work from home.

Managing Team

This is one of the most challenging aspects of Working from Home. If the team member is in office, we can call them anytime in our cabin and tell them what is to be done. Also, they can ask for our feedback on ongoing basis. Further, the timings go haywire. When you need them urgently that is the exact time when their phone is busy, or they have gone downstairs for buying ghar ka samaan. For team members as well, things might get difficult as we might expect them to complete the given work irrespective of time. We have our own reasons like if you can go and buy ghar ka samaan in office hours and save so much time in travelling why can’t you sit for some more time and complete work. Also, there will be some who will take undue advantage of the situation. At one of my client’s place one of the employees started doing two jobs at the same time!!!!

Whether it is easy or difficult to manage a team member depends to a large extent on the individual. Some people are genuine, and do not require monitoring and then there are some who need constant follow ups. However, as an organization you need to have a standard structure.

These are the few things that we do in our Firm-

• Having a joint call-in morning is a must!!! It ensures everyone starts the day at the same time, creates a feeling of togetherness as everyone knows who is doing what. Otherwise, working in isolation is difficult and boring. Keep these meetings light and short. We generally have a 15 Min minute call and schedule internal calls during the meeting.
• If possible, try to have a proper system to allocate work. This might not be required if in your organization your team members know what is expected of them. But as a CA firm, our work is very dynamic and there are constant new requests every day. If you also have an organization where there are constant new requests, you need to have a robust system. You can simply use shared google spreadsheet for this. But it’s important to have something which keeps record of things. Minimum requirement being, when was the work allocated, what is the work, what is the expected date to finish and when was it completed. At our firm, we use an online tool known as proactly. It is simple to use and costs us around Rs. 12000/- per year but is worth it.
• Have a reward system, since it is difficult to know who has worked for how much time (although there are apps which can track screen time and idle time, it also gives you report of which team member spent how much time on word, excel, PPT and Facebook. Team members might feel their privacy is intruded and that we don’t trust them) it’s better to judge the performance on how much work is done irrespective of time spent on doing it. My humble suggestion to have a carrot and stick approach. Reward those who are following the system and others will fall in line.

One of the biggest challenges when it comes to managing teams is to get work done from new and untrained team members. They need constant support which is not possible in WFH environment. Either you need to have a solid training module and SOPs or you need to hire those who don’t need much training. Teaching someone from scratch is exceedingly difficult in WFH environment. If you need good, trained resources you need to spend more but in my experience that’s affordable vis – a- vis spending time on untrained resources.

Rent Expense

Many of my clients have permanently shifted to WFH model. They are saving rent from 50K to 1.8L per month. One of my clients shifted to Panchgini from Pune and is building a bungalow over there. Seems she will be working from there for a long time. In a city like Mumbai where rent expense can contribute upto 10-15% of total expense of a service organization this is a huge saving.

However, working from home requires you to spend on technology and hardware to some extent. You might have to get a space on cloud, some online tools specific to your organization and team management, etc. We as a CA firm had to incur additional cost of Rs. 3500/- per month(this is for team of 12, more people more cost) on a Virtual Private Server and Rs. 500/- per month on One Drive for storing files. Just by incurring additional cost of Rs. 4,000/- per month we were able to work from home for a long time. Even now, team members who have to travel in train are working from home.

As far as Hardware is concerned, we largely had desktops (Big mistake!!!Always buy a laptop). Initially we got Laptops on rent but as it got clear that lockdown is going to prevail for a long time, we started dispatching office PCs to team members who were not having laptops. We also had to buy proper tables for few team members to keep the desktop.

For new team members we have adopted BYOD policy i.e. bring your own device.  All in all, these expenses are way lower in comparison to having an office on rent.

Online Meetings

Forced lockdown has made all of us better at technology. Suddenly everyone knows how to use Zoom and Google Meet (including my Parents). Now, as most people have gotten comfortable with the idea of online meetings and are equipped with knowledge of how to deal with it you can ask for a virtual meeting before meeting personally.

Before setting up any meeting if we ask ourselves whether do I need to really meet in person or just having a online virtual meeting is good enough will save us a lot of time and money(especially considering petrol prices now a days).

I used to go to few of my clients location every month but now everything happens online. It saves a lot of time and hassle for me and at the same point of time, meetings are more agenda driven. Also, no one can complain about bad traffic.

When it comes to prospective clients earlier, I used to go and meet them every time I got a prospect. But now, first I have online calls, share couple of emails and most of the times client gets closed. Sometimes, it becomes pertinent to go to a prospective client’s office in order to understand it’s set up and also if the professional fees involved is substantial (rarely happens in our field now a days) client will like to meet you personally. But this happens only at the last stage.

There are certain flipside to online meetings as well. Some people are not comfortable with the concept and might get offended if you insist for online meetings. They feel you are not valuing them if you do not agree to meet them in person.

Further, these online meetings are great only in case of agenda driven meetings. In my experience, if you want to build relationships then online meetings don’t work. First of all, no one agrees for an online meeting without any specific agenda and secondly nothing beats having a garma garam chai with your client.

Managing Time

This is for both entrepreneurs and team members. Managing time can become difficult in WFH environment. First of all, your personal and office timings get collapsed. For eg., in office environment you would have invited guests only on Sundays but in WFH environment you might not mind if someone comes on a working day. As you know you will stretch and finish work in evening. Try to avoid this, both for yourself and your team members. Have a clear demarcation for office time and personal time. In my personal experience I have been more “busy” when I work from home vis-à-vis when I work from office.

Now the additional time spent by me on work was productive or not is in questionable. Significant time goes in managing the team and small tasks which would not have been the case if I was working from office. Further, you try to keep on working and finish all your tasks (although you know this will never happen) because you have flexibility. If you are working in office and you get late beyond a time you start getting calls either from your mom or your wife. Now, once you get that you have no choice but to close your work and go home.

Conclusion

So what’s the point of all the above discussion? Whether you should work from home or not? Well there is no straight answer. It depends on multiple factors like your business, your team members and your priorities. I know about a CPA in United States who does not have an office but has team members across the world, he travels half of the year with his family on a caravan and works from different places.

If you ask about me whether I will prefer to have a 100% Work from Home environment. The answer is NO. I would always like to have an office as I know some work can get completed much faster once you are physically present with the team. But will I ask all my team members to come to office. The answer once again is NO. The barrier that team member must come to office only and work has been broken. Infact, I will hire more and more people who can work from their own place. Only those who need training shall come to office. I am contemplating to have a policy wherein after one year of service with our firm employees can choose to work from home if they are trained for the work that they need to do.

Having said that, having a bungalow in Panchgini which also has a floor dedicated to office and local team members, having team members across the country and being able to serve clients all over the work does not sound like a bad idea.

This year companies need to take a key decision on whether to opt for a reduced tax rate of 22% or not. At the outset it looks pretty simple and straightforward. As 22% is lower than the existing rate of 25% , going for 22% tax rate looks like an obvious choice. If only life and Income Tax Act were so simple to interpret and understand!!!! There are multiple factors that one needs to consider before going for the new rate of tax.

Inorder to discuss the same let us divide the companies in two categories:-

Category 1- New Domestic Manufacturing Company

• Set up or registered- on or after 1^st October, 2019
• Manufacturing must be commenced- on or before 31^st March, 2023
• New company should not be formed by splitting up or reconstruction of an existing business (this means don’t just open a new company to continue your old business)
• Should not use old Plant & Machinery. However, there are certain exceptions to this-

-If Machinery is Imported into India 

-No deduction availed u/s 32

 -Total value of such Second hand Plant & Machinery <= 20%

-If Machinery is Imported into India 

-No deduction availed u/s 32

 -Total value of such Second hand Plant & Machinery <= 20% of Total   Plant   Machinery

If above 3 conditions are satisfied, then the company may use old Plant & Machinery.

• Should not use any building previously used as a hotel or convention center.
• The company is not engaged in any business other than the business of manufacturing or production.

Category 2-

Every other Domestic company falls under this category.

The table below is the summary of tax rates applicable to domestic companies whose turnover is less than or equal to 400 Cr.

As seen from above, there is significant tax benefit if a company falls in Category 1. However, if you don’t fall in Category 1 broadly speaking if you are not into manufacturing and net profit of your Company is less than 1 Cr(i.e. of MSME companies) then the tax benefit is not significant.

Further, to gain the benefit, companies have to relinquish the below mentioned Deductions/Exemptions-:

Above our specific benefits provided to companies operating in certain sectors.

1. Carried forward losses or unabsorbed depreciation which are attributable to any of the above referred deductions shall not be available to set off.
   It’s worthwhile to note that only the carry forward loss or unabsorbed depreciation attributable to above provisions is not allowed to be carried forward. However, normal carry forward of loss and unabsorbed depreciation can be carried forward.

2.Effect on Minimum Alternate Tax (MAT)

MAT Provisions are not applicable to companies opting for reduced income tax rates. MAT means Minimum Alternate Tax which compelled companies to pay a minimum tax irrespective of carry forward of losses amongst other things. In layman terms let us say in Year 1 a company had incurred a loss of Rs. 5,00,000/-. Company does not have to pay any tax in Year 1 and the loss gets carried forward to next year. In Year 2, Company earns a profit of 7 Lacs. Tax to be paid will be calculated on the basis of higher of below-

1) At Normal Tax Rate

2) MAT

So in normal course the company has to at least pay Rs. 109,200/- irrespective of carry forward loss.

However, the difference of MAT Tax and Normal Tax i.e. Rs. 57,200/- (Rs. 109,200- Rs. 52,000/-) can be carried forward as “MAT Credit Entitlement” and can be used whenever Tax payable at Normal Tax Rate is more than Tax Paid under MAT.

One of the conditions of shifting to the new reduced income tax rate is that this “MAT Credit Entitlement” has to be foregone. So, in our example if company shifts to new tax rate it has to forego MAT Credit Entitlement of Rs. 57,200/-

Now, this has to be diligently checked for each case i.e. after foregoing MAT credit entitlement whether shifting to reduced tax rate is beneficial or not. Answers to that will vary from case to case basis.

NOTE:- The rate of MAT is reduced from 18.5% to 15% .

It is worthwhile to highlight that once the concessional tax scheme is exercised, it cannot be withdrawn for any of the subsequent years.

One more important factor to be taken into account is that if a company opts for a new tax rate surcharge of 10% is applicable on total tax i.e. even on capital gain tax. So the effective tax rate of STCG on shares becomes 17.16% and Long Term Capital Gain on shares becomes 11.44% when a company opts for a new rate of Tax. Whereas, if company opts for old rate of tax effective tax rate of STCG is 15.60% and on Long Term Capital Gain is 10.40%

LET’S GET CLARITY THROUGH AN EXAMPLE 

In the above example the old tax rate scheme is more beneficial since the company’s total turnover was less than 1 crore, due to which Surcharge was not applicable. Whereas, under the new tax regime, the Surcharge is levied irrespective of Income.

Once again this will vary from case to case basis but companies will have to be very diligent while deciding whether to go for a new rate of tax or continue with the old rate of taxes.

1. What is a SAFE Note
2. Legal implications
3. Why it is beneficial in some aspects
4. FAQs that we are generally asked on the same

Feel free to “Ask a Query” in case of any questions.

Calendly Link-
https://calendly.com/ca-jigar-shah/15min