6 accouting tips for smooth year end closing

March end seems to be very hectic for the accountants and tax professionals. Sometimes, we hear the businessman saying they are busy with the year end closing.

As startups or new entrepreneurs, you may be thinking what really needs to be done?

Here is a top 6 items to be sorted out his year end.

Provisions for Expenses

Prudent accounting thumb rule is debit expenses pertaining to a period eventhough the payments are due in next period. With this in mind all your electricity, telephone, rent, salaries, etc. till march needs to be booked even if due in next month. If actual bills are not received, prudent accounts estimate and Book those to show correct picture. There is a basic matching principle to be kept in mind wherein all expenses corresponding to income generated in that period need to be booked showing correct picture of profit or loss for that period.

Check your VAT and Service Tax Calculations
Whether all the invoices are booked and accounted before the calculation for the same is done.

Has the legitimate setoff been claimed on the purchase side. Many of us miss claiming this while it is available. This has a cash impact and hence very trivial. Taxes once paid are difficult to get refunded. The setoff gets missed in the small expenses like flight tickets, hotel bills, taxi bills, purchase of office equipments, AMC charges, and so on.

Bank Reconciliations
Completely verify your bank statement visa-a-vis the books of account. This will allow you know if there are any cheque which are received but not deposited in the Bank or cheques which are issued but not cleared. This may also throw surprises like cheque bounces not recovered, huge bank charges and so on. Very important to pass all the pending entries in the Bank before deciding on the available balance for payments at the year end.

TDS (Withholding Tax)
Here the expectation is from the payer of income to deduct taxes while doing so. Contractors, Professional Fees, Advertising, Renting broadly attract deductions before making the payments from 1% to 10%. It is necessary to do this even with respect to the provisions of expenses even though the payments would be done later in the next year. As a recipient of the services, please be careful that each and every provision for expense is Tax Deducted

Writeoff all the bad clients
You may have been raising invoices on clients all through out the year. Now is time to clean up. Check if there are any clients not going to settle these and reverse those. This will help you save unnecessary VAT, Service Tax and even the Income Tax. From the commercial point of view, you may have only the real receivable customer balances lying in the books to be recovered. Doing a bill to bill reconciliation is advised instead of account to account.

Check whether your Cash book tallies with that in Hand
It's common that the cash doesn't matches with the balance in hand. Matching the physical cash with that in the book throws up surprises like cash lying with some employees, vouchers not booked, payments made without supporting documents and even theft.

It's like taking "a stitch in time would save nine".  This would not only make the life smoother from taxation angle but also show correct picture for the financial as to what's your profile or loss, which are liabilities to be paid and assets to be collected.

People say that accounting doesn't add any value in the business but we do not tend to agree. It acts like a mirror to show how do you look. It's like a dashboard of the Car which doesn't help in efficiency or speed but it definitely measures the achieved one.

What are the Changes in formalities to incorporate a Company?

The new rules have built in counter measures to tackle fictitious applicants from forming a company. 

This is one of the ,must know changes for the Startups in Companies Act 2013.

Below is the brief and point to point update on these changes for some one keen to form a new Company.

A. Reservation of name
An application for the reservation of a name shall be made in Form No. INC.1

B. Signing of memorandum and articles
The Memorandum and Articles of Association of the company shall be signed in the following
manner, namely:-

1. The memorandum and articles of association of the company shall be signed by each subscriber to the memorandum, who shall add his name, address, description and occupation, in the presence of at least one witness who shall attest the signature and shall likewise sign and add his name, address, description and occupation.
2. The witness who is generally a practicing professional shall state that “I witness to subscriber/subscriber(s), who has/have subscribed and signed in my presence (date and place to be given); further I have verified his or their Identity Details (ID) for their identification and satisfied myself of his/her/their identification particulars as filled in”.

C. Declaration by professionals
For the purposes of clause (b) of sub-section (1) of section 7, the declaration by an advocate, a Chartered Accountant, Cost accountant or Company Secretary in practice shall be in Form No.
INC.8.

D. Affidavit from subscribers and first directors

For the purposes of clause (c) of sub-section (1) of section 7, the affidavit shall be submitted by each of the subscribers to the memorandum and each of the first directors named in the articles in Form No.INC.9 

E. Particulars of every subscriber to be filed with the Registrar at the time of incorporation. The following particulars of every subscriber to the memorandum shall be filed with the Registrar- 

• Name (including surname or family name) and recent Photograph affixed and scan with MOA and AOA: 
• Father’s/Mother’s/ name: 
• Nationality: 
• Date of Birth: 
• Place of Birth (District and State): 
• Educational qualification: 
• Occupation: 
• Income-tax permanent account number: 
• Permanent residential address and also Present address (Time since residing at present address and address of previous residence address (es) if stay of present address is less than one year) similarly the office/business addresses; 
• Email id of Subscriber; 
• Phone No. of Subscriber; 
• Fax no. of Subscriber (optional) 
• Proof of Identity 
• If the subscriber is already a director or promoter of a company(s), the particulars relating to- 

           (i) Name of the company;
           (ii) Corporate Identity Number;
           (iii) Whether interested as a director or promoter;

• The specimen signature and latest photograph duly verified by the banker or notary shall be in the prescribed Form No.INC.10. 

F. Particulars of first directors of the company and their consent to act as such The particulars of each person mentioned in the articles as first director of the company and his interest in other firms or bodies corporate along with his consent to act as director of the company shall be filed in Form No.DIR.12

Would this impact the companies already under incorporation?
In our view, it will impact. The registrar of Companies would demand for the documents and witnesses even in those cases. Certain forms for approval may be considered in transition if already filed before this comes into force.

What if you fail to deduct TDS while making payment to foreign Nationals

CBDT guidelines for failure to deduct TDS while making payment to foreign nationals and companies u/s 195

Clarification has been sought by field officers as to whether the tax is to be deducted (under sub section (1) of section 195) on the whole sum being remitted to non-resident or only portion of representing the sum chargeable to tax, particularly if no application has been made (under subsection (2) of section 195 of the act) to determine the sum.

The matter has been examined in the board and accordingly, in exercise of powers vested under section 119 of the act, the board hereby directs that in case where the assesse fails to deduct tax under section 195 of the act, the assessing officer shall determine the appropriate proportion of the sum chargeable to tax as mentioned in subsection (1) of section 195 to ascertain tax liability on which deductor  shall be deemed to be assesse in default under section 201 of the act , and the appropriate proportion of the sum will depend on the facts and the circumstances of each case taking into account nature of remittances, income component therein or any other fact relevant to determine such appropriate proportion.

Basics of direct and indirect tax - from our knowledge session at SINE

Couple weeks back, mymuneemji was at Society of Entrepreneurship and Innovation at IIT Mumbai.

Idea of the cell chief Ms. Bhatt was to educate the startups on "must know" nuances of direct and indirect taxation. The StartupSaturday had decent response from the SINE startups and even few outsiders that day.

Our mission was to simplify the complex looking tax and get out the tangible benefit to the people attending. We kept it completely interactive and logical. Post that as well, there are few issues and queries from the audiences which we are resolving via emails and calls.

I felt like publishing a blog on key points on which the queries came up and how were they addressed by mymuneemji. I hope you will find this useful

Entity selection and formation:
Ms. Bhat was personally worried about this bit of information lagging in the startups and wanted us to educate them with the same.

• We suggest forming an entity from a long term point of view of you are confident in the basic business model. This will allow you to capitalise development expenses or at-least claim losses of the initial months in the profitable years.
• Also this will allow you to build transparency between the cofounders and the investors putting in effort or money At early stage. This will definitely allow you to build the track record for your startup.
• Best to have proprietary or a partnership when you feel you are just experimenting and have no clear business model around it.
• A useful decision chart for entity selection attached for your ready reference.

Service tax:
We discussed basics on what, when, how of the service tax law which is spreading its wings across the board.

Coverage of service tax is very wide with the advent of

• Negative list from the positive approach before. Now there are only exempt services which are defined. Rest all deemed to get coved!!
• Reverse charge is like TDS which requires the service recipient to be charging the same. Applicable for the recipient from Rupee 1 of the service provided!!

Benefits missed:

• Service tax credits are available across the board. Event the CENVAT or exciseable purchases is also available while paying the service tax. One should carefully account all the purchases so that no credit is missed.
• Specific cases like education institution, not for profit incubators, agricultural related services are exempt. In needs to study careful before deciding of the taxability and CENVAT in specific cases.

VAT and CST (State and Central Sales Tax)
Even in VAT, we went through the typicality of the local and interstate VAT. In this case as well the what, when and how were put across with the help of examples.

Need to know points:

• VAT is applicable to the goods and not on services. Some cases where there are inclusive contracts both VAT and service tax come into play. This phenomenon is called "workscontract".
• VAT works on the physical movement of goods and not on the addresses of the buyers and sellers. So LR becomes the base for a transaction and not the invoice.

Benefits

• First would be taking the set off of the vat paid while buying against the payable on selling. CST (insterstate tax) is not available for set off. Also no set off of excise duty against VAT.
• C forms can reduce the tax liability from regular state rate (selling state) to 2% only for the dealers in those goods.

TDS
Deductible by the payer of the payee's payable amount and paid to the government. This is more to avoid the tax evasion by the recipients and to make the collection of tax almost immediate instead of at the year end.

Typical things:

• Has different rates for different kinds of activities. Like for professional fee, it would be 10%while for contract it is 2% (1% in case of the individual deductee)
• The status of the deductee also matters like a proprietor or a PVT LTD company.
• Need to be vigilant before making the payments to the foreign vendors about the correct rate of tax. It ranges from zero to as high as 40% depending on various aspects of law.

Benefits:

• It is directly adjustable (if less than tax liability) or refundable (if more than the tax liability) year on year.
• We can apply for a lower deduction of TDS as a business if we feel that the total deduction is grossly more than the prescribed rate is higher than the actual track record of the tax paid and payable based on estimates.

There were other queries around knowing LBT and somethings on the Corporate laws which was addressed off hand.

Here are the things MyMuneemji shared with the team in the form of a handy duedate chart for all tax filing dates, event ppt and the MyMuneemji collateral. Moreover it's complementary for startups who want alerts on all the key duedates for signing up on the mymuneemji for the same.

Hope this helps!! 

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Glad to inform you that MyMuneemji has been featured by YourStory.in, a very well known blog for publishing about the disruptive startup ideas. 

Below is the storyline as published by the blog