Applicability –
Section 194R is a newly inserted section in the Income Tax Act, 1961, effective from July 1, 2022. It mandates a person responsible for providing any benefit or perquisite to a resident to deduct tax at source at a rate of 10% of the value or aggregate value of such benefit or perquisite before providing it to the resident. The benefit or perquisite may or may not be convertible into money but should arise either from carrying out of business or from exercising a profession by such resident. No tax shall be deducted if the aggregate value of perquisite/benefit paid or likely to be paid to a resident doesn’t exceed INR 20,000 during the financial year. The provision of this section shall not apply to an individual or a Hindu Undivided Family (HUF) whose total turnover/sales/receipt doesn’t exceed INR 1 crore in case of business or INR 50 lakh in case of profession.

Purpose –
The purpose of introducing the new Section 194R is to plug the possibility of tax revenue leakages (tax evasions) in businesses or professions. A few companies claimed expenses for business promotions while offering various gifts, perks, perquisites, or benefits to its distributors, dealers, or channel partners (on fulfilments of conditions of under agreement or as per prevalent norms/traditional practice followed over the years by the business entity) under Section 37 of Income-tax Act, 1961. The recipients do not report this in their return of income because this particular incentive is in kind and not in cash. This leads to the furnishing of incorrect particulars of income. Ideally, such an incentive or benefit in kind should be disclosed as income under the Income-tax Act, 1961 (ITA). As per Section 28 (iv) of the ITA, the value of any benefit or perquisite—whether convertible into money or not—arising from business or in a profession, is to be charged as business income in the hands of the recipient of such benefit or perquisite.
Now, under Section 194R, if a business gives its distributors or channel partners any such perquisites or incentives, which is partly in cash or kind, then they are required to deduct a TDS. In case the benefit is wholly in kind, the person providing such a benefit or perquisite is required to pay TDS on the value of such benefit or perquisite out of his own pocket. So, the purpose of Section 194R is to widen the tax base and plug any scope of tax evasion.

Scope –
Section 194R applies to any person who provides any benefit or perquisite to a resident arising from their business or exercising of profession. The person providing such benefit or perquisite may be a resident or a non-resident. The benefit or perquisite may be in cash or in kind or partly in cash and partly in kind. The value of the benefit or perquisite shall be determined based on its fair market value except when it has been purchased by the provider before providing it to the recipient. In that case, the purchase price shall be the value for such benefit or perquisite.
Some examples of benefits or perquisites covered under this section are:
• Travel packages
• Gift cards or vouchers
• Products under incentive schemes
• Usage of business assets
• Free samples
• Discounts
• Rewards
• Commissions
• Referrals
• Loyalty points

Exceptions and Exemptions –
Section 194R does not apply to:
• An individual or a HUF whose total turnover/sales/receipt doesn’t exceed INR 1 crore in case of business or INR 50 lakh in case of profession.
• Any benefit or perquisite provided by an employer to an employee.
• Any benefit or perquisite provided by a person other than in relation to their business or profession.
• Any benefit or perquisite provided by a person whose books are subject to audit under section 44AB of the Act.
• Any benefit or perquisite provided to a non-resident.
No tax shall be deducted under this section if the value or aggregate value of the benefit or perquisite provided or likely to be provided to a resident during the financial year does not exceed INR 20,000.

Compliance and Reporting –
The person responsible for providing any benefit or perquisite to a resident shall deduct tax at source at the rate of 10% of the value or aggregate value of such benefit or perquisite before providing it to the resident. The tax shall be deducted at the time of credit of such benefit or perquisite to the account of the resident or at the time of payment thereof by any mode, whichever is earlier. The tax so deducted shall be deposited to the credit of the Central Government within the prescribed time limit and in the prescribed manner. The person deducting tax shall also furnish a statement of deduction of tax in Form 26Q within the prescribed time limit and in the prescribed manner. The person deducting tax shall also issue a certificate of deduction of tax in Form 16A to the person from whose income tax has been deducted within the prescribed time limit and in the prescribed manner.

Conclusion –
Section 194R is a new provision that aims to curb tax evasion by bringing benefits or perquisites arising from business or profession under the ambit of TDS. It imposes an obligation on any person who provides such benefits or perquisites to a resident to deduct tax at source at the rate of 10% before providing them. It also provides certain exceptions and exemptions for individuals, HUFs, employers, employees, non-residents, and low-value benefits or perquisites. It also lays down the compliance and reporting requirements for the person deducting tax under this section. This provision is effective from July 1, 2022 and is applicable for AY 2023-24 and onwards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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How to take advantage of Microsoft OneDrive in Windows 11

The latest version of Windows helps you more easily access and manage OneDrive from File Explorer. You can set File Explorer to automatically open to your OneDrive folders, see how much space is used and available for OneDrive, manage your storage, and tweak key settings.

1. Make sure you’re running the latest version Windows 11

Most of the OneDrive benefits are available only in the 22H2 update to Windows 11. So if you’re not already running the latest flavor of Windows 11, head to Settings > Windows Update and allow the 22H2 update to install. To double-check your version, go to Settings > System > About. The entry for Version in the Windows specifications section will tell you which version is installed.

With the 22H2 update, you can change the default startup location in File Explorer so that you see your OneDrive folders right off the bat. Open File Explorer, click the ellipsis icon on the toolbar, and select Options. Click the dropdown menu for Open File Explorer to and change it to your OneDrive folder. The next time you launch File Explorer, you’ll be taken to your local OneDrive storage.

2. Find the parent folder for your OneDrive storage

Next, you can view and manage your OneDrive storage directly from File Explorer. Click the parent folder for your OneDrive storage. On the right end of the toolbar, click the down arrow next to the cloud icon.

The dropdown window reveals the status of your synced files and how much space your files are taking up on OneDrive.

3. View your latest synced files

The icons accessible at this window will take you to your OneDrive storage and settings. Click the entry for Your files are synced at the top, and you’ll see a list of the latest synced files.

4. Click Manage storage

Next, click the button for Manage storage. You’re taken to your online OneDrive storage screen where you’re able to review your current plan, empty the OneDrive Recycle bin to free up space, and add more storage if necessary.

5. Click the trash icon

Back at File Explorer, click the trash can icon in the OneDrive window. That takes you to the online OneDrive Recycle bin where you can restore any deleted files that you need, permanently delete any files you won’t ever need again, or empty the entire bin to recover space.

6. Click View online

Return to the OneDrive dropdown window in File Explorer and click the View online icon (the one that looks like a globe).

You’re taken to your OneDrive Files window where you’re able to view and access all your folders and files.

7. Click the Settings icon in the OneDrive window

And once more back at File Explorer, click the Settings icon in the OneDrive window to view and modify certain options for OneDrive. Here, you can manage the backup of your Desktop, Documents, and Pictures folders as well as save photos, videos, and screenshots to OneDrive.

Finally, you may notice that the OneDrive settings have been revamped with the latest update for Windows 11.

Instead of the older and clunkier Settings window with the tabs at the top, the new OneDrive settings take on the same look and feel as the general Windows Settings app. The settings for OneDrive are organized into four categories: Sync and backup, Account, Notifications, and About.

Sync and backup

Under Sync and backup are the options for backing up important folders and saving photos and screenshots. Here, you can also set certain preferences and tap into advanced settings to collaborate on Microsoft Office files and choose whether your OneDrive files are saved to your PC or stored only in the cloud and downloaded when you access them.

Account

Under Account, you can choose the folders you want to back up and sync and set how long to wait until the personal vault automatically locks after you’ve stopped using it.

Notifications

Under Notifications, enable or disable notifications for specific OneDrive actions, such as when syncing is paused, when other people edit shared files, and when a large number of files are deleted in the cloud.

About

And under About is an option to get OneDrive insider previews if you want to check out new features before they become mainstream.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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What is PPF?

Public Provident Fund (PPF) is a highly sought-after investment option for building a long-term retirement fund due to its low risk, moderate returns, and added tax benefits. PPF’s attractive features make it a popular choice among investors. With an assured return rate of 7.1%, PPF’s performance is on par with bank fixed deposits (FDs) in terms of nominal returns. Moreover, the additional tax benefits offered by PPF, subject to the investment cap of Rs. 1,50,000, make it more attractive than other investment options.

One of the most significant advantages of investing in PPF is that the deposits are government-guaranteed, making it a safer investment than other financial instruments like FDs. Furthermore, there is no age limit for opening a PPF account, making it accessible to both adults and minors. In the case of minors below 18 years of age, a guardian must operate the account on their behalf until they reach the age of 18. In conclusion, PPF is an excellent investment option for those looking to build a long-term retirement fund. Its low risk, moderate returns, and added tax benefits, coupled with the government guarantee, make it an ideal choice for conservative investors.

Benefits of PPF

1. Investment Option with Minimal Risk and Assured Returns

One of the biggest advantages of having a PPF account is that it is very safe. This is because the scheme is supported by the Indian government, which means the risk of losing your money is very low. Additionally, the returns you can get from the scheme are good. Another benefit is that if you have any debts that you are unable to pay, they cannot be seized by a court order.

2. Tax Benefits

It is completely tax-free. When you invest in a PPF account, you can get tax deductions under section 80C of the IT Act. The entire taxation of interest income is also prohibited. Wealth tax is completely waived on any balance due on a PPF account. Additionally, the entire value of your investment is exempt from taxes, making it a very efficient way to save on taxes.

3. Invest with Little Money and Earn Good Returns

You can start your PPF account with just Rs 500 and invest up to a maximum of Rs 1,50,000, depending on how much you can afford. You can make small monthly payments or one deposit every year. The interest rate for a PPF account is 7.1% and it’s calculated every year, so your money can grow quickly over time.

4. Loan and Withdrawal

One of the best things about having a PPF account is that you can take loans against it. After maintaining the account for 3 years, you can borrow up to 25% of the balance, even though the account has a 15-year lock-in period. This is very helpful in case of emergencies. After 6 years, you can also start taking out some money from your account if you need it. If you can’t afford to keep the account open anymore, you can also close it. This is another great benefit of having a PPF account.

5. Tenure

Once you have completed the 15-year lock-in period, you can choose to withdraw all the money from your PPF account. Alternatively, you can also extend the lock-in period in blocks of 5 years if you want to keep the account open and continue earning interest.

PPF interest rate for April-June quarter 2023

The PPF interest rate, on the other hand, has remained unchanged at 7.1%.

New rule to open PPF account

The Indian government has made it mandatory to provide PAN and Aadhaar numbers for investments in post office schemes like Public Provident Fund (PPF). This new rule was announced on March 31, 2023. Previously, it was possible to invest without disclosing your Aadhaar number. However, to invest in small savings schemes, you now need to have an Aadhaar enrollment slip or number.

Who cannot open PPF account?

– You must be an Indian citizen to open a PPF account.

– Only one PPF account is allowed per person.

– HUF and Non-Resident Indians are not eligible to open PPF account.

PPF tenure

A PPF account has a 15-year term, but you can extend it for one or more blocks of five years without any penalty. To do so, you need to make a written request within one year of maturity. You can transfer your PPF account to and from permitted branches of nationalized or private sector banks or Post Offices by submitting a request letter to the existing accounts office.

When is PPF account treated as discontinued?

If a PPF account holder fails to pay the minimum subscription fee of Rs 500 in a fiscal year, the account will be discontinued. In this case, the account holder will not be able to get a loan or make a partial withdrawal unless the account is revived. It is not possible to open another PPF account while the original one is discontinued.

PPF maturity

Once a PPF account matures, it can be continued without any fresh deposits. The balance will continue to earn interest at the prevailing rate. Once a year, the account holder is permitted to withdraw any amount from the account.

How can a discontinued account be revived?

If a PPF account is discontinued due to non-payment of the minimum subscription fee, the subscriber can reactivate the account by paying a penalty of Rs. 50 for each year the account was inactive, along with the subscription fee of Rs. 500 for each year. This will allow the subscriber to resume making deposits and enjoying the benefits of the PPF account.

Premature closure of the PPF account

A PPF account can only be closed prematurely after it has completed five financial years, and the account holder or the minor account holder, for whom they are the guardian, must meet certain criteria. Premature closure is allowed for two reasons: higher education expenses of the account holder or the minor account holder, or the treatment of serious illnesses or life-threatening diseases of the account holder, their spouse, dependent children, or parents. The account holder must provide supporting documents, such as admission confirmation from a recognised institution of higher education in India or abroad, or medical bills related to the treatment of the aforementioned individuals.

Death of the subscriber

When a PPF account holder passes away, their nominee or legal heirs will receive the remaining balance in their account. The process involves submitting relevant paperwork to claim the balance amount.

Special Investment tip

If you have a Public Provident Fund (PPF) account, it’s important to deposit your contribution for the financial year 2023-24 before April 5 to get the maximum benefit. If you deposit after April 5, you’ll earn lower interest. The interest is calculated based on the lowest balance in the account at the end of the fifth day of a month and end of the month. So, if you’re making a lump sum investment, make sure it’s credited into the PPF account by April 5. Interest is calculated every month but is credited at the end of the financial year. So, if you make monthly payments, make sure the money is credited into the account before the fifth of every month to earn higher interest. If you deposit Rs 1.5 lakh into your PPF account before April 5, you’ll earn interest of Rs 10,650. If you deposit after April 5, you’ll lose out on the interest of the first month and earn only Rs 9,763 for the financial year. PPF is a long-term investment scheme with a lock-in period of 15 years. Investing Rs 1.5 lakh between April 1 and April 5 every financial year will fetch an interest of Rs 18,18,209 and a maturity amount of Rs 40,68,209. But, if you make a lump sum investment towards the end of the financial year, you won’t get any interest for that year. Investing in the PPF account before April 5 will help you earn more tax-exempt interest. Making a lump sum investment every financial year will earn you a higher interest than making monthly deposits. If you make a PPF investment of Rs 12,500 before the fifth of every month, you’ll get a maturity amount of Rs 39,44,599. By making a lump sum investment into the PPF account between April 1 and April 5 of a financial year, you’ll earn extra interest of Rs 1,23,610.

Conclusion

Other government-backed investment schemes like Senior Citizens’ Saving Scheme, National Savings Certificate, Sukanya Samriddhi Yojana, and Mahila Samman Savings Certificates offer interest rates ranging from 7.5% to 8.2%, which are higher than the current PPF rate of 7.1%. Some fixed deposit schemes are also offering good returns in the current high-interest rate scenario. The PPF rate was last changed in April-June 2020 when it was reduced to 7.1% from 7.9%, and prior to that, it was cut in July-September 2019. The rate was last increased in October-December 2018 to 8% from 7.6%. Even though the rates for PPF have not been increased, financial experts still consider it a good investment option. This is because contributions, withdrawals, and returns generated during the holding period are all tax exempt. PPF is available to all and its tax-free status makes it one of the best debt options available. Other schemes like SSCS, SSY, and MSSC may offer higher rates, but post-tax returns will not match those from PPF. PPF is also a safe and stable investment option with a sovereign backing. Interest on the amount deposited in PPF is calculated every month, but it is credited into the account at the end of the financial year. Depositing money before the fifth of the month can result in the maximum amount of interest on interest. Experts also suggest that investing in large-cap equity can provide higher returns than PPF over a 15 years horizon, but there is a long-term capital gains tax on equity. The current tax laws may change in the future, so investors should make informed decisions based on their current knowledge.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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If you want to understand and analyze a cash flow statement, read this:

The cash flow statement summarizes the cash generated and spent over a specific time period (for example, a month, quarter, or year).

It shows an organization’s ability to operate in the short and long term based on how much cash is flowing into and out of it.

THE IMPORTANCE OF A CASH FLOW STATEMENT

Since the balance sheet and the income statement report the activities of a company on an accrual basis, it is crucial to have a statement that reports cash over a period. And this is what the cash flow statement provides.

Note that cash flow is different from profit, which is why a cash flow statement is interpreted with other financial documents.

A profit is the amount of money left over after all expenses have been paid; cash flow indicates the net flow of cash into and out of a business.

COMPONENTS OF A CASH FLOW STATEMENT

Cash flow statements are broken into three sections: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.

• Operating activities are the main revenue-producing activities of the entity. They include the cash flows associated with sales, purchases, and other expenses.

• Investing activities comprise cash flow from the acquisition or disposal of assets using free cash and not debt; this is usually in the form of physical property, such as real estate or vehicles, or non-physical property, like patents.

• Financing activities from changes in a company’s capital structure.

It includes cash flows from borrowing and repaying bank loans or bonds, as well as issuing and repurchasing stock.

HOW TO CALCULATE A CASH FLOW

There are two methods: Direct and Indirect

Direct Method

Operating cash flows are presented as a list of cash flows: cash in from operating activities and cash out for operating expenses. This method is not used frequently in companies.

Indirect Method

It is based on the accrual accounting system, where revenues and expenses are recorded at periods other than when cash is paid or received, causing the cash flow from operational activities to deviate from net income.

In the indirect method, the net income from the income statement is the starting point and adjustments are made to undo the impact of accruals during the period.

The goal is to remove any non-cash expense, such as depreciation and amortization, and capture all cash activities.

CASH FLOW INTERPRETATION

A positive cash flow implies that a business has more money flowing into it than out of it over a given time period.

This is good news because it gives the company the ability to deploy cash to grow the business or repay its debt.

A negative cash flow means cash outflows are higher than cash inflows.

This can be caused by a mismatch between revenue and expenses or by a decision to invest in future growth.

This is why the change in cash flow needs to be analyzed over time for a better assessment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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If you don’t know how to read and analyze an income statement, read this:

An income statement summarizes the total impact of revenue, expense, gain, and loss transactions for a specific time period.

It is also referred to as:

• Statement of operations

• Statement of earnings

• Profit and loss (P&L) statement

It shows how profitable a business is.

• The content of an income statement

The income statement contains important information about how a company earns its money and how it spends it.

An income statement includes the following categories:

• Revenue/ Sales

Revenues are the money a business makes during a reporting period.

Typical revenues include:

• Net sales: from a business producing or selling products.

• Service revenues: from a business providing services.

• Expenses

Expenses are the money a business spends during a reporting period.

• Cost of Goods sold

This line item includes direct costs associated with the sale of products to generate income.

In companies whose main revenue is service, it is known as the “cost of sales.”

• Gross Profit

Gross profit is calculated by deducting the cost of goods sold (or cost of sales) from the sales revenue.

• Marketing, Advertising, and Promotion Expenses

These are expenses that relate to the promotion and advertising to generate revenue for the business.

• Selling, general and administrative (SG&A) expenses

These are all other indirect costs associated with running the business.

They include:

•Salaries and wages

•Rent and office expenses

•Insurance

•Travel expenses

All expenses listed above are called operating expenses.

• Operating income:

Gross profit – operating expenses

• EBITDA (Earnings before interest, taxes, depreciation, and amortization) It is calculated by subtracting SG&A expenses (excluding amortization and depreciation) from gross profit.

• Depreciation & amortization expense: non-cash expenses to spread out the cost of capital assets like property, plants, and equipment.

• EBIT (Earnings Before Interest and Taxes): profit before any non-operating income, expenses, interest, or taxes are reduced from revenue.

• Interest expense: this can be either an expense or an income. This is useful to distinguish EBIT from EBT.

• EBT (Earnings Before Tax): It is calculated by subtracting interest expense from operating income.

• Income taxes are the applicable taxes charged to the business for performing its activities.

• Net income: earnings remaining after subtracting the income tax expense. This is the amount that goes into retained earnings on the balance sheet after any dividends are deducted.

• How to analyze an income statement

• Vertical Analysis

It is a method of financial analysis where each line item is listed as a percentage of a base figure within the statement.

It is especially convenient to perform the analysis on a comparative basis.

• Horizontal Analysis

It compares changes in the dollar amounts in a company’s financial statements over multiple reporting periods.

This can be expressed as an absolute amount or as a percentage.

Its purpose is to determine the increase or decrease that has taken place.

• Ratio Analysis

It shows various pieces of financial information in the financial statements of a business.

• Gross profit margin: shows a company’s earnings after deducting the costs of producing its goods and services.

Gross profit margin: gross profit / revenue or sales

• The profit margin measures the net income generated by each dollar of sales.

Profit Margin: Net income/ Revenue or sales

• Operating profit margin is a profitability or performance ratio that reflects the percentage of profit a company produces from its operations before subtracting taxes and interest charges.

• The debt service coverage ratio is the percentage of operating income available for debt servicing (interest and principal payments).

DCR = Operating Income / Debt service

A lot of lenders will look at this ratio to decide whether they will lend you money.

• Return on Assets: It reveals the after-tax profit a company generates for every dollar of assets it holds.

ROA = Net income/ Assets

• Return on equity: It measures the rate of return on the money that equity investors have put into the business.

ROE = Net income/ Equity

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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If you don’t know how to read and analyze a balance sheet, read this:

A balance sheet is a snapshot of a business at a specific point in time. It serves two purposes.

Internally, it provides information about the financial health of a company.

Externally, it depicts the business’s resources and how they are financed.

The equation to remember is: ASSETS = LIABILITIES + EQUITY

• ASSETS

Assets are what a company owns.

Current assets are assets that a company expects to convert to cash within a year.

They include:

• Cash

• Investments

• Receivables

• Inventories

•Prepaid expenses

They help in determining short-term debt-paying ability.

Non-current assets are long-term investments that are unlikely to be converted into cash in the near future, such as:

Non-current assets include:

• Investments in stocks and bonds

• Lands or buildings

• Long-term notes receivable

Property, plant, and equipment

They are assets with relatively long useful lives that a company is currently using in operating the business.

This category includes:

• Land,

• Buildings,

• Machinery and equipment

• Delivery equipment and furniture.

Depreciation is the practice of allocating the cost of assets over a number of years.

The accumulated depreciation account shows the total amount of depreciation that the company has expensed thus far in the asset’s life.

Intangible Assets

They are long-term assets that lack physical substance but are frequently very valuable.

Other intangible assets include:

• Goodwill

• Intellectual property

• Brands

• Trademarks

• LIABILITIES

Liabilities are what a company owes.

Current liabilities are obligations that the company must pay within the next year or cycle of operations.

They include:

• Accounts payable

• Wages payable

• Notes payable

• Interest payable

• Income taxes payable

The relationship between current assets and current liabilities helps evaluate the liquidity of a company.

When current assets are higher than current liabilities, the company is in a good position to pay its short-term creditors.

If not, the company can go bankrupt.

Long-term liabilities are obligations that a company expects to pay after one year.

Long-term liabilities include:

• Bonds payable

• Mortgages payable

• Long-term notes payable

• Lease liabilities

• Pension liabilities

• STOCKHOLDER’s (OWNERS’) EQUITY

This is the ownership claim on the company’s assets.

This section of the balance sheet consists of common stock and retained earnings.

If you add all the resources of a company and subtract its liabilities, what is left is the equity.

• HOW TO ANALYZE A BALANCE SHEET

We can analyze it using ratios.

Financial ratios are generally divided into four categories:

• Liquidity

• Solvency

• Efficiency

• Profitability

With the balance sheet, we will focus on the first three ratios

• Liquidity Ratios

Measure the short-term debt-paying ability of a company.

• Current Ratio =Current Assets / Current Liabilities

• Quick Ratio =Cash & Cash Equivalents + Accounts Receivables) / Current Liabilities

• Cash Ratio =Cash & Cash Equivalents / Current Liabilities

A ratio between 1-3 is a good sign for a company, suggesting that a business has enough cash to be able to pay its debts.

A ratio of less than 1 means that the company can’t pay its debts. It may be necessary to finance or extend the time required to pay creditors.

• Solvency Ratios

Measure a company’s long-term paying ability.

• Debt-To-Equity Ratio = Total Debt / Total Equity

• Debt Ratio = Total Debt / Total Assets

The higher the ratio, the more debt and risk the company has.

• Efficiency Ratios

Measure the efficiency of converting assets into cash.

• Receivables Turnover Ratio =Sales / Accounts Receivable

• Inventory Turnover Ratio =COGS / Inventories

• Asset Turnover Ratio =Sales / Total Assets

Efficiency ratios can also be measured in days.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Assessment is an important process under the Goods and Services Tax (GST) Act in India. It refers to the verification and determination of the tax liability of a taxpayer.

Under GST, assessments are conducted by the GST authorities to ensure that taxpayers are complying with the provisions of the Act and paying the correct amount of tax.

The assessment process under GST is a self-assessment system, which means that taxpayers are required to file their returns/pay taxes on their own, without any intervention from GST authorities. However, to ensure compliance, GST authorities may conduct various types of assessments

Types of Assessments under GST

1. Self-Assessment (Sec 59)

Under this type of assessment, taxpayers are required to self-assess their tax liability and file their returns accordingly. The GST authorities will then verify the returns and may initiate further assessments if required.

2. Provisional Assessment (Sec 60)

This type of assessment is conducted when a taxpayer is unable to determine the correct tax liability due to various reasons such as incomplete information or pending investigation. The taxpayer is required to pay a provisional tax, and the final assessment is conducted after the relevant information is obtained.

3. Scrutiny of Returns (Sec 61)

This type of assessment is conducted when the GST authorities have reason to believe that a taxpayer has not paid the correct amount of tax or has not complied with the provisions of the Act. The authorities may ask for additional information or documents, and the taxpayer is required to provide the same.

4. Best Judgment Assessment (Sec 62 & 63)

This type of assessment is conducted when a taxpayer fails to file returns or provide required information. In such cases, GST authorities may determine the tax liability based on the best of their judgment & issue an assessment order.

5. Summary Assessment (Sec 64)

This type of assessment is conducted when the GST authorities have evidence of tax evasion or fraud. In such cases, the authorities may conduct a summary assessment and issue an assessment order.

Procedure for Assessments under GST

The procedure for assessments under GST is as follows:

1. The GST authorities will issue a notice to the taxpayer, stating the reason for the assessment.

2. The taxpayer is required to provide the necessary information and documents within the specified time period.

3. The GST authorities will examine the information and documents provided by the taxpayer and may conduct further investigations if required.

4. Based on the examination and investigation, the GST authorities will determine the tax liability and issue an assessment order.

5. If the taxpayer is dissatisfied with the assessment order, they may file an appeal before the Appellate Authority.

In conclusion, assessments under GST are an important process to ensure compliance with the provisions of the Act and the correct payment of taxes.

Taxpayers are required to file their returns and pay taxes on their own, and the GST authorities may conduct various types of assessments to ensure compliance.

It is essential for taxpayers to maintain accurate records and provide the necessary information and documents during assessments to avoid penalties and interest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

1. Overview

The Ministry of Corporate Affairs (“MCA“), in its continuing drive to improve transparency and bolster integrity of financial reporting has amended the Companies (Accounts) Rules, 2014 (“Accounts Rules“) requiring companies to ensure that the accounting software used to maintain books of accounts has the following features and attributes:

• recording audit trails for each & every transaction;
• logging the edits made to the book of accounts along with the date when such an edit was made; and
• ensuring that the audit trail cannot be dis-abled.

The Companies (Audit and Auditor) Rules, 2014 (“Audit Rules“) have been correspondingly modified wherein auditors are now required to report, as part of the auditor’s report, as to whether, the accounting software used by the company being audited has the feature of recording audit trail (edit logs), the audit trail feature was operational throughout the financial year and had not been “tampered” with and such audit trails have been retained for the period as statutorily prescribed.

The MCA has notified that the aforesaid amendments will be effective from April 1, 2023, which implies that the accounting software employed by companies will need to be compliant with the Accounts Rules from FY 2023-24. The breathing space provided by the MCA ought to be leveraged by the companies to assess whether the accounting software has the requisite functional parameters and attributes which would be considered as being complaint with the Accounts Rules and where necessary, engage with their service providers and/or auditors to implement changes to ensure compliance.

Prima facie the amendments to the Accounts Rules and Audit Rules (collectively referred to as “Rules”) are relevant as an immutable audit trail would be critical to establish accountability and act as an impediment to falsification and manipulation of accounting records. However, the Rules are in certain respects ambiguous or lack specificity and this may lead to divergence in interpretation and application of the Rules by auditees and auditors. This article seeks to outline the aforesaid ambiguities as well as discuss steps which companies could undertake ensure effective compliance. It is our hope that the key stakeholders i.e. the companies, auditors and the MCA, do assess these ambiguities and arrive at a common ground before the Rules are implemented from FY 2023-24.

2. Audit Trails – To include or exclude?

The Rules don’t specify the fields or data sets for which audit trails are required to be maintained. In relation to a transaction, data would comprise of two types i.e. transactional data (for e.g. amount, accounting date, ledger accounts, narration, i.e. information which is reflected in the financial records) and data pertaining to the transaction (for e.g. identity of the user accounting the transaction or the time on which the transaction was posted). With reference to the latter, while it is obvious that the user identification (“User ID”) and transaction timestamp are necessary fields, it may be possible that other fields such as approval information (user ID of the approver and time stamp where transactions are approved) may be required to be logged as a part of the audit trial.

It can be argued that transactional data does not form part of the audit trail as the data is recorded in the books of accounts and replicating this information in the audit trail would not serve any purpose. However, since the Rules also mandate that “edit logs” are to be maintained, one could also argue that the audit trail should provide sufficient information to reconstruct or identify the original data prior to the edit being undertaken. For example, if a transaction is deleted or edited, apart from logging information about who effected the deletion/edit, the audit trail should include sufficient information to either view or trace the transaction which had been deleted.

3. Modification of Audit Trail

Audit Rules stipulate that the auditor should state as to whether, “the audit trail feature has not been tampered with and the audit trail has been preserved by the company“. In this regard, there is significant ambiguity on the remit of the word “tampered”. Is the requirement for the auditor to assess whether, the accounting software’s feature to create audit trails has not been tampered with per se (which would inter alia include unauthorized modifications to the settings of the audit trail) or whether tampering of the audit trail of transactions per se would also be covered (i.e. modification of the audit trail records)? Considering that modifications to the audit trail would defeat the purpose of maintaining audit trails, it would appear that the reference to tampering would be applicable to both the scenarios stated above.

4. Edits Logs & Audit Trails

The Rules mandate that “edit logs” are to be maintained. The word “edit”, when used in a grammatical context would mean a change to existing data and therefore it may be argued that edit logs would be required when an existing transaction has been modified. However, considering that the Account Rules refer to an “edit log of each change made in books of account“, it can be construed that edit logs would have to be maintained for all transactions. As such, a harmonious reading could be taken that the terms audit trail and edits logs are synonymous.

5. Audit Trails for non-financial records.

Certain records such as purchase orders or master data, which are not transactions per se, at least from an accounting standpoint, may be relevant from an investigation standpoint. For example, in the event fraudulent payments are effected through modification of bank account, audit trails relating to changes to bank account details would be of significant relevance. As such, it is not clear whether the term “transactions” refers solely to financial transactions per se or whether the term has to be broadly interpreted to include non-financial records or events, such as purchase orders or changes to vendor master data, which are correlated to financial transactions.

6. Internal Controls.

In order to demonstrate that the audit trail feature was functional, operated and was otherwise preserved, a company would have to design and implement specific internal controls (predominantly IT controls) which in turn, would be audited by the auditors. A company may leverage their existent internal control framework to design internal controls, in consultation with their auditors. An illustrative list of internal controls which may be required to be instituted are articulated below:

• Controls to ensure that the audit trail feature has not been disabled or deactivated.
• Controls to ensure that access to the accounting software is restricted to authorized users.
• Controls to ensure that User IDs are assigned to each individual and that User IDs are not shared
• Controls to ensure that changes to the configurations of the audit trail are authorized and logs of such changes are maintained.
• Controls to ensure that access to the audit trail (and backups) is disabled or restricted and access logs, whenever the audit trails have been accessed, are maintained. Controls to ensure that periodic backups of the audit trails are taken and archived

Conclusion.

Considering the patent and latent vagueness in the Rules, it would be advisable for Companies to keep an eye out for any guidance from the MCA and/or the Institute of Chartered Accountants of India in this regard. At the same time, while enabling audit trails may be a relatively simple task for companies which use ERPs such as Oracle or SAP, the same cannot be said for companies which use simplistic (or feature light) accounting softwares, which typically don’t have an audit trail functionality. Depending on the context, companies may have to effect significant changes to their existent softwares or implement a different software altogether. Since such changes take significant efforts and planning, it is imperative that companies start planning for this change as soon as possible.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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