Transcript No Slide Title
ACCOUNTING & TAXATION - NBFCs
BY R ANAND VICE PRESIDENT (CORPORATE AFFAIRS) SUNDARAM FINANCE LIMITED
05/08/2004 RBI - PUNE 1
GENERAL
• • •
MANAGING BUSINESS ACCOUNTING vs.
MANAGING COST OF COMPLIANCE & DECLINING MARGINS OVER REGULATION Vs. LIBERLISATION 05/08/2004 RBI - PUNE 2
ACCOUNTING - COMPANY LAW REQUIREMENTS
• • • COMPLIANCE WITH ACCOUNTING STANDARDS MANDATED - SEC 211(3A).
NON ADHERENCE REQUIRES DISCLOSURES – SEC 211(3B).
TRIPARTITE FORMULATION – CENTRAL GOVT, NATIONAL ADVISORY COMMITTEE AND ICAI – SEC 211(3C).
INVOLVEMENT IN
05/08/2004 RBI - PUNE 3
• • •
ACCOUNTING – RBI REQUIREMENTS
SEC.45Q UNDER CHAPTER III B OF THE RBI ACT, 1934 OVERRIDES OTHER LAWS RBI PRUDENTIAL NORMS VS.
ACCOUNTING STANDARDS AND GUIDANCE NOTES - PARA 5 OF RBI PRUDENTIAL NORMS DIRECTIONS DT.31ST JAN 1998.
MANDATORY APPLICABLE
EXTENT
TO ACCOUNTING STANDARDS AS OTHER CORPORATES TO THE
NOT
DIRECTIONS.
INCONSISTENT
WITH RBI’S
05/08/2004 RBI - PUNE 4
ACCOUNTING – INCOME-TAX REQUIREMENTS
• CENTRAL
GOVT.
HAS GOT POWER UNDER SEC.145 VIDE AMENDMENT IN 1997 TO ISSUE ACCOUNTING STANDARDS FOR INCOME-TAX PURPOSE
• SO
FAR, ONLY 2 STANDARDS WERE (NOTIFICATION NO. SO69(E) DT. 25/01/1996) ISSUED AS I : DISCLOSURE OF ACCOUNTING POLICIES AS II : DISCLOSURE OF PRIOR PERIOD & EXTRA ORDINARY ITEMS AND CHANGES IN ACCOUNTING POLICIES.
05/08/2004 RBI - PUNE 5
AS 1 AS 3 AS 4 AS 5 AS 6 AS 10 AS 11 AS 13
IMPORTANT STANDARDS APPLICABLE TO NBFCs
Disclosure of Accounting Policies Cash Flow Statements (revised) Contingencies and Events occurring after the Balance Sheet Date (revised) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (revised) Depreciation Accounting (revised) Accounting for Fixed Assets Accounting for the Effects of Changes in Foreign Exchange Rates (revised) Accounting for Investments (revised) AS 17 Segment Reporting AS 18 Related Party Disclosures AS 19 Leases AS 20 Earnings Per Share AS 22 Accounting for Taxes on Income AS 25 Interim Financial Reporting AS 26 Intangible Assets AS 28 Impairment of Assets AS 29 Provisions, Contingent Liabilities and Contingent Assets Consolidated Financial Statements AS 21 Consolidated Financial Statements AS 23 AS 27 Accounting for Investments in Associates Financial Reportting of Interest in Joint Ventures 05/08/2004 RBI - PUNE 6
DISCLOSURE OF ACCOUNTING POLICIES (AS 1)
• • • • FUNDAMENTAL ACCOUNTING ASSUMPTIONS
GOING CONCERN, ACCRUAL & CONSISTENCY
MAJOR CONSIDERATIONS - PRUDENCE, SUBSTANCE OVER FORM & MATERIALITY CHANGE IN RECOGNITION OF HP INCOME WHETHER AMOUNTS TO CHANGE IN ACCOUNTING POLICY?
BROKERAGE ON DEPOSITS / COMMISSION FROM DEALERS - ACCOUNTING TREATMENT.
05/08/2004 RBI - PUNE 7
• • • • • •
CASH FLOW STATEMENTS (AS 3)
CLAUSE 32 OF THE LISTING AGREEMENT REQUIRES TO GIVE CASH FLOW STATEMENT ALONG WITH BALANCE SHEET AND P & L.
ACTIVITIES TO BE CLASSIFIED INTO OPERATING, INVESTING AND FINANCING.
STANDARD RECOMMENDS TWO METHODS REPORTING : i.e., (1) DIRECT ; & (2) INDIRECT.
LISTING METHOD.
AGREEMENT MANDATES OF INDIRECT DIRECT METHOD: RECEIPTS & PAYMENTS ARE TAKEN AT FULL VALUE.
INDIRECT METHOD: NET PROFIT BEFORE TAX & EXTRAORDINARY ITEMS IS THE STARTING POINT AND ADJUSTMENTS ARE MADE THERETO.
05/08/2004 RBI - PUNE 8
PROVISIONS, CONTINGENCIES, PRIOR PERIOD & EXTRAORDINARY ITEMS - AS 4, AS 5 & AS 29
• • • • • • PROVISION TO BE MADE FOR PRESENT OBLIGATON AS A RESULT OF PAST EVENT WHERE PROBABLE OUTFLOW OF RESOURCES CAN BE RELIABLY ESTIMATED.
CONTINGENT LIABILITIES / ASSETS SHOULD NOT BE RECOGNISED.
EVENTS OCCURING AFTER THE BALANCE SHEET DATE THAT PROVIDE FURTHER EVIDENCE OF CONDITIONS THAT EXISTED AT THE BALANCE SHEET DATE TO BE RECKONED.
EXTRAORDINARY ITEMS SHOULD DISCLOSED IN THE P&L ACCOUNT.
BE SEPARATELY PRIOR PERIOD ITEMS DISCLOSED IN THE P&L.
SHOULD BE SEPARATELY ANY CHANGE IN AN ACCOUNTING POLICY WHICH HAS A MATERIAL EFFECT SHOULD BE DISCLOSED.
05/08/2004 RBI - PUNE 9
• • • • • •
DEPRECIATION - AS 6
SYSTEMATIC BASIS AND USEFUL LIFE ARE THE CRITERIA FOR CHARGING DEPRECIATION.
CONSISTENCY IS THE BASIC PRINCIPLE, BUT CHANGE IN THE METHOD IS ALLOWED FOR BONA FIDE REASONS.
CHANGE IN THE METHOD – RETROSPECTIVE EFFECT WITH DEFICIENCY / SURPLUS TO BE ACCOUNTED IN THE YEAR OF CHANGE.
IN THE CASE OF REVALUATION, DEPRECIATION IS ON THE REVALUED AMOUNT OVER THE REMAINING USEFUL LIFE.
ADDITION OR EXTENSION, EXCHANGE FLUCTUATION TO BE DEPRECIATED OVER REMAINING USEFUL LIFE.
SCHEDULE XIV RATES ARE TO BE ADOPTED AS THE MINIMUM LEVEL.
05/08/2004 RBI - PUNE 10
• • • • • •
FIXED ASSETS - AS 10
COST OF FIXED ASSETS = PURCHASE PRICE + COST OF BRINGING THE ASSET TO ITS WORKING CONDITION.
SUBSEQUENT EXPENDITURE SHOULD BE ADDED ONLY IF IT INCREASES THE FUTURE BENEFITS.
FIXED ASSETS SHOULD BE ELIMINATED UPON ITS DISPOSAL.
GAINS OR LOSSES FROM DISPOSAL OF FIXED ASSETS SHOULD BE RECOGNISED IN P & L ACCOUNT.
REVALUATION IS PERMITTED FOR A CLASS OF ASSETS OR SELECTION OF ASSETS ON A SYSTEMATIC BASIS.
DISCLOSURE : - GROSS & NET BOOK VALUE WITH DETAILS OF ADDITIONLS, DISPOSALS, ACQUISITIONS & OTHER MOVEMENTS.
- PARTICULARS ABOUT REVALUATION : AMOUNT, METHOD ETC.
05/08/2004 RBI - PUNE 11
DEPRECIATION ACCOUNTING (AS 6) & ACCOUNTING FOR
FIXED
ASSETS (AS 10)
• CAPITALISATION AS FIXED ASSETS BY LESSOR NOT PERMITTED FROM 01/04/2001. • FOR LEASES PUT THROUGH PRIOR TO 01/04/2001 DISCLOSURE OF LEASED ASSETS IN THE BALANCE SHEET.
FIXED ASSETS LESS:ACCUMULATED DEPRECIATION LESS/ADD: ACCUMULATED LEASE ADJUSTMENT DEPRECIATION AS PER SCH.XIV RATES OR AS PER MANAGEMENT’S ESTIMATE BASED ON USEFUL LIFE OF THE ASSET CONCEPT OF ANNUAL LEASE CHARGE (ALC) FOR LEASES PUT THRO’ PRIOR TO 01.04.2001
ALC COMPRISES OF MINIMUM STATUTORY DEPRECIATION & LEASE EQUALISATION CHARGE REPOSSESSED HP/LEASE ASSETS SHOULD BE SHOWN AS DISTINCT FROM ‘ASSETS ON LEASE’ OR ‘STOCK ON HIRE’(RBI CIRCULAR DT. 01.02.2002)
05/08/2004 RBI - PUNE 12
REVENUE RECOGNITION
• INCOME FROM HP & LEASE
FROM 01.04.2001
• RECOGNITION OF HP AND LEASE INCOME FOR BOOKS GOVERNED BY AS 19 • RECOGNITION OF LEASE/HP INCOME - IRR BASIS
PRE 01.04.2001
• LEASE - GOVERNED BY GUIDANCE NOTE • HP - NO SPECIFIC REQUIREMENT • OTHER INCOME (AS 9): INCOME FROM DIVIDENDS TO BE RECOGNISED WHEN OWNER’s RIGHT TO RECEIVE PAYMENT IS ESTABLISHED INTEREST ON LOANS ACCRUES ON TIME BASIS AFTER CONSIDERING AMOUNT O/S AND RATE APPLICABLE
05/08/2004 RBI - PUNE 13
EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES – AS 11
• • • • FOREIGN CURRENCY TRANSACTION TO BE RECORDED AT THE EXCHANGE RATE ON THE DATE OF TRANSACTION.
ON BALANCE SHEET DATE - FOREIGN CURRENCY MONETARY ITEMS SHOULD BE REPORTED USING CLOSING RATE.
- FOREIGN CURRENCY NON-MONETARY ITEMS TO BE REPORTED AT THE RATE ON THE DATE OF TRANSACTION.
EXCHANGE DIFFERENCES SHOULD BE RECOGNISED AS INCOME OR EXPENSES IN WHICH THEY ARISE.
PREMIUM OR DISCOUNT ON FORWARD EXCHANGE CONTRACT SHOULD BE AMORTIZED AS EXPENSE OR INCOME OVER THE LIFE OF THE CONTRACT.
05/08/2004 RBI - PUNE 14
• • • • • • •
ACCOUNTING FOR INVESTMENTS RBI DIRECTIONS & AS 13
INVESTMENTS CLASSIFIED AT THE BEGINNING INTO - CURRENT INVESTMENTS & - LONG TERM INVESTMENTS
INTER CLASS TRANSFER IS PERMITTED ON HALF YEARLY BASIS
QUOTED CURRENT INVESTMENTS BE GROUPED INTO EQUITY SHARES, PREF.
SHARES ,DEBENTURES& BONDS,GOVT.
SECURITIES, UNITS OF MUTUAL FUNDS AND OTHERS QUOTED CURRENT INVESTMENT VALUED AT COST OR MARKET VALUE, WHICHEVER IS LOWER ON SCRIP-WISE AND CATEGORY WISE AGGREGATE MARKET VALUE OF A PARTICULAR CATEGORY IS LESS THAN THE AGGREGATE COST THEN THE SHORTFALL SHOULD BE PROVIDED FOR.
SEPARATE TREATMENT FOR UNQUOTED SECURITIES LONG TERM INVESTMENTS ARE VALUED AT COST AND DECLINE IN VALUE OF INVESTMENTS, OTHER THAN TEMPORARY TO BE PROVIDED
05/08/2004 RBI - PUNE 15
• • • • • •
BORROWING COSTS - AS 16
BORROWING COST DIRECTLY ATTRIBUTABLE QUALIFYING ASSET SHOULD BE CAPITALISED.
TO THE ACQUISITION, CONSTRUCTION OR PRODUCTION OF A QUALIFYING OR SALE.
ASSET IS AN ASSET THAT TAKES A SUBSTANTIAL PERIOD OF TIME TO GET READY FOR ITS USE TEMPORARY INVESTMENTS OF BORROWING SHOULD BE REDUCED FROM BORROWING COSTS.
CAPITALISATION OF BORROWING COSTS BE SUSPENDED DURING A PERIOD IN WHICH ACTIVE DEVELOPMENT IS INTERRUPTED.
CAPITALISATION OF BORROWING COST SHOULD CEASE WHEN SUBSTANTIAL ACTIVITIES ON QUALIFYING ASSET ARE COMPLETE.
ACCOUNTING POLICY AND AMOUNT OF CAPITALISATION TO BE DISCLOSED IN THE FINANCIAL STATEMENTS.
05/08/2004 RBI - PUNE 16
SEGMENT REPORTING - AS 17
• • • • • • • • SEGMENT PERFORMANCE & ASSESS THE RISK AND RETURN OF AN ENTERPRISE.
REPORTING HELPS TO UNDERSTAND THE LISTED COMPANIES TO PUBLISH SEGMENT REPORTING ON A QUARTERLY BASIS IN THE FORMAT PRESCRIBED BY SEBI.
TYPES OF SEGMENT: (1) BUSINESS ; & (2) GEOGRAPHICAL.
DISCLOSURE IS ON REPORTABLE SEGMENT.
REPORTABLE SEGMENTS TO SATISFY REVENUE, RESULT AND ASSET BASED CONDITIONS.
REPORTING FORMAT IS ON PRIMARY SEGMENT & SECONDARY SEGMENT.
DOMINANT SOURCE AND NATURE OF RISK & RETURNS GOVERNS PRIMARY SEGEMENT REPORTING FORMAT.
NBFCs ENGAGED PRIMARILY IN FINANCING ACTIVITY IN INDIA HAS SINGLE ASI 20].
REPORTABLE SEGMENT AND HENCE NO REQUIREMENT TO DISLCOSE SEGMENT INFORMATION [REFER
05/08/2004 RBI - PUNE 17
• • • • • •
RELATED PARTY DISCLOSURES - AS 18
OBJECTIVE IS TO DISCLOSE RELATED PARTY RELATIONSHIPS & TRANSACTIONS.
RELATED PARTY RELATIONSHIPS COVERED: A. ENTERPRISES HAVING CONTROL.
B. ASSOCIATES & JOINT VENTURES.
C. INDIVIDUALS HAVING SIGNIFICANT INFLUENCE.
D. KEY MANAGEMENT PERSONNEL.
E. ENTERPRISES WHERE C & D EXERCISE SIGNIFICANT INFLUENCE.
NAME OF THE RELATED PARTY & NATURE OF THE RELATIONSHIP SHOULD BE DISCLOSED IRRESPECTIVE OF ANY TRANSACTIONS DURING THE YEAR.
EXAMPLES OF RELATED PARTY TRANSACTIONS: PURCHASE, SALES, SERVICE, LEASING, HP, LICENCE, AGENCIES, FINANCE, GUARANTEES ETC.
AGGREGATION BY TYPE OF RELATED PARTY IS PERMITTED WITH EXCEPTIONS.
FORMAT OF DISCLOSURE IS PRESCRIBED BY ICAI.
05/08/2004 RBI - PUNE 18
• • •
ACCOUNTING FOR LEASES – AS 19 APPLICABILITY
MANDATORY WITH EFFECT FROM 01.04.2001.
HIRE PURCHASE COVERED.
TRANSACTIONS ARE A FINANCE LEASE TRANSFERS SUBSTANTIALLY ALL RISKS AND REWARDS OF OWNERSHIP OF ASSET TO LESSEE.
• AN OPERATING LEASE IS AGREEMENT FOR HIRE OF ASSET.
SIMPLY AN
05/08/2004 RBI - PUNE 19
• •
AS 19 – LESSEE ACCOUNTING
LESSEE’S BOOKS: FINANCE LEASE: RECOGNISE LEASED ASSET AS ASSET WITH CORRESPONDING LIABILITY AT FAIR VALUE OF THE ASSET OR THE PRESENT VALUE OF THE MLP.
ASSET AND LIABILITY SHOULD BE SHOWN SEPARATELY AND NOT NETTED OFF.
LEASE PAYMENTS = PRINCIPAL + INTEREST
OPERATING LEASE:
PAYMENT TO BE TREATED AS EXPENSE ON A STRAIGHT LINE OR SYSTEMATIC BASIS .
05/08/2004 RBI - PUNE 20
AS 19 – LESSOR ACCOUNTING
LESSOR’S BOOKS
FINANCE LEASE:
RECOGNISE ASSET AS RECEIVABLE AT THE AMOUNT EQUAL TO NET INVESTMENT .
LEASE RENT = PRINCIPAL + FINANCE INCOME.
OPERATING LEASE :
EXISTING TREATMENT CONTINUES.
05/08/2004 RBI - PUNE 21
AS 19 - IMPORTANT DISCLOSURES
BY LESSEE
- OWN / LEASED ASSETS TO BE SEGREGATED - NET CARRYING AMOUNT ( W D V ) FOR EACH CLASS - LEASE PAYMENTS MATURITY AND THE PRESENT VALUE (DUE IN ONE YEAR, BETWEEN 1 TO 5 YEARS AND ABOVE 5 YEARS ) - LEASE PAYMENTS RECOGNISED IN THE STATEMENT OF PROFIT AND LOSS SEGREGATING MLP AND CONTINGENT RENT IN THE CASE OF OPERATING LEASE.
BY LESSOR
- RECONCILIATION BETWEEN MLP AND PV OF MLP - LEASE RECEIVABLES MATURITY AND PRINCIPAL MATURITY (DUE IN ONE YEAR BETWEEN 1 TO 5 YEARS AND ABOVE 5 YEARS ) - UNEARNED FINANCE INCOME - GROSS ASSET COST, ACCUMULATED DEPRECIATION & CHARGE FOR EACH CLASS IN THE CASE OF OPERATING LEASE.
05/08/2004 RBI - PUNE 22
EARNINGS PER SHARE – AS 20
• • • • BASIC AND DILUTED EARNING PER SHARE SHOULD BE DISCLOSED ON THE FACE OF THE P & L STATEMENT.
BASIC EARNING PER SHARE = NET PROFIT OR LOSS AVAILABLE TO EQUITY SHAREHOLDERS / WEIGHTED AVERAGE NO. OF EQUITY SHARES OUTSTANDING.
DILUTED EARNING PER SHARE MAY ARISE IN THE CASE OF CONVERTIBLE DEBENTURES, OPTIONS ETC.
BASIC & DILUTED EARNING PER SHARE SHOULD BE ADJUSTED FOR ALL PERIODS PRESENTED IN BONUS, SHARE SPLIT SITUATIONS.
05/08/2004 RBI - PUNE 23
CONSOLIDATED FINANCIAL STATEMENTS – AS 21, AS 23 & AS 27
• • • • PARENT COMPANY SHOULD FINANCIAL STATEMENTS IN ADDITION TO SEPARATE FINANCIAL STATEMENTS.
PRESENT CONSOLIDATED CONSOLIDATION ON THE FOLLOWING BASIS: SUBSIDIARIES – LINE BY LINE CONSOLIDATION (AS 21) ASSOCIATES (20% VOTING INTEREST) – EQUITY METHOD (AS 23) & JOINT VENTURE – PROPORTIONATE CONSOLIDATION (AS 27) GOODWILL / CAPITAL RESERVE ARE TO BE DETERMINED AND ACCOUNTED.
INTRA-GROUP BALANCES AND TRANSACTIONS TO BE ELIMINATED.
05/08/2004 RBI - PUNE 24
ACCOUNTING FOR TAXES ON INCOME - AS 22 SCOPE & OBJECTIVE
• MATCHING OF TAXES AGAINST REVENUE.
• BRIDGE THE GAP BETWEEN REPORTED INCOME AND TAXABLE INCOME • IF THE STANDARD IS APPLICABLE TO AN ENTERPRISE THEN ALL OTHER ENTERPRISES OF THE GROUP SHALL FOLLOW THE STANDARD - PROVIDED CONSOLIDATED FINANCIALS ARE BEING PREPARED.
• IMPORTANT TERMS: TAX EXPENSE (TAX SAVING) CURRENT TAX DEFERRED TAX TIMING DIFFERENCE PERMANENT DIFFERENCE
05/08/2004 RBI - PUNE 25
AS 22- PERMANENT vs TIMING
• • • ORIGINATION AND CAPABLE OF REVERSAL REQUIREMENTS GOING CONCERN CONCEPT VS. ITEM BY ITEM PARTIAL PROVISION VS.
FULL RECOMMENDED IN GUIDANCE NOTE] PROVISION [BOTH WERE • • AS 22 RECOGNISES ONLY FULL PROVISION METHOD TIMING DIFFERENCES LEAD TO DEFERRED TAX ASSETS / LIABILITIES.
• DEFERRED TAX ASSETS: – DISALLOWANCE U/S 43B, PROVISION FOR NON PERFORMING ASSETS [NBFC] •
05/08/2004
DEFERRED TAX LIABILITIES: DIFFERENCE IN WDV BETWEEN BOOK & IT, DEFERRED IN BOOKS VS FULLY ALLOWED IN IT AND VICE VERSA.
RBI - PUNE 26
AS –22 RECOGNITION
• • • • • • • • TAX EXPENSE (CURRENT TAX + DEFERRED TAX ) BE INCLUDED IN P & L ACCOUNT DEFERRED TAX LIABILITIES - TO BE FULLY PROVIDED FOR DEFERRED TAX ASSETS - TO BE RECOGNISED ON THE BASIS OF “PRUDENCE” PRUDENCE: - DEFERRED TAX ASSET - REASONABLE CERTAINTY (FAIR/ PREDICTABLE AND SENSIBLE ) - UNABSORBED DEPRECIATION & CARRY FORWARD LOSSES VIRTUAL CERTAINTY (VERY NEARLY THE THING DESCRIBED) VIRTUAL CERTAINTY - SUPPORTED BY CONVINCING EVIDENCE NATURE OF EVIDENCE TO BE DISCLOSED IAS-12 - “PROBABLE” APPROACH [GENERALLY 70% AND ABOVE] FAS-109 - “MORE LIKELY THAN NOT” APPROACH [ JUST OVER 50%]
05/08/2004 RBI - PUNE 27
AS-22 - MEASUREMENT & DISCLOSURE
• • • • • • DEFERRED TAX ASSETS BE REVIEWED EACH YEAR .
CURRENT TAX - APPLICABLE TAX RATES DEFERRED SUBSTANTIVELY ENACTED BY THE BALANCE SHEET DATE.
TAX TAX RATES ENACTED/ NETTING OFF IS PERMISSIBLE.
DEFERRED TAX ASSETS AND LIABILITIES SHOULD BE DISCLOSED UNDER A SEPARATE HEADING FROM CURRENT TAX ASSETS AND LIABILITIES MAJOR COMPONENT WISE BREAK-UP DISCLOSED IN THE NOTES TO ACCOUNTS.
TO BE
05/08/2004 RBI - PUNE 28
INTERIM FINANCIAL REPORTING – AS 25
• CLAUSE 41 OF THE LISTING AGREEMENT MAKES IT MANDATORY FOR LISTED COMPANIES.
• RECOGNITION COMPANIES.
AND MEASUREMENT BY AS 25 AND DISCLOSURE BY SEBI’S FORMAT IN THE CASE OF LISTED • SAME ACCOUNTING POLICIES AS ANNUAL TO BE FOLLOWED IN PREPARING INTERIM REPORTS.
• MATERIALITY DETERMINES RECOGNITION OF AN ITEM FOR INTERIM REPORTING.
• TAX EXPENSE IS DETERMINED ON THE BASIS OF ESTIMATED AVERAGE ANNUAL INCOME-TAX RATE – INTEGRAL METHOD.
• APPLICABILITY OF CHANGE IN THE TAX RATES (SUCH AS EDUCATION CESS) IN THE INTERIM PERIODS – POSITION CLARIFIED BY ICAI.
05/08/2004 RBI - PUNE 29
INTANGIBLE ASSETS – AS 26
• INTANGIBLE ASSETS SHOULD SATISFY THE TESTS OF IDENTIFIABILITY, CONTROL & FUTURE ECONOMIC BENEFITS.
• INTANGIBLE ASSETS SHOULD BE RECOGNISED ONLY IF FUTURE ECONOMIC BENEFITS WOULD FLOW AND COST CAN BE MEASURED.
• DEPRECIATION ON INTANGIBLE ASSET SHOULD BE ALLOCATED ON A SYSTEMATIC BASIS OVER USEFUL LIFE (REBUTTABLE PRESUMPTION IS LIFE WILL NOT EXCEED 10 YEARS).
• DISTINCTION BETWEEN RESEARCH DEVELOPMENT PHASE IS CRUCIAL.
PHASE & • SEPARATE DISCLOSURES TO BE MADE FOR ACQUIRED AND SELF-GENERATED INTANGIBLE ASSETS.
05/08/2004 RBI - PUNE 30
• • • • • •
IMPAIRMENT OF ASSETS – AS 28
IMPAIRMENT TEST TO BE MADE AT EACH BALANCE SHEET DATE.
BOTH EXTERNAL IMPAIRMENT LOSS.
& INTERNAL SOURCES OF INFORMATION TO BE RESORTED TO DETERMINE IMPAIRMENT LOSS RECOVERABLE AMOUNT.
= CARRYING AMOUNT – IF ASSET IS NOT INDEPENDENT, THEN IMPAIRMENT SHOULD BE ASCERTAINED FOR CASH GENERATING UNIT TO WHICH THE ASSET BELONGS.
IMPAIRMENT LOSS CAN BE REVERSED IN SUBSEQUENT PERIOD IF NO LONGER EXISTS.
FINANCIAL ASSETS EXCLUDED FROM APPLICABILITY – POSITION REGARDING FINANCE LEASE, HIRE PURCHASE, HYPOTHECATION LOAN ?
ITS
05/08/2004 RBI - PUNE 31
TAX ISSUES - DIRECT TAXES
STANDARD VS CBDT CIRCULAR [ NO. 2 OF 2001 ] LESSOR CONTINUES TO CLAIM DEPRECIATION TWO DIFFERENT SETS OF ACCOUNTS REQUIRED VEHICLE LEASING & DEPRECIATION - COMMERCIAL VEHICLE ENTITLED TO HIGHER DEPRECIATION - MADAN & CO 254 ITR 445 (MAD.) DEPT. SLP DISMISSED BY SUPREME COURT IN CIT vs. MGF (INDIA) LTD [2003] 262 ITR 2 [STAT.] DEPRECIATION ALLOWABLE TO HIRER (CBDT CIRCULAR NO.9 OF 1943)
05/08/2004 RBI - PUNE 32
TAX ISSUES - DIRECT TAXES [contd]
DUAL METHOD OF RECOGNISING HP INCOME - CHENNAI TRIBUNAL’S DECISION IN ASHOK LEYLAND FINANCE CASE -80 ITD 560 (CHE.) PROVISION FOR NPA AND ITS ALLOWABILITY - CHENNAI TRIBUNALS’ DECISION IN OVERSEAS SANMAR DECISION - AMENDMENT IN 36 (1) (VII) - WRIT PETITION IN MADRAS HIGH COURT & STAY ORDER.
INCOME DEFERMENT ON NPA SEC 43D BENEFIT DEPRIVED - WRIT PETITION IN MADRAS HIGH COURT & STAY ORDER.
- RECENT DECISION OF DELHI TRIBUNAL – TEDCO INVESTMENT & FINANCIALS SERVICES PVT LTD vs. DCIT [2003] 87 ITD 298 [DEL] 05/08/2004 RBI - PUNE 33
TAX ISSUES - DIRECT TAXES [contd]
ADDITIONAL FINANCE CHARGES NOTIONAL VS. ACTUAL ACCRUAL SOFTWARE GIVEN ON LEASE REVENUE OR DEFERRED REVENUE TDS ON HP FINANCE CHARGES NOT APPLICABLE INSTRUCTION OF CBDT DATED 16/11/1981.
TDS ON INTEREST ON HYPOTHECATION LOAN ALL CATEGORIES OF BORROWERS EXCEPT INDIVIDUALS / HUF WITH TURNOVER LESS THAN RS.40 LAKHS LIABLE TO DEDUCT TAX ON INTEREST PORTION OF THE INSTALMENT AT THE APPLICABLE RATES.
REPAYMENT OF LOAN IN EXCESS OF RS.20,000/- SHALL NOT BE IN CASH – BORROWERS TO TAKE CARE OF COMPLIANCE OF SEC 269T.
TDS ON PUBLIC DEPOSITS DECLARATION FOR NON-DEDUCTION OF TDS - FORM 15H BY SENIOR CITIZEN AND FORM 15G BY OTHERS.
DTAA RATES FOR NRIS
05/08/2004 RBI - PUNE 34
TAX ISSUE - SALES TAX HIRE PURCHASE
‘DELIVERY’ - AFTER 46TH AMENDMENT SINGLE POINT LEVY AND LOCALISATION OF `SALE’ INTER-STATE FORMALITIES WHETHER FINANCE CHARGES FORMS PART OF TURNOVER SC DECISION IN JAI BHARAT CASE (120 STC 001) USED HP TRANSACTIONS/HYPOTHECATION – SUNDARAM FINANCE VS STATE OF KERALA – 17 STC 489 REPOSSESSION AND SALE.
RESALE TAX – MAHARASHTRA (0.5%), KARANATAKA (1.5%) & TAMIL NADU (1%).
VAT & ITS EFFECT ON HIRE PURCHASE.
05/08/2004 RBI - PUNE 35
TAX ISSUES - SALES TAX LEASE
INCIDENCE OF TAX –TAXABLE EVENT – ‘TRANSFER OF RIGHT TO USE GOODS TAXABLE EVENT – EXECUTION OF AGREEMENT IN CASE OF ASCERTAINED GOODS OR DELIVERY IN THE CASE OF UNASCERTAINED GOODS.
INTER-STATE AND IMPORT LEASE TRANSACTION – NOT LIABLE FOR TAX UNDER THE STATES SALES TAX LAWS.
SALE AFTER TERMINATION - ANY SALE MADE ON NORMAL/ FORECLOSURE OF THE CONTRACT IS A SALE MADE BY THE FINANCE COMPANY TAXABLE, IF NOT SUFFERED LOCAL TAX ALREADY - SALE TO BE MADE NORMALLY TO NOMINEE OF LESSEE CONSEQUENT UPON RECENT CST AMENDMENT, INTER STATE LEASE TRANSACTION EXIGIBLE TO CST.
C FORMS CAN BE ISSUED FOR THE PURPOSE OF PURCHASE OF ASSET FOR LEASING.
05/08/2004 RBI - PUNE 36
• • • • • •
TAX ISSUES - SERVICE TAX
LEVY APPLICABLE TO HIRE PURCHASE & LEASE TRANSACTION W.E.F 16/07/2001.
SEC 65 (72) (ZM) OF THE FINANCE ACT 1994 & TRU INSTRUCTION DATED 09/07/2001 LEVY AT 8% (PROPOSED 10% + CESS 2%) ON FINANCE CHARGES, PROCESSING FEE, DOCUMENTATION CHARGES, LEASE MANAGEMENT FEE.
PAYABLE ON RECEIPT BASIS.
WRIT PETITIONS FILED CHALLENGING THE CONSTITUTIONAL VALIDITY OF LEVY AND STAY OBTAINED.
SIHPA & ELAI – STAY IN FORCE ALFS & MADRAS HP ASSN – STAY VACATED SC DECISION IN TAMIL NADU KALYANA MANDAPAM ASSN. VS.
UNION OF INDIA [2004] 267 ITR 9 [SC] - SUPPORTS OUR ASSOCIATIONS’ CLAIM.
LOANS ARE BROUGHT INTO THE TAX NET BY THE FINANCE (NO.2) BILL, 2004. BUT INTEREST SPECIFICALLY EXCLUDED.
05/08/2004 RBI - PUNE 37
• • • • •
KELKAR’s TASK FORCE REPORT – DIRECT TAXES
TASK FORCE REPORT ON FRBM ACT, 2003, RELEASED ON 16.07.2004.
BASIS FOR NEXT YEAR BUDGET PREPARATION.
TWO ALTERNATE SETS OF POLICY MEASURES ON CORPORATE TAX REFORM.
MAIN DIFFERENCE BETWEEN THE TWO SETS OF MEASURES IS: - OPTION 1: GRANDFATHER TREATMENT IN THE CASE OF EXEMPTIONS / DEDUCTIONS FOR EXISTING UNITS ON 1 ST SEPTEMBER 2004 & DIVIDEND DISTRIBUTION CONTINUES.
TAX - OPTION 2: EXEMPTIONS FOR DEDUCTIONS TO BE PHASED OUT OVER A PERIOD OF 2 YEARS & NO DIVIDEND DISTRIBUTION TAX.
COMMON MEASURES – CORPORATE TAX RATES TO BE REDUCED TO 30% FOR DOMESTIC COMPANIES & 35% FOR FOREIGN COMPANIES.
05/08/2004 RBI - PUNE 38
KELKAR’s TASK FORCE REPORT – INDIRECT TAXES
• AN INTEGRATED GOODS AND SERVICES TAX [GST] IS RECOMMENDED.
• GST WILL REPLACE EXCISE DUTY, SERVICE TAX, SALES TAX, OCTROI, ENTRY TAX, STAMP DUTIES ETC.
• UNDER GST BARGAIN).
BOTH CENTRE & STATES EXERCISE CONCURRENT BUT INDEPENDENT JURISDICTION (GRAND • THREE TYPES OF RATE STRUCTURES PRESCRIBED i.e.
STANDARD, FLOOR & HIGHER RATE.
• STANDARD RATE SHOULD NOT EXCEED 12% & 8% FOR CENTRAL - GST & STATE – GST.
• SEPARATE SCHEME OF TREATMENT FOR FINANCIAL SERVICES INDUSTRY WHICH INCLUDES ALL REGULATED FINANCE COMPANIES REGISTERED WITH RBI.
05/08/2004 RBI - PUNE 39
THANK YOU
40 05/08/2004 RBI - PUNE