SWACHH BHARAT CESS(SBC)

Dear friends I am back with my new article on SWACHH BHARAT CESS(SBC).

Now the government has come up with introduction of SBC immediate post festive season. Notification no. 21/2015 has been issued appointing 15^th November, 2015 as the date from which the provision of section 119 would become effective. This means, the cess has been introduced on all taxable services w.e.f. 15.11.2015.

Simultaneous to this, another notification no. 22/2015-ST has been issued whereby exemption has been granted in excess of SBC calculated at the rate of 0.5 percent of the value of taxable services. Effectively, rate of cess would be 0.5% and new rate of service tax would be 14.5%.

There would be consequential impact on many other aspects under services tax law which the author has attempted to discuss in FAQ form.

1. What would be effective rate of service tax post introduction of SBC?

Effective rate of service tax post introduction of SBC would be 14.5%.

2. In case of services covered by abatement, what would be effective rate of tax? Say GTA service where presently tax is payable at 4.2% (14%*30%)?

Section 119 provides that SBC would be levied and collected as service tax. Further, sub section 5 provides that provision of chapter V of the Finance Act would apply to SBC as they apply to service tax. The abatement notification is issued under section 93 (chapter V) of the Act.              So, this notification would apply for SBC also in the same manner as apply for service tax. Hence, the effective rate of tax on all abatement services would be 14.5% * effective rate under Notification 26/2012-ST. For GTA, it would be 14.5%*30%= 4.35% (not 4.70%)

3. In case of works contract, how would the tax be calculated?

The value of services would be calculated as per Rule 2A of Service Tax (Determination of Value) Rules, 2006. Tax needs to be applied on the value so arrived at the rate of 14.5%. Effective rate of tax in case of original works and other than original works would be 5.8% (14.5%*40%) and 10.15% (14.5%*70%) respectively. Similar, would be for restaurant and outdoor catering services.

4. Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, insurance premium, purchase and sale of foreign currency)

There is no specific exemption for such services. Therefore technically speaking one has to compute taxable value for the purpose of computing SBC though for computing service tax the special rates are applied. However paper writer feels that there may be consequential amendment to deal with it.

5. I am paying service tax on few services under reverse charge mechanism. How would SBC have impact on my tax liability?

SBC would be applicable on all taxable services. Hence, you need to pay SBC along with service tax on the services availed by you.

6. Whether SBC needs to be collected and paid separately from service tax or subsumed in existing service tax rate?

SBC would be levied, charged, collected and paid to government independent of service tax. This needs to be charged separately on the invoice, needs to be accounted separately in the books of account and needs to be paid separately under separate accounting code which should be notified separately.

7. Services presently provided by me are covered by mega exemption notification i.e. 25/2012-ST. Do I need to charge SBC on services provided by me?

No, it has been specifically provided in the NotificationNo. 22/2015 that SBC would not be applicable on services exempted from levy of service tax. Hence, you need not to charge SBC on the services covered by mega exemption notification. Similar would be treatment of negative list services.

8. If services have been provided prior to 15^th November but invoiced on or after 15^th November, whether SBC would be applicable? (no advance received)

There is anomaly between section 67A of the Finance Act, 1994 and Rule 4 of Point of Taxation Rules, 2011. As per section 67A, the rate of tax would be applicable as on the date on which service is provided. On the other hand, Rule 4 of Point of Taxation Rules provides that rate of tax would be applicable based on 2 out of 3 events.

If one follows section 67A, SBC would not be applicable in the given example. On the other hand, if one follows Point of Taxation Rules, 2011SBC would be applicable as two (raising of invoice and receipt of consideration) out of three events are occurring post 15.11.2015.

9. What would be rate of tax where services are provided before and after imposition of SBC?

The impact of introduction of SBC on different situations is summarized below. (assuming that applicable rate is determined as per Rule 4 of Point of Taxation Rules, 2011)

Service provided	Invoice issued	Payment received	Rate to be considered
Before imposition of SBC	After imposition of SBC	After imposition of SBC	14.5%
Before imposition of SBC	Before imposition of SBC	After imposition of SBC	14%
Before imposition of SBC	After imposition of SBC	Before imposition of SBC	14%
After imposition of SBC	Before imposition of SBC	After imposition of SBC	14.5%
After imposition of SBC	Before imposition of SBC	Before imposition of SBC	14%
After imposition of SBC	After imposition of SBC	Before imposition of SBC	14.5%

 10. How would liability be determined in case of reverse charge services where services have been received prior to 15.11.2015 but consideration paid post 15.11.2015?

In case of reverse charge services, point of taxation as per Rule 7 of Point of Taxation Rules, would be the date on which consideration is paid to service provider. Hence, SBC would also be required to be paid in such cases.

11. Whether SBC paid on input service would be eligible as credit?

There is no amendment in the Cenvat Credit Rules, 2004 regarding availment and utilisation of SBC. In the absence of the same, credit would not be admissible. (Are we really moving toward GST regime where it is claimed that there would be no cascading effect of taxes and full credit would be allowed) One can expect suitable amendment is brought in Cenvat Credit Rules, 2004 to provide for availment and utilisation of SBC. If not brought, this would be very trade regressive measure.

12. What would be impact of imposition of SBC on cost of goods and services?

In the absence of any notification providing for availment of credit of SBC, it would directly add to the cost of product and services. If you are manufacturing excisable goods, you will have to factor in additional cost of 0.5% on all services received by you in the course of manufacturing. Similarly, if you are providing taxable service, SBC paid on all your input service become cost. If you are exporter of goods or service, you will not be entitled for refund of SBC.

13. I am providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules? Do I need to reverse the SBC also?

SBC would be levied and collected as service tax. Reversal under Rule 6 is not payment of “service tax” but it is payment of “amount”. Hence, reversal of SBC is not required under Rule 6 of Cenvat Credit Rules, 2004.

14. I am manufacturing excisable goods. Do I also need to charge SBC in addition to excise duty?

No, SBC is levied under chapter VI of the Finance Act, 1994 and is applicable only on provision of service. There is no imposition of SBC on the goods manufactured hence, you are not liable to pay SBC on manufacturing of excisable goods.

Conclusion

Though the objective of the collection of specific cess for a Swachh Bharat Mission is appreciable, the psychological impact on common man would be high with increased burden of taxes. This is especially with the fact that there is no provision for credit (unless it is provided for) and also additional burden on the business man to keep track of the one more tax, as to invoicing, record keeping, payment and returns filing.

Depository System

A depository is an organisation which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant.  It also provides services related to transactions in securities. At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI. The minimum networth stipulated by SEBI for a depository is Rs 100 crore.

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor and provides depository services. Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations /clearing houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by SEBI can be registered as DP. Banking services can be availed through a branch whereas depository services can be availed through a DP.

ONE PERSON COMPANY CLAUSE 3

Sec.2(62)defineOPC .OPC means a co. which has only one person as a member. It has only one director.The word “one person company” must be mention in brackets below the name of company.The annual return of a OPC shall besigned by the co. secretary. In case no secretary in co. by director of co.Special Provisions &Examptions Calling of an extra ordinary general meeting by the board or Tribunal donot apply to a OPC.

Capital Structure

The term capital structure refers to the percentage of capital (money) at work in a business by type. Broadly speaking, there are two forms of capital: equity capital and debt capital. Each has its own benefits and drawbacks and a substantial part of wise corporate stewardship and management is attempting to find the perfect capital structure in terms of risk / reward payoff for shareholders. This is true for Fortune 500companies and for small business owners trying to determine how much of their startup money should come from a bank loan without endangering the business.Let's look at each in detail:

• Equity Capital: This refers to money put up and owned by the shareholders (owners). Typically, equity capital consists of two types: 1.) contributed capital, which is the money that was originally invested in the business in exchange for shares of stock or ownership and 2.) retained earnings, which represents profits from past years that have been kept by the company and used to strengthen thebalance sheet or fund growth, acquisitions, or expansion.
• Debt Capital: The debt capital in a company's capital structure refers to borrowed money that is at work in the business. The safest type is generally considered long-term bondsbecause the company has years, if not decades, to come up with the principal, while paying interest only in the meantime.
  Other types of debt capital can include short-term commercial paper utilized by giants such as Wal-Mart and General Electric that amount to billions of dollars in 24-hour loans from thecapital markets to meet day-to-day working capital requirements such as payroll and utility bills. The cost of debt capital in the capital structure depends on the health of the company's balance sheet - a triple AAA rated firm is going to be able to borrow at extremely low rates versus a speculative company with tons of debt, which may have to pay 15% or more in exchange for debt capital.

Foreign Direct Investment

The Indian food supply chains are changing fast due to many policy and practice changes. There has been presence of domestic food supermarkets in the sector for many years now and their performance varies across states and chains. But, for the past few years, there has been plenty of debate and discussion about the potential role of foreign direct investment (FDI) in multi-brand retail, including food. This article tries to understand the role of FDI in multi-brand retail in improving the efficiency of food supply chains in India and its implications for various stakeholders in the chain. It uses empirical evidence from the experience of Indian domestic retail supermarkets and wholesale cash ‘n’ carry supermarkets and from other developing countries to examine the role FDI can play. The article also examines various mechanisms which could be used to leverage the presence of FDI in supermarkets and explores the role of policy and regulation to promote the small farmer and the traditional retail interests in such chains. It examines the role and implications of FDI supermarkets for food inflation, farmer income enhancement and employment generation.

A-B-C Analysis

Hey students...now I am going to tell you about an important concept "A-B-C Analysis"
It is a system of inventory control. It exercises discriminating control over different items of stores classified on the basis of the investment involved. Usually the items are divided into 3 categories according to their importance, namely, their value & frequency of replenishment during a period.
(i) "A" category of items consists of only a small percentage i.e. , about 10% of the total items handled by the stores but require heavy investment about 70% of inventory value, because of their high prices and heavy requirement.
(ii) "B" category of items are relatively less important; they may be 20% of the total items of material handled by stores. The percentage of investment required is about 20% of the toal investmen inventories.
(iii) "C" category of items do not require much investment; it may be about 10% of total inventory value but they are nearly 70% of the total items handled by store.
'A' category of items can be controlled effectively by using a regular system which ensures neither over stocking nor storage of materials for production.
In the case of B category of items, as the sum involved is moderate, the same degree of control applied in A category of units is in not warranted.
For C category of items, there is need of exercising constant control. In this case the objective is to economise on ordering and handling costs.
NITIN BHALLA
9873029766
9958641376

Goods & Service Tax ((GST)

Hey friends....I am back with a new concept i.e. Goods & Service Tax. Goods and Services Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level. Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain. The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain. GST is likely to improve tax collections and boost India's economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets). Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.

"Investment, financing & dividend decisions are all interrelated"

Hey students..lets talk about finance functions. The finance functions are divided into 3 major decisions, i.e. investment, financing & dividend decisions. It is correct to say that these decisions are inter related because the underlying objective of these 3 decisions is the same, i.e. maximisation of shareholder's wealth. Since investment, financing & dividend decisions are all interrelated, one has to consider the joint impact of these decisions on the market price of the company's share & these decisions should also be solved jointly.
The decision to invest in a new project needs the financing for the investment. The financing decision, in turn, is influnced by & influences dividend decision because retained earnings used internal financing deprive shareholders of their dividends. An efficient financial management can ensure optimal joint decisions. This is possible by evaluating each decision in relation to its effect on the shareholder's wealth.

Determination of Safety Stock

Hey students...
I am back with an important concept i.e. safety stock. Safety stock is a buffer to meet some unanticipated increase in usage. It fluctuates over a period of time. The demand for material may fluctuate & delivery of inventory may also be delayed and in such a situation the firm can face a stockout. The stock out can prove costly be affecting the smooth working of the firm. In order to protect against the stock out arising out of usage fluctuations, firms usually maintains a margin of safety i.e. safety stocks. Two costs are involved in determination of this stock i.e. opportunity cost of stock outs & the carrying costs. If a firm maintains low level of safety frequent stock outs will occur resulting into the larger opportunity costs. On the other hand, the larger quantity of safety stocks involves higher carrying costs.
The amount of safety stock is the level where the total costs, associated with safety are at a minimum.

NITIN BHALLA
09873029766
09958641376

Accounting Standard 6: Depreciation Accounting

Hey students..

I am going to tell you about the AS-6 i.e. Depreciation Accounting. Depreciation is nothing but distribution of total cost of asset over its useful life. It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time.

Now the question arises, "what is the meaning of depreciable assets?". Students assets should fulfill the following conditions to become "depreciable asset"

(1) which are expected to be used for more than 1 accounting period, and

(2) have a limited life, and

(3) are held for use in production of goods & services.

Now the question arises that " is this AS applicable on all depreciable assets?". Students this AS is applicable on all depreciable assets except FORESTS, PLANTATION, MINERALS, NATURAL GAS, EXPENDITURE ON DEVELOPMENT, GOODWILL & LIVE STOCK ( ANIMAL HUSBANDRY).

While calculating cost of depreciable asset cost spent in connection with its acquisition, installation, any commission paid, installation of additional item should be considered. The useful life of the depreciable asset is the period over which it is expected to be used by the enterprises. Generally useful life shorter than the actual or physical life.

For any information contact me
 Nitin Bhalla @ 9873029766, 9958641376

Ordering Costs & Carrying Costs

Hey students...in last article, we talked about EOQ, now we will discuss the concept of Ordering Costs & Carrying Costs.
#Ordering costs:
Ordering costs are the costs which are related to ordering or processing or procuring or receiving of materials.
Ordering Costs include :
1. Purchase department expenses e.g., PURCHASE DEPARTMENT employee salaries, electricity expenses, telephone bills, internet charges, rent, etc.
2. Procurement cost
3. Cost of printing, stationery, postage of PURCHASE DEPARTMENT.
4. Cost of collecting material
5. Cost of receiving material
6. Cost of bill payment e.g. preparation & sending of draft, fund transfer to supplier.
7. Cost of transit insurance.
8. Cost of inspection.
9. Cost of loading & unloading of materials from supplier's place to store room of factory.
10. Transportation cost of material from supplier's place to factory store room....,etc.

#Carrying Costs:
It involves the cost of holding, carrying & storing the inventory. It will not be incurred if inventories are not carried.
These costs include:
1. Store room rent
2. Store keeper" salary
3. Store room electricity expenses, handling cost of inventory
4. Insurance premium of inventory kept in the store room
5. Opportunity cost e.g. interest lost due to blocking of working capital, interest cost of inventory kept in the store room.
6. Breakage, spoiling, obsolescence normally happening during storage  activities.

FRIENDS JUST CONCETRATE  ON CONCEPTS...SELF STUDY IS MUCH BETTER THEN THOSE "TRAINERS" WHO DONT HAVE PROPER KNOWLDGE ABOUT YOUR SUBJECTS.

Economic Order Quantity (EOQ)

Hey friends, I am going to tell you about Economic Order Quantity (EOQ).
A decision about how much to order has great significance in inventory management. The quantity to be purchased should neither be small nor big because  costs of buying and carrying costs are very high. EOQ is the order size of the lot to be purchased which is economic viable. This is the quantity which can be purchased at minimum costs. It is the point at which carrying costs and ordering costs are equal.
If purchases are made in large quantities, carrying costs will be high & ordering costs  will be low & vice-versa.
Hence, it is necessary to determine the order quantity for which ordering and carrying cost are the minimum.
Friends my next article will be on Ordering Cost & Carrying Cost.