Points useful while doing auditing

Ø REGARDING  TDS

Ø  REGARDING  BONUS

Ø  REGARDING  FBT

Ø  REGARDING  PURCHASE

Ø REGARDING  PROVIDENT FUND

Ø REGARDING   E.S.I.

Ø  REGARDING   DEPRECIATION

Ø  REGARDING   FINANCE BILL 2009(2)

Points useful for auditors for F.Y. 2011-2012

Data Base is not complete in itself and require regular updation.

POINTS AS TO TDS

Common points:

I. TDS to be deducted at time of payment or giving credit which ever is earlier.

II. Tax is not deductible on service tax [Only in case of Rent] – circular no. 4/2008, dated April 28/2008.

III. TDS of march month to be deposited by due date of return. TDS of month other than march to be deposited by march end, otherwise expense will be allowed in year of TDS deposite.

IV. No tax will be deducted on amount reimbursed to contractor. For instance; Out of pocket expenses reimbursed to CA

1.Expense incurred by contractor and directly recovered from contractee. Provided separate bill is issued in this respect.

V. For SC, EC & SHEC.

1.Surcharge (SC) will be levied if payment or credit exceeds Rs. 1 Crore to company or firm and Rs. 10 Lakhs in case of individual, AOP or BOI in Financial Year..

2.Education Cess (EC) will be levied @ 2%;

3.Secondary higher Education Cess (SHEC) will be levied @ 1%.

4.EC &   SHEC will be levied in every case.

VI. For TDS deposit date.

1.TDS deducted in month to be deposited by 7^th of following month.

However amount credited in payees account on 31^st March can be deposited upto  31^st May.

VII. Return of TDS.

1.Return to be filed quarterly within 15 days of expiry of quarter.

2.However last quarter return can be filed upto 15^th of June.

W.e.f. October 09, Quarterly Statement [+ Annual Return] in lieu of Quarterly Return.

VIII. Return Forms

1.24Q in case of deduction from salary.

2.26Q in other cases.

IX. Tax Deduction Certificate will be issued by deductor in Form;

1. 16, in case of deduction from salary.

2.  16A, in other cases.

X.    For lower or no deduction(Sec.197);

2.Payee will make application in Form-13 and assessing officer (A.O.) will directly issue the certificate u/s 197(1) to payer in this regard.

3.Interest on Fixed deposit, payee will make application in Form-15G. Senior Citizens can make application in Form-15H.

A.   TDS on Salary u/s 192.

a.   Tax to be deducted monthly will be equal to annual tax liability as divided by 12.

b. An employee can claim only following deduction to ask employee to deduct lower amount out of tax;

 i. 80C

 ii. 80D

1.  15000-00 + additional Rs. 5000-00 if amount invested for resident senior citizen

2. 15000-00 (for insurance of parents), additional Rs. 5000-00 if parents are senior citizen.

iii. 80DD

iv. 80E [For any study after 10+2]

v. 80GG

vi. 80U

c.   For Previous Year2011-2012, rates of tax are as follows. W.e.f. A.Y. 2012-2013, No Surcharge on Income from salary.

B.   TDS on Interest other than interest on securities(Sec.194A).

a.   Tax will be deducted @10%, 20% in case the payee is company.

b. W.e.f. October 09, 10% in case the payee is company.

c.   No deduction will be done;

i.  If paid interest doesn’t exceed Rs. 10000-00 in F.Y. (Where payer is Bank).

ii.  If paid interest doesn’t exceed Rs. 5000-00 in F.Y. (where payer is other than Bank).

iii. Where interest is paid to Bank or Financial Institutions.

iv. Where firm is paying interest to its partners.

C.   TDS on contract u/s 194C.

a.   Tax will be deducted @2%, 1% in case of advertisement contract and sub contract.

b. No deduction will be done in the event single credit or payment which ever is earlier doesn’t exceed Rs.20000-00 and aggregate sum credited or paid in Financial Year doesn’t exceed Rs.50000-00.

c.   W.e.f. October 09, 1% in case payee is Individual or HUF and 2% otherwise.

d. W.e.f. October 09, no TDS on work contract [Goods+Service] if contractor has not received material from contractee.

D. TDS on commission u/s 194H.

a. Tax will be deducted @10%.

b. No deduction will be done in the event payment doesn’t exceed Rs. 5000-00 to payee in F.Y ( Rs.2500.00 upto June 30,2010)

E. TDS on Rent u/s 194I

a.   Tax will be deducted @

i. 10% in case of leasing of Plant, Machinery & Equipments.

ii. In case of leasing of Land, Building & Furniture rate will be 20% (if payee is domestic company) 15% in case payee is other than the domestic company.

b. No deduction will be done if the payment to payee doesn’t exceed Rs.180000-00 in F.Y.

c.   W.e.f October 09, 2% in case of Plant, Machinery and Equipments Otherwise 10%.

F.    TDS on Professional & Technical Fees. u/s 194J.

a.   Tax will be deducted @ 10%.

b. No deduction will be done if payment to payee doesn’t exceed Rs.30000-00 in F.Y.

POINTS AS TO BONUS

Provision for Bonus to be made under at the end of year under

“ COMPANIES ACT 1956” though bonus can be paid upto 30^th November i.e. within 8 months of expiry of F.Y. (PAYMENT OF BONUS ACT). However under INCOME TAX ACT 1961 bonus expense is admissible on payment basis if same is paid on or before the due date of filing of Income Tax Return, otherwise same will be allowed as deduction in Previous Year in which Bonus is actually paid to employees.

a. POINT AS TO BONUS ACT 1965

1. Act applies to every factory and other establishment in which 20 or > persons are employed on any day during the accounting year.

2. Employee covered are those receiving wages 10000 or >.

3. Wages include all remuneration + DA, except;

a.   Other allowance

b. Overtime wages

c.   Employer contribution to ESI, PF, EPF or any other law.

4. Minimum bonus is 8.33% of wages (payable by employer even in case of losses).

5. If allocable bonus (after considering amount set off & set on) goes beyond minimum bonus. Employer bound to pay higher bonus but maximum 20%.

6. Where salary or wage of employee exceeds 3500/- , bonus shall be calculated as if salary is 3500/-.

7. Bonus should be paid within period of 8 months from close of accounting year.

POINT AS TO FB

W.e.f. April 09, no FRINGE BENEFIT TAX(FBT) on employer. The consequence is that, Fringe Benefits received by employee is now taxable in employees hand. Now the point is

QUES. How employee can save tax ?.

ANS.   Here are few suggestions;

a.  Traveling and Conveyance allowance are exempt to employee to the extent they are utilized for business purpose.

b.  Allowance to encourage academic/ research / professional pursuit are exempt to the extent they are utilized for specified purpose.

c.   Transport allowance 800/- p.m. exempt.

d.   Children education allowance [2 child] 100/- p.m.

e.   Hostel expenditure allowance [2 child] 300/- p.m.

f.   Important point: Obligation of employee met by employer always taxable in employee hand as perquisite.

POINT AS TO PURCHASE

a.     Content of Invoice are reconciling with Entry (including narration).

b.     Whether date, bill no., suppliers name, invoice value, VAT/CST, P.O. no. (if any), Form-38 no. (In case of purchase from outside noida/ to noida), etc as per Invoice and purchase register same & matching.

c. Check whether particulars of invoice, challan & purchase order reconciling (wherever necessary).

d.     Check arithmetic accuracy on test basis, particularly in case where calculation done manually in invoice.

e. Check TIN no. of company and supplier mentioned in purchase invoice (except when purchase made from URD).

f.   Ensure in case of local purchase, VAT paid is transferred to Input VAT account i.e. input of vat paid is taken (except in case of non-creditable goods or when input can’t be claimed). Also check Company has obtained TAX Invoice for this purpose.

g.     Ensure gate entry stamped is affixed on Delivery Challan or Purchase Invoice.

h.     Purchase Invoice, Delivery Challan to contain reference to purchase order.

i.   Ensure that in place of tempering the invoice amount owing to any cause, DEBIT NOTE is issued to supplier and duplicate thereof is kept in records along with original CREDIT NOTE received from supplier.

POINT AS TO P.F.(PROVIDENT FUND ACT 1952)

Ø  Employers contribution 12% of basic earned (Max. 6500-00), out of this 8.33% goes to FPF(family pension fund) and the balance 3.67%(12%-8.33%) goes to provident fund.

Ø Employee’s contribution may go beyond 12%.

Ø  Administration charges 1.10% of PF wages.

Ø  EDLI charges 0.50% of PF wages.

Ø  Inspection charges 0.01% of PF wages.

Ø  Payment of challan on monthly basis due date 20th of following month, comprising all above amount.

Ø  Return on annually basis and on monthly basis as well.

Ø  Employee is covered if PF wages is 6500 /- or less p.m.

Ø Employees includes;

o   Employed through contractor.

o   Part-time employee, sweeper working twice or thrice in a week, Night watchman, Gardner working for 10 days a month. [Railway employees cooperative banking society ltd. Vs Union of India, 1980 Lab. IC 1212].

o   Any person who is employed IN CONNECTION WITH WORK OF ESTABLISHMENT.

Ø   Act applies to establishment employing 20 or more persons or specified class of establishment. In underlying 20 or more casual labour shall not be reckoned.

Ø PF wages means all emoluments paid or payable except;

Ø  DA, HRA, Bonus, Overtime allowance or Other allowance. In other words PF wages = Basic wages.

POINT AS TO E.S.I (EMPL)OYEE STATE INSURANCE ACT

Ø  Employers contribution 4.75% of ESI wages earned.

Ø Employees contribution 1.75% of ESI wages earned.

Ø Employee is covered in ESIC if ESI wages is 10000-00 or less p.m.

Ø An employee whose wages exceed aforesaid amount at any time after the beginning of Contribution period shall continue to be an employee until the end of that period.

·     ESI wages : It include all remuneration except;

o   Employers contribution to PF,FPF or ESI.

o   Traveling allowance. 

o   Amount paid to defray/pay expenses entailing on him by the nature of his employment.

·     Act applies to every shops, hotels, restaurants, cinemas, road transport undertaking, etc employing 20 or more persons. Also applies to Factory employing (in connection with work of factory or establishment for ESI Wages) 10 or > (with aid of power) / 20 or > (without aid of power) on any day in preceding 12 months.

·     Employer is also liable to make contribution in respect of contract labour appointed through contractor. Though it may recover the same from amount payable to contractor.

·     Payment of ESI on monthly basis. 21^st of following month.

·     Return on semi-annual basis. With in 52 days from end of contribution period.( contribution period is from April-September & October-March). April to September ( Due date 11^th November), October to March (Due date 12^th May).

·     Return to be certified by CA in case employer employing 40 or more ESI covered employees.

ESI FORMS numbers

o   01 for Employers Registration.

o   1 for Declaration to be given by newly recruited employee.

o   2 for addition, deletion in family declaration form.

o   5 for return of contribution (within 52 of expiry of contribution period).

o   6 for Register of employees.

Terms used

o   TIC implies Temporary Insurance Card of ESI employee (new joining)

o   PIC implies Permanent Insurance Card.

o   IP implies Insured person (employee).

·     ESI points relating to contract labour appointed by immediate employer (contractor) for companies work.

o   Lets comprehend with example, suppose sub-contractor raised bill of

o   Rs. 10000-00, now assuming his margin (profit) of 20%, ESI & PF liability will be computed on Rs. 8000-00 (in the event sub-contractor isn’t paying his part of ESI & PF contribution himself).

o   If contractor is paying contract labours ESI & PF contribution [employers contribution] then  employer should demand following documents from contractee as evidence that he is actually paying them; 

Ø DECLARATION in writing, to the effect that contractor will pay liability.

Ø  Copy of wage register / Salary Sheet containing the name of contract labour deputized.

Ø  ESI & PF Challans evidencing payment thereof.

POINTS about DEPRECIATION

·     Depreciation rate as per Companies Act 1956 and Income Tax Act 1961.

Ø FINANCE BILL 2009 (2)

Applicable w.e.f. 01-04-2009

1.     Income Tax slab rate changed.

a.     160000-00 [Individual], 190000-00 [Women], 240000-00 [Senior citizen].

2.     No FBT on employer but now employee is liable to pay tax on fringe benefit.

3.     No surcharge on salary but cess is still subsisting.

4.     MAT has been increased to 15%. If MAT was computed with impairment of asset, than recalculate with retrospective effect from 1998-99.

5.     No advance tax for LESS THAN Rs. 10000-00.

6.     Net wealth upto Rs. 30 Lakh exempt.

Applicable w.e.f. 01-10-2009

1.     Gift in cash or kind

a.     If cash gifts exceed Rs. 50000-00 then entire will be taxable.

b.     If gift of movable property exceeds Rs. 50000-00 then entire will be taxable.

c. If gift of Immovable property exceeds Rs. 50000-00 then entire will be taxable.

2.     Cash payment can go beyond 20000-00 but not above 35000-00 in case of transportation business.

3.     TDS

a.     Now no surcharge or cess on TDS.

b.     Rate u/s 194C 1% in case of individual and HUF otherwise 2%.

c. U/s 194C, now Work contract [service + goods] outside the purview of it. [exempted]

d.     Rate u/s 194I 2% in case of plant, machinery or equipments otherwise 10%.

e. Quarterly TDS, TCS statement + Annual TDS, TCS return, in lieu of quarterly return.

Applicable w.e.f. 01-04-2010

1.     Presumptive taxation scheme, for

a.      All small businessmen u/s 44AD if there gross turnover isn’t exceeding Rs. 40 Lakh.

b.     Transporter u/s 44AE

i. Rs. 5000-00, Net income in case of Heavy commercial vehicle.

ii. Rs. 4500-00, Net income in case of Light commercial vehicle.

2.     U/s 40(b) In case of partnership firm [professional and non professional]

a.     90% of 1^st 300000-00 of book profit or 150000-00, which is more can be distributed as remuneration and above 300000-00, 60% can be distributed.

3.     TDS

a.     If PAN number is not given to deductor by deductee, deductor will deduct TDS @ 20% or applicable TDS rate which ever is higher. 

b.     No order to deductor after 2 year and no order after 4 year if return not filed.

4.     Section 80E to cover all fields of study after 12^th class.