Submitting Tax Saving Proofs to Employer

Why Employers Ask for Tax Saving Investment Proofs?
Employers are responsible to deduct income tax (TDS – Tax deduction at source) from salary paid to its employees and deposit the same to income tax department. But income tax is complicated and the final tax depends on the tax saving investments a person makes or if the person lives on rent or if he has a house. So to compute your taxes correctly your employer asks for a declaration at the start of financial year (in April). The TDS is deducted based on this declaration.

What if you do not Submit the Proofs?
In case you do not submit the proofs, employer would not be able to give you tax benefit on your tax saving investments. This would lead to higher deduction of taxes.

What investment proofs to be Submitted
Indian income tax laws are complicated and have multiple exemptions and investment options. Below is the list of documents that needs to be submitted to your employer to get relevant tax deductions.

House Rent Allowance (HRA) u/s 10(13A)
Following documents need to be submitted to claim tax benefit on HRA:

  • Rent receipt for starting and the end month and of intermediate month in case there has been change in rent or rented accommodation. So you need to submit rent receipt for April and Dec/Jan if there is no rent change.
  • The rent receipt must have One rupee revenue stamp on it (ideally a revenue stamp is required for receipts if the rent is paid by cash and is over Rs.5,000 but most employers still ask for it).
  • No rent receipt is required if the monthly rent paid is below Rs.3,000
  • Copy of rent agreement.
  • If the annual rent paid exceeds Rs 1 lakh you also need to give PAN number of the landlord.

Home Loan Interest u/s 24

  • Copy of Provisional Interest certification from Bank/Financial Institution stating the amount of principle and interest separately.
  • The certificate should also have the loan sanction date & PAN Number of Bank/financial institution
  • Copy of Possession Certificate
  • Copy of Sale Deed (In case possession letter in not available)
  • Copy of Lease deed, in case of let out property
  • In case of Joint Home Loan, self-declaration of the ownership proportion needs to be furnished

Medical Insurance Premium u/s 80D

  • Copy of Insurance Premium receipt paid
  • Copy of receipt for Preventive Health Checkup for self, spouse, dependent children or parents

Interest on Repayment of Education Loan u/s 80E

  • Copy of Provisional Interest certification from Bank/Financial Institution showing the interest and principle separately.

Rajiv Gandhi Equity Saving Scheme (RGESS) u/s 80CCG

  • Demat Account Statement
  • Self declaration stating RGESS enabled investments

Handicapped dependent u/s 80DD

  • Amount paid or deposited under any scheme framed in this behalf by the LIC or UTI or any other insurer and approved by the Board for the maintenance of the handicapped dependent
  • Physical disability certificate from a physician, a surgeon, or a psychiatrist, as the case may be, working in a Govt. hospital. The certificate should contain the employee’s name and percentage of Disability clearly.
  • Form 10-IA.

Medical Treatment Expenses u/s 80DDB

  • Medical Bills / expenditure incurred by way of medical treatment for a specified disease along with a certificate from a hospital in the prescribed form.
  • Form 10-I

National Pension Scheme u/s 80CCD(1B)

  • Photo copy of deposit receipt or account statement of NPS (Read: Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?)

Section 80C Deductions:
The table below gives the list of documents to be submitted to get tax benefit u/s 80C

S.No. Investment Type Documents as Investment Proof
1 Life Insurance Premium Copy of Premium Receipt. Late payment fees will not be included as premium paid

For the premium falling due after submission deadline, attach previous year’s receipt with declaration

2 Public Provident Fund (PPF) Copy of passbook/statement along with the cover page showing investor’s name OR

Copy of the deposit challan duly acknowledged by the Bank

3 Senior Citizens’ Savings Scheme Copy of passbook/statement along with the cover page showing investor’s name OR

Copy of the deposit challan duly acknowledged by the Bank

4 NSC Copy of the NSC Passbook purchased during the financial year

For accrued Interest on NSC – Copy of Certificates/Passbook to be enclosed with date of purchase and the amount

5 ELSS (Tax Saving Mutual Fund) Copy of Account Statement
6 Children’s Tuition Fees Copy of receipts for Tuition Fees and Exam Fees (excluding Donations & Development fees, Bus / Transportation charges, Text Books, Private Tuitions or Tutorial Fees) paid to any University/College/School or Other Educational Institution in India during the current year for a maximum of 2 children.
7 Sukanya Samriddhi Yojana Copy of passbook/statement along with the cover page showing investor’s name OR

Copy of the deposit challan duly acknowledged by the Bank

8 Pension Plan from Insurance Companies Copy of Premium receipt

For premium falling due after Jan ’16. Please attach previous year’s receipt with declaration

9 Post Office Tax Saving Term Deposit Copy of deposit receipt
10 Tax Saving Bank Fixed Deposits Copy of Deposit Receipt OR Account Statement

Certificate of Commencement of Business

The Companies (Amendment) Ordinance 2018 has reintroduced the concept of Certificate of Commencement of Business with effect from 2 November 2018. Under the new Ordinance, no company will be entitled to commence its operations or exercise any borrowing powers unless it has filed within 180 days from its Incorporation a “declaration” stating:

  • That the Subscribers to the Memorandum of the company have paid the value of shares agreed to be taken;
  • That the Company has filed a verification of its registered office address with the Registrar of Companies.

Procedure:

  • The declaration shall be in Form No INC 20A and mention that all the subscribers to the memorandum have remitted the total value of the shares agreed to be taken by them in the Companies Bank Account.
    Note: One has to attach the Bank Account statement of Company having all credit entries for receipt of subscription money received from all subscribers to the Memorandum. If the Bank Statement is not available, then valid payment proof like NEFT/IMPS receipt shall be accepted.
  • The Form shall be filed with the Registrar of Companies within 180 days from the date of Incorporation and shall be certified by a Company Secretary or Chartered Accountant, Cost Accountant, in practice.
  • In case the Company is pursuing such objects which require approval from any sectoral regulators such as Reserve Bank of India, Securities & Exchange Board of India etc, then such approval should also be obtained at the time of making the declaration.

Consequences of non-compliance:

If the Certificate of Commencement of Business is not filed within the stipulated time, then:

  • Company cannot commence its business and cannot borrow money
  • Penalties will be imposed by the concerned Registrar for non-compliance
  • Registrar may initiate action for the removal of the name of Company

Penal Provisions:

If any default is made in complying with the above, the company shall be liable to a penalty which may extend to five thousand rupees and every officer who is in default shall be punishable with fine which may extend to one thousand rupees for every day during which the default continues.

Removal of company name from Register of Companies:

Where Certificate of Commencement of Business has not been filed with the Registrar within a period of 180 days from the date of incorporation of the company and the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may, initiate action for the removal of the name of the company from the register of companies under Chapter XVIII.

Mandatory Compliances for a Private Limited Company in India

Although Private Limited Company is the most popular form of starting a business, there are various compliances which are required to be followed once your business is incorporated.

Managing the day to day operations of your business along with complying the corporate laws can be little taxing for any entrepreneur. Hence, it is essential to take help of a professional and also understand such legal requirements to ensure timely fulfilment of compliances, without any levy of interest or penalty.

We have elaborated below some of the common compliances which a private limited company has to mandatorily ensure:

Compliance Requirement Description and Timeline
Appointment of Auditor Auditor will be appointed for the 5 (Five) years and form ADT-1 will be filed for 5-year appointment. The first Auditor will be appointed within one month from the date of incorporation of the Company.
Statutory Audit of Accounts Every Company shall prepare its Accounts and get the same audited by a Chartered Accountant at the end of the Financial Year compulsorily. The Auditor shall provide an Audit Report and the Audited Financial Statements for the purpose of filing it with the Registrar.
Filing of Annual Return (Form MGT-7) Every Private Limited Company is required to file its Annual Return within 60 days of holding of Annual General Meeting. Annual Return will be for the period 1st April to 31st March.
Filing of Financial Statements (Form AOC-4) Every Private Limited Company is required to file its Balance Sheet along with statement of Profit and Loss Account and Director Report in this form within 30 days of holding of Annual General Meeting.
Holding Annual General Meeting It is mandatory for every Private Limited Company Company to hold an AGM in every Calendar Year. Companies are required to hold their AGM within a period of six months, from the date of closing of the Financial Year.
Preparation of Directors’ Report Directors’ Report will be prepared with a mention of all the information required under Section 134.

Statutory Audit

The purpose of a statutory audit is the same as the purpose of any other audit – to determine whether an organization is providing a fair and accurate representation of its financial position by examining information such as bank balances, bookkeeping records and financial transactions.

  • Appointment of the Statutory Auditors of the Company.
  • Finalise Annual Accounts with the Auditors of the Company

Annual RoC Filings

  • Private Limited Companies are required to file its Annual Accounts and Returns disclosing details of its shareholders, directors etc to the Registrar of Companies. Such compliances are required to be made once in a year.
  • As a part of Annual Filing, the following forms are to be filed with the ROC:
    • Form MGT-7 (Annual Return) : Every Private Limited Company is required to file its Annual Return within 60 days of holding of Annual General Meeting. Annual Return will be for the period 1st April to 31st March.
    • Form AOC-4 (Financial Statements) : Every Private Limited Company is required to file its Balance Sheet along with statement of Profit and Loss Account and Director Report in this form within 30 days of holding of Annual General Meeting.

Annual General Meeting

  • Every Private Limited Company is required to hold a meeting of its shareholders once in every year within a period of six months from the date of closing of the financial year.
  • The primary agenda of an AGM includes approval of financial statements, declaration of dividends, appointment or re-appointment of auditors, appointment and remuneration of directors etc.
  • The Annual General Meeting shall be held during business hours on a day which is not a public holiday and shall take place at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated.

Board Meetings

  • The First meeting of the Board of Directors of a Private Limited Company shall be conducted within 30 days from the date of Incorporation of company.
  • Further, minimum Four Board Meetings shall be held in a calendar year (one meeting in every 3 months). In case of a Private Limited Company which is classified as a “Small Company”, atleast two Board Meetings shall be held in a calendar year (one meeting in every half year)
  • Most of the startups fall within the category of “Small Company”.
  • Minimum 2 directors or 1/3rd of the total number of directors, whichever is greater, are required to be present in meeting of the Board of Directors. The discussions of the meeting need to be drafted and recorded in the form of “Minutes of the Meeting” and maintained at the Registered Office of the Company.
  • Directors should be intimated about the date and purpose of the meeting by giving a notice atleast 7 days in advance from the date of the meeting.

Directors’ Report

Every director has to disclose about his directorship in other companies every year. This shall be done by giving a declaration in writing to the company every year in a specified Directors’ Report format.

Income Tax Compliances

  • Calculation and Quarterly Payment of Advance Tax
  • Filing of Income Tax Returns (Tax will be payable at a flat rate of 30% plus Education Cess)
  • Tax Audit – Mandatory in case sales, turnover or gross receipts of a business exceed Rs. One Crore in the previous year relevant to the assessment year.
  • Filing of Tax Audit Report

Maintenance of Statutory Registers and Records

A Private Limited Company has to maintain various statutory registers and records as required by the Company law such as Register of shares, Register of Members, Register of Directors etc. Besides, Incorporation documents of the company, Resolutions of the meetings of the Board of Directors, Minutes of the Board Meetings and Annual General Meeting etc are also required to be preserved by the Company.

Such records are to be kept at the registered office of the company and shall be open for inspection to its members during business hours. Also, the books of account of every company relating to a period of atleast eight financial years should be preserved and kept in good order.

Other Event Based Filings

Besides Annual Filings, there are various other compliances which need to be done as and when any event takes place in the Company. Instances of such events are:

  • Change in Authorised or Paid up Capital of the Company.
  • Allotment of new shares or transfer of shares
  • Giving Loans to other Companies.
  • Giving Loans to Directors
  • Appointment of Managing or whole time Director and payment of remuneration.
  • Loans to Directors
  • Opening or closing of bank accounts or change in signatories of Bank account.
  • Appointment or change of the Statutory Auditors of the Company.

Different forms are required to be filed with the Registrar for all such events within specified time periods. In case, the same is not done, additional fees or penalty might be levied. Hence, it is necessary that such compliances are met on time.

Non-Compliance

If a Company fails to comply with the rules and regulations of the Companies Act, then the Company and every officer who is in default shall be punishable with fine for the period for which default continues.

If there is delay in any filing, then additional fees is required to be paid, which keeps on increasing as the time period of non-compliance increases. It should be noted that some of the Annual Filing Forms can also be revised but the fees for subsequent revised filing shall be charged, assuming it as a new filing.

VenturEasy will be pleased to help you with mandatory compliances and annual filing for your Private Limited Company. Get in touch with us at [email protected] or sign up at ventureasy.com/Company-Annual-Filing

Incorporation of Foreign Subsidiary in India

India is among the fastest growing economies of the world with plenty of business opportunities which make it a preferred destination for investment form NRIs, Foreign Nationals and Foreign Companies. There are many ways by which foreign investment can be done in India. One of the most successful and sought after ways is Incorporation of Foreign Subsidiary in India.

Meaning – Foreign Subsidiary company:

A subsidiary is a company with voting stock (that is more than 50%) controlled by another company, usually referred to as the parent company or the holding company. In cases where a parent company owns a foreign subsidiary, the subsidiary must follow the laws of the country where it is incorporated and operates. Hence, if a foreign subsidiary is incorporated in India, then it has to follow the applicable laws in India.

How to incorporate a Foreign Subsidiary in India?

Selecting the type of Company-

According to FEMA guidelines, Foreign Direct Investment (FDI) is not allowed in case of Proprietorship, Partnership Firm and One Person Company. Though investment in LLP’s is allowed, but it requires prior approval of the RBI.

Hence, the easiest and fastest way set up a business in India by NRI’s and Foreign Nationals/entities is through incorporation of a Private Limited Company.

Minimum requirements-

  • Capital: There is no minimum capital required to form a Private Limited Company in India.
  • Directors: Minimum two directors are required to incorporate a Private Company in India. Both should be individuals and at-least one of whom should be a resident of India. (A resident of India is a person who has stayed in India for at-least 182 days in the previous year).
  • Shareholders: Companies Act, 2013 requires that a Private Limited Company have a minimum of two shareholders. There is no condition for residential status of shareholders.  Shareholders can be either individuals or entities or a combination of both.

Procedure of Formation of Subsidiary in India:

1. Obtaining DSC and DIN-

The first step towards company incorporation is applying for the DSC (Digital Signature) and DIN (Director’s Identification Number) of the Directors. The primary documents required for obtaining the DIN and DSC are as under:

  • Proof of Identity (PAN for Indian Nationals and Copy of Passport for Foreign Nationals)
  • Copy of Driving License, Bank Statement or any utility bill (not older than two months)
  • Residence permits for foreigners, if residing in India.
  • Passport size photograph

All the above documents for foreign citizens and non-residents should be notarized and consuralized or apostilled by the competent authority, as the case may be.

2. Name Approval:

Selecting a unique and acceptable name for the proposed Company is one of the important steps in the whole Incorporation process. The name should be in consonance with the Object of the Company and should not be identical to existing entities or Undesirable by Law. 

3. Incorporation Application:

This is the final step in the Company Incorporation process. It requires filing of the Memorandum and Articles of Association of the Company digitally along with various other documents duly executed by the proposed directors and shareholders.

List of Incorporation documents to be executed:

  • Subscriber sheet of Articles of Association
  • Subscriber sheet of Memorandum of Association
  • Declaration by Director in form DIR 2
  • Declaration of Director in Form INC 9

Generally, the incorporation documents are required to be self-attested by Indian Nationals. However, in case of Foreign Nationals, the process is as under:

In the documents are signed outside India, then the  same have to be notarized by a Public notary of the residence country and consularized or apostilled by the competent authority, as the case may be.

If the documents are signed in India, then copy of Visa and stamped passport, proving his/her presence in India at the time of signing is required.

If the subscriber is a foreign entity, then the Incorporation documents should be signed by the representative of the foreign entity. An Authorization Letter duly stating the name of the Authorized Person and the number of shares subscribed should be notarized, consularized or apostilled, as the case may be in the home country of the subscriber company.

Once the Incorporation application is approved, the Registrar would issue a Certificate with a Corporate Identification Number (CIN). The PAN and TAN of the Company would also be allotted simultaneously.

Treatment of Share Capital invested by the Holding Company and required compliances:

Foreign Investments in Indian Companies are regulated by FEMA Guidelines and the Reserve Bank of India. Whenever the holding company invests funds in the share capital of the Indian subsidiary, it has to follow RBI guidelines along with compliances under Companies Act 2013.

RBI Compliances:

A two-stage reporting procedure is to be followed when a company is raising funds from a foreign investor:

  • On receipt of funds: The Company has to provide details in an “Advance Reporting Form” to the RBI within 30 days of receiving funds from foreign investor(s).
  • The company has to issue shares within 180 days from the date of receiving funds.
  • On allotment of shares: The company has to report in specified form (FC-GPR) to the RBI, within 30 days from the date of issue of shares along with:

– A Certificate from the Company Secretary certifying that the company has complied with the procedure for issue of shares as laid down under the Foreign Direct Investment (FDI) Scheme, and,

– A certificate from a Chartered Accountant indicating the manner of arriving at the price of the shares issued to the foreign investors.

Apart from the above, Annual return on Foreign Liabilities and Assets is required to be submitted reporting all the investments received during the year.

VenturEasy can help you with the Incorporation of Subsidiary in India. Get in touch with us at [email protected]

ESOP – Employee Stock Option Plan

WHAT IS ESOP?

Employee Stock Option Plan (ESOP) can be defined as Employee Benefit Plan, designed for the long-term benefits of the employees of the Organization by providing them with an option to participate in the equity ownership of the Organization by paying minimal amount of consideration.

 

WHY ESOP?

Employees are the core strength of the Business. Retaining a good employee is as important as hiring one. ESOP is considered as one of the most comprehensive and attractive tools for employee reward and retention. Through the process of ESOP, the employees are given a stake in the ownership of the Company, which results in boosting employee morale and loyalty towards the organization.

Mode of Issuance of ESOP:

As per Companies Act 2013, there are two modes of issuing ESOPS: Direct Route and Trust Route:

Direct Route: In case of direct route, the company grants the options to the employees directly. At the time of exercise, fresh equity issuance is allotted to the eligible employees that make them the shareholders of the Company.

Procedure under Direct Route:

  • Prepare an ESOP Scheme.
  • Approval of the Scheme by the Remuneration Committee, if any
  • Convene a board meeting to approve the scheme.
  • Convene the shareholders‟ meeting for approving the scheme. The notice to the shareholders meeting shall give out details with regard to the scheme.
  • Grant the Letter of Offer to the Eligible Employees for issue of Options.

Trust Route: The Trust Route is largely preferred by listed entities. In the trust route structures, the company creates a trust specifically for the purpose of running the ESOP schemes. Where the employees decide to exercise the option to acquire the shares, the trust would first acquire the shares from the Company or Secondary market and the transfer the shares in the name of the employees.

These employee welfare trusts are funded by the company to acquire the shares in the secondary market to be transferred to the employees upon exercise of the options. When the employees leave the company, the employees have the option of selling back the shares to the trust or in the secondary market.

The Companies Act, 2013 facilitates the company to make provisions of money involving purchase or subscription of its own shares for the purpose of issuing Employee Stock Options, subject to certain regulatory conditions, such as:

  • The scheme of provision of money shall be separately passed by special resolution in a general meeting
  • In case of listed Company, the Trust shall purchase the shares from the secondary market.
  • In case of unlisted Company, valuation of the shares purchased by the trust shall be done by an Independent Registered valuer.
  • The total value of shares in the trust shall not exceed 5%. of the aggregate of paid up capital and free reserves of the company.

Procedure under Trust Route:

  • Prepare and Approve an ESOP Scheme. Grant Letter of Offer to Eligible Employees.
  • Prepare a Trust Deed under the Indian Trusts Act and Register the same with the jurisdictional Sub-Registrar.
  • Obtain PAN for the Trust and Open Bank Account
  • Determine the value of the shares required to be allotted to the Trust for subsequent transfer to the employees.
  • Obtain Valuation Report from a Registered Valuer for the value of the Shares.
  • Provide Loan from the Company to the Trust to enable purchase of the required number of Shares at the pre-determined price.
  • Allotment of Shares to the Trust
  • Transfer/Sale to Shares from the Trust to the eligible employees respectively at the Exercise Price as determined in accordance with the ESOP Scheme
  • On receipt of Exercise Price, repayment of Loan from the Trust to the Company
Other compliances: 

Conditions regarding appointment of trustees:

Any person can be appointed as the trustee of the ESOP Trust, except for the following:

  • The directors, Key Managerial Personnel and their relatives of the company, its holding, subsidiary or associate company;
  • Any person beneficially holding more than 10% of the paid-up share capital of the company.

Disclosure in Directors’ Report: Once the scheme has been initiated, the company shall in its Directors Report for the year also specify the details of the ESOP scheme as per the provisions of the Companies Act and the relevant Accounting Standards.

Maintenance of Register: The company shall maintain a Register of Employee Stock Options in Form no. SH.6 and shall enter therein the particulars of option granted.