3. Setting expectations right
Contents covered
• Basics of Accounting and its components
• Types of entities – Pros and cons
• Compliances applicable for entities
• Tools to manage your accounts and finance
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4. Accounting – Definition
One ‘official’ definition of accounting defines accounting as
follows:
"the process of identifying, measuring and communicating
economic information to permit informed judgments and
decisions by users of the information.”
Accounting is a language much like a computer programming
language, that facilitates communication and understanding. It
has its fair share of syntaxes like Debits and Credits, ledgers
etc.
In short - Accounting is the language of business.
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5. 5
Though it dates back to 8,000 BC, the rest of us don’t quite understand why that language
has to be so foreign and at times, so mysterious.
This series looks to demystify the accounting definition and the basic accounting concepts
6. Accounts Framework - COA
Chart of Accounts acts like a group of folders.. Where you file
away every transaction
P&L uses Income & Expenses.
BS the other 3 – Assets, Liabilities and Equity.
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7. COA contd.
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Assets include Current & Long term assets
Liabilities include Current and Long term liabilities.
8. What is a Cash Flow statement
This statement tracks the following
– Core activity Money in for sales
– Money out to cover expenses
• This cycle of money is called as Cash Flow.
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9. Profit and Loss statement
• You can follow your cash flow in a report called as Profit and
Loss report.
• This summarizes the business performance over a period of
time . (Jan 1st to December 31st 2013.)
• All profit and loss statement would have a heading stating a
period of time with a start date and an end date
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10. The Whole Picture.
• But tracking only income and expenses is not enough..
• In order to know the whole financial picture, We need to keep
track of what Investment you have made and any loans you
have taken from bank.
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11. Contd.
• Accounts receivable.. What your customer owe you. (Assets)
• Liability – includes VAT and Service Tax (Liabilities)
• Original investment which is called Capital investment and
• Retained earnings are the accumulated profits over the years.
Nothing much all sales less all expense over the years.
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12. Relation between the assets, liabilities
and equity.
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The Basic Accounting Equation:
Assets = Liabilities + Owner's Capital
This equation has to balance because everything the firm owns (assets) has to be purchased with
something, either a liability or owner's capital
13. Sub functions of Accounting
• Account payable/Supplier/Creditors Function
• Accounts receivable/Customer/Debtors function
• Banking/Receipt and Payment function
• Employee - Payroll
• All the above functions results into :
General Ledger
Trial Balance
Profit and Loss account
Balance sheet
Cash flow statement
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14. Types of Entities
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Type Proprietorship Partnership Private
limited
company
Limited
Liability
Partnership
Ownership Any Business owned by a
Individual
Business owned by minimum
of two partners
Created under the
companies Act with
2 shareholders and
minimum of 1 lakh
Share capital
Private limited company
with the flexibility of
partnership
Compliance Low Low High Medium to High
Income tax return ITR 4 ITR5 ITR6 ITR6
Credibility perception Low Low to Medium High High
Flexibility High High Low Low
Formation No legal formalities except shop
regn certificate
Mutual partnership
agreement to be drafted
To be registered and
incorporated under
companies Act. MOA
and AOA to be
drafted
To be registered and
incorporated under LLP
Act under MCA.
Partnership agreement to
be filed with MCA
Liability Unlimited liability of Proprietor Unlimited liability of partners Limited to the extent
of sharecapital
Limited to the extent of
partners’ capital
Taxation Taxed at Individual rates Taxed at 30%. Taxable at 30% Taxable at 30%
Audit Tax Audit required only if turnover
exceeds 1cr
Tax Audit required only if
turnover exceeds 1cr
Statutory Audit is
required irrespective
of turnover
Statutory Audit is
required subject to
turnover and capital
threshold
15. STATUTORY
COMPLIANCE
SOLE
PROPRIETOR
PARTNERS
HIP FIRM
AOP/BOI LLP BODY
CORPORATES
Excise YES YES YES YES YES
Service Tax YES YES YES YES YES
Tax Deduction at
Source (TDS)
YES YES YES YES YES
Value Added Tax
(VAT)
YES YES YES YES YES
Central Sales Tax
(CST)
YES YES YES YES YES
STATUTORY AUDIT NO NO YES YES* YES
TAX AUDIT YES** YES** YES** YES** YES**
AUDIT
DOCUMENTATION
YES* YES* YES* YES* YES*
APPLICABILITY OF
REVISED
SCHEDULE VI
NO NO NO NO YES
MCA REPORTING
(XBRL)
NO NO NO YES YES
INCOME TAX
RETURN
YES YES YES YES YES
APPLICABILITY OF STATUTORY COMPLIANCE
BY ENTITY TYPE
16. Notes:
* AOP – Association of person BOI- Body of Individuals
Statutory Audit will be applicable if:
o The annual t/o exceeds the limit as prescribed under the LLP Act, 2008.
o The individual contribution by partner exceeds the limit as prescribed under the LLP Act, 2008.
** Tax Audit will be applicable to the Business Entity if:-
o The gross receipts of the entity carrying on business activity exceeds the limit as prescribed u/s 44AB of
Income Tax Act, 1961.
o The gross receipts of the entity carrying on any profession exceeds the limit as prescribed u/s 44AB of Income
Tax Act, 1961.
o The income of the entity is assessed on a presumptive basis under section 44AE, 44BB or 44BBB. Where such
entity declare an income lower than that presumed under the Sections 44AE, 44BB or 44BBB, they are
required get their accounts audited in accordance with Section 44AB.
o Those entities who declare a lower income than the amount presumed under section 44AD are subject to audit
under section 44AB only if their income exceeds the basic exemption limit.
17. Overview:
• Service tax is a tax levied on services provided in India on taxable
services provided, except the State of Jammu and Kashmir
• Mandatory registration when turnover crosses threshold exemption limit,
presently Rs.10 lakhs
• Service tax is applicable on taxable services-
– As Service Provider
– As Service Recipient (Reverse charge mechanism)
Payment:
• Service Tax is to be deposited to the credit of the Central Government-
– In case of corporate entity - by the 5th day of the next month
– In case of non-corporate entity - 5th day of the month following the end of quarter
– The due date will be 6th day of next month in case of e-payment.
– In case of tax payable for the month of Mar, by Mar 31st
SERVICE TAX
18. • Service Tax Liability = Tax on Output Service – CENVAT Credit
Filing:
• Returns to be filed half yearly in the prescribed Form ST-3
– H1 (Apr-Sep) – 25th Oct
– H2 (Oct-Mar) – 25th Apr
INTEREST & PENALTY:
• Late payment of Service Tax: Interest to be paid as under
– If turnover exceeds Rs. 100 lacs : 18% pa, otherwise 15% pa
• Late filing of Return: To be paid as under:
• Delay upto 15 days: Rs.500/-
• Delay over 15 days but upto 30 days: Rs.1000/-
• Delay over 30 days: Rs. 1000/- + Rs. 100/day for period above 30 days subject to maximum limit
of Rs. 20000/-
Reference:
• Link: http://www.servicetax.gov.in/st-proc-home.htm
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STATUTORY
COMPLIANCE MATRIX
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SERVICE TAX
19. • Quarterly filing of TDS Returns by
Salaried
• Deductor furnishes TDS Certificate in
Form 16 for Salaried persons
• Quarterly filing of TDS Returns by
Non-Salaried persons
• For other cases, TDS certificate in
Form 16A shall be issued by deductor
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STATUTORY
COMPLIANCE MATRIX
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TAX DEDUCTED AT SOURCE
Overview:
It is the amount deducted from the payment to be made to vendor as tax.
Deductor deducts TDS, when the payment / credit exceeds the threshold
limit as prescribed under the Income Tax Act, 1961.
Payment:
Remittance of TDS deducted to the Central Government by 7th day of the following
month in which TDS is deducted and 30th April for quarter ending March
Filing Returns:
20. • PENALTY:
• Late Payment of TDS: Interest at 1.5% p.m. or part thereof to be paid
• Period of interest : Deduction of TDS to actual date of remittance
• Late Filing of return: Late filing fees of Rs.200/day alongwith penalty ranging
from Rs.10000 to Rs.100000 if period of delay exceeds 1 year
• Reference
– Link: http://incometaxindia.gov.in/etds_faqs.asp
Monday, January 18, 2016
STATUTORY
COMPLIANCE MATRIX
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TAX DEDUCTED AT SOURCE
21. Overview
• The tax which levied on the value of the good and charged at every level
of value addition is Value Added Tax(VAT)
• VAT is a State levy and provisions and rates of tax differs by State
• Mandatory registration when turnover crosses threshold exemption limit
• The rate at which the VAT is to be charged on the different commodities
are specified in the Schedule of Goods under respective VAT Acts
• The input tax paid on the goods can be availed as Input Credit provided
(ITC) if the goods are purchased from:
– Registered Dealer
– Purchase invoice separately provides details about the VAT charged under the
Act
VALUE ADDED TAX
22. Payment:
• The VAT collected under the Act will have to be paid to the credit of State
Government on or before the due date under the respective VAT Acts
Filing:
• The Monthly / Quarterly / Annual Returns for VAT is to be filed within the
due date under the respective VAT Acts
Penalty:
• Late payment interest alongwith penalty for late filing of returns are
prescribed under the respective State VAT Acts
Reference:
• Gujarat VAT Link: http://commercialtax.gujarat.gov.in/vatwebsite/
VALUE ADDED TAX (Cont…)
23. Income Tax return
Income tax : Income tax is the direct tax levied on income of the
business or individual
• The income tax forms varies for salaried employees, proprietorship,
partnership and businesses
• ITR 1 & 2 – For Salaried individuals
• ITR 3 – Partners of partnership firm
• ITR 4 & 4S – Proprietorship business
• ITR 5 – Partnership
• ITR 6 – Companies
• ITR 7 – Trust and non profits
Due date
• Due date for filing tax return is 30th Sep if you are covered under audit .
For persons not covered under Audit, it is 31st July.
• For companies, due date for filing tax return is 30th Sep
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24. Quickbooks as a tool to manage finance
• Quickbooks is a simple business management software which helps you
manage your business finances instantly on the go and also does
accounting automatically.
- Anytime anywhere access
- Professional invoicing
- Connect your bank account to reconcile the payments received
- Get organized and stay in control of your cash flow
- Mobile app to manage expenses on the go.
- Inbuilt document center to keep all your records
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