2 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 MANAGING COMMITTEE CA. Amit Agarwal 9821374485 Chairman CA. Tarun Dhandh 9833506461 Vice Chairman CA. Daya Bansal 8976074320 Secretary CA. Shrikrishna Purohit 9049224706 Treasurer CA. Aba Parab 9892862548 WICASA Chairman CA. Sorabh Agrawal 9930357066 Immed. Past Chairman CA. Lokesh Kothari 8108484120 Committee Member CA. Giriraj Bang 9004465822 Committee Member CA. Brajendra Talesara 9987506138 Committee Member CA. Shweta Jain 9920737198 (Immed. Past Secretary-WIRC & EX-Officio) CA. Ankit Rathi 9029059911 (RCM & Branch Nominee) CA. Hrudyesh Pankhania 9969393191 (RCM & Branch Nominee) CHAIRMAN’S COMMUNICATION Respected Members, As I pen down my last communication as Chairman of the most exuberant and active Vasai Branch of WIRC, it is truly hard to believe how quickly the year has passed. It was certainly a very busy year brimming with a bouquet of activities, which is probably why it passed in the blink of an eye. There is a great sense of satisfaction as I introspect my year as Chairman of Vasai Branch of WIRC of ICAI. Many milestones we have tried to achieved and there is a desire to serve our noble profession with even more enthusiasm. The experiences during the year were personally very exciting, with many goals and landmarks being achieved. Our efforts and positive results were testimony to our commitment and passion for service to the entire Branch and our nation. This year was a landmark year for us. Our focus was and always will be on education and awareness. Vasai Branch had published books on Bank Branch Audit. The details of programmes and activities of Branch were regularly communicated to the Regulators and we welcomed their presence. Our focus on providing best educational facilities for our students saw us support them via crash courses, reading room facilities. We had envisioned having productive interactions with Central and State Ministries and Regulators across the spectrum. We were successful in meeting officers from the various departments. In the past year, we created a system of co-ordination with the relevant establishments. I am happy to state that we were well received and heard by the various departments from time-to-time. We kept up our legacy and continued to release our professional publications. I thank every contributor and compiler for their untiring efforts, time and resources in ensuring best quality content and timely compilation of these specialised books. It takes a collective and concerted effort to make a large association like ours run smoothly, and I humbly thanks to our touch bearers Hon’ble President CA Aniket Talati, Hon’ble Vice President CA Ranjeet Kumar Agarwal, all CCM’s, I also thankful to the office bears of WIRC, Chairman CA Arpit Kabra, Vice Chairman CA Hitesh Pomal, Secretary CA Sorabh Ajmera, Treasurer CA Ketan Saiya, Wicasa Chairman Pinki Kedia & all regional council members. Throughout the year, all my committee members supported me, it really a great team work and all the office bearers of branch Vice Chairman CA Tarun Dhandh, Secretary CA Daya Bansal, Treasurer CA Krishna Purohit, WICASA Chairman CA Aba Parab had work hard for the benefit of the members and students of the branch. Our Branch Nominee CA Shweta Jain, CA Ankit Rahti and CA Hyrudesh Pankhania and Past Chairpersons of Vasai Brach, leaders of all the Study Circles and respected members and students always stand with me and I am thankful for their contributions and support in all our activities. I also wish to recognize the untiring efforts of all our faculties, co-ordinators & the support team. If I could take anything away from my experiences, I would state that mutual respect and how we communicate with one another are the keys to success. We are lucky to be surrounded by talented professionals. As I park my words and emotions, I express my gratitude for the enormous support and faith reposed in me by every member and student. I am confident that the incoming Office Bearers will take Vasai Branch to greater heights and I offer my complete support to them. I shall always cherish and relish this opportunity of serving our great Institution. It has been my pride and honour to be of service to our Alma Mater in whatever best way I could serve. Jai ICAI, Jai Hind! With Warm Regards, CA. Amit Bharat Agrawal Chairman Vasai Branch of WIRC of ICAI CONTENTS Chairman’s Communication................... 2 Law Updates ........................................... 3 Vasai Branch Quiz Contest ................... 12 Photo - Students Conference ............... 10 One Day GST Conclave (Workshop).... 11 Seminar on Will & Succession & Standard of Auditing............................. 11 Member Conference 2023.................... 12 Seminar on Code of Ethics & Standard on Auditing............................................ 13 Opportunities for CA Women................ 14 Republic Day......................................... 15
3 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Tax Column CA. Jayesh Dadia Mobile No. : 9820036868 E-mail : [email protected] Question I am owning a residential house. I want to sale it. What should the period of holding; whether two years or three years to avail exemption from Capital Gain ? Answer If you hold any immovable property, being land & building or both, for more than two years, then it becomes Long Term Capital Asset, which is eligible for exemption under section 54 / 54F of the Income Tax Act, subject to fulfilment of certain conditioners, mentioned therein. If you don’t want to avail benefit of exemption, then the entire Long Term Capital Gain is subject to tax at 20% plus applicable surcharge. If you hold immovable property for less than two years, the same become Short Term Capital Asset and on its’ sale the same is liable to tax as Short Term Capital Gain which attracts tax at 30%. You have to hold the immovable property for three years if the same is acquired out of earlier Long Term Capital Gain and the same was claimed as exempt under section 54 /54 F of the Income Tax Act. Three years holding is necessary and if the property is sold within three years, then exemption granted under section 54 / 54F of the Income Tax Act shall be withdrawn. I trust I have clarified the nature of holding period of two or three years of immovable property. Question I am a partner in a firm and draw remuneration which is chargeable as Business Income. Can I claim expenses against remuneration income ? Also can I avail the benefit of Section 44AD of the Income Tax Act ? Answer Remuneration receive by partner from partnership firm /LLP, the same is taxable as Business Income under section 28(v) of the Income Tax Act. Kindly note that remuneration is taxed as Business Income, but it does not establish that you are carrying out business activity. Any expenses incurred, wholly and exclusively for the purpose of business and has a direct nexus with earning income, the same can be claimed as deduction. In your case, income has been earned by the firm /LLP. All the expenses incurred for earning firm’s income must have been debited in the firm’s Profit & Loss Account. Therefore, what expenses can you claim to prove that it is incurred wholly and exclusively to earn remuneration from firm /LLP ? If you can prove it, yes you can claim deduction and offer net income to tax. In your case, Provision of Section 44AD is not applicable as remuneration form firm / LLP is only taxable as Business Income but it does not establish that you are carrying out business activity. Provision of Section 44AD of the Income Tax Act is applicable if an individual carry out eligible business / profession. In your case, you are not carrying out any business but getting only remuneration which is taxed as Business Income in view of Provision of Section 28(v) of the Income Tax Act. Therefore, you will not be entitled to benefit of Provision of Section 44AD of the Income tax Act. Question I am an individual and resident of India. I am a director in one foreign company and entitled for remuneration along with perks. For the financial years 2022-23 and 2023-24 I have not received any remuneration although the foreign company has provided in its’ books in their country and also deducted withholding tax applicable. My question is whether foreign income in the nature of remuneration is taxable in India although I have not received it ? Answer Under Section 5 of the Income Tax Act, if a person is an Indian resident, then his global income, accrued to him, is taxable in India, whether received or not. In your case, the foreign company has already provided your remuneration in its’ books and credited to your account as salary payable to you. Therefore, salary income is accrued to you and accordingly taxable in India, whether you receive or not. Question I am an individual. I have sold a residential unit on 15/12/2023. The letter of allotment in respect of the said residential unit was given to me by the builder on 8/12/2018 while the sale agreement was executed on 11/6/2022. Whether the surplus made by me on sale of residential unit on 15/12/2023 would be in the nature of Short Term Capital Gain or Long Term Capital Gain ? Answer It is now settled law pronounced by the Hon’ble Bombay High Court in a recent case of Pr. CIT Vs Vembu Vaidyanathan where the Hon’ble Jurisdictional High Court has held that the date of letter of allotment is the date on which property is acquired. In other words, it has been held that the date on which letter of allotment is issued, would be the relevant date for the purpose of capital gain tax as the date of acquisition. According to the High Court the letter of allotment is final unless it is cancelled. The allottee gets title to the property on the issue of the allotment letter and payment of instalments is only merely a follow-up action and taking delivery of the possession is only a formality. In light of the above findings of the Bombay High Court, the capital gain earned by you, on sale of residential unit, is a Long Term Capital Gain as the date of sale is after two years from the date of acquisition i.e. date of allotment letter. Since it would be Long Term Capital Gain, you can also reinvest the capital gain in another residential unit under section 54 of the Income Tax Act. 2
4 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 SECTION- 43B: AMENDMENTS RELATED TO PAYMENT TO MSE (Micro & small Enterprise) CA Rakesh Soni Mobile No. : +91 9820673833 E-mail : [email protected] According to Sec 43B of the Income Tax Act, certain payment made to MSE are allowed on actual payment basis, and some payment are allowed on accrual basis, if payment are made before due date of filling Income Tax Return. Therefore as per sec 43B if payment to MSE are provided in Books of accounts and actual payment was made before due date of ITR, then such payment are allowed. As per amendment made u/s. 43B for MSE, so that amount due to MSE become more safe and they get payment on time, therefore the Finance Act 2023 has brought this provision of payment to MSE under ambit of Sec 43B. New clause (h) to Sec 43B inserted A new clause (h) to Sec 43b has been inserted, which provides that any amount payable by any Assessee to a MSE beyond the time limit specified in Sec 15 of the MSMED Act 2006, shall be allowed as deduction on actual payment basis only. Here time specified in Sec 15 of the MSMED Act 2006 is – within 15 days or before the due date which cannot be more than 45 days. In short we can say that it mandates payment to MSME within the time as per written agreement which cannot be more than 45 days, AND if there is no such written agreement, then the payment shall be made within 15 days. It is also provided that provision of Sec 43B of the Act allowing deduction for payment before due of filing ITR, shall not be applied for such payment. This amendment will applicable from 01-04-2024. This provision can be understand with the help of following Examples: Example-1 Invoice date- 01/03/2025 Credit period as per Agreement entered- 45 days Due date for payment – 15/04/2025 Actual date of payment- 17/04/2025 In above example we seen that maximum days allowed as per MSMED Act is 45 days and amount paid after 45 days, therefore the deduction shall be allowed in F.Y. 2025-26. Example-2 Invoice date- 01/03/2025 Credit period as per Agreement entered- 45 days Due date for payment – 15/04/2025 Actual date of payment- 01/04/2025 In above example we seen that maximum days allowed as per MSMED Act is 45 days and amount paid before 45 days, therefore the deduction shall be allowed in F.Y. 2024-25, even if it is paid in Apr 2025. Example-3 Invoice date- 01/03/2025 Credit period as per Agreement entered- 90 days Due date for payment – 30/05/2025 Actual date of payment- 17/04/2025 In above example we seen that credit period as per Agreement is 90 days, but maximum days allowed as per MSMED Act is 45 days and amount paid after 45 days, therefore the deduction shall be allowed in F.Y. 2025-26, i.e. in the year in which actual payment was made. Example-4 Invoice date- 01/03/2025 NO AGREEMENT WAS ENTERED Due date for payment – 15/03/2025 Actual date of payment- 01/04/2025 In above example we seen that No agreement was entered for credit period, therefore 15 days are allowed, but actual payment was made in more than 15 days, therefore the deduction shall be allowed in F.Y. 2025-26. Disclaimer: The above views are personal view of the author, it shall not be used for any opinion, advice. The information contained in the above article is for the purpose of giving knowledge and awareness of the subject matter and shall not be treated as solicitation in any matter. 2
5 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Types of Fraud in Hospitality Management CA Jatin Jhaveri Mobile No. : 9821195140 E-mail : [email protected] Disclaimer: The information provided in this article is intended for general informational purposes only. The content is not exhaustive and is not intended to be a substitute for professional advice. I. Introduction Hospitality management, while centred on providing excellent service and memorable experiences, is not immune to the risks of fraudulent activities. Fraud in the hospitality industry can manifest in various forms, impacting both businesses and guests alike. Understanding these types of fraud is essential for hospitality professionals to implement effective prevention measures. II. TYPES OF FRAUD: 1. Credit Card Fraud: Credit card fraud in the hospitality industry poses serious risks to both customers and businesses. Hospitality management systems handle a vast amount of sensitive personal and financial information, making them attractive targets for fraudsters. Criminals may gain unauthorized access to guests’ credit card information during the booking or check-in process. 2. Fake Booking Scams: Fake booking scams in the hospitality industry involve individuals or groups making fraudulent reservations with the intent to deceive or exploit businesses. These scams can lead to financial losses, operational disruptions, and damage to a hotel or other hospitality establishment’s reputation. There are n numbers of fraudulent websites working which leads the user to book hotel at lower prices and ultimately get scammed after paying. Fraudsters may create fake hotel websites or listings to deceive guests into making reservations and payments for non-existent rooms. 3. Employee Fraud: Internal staff may engage in fraudulent activities such as skimming cash, manipulating accounts, or providing unauthorized discounts. For e.g. Embezzlement involves the misappropriation or theft of funds entrusted to an employee. In the hospitality industry, this could include stealing cash from the register, manipulating financial records, or diverting funds meant for the business. Employees may steal goods, food, or supplies from the inventory, leading to inventory shrinkage and financial losses. Employees may collaborate with each other to carry out fraudulent activities, making detection more challenging. Employees may collude with external vendors to generate false invoices or inflate costs, receiving kickbacks or benefits in return. Employees within the organization may work together to create and approve fraudulent invoices, circumventing normal approval processes. 4. Phishing Attacks: Phishing attacks in the hotel industry, as in other sectors, typically involve attempts to deceive individuals into disclosing sensitive information such as login credentials, credit card details, or personal information. Here are some common phishing scenarios and preventive measures for the hotel industry. Examples of such are Fake Reservation Emails, Staff Impersonation, Wi-Fi Network Attacks, E-mail Filtering etc. 5. Guest Property Theft: This occurs when guests’ belongings, such as cash, jewellery, electronics, or other valuables, are stolen from hotel rooms or common areas. It can involve both opportunistic theft by outsiders and theft by hotel staff. For e.g. In Airport lobby there are food and drinks which they provide FOC for passengers of business class where they misuse these perks and take cutlery etc. with them. Following are some examples of common frauds by the hotel front desk staff: 1. Room Key Fraud: There is a case where a hotel front desk accepts the walk-in reservation, collects cash for the room charges from the guest then issues a room key but does not record it accordingly so that they can pocket the money. 2. Complementary Fraud: A hotel front desk collects cash from a guest for a two-night stay, however, stated one night as “complimentary” due to some issue and complaint from the guest, then pocketing the money from that one night’s room charge.
6 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 3. Coupon Fraud: The hotel places an advertisement featuring a coupon offering discount for additional breakfast requests in some seasons. The hotel guest then requests an additional breakfast upon check-in at the front desk counter, without knowing about the discount. The guest makes payment by cash and then receives the breakfast coupon and the payment which is made by guest will go into the pocket of receptionist. CONCLUSION: Understanding and proactively addressing these types of fraud is crucial for maintaining the integrity of hospitality management operations. It’s essential for hospitals to have strong internal controls, compliance programs, and regular audits to prevent and detect financial fraud Regular training programs can empower employees to play an active role in fraud prevention. Implementing advanced technology, such as secure payment gateways, encryption, and monitoring systems, is crucial for safeguarding sensitive information and preventing unauthorized transactions. Regular updates and audits of systems can help identify vulnerabilities. Implement authentication measures for online bookings and regularly audit reservation records. 2 Disallowance for delayed Payment to MSME’s U/s 43B of Income Tax Act,1961 In this Finance Act 2023, Clause 13 of Sec 43B of the Income Tax Act of 1961 has been amended to disallow a deduction for transactions with Micro and Small Enterprises where timely payments are not made i.e. a new addition to disallowance has been introduced and it is made being vide Sec-43B (h) to disallow expenditures which are supplied or procured from a Micro or Small Enterprises and are not paid within the time limit prescribed U/s 15 of MSME Development Act (MSMED) 2006. Q.1 Who cover under criteria of Micro and Small Enterprises (MSME) for purpose of sec 43B (h)? (A) Micro Enterprise (i) Investment in Plant & Machinery less than INR 1 crore (ii) Turnover of less than INR 5 crore (B) Small Enterprise (i) Investment in Plant & Machinery less than INR 10 crore (ii) Turnover of less than INR 50 crore Note :- As per the Ministry of MSME vide Office Memorandum (OM) No. 5/2(2)/2021-E/P & G/Policy dated July 2, 2021 has Retail and wholesale trades as MSMEs and they are allowed to be registered on Udyam Registration Portal. However, benefits to Retail and Wholesale trade MSMEs are to be restricted to Priority Sector Lending only. Hence only manufacturers and service providers are covered for the purpose of clause 43B(h) of the Income tax Act, 1961. Parivesh Puranmal Gupta Mobile No. : 9660851691 E-mail : [email protected] Q. 2 What is the time limit for payment to MSME Entity as Section 15 of The MSME Act:- Case :1 Written Agreement entered with the supplier (a) Time period agreed Or (b) 45Days from the date of receipt of goods/ service (Whichever is earlier) Hence, if a buyer is entering into an agreement with an MSME supplier, the due date of payment cannot exceed 45 days from the date of actual delivery of goods or rendering of services as the case may be. Case : 2 Written Agreement not entered with the supplier “Within 15 Days of the receipt of goods / service” i.e the day following immediately after the expiry of the period of fifteen days from the day of acceptance or the day of deemed acceptance of any goods or any services by a buyer from a supplier.” Q3. What if Payment is not made within time limits of 45/15 Days? Answer :- (a) Interest is applicable @ 3 times the bank rate notified by RBI to be paid to the supplier. (b) Interest is disallowed under the Income tax Act, 1961 as per Section 23 of the MSMED Act, 2006. (c) For outstandings as on 31st March if payment is not made in the time limits mentioned above, disallowance of expense under section 43B(h) in that year. Allowance to be done in the year in which payment done.
7 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Q.4 Example for Year FY 2023-24 (It is assumed that 45 days’ time limit is applicable) S. No. Date of Invoice Payment Date Allowed in year 1. 15/03/2024 17/04/2024 2023-24 2. 01/03/2024 20/06/2024 2024-25 3. 31/03/2024 12/05/2024 2023-24 Q 5 The amount outstanding to an MSE supplier as on March 31, 2024, is paid after due date specified under MSMED Act, 2006 however paid just before the due date of furnishing the return of Income u/s 139(1) of the IT Act. Whether such amount will be allowable as deduction in the tax return of FY 2023-24? Answer :-- No, such benefit on payment before the due date of filing return of income is not available for taxpayer making payment to Micro & Small enterprise. However, since payment is made in FY 2024 -25, the deduction should be allowed in the said year. Q.6 Can section 43B(h) is applicable in case of ITR filed under section 44AD or 44ADA Answer :- No disallowance, since section 44AD & 44ADA is overriding to sections 28 to 43C. Hence this clause is not applicable to business filing returns under section 44AD or 44ADA. Q7. Can section 43B(h) is applicable in case No tax Audit upto turnover of 10 Crores. Answer:- Section 43B(h) still applicable, effect to be taken in computation of Income Q.8 What Action to be Taken :- (a) Entity who fall under MSME criteria should get themselves registered under MSME Act (b) Whom section 43B(h) is applicable in the FY 2023-24 should make sure of following points :- (i) Take a confirmation from all vender that whether they are registered under MSME or Not. (ii) If Any vender registered under MSME Act then take MSME Registration copy from each vendor should be obtained. (iii) Payment should be made in time to each supplier to avoid disallowance of expenses. (iv) Terms of Payment should be agreed with the supplier for each purchase (Should not exceed 45days). (c) Need to make payments on a timely basis in order to get a deduction within the same financial year. This will be very beneficial for MSME’s development & promotion. (d) Clause 10 of the Tax Audit report says Tax Auditor is to report the amount of interest inadmissible u/s 23 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED, Act 2006). As per the said section, any interest for delayed payment to Micro, Small, and Medium Enterprises is not allowed as a deductible expenditure while computing the income of the Assesses under the Income Tax Act, 1961. (e) Any outstanding payment to MSME at end of the year needs disclosure in financials along with interest due. 2 CA Shilpa Goyal Mobile No. : 8169480861 E-mail : [email protected] With an intention to ensure timely payment being made to MSME suppliers, government vide budget 2023 had introduced Sec 43B(h) of the Income Tax act, 1961; as per which any expense procured from a MSME vendor will be allowed as expense under the Income tax act only when the same is paid in that year. In case if payment is made in next year, the said expense would be allowed as expense in the year of payment. Bare provision of the relevant law is as under: (h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006),shall be Sec 43B(h) of the Income Tax Act – Allowability of expense on payment being made to MSME allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him Key features of the above provision: • The above clause is applicable only to micro and small enterprises and not to medium enterprises registered under MSME law • Applicable from AY 24-25 i.e. w.e.f. 01.04.2023 • Where payment is made within time period, then Sec 43B(h) is not applicable Certain FAQ related to sec 43B(h) of the act Q1: Invoice is dated 31st March 2024 and payment for the same is made on 14 April 2024. Will that expense be allowed? A: Yes as the payment is being made within the time limit specified u/s 15 of MSMED act
8 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Q2: Tax audit is not applicable to me, as my turnover is below limit. Will still Sec 43B (h) be applicable to me? A: Yes Q3: What is payment is made to MSME before due date of filing of Income Tax return? A: There are certain expenses which are allowed as per proviso to Sec 43B; even if the same are paid post completion of year but before due date of filing of return. As the proviso clearly excludes clause h of Sec 43B of the act Q4: How will I get to know that my vendor is a MSME and more particularly a micro and small entity? A: Drop an email to all your vendors to update you about their MSME status. Also make suitable changes in your vendor registration form to cover this clause Q5: What action should I take as a vendor to take benefit of this clause? A: Undertake the following: • Inform your MSME number to your customer and educate him about this clause • Incorporate your MSME details on your invoice for future perspective Q6: What to do if my vendor had registered himself as a small entity while taking MSME registration and is now classified under medium enterprises. How to handle such situation? A: Ask your vendor to update his details with the MSME authorities Q7: What is time limit for payment to MSME vendor? A: As per the date mutually agreed between the vendor and customer or 45 days whichever is earlier. Q8: Is it only service provider and manufacturer only getting the benefit under MSME law? Or is the trader also allowed to avail the benefit? A: There are two school of thoughts to this. As per one, Sec 15 of MSME act applies to all MSME registered person which covers traders also; hence section 44B(h) of the Income tax act would be applicable. Whereas the other states that Ministry of Micro, Small and Medium Enterprises vide office memorandum (OM) no 5/2(2)/2021-E/P &G/Policy dated July 2,2021 had decided to include Retail and Whole trade under MSME for limited purpose of Priority Sector Lending only. As the trader is not eligible for payment within specified time period, Sec 43B(h) of the Income tax act cannot be extended to traders Q9: Is it beneficial to register as a MSME? A: One needs to check the perks and consequences of taking the registration Q10: What if the vendor agrees for a longer credit period? Will still Sec 43B(h) be applicable on non payments A: Yes, as MSME act restricts time period to 45 days. Vendor registered under MSME cannot agree for a longer duration Q11: Sec 43B(h) is applicable to payments made to MSME or payments made by MSME or by a non MSME to a non MSME? A: Applicable on only payments due to MSME whether paid by a MSME or non MSME Q12: What is the validity of MSME/ Udyam registration certificate? A: There is no expiry of Udyam / MSME registration certificate. As long as the entity is ethical and financially healthy, there will be no expiry of the certificate. Q13: How can I verify the MSME number given by my vendor? A: Entrepreneurs can verify their Udyam registration number by following the below steps: • Visit the Udyam registration portal. • Click on the ‘Print/Verify’ option and click on the ‘Verify Udyam Registration Number’ option. • Enter the ‘Udyam Registration/Reference Number’, enter the captcha code and click on the ‘Verify’ button. Q14: How to check MSME registration by name? A: As per the date mutually agreed between the vendor or 45 days whichever is earlier. • You cannot check the MSME registration number by name. However, you can retrieve your MSME registration number by following the below process: • Visit the Udyam Registration Portal. • Click on the ‘Forgot Udyam/UAM No.’ option under ‘Print/Verify’ option on the homepage. • Choose the registration option. • Choose the OTP option • Enter the mobile/email address • Click on the ‘Validate & Generate OTP’ button. • Enter the OTP. The MSME registration number will be displayed. Q15: Invoice is dated 1 Apr 23 and payment is made on 31 March 23. In this case even though the payment is made after 45 days will still the expense be allowed in the same year? A: Yes. The vendor has an option to take action against you for not making the payment within time period. However as the same is within the precincts of law, the said expense would be allowed in FY 23-24. Q16: Invoice is dated 1 Apr 22 and payment is not made till 31 March 23 then what would be the implication from Income Tax perspective? A: Sec 44B(h) is applicable w.e.f. 1 April 23. In case of invoices of prior period, one might have already claimed those expenses in previous year so question of re-claiming the same in subsequent years does not arises. 2
9 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 CA Pradeep Sethia Mobile No. : 97699 22207 E-mail : [email protected] Employee Stock Option Plan (ESOP) is a scheme through which a company awards its stock options to their employees based on their performance and designations. The objective of ESOP is to encourage the employees to perform better and it also creates a sense of belonging and ownership amongst the employees. ESOP have become commonplace in the world of startups to compensate and retain good talent in the Company. An employee stock option is a call option meaning that under an ESOP, the employees have the right and not an obligation to buy the shares of the company on a predetermined date at a predetermined price. This article explores the intricacies of need for issuing ESOP, its key challenges, purpose and methods of ESOP valuation. Need for ESOP? • Minimizing attrition by providing additional reward; • Liberty to channelize funds for the business; • Increasing employee retention; and • Attract employees who can be potential assets to the organization for near future. Key Challenges in ESOP Valuation: 1. Volatility in Market Conditions: Economic downturns or industry-specific challenges can significantly impact a company’s valuation. 2. Data Availability and Quality: Obtaining accurate and up-to-date financial data is crucial for precise valuation, but it can be challenging in certain cases. 3. Subjectivity in Projections: Future cash flow projections involve a degree of subjectivity, making them a potential source of valuation uncertainty. 4. Lack of Market Liquidity: ESOP shares are often illiquid, making them challenging to value accurately. Unlike publicly traded stocks with readily available market prices, private company shares require a more nuanced approach, often leading to valuation discrepancies. Purpose of ESOP Valuation 1. Accounting purpose: The accounting valuation for ESOP is required for working out the employee compensation cost at the time of ESOP grants itself which is apportioned over the vesting period of ESOP. 2. Income Tax purpose: ESOP valuation is required for determination of value of perquisite taxable in hands of employees to comply with applicable provisions of Indian Income Tax Act, 1961 and notification issued by CBDT (Notification no. 94/2009 dated 18.12.2009) in this respect. Method of ESOP Valuation There are two methods of doing ESOP Valuations – Intrinsic Value Unlocking the Worth: A Deep Dive into ESOP Valuation Strategies for Employee-Driven Success Method & Fair Value Method. However, in this article we are going to discuss only Fair Value Method as this method is widely used for ESOP Valuation. • Fair Value Method The fair value of an ESOP is calculated using an option-pricing model like, the Black-Scholes model, binomial model or Monte Carlo Simulation Model. For performing fair valuation of ESOPs, the Black-Scholes model is mostly preferred as it takes into account the various factors like Time Value, Interest Rate, Volatility, Dividend yield etc. To calculate the value of ESOP options through Black Scholes the following have to be considered: Expected life of the option Exercise price Fair value per share Expected volatility of share price Expected dividend yield Risk free interest rate Key issues in valuation of ESOPs through Black Scholes Model 1. Expected life or Total life of the option: For the purpose of valuations, we need to consider the likely life of option and not the total life of option. For calculation of expected life, it is recommended to use the average of the maximum life of option and the minimum life of option for each vesting of a particular grant. 2. Volatility of unlisted companies: For listed Companies historical volatility in their own share prices is taken, the problem arises on how to compute volatility of the unlisted companies. For computing volatility for unlisted companies, we should take historical volatility in the share price of other similar listed comparable companies as the expected volatility for the unlisted company. 3. European-Style Options Only: The Black-Scholes model is designed for European-style options, which can only be exercised at expiration. American-style options, which can be exercised at any time before expiration, may not be accurately priced using the Black-Scholes model. 4. Risk free interest rate: The model assumes a constant risk-free interest rate. Changes in interest rates, especially over longer time horizons, can impact option prices. 5. Sensitivity to Input Parameters: The model is sensitive to changes in its input parameters, such as volatility and time to expiration. Small changes in these parameters can lead to significant changes in option prices. Conclusion ESOP valuation is a complex process that requires a deep understanding of financial principles, industry dynamics, and the unique characteristics of the company in question. By employing a combination of valuation methods and considering key factors, companies can establish a fair and transparent valuation for their ESOP shares. This, in turn, contributes to the success of the ESOP program by aligning the interests of employees and shareholders, fostering a sense of ownership, and promoting long-term company success. Views expressed are personal to author. 2
10 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Students Conference 2nd & 3rd December 2023
11 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 One Day GST Conclave (Workshop) 03-12-2023 Seminar on Will & Succession & Standard of Auditing 10-12-2023
12 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Member Conference 2023 23-24 Dec 2023
13 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Seminar on Code of Ethics & Standard on Auditing 30.12.2023
14 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Opportunities for CA Women 07.01.2024
15 The Institute of Chartered Accountants of India Vasai Branch of WIRC NEWSLETTER January 2024 Republic Day 26.01.2024 The Institute of Chartered Accountants of India, Vasai Branch of WIRC Address: Maxus Mall, B Wing, 7th Floor, Above Maxus Banquet Hall, Temba Road, Bhayandar (West) Thane-401 101. Contact: 9029868900/ 8655068901/ 8976068902 | Email: [email protected] | Website: www.vasai-icai.org Editor: CA. Amit Agarwal Published by Vasai Branch of Western India Regional Council of The Institute of Chartered Accountants of India at Finesse Graphics and Prints Pvt. Ltd., 309, Parvati Ind. Est.,Sun Mill Compound, Lower Parel, Mumbai 400 013. Tel. : 4036 4600 The views and opinions expressed or implied are those of the authors or contribution and do not necessarily reflect those of Vasai Branch. Unsolicited articles and transparencies are sent in at the owner’s risk and the publisher accepts no liability for loss or damage. Material in this publication may not be reproduced, whether in part or in whole, without the consent of Vasai Branch. DISCLAIMER: The Vasai branch is not in any way responsible for the result of any action taken on the basis of the advertisement published in the Newsletter. The members, however, may bear in mind the provision of the Code of Ethics while responding to the advertisements.