Month: December 2016

Demonetisation

Inconvenience everywhere

December 2016 faced several disasters including continuous demonetisation practices that shook the economy of our country and vardha cyclone that caused disaster to the south-eastern coast. 2016 is ending with a complete downfall in India giving a hope for a bright future for a corruption free land that we are dreaming for.

You might have seen, read and heard many talks, discussions, rumours, and what not regarding Demonetisation. We are not going to speak anything about what Demonetisation is, what are the struggles and what may happen in future. We are going to discuss only what the cashless digital economy is having for us and the opportunities available for professionals in it.

CEO Saranya Deivasigamani,
CEO

Things to know

Following the midnight scrapping of 500 and 1000 currency notes, Government of India encourages the Indian citizens to move towards a Cashless Economy. Already, Demonetisation has left the citizens and most Industries in a lurch bringing a crunch and dip due to the lower liquidity of cash. This is the time we have to forget about the inconvenience and think about the opportunities that this scheme brings us.

Opportunities

Following are the few opportunities that we think the cashless digital economy will bring to the world of Chartered Accountants (CAs), Company Secretaries (CSs) and Cost and Management Accountants (CMAs).

Bookkeeping

When the monetary cash in papers is reduced, the business transactions will rely mostly on:

  • Swiping or Debit & Credit cards,
  • Electronic payment gateway systems such as:
    • Immediate Payment Service (IMPS),
    • National Electronic Funds Transfer (NEFT)
    • Real Time Gross Settlement (RTGS).
  • Payment through e-Wallets
    • Paytm, Freecharge, Ola Money, etc.,
    • Bill Desk Payment and other online payment methods.
    • Mobile Payment – like Airtel Money, Jio Money, Vodafone mPesa, etc.,
  • Online Payment method
    • PayPal
    • PayUbiz
    • CCavenue
    • Citrus Pay

These features reduce paper invoices and promote more of electronic invoicing, vouching, bills and receipt maintenance. This, in turn, tweaks the need of talented accountants. Cashless India will obviously require computer savvy bookkeepers who shall maintain all the electronic documents in place and enter the details in the books of accounts that can be maintained online or offline.

Internal Audit / Due Diligence

Digital economy will reduce the paper work in the industries that will help us get away from a huge bunch of papers to crosscheck with the electronic filings while doing due diligence. The Bank Statement, Statement of e-Wallets, Online Payment portals etc, generates electronic downloadable statements in Microsoft Excel or CSV or PDF alternatives that can be simplified easily with the formulae and electronic tallying method to simplify the internal audit and due diligence process.

Demonetisation will possibly bring in more pressure on bankers’ due diligence and increase the internal audits and general audits in the Banks.

Advisory in Systems and Procedures

Demonetisation, combined with goods and services tax (GST), will impact the Small and medium-sized enterprises (SMEs) business model negatively, which was earlier dependent on tax and labour arbitrage. Many sectors will see a change in their existing business practice and procedures and may require expert advice in restructuring their policies and procedures as suitable to the cashless digital economy.

The framing of policies, disclaimers, terms and conditions, non-disclosure agreements are likely to be framed by the business enterprise who decides to enter into digital marketing and selling activities following the cashless digital economy movement.

Compliances

Demonetisation and Cashless Economy System will also reduce tax avoidance. Whatever money will be deposited or exchanged, authorities will keep a track of it and they will be extra cautious in this period. Dealing with this period in sectors like jewellery and real estate will be on the radar and those entering into Loan transactions may also undergo tax scrutiny. Search and Seizure activities of the IT Department will also rise to curb such malpractices. Limits have already been prescribed for reporting to the IT Department those bank accounts in which excess cash deposits are being made in this 50-day window ( INR. 2.5 lakhs in case of individuals and INR. 12.5 lakhs in case of firms). Importantly, in the longer run, tax and interest rates on loans are expected to come down as higher income tax collections arising from better compliance would offer scope to reduce rates over the long term. This, in turn, will drive up all tax avoiders to become tax payers. This will enable the new taxpayers to search for professional help.

Advice to New Entrants

The budding entrepreneurs and people thinking of starting a new business will obviously have a setback or requesting for better business ideas that would suit the current scenario. It is always better to know about the sectoral impacts on demonetisation.

Sectoral Impacts on Demonetisation
  • E-commerce sector avoiding CoD options or making alternative arrangements for CoD options will have a raise through the electronic mode of selling goods.
  • Businesses in the fin-tech sector including payment banks, mobile wallets, electronic transfer providers etc., are expected to see gains.
  • Areas of sub-sectoral impact in luxury cars, SUVs, gems, jewellery, gold and high-end branded products.
  • Luxury goods markets are likely to get affected.
  • Real estate sector is likely to see a significant negative impact on medium to long-term, particularly in repurchase market.
  • Technology and financial services are expected to gain in the medium to long term.
  • Commodities and agricultural sector, including the market for consumer durables and non-durables will largely affect.
  • The retail sector will have an adverse impact. They should have both options of electronic purchases along with the traditional brick and mortar outlets.
  • Exporters dealing with lesser monetary transactions are likely to see gains through currency inwards directly into the bank accounts.

It is most likely that the professionals like CA, CS, and CWAs are set to gain from Demonetisation. With their clients becoming tax complied, and seeking for various other suggestions and professional help will certainly increase. Now, it will witness debates more on point of law which will actually test the real knowledge of professionals. Demonetisation will help the professionals go hand in hand with the government to a very large extent.

Legal Term

Garnishment

A legal procedure by which a creditor can collect what a debtor owes by reaching the debtor’s property when it is in the hands of someone other than the debtor.

 

NewsBites

MCA Updates
  • Form INC-27 has been recently revised.
  • The Companies (Transfer of Pending Proceedings) Rules, 2016 shall come into force with effect from the 15th December, 2016, except rule 4, which shall come into force from 1st April, 2017.
SEBI Updates
  • Streamlining the Process for Acquisition of Shares pursuant to Tender Offer made for Takeover, Buy Back and Delisting of Securities
  • Spread margin benefit
  • Review of guidelines for Co-location / proximity hosting facility offered by stock exchanges
  • Continuous disclosures and compliances by InvITs
  • Guidelines for functioning of Stock Exchanges and Clearing Corporations in International Financial Services Centre (IFSC)
  • Investment trading in securities by employees of AMC(s) and Trustees of Mutual Funds
  • Review of requirement for copy of PAN Card to open accounts of FPIs.
RBI Updates
  • Amendment to Master Direction to KYC.
  • Section 42(1A) Withdrawal of the Incremental CRR.
Income Tax Updates
  • Directions under section 119 of the Income-tax Act, 1961
  • Procedure for the purposes of furnishing and verification of Form 27BA for removing of default of Short Collection and / or Non Collection of Tax at Source !New
  • Procedure for the purposes of furnishing and verification of Form 26A for removing of default of Short Deduction and/or Non Deduction of Tax at Source
  • Transport, Power and Interest subsidies received by an Industrial Undertaking- Eligibility for deduction under sections 80-IB, 80-IC etc., of the Income-tax Act, 1961.