Accounting Standard (AS-7 and 102) and Budget Highlight

April 2017

New year new amendments

Different group of people celebrate different dates as New Year. Professionals like us may not celebrate but consider April 1st as our real New Year, the beginning of Accounting Year. As like every New Year, we have a list of amendments and enactments on this April 1st. In this edition, we are going to see one of such amendment that is coming to effect from the first day of April. It is about the new amendments in Companies (Indian Accounting Standards) (Amendment) Rules, 2017. And a brief of Budget 2017 Highlights

As usual, the Legal terms and News Bites related to notifications by MCA, SEBI, RBI and IT Department follows the articles.

CEO Saranya Deivasigamani,
CEO

Amendment in Accounting standards

The MCA has notified the Companies (Indian Accounting Standards) (Amendment) Rules, 2017, making amendments in ‘Ind AS 102 on Share-based Payment’ and ‘Ind AS 7 on Statement of Cash Flows’ applicable w.e.f. 1st April, 2017. The following companies shall comply with the Indian Accounting Standards (Ind AS) for the accounting periods beginning on or after 1st April, 2017, with the comparatives for the periods ending on 31st March, 2017, or thereafter, namely:-

  1. Companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of less than ₹. 500 crore;
  2. Companies other than those covered in clause (ii) of sub- rule (1) and sub clause (a) of clause (iii) of sub-rule (1), that is, unlisted companies having net worth of ₹. 250 crore or more but less than ₹. 500 crore .
  3. Holding, subsidiary, joint venture or associate companies of companies covered under sub-clause (a) of clause (iii) of sub- rule (1) and sub-clause (b) of clause (iii) of sub- rule (1), as the case may be: ( in other words of the above companies)

Thus, unlisted companies having net worth less than ₹. 250 crore will not be covered in any of above phases. They will be covered as and when their net worth crosses the thresholds prescribed above.

Indian company which is a subsidiary, associate, joint venture and other similar entities of a foreign company shall prepare its financial statements in accordance with the Ind AS either voluntarily or mandatorily if it meets the criteria as specified in sub-rule (1). All share-based payment transactions even if entity can’t identify specifically some or all services received, including:

  • Equity settled share-based payment transactions.
  • Cash settled share-based payment transactions.
  • As per terms of arrangement of receiving goods or services, the entity or supplier can settle transaction in cash or equity shares.

A grant of equity instruments might be conditional upon satisfying specified vesting conditions. Vesting conditions, other than market conditions, shall not be taken into account when estimating the fair value of the shares or share options at the measurement date, Instead, vesting conditions, other than market conditions, shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount so that, ultimately, the amount recognised for goods or services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest. Hence, on a cumulative basis, no amount is recognised for goods or services received if the equity instruments granted do not vest because of failure to satisfy a vesting condition, other than a market condition.

For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability. Until the liability is settled, the entity shall re-measure the fair value of the liability at the end of each reporting period and at the date of settlement, with any changes in fair value recognised in profit or loss for the period.

An entity shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arisng from cash flows and non-cash changes. An entity shall disclose the following changes in liabilities arising from financing activities:

  • Changes from financing cash flows;
  • Changes arising from obtaining or losing control of subsidiaries or other businesses;
  • The effect of changes in foreign exchange rates;
  • Changes in fair values.

Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities. One way to fulfill the disclosure requirement is by providing reconcilliation between the opening and closing balances in the balance sheet for liabilities. Where an entity discloses such reconcilliation, it shall provide sufficient information to enable users of the financial statements to link items included in the reconcilliation to the balance sheet and the statement of cash flows.

Thus, from April 2017 Ind AS shall apply to all listed companies irrespective of their net whereas the unlisted companies shall be required to comply with Ind AS only if their net worth is equal to or exceeding ₹.250 crore.

BUDGET HIGHLIGHTS

FINANCIAL SECTOR

  • Foreign Investment Promotion Board to be abolished in 2017-18 and further liberalisation of FDI policy is under consideration.
  • An expert committee will be constituted to study and promote creation of an operational and legal framework to integrate spot market and derivatives market in the agricultural sector, for commodities trading. e- NAM to be an integral part of the framework.
  • Bill relating to curtail the menace of illicit deposit schemes will be introduced.
  • A mechanism to streamline institutional arrangements for resolution of disputes in infrastructure related construction contracts, PPP and public utility contracts will be introduced as an amendment to the Arbitration and Conciliation Act 1996.
  • A Computer Emergency Response Team for Financial Sector (CERT-Fin) will be established.

EASE OF DOING BUSINESS

  • Scope of domestic transfer pricing restricted to only if one of the entities involved in related party transaction enjoys specified profit-linked deduction.
  • Threshold limit for audit of business entities who opt for presumptive income scheme increased to ₹. 2 crores. Similarly, the threshold for maintenance of books for individuals and HUF increased to turnover of ₹. 25 lakhs or income of ₹. 2.5 lakhs.
  • Foreign Portfolio Investor (FPI) Category I & II exempted from indirect transfer provision. Indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India.
  • Commission payable to individual insurance agents exempt from the requirement of TDS subject to their filing a self-declaration that their income is below taxable limit.
  • Under scheme for presumptive taxation for professionals with receipt upto ₹. 50 lakhs p.a. advance tax can be paid in one instalment instead of four.
  • Time period for revising a tax return is being reduced to 12 months from completion of financial year, at par with the time period for filing of return.
  • Also the time for completion of scrutiny assessments is being compressed further to 18 months for Assessment Year 2018-19 and further to 12 months for Assessment Year 2019-20 and thereafter.

INCOME-TAX

  • Existing rate of taxation for individual assesses between incomes of ₹. 2.5 lakhs to ₹. 5 lakhs reduced to 5% from the present rate of 10%.
  • Surcharge of 10% of tax payable on categories of individuals whose annual taxable income is between ₹.50 lakhs and ₹. 1 crore.
  • Simple one-page form to be filed as Income Tax Return for the category of individuals having taxable income upto ₹. 5 lakhs other than business income.
  • Appeal to all citizens of India to contribute to Nation Building by making a small payment of 5% tax if their income is falling in the lowest slab of ₹. 2.5 to ₹. 5 lakhs.

GOODS AND SERVICES TAX

  • The GST Council has finalised its recommendations on almost all the issues based on consensus on the basis of 9 meetings held.
  • Preparation of IT system for GST is also on schedule.
  • The extensive reach-out efforts to trade and industry for GST will start from 1st April, 2017 to make them aware of the new taxation system.

LEGAL TERM

Inter Vivos

[Latin: Between the living] Refers to a gift or other non-sale transfer between living parties. This is in contrast to a will, where the transfer takes effect upon one party’s death.

NewsBites

MCA Updates

  • MCA notifies sections of Insolvency and Bankruptcy Code, 2016 will come into effect from 1st April, 2017.

SEBI Updates

  • SEBI (Payment of Fees And Mode Of Payment) (Amendment) Regulations, 2017.

RBI Updates

  • RBI announces draft guidelines of Simplified Hedging Facility for Residents and Non-Residents.
  • The limits for investment by FPIs in Govt securities were last increased in terms of Medium Term Framework (MTF).

Income Tax Updates

  • Amendment to Section 269ST for ‘No Penalty on Cash Withdrawals above Rs. 2 Lakhs from Banks.
  • Income-tax (6th Amendment), Rules, 2017 notified to amend Rule 19AB and Format of Report of Form No. 10DA, applicable w.e.f. 1 Apr. 2017.
  • Income-tax (5th Amendment) Rules, 2017 applicable w.e.f. 1 Apr. 2017 notified and Rule 5G inserted reg. Option Form (Form No. 3CFA) for taxation of income from patent under section 115BBF.
  • Govt. notifies tax exemption for certain specified incomes of SERB u/s 10(46) during FY 2013-14 to 2017-18.