Tag: tax consultant services in India

Posted on

Secretarial Audit in India: Process and Benefits

Secretarial Audit is an important method for all organizations. It is a part of total compliance management in an organization. It is an effective tool when it comes to corporate compliance management. In this blog we will discuss in detail about the secretarial audit in India, its process and benefits. 

What is the requirement of secretarial audit in India?

It is a process to check compliance to the provisions of law, rules and regulations, maintenance of books etc. by an independent professional to make sure that the company complies with the legal requirements and procedural needs and also follows the due process. It is a mechanism to monitor compliance with the requirement of stated law.

Objective of secretarial audit 

Following are the objectives of secretarial audit-

  1. To check and report on the competition of compliances according to provision of law.
  2. To point out the non-compliances.
  3. To safeguard the interest of the stakeholder that includes customers, employees etc.
  4. Compliances are to be followed to avoid any unwarranted legal action or penalties.

Applicability of Secretarial audit in India

The mandatory provision regarding applicability of secretarial audit are-

  1. Every listed company
  2. Every public company having a paid up share capital of Rs. 50 crore or more and having turnover of Rs. 250 crore or more.
  3. Company having outstanding loans or borrowing from banks or public financial institutions of Rs. 100 crore or more.

Scope of Secretarial Audit

Scope comprises verification of the compliances under the following-

  1. Companies Act, 2013 and the rules made there under;
  2. Securities Contracts (Regulation) Act, 1956 and the rules made there under;
  3. Depositories Act of 1996 and the rules made there under;
  4. Foreign Exchange Management Act of 1999
  5. Regulations and guidelines provided under the Securities and Exchange Board of India, Act 1992;
  6. Reporting on the compliance of secretarial standards issued by Institute of Company Secretaries of India; and
  7. Other laws are applicable specifically to the company that means all the laws that are applicable to specific industries.

Appointment of Secretarial auditor

Process of appointment of a secretarial auditor are as follows-

  1. Firstly, consent of the secretarial auditor is required.
  2. Thereafter, a certified copy needs to be filed of the resolution passed in the Board meeting with the Registrar of companies in MGT-14.
  3. Make an appointment of such an auditor in the Board meeting and fix the remuneration in the meeting.

Process of secretarial audit in India

The process are as follows-

  • Appointment of secretarial auditor.
  • Communication to earlier incumbent
  • Primary discussion will take place about the company with secretarial auditor
  • After the meeting an audit plan is finalized and the staff is briefed.
  • Testing, interview and analysis
  • The working papers are prepared
  • Audit summary for discussions
  • Finally the secretarial audit will be submitted.

Documents required for secretarial audit

Following are the documents which are required for secretarial auditing-

  1. Charter documents and statutory registers
  2. Birds and general meeting minutes and notices
  3. The audited financial statement as well as last year’s secretarial audit report
  4. Annual performance reports, lease deeds,bonds and return.
  5. Registers maintained under the labour law
  6. Details of remuneration and sitting fees paid to directors
  7. Details of CSR amount
  8. Details of bank account for dividend 
  9. ECB returns details

Benefits of secretarial audit

  1. It’s an effective mechanism to ensure the compliance with the procedural and legal requirements;
  2. It promotes the level of confidence to directors and key managerial personnel etc.
  3. It ensures that legal and procedural requirements are met that in turn allows the directors to concentrate on crucial business dealings;
  4. It strengthens the goodwill of the company for their regulators as well for their stakeholders;
  5. It is also an effective governance and compliance risk management tool;
  6. It, further, helps an investor in analyzing the compliance level of companies thereby increasing the reputation also;
  7. It administers professional discipline and also self-regulation;
  8. It may be an effective due diligence performance for the prospective acquirer of the company or a partner of a joint venture; and
  9. It helps to detect any non-compliance and helps in taking corrective action.

Conclusion

Secretarial audit in India is independent and it is beneficial for the companies who follow it as it improves their operations. It can help an organization in completing their objectives.

Posted on

Domestic Transfer Pricing

What is Domestic Transfer Pricing?

Transfer Pricing provisions were earlier restricted to international transactions only but now it has extended to specific domestic transactions also with effect from 13th April, 2013. 

Legal Definition of Domestic Transfer Pricing

Section 32 BA defines domestic transactions which are governed by the TP regulation which states that specified domestic transactions in case of the assessee mean any of the following transaction-

  • Any expenditure to be incurred or to be incurred in connection with a payment made or to be made to a person referred to in section 40A (2)(b).
  • Transactions referred to in section 80A.
  • Any transfer of goods or provision of services as provided in subsection 8 of section 80 – IA.
  • Any business transaction between the assessee and another person as referred to in subsection 8 of section 80 – IA
  • Any transactions which have been mentioned under section under chapter VI-A or section 10AA, o a person to whom provisions of subsection 8 or subsection 10 of section 80 IA is applicable
  • And where the aggregate of such transactions entered into by the assessee in the previous year exceeds 20 crores
  • Any other transactions as may be prescribed.

Threshold Limit

The above provisions will only be applicable if the aggregate value of the turnover of the above mentioned transactions exceeds above 20 crores. 

Applicability of Domestic Transfer Pricing

  1. Taxpayers cannot apply for transfer pricing to a specific domestic transaction to reduce the tax liability.
  2. Monetary threshold limit of Rs. 20 crores will be calculated according to the receipts and on the basis of aggregate payment to which these provisions apply.
  3. Definition of Related party includes expenses disallowed to cover the entities which have common beneficial ownership
  4. Transfer pricing is applicable to international transactions and to specific domestic transactions only. It specifically excludes Advanced pricing agreement provisions.

Concept of Arm’s Length Price (ALP)

The concept of ALP has also extended to specific domestic transactions only. ALP is denied as the price which is applied to the proposed to be applied in a transaction the assessed one and any other unrelated person.

Methods of Computing ALP

Flowing are the methods for computation of ALP-

  1. Comparable uncontrolled Price method- Under the CUP method, a price that is charged in an uncontrolled transaction between the comparable firms is recognized and evaluated with a verified entity price for determining the Arm’s Length Price.
  1. Resale Price method- This means its application looks to transactions between unrelated parties as a means to determine an arm’s length price for the intercompany controlled transaction under review.
  1. Cost plus method- It means it is based on markups observed in third party transactions. While it’s a transaction-based method, it is less direct than other transactional methods and there are some similarities to the profit-based methods.
  1. Profit split method- It evaluates whether the allocation of the combined operating profit or loss attributable to one or more controlled transactions under ALP.
  1. Transactional net margin profit- It compares the net profit margin of a taxpayer arising from a non-arm’s length transaction with the net profit margins realized by arm’s length parties from similar transactions.
  1. Such other methods may be notified as board- These are any other methods which are prescribed by the Board.

Documentation required 

  • Company related documents- 
  1. Profile of the company
  2. Profile of the group companies 
  3. Profile of the unit claiming tax holiday
  4. Profile of all the related parties.
  • Transaction related documents- 
  1. Agreements
  2. Invoices
  3. Pricing related correspondence such as emails, Letters etc.
  • Price Related Documents-
  1. Terms of the Transactions
  2. Functional analysis specifying functions, risks and assets.
  3. Economic analysis containing method, selection and comparable benchmarking.
  4. Budgets and comparable.
  • Other supporting documents cuh as official public reports by the government such as stock exchanges, and financial statements.

For any Transfer Pricing related queries reach us at info@biatconsultant.com.

Proudly powered by WordPress