KGS

“Don’t worry about people stealing your ideas.

If your ideas are any good, you’ll have to ram

them down people’s throats”

Howard Alken.

INTEGRITY FIRST

KGS

Cost

S. No. Topic

1.

NSC and Tax Benefit

2.

Highlights of Budget 2017

3.

Rs. 3,700 Crore Noida Fake Like Scam: How Lakhs Lost Their Money

4.

Service Tax Exemption to Educational Institutions Curtailed

5.

New Paradigm in IFRS - 9

INDEX

Highlights:

What is NSC

Investment Limit

Tax benefits

Other considerable factors

NSC and Tax Benefits

CA Chandan and Amit Gupta

KGS

NSC and Tax Benefit

What is National Savings Certificate

National Savings Certificate (NSC) is an Investment alternative developed by Government of India with an intention to induce persons to a saving habit and to develop National Savings. National Savings Certificate is issued through Post Offices; they are the nodal agency which makes it available to the common public.

National Saving Certificates in India is ranked as ‘highly secured’ in the class of Investments. It is an Investment’ which has Tax Advantage while (i) Investing, (ii) during the life and (iii) at the time of maturity of the Investment.

Investment limit

There is no Limit for Investment in NSC.

Tax treatment

Deposits up to Rs. 1.50 lakh in NSC qualify for Deduction Section 80C of the Income Tax Act. Accrued interest on NSC also qualifies for deduction u/s. 80C.

NSC interest is taxable. However, as it is a cumulative scheme (e.g. interest is not paid to the investor but instead accumulates in the account), each year’s interest is considered reinvested in the NSC. Since it is deemed reinvested, it qualifies for a fresh deduction under Sec 80C, thereby making it tax-free. Only the final year’s interest, when the NSC matures, does not receive a tax deduction as it does not get reinvested, but is paid back to the investor along with the interest of the earlier years and the capital amount.

What you must ensure while filing tax return

To benefit from this feature of reinvested interest and its deduction, it is important to declare the accrued interest on NSC on a yearly basis in your tax return under the head “Income from Other Sources”. Under deductions, you will claim accrued interest for all the years except the last year under Sec 80C as reinvested NSC interest. Both cancel each other out, making the interest in effect tax-free.

Non-Resident Cannot Invest

Non-Resident Indians are not eligible to purchase the National Savings Certificates.

Denominations in which certificates shall be issued

The National Savings Certificates (IX Issue) shall be issued in denominations of Rs. 100, Rs. 500, Rs. 1000, Rs. 5000, Rs. 10000.

KGS

Can be Purchased Jointly and on behalf of minor

NSC can be purchased in joint name or on behalf of the minor

Types of Certificates and Issue thereof

(1) The certificates shall be of the following types, namely:

(a) Single Holder Type certificates;

(b) Joint ‘A’ Type Certificates; and

(c) Joint ‘B’ Type Certificates;

(2) (a) A Single Holder Type certificate may be issued to an adult for himself or on behalf of a minor or to a minor;

(b) A Joint A Type certificate may be issued jointly to two adults payable to both the holders jointly or to the survivor,

(c) A Joint ‘B’ Type certificate may be issued jointly to two adults payable to either of the holders or to the survivor;

Where to Purchase

National Savings Certificates (NSC) are certificates issued by Department of the post, Government of India and are available at most post offices in the country. This Certificate can be transferred from a post office where it is registered to any other post office and it can be pledged as a security.

Main Features of NSC VIII Issue

Scheme specially designed for Government employees, Businessmen and other salaried classes who are Income Tax assesses.

No maximum limit for investment. No Tax deduction at source. Certificates can be kept as collateral security to get the loan from banks. Investment up to INR 1,50,000/- per annum qualifies for IT Rebate under section 80C of Income

Tax Act. Trust and HUF cannot invest.

Main Features of NSC IX Issue

No maximum limit for investment. Minimum Investment Rs. 100 Available in denominations of INR. 100/-, 500/-, 1000/-, 5000/- & INR. 10,000/- A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or

to a minor.

Buy National Savings Certificates (NSCs) every month for Five years – Re-invest on maturity and relax – On retirement, it will fetch you monthly pension as the NSC matures.

Highlights:

Agriculture Sector

Financial Sector

Fiscal Situation

Income Tax And Tax Proposals

Highlights of Budget

2017

CA Jitin Girdhar and Aarushi Goel

KGS

Highlights of Budget 2017 2017

The 2017 Union Budget, presented by Finance Minister Arun Jaitley, was broadly

focused on 10 themes — the farming sector, the rural population, the youth, the poor

and underprivileged health care, infrastructure, the financial sector for stronger

institutions, speedy accountability, public services, prudent fiscal management and tax

administration for the honest.

Highlights of Finance bill

2017

Agriculture Sector:-

A sum of Rs. 10 Lakh Crore is

allocated as credit to Farmers, with

60 days of Interest waiver.

NABARD fund will be increased to

Rs. 40,000 crore

Government will set up mini labs in

Krishi vigyan kendars for soil

testing.

A dedicated micro irrigation fund will be set up for NABARD with Rs. 5,000/-

crores initial corpus.

Irrigation Corpus fund increased to 40,000 crores from 20,000 crores.

Rural Population:-

The Government target to bring 1 crore householdes out of poverty by 2019.

Over 3 lakh crore will be spent for Rural India. MGNREGA to double farmers

Income.

Will take steps to ensure participation of women in MGNREGA up to 55%.

Will allocate Rs. 19,000 crore for Pradhan Mantri Gram Sadak Yojana in

2017-18.

Swachh Bharat mission has made tremendous progress; sanitation coverage has

gone up from 42% in Oct 2013 to 60% now.

The country well on way to achieve 100% rural electrification by March

2018.

KGS

Financial Sector:-

FDI policy reforms - more than 90% of FDI inflows are now automated.

Shares of Railway PSE like IRCTC will

be listed on stock exchanges.

Bill on resolution of financial firms will

be introduced in this session of

Parliament.

Foreign Investment Promotion Board

will be abolished.

Revised mechanism to ensure time-

bound listing of CPSEs.

Computer emergency response team for

financial sector will be formed.

Pradhan Mantri Mudra Yojana lending target fixed at Rs 2.44 lakh crore for

2017-18.

Negotiable Instruments Act might be amended. Fiscal Situation:-

Total expenditure is Rs. 21, 47,000 crore.

Plan, non-plan expenditure to be abolished; focus will be on capital

expenditure, which will be 25.4 %.

Rs. 3,000 crore under the department of Economic Affairs for implementing the

Budget announcements.

Expenditure for science and

technology is Rs. 37,435 crore.

Total resources transferred to States

and Union Territories is Rs 4.11 lakh crore.

Recommended 3% fiscal deficit for

three years with a deviation of 0.5% of the

GDP.

Revenue deficit is 1.9 %

Fiscal deficit of 2017-18 pegged at

3.2% of the GDP. Will remain committed to achieving 3% in the next year.

KGS

Income Tax and Tax Proposals

Existing rate of tax for individuals between Rs. 2.5- Rs 5 lakh is reduced to 5%

from 10%.

All other categories of tax payers in subsequent brackets will get a benefit of Rs

12,500.

Simple one page return for people with an Annual Income of Rs. 5 lakh other

than business income.

People filing I-T returns for the first time will not come under any government

scrutiny.

10% Surcharge on Individual Income above

Rs. 50 lakh and up to Rs 1 crore to make up

for Rs 15,000 crore loss due to cut in

personal I-T rate. 15% surcharge on

individual income above Rs. 1 crore to

remain the same.

Income Tax Rate Individual Tax Payers Up to Rs 2,50,000 No Tax Rs 2,50,000 to 5,00,000 5% Rs 5,00,000 to 10,00,000 20% Rs 10,00,000 Above 30%

Highlights:

How were so many lured?

How it worked?

Investigation

Rs.3,700 Crore Noida Fake Like

Scam: How Lakhs Lost Their

Money

CA Anubhav Jain and Sakshi

KGS

Rs 3,700 Crore Noida Fake Like Scam: How

Lakhs Lost Their Money

At Rs 3,700 scam, it's turning out into one of India's biggest online scams. Noida Police have charged a

company called Ablaze Info Solutions with duping tens of thousands of gullible subscribers by adding

them into a money-chain like business model.

The modus operandi was this: People were made to pay to get a subscription and then made to click

'like' on false links for handsome returns. They were also incentivized to add more members as

subscribers. As it happens in any Ponzi scheme the ones at the top made a bit of money. The ones at the

middle and bottom lost a bit of their 'investments.'

Uttar Pradesh Special Task Force which unearthed the scam said seven lakh people were swindled. The

company's website that it used to attract people is still accessible at socialtrade.biz.

Here, according to the UP police, was how it operated.

How were so many lured?

The company's business model was to earn while at home. All one had to do was to pay money for the

membership and earn by clicking on the links. There were many members who had not only got

membership for themselves but for the entire family.

"I am going to my wife's home in Chandigarh on Sunday. I had got everyone from my in-law’s side

enrolled in this company. Now everyone's money is at stake and my reputation too," said a consultant who

works in Sector 63, Noida.

Many college students and job seekers had enrolled in the company to earn some quick money. Shikha, an

engineering graduate even deferred joining a company because of the scheme. "It is embarrassing to ask

for money from home. For the last three months, I was earning money from this company. Suddenly I got

to know through the media that it's a fraud company," she said.

KGS

A large number of housewives too were members of the company. On condition of anonymity one of

them, who had come to enquire about the company in Noida, said she was earning money through its

click system. "This was my savings which my husband was unaware of. I did not know it was a fraud. I got

money till January," she said.

How it worked?

Socialtrade.biz was launched in 2015 by Ablaze Info Solutions. The social media trading had four kinds of

membership - Rs 5,700, Rs 11,500, Rs 2,8750, Rs 57,500. On the basis of which kind of membership, you

paid for, your username id was generated.

Each member had to add two more members. And that was how the chain built. Members had to deposit

the amount in company's the account. On the basis of the membership, users were given number of clicks

in a particular day. The company would in return pay Rs 5 for per click.

For people opting for a membership of Rs 5,700, only 25 'likes' were allowed in a day which meant that

person would earn Rs 125 per day. Similarly, for membership of Rs 11,500, 50 'likes' were allowed, for Rs

28,750, 75 'likes' and for Rs 57500, 125 'likes' were allowed.

The company's revenue model was such that the ad company would give Rs 6 to the company for each like

out of which Rs 5 will be given to the member and Re 1 will go the company.

Investigation:

Police had received several complaints about this company. During the investigation, they found that their

business model was faulty. When a member logged in on their page, the ad URL sent to them was

incorrect. Sometimes the members would be clicking on the same URL without realizing.

The company also kept changing its names online from socialtrade.biz to freehub.com, intmaart.com,

frenzzup.com and 3w.com. This also created suspicion among investigators. The company had changed its

name to throw enforcement agencies of its trail. The plan, according to the investigators was to show loss

in the coming two months.

KGS

While the company was showing TDS, the balance sheet was completely faulty, said a senior police officer.

The company's server was taken on rent in Ghaziabad. A senior police officer said around one lakh people

have complained of non-payment by the company.

Current status:

Many investors had got refund. But still there are thousands of investors whose money is stuck in the

company. A STF official said. “Now we have submitted evidence against the accused in the court, the court

will decide how the money can be refunded to the investors.”

Service Tax Exemption

to Educational

Institutions Curtailed

Highlights:

Present Situation

Meaning of Educational Institution

Amendment

Impact of GST

CA Neeraj Jain and Shubhi

KGS

Service Tax Exemption to Educational Institutions Curtailed

Present Situation

According to present clause 9(b) of exemption Notification No. 25/2012-ST dated 20-06-2012,

exemption is provided from the levy of Service Tax in relation to services provided to an educational

institution, by way of:

(i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Government;

(iii) security or cleaning or house-keeping services performed in such educational institution; and

(iv) services relating to admission to, or conduct of examination by, such institution.

Meaning of Educational Institution

“educational institution” means an institution providing services by way of:

(i) pre-school education and education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognized by any law for the time

being in force;

(iii) education as a part of an approved vocational education course.

All the aforementioned services provided to any educational institution

Amendment

Central Government has recently issued a Notification No. 10/2017-ST dated 08.03.2017 wherein

clause 9(b) of the above notification has been amended to curtail this exemption w.e.f. 01-04-2017 .

“Provided that nothing contained in clause (b) of this entry shall apply to an educational institution

other than an institution providing services by way of pre-school education and education up to higher

secondary school or equivalent”.

Accordingly, exemptions provided therein shall be applicable only to the institutions which provide

services by way of pre-school education and education up to higher secondary or

equivalent. Thus, institutions other than these will not be eligible for the exemption and all their

services falling under above services shall become taxable w.e.f. 1.4.2017, i.e., services related to

KGS

transportation, catering, security, conduct of exams etc. provided to educational institutions, which

are providing education as a part of a curriculum for obtaining a qualification recognized by any law

for the time being in force and education as a part of an approved vocational education course will not

be eligible for exemption provided under clause 9(b) of N. No. 25/2012-ST dated 20.06.2012.

The service providers of these services shall charge service tax on their invoices w.e.f. 1.4.2017

which implies that cost of such services will go up by 15 percent flat. This will impact cost

increase by educational institutions except (schools). These institutions will also not be able to take

input credit set off as education services are not liable to Service Tax. Since cost will go up, such

institutions may increase the fees which will directly affect students and parents.

Impact of GST

It would have been desirable not to withdraw this exemption in view of GST being introduced soon.

On one hand, it was announced on Budget speech that because of GST, no changes are proposed in

Service Tax but within a month of Budget which is before Parliament, this exemption has been

withdrawn. It may be counter-productive as revenue benefit may only accrue for three months as GST

is proposed from July, 2017. It is likely that such services may be taxed in GST regime also.

All educational institutions may have to restructure their service contracts in view of this withdrawal

of exemption.

New Paradigm in

IFRS - 9

CA Rashi Goel and Rishabh Jain

Highlights:

Introduction

Solely Payment of Principal & Interest

Occurrence

Impact

Conclusion

KGS

New Paradigm in IFRS - 9

Introduction The revised Reporting Standard IFRS - 9 has introduced two fresh paradigms for financial

instruments:

Solely Payments of Principal and Interest (SPPI) Test

Three-stage Expected Credit Loss Model

Solely Payments of Principal and Interest (SPPI) Test SPPI Test is the assessment of contractual cash flow features contained in a financial asset.

The standard says that the contractual cash flows need to be Solely Payments of Principal

and Interest (SPPI), so that the financial asset’s classification qualifies as either Amortised

Cost or Fair Value through Other Comprehensive Income (FVOCI). If it fails to

meet SPPI test criterion, such financial asset will be classified as Fair Value through Profit

or Loss (FVTPL). For instance, cash flows from equity instruments and derivatives do not

contain principal or interest elements and hence are mostly classified as FVTPL.

KGS

Occurrence

When the global financial crisis happened around 2007-08 leading to great recession and European

sovereign-debt crisis spoiling financial institutions in the world economy, increasing liquidity and

credit adversities around the globe, concerns were raised about delay in practice of loss provisioning

on loans and other financial instruments. The less provisioning of losses used to provide less impact

on the Profit or Loss of the banks, but alongside did not show the current financial position.

To deal with such concerns IASB stepped for these major changes, accurate loss provisioning has been

standardised through covering recognition of some future expected losses along with already incurred

losses in impairment mechanism. And to convey the fair balance sheet view, preventing to even look

for impairment at first, the changes to classification of financial instruments included SPPI Test.

Impact of SPPI Test

If the loan involves contractual terms like prepayment before maturity which may change the

timing, risk associated or amount of contractual cash flows in future, then both the cash flows ‘before

change’ and ‘after change’ have to satisfy the SPPI test criterion to qualify loan for Amortised Cost

classification.

Also, if there is no penalty or premium to compensate for premature termination of the loan

contract, prepayment will become significant and encouraged feature of the loan changing the fair

value as soon as the market rates of interest fluctuate, and thus failing SPPI Test the loan will be

classified at fair value.

Therefore it is necessary to carefully assess the features of contractual cash flows to avoid extravagant

SPPI Test failures, because such failures could lead to higher profit or loss volatility and could thereby

influence the financial position and regulatory capital levels of the organization.

Conclusion

IFRS - 9 aims to provide fair reporting of financial instruments through Amortised Cost as long as

the contractual cash flows have limited credit or lending risk, and are in consistent with a basic

lending arrangement.

A basic lending arrangement primarily looks for earning to cover time value of money invested and

lending risk associated. Henceforth, SPPI Test completes this aim by screening out financial assets

with high variability and risk features and routing such variation to P&L Statement using FVTPL,

which was earlier missing. Possibly a useful obligation, future will reveal more

KGS

Contact Name E-mail Mobile Mr. Anuj Somani anujsomani@kgsomani.com +91 9871098777 Mr. Bhuvnesh Maheshwari bhuvneshmaheshwari@kgsomani.com +91 9810031993

Head office: Branch Offices: Network Offices: DELHI MUMBAI BANGALORE

Delite Cinema Hall GHAZIABAD BHOPAL 3rd Floor, Gate No. 2, New Delhi, India GURGAON BUBNESHWAR

SILIGURI CHENNAI

CHENNAI KOLKATA

Disclaimer

• This material and the information contained herein prepared by the authors is of a general nature and does not exhaustively deal with the subject discussed. • Although the authors have put their earnest effort in providing accurate and appropriate information, the article is not intended to be relied upon as the sole basis for any decision which may affect you or your business. The authors recommend you take professional advice before acting on specific issues. • KGS is neither responsible for any views, opinions and statements made by the authors nor is liable for consequences, if any, arising from actions based on such views or opinion.

Contact Us