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KGS
INTEGRITY FIRST
In looking for people to hire, you look for
three qualities: integrity, intelligence, and
energy. And if you don’t have the first, the
other two will kill you. Warren Buffett
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S. No. Topic
1.
Government Securities
2.
Make in India
3.
Investment Risk Management
4.
TDS on Immovable Property other than Agricultural Land (Section 194 IA)
5.
Advance Tax
6.
Manufacturing Sector & its Audit
INDEX
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A Government Security is a tradable instrument issued by the Central Government or the State
Governments. It acknowledges the Government’s debt obligation. Such securities can be short term or long
term. Government securities carry practically no risk of default and, hence, are called risk-free gilt-edged
instruments. A government security may be issued by the government itself or by one of the government
agencies.
Why Government Securities are issued
Government securities are usually issued for two different reasons. The primary reason that most
government securities are issued is to raise funds for government expenditures. The government issues these
securities to cover shortfalls (deficits) in its annual budget. Additionally, cities will often issue bonds for
construction of schools, libraries, stadiums, and other public infrastructure programs.
A central bank of a country, such as the U.S. Federal Reserve, will sell debt securities for another reason - to
control the supply of money in an economy. If the government wants to slow the growth rate of money in the
economy, it will sell government securities. This means that it is sucking up dollars from the economy and
replacing them with government securities, which results in a slowing the rate of growth in the money
supply.
Advantages of Government Securities
Can be held in dematerialized form/ scripless form
Can be sold easily in the secondary market to meet cash requirements
Provides return in the form of coupons (interest)
Provides maximum safety as they carry the Sovereign’s commitment for payment of interest and
repayment of principal
Can be used as collateral to borrow funds in the repo market
Procedure for issuing Government Securities
Prior to introduction of auctions as the method of issuance, the interest rates were fixed by the Government.
With the introduction of auctions, the rate of interest (coupon rate) gets fixed through a market based price
discovery process. An auction may either be yield based or price based:-
Yield Based
Auction
• Conducted when a new Government security is issued• Investors bid in yield terms up to two decimal places , like, 8.19 per cent, 8.20 per cent, etc.
Price Based
Auction
• Conducted when Government of India re-issues securities issued earlier• Bidders quote in terms of price per Rs.100 of face value of the security, like, Rs.102.00, Rs.101.00, Rs.100.00, Rs.99.00, etc., per Rs.100/-
Government Securities
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With effect from June 1, 1997, no TDS is payable upon interest from Government Security. However, as per
Finance Act, 2007 and Government of India Notification No. F.4(10)-W&M/2003 dated May 31, 2007, tax has
to be deducted at source on the interest exceeding Rupees Ten Thousand payable during a financial year on 8%
Savings Bonds, 2003 (Taxable) with effect from June 1, 2007.
Types of Government Securities
1. Treasury Bills (T-bills)
Short term money market instruments
Presently issued in three tenors ,i.e., 91 day, 182 days and 364 days
Are zero coupon securities and pay no interest
Issued at a discount and redeemed at the face value at maturity
2. Cash Management Bills (CMBs)
Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash
Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government
Issued for maturities less than 91 days
Are also issued at a discount and redeemed at face value at maturity
3. Dated Government Securities
Long term securities and carry a fixed or floating coupon (interest rate) paid on the face value
Tenor of dated securities can be up to 30 years
The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry / depository of
Government securities and deals with the issue, interest payment and repayment of principal at
maturity.
4. State Development Loans (SDLs)
State Government raise loans from market
Issued through an auction similar to the auctions conducted for dated securities issued by the
Central Government
Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date.
Holding of Government Securities
Government Securities may be held in the form of:-
1. Physical Form:-
May be held in the form of stock certificates
A stock certificate is registered in the books of PDO.
They are transferred by executing a transfer form as the ownership and transfer details are recorded
in the books of PDO
2. Demat Form:-
Securities in the dematerialized or scripless form
The safest and the most convenient alternative to hold securities
Transfers and servicing are electronic and hassle free
Holders can maintain securities in dematerialised form through Subsidiary General Ledger Account
(SGL) & Gilt Account.
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Trading Platform
Till 2002, the Government securities market was mainly a telephone market. Buyers and sellers traded over
telephone and submitted physical Subsidiary General Ledger (SGL) transfer forms for transfer of the
Government securities. These manual operations were inefficient. Thus, the Reserve Bank of India took steps
to automate the process of trading and settlement of Government securities transactions and the Negotiated
Dealing System (NDS) was introduced in February 2002.
The Negotiated Dealing System (NDS) has two modules – one for the primary market and the other for the
secondary market.
1. Primary Market Module
Platform (NDS Auction) for auction of both, dated securities & treasury bills.
Allows participants to electronically submit their bids in the primary auctions and receive allotment
reports
2. Secondary Market Module
Generally traded on Phone
Can happen over-the-counter (OTC)
Parties need to inform trades on NDS, then data automatically flows to the Clearing Corporation of
India Ltd. (CCIL)
avoids paper based settlement process
Buyback of Government Securities
It is a process whereby the Government of India and State Governments buy back their existing
securities from the holders. The objective is to:-
Reduction of cost (by buying back high coupon securities)
Reduction in the number of outstanding securities
Improving liquidity in the Government securities market (by buying back illiquid securities)
Buyback can be done through an auction process or through the secondary market route, i.e.,
NDS/NDS-OM.
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Introduction A major new national program designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure
India has long been identified with red tapism, inspector raj and cumbersome rules and regulations that hinder smooth transaction of business. 'Make in india' campaign is a "lion's step" towards making the country a destination for global manufacturing.
HIGHLIGHTS
The campaign, 'Make in India' is aimed at making India a manufacturing hub and economic transformation in India while eliminating the unnecessary laws and regulations, making bureaucratic processes easier and shorter, and make government more transparent, responsive and accountable.
The government emphasized upon the framework which include the time-bound project clearances through a single online portal which will be further aided by the eight-members team dedicated to answering investor queries within 48 hours and addressing key issues including labor laws, skill development and infrastructure.]
This campaign basically gives hope to the unemployed to find a decent job if not big jobs as manufacturing leads to creation of lot of service sector activity. But India will have to make sure to focus on quality education rather than just skill development.
The government emphasized upon delicensing, deregulation and radical changes.
Make In India (Developing India into a Manufacturing Hub of the World)
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TAXATAION
•India's most ambitious indirect tax reform -Goods and Service Tax (GST) would replace existing state and central levies with a uniform tax, boosting revenue collection while cutting business transaction costs.
•The government will not ordinarily impose any tax retrospectively that will impose a fresh liability
LAWS
•The New Land Acquisition Act, 2014•Labour law reforms. •Exemption for firms employing up to 40 workers from compliance of labor regulations
•allow more trades to be included under the Apprenticeship Act
•Increasing the limit of overtime for workers from 50 hours per quarter to 100 hours per quarter
INFRASTRUCTURE
•Developing of more SEZ's,NIMZ's.
•Meet India's increasing energy demand.
•construction of more ports,roads,etc.
25 key sectors in
MAKE IN INDIA CAMPAIGN
1. Automobiles
2. Aviation
3. Auto components
4. Bio-technology
5. Chemicals
6. Construction
7. Defence Manufacturing
8. Electrical Machinery
9. Electronic system
10. Mining
11. Oil & Gas
12. Pharmaceuticals
13. Ports
14. Railways
15. Renewable energy
16. Roads & Highways
17. Space
18. Textile & Garments
19. Thermal Power
20. Tourism & Hospitality
21. Wellness
22. Food Processing
23. IT
24. Leather
25. Media & Entertainment
REFORMS
New Initiative
FDI
Intellectual Property Facts
National Manufacturing
Make in India - Policies
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Public Private Partnership:
The policy and regulatory frameworks (concession agreements) are well established; substantial scale-up in the last 5 years; opportunities for companies to venture as “Project Developers”.
Contractors/Consultants:
Opportunities from implementing agencies who will sub contract construction.
O&M Operators:
Substantial requirements of equipment, systems and software
Equipment suppliers:
Consistent demand of equipment due to mega infrastructure development across sectors; huge business potential for overseas players to enter the market.
Financing:
Attractive opportunities exist for Financial Institutions, Private Equity firms and private investors.
Opportunities across the value chain
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Investment risk is defined as the
probability or likelihood of occurrence
of losses relative to the expected return
on any particular investment.
Stating simply, it is a measure of the
level of uncertainty of achieving the
returns as per the expectations of the
investor. It is the extent of unexpected
results to be realized.
Risk is an important component in
assessment of the prospects of an
investment. Most investors while
making an investment consider less
risk as favorable. The lesser the
investment risk, more lucrative is the
investment. However, the thumb rule
is the higher the risk, the better the
return.
Simply put, risk management is a two-
step process - determining what risks
exist in an investment and then
handling those risks in a way best-
suited to your investment objectives.
Risk management occurs everywhere
in the financial world. It occurs when
an investor buys low-risk government
bonds over more risky corporate debt,
when a fund manager hedges their
currency exposure with currency
derivatives and when a bank performs
a credit check on an individual before
issuing them a personal line of credit.
Interest Rate Risk
•Interest rate risk is the possibility that a fixed-rate debt instrument will decline in value as a result of a rise in interest rates.
Business Risk
•Business risk is the measure of risk associated with a particular security , business risk refers to the possibility that the issuer of a stock.
Credit Risk
•This refers to the possibility that a particular bond issuer will not be able to make expected interest rate payments and/or principal repayment
Taxability Risk
•This applies to municipal bond offerings, and refers to the risk that a security that was issued with tax-exempt status could potentially lose that status prior to maturity.
Call Risk
•Call risk is specific to bond issues and refers to the possibility that a debt security will be called prior to maturity
Inflationary Risk
•inflationary risk is the chance that the value of an asset or income will be eroded as inflation shrinks the value of a country's currency
Liquidity Risk
•Liquidity risk refers to the possibility that an investor may not be able to buy or sell an investment as and when desired or in sufficient quantities because opportunities are limited
Market Risk
•Market risk is a risk that will affect all securities in the same manner. it is caused by some factor that cannot be controlled by diversification.
Reinvestment Risk
•In a declining interest rate environment, bondholders who have bonds coming due or being called face the difficult task of investing the proceeds in bond issues with equal or greater interest rates than the redeemed bonds
Social/ legislative
Risk
•Risk associated with the possibility of nationalization, unfavorable government action or social changes resulting in a loss of value is called social or political risk
Exchange Rate Risk
•Currency or exchange rate risk is a form of risk that arises from the change in price of one currency against another
Types of Investment Risks
Investment Risk Management
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Assessing Risk
It's one thing to know that there are risks in investing.
But how do you figure out ahead of time what those risks
might be, which ones you are willing to take, and which
ones may never be worth taking? There are three basic
steps to assessing risk:
Step 1: Determining the Risk of an Asset Class
The first step in assessing investment risk is to
understand the types of risk a particular category or
group of investments—called an asset class—might
expose you to. You can generally take steps to offset
those risks. You can generally take steps to offset those
risks.
Stock
Bonds
Cash
Step 2: Selecting Risk
The second step is to determine the kinds of risk you are
comfortable taking at a particular point in time. Since it's
rarely possible to avoid investment risk entirely, the goal
of this step is to determine the level of risk that is
appropriate for you and your situation.
Your decision will be driven in large part by:
Your goals and your timeline for meeting them
Your financial responsibilities
Your other financial resources
Step 3: Evaluating Specific Investments
The third step is evaluating specific investments that you
are considering within an asset class. There are tools you
can use to evaluate the risk of a particular investment—a
process that makes a lot of sense to follow both before
you make a new purchase and as part of a regular
reassessment of your portfolio.
Company Documents- Each public company
must register its securities with the Securities
and Exchange Commission (SEC) and provide
updated information on a periodic basis.
Rating Services- It's important to check what
one or more of the independent rating services
has to say about specific corporate and
municipal bonds that you may own or may be
considering. The higher the letter grade a rating
company assigns, the. The higher the letter
grade a rating company assigns, the lower the
risk you are taking.
Also remember that managing investment risk
doesn't mean avoiding risk altogether. There might
be times when you include a lower-rated bond or
bond fund in your portfolio to take advantage of
the higher yield it can provide.
Research companies also rate or rank stocks and
mutual funds based on specific sets of criteria.
Managing investment risk There are various ways to manage investment risk,
but the two most basic are: investing as far ahead
as possible and diversification.
By investing money you can afford to lock away
Money invested in shares, bonds and property will
rise and fall in value. However, the value of your
investment is more likely to rise over time if you
commit to investing for a period of years – though
this isn’t guaranteed. Long-term investors may be
able to ride out any market falls without their
ultimate investment goals being affected
By diversifying
Diversification is the key to successful investing. It
means spreading risk. It’s the equivalent of not
putting all your eggs in one basket. You can divide
risk into various types
Asset Allocation- The first step in
managing risk is to practice asset
allocation. This means having your money
in a variety of asset classes, which include
cash, stocks, and bonds. Doing so is a
protective measure – typically when stocks
are doing well, bonds aren’t, and vice
versa.
Diversification- After you spread risk by
investing in different asset classes, you can
manage it even further through
diversification. There are many different
types and classes of stocks and bonds –
some are much more risky (but with the
potential for greater reward) than others.
Dollar Cost Averaging- Dollar cost
averaging is another way of managing
investment risk, and nothing can be
simpler to do.
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The Indian Finance Minister P. Chidambaram while announcing the Budget 2013-14 introduced TDS on
Property @ 1% on all Immovable Property Transactions over Rs. 50 Lakhs under Section 194IA.
Overview of Section 194 IA (only applied in case of Resident seller**)
** In case on non-resident sellers Section 195 is applicable.
Buyer has the option to deposit the TDS deducted on property online or offline through banks. Under this
section tax should be deposited on challan-cum-statement in Form No.26QB. Form No 16B (TDS
Certificate) is issued by the deductor within 15 days from the due date of depositing tax.
Buyer should issue Form 16B to the seller of the property in respect of TDS deducted & deposited.
Payment must be deposited with the Government, by the buyer within a period of 7 days from the end of the month in which TDS was deducted.
Buyer shall furnish all Details regarding transaction and TDS on such immovable property in Form 26QB and submit it at the time of payment
Buyer shall deduct TDS at the time of making payment
@ 1 % if seller provides PAN @ 20% if the seller does not provide PAN
If Sells an Immovable Property (Other than Agricultural land) for a value of more than or equal to 50 lakhs
Seller
Section 194 is
applicable if
IF sale agreement is entered on or after
01/06/2013
Consideration is equal to or more than Rs 5,00,000
If sale agreement is entered after 01/06/2013
Advance of 50,00,0000 or more is received before
01/06/2013
TDS on Immovable Property other than
Agricultural Land (Section 194 IA)
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TDS ON AMOUNT PAID IN INSTALLMENTS
As per Section 194IA, TDS is to be deducted at the time of payment.
The date of transfer is not relevant as TDS is not required to be
deducted at the time of transfer but is required to be deducted at the
time of payment. Therefore, irrespective of the date of transfer, the
TDS is required to be deducted at the time of payment. So even if
advance payment is being made, DS would be required to be
deducted. Moreover, in case the payment is being made in
Instalments to the Seller, the TDS would be deducted at the time of
paying each instalment.
MORE THAN 1 BUYER OR 1 SELLER
In case there is more than 1 buyer and the individual purchase price
of each buyer is less than Rs. 50 Lakhs, but the aggregate value of the
transaction exceeds Rs. 50 Lakhs, Section 194IA would be applicable
and the TDS on Property would be required to be deducted and
deposited with the govt before the due date.
Similarly, if there is more than 1 seller and the individual sale price
of each seller is less than Rs. 50 Lakhs, but the aggregate value of the
transaction exceeds Rs. 50 Lakhs, Section 194-IA would be
applicable and TDS would be required to be deducted by the buyer at
the time of making the payment to the seller.
EFFECTS OF SECTION 194IA ON REGISTRATION
OF IMMOVABLE PROPERTY
The Revenue Authorities and the registration authorities taking
cognizance of provision of Section 194IA shall refuse to register the
document for transfer of the immovable property unless the challan
for depositing the tax at source u/s 194IA is produced before it.Hence
it is better if one deducts tax if the total consideration value is in
excess of Rs. 50 lakh.
Non- Compliance
TDS not deducted/Shortly deducted
•Interest will be [email protected]% pm•From the date of deduction till the date when it is actually deduched
TDS deducted but not paid to government
•Interest will be [email protected]% pm •From the date of deduction till the date when it is actually deducted
RETURN FILING UNDER
SECTION 194IA
Form 26QB is equivalent to return
filing as it constitutes all necessary
details of TDS deducted by the
buyer.It is a challan-cum-statement of
deduction of Tax under section 194-
IA.
KGS
Newsletter Title Page 1
Introduction In India one has to estimate his income during the financial year. If your projected tax liability of the current financial year is more than Rs. 10000 you are supposed to pay advance tax as per section 209 of the Act. This has to be paid in three installments. 30 % by 15th September, 60% minus first
installment by 15th December and 100% minus 2nd installment by 15th march. If
one forget to pay he is liable to pay interest @ 1% p.m. On computation of
income and taxes to be filled in the Return if advance Tax or by way of TDS fall
short of the Actual Tax Payable, the shortfall so determined is payable before filing
the Return of Income.
Who should file it?
If you are salaried, you need not pay advance tax as your employer deducts tax at source (TDS). However, you still need to file it if you have other sources of income, increasing your liability to more than Rs. 10,000. Professionals (self-employed) and businessmen will have to pay taxes in advance as, given their business income, the liability can be huge. The same goes for companies and corporates.
When to file advance tax?
Advance tax or self-assessment taxes have to be paid on the 15th of September, December and March, in installments of 30 per cent, 30 per cent and 40 per cent, respectively, for non-corporates. Corporates need to pay it on the 15th of June, September, December and March. While employers deduct TDS on salaries, advance tax is paid on income that has not been subjected to TDS.
Advance tax is payable by the taxpayer during the tax year if the estimated taxes (net of taxes withheld) exceeds INR 10,000. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source.
Payment of Advance Taxes of Income Tax - Individual/Firms:
1st Payment of 30% - 15th September 2nd Payment of 60% - 15th December 3rd Payment of 100% - 15th March
Payment of Advance Taxes of Income Tax - Companies:
1st Payment of 25% - 15th June 2nd Payment of 50% - 15th September 3rd Payment of 75% - 15th December 4th Payment of 100% - 15th March
In case of default in filing of a tax return, interest is levied on the amount of unpaid tax at the rate of 1 percent for every month or part thereof during which the default continues and is payable along with the self-assessment tax before filing of the tax return. In case of default in payment of advance tax, interest is levied on the shortfall of advance tax and the deferment of
Advance Tax
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Newsletter Title Page 2
advance tax at the rate of 1 percent for every month or part thereof, during which the default occurs. Such interest is payable before filing of the tax return.
Further, a resident senior citizen, not having any income from a business or profession, shall not be liable to pay advance tax (applicable from tax year 2012-13).
Consequences of Non-Payment:
The Income Tax Act provides for charging of interest for non- payment/short payment/deferment in payment of advance tax which is calculated as below: (i) INTEREST U/S 234A: For late or non-furnishing of return, simple interest @ 1% for every month or part thereof from the due date of filing of return to the date of furnishing of return, on the tax as determined u/s 143(1) or on regular assessment as reduced by TDS/advance tax paid or tax reliefs, if any, under Double Tax Avoidance Agreements with foreign countries. (ii) INTEREST U/S 234B: For short fall in payment of advance tax by more than 10%, simple interest @ 1% per month or part thereof is chargeable from 1st April of the assessment year to the date of processing u/s 143(1) or to the date of completion of regular assessment, on the tax as determined u/s 143(1) or on regular assessment less advance tax paid/ TDS or tax reliefs, if any, under Double Tax Avoidance Agreements with foreign countries. (iii) INTEREST U/S 234C: For deferment of advance tax. If advance tax paid by 15th September is less than 30% of advance tax payable, simple interest @ 1% is payable for three months on tax determined on returned income as reduced by TDS/TCS/Amount of advance tax already paid or tax relief, if any, under Double Tax Avoidance Agreement with forgiving contribution. Similarly, if amount of tax paid on or before 15th December is less than 60% of tax due on returned income, interest @ 1% per month is to be charged for 3 months on the amount stated as above. Again, if the advance tax paid by 15th March is less than tax due on returned income, interest @ 1% per month on the shortfall is to be charged for one month.
KGS
Introduction
The manufacturing sector is back in fashion and is seen by Government as playing a vital role in rebalancing the
economy in the wake of the financial crisis. The sector is a broad church covering a wide range of industries with
companies of all sizes from large multinational groups to owner- managed businesses. It is also very important
to the Indian economy both nationally and at regional level, not least because it plays a significant role in
generating employment.
Four Flags for the Manufacturing Sectors Flag 1: Manufacturing: A roller-coaster sector
Successful manufacturing businesses need to take risks and hold their nerve in good and bad times. For many manufacturing businesses it can often seem like riding a perpetual roller coaster as they face the following challenges:
• competition and keeping pace with the changing demands of international markets through innovation and research to maintain the business’s competitive edge;
• managing their supply chains for production materials and energy by continually testing their understanding of the complexities of the supply chain and whether their contingency plans are adequate and up to date to deal with problems that can suddenly arise;
• having the right people with the right business and manufacturing skills to produce up-to-date products; and
• Developing good, reliable management information and IT systems that are it for purpose and match the requirements of the company.
Flag 2: Funding for growth
The difference between manufacturing and other sectors is that the amounts of money involved are often much greater. It needs a great deal of faith, commitment and good communication. From management and providers of finance to ride out the less good times in the economic cycle by constantly thinking ahead on liquidity, solvency and financial control. For smaller companies issues around finance are very often their top priority especially as finance has become more difficult to obtain. When it is available it is often at higher margins and with tighter covenants. To reduce dependence on financing options such as leasing, awareness of the range of funds and grants that are available from the Indian Government.
Flag 3: Attracting, retaining and rewarding people
Manufacturing businesses must to be driven by people
who, collectively, have business as well as
manufacturing skills. In some smaller companies
finding the right combination of these skills can be a
challenge; as is succession planning to ensure that
knowledge and skills are passed on as experienced
people retire. Countries such as Germany often place
great importance on skills so the India really needs
more training and apprenticeships to attract younger
people into high-value manufacturing.
Flag 4: Management information And IT
systems
New IT systems that have not been properly designed
or implemented cause potentially costly problems and
disruption for production as well as for the accounting,
billing and costing systems. Costing of discrete
products and long-term contracts is Key to success in
the manufacturing sector and clarity on actual and
projected costs is needed to avoid incorrect pricing. On
larger and long-term contracts, where there can be
huge uncertainty and risks, companies really do need to
ensure they know what the extras are, split between
those that the company can, and cannot, subsequently
Invoice. In some small to medium-sized enterprises
(SMEs), the tracking or recording of costs is often not
particularly sophisticated possibly caused by old IT
systems which have been expanded by bolting on sub-
systems.
Manufacturing Sector & its Audit
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Definition of manufacturing process as per Law
It includes those process of:-
(i) making, altering, repairing, ornamenting, finishing, packing, oiling, washing, cleaning, breaking
up, demolishing, or otherwise treating or adapting any article or substance with a view to its use
sale, transport, delivery or disposal, or
(ii) pumping oil, water, sewage or any 3 , other substance; or]
(iii) generating, transforming or transmitting power; or
(iv) composing types for printing, printing by letter press, lithography, photogravure or other similar
process or book binding
(v) constructing, reconstructing, repairing, refitting, finishing or breaking up ships or vessels;
(Source: Factory Act, 1948)
General Procedure for Audit of a Company 1. Opening balances verification: First collect the
opening balances report from the management and verify whether the opening balances have been carried forward correctly from the previous year audited financial statements.
2. Vouching For Purchases: Ask about the purchase procedure and draw a flowchart which is very relevant for your understanding while carrying audit. Compare the Purchase Voucher with the Taxable Invoice received from the seller and Material Received Note (MRN) to confirm that whether quantity; amount is tallied or not. Also check whether the rate of material on Invoice tallies with Purchase Order (P.O) raised by the company and check whether the date on MRN is relating to the current period.
3. Vouching of Journal Vouchers (JV), Tour Bills & Cash and Bank: Verify whether the supporting bills tallied with the JV’s and that expenditure relating to the current period. While verifying the JV’s ensure whether the TDS was deducted wherever applicable. For Vouching of Tour Bills the company should maintain their tour policy, ask the management for tour policy. Verify whether bills are as per the limits set for the designation in policy. For Vouching of cash verify whether any cash payments are exceeded Rs.20, 000/- (Sec. 40A (3)) and also check for credit balances in cash. Also go to surprise verification of cash. Verify whether the Bank Reconciliation Statement (BRS) is tallied.
4. Reconciliation: During the course of audit reconcile the following:
VAT returns with purchase and sales
Provident fund (PF)
Professional Tax (PT)
Employee State Insurance (ESI) The above said statutory payments are majorly applicable to all the companies, and all other like TDS, Excise etc., also have to be reconcile.
5. Miscellaneous:
Rental Agreements: Verify whether Rent paid is as per the Rental Agreement. Also check whether Rental Agreements are updated.
PAN No.s of Contractors: Checked whether the company is maintaining Photocopy PAN cards for contractors because from the AY 11-12 onwards every company has to maintain PAN No. persons who comes under TDS applicability for that company. Otherwise Straight away deduct the TDS @ 20%.
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Audit of Manufacturing Companies
1. Understand the entity operation :- First step for conduct audit of manufacturing companies is to take a
knowledge of client operation from Beginning ( Raw Material ) to End ( Finished goods).Take a Brief
knowledge about what the entity is producing, How is produced. For conducting the audit of
manufacturing companies understanding of its Production chain, Supply chain is necessary.
2. Make a Checklist of the Section Applicable to the particular Industry: - There are many statues which
are applicable to the manufacturing entity an auditor should make a checklist for the same and check
the compliance of individual law. Some of the statues are :-
(a) Factories Act 1948
(b) Provident Funds and Miscellaneous Act,1952
(c) Employees’ Pension Scheme
(d) Employees' State Insurance Act, 1948 (e) Minimum Wages Act
(f) Payment of Bonus Act
(g) Payment of Gratuity Act,1972
(h) Workmen’s’ Compensation Act
3. Check payment of Various Statutory Dues: - Check Whether the payment of statutory dues has been
paid by Company in timely and regular basis and the Return regarding these dues has been finally
submit. Auditors should check the Booking of Various Dues through Journal Voucher and Payment
should be check through challans and also check the payment has been made as per the Return. There
are various Statutory dues for which payment challans and Return should be check some of these are :-
(a) Income Tax as per Income Tax Actl,1961
(b) Service Tax ( In case applicable )
(c) Excise Duty and Customs and Various other duty.
(d) ESI/EPF
(e) Other Dues applicable to Entity.
4. Maintenance of Books/Register as per CBEC: There are various Books /Register which must be
maintain by a manufacturing entity as per the statutory requirement. Such as RG1, RG23 as required
by the Central Board of Excise and Customs.
5. Disposable or Sale of Scrap : Special Consideration should be on the sale of Scrap check whether the
scrap is sale or Dispose as per the legal requirement or whether the payment of TCS has been made as
per the Income Tax Act,1961 .
KGS
Contact Name E-mail Mobile Mr. Anuj Somani [email protected] +91 9871098777 Mr. Bhuvnesh Maheshwari [email protected] +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
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.
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