SIP interim report.- Abhishek doc.doc

ICFAI BUSINESS SCHOOL, MUMBAI

Optimization of Accounting & Financial process of a Construction CompanyGrace Group of CompaniesAbhishek Kacharia

2008-10

summer internship program

A REPORT ON OPTIMIZATION OF ACCOUNTING AND FINANCIAL PROCESS FOLLOWED IN A CONSTRUCTION COMPANY

Submitted to:Dr. G.C. Nag Faculty member ICFAI Business School

Submitted to:Mr. Naved Patel Accounts Manager Grace Group of Companies

Submitted by: Abhishek Kacharia 08BS0000111


Page 2

ACKNOWLEDGEMENTI wish to acknowledge my indebtedness to my project guide Mr. Naved Patel, Accounts Manager, Grace Group Of Companies and faculty guide Dr. G.C.Nag, ICFAI Business School, Mumbai without whose sincere guidance and support this project would not have been a success. Thanking them is a small gesture of generosity shown. Im also extremely grateful to Mr. Sameer and Mr. Anand (Accounts Executives, Grace Group of Companies) for helping me and providing me useful information. By interacting with them I learnt important and useful business tips which will help me in a long way in enriching my career. Finally, I take this opportunity to thank the entire senior executives team and every associate of Grace Group Of Companies, who have helped me directly and indirectly during this period of project preparation.

DECLARATIONICFAI BUSINESS SCHOOL, MUMBAI Page 3

I do here by declare that this project is submitted as a part of my summer internship program for the MBA program from ICFAI Business School, Mumbai. The project has been done under the able guidance of Mr. Naved Patel (Accounts Manager, Grace Group Of Companies) and Dr. G.C.Nag, faculty member of ICFAI Business School, Mumbai. This project has not been submitted elsewhere for any award or any degree.

Date:

___________________ Signature of the Student

TABLE OF CONTENTSICFAI BUSINESS SCHOOL, MUMBAI Page 4

Abstract .6 Grace Group of Companies- A Detailed Account7-9 Introduction 10-12 1. Purpose, Scope, & Limitations 2. Sources & Methods Main Text13-151.

Observation of the Company

2. Observation of the accounting system followed The Accounting Process followed16-27 1. Voucher Preparation 2. Cheque Preparation 3. Posting in Passbook 4. Posting in Tally5.

TDS deduction from contractors, suppliers, & professional fees,

6. Making e-TDS payment, 7. Filing TDS return, & 8. Finalization of Accountsa.

Profit & Loss AccountTo be covered in final project.

b. Partners Capital Account c. Balance Sheet

Analysis & Interpretations.27-31 a. Du Point AnalysisICFAI BUSINESS SCHOOL, MUMBAI Page 5

b. Economic Value Added Analysis Findings32 Conclusions ..33 RecommendationsTo be covered in final report. 34

References .35 Glossary .36


Page 6

ABSTRACT OF THE WORK TILL DATEAs James Cash Penny very rightly said, It is always the start that requires the greatest effort. So is the case with me as I being a fresher entered the corporate world and found it very different from the world of classroom. Since the first day when I started my internship, till this day I have ceaselessly but unremittingly kept on imbibing and garnering the basics of the construction company, the company structure, its method of maintenance of books of accounts, etc. At this point I feel its very fundamental to acquaint to the reader that the very chief objective of my project was to analyze the accounting and financial process followed in a construction company and also sound maintenance of books of accounts which in turn will help the company in maintaining financial stability as well as find out the best company from its bunch of companies. Going strictly as per the schedule I started my project with finding out the type of accounting methodology adopted by the company. Then I started off with preparing vouchers and cheques for the transactions. After getting the very primary knowledge of the initiation of the accounting process I jumped to make the entries of those transactions into the company passbook. As my project is mainly based on observation, interaction so to work more precisely on my project topic I learnt Tally Accounting Package from one of executives at the company. Doing everything on computer rather than manually as in classroom was a very different experience. After getting conversant with Tally I started to learn about the transactions between the suppliers, professional service providers, and the company. For example how the tax were deducted at source, at what rate, etc. and most importantly how these were paid through electronic media and also their filing with the Income Tax Authority.


Page 7

GRACE GROUP OF COMPANIES A DETAILED ACCOUNTThe Grace Group of Companies is a premier construction company in the city of Mumbai. The company was established in the year 1989 by the promoter Mr. Parvez S Lakdawala. The company is a partnership firm registered under the Indian Partnership Act 1932. Moreover the company has 37 sub-companies under its name. The company is very famous with its projects going in Mumbai as well as in places adjoining Mumbai like Lonavla, Panchgani, etc. The company is into building new apartments as well as developing the slums and rehabilitating the slum dwellers. The company makes commercial as well as residential buildings at very posh areas of Mumbai. Lets have a look at the track record of the company.

COMPANYS TRACK RECORD Projects God Gift Tower Grace Apartment Sadanand Classic Ayesha Manor Razia Manor Reminess Grace Classic Shams Palace Murli Govind Anand Sagar Bemisal Residential/Commercial Resi/Comm. Residential Residential Residential Residential Residential Residential Resi/Comm Residential Residential Resi/Comm Location S.V. Road, Bandra Almeida park, Bandra Off Linking Road, Bandra Almeida park, Bandra Almeida park, Bandra Almeida park, Bandra Ahimsa Marg, khar Hill Road, Bandra Off Linking Road, Bandra Station Road, khar Andheri East Completion Year 1999 2000 2000 2001 2001 2002 2002 2002 2003 2003 2003Page 8


Grace Residency Aradhana Sheetal Palace Neel Mahal Grace Heights

Residential Residential Residential Residential Residential

21st Road, khar Bandra Station Almeidapark,Bandra 25th Road, Bandra Alibhai Premji Marg, Grant Road

2003 2004 2004 2006 2006

PROJECTS UNDER CONSTRUCTION Projects Prima Villa Queenie Jawaharabad Grace Heritage Grace Plaza Gildana Ann Villa Location 7th & 8th Road, khar 16th Road, Bandra Almeida Park, Bandra Kit-Kat wadi, Guru Nanak Park, Bandra MIDC, Andheri East 29th Road, Bandra 30th Road, Bandra Completion expected by March 2008 March 2008 March 2008 March 2008 March 2008 March 2008 March 2008

PROJECTS UNDERTAKEN Location Tadwadi, Mazgaon Tulsiwadi, Mazgaon Taha Co-op Hsg Society, Byculla S.V. Road, Bandra Jalsagarika, Carter Road Vertical Towers, 1st Road, BandraICFAI BUSINESS SCHOOL, MUMBAI

Total area being developed 800000 sqft 70000 sqft 50000 sqft 20000 sqft 25000 sqft 30000 sqftPage 9

16th Road, Bandra Manish Nagar, Bldg No.21 Andheri (W) Village Valani, Malad

23000 sqft 48000 sqft 99000 sqft

PROJECTS UNDERTAKEN UNDER THE SLUM REHABILITATION SCHEME Projects Malad, Mahakali Nagar 1155 tenants Andheri Tape Village, 135 tenants Sanyukt Ekjut Griha Nirman Sanstha, Wadala, 445 tenants Durgamata CHS, Prabhadevi, 29 tenants Area to be developed 600000 sqft. 200000 sqft. 250000 sqft. 30000 sqft


Page 10

INTRODUCTION

PURPOSE, SCOPE & LIMITATIONS:Everything happens with a reason and a purpose, and it serves you., so was my project having a very firm reason and purpose which was aimed at serving the organization as well as me as an experience. The focal point of my project was to analyze the accounting and financial process followed in the company. Now this immensely depends on your educational background as I being a B.Com graduate was able to analyze it more acutely. The purpose further extends to maintenance of books of accounts in a very apposite manner. Maintaining proper books of accounts will help the company in analyzing the true income and also help in maintaining its financial position as firm and strong as possible. Now if I visualize my project to be a structure then its pretty clear that in order to raise a structure one needs to layout its groundwork first because it is the aspect of supreme importance without which no superstructure can permanently last. Likewise my project on analyzing the accounting and financial process of the company largely and immensely depend upon how acutely I get into the company structure, the method of accounting followed in recording the transactions of business . For this thing I used substantial amount of my tenure in studying some documents of the company which were of help to me. Regarding the scope of the project I was briefed by my company guide on day one, during that session a well planned schedule was chalked out by the duo. 1. I suggested that first of all I should study the structure of the company and the method of accounting followed by the company. 2. Preceding the above my company guide suggested that I should the start of as follows:a. Learning voucher preparation, b. Learning cheque preparation, c. Posting of transactions in passbook, d. Posting of transactions in Tally, e. TDS deduction from contractors and suppliers, f. Making e-TDS payment, g. Filing TDS return, &ICFAI BUSINESS SCHOOL, MUMBAI Page 11

h. Finalization of Accounts, i. ii. iii. Profit and Loss Account, Partners Capital Account, & Balance Sheet.

As far as limitations are concerned, I faced quite a number of adversities and problems during the tenure of my project. There were whole lot of things to study in detail but the time was not permitting as such time was a big constraint. Even the company did not deal in some important matters like Value Added Tax (VAT) so the exposure relating to VAT was missing. There was as such no exposure relating to Service Tax. As the group is a partnership firm so they dont deal in Provident Fund, so knowledge relating to that was also very limited. SOURCES AND METHODS:Naved Patel, my respected company guide, was the sole source of everything which was important for my easier-said-than-done project to materialize. He guided my footsteps whenever and wherever I stumbled on the way to my objective. Available at my disposal were the data fed into the Tally accounting package as well as the Partnership deeds. I used to study for long hours the data in the Tally Package to extract as much as basic knowledge for my project. I also used to study the partnership deeds and the sale deeds to get into the intricacies of the suggested topic. Interaction with the other executives at the accounts department also helped me a lot. The project is mainly considered with maintaining of books of accounts, so the methodology is mostly related to observation method. By observing the book of accounts I can make adjustments to reduce the expenses and increase the revenue thereby. Doing the above adjustment will also result in strengthening the financial position of the individual companies and also of the group as a whole.


Page 12

The methodology of the project will also include interaction with the other officials working in the Accounts Department so as to elicit and gather more knowledge and information regarding my project.

In a nutshell, the method of my project was mainly interaction with the accounts officials and observing how the accounting treatment of the business transactions was done. During the project I was also given a golden opportunity to learn Tally which helped me a lot in the project. I used to make entries in Tally and find out various ratios.

MAIN TEXTThis place under the heading main text is the most appropriate place for me to pour my heart out and acknowledge my observation with due integrity and earnestness. Here I have made up my mind to discuss my observation work, including the sessions of interaction with the accounts executives, their suggestions, at length. I have segregated the different aspects of the observation into different sub headings. I commence with the discussion about: OBSERVATION OF THE COMPANY I first went through the structure and function of the company whos over all ambiences was aesthetically maintained. In process I came to know the rationale behind the posters of building projects which were displayed across the company premises. After observing the company meticulously I went to those particular places wherein different employees were stationed to cater to the various needs of people coming in. I tried to elicit the information as to which part or the aspect of the business activity is taken care of by whom. Person in charge of welcome desk, for an instance, was conferred with the responsibility of greeting the people dropping in, addressing the grievances relating to the tenants, etc. Similarly I gradually got to know about the roles and duties of Accounts Executives, the Legal Advisor, Accounts Manager, Company Head, etc. A brief amplification of the roles and the functions of the various employees will be a welcome step here.ICFAI BUSINESS SCHOOL, MUMBAI Page 13

1. Accounts Executives: These people are the backbone of the Accounts Department. They

are mainly concerned with the day to day recording of business transactions and maintaining and keeping the books of accounts up to date. They act as assistants to the Accounts manager in the department. They also look after the entire back office job of the accounts department.

2. Legal Advisor: The legal advisor is the main legal person of the company. He looks after the legal works. Mainly he looks into all documentation and cases relating to small causes with the tenants as well cases of concerned with the MCGM like obtaining NOC, etc. 3. Accounts Manager: He is the head of accounts department. All the executives report under him. He looks and supervises the work of the accounts executives.4. Company Head: A Company Head is the alpha and omega of the entire company. He is the

person with absolute authority and responsibility who is expected to be a jack of all trades for in case the team deviates from the target set he provides them with the required direction.

OBSERVATION OF THE ACCOUNTING SYSTEM FOLLOWED: Accounting is nothing but systematic recording, reporting, and analysis of financial statements of a business. As such accounting is called the language of business. In my B.Com days I have learnt that there are types of methods of maintenance of books of accounts. They are namely: 1. Cash basis, 2. Mercantile or Accrual basis,&3. Hybrid or Mixed basis.

At this point, I think it is very necessary to describe all three and then decide which method the company follows. Under the cash basis of accounting, transactions are recorded in the books when cash actually changes hands, meaning when cash payment is received by the company from customers or paid out by the company for purchases or other services. Cash receipt or payment can be in the form of cash, cheque, credit card, electronic transfer, or other means used to pay for a transaction. With the cash-basis accounting method, the business only records the purchase of supplies or goods that will later be sold when actually cash is paid. If the business buys goods onICFAI BUSINESS SCHOOL, MUMBAI Page 14

credit to be paid later, it doesn't get recorded as a transaction until the cash is actually paid out. Cash basis of accounting is good when it comes to tracking the cash flow in the business but it becomes ineffective while matching the revenue with the expenses. For example supplies purchased in this month but are sold in next month, so here the matching principle becomes ineffective.

Whereas under the accrual basis of accounting we record all transactions in the books as and when they occur, even if no cash changes hands. For example, if you sell on store credit, you record the transaction immediately and enter it into an Accounts Receivable account until you receive payment. If you buy goods on credit, you immediately enter the transaction into an Accounts Payable account until you pay out cash. Under the accrual basis accounting, revenues and expenses are recognized as follows: Revenue recognition: for recognizing revenue two conditions are needed to be met. a) Revenue is actually earned, & b) Revenue is realized or realizable. Revenues is actually earned when goods or services is sold whereas revenue is realized when cash is received. Revenue is realizable means that it is reasonable to expect that cash will be received in the future. Expense recognition: expense is recognized in the same period when the related expense is recognized. So we can say that accrual basis of accounting is good when it comes to cash flow tracking and also following the Matching Principle. The Hybrid or Mixed basis as the name suggests is mix of both the bases. Grace Group of Companies follows the accrual system of accounting in its daily business for recording the transactions. As the company is a mid-sized business and it is needed to keep anICFAI BUSINESS SCHOOL, MUMBAI Page 15

accurate picture of the companys profitability on a regular basis, so accrual basis helps in this sense a lot. A few of the additional benefits of accrual basis are as follows: Greater focus on the business output, not the input; More cost-effective and efficient use of resources; The full cost of providing your product or service can be compared across industry standards; Improved accountability and better financial management, just to name the most common.

The company records the revenues matching it with the expenses in the same period of occurrence. This helps to give a true and fair picture of the business income and also the financial position which in turn help the senior executives to plan out schedule for further investment and retention.

THE ACCOUNTING PROCESS FOLLOWED

VOUCHER PREPARATION: Every accounting process starts with preparation of vouchers. Vouchers or Journal vouchers or General vouchers as called with different names are just a document or a proof that will be recorded in the accounting system. A typical voucher has the following items to be filled: Company name, Account head of the party with whom the transaction is to be carried on, Date, A short narration of the transaction, Amount of the transaction, Bank,(with which the transaction will be carried on in case of bank transactions) Cheque number, Name of the person preparing it, Name of the person passing it, &Page 16


Name of the person approving it. Generally vouchers are of two types namely: Debit voucher, & Credit voucher.

A debit as the name suggests represents the amount lenders, suppliers, or factors owe to business or it can be said as the amount which leads to increase in assets or decrease in liability. As such a debit voucher is prepared whenever any transaction is to be carried on with the supplier to supply materials. A debit voucher indicates amount to be paid by the business which represents

decrease in liability. A debit voucher is again segregated into cash and cheque vouchers used specifically for the kind of transactions. In similar lines a credit represents the amount business owes to others or it can be said that credit represents increase in liability or decrease in assets. As such a credit voucher is prepared whenever we are to receive some amounts from others on credit thereby increasing our liability. It represents an amount of loan taken. To make it simpler the company has again segregated the vouchers into different colors, for instance the debit vouchers are colored red, and the credit vouchers are colored yellow. Further the cash debit vouchers are colored green. For example as the group has 35 sub companies under its name, so in case if there is any internal transfer of funds from one company account to the other company account within the group then both red debit and yellow credit voucher are prepared. The company account from where funds are transferred represents the red debit voucher and similarly the company account receiving the funds is represented by the yellow credit voucher. In a nutshell a voucher is an authorization of any transaction. It serves in audit trail, as all the information regarding a particular transaction is available. It is also used as a future reference. CHEQUE PREPARATION: Next comes in the sequence is cheque preparation. A cheque is a negotiable instrument which consists of an order to the particular bank to pay the mentioned amount to the mentioned person. After the voucher for a transaction is authorized, then the cheque is prepared. A cheque usually consist the following things:


Page 17

Drawee i.e. the person in whose name the cheque is drawn, Drawer i.e. the person who draws the cheque, Amount payable, Transaction date, Bank name, & Cheque serial number.

Cheque is of two types namely: Bearer cheque, & Crossed or Account Payee cheque.

Bearer cheques are those in which the payment can be made to anyone who produces the cheque to the bank teller. In other words this kind of cheque has no security. On the other hand crossed cheques are more secured as they are paid only to the person whose name is written in the cheque. To cross a cheque one just have to make two cross lines at the upper left edge of the cheque and also write the words, A/C Payee. A cheque can also be endorsed. Endorsement of cheque refers to transferring the ownership of cheques. This can be done by simply writing on the back of the cheque, Endorsed to Mr. .. and also the endorser has to sign below it. The party to whom the cheque is endorsed is called the endorsee and the person endorsing it is called the endorser. Whenever the company receives cheque payments it prepares deposit slips to keep a more detailed track of the cheque. Deposit slips are issued to the company by the same bank which has issued the cheque book. A pair of deposit slips is prepared for every transaction, of which one is submitted with the bank and the other is kept with company for future reference. POSTING IN PASSBOOK: Third in the sequence comes the step of posting the transactions manually in the passbook of the company. The company also maintains its own manual passbook where all the transactions are entered as and when they occur. This is maintained so as keep a strong proof as such a proper documentation of transaction. This is also used as a future reference.


Page 18

Posting in the company passbook is very different to the method followed by the banks to record the transactions in the bank passbook. A passbook is available at the stationeries shop. A passbook has following columns: Serial number: here the serial numbers of transactions are recorded. Date: here the date of the transaction taking place is recorded. Cheque number: here the cheque number through which the transaction has taken place is recorded. But in case if the transaction is done through cash then the space is left vacant. Moreover in cases when the transaction is directly done through e-banking facility then this particular space is filled with e-banking Particulars of the transaction: particulars refer to the short narration of the transaction i.e. the detail of the transaction. Withdrawal: this column is for writing the amount of funds withdrawn i.e. if payment is made to somebody then it is recorded in this column.

Deposit: this column records the amount of funds which have come in the company account. Balance: this column record the amount of balance i.e. deposits less the withdrawals. Sometimes it so happens that the passbook also shows negative balance which shows that the amount of withdrawals are more than the amount of deposits. The method of recording transaction in company passbook is just the opposite of the way the bank record in their passbook. Lets take for example a transaction: The company deposits Rupees ten lacs cheque in some bank. The implications of the transaction for the company as the deposit of the cheque results in decrease of funds with the company on hand so the company in its passbook will record the ten lacs amount in the withdrawal column and the particulars column will be filled with By bank. Whereas if the implications of the transaction are looked for the bank then its a deposit for the bank as such the bank will record this transaction in their deposit column as this result in the increment of funds with the bank. Such is the process of recording transactions in the company passbook. Passbook is updated on a weekly basis. To match the balance as per passbook and the balance as per bank statement we also prepare reconciliation statement. A reconciliation statement as theICFAI BUSINESS SCHOOL, MUMBAI Page 19

name suggests that it deals with the matching of balances as per passbook and balance as per bank statement. For example, sometimes bank charges are not recorded in the passbook then they are reconciled with the bank statement and recorded in the passbook. POSTING IN TALLY: Next in the sequence is posting of transactions in Tally. Tally is an accounting package. Here all the transactions of business can be recorded. How to work in Tally? To start with Tally first of all we have to create a company. To create a company we have to give information like company name, mailing address, statutory compliance for state, currency

symbol, method of maintenance of accounts whether with or without inventory, financial year beginning from, books beginning from, other base currency information. After the first step of company creation is done then we jump to the next step of feeding the data into the Tally package. Then we need to create master files and enter the data for account information. Under this we create ledger account of individual account head. Then we also decide on the voucher types. When u click the option voucher types a list of choices come up like debit note, credit note, contra, physical stock, delivery note, memorandum, purchase order, sales order, rejections in, rejections out, stock journal, etc. Further we need to create the inventory information which includes creation of inventory groups whether single or multiple, creation of stock items same single or multiple, then deciding upon the unit of measurement of stock. Then we need to create transaction files. This includes preparation of accounting vouchers and inventory vouchers. Accounting vouchers is of two types i.e. receipt and payment vouchers. Receipt vouchers are prepared whenever there is a transaction for receipt of something and payment vouchers are prepared whenever there is transaction of payment. In the inventory voucher there is stock journal and physical stock taking. Stock journal refers to making stock details in the journal as per the BOM i.e. the Bill of Materials. Whereas physical stock taking refers to physically counting the amount of stock and the entering the details in the journal.ICFAI BUSINESS SCHOOL, MUMBAI Page 20

After we feed all the data into the Tally package then we view reports which Tally prepares like as follows: Balance Sheet, Profit and Loss Account, Stock summary, & Ratio analysis.

Tally gives full summary about the stock or inventory as it provides detail about the following: Godown summary, Movement analysis, Physical stock register, Purchase bills pending, Purchase order,

Sales bill pending, Sales order, & Stock category summary. Ratio analysis is an important tool to analyze the financial statements. Tally itself prepares the ratios so as to analyze the statements of the business. Regarding the Balance Sheet and Profit and Loss account, it will be dealt in detail later in the report. This is how posting in Tally is done. TDS DEDUCTION FROM CONTRACTORS, SUPPLIERS, & PROFESSIONAL SERVICE PROVIDERS: Tax Deducted at Source Concept: The IT department says that assessees pays tax in the assessment year on the income earned in previous year. Due to this rule the tax collection is delayed till the completion of the previous year. Even sometimes people conceal their income and the tax is not paid at all. In order to overcome these problems, government started deducting some amount of tax from the amount which is receivable by the assessees. The amount of tax so deducted is called as Tax Deducted at Source, i.e., TDS. TDS is deducted from various heads of income. They are prescribed by the Indian Income Tax Authority as follows:ICFAI BUSINESS SCHOOL, MUMBAI Page 21

TDS on salary, TDS on interest on securities, TDS on dividend, TDS on winning (lottery or horse races), TDS on contractors payment, TDS on professional fees, & TDS on rent.

As the group is into construction business so it mainly deals in TDS deduction from contractors payment and professional fees like that of architects, designers, etc. TDS ON CONTACTORS PAYMENT: TDS on contractors payment comes under section 194(C) of the Income Tax Act. There are some requisitions which are needed to be fulfilled for deducting TDS from contractors payment. They are as follows:

Payment must be made as a part of the contract. Payment must be made by government, a firm, a local authority, etc. Tax to be deducted if and only if the payment exceeds Rs. 20,000. Tax to be deducted at the time of making due or making payment, whichever is earlier.

Tax from contractors payment is deducted @ 2.06 %, which is bifurcated as follows: 2% tax on the amount to be paid , .06% to be deducted towards education cess.

TDS ON PROFESSIONAL FEES: TDS on professional fees is deducted from the fees paid to the architects, interior designer, engineers, etc. This also has requisitions to be fulfilled for qualifying for tax deductions. They are as follows: Payment must be made in lieu of professional services rendered. Tax to be deducted at the time of making due or making payment, whichever is earlier.ICFAI BUSINESS SCHOOL, MUMBAI Page 22

No TDS on payment made due before 1.7.95. TDS only if amount exceeds Rs. 20,000.

Tax from professional fees is deducted @ 10.3%, which is bifurcated as follows: 10% on amount to be paid. 0.3% as education cess. MAKING e-TDS PAYMENT: With the advent of technology, making TDS payment has become easy. We can make the payment online through portals provided by banks. For this we need to have account with particular bank. The bank provides us the password using which we can pay TDS online. There are certain identification numbers which are needed at the time of paying TDS online. They are as follows:

Tax Deduction Account Number (TAN) of the Deductor: the IT authority says that every

person deducting tax at source must have a tax deduction account number which it must quote in all documents relating to TDS like the TDS challans, TDS returns, TDS certificates, etc. Permanent Account Number of the Deductor: the PAN number of the deductor must be quoted while making TDS payment online. Permanent Account Number of the Deductee: the PAN number of the deductee must also be quoted. After the payment of tax is made online a counterfoil is obtained which signifies that the tax has been paid. The counterfoil is also called the TDS challans and following are contents of the challan: BSR code of the bank branch. Date of payment of tax. Challan serial number. Amount of tax deducted. Section which tax has been deducted.

FILING TDS RETURN:ICFAI BUSINESS SCHOOL, MUMBAI Page 23

After the payment of the tax is made online and TDS challan is obtained, the next step in the conduit is the filing of that tax amount with the Income Tax Authority. Filing of TDS is a long step. For filing of TDS with the Income Tax Authority, software in excel base has to be installed in the computer. WHAT DOES THE SOFTWARE CONTAIN? The software is based in Microsoft excel. It contains six sheets. Details of the sheets are given as follows: Sheet 1: It contains the detail about the deductor of the tax. Details such as Tax deduction Account Number (TAN), PAN number, name of the company, address of the company, name of the responsible person, address of that person, designation of that person, TDS circle.

Sheet 2: It contains the details about the deductee. Details such as deductee serial number under section 414, serial number in challan as per section 401, deductee code, mode, PAN reference, PAN of the deductee, name of deductee, date of payment, amount paid, book entry, TDS, surcharge, education cess, total tax deducted, total tax deposited, date of deduction , rate of deduction, reason for no or lower deduction, deductee address.

Sheet 3: It contains the field description. Sheet 4: It contains details about the challan. Details such as running serial number, section code, TDS, surcharge, education cess, interest, others, total tax deposited, cheque or demand draft number, BSR code of bank branch (code to banks given by RBI), date of tax deposit, transfer voucher or challan serial number. Sheet 5: It contains the section codes. Section codes for different sources of income are given, for example 194C denotes payment made to contractors and suppliers and 194J denotes TDS on professional fees. Sheet 6: It contains the instructions for working on the software. It also contains guidelines regarding the dos and donts. After all the data is entered into the software, the whole database is then taken into a CD or floppy and sent to the Income Tax Authorities. Following are the features of electronic TDS filing:ICFAI BUSINESS SCHOOL, MUMBAI Page 24

Each TDS return file either form 24, 26, or 27 should be in separate CD/floppy. CD/floppy should be virus free. The CD/floppy should be accompanied by a signed verification in form 27A in physical form. It should be prepared according to the data format prescribed by the e-filing administrator. There is also validation software available with the help of which the data of the e-TDS prepared must be validated. All the data should be in a single CD/floppy. No copy of bank challan, TDS certificate should be furnished with the e-TDS return. In case of form 26 and 27, the deductor should not furnish physical copies of certificate of no deduction or lower deduction received from the deductees. But in case of form 24, the deductor must furnish physical copies of certificate of no deduction or lower deduction received from the deductees. e-TDS return must contain the TAN of the deductor without which the return will not be accepted.

After the tax return is filed (with CD/floppy along with signed verification in form 26Q), an acknowledgment is given by the income tax authority which signifies receipt of tax amount by the income tax authorities. Contractors, suppliers, and professional service providers ask for TDS certificates in form 16A which is used by them in their tax assessment. A TDS certificate signifies that we have filed the return of the tax with the income tax authorities. A TDS certificate contains the following fields: Name and address of the deductor. Name and address of the deductee. Quarter and acknowledgement for the same. PAN of the deductor. PAN of the deductee. TAN of the deductor. Nature of payment.(contractor or professional) Amount on which tax is calculated. Date of credit i.e. date of the transaction as per Tally. TDS.Page 25


Surcharge. Education cess. Cheque/ DD number, if any. BSR code of the bank branch. Date of payment of tax. Challan serial number.

After the TDS certificates are given than all matters relating to TDS for that year is completed.

REFERENCES: 1. Data fed in Tally of the company. 2. www.tin-nsdl.com

GLOSSARY:

BSR code: It is the code given to banks by the RBI. Contra: If an entry is passed but sometimes later if it is to be cancelled due to some reason then an opposite entry is passed which is called as contra entry. Credit note: It is a follow up of the debit note. It is a statement sent by seller to his customer intimating that, his account has been credited with the amount of goods return by him or any other allowances granted to him. Credit: It is the amount which represents an increase in liability or decrease in assets or amount business owes to others. It is the opposite of debit. Debit note: When goods are received from the supplier, the supplier account is credited. When goods are returned the supplier account is debited. In the case of purchase returns a debit note is


Page 26

prepared. It should contain all the details of purchase returns. Two copies of debit note will be prepared, one will be sent to the customer and one will be kept as a office copy. Debit: It is the amount which represents an increase in assets or decrease in liability or amount suppliers, contractors & factors owe to the business. Delivery note: Document accompanying a shipment of goods that lists the description, grade, and quantity of the goods delivered. A copy of the delivery note, signed by the buyer or consignee, is returned to the seller or consignor as a proof of delivery. Godown summary: It is a report generated by Tally on the basis of physical stock taking.

Inventory: It refers to the stock of materials. Journal: It is a day book in which the daily transactions are recorded in a chronological manner.

Ledger: It is an account where transactions of a particular type are recorded. Movement analysis: It is a report generated by Tally regarding the amount of materials brought in and the amount taken out. PAN: it is the permanent account number of an individual issued by UTI. Physical stock register: It is the register maintained in Tally which is based on physical counting of stock. Purchase order: A requisition format in Tally which mentions details such as material required, quantity, price at which required and is given by the buyer to the supplier. Rejection in: It is also called as return inwards or sales return. It is the return of goods by the buyer. Rejections out: It is also called as purchase return or return outwards. It is the return of goods to the supplier by the business. Sales order: It is the order received by the business from a customer.


Page 27

Stock category summary: It is a summary which shows the categories of stock the business maintains. TAN: It is the tax deduction account number which is very much essential for TDS return filing. It is issued by NSDL.


Page 28


Page 29


Page 30


Page 31


Page 32


Page 33

Documents

SIP interim report.- Abhishek doc.doc