Registered under GST? Heard about Profession Tax? Pay it NOW…

With the GST coming in from July 1, 2017 numerous persons got themselves registered under the GST regime for various reasons, some mandatory while some voluntary, but little did they know that, they would be served with notices for non-registration and non-payment of profession tax under The Maharashtra State Tax On Professions, Trades, Callings And Employments Acts, 1975. This is probably due to integration of government websites and better co-ordination among various departments of tax authorities.

So what exactly is Profession Tax (hereinafter referred to as “PT”), who needs to PT and is it mandatory to pay PT? Well PT is a tax levied by the state and is a state revenue. Various states have enacted such acts for collection of PT in their respective states. This article is restricted to  The Maharashtra State Tax On Professions, Trades, Callings And Employments Acts, 1975.

PT becomes applicable once a person starts his business or profession. The person needs to get itself mandatorily registered within 30 days of starting the business or profession. Once a person is registered TIN is allotted by the department and the person can pay PT. The due dates for various persons have been provided in the Act. Generally for individuals the last date for payment of PT is 30^th June of every year. For companies the last date of payment is 31^st March of every year, if their PT liability does not exceed Rs. 50,000/- if however the PT liability is beyond Rs. 50,000/- then monthly returns are to be filed and payment shall be made accordingly.

As per the amendments in the PT Act 1975, a person (natural / legal) registered under MGST Act is liable to enroll for Profession Tax Enrollment Certificate (PT-EC) and pay Rs.2500/- per annum which is levied in most cases. In addition, if the business is having any employee whose monthly salary is above Rs. 7500/- is also required to obtain Profession Tax Registration Certificate (PT-RC) and pay tax after deducting the same from the employee’s salary as per the provisions of law. Also it should be noted that different rates of PT are specified for different businesses and professions.

If you are registered under MGST Act, and you have neither obtained PT-EC nor PT-RC, failure to comply with the provisions of the Act may result in penal proceedings. It is therefore advisable to enroll yourself under PT Act and also obtain PT Registration Certificate, if applicable and to pay off your PT liability at the earliest in order to avoid any further action from the department. One should also check their e-mails regularly including the spam folder for any department correspondence and seek profession assistance immediately so as to comply within the specified timeframe, if any.

This article is for informational purpose only and we advise the person to seek professional assistance for the same. For any assistance or queries pertaining to PT the email address of the authors is provided below.

Authors: CS. Ashish & CS. Sadanand
Occupation: Practicing Company Secretaries, Mumbai

Reach us at: corporatecompliance365@gmail.com

Disqualified to act as director under the Companies Act...There is nothing much one can do!!!

Newspapers, blogs, websites are flooded with the news regarding the disqualification of about 3 lakh directors across the country. Even more there is speculation that, a new list of disqualified directors would be released anytime soon. The Ministry’s stand is very clear “Comply or Perish”. Disqualified directors would never have thought that, something like this would ever happen to them and the ministry would become so stringent overnight. We understand the intention of the Government is to curb the black money and put an end to the parallel economy, if not then atleast to control and supervise it, because no economy in this world is free from it, but in all of this there are directors who are in a soup just because they were directors in a company which they didn’t know existed or had filed resignations which were not uploaded or intimated to ROC for reasons unknown.

We are in support, of this noble initiative taken by the government but one should also provide some relief to the persons genuinely affected by such disqualification. The Ministry has come up with the CODS scheme, 2018, wherein the defaulting company can file its returns and the disqualification is lifted on its directors. On analyzing the scheme, only defaulting companies and directors associated with such defaulting companies are given an opportunity and not to directors who are disqualified because of being associated with struck off companies.

In one of the practical cases, a person is a director in a company and the company has been compliant in filing its timely returns until 2016. But since the carnage began in 2017, the person suddenly came to know he is disqualified because a company is struck off in which he was a director in the year 19XX, from which he had resigned. The MCA went online somewhere in 2005 or 2006 and hence there are no records of such resignation and the business of such person has come to a standstill. Yes we do agree that, one should be absolutely aware of their actions and cannot escape their responsibility, but what is the solution?

Looking at the technicality, a directors is disqualified by virtue of section 164 read with section 167 of the Companies Act, 2013. Sec 164 (2) states that, No person who is or has been a director of a company which—

(a) has not filed financial statements or annual returns for any continuous period of three financial years; or

(b) has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more,

shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

The ROC on the instructions of the Ministry had started insertion of new director name on the board of the company through physical filing of documents providing some relief to the companies but on careful reading of the above provision i.e Sec 164 it becomes evident that, even if a new director is appointed then even the newly appointed director stands disqualified. Sec 167 authorizes the shareholders to appoint the minimum number of directors required as per the act in case all the directors are disqualified, however the ROC allows appointment of only one director.

In such a scenario how will the company function? How will board meetings be conducted without the necessary quorum? How will the resolutions be passed by having only one non-disqualified director? The private limited company in such a scenario would be similar to a one person company which entirely defeats its existence. And lastly what about the amendments in the Companies Amendment Act, 2017 which would levy additional fees of Rs. 100/- per day in case of delay in filing of financial statements which would be a big hit for small businesses and is ready to see the light of the sun as soon as it is published in the Gazette Notification.

While writing this article we hope that, the Ministry comes up with some circular or notification to address such issues and provide the much needed clarity going forward and also end the misery of the directors who unknowingly fell prey to such stringent action by the Ministry. Until then we will just have to wait and watch as to what will be the Ministry’s stand on this entire issue.

Authors: CS. Ashish & CS. Sadanand

Occupation: Practicing Company Secretaries, Mumbai
Reach us at: corporatecompliance365@gmail.com

AIF – A Boon To Corporate Funding…

What is an AIF? How does it help in funding the corporates? How does it operate and various other aspects of AIF are all the questions and queries we would touch upon as we go ahead. But to start up with, we would like to answer WHY AIF? Since the September 12, 2013 companies especially private limited companies have been struggling to get funds for business because of the restricting provisions of Section 73 to 76 of Companies Act, 2013. However the when Ministry of Corporate Affairs saw a declining trend in the company formation and shifting of corporates to the rather simpler forms of entities namely LLP and Partnership Firms, it came up with certain relaxations but till date struggle persists because the ground reality is different than as conceived. 

So what exactly is an AIF and how does it help the corporates? AIF stands for Alternative Investment Fund which is regulated by SEBI through SEBI (Alternative Investment Funds) Regulations, 2012. These regulations were formulated to regulate the unregulated private pool of money and covers investments which do not happen via the traditional modes of investment such as listed stocks, bonds, cash, property etc. These regulations mandate every entity to obtain a certificate of registration from SEBI if it intends to establish an AIF.

AIF basically means any fund established in India in the form of a trust or a company or a limited liability partnership or a body corporate which is a privately pooled investment vehicle which collects funds from investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors. However there are a few exceptions which can be found in the said regulations. AIF is broadly classified into three categories namely; 

• Category I - which invests in start-up or early stage ventures or SMEs and may also get incentives from the government;
• Category II – funds which are floated to meet day-to-day operational requirements and as permitted in the said regulations which include private equity funds or debt funds;
• Category III – funds that employ diverse or complex trading strategies namely hedge funds with a view to make short term returns or such other funds which are open ended.

An entity willing to establish an AIF can choose any one of the above categories subject to, the eligibility criteria specified in the regulations. 

Foreign investors are now bonding with AIF’s 

Foreign investors betting on Indian corporate bonds have found a way to overcome the cap imposed by the government and financial regulators.

With total inflow into corporate bonds having already reached the $51-billion permissible limit, offshore investors are now pouring money into certain pooled investment vehicles which in turn are subscribing to bonds issued by Indian companies.  

Since there is no regulatory ceiling on the money that can flow into these vehicles foreign investors are freely using them to take exposure to Indian corporate bonds.

In recent years, more than one billion dollars have flowed into AIFs that have deployed the money in corporate debt securities. These vehicles collect an annual management fee of 1.75-2% from investors, assure a hurdle return of 10-12% a year — the minimum that investors may expect — and take about 20% of the profit generated beyond the hurdle rate while distributing about 80% to investors. In the current market scenario such vehicles are primarily being used by real estate entities as working capital is a big constraint in todays time with the implementation of RERA and applicability of various other laws.

One can strongly advocate for these pooled structures since they are appropriately regulated by SEBI in terms of AIF regulations and RBI in terms of exchange control norms which prescribe various checks and balances whilst allowing inflow of foreign money.  

Restrictions / Limitations

One of the most important document in AIF is the placement memorandum or the information memorandum by whatever name called. It inherently states the investment strategy of the AIF along with other information required to be stated. In one of the recent cases that comes to our mind is SREI Multiple Asset Investment Trust (SMIT) and SREI Alternative Investment Managers for violating AIF rules. SEBI has alleged that SMIT instead of making investments of the amount raised from the investors as per the term of AIF rules, granted loans to Essar group companies. The fund's investment objective was to focus on the real estate sectors and projects like last mile funding to complete a project which is facing paucity of funds. 

One of the many important requirements of the regulations is that private equity funds should not invest more than 25% of the investible funds in one investee company which in the above case was noticed by the regulator in its inspection. SEBI has slammed a total penalty of Rs. 30 lakhs on SREI Mutiple Asset Investment Trust and SREI Alternative Investment Managers.

Another hurdle is the time taken for the registration process as an AIF and the cost involved. Although the regulator is very diligent in clearing the applications for registration but in our opinion it might take a reasonable amount of time as the quantum of investment is not small and also one cannot discount RBI norms that have a role to play as foreign money is involved.

Conclusion

In our personal opinion and understanding of the corporate scenario AIF is definitely a great investment vehicle to look at, but one needs to consider a couple of things before opting to establish an AIF, one being the quantum of fund required as the pool can be floated with a minimum investment of Rs. 20 Crores as per the regulations and second the gestation period until the AIF can finally see the light of the day. A final piece of advice would be to maintain abundant caution at each and every stage as the regulator SEBI is very proactive at monitoring these funds and the penalties imposed are very huge and can be very damaging to the entity and its managers. 

With this article we have just tried to touch up on the some of the many important aspects of AIF and we suggest that, one should seek professional guidance before venturing into AIF as this article is just to make the people at large aware about AIF which can also be point of consideration while taking important business decisions. 

Facts stated in this article are available in the public domain.

Authors: CS. Ashish & CS. Sadanand

Occupation: Practicing Company Secretaries, Mumbai

Reach us at: corporatecompliance365@gmail.com

We are back!!!

Greetings Readers,

The title says it all... We have finally come back to share our knowledge with everyone so that everyone can benefit from it. Its been almost two years now since our last post on corporate chanakya and we can only say that, time has just gone by so quick. But anyways we are back and will now be posting regular updates, articles and opinions on various corporate laws namely Companies Act, LLP Act, GST, SEBI, RBI and other topics of interest.

Author: Ashish / Sadanand

Reach us at: corporatecompliance365@gmail.com