Apr 11, 2018

Accounting Implication of New Gratuity Benefits for FY 2017-18

6:24 PM 0
The Payment of Gratuity (Amendment) Bill, 2018 has been passed by the Lok Sabha on 15th March, 2018 and by the Rajya Sabha on 22nd March, 2018. The Bill has been assented to by the Hon'ble President and, notified by the Government and has been brought in force from 29th March, 2018.

The amendment seeks to increase the maximum limit of gratuity from Rs. 10 Lakhs to Rs. 20 Lakhs. The objective is to make employees in the private sector as well as public undertakings and autonomous organisations under the government who are not covered under the Central Civil Services (Pension) rules, eligible to receive higher amount of gratuity.

The amendment will also provide higher tax benefit for those employees who are covered under The Payment of Gratuity Act, 1972 ("Gratuity Act") and who are entitled to receive enhanced gratuity benefits. Gratuity received by Government employees is completely exempt under the income-tax Act, whereas gratuity received by non-government employees is exempt subject to certain ceiling limits.

In this article we shall look into the background, the impact of the amendment and the accounting implications under Indian Accounting Standards notified under Companies (Indian Accounting Standards) Rules, 2015 (Ind AS) and under Accounting Standards (AS) under the Companies (Accounting Standards) Rules, 2006.

Background
2. The Gratuity Act intends to provide social security to employees after retirement and is applicable to enterprises with ten or more employees. The Act provides for payment of gratuity on account of retirement/superannuation/resignation/any physical impairment during the employment. Further, as per the rules, an employee is required to complete five years of continuous service (subject to certain exceptions) in order to be eligible for the payment of gratuity. Gratuity is an important social security legislation to wage earning population in industries, factories and establishments.

Eligible employees, covered under the Gratuity Act are entitled to it and is calculated at the rate of 15 days salary (based on last drawn salary), for each number of completed years of service. Prior to the amendment coming into effect, the employees of Government enterprises were entitled to a maximum amount not exceeding Rs. 10 lakhs. Many private sector enterprises also follow this ceiling and limit the entitlements of their employees. Even though there is an upper limit, the Gratuity Act also provides that an employee has the right to receive a higher amount under any award or agreement or contract with the employer (better terms of employment).

An employee who has rendered 25 years of service with a monthly salary of Rs. 1 Lakh (at the time of retirement), is eligible to receive Rs. 14.42 Lakhs (15/26 x 1,00,000 x 25 years) as gratuity. This amount would have been otherwise restricted to Rs. 10 lakhs under the earlier provisions for government enterprises and private enterprises who followed the limit (unless agreed for a higher limit as better terms of employment).

Also, the tax exemption in the hands of the employees under Income Tax Act, would have been restricted to Rs. 10 Lakhs under the earlier provisions.

Amendment
3. The erstwhile upper ceiling limit on gratuity amount was Rs. 10 Lakh. The provisions for Central Government employees under Central Civil Services (Pension) Rules, 1972 with regard to gratuity are also similar. Before implementation of 7th Central Pay Commission recommendations, the ceiling under CCS (Pension) Rules, 1972 was Rs. 10 Lakh. However, with implementation of 7th Central Pay Commission recommendations, in case of Government servants, the ceiling limit has been raised to Rs. 20 Lakhs.

The amendment allows the government to increase the gratuity ceiling limit from time to time without amending to the law. Considering the inflation and wage increase even in case of employees engaged in private sector, the Government decided that the entitlement to gratuity should also be revised in respect of employees who are covered under the Payment of Gratuity Act, 1972. Accordingly, the Government has increased the maximum limit of gratuity to such amount as may be notified by the Central Government from time to time. The Government has issued the notification specifying the maximum limit of Gratuity to Rs. 20 Lakh.

In addition, the amendment has revised the provisions relating to calculation of continuous service for the purpose of gratuity in case of female employees who are on maternity leave from 'twelve weeks' to 'such period as may be notified by the Central Government from time to time'. This period has also been notified as twenty six weeks.

The amendment would increase the limit of gratuity benefits that employees would get and also increase the tax-exempt gratuity amount in the hands of the employees. This will immediately benefit mostly those who are in high salary bracket.

How will companies be impacted by an increase in gratuity limit?
4. Companies need to carefully examine the impact of the change, as well as the financial impact on the financial statements of FY 2017-2018.

The companies (those who followed the erstwhile limit of Rs. 10 Lakhs) will be affected by the increase. The impact of the amendment will be recognised in the financial statements for the current financial year; i.e., FY 2017-18. The amendment would cause an increase in the employee gratuity benefit obligations, classified as defined benefit plans. The increase in gratuity limit will affect the benefits already accrued, since the time of an employees' joining date.

Under both Ind AS 19 Employee Benefits and AS 15 Employee Benefits, past service cost is the change in the present value of the defined benefit obligation resulting from a planned amendment or curtailment. Therefore, the amended increased limit would qualify as a past service cost.

The increase in liability will be needed to be recognised through a corresponding charge to profit and loss account. The timing of the charge in profit and loss will be different for Ind AS 19 and AS 15.

Impact under Ind AS 19
5. Under Ind AS 19, whole of this increased liability is recognised immediately in the P&L statement under the head 'past service cost'. Therefore, companies reporting under Ind AS 19 will face the full force of this amendment immediately. Paragraph 103 of the standard states the following:

An entity shall recognise past service cost as an expense at the earlier of the following dates:

(a) when the plan amendment or curtailment occurs; and
(b) when the entity recognises related restructuring costs (see Ind AS 37) or termination benefits (see paragraph 165).

Impact under AS 15
6. The financial impact under AS is different. Under AS 15 past service costs are classified into vested and non-vested components. AS 15 states the following:

68. In determining the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost, an enterprise should attribute benefit to periods of service under the plan's benefit formula. However, if an employee's service in later years will lead to a materially higher level of benefit than in earlier years, an enterprise should attribute benefit on a straight-line basis from:

(a) the date when service by the employee first leads to benefits under the plan (whether or not the benefits are conditional on further service); until
(b) the date when further service by the employee will lead to no material amount of further benefits under the plan, other than from further salary increases.
Vested component is the past service cost in respect of those employees that have completed the minimum of 5 years of service as at 29 March 2018, and are entitled to receive gratuity immediately if they leave the company. Vested past service costs are required to be recognised immediately in the profit and loss account.

Non-vested component is the past service cost in respect of those employees who have less than 5 years of service. Deferral of the non-vested past service is permitted over the average remaining period until vesting. For example, if on an average certain class of employees have less than 5 years of completed service in the entity, have an average past service of 1 year. The non-vested past service cost arising on account of the amended ceiling can be deferred over the remaining 4 years until it is vested. This would mainly impact companies which have significant number of new employees.

Concluding remarks
7. Companies should carefully evaluate the impact of the amendment on the financial statements of FY 2017-18. Companies which used to limit their employees' gratuity payouts, including government companies, to Rs. 10 Lakh prior to the amendment may witness a significant financial impact arising on account of the amendment. The actuarial valuation exercise for FY 2018-19 and quarter ending 31 March 2018, for listed entities, should include an examination of the impact of the amendment. It is recommended that the impact of the past service cost arising on account of the amendment should be appropriately brought out in the financial statements by way of a disclosure.

Change in PAN Apply Form-CBDT Fourth Amendment

6:24 PM 0
CBDT changed PAN form with male, female and transgender option is also available while applying PAN. CBDT issued notification no. 18 dated 9 April 2018 about the same. Full notification is as under.

In exercise of the powers conferred by section 139A read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:—

1. Short, title and commencement.— (1) These rules may be called the Income–tax (Fourth Amendment) Rules, 2018.

 (2) They shall come into force on the date of their publication in the Official Gazette.

2. In the Income-tax Rules, 1962, in Appendix II, in Form number 49A and Form number 49AA, for
column number 4 and entries relating thereto, the following item shall be substituted, namely:-

 “4. Gender (for individual applicants only)  Male                Female               Transgender
 (please tick as applicable)”.

 [Notification No. 18/2018/F.No. 370142/40/2016-TPL]
Dr. T. S. MAPWAL, Under Secy. 

Apr 10, 2018

E Way Bill for Intra Sate is applicable from 15 April in 5 States

1:07 PM 0
As per the decision of GST Council, e-Way Bill system for all inter-State movement of goods has been rolled-out from 01 April, 2018. E-way Bill system for Intra-State movement of goods in the State of Karnataka is also operational from the said date. E-Way Bills are getting generated successfully and till 09 April, 2018 more than sixty three lakh e-Way Bills have been successfully generated.

It is hereby informed that e-Way Bill system for Intra-State movement of goods would be implemented from 15th April, 2018 in the following States:-
(i) Andhra Pradesh
(ii) Gujarat
(iii) Kerala
(iv) Telangana
(v) Uttar Pradesh

With the roll-out of e-Way Bill system in these States, it is expected that trade and industry will be further facilitated insofar as the transport of goods is concerned, thereby eventually paving the way for a nation-wide single e-Way Bill system. Trade and industry and transporters located in these States may obtain registration/ enrolment on e-Way Bill portal namely https://www.ewaybillgst.gov.in at the earliest without waiting for the last date. 

Apr 9, 2018

No Transport Allowance Rs. 1600 per Month- Income Tax Third Amendment

5:59 PM 0
In exercise of the powers conferred by section 295, read with sub-clause (ii) of clause (14) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

(1) Short title, Commencement and application. – These rules may be called the Income-tax (Third Amendment) Rules, 2018.

(2) They shall come into force on the 1st day of April, 2019 and shall apply to the assessment year 2019-2020 and subsequent assessment years.

2. In the Income-tax Rules, 1962, in rule 2BB, in sub-rule (2), in the Table, against serial number 10, the entries under columns (2) to (4) shall be omitted;

 [Notification No. 17/2018/F. No.370142/02/2018-TPL]
PRAVIN RAWAL, Dir. (TPL-II) 

46[10.    Transport allowance granted to an employee 47[other than an employee referred to in serial number 11] to meet his expenditure for the purpose of commuting between the place of his residence and the place of his duty              
Whole of India     
47a[Rs.1600 per month]]
 

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All About New Tatkal Rules of Indian Railways 2018

2:30 PM 0
Tatkal ticket booking in Indian Railways: Several media reports suggest that recently there have been changes in the tatkal ticket booking, cancellation and refund rules. The first thing to note is that no new change has been introduced in 2018. According to Railway Ministry officials, from 2015 onwards, IRCTC (Indian Railway Catering and Tourism Corporation) has introduced several new rules for tatkal ticket booking – from charges to refund. However, for those of you who have to book train tickets at short notice/at the last moment, it’s best to know the process, rules and guidelines.

Usually, the tatkal tickets are booked through internet and the booking depends on when the tatkal ticket booking opens. The official IRCTC website says that booking of tatkal ticket can be done on the opening day for AC class (1A/2A/3A/CC/EC/3E) from 10:00 am onwards, while for Non- AC class (SL/FC/2S) booking of tatkal tickets can be done from 11:00 am onwards.

Tatkal ticket refund and concession rules: Concession in tatkal booking is not allowed even for senior citizens. Also, any type of ticket modification is prohibited. On cancellation of confirmed tatkal tickets, any refund is not granted by Indian Railways. Moreover, some charges are deducted on cancellation of wait-listed tatkal tickets and contingent cancellation. In addition to these rules, partial cancellation of tatkal tickets is prohibited.

However, the passenger can claim full refund of fare and tatkal charges, in case a train is more than three hours late. If the route of the train is diverted and the passenger doesn’t want to travel on that route then he/she can claim a full refund. If the route of the train is diverted and the boarding station/destination or both are not on the diverted route then the passenger can claim refund on tatkal tickets. If the passenger has been accommodated in lower class but doesn’t wish to travel in the same and has paid the difference if he/she agrees to travel in the lower class then the passenger can claim full refund.

Tatkal ticket charges: The charges for tatkal tickets depend on the type of coach, the passenger chooses such as second sitting, sleeper, AC Chair car, Ac 3 tier, AC 2 tier and executive. The charges for tatkal tickets depend on the type of coach, the passenger chooses such as second sitting, sleeper, AC Chair car, Ac 3 tier, AC 2 tier and executive. Starting from Rs 10 for 100 km, the tatkal charges can go up to a maximum of Rs 500 for a distance of 500 km or depending on the class of coach.
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Apr 8, 2018

How to Register and Submit Form 61 as per Rule 114D of Income Tax

11:10 AM
Rule 114D of the Income Tax Rules, 1962 (hereunder referred to as the “Rules”) specifies that every person referred to in clauses (a) to (k) of sub-rule (1) of rule 114C; and sub-rule (2) of rule 114C and who is required to get his accounts audited under section 44AB of the Income Tax Act,1961 (hereunder referred to as the “Act”) who has received any declaration in Form No. 60, in relation to a transaction specified in rule114B, shall furnish a statement in Form No. 61.

2. As per sub-rule (1)(i) and sub-rule (4) of Rule 114D, the statement in Form No. 61 shall be furnished through online transmission of electronic data to a server designated for this purpose and in accordance with the data structure specified in this regard by the Principal Director General of Income-tax (Systems). The statement shall be furnished:
(i) Where the declarations are received till 30th September, by the 31st October of that year; and
(ii) Where the declarations are received till 31st March, by the 30th April of the financial year immediately following the financial year in which the form is received

3. Modification/ changes in the schema / data structure of Form No. 61: The values under Statement Type of Form No. 61 have been modified / enhanced. The detailed list of modification / changes in schema / data structure of Form No.61 is attached as Annexure A.

4. In exercise of the powers delegated by Central Board of Direct Taxes (‘Board’) under sub-rule (4) of Rule 114D of the Income tax Rules 1962, the Principal Director General of Income-tax (Systems) hereby lays down the following procedure:

a) Already registered reporting persons/entities on e-filing portal: The registration details of already registered reporting persons/entities have been migrated from e-filing portal to Reporting Portal. The registered users of such reporting persons/entities shall be communicated of their new login credentials through registered e-mail to be used at Reporting Portal. There is no need of registering again for such persons/entities. 

b) New Registration, Generation of Income Tax Department Reporting Entity Identification Number (ITDREIN):The reporting person/entity is required to get registered with the Income Tax Department by logging in to the e-filing website (https://incometaxindiaefiling.gov.in/) with the log in ID used for the purpose of filing the Income Tax Return of the reporting person/entity. The reporting person/entity needs to click on “Reporting Portal” link under “My Account” tab at e-filing portal to
access ‘Reporting Portal’ for first time registration. The reporting person/entity will mandatorily be required to enter the details of form type, category and address of reporting person/entity along with details of Principal Officer. On successful submission, the ITDREIN is generated and the Principal Officer will receive a confirmation e-mail on his/her registered e-mail address and SMS at his/her
registered mobile number. There will be no option to de-activate ITDREIN, once it is generated.

c) Submission of Form No. 61: Every reporting person/entity is required to submit the Statement in Form No. 61. The prescribed schema, Report Generation and Validation Utility for Form No. 61 and Generic Submission Utility can be downloaded from the Reporting Portal under “Resources” tab. The prepared Statement to be filed is required to be digitally signed by and uploaded at the Reporting Portal or through Generic Submission Utility through the login credentials (PAN and password) of the Principal Officer.

d) Submission of correction statement: In case, the reporting person/entity comes to know or discovers any inaccuracy in the information provided in the statement or the defects have been communicated to the reporting person/entity through Data Quality Report (DQR) after submission of Statement, itis required to remove the defects by submitting a correction statement. The number of “Reports Requiring Correction (RRC)” will be visible against the original statement on Reporting Portal under the ‘Statement Pending for Correction’ tab. The user can download the DQR file from the DQR column under ‘Statements Pending for Correction’ Tab of Reporting Portal, which can then be opened on the Report Generation utility to find and fix the errors. The reporting person/entity needs to rectify all the defects till the number of “Reports Requiring Correction (RRC) becomes zero within the specified period.

e) Deletion of Submitted Reports in a statement: In case, the reporting person/entity wishes to delete the inadvertently filed reports within a statement, it can choose the statement type as “Deletion Statement” and file all such reports within a single statement to be deleted with exact previously filed values against  within a single statement to be deleted with exact previously filed values against each field. The manner of filing Deletion Statement shall be similar to submission of correction statement. 

f) Modification/ changes in the schema / data structure of Form No. 61: The values under Statement Type of Form No. 61 have been modified / enhanced. The detailed list of modification / changes in schema / data structure of the Form No 61 is attached as Annexure A.

g) Security, archival and retrieval policies: The reporting person/entity is required to document and implement appropriate information security policies and procedures with clearly defined roles and responsibilities to ensure security of submitted information and related information/documents. The reporting person/entity is also required to document and implement appropriate archival and retrieval policies and procedures with clearly defined roles and responsibilities to ensure that submitted information and related information/documents are available promptly to the competent authorities. 

h) This notification shall come into effect from 09''' of April, 2018.
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How to Submit Form 60 Who Doesn't Have PAN and enters in Transaction of Rule 114B

11:10 AM 0
As per second proviso of Rule 114B (Transactions in relation to which Permanent Account Number is to be quoted in all documents for the purpose of clause (c) of subsection (5) of section 139A of the Income-tax Rules, 1962 (hereunder referred to as the Rules), any person who does not have a Permanent Account Number and who enters into any transaction specified in this rule, shall make a declaration in Form No. 60 giving therein the particulars of such transaction either in paper form or electronically under the electronic verification code.

2. As per sub-rule (1) of Rule 114D (Time and manner in which persons referred to in Rule 114C shall furnish a statement containing particulars of Form No. 60), the persons referred to in clauses (a) to (k) of sub-rule (1) of Rule 114C and sub-rule (2) of Rule 114C shall furnish a statement in Form 61 containing particulars of declarations received in Form 60 to the Director of Income-tax (Intelligence and Criminal Investigation) or the Joint Director of Income-tax (Intelligence and Criminal Investigation) through online transmission of electronic data to a server designated for this purpose and obtain an acknowledgement number.

3. Rule 114B of the Income-tax Rules, 1962, provides that the declaration in Form No.60 can be submitted either in paper form or electronically under the electronic verification code in accordance with the procedures, data structures, and standards specified by the Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems).

4. In exercise of the powers delegated by Central Board of Direct Taxes (‘Board') under Rule 114B of the Income-tax Rules, 1962, the Principal Director General of Income-tax (Systems) hereby lays down the following procedures for submitting Form No. 60.

5. An individual or a person (not being a company or firm) who does not have a permanent account number and who enters into any transaction specified in under Rule 114B of the Income-tax Rules, 1962, shall either submit Form No. 60 physically in paper form as per the existing procedure or electronically using electronic verification as per any of the procedure stated in para 6.

6. Under electronic verification, the individual or a person (not being a company or firm) who does not have a permanent account number and who enters into any transaction specified in under Rule 114B of the Income-tax Rules, 1962, shall make a declaration in Form No. 60 giving therein the particulars of such transaction electronically using electronic verification.

a) The electronic verification can be enabled using electronic portal/application approved for transactional facility by the regulator.

b) The electronic verification can also be enabled using any of the following specified Aadhaar Authentication methods:
i. Type 2 Authentication - Authentication of residents through OneTime-Password (OTP) delivered to resident's mobile number and/or e-mail address present in CIDR.

ii. Type 3 Authentication - Authentication of residents using one of the biometric modalities, either iris or fingerprint.

iii. Type 4 Authentication - Authentication of residents using 2-factor authentication with OTP as one factor and biometrics (either iris or fingerprint) as the second factor.

iv. Type 5 Authentication - Authentication of residents using OTP, fingerprint & iris together.

7. The person using electronic method of submitting Form No. 60 and electronic verification using any of the methods listed above, may submit Form No. 60 in paper form where electronic verification is not possible due to Information Technology related issues.

8. The person responsible for collecting Form No. 60 for specified transactions under Rule 114B of Income-tax Rules, 1962 shall follow the below mentioned procedure:
a) In cases where the requirement for furnishing of a PAN or Form No. 60 are triggered in multiple transactions during a financial year relating to the same person, the person responsible for collecting Form No. 60 may collect only incremental information provided the linkage of subsequent transaction is  established with the earlier captured information for which an initial consent shall be obtained from the declarant of Form No. 60. Details of each such transaction shall be required to be reported in Form No. 61 as per Rule 114D of the Income-tax Rules, 1962. 

b) Every declaration in Form No.60 should be assigned a unique number. 

c) In case multiple Form No. 60 are submitted during the financial year, and the person/transaction becomes reportable in Form No.61A, the acknowledgement number of the last submitted Form No. 60 shall be mentioned in Form No. 61A. 

d) In case the specified transaction is handled by more than one regulated entity (e.g. payment bank, partner bank), the electronic transmission of Form No. 60 from the first regulated entity (payment bank) to the second regulated entity (partner bank) will be considered as a valid submission to the second regulated entity provided it is transmitted with the consent of the declarant of Form No 
60. 

9. Security, archival and retrieval policies: The reporting person is required to document and implement appropriate information security policies and procedures with clearly defined roles and responsibilities to ensure security of submitted information and related information/documents. The reporting person is also required to document and implement appropriate archival and retrieval policies and procedures with clearly defined roles and responsibilities to ensure that submitted information and related information/documents are available promptly to the competent authorities. 
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