Transfer Pricing Advisory | Business setup in india

With incremental adoption of globalization and rapid growth in several multi-national companies trying to establish their operation facilities, production houses in India, taxation in India is being aligned with global tax practices.

 

Therefore, it is incredibly important for every business entity to develop a thorough understanding of the transfer pricing regulations applicable on an Indian registered business entity, to plan the way for a business as well as its tax structure.

 

What is Transfer Pricing?

 

Transfer pricing generally refers to the price(s) of transactions controlled and practiced between associated enterprises. Such pricing decisions may be taken under conditions differing from independent enterprises.

 

Transfer pricing is the value attached to transfers of goods, services, and technology between related entities located in different territories. It also refers to the value attached to transfers between unrelated parties which are controlled by a common entity.

 

In other words, Profits accruing to the parent company can be increased by setting high transfer prices to siphon off profits from subsidiaries registered and operating in high tax countries and low transfer prices to divert profits to subsidiaries located in low-tax jurisdictions.

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Virtual CFO Services | Virtual CFO Services India

Presently, after the eruption of the pandemic worldwide, new companies and corporates are searching for approaches to run lean. There is stress in a lot of industries and even established promoters now want to slice out high costs associated with their senior management to maintain good profitability.

 

This condemns us all to rethink and derive new solutions wherein innovative and remote capabilities can serve the purpose of the appraisal, decision-making, and efficient use of man-hours in senior management roles.

 

As a result of the above, a new pattern of employing Virtual CFOs over the more conventional in-house full-time CFOs is now being adopted at an exponential rate.

 

Promoters, Board of Directors and CEOs usually make the following inquiries before hiring a Virtual CFO:

 

• What level of administrations do virtual CFOs offer, and how competent are such professionals when it comes to practical situations?
• Are Virtual CFOs’ really accessible? How they convey reports?
• What's more, obviously, how much do the low maintenance CFOs cost in 2021?

 

In this elaboration, we will cover a portion of the essentials of working with a virtual CFO and give you essential information.

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Experts’ reaction to RBI Monetary Policy Committee Announcements

Venkatraman Venkateswaran, Group President & CFO, Federal Bank Ltd

The very clear message from RBI comes as a continuation to the commencement of normalisation about a month back. The 10-year bond yields have moved from 6% to 6.20% in the last two months. The extension of the liquidity facility won’t make much of a difference in the present situation, given the fact that banks still have not fully utilised the existing limits. Liquidity thus is not a matter of concern at this point. Credit off-take is still tepid. Accommodating & supporting growth is crucial and so has RBI prioritised growth over inflation. Gradual & steady calibrated liquidity withdrawals would continue.

Vikash Khandelwal, CEO, Eqaro Guarantees

The RBI has been doing the heavy lifting to bring back the economy on track since the pandemic struck last year. It has announced more than 100 measures to support growth. The move to extend TLTRO till December will further aid growth. Over the high-frequency indicators, normal monsoon, and steady pace of vaccination indicates the RBI estimate of 9.5% growth for FY22 is achievable. The decision by the RBI to keep key rates and the unchanged ‘Accomodative’ policy stance was on expected lines. Easy liquidity will help businesses, especially the MSMEs at a time when demand is recovering. The governor has allayed concerns on inflation as well.’’

Manoj Gaur, CMD, Gaurs Group, and Vice President – North, CREDAI National

“The unchanged repo rate decision by the RBI is on the expected lines; the Apex bank maintained the accommodative stance that is the need of the hour. However, the real estate sector has been expecting sector-specific measures that could trigger healthy growth. Although the government has taken some steps to help the sector in recent months, additional reforms are required to allow the sector to thrive. The upcoming festival season will likely bring in more demand, and we are hopeful that the low home loan interest rate will make the buyers go for real estate assets”.

Vikas Wadhawan, Group CFO, Housing.com, Makaan.com and Proptiger.com

On widely expected lines, the RBI on August 6 decided to maintain a status quo on key policy rates. The decision of the RBI MPC augurs well for the real estate industry in general and home buyers in particular since the record low-interest rate regime would enable a large number of buyers to invest in property. Since homebuyer sentiment has already improved in recent times, based on an increase in housing affordability in India, the RBI move will prompt buyers and investors to put their money in secured assets like real estate. The extraordinary liquidity support the RBI has provided to the economy in the aftermath of the coronavirus pandemic is highly commendable.

Pradeep Aggarwal, Founder & Chairman, Signature Global Group, Chairman, ASSOCHAM, National Council on Real Estate, Housing and Urban Development

We appreciate the apex bank’s continued accommodative stance. Real estate has made a strong demand for low house loan interest rates, and the RBI has helped the sector by maintaining the status quo. We recommend that customers take advantage of the current scenario because, in the future, prices may rise due to higher raw material costs. Know more...

PAN India LLP Registration Service - Setup Services India

Limited liability partnership (LLP) is a popular, reliable, and well-known business structure in India, as customers, suppliers, and several other commercial institutions, prefer to deal with an LLP instead of a proprietorship or a normal partnership firm due to the structured rules of compliance, laid out by the LLP Act, 2008 and the Ministry of Corporate Affairs that govern an LLP and promote reliability, transparency and safeguards the interest of stakeholders. LLP structure involves fewer statutory and regulatory compliances when compared to those prescribed for a Private Limited Company; and hence, has become a preferred form of organizational structure amongst entrepreneurs who want to enjoy the benefits of both a partnership firm and a company in an effective and an efficient manner.

SSI, suggests an LLP structure for small-scale businesses who aim to save time as well as the costs of regulatory compliances that are much higher for a Private Limited Company in India.

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What is slump sale?

A single entity could have separate segments or undertakings with its own set of assets and liabilities each focused on a different business. Therefore, when the need arises, the entity can sell off a segment or the undertaking. This is called a slump sale.

CONTENTS

Slump Sale under Income Tax

Tax Effect in a Slump Sale

Slump sale vs. Itemised sale

Case study

Other matters

Slump Sale under Income Tax

A slump sale for income tax purposes would be one where an undertaking is sold without considering the individual values of the assets or liabilities contained within the undertaking.

It may be important to note here that finding out individual values may be of relevance only for the purpose of determining stamp duty or any other similar taxes. 

(Applicable in case of Land & Building transferred along with the respective undertaking)

Tax Effect in a Slump Sale

The gain or loss resulting out of a slump sale shall be a Capital Gain/Loss under the Income Tax Act.

(In the hands of the seller)

The computation has been prescribed as follows:

The capital gain or loss as computed above will be either long-term or short-term depending upon the period for which the undertaking is held.

If the undertaking is held for more than 36 months, the resulting capital gain or loss shall be long-term and if it is held for less than 36 months, the resulting capital gain or loss shall be short-term.

Further, there will be no indexation benefit available in the computation of the capital gains.

Net worth: In computing the net worth of the entity, the following points need to be considered:

The value of net worth should not take into account any change in the value of the asset or liability resulting from the revaluation of such asset or liability.

In case of depreciable assets under the Income Tax Act, the Written Down Value of such assets as per the Act shall be considered.

In the case of assets on which 100% deduction has been allowed u/s 35AD (specified business), the value of such assets will not be considered.

In the case of any other asset, value as appearing in the books of accounts shall be considered.

After considering the above points, if the resulting net worth is negative, then the cost of acquisition shall be taken as nil for the purpose of computation of capital gains.

Tax rates: The rates of tax applicable to the capital gain in a slump sale are as follows:

Short Term Capital Gain: Normal Rates of taxation

Long Term Capital Gain: 20%

Reporting Formality: The Company has to furnish a report by a Chartered Accountant as per Form 3CEA.

Taxation under GST: The basis of taxation under the Goods and Services Tax Act revolves around ‘supply’. A slump sale would also be a supply and hence fall under the purview of GST. The supply would be in the nature of ‘transfer as a going concern’ and such a transfer attracts a nil rate of GST.

Transfer as a going concern would roughly mean that the current business as a whole will be carried on by a different person or that there is a change in the ownership of the business.

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