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Category: Compliance

02 MayComplianceCorporate LawTaxationUncategorized

Understanding Audit & Assurance Services: Their Significance and Role

In the dynamic world of business, where financial transactions are the lifeblood of organizations, ensuring accuracy, transparency, and compliance is paramount. This is where audit and assurance services come into play. From scrutinizing financial statements to evaluating internal controls, these services are indispensable for maintaining trust among stakeholders and fostering confidence in the integrity of financial information. Let’s delve into what audit and assurance services entail and why they are crucial for businesses.

What are Audit & Assurance Services?

Audit Services: Audit services involve the systematic examination of an organization’s financial records, transactions, and processes to determine their accuracy and compliance with applicable laws, regulations, and accounting standards. The primary objective of an audit is to provide an independent opinion on the fairness and reliability of financial statements, which are crucial for stakeholders, including investors, creditors, and regulators, in making informed decisions.

Assurance Services: Assurance services encompass a broader spectrum, extending beyond financial statements to include various aspects of organizational performance, risk management, and governance. Unlike audits, which focus primarily on financial data, assurance engagements may involve evaluating internal controls, information systems, sustainability practices, or compliance with specific industry standards. The goal is to provide stakeholders with assurance regarding the reliability, relevance, and integrity of information.

Why are They Important?

Enhancing Transparency and Accountability: Audit and assurance services promote transparency by verifying the accuracy and completeness of financial information. This transparency enhances accountability, as organizations are held accountable for their financial performance and adherence to regulatory requirements.
Protecting Stakeholder Interests: Investors, creditors, and other stakeholders rely on audited financial statements to assess the financial health and performance of an organization. By providing independent assurance on the reliability of these statements, audit services help protect stakeholders’ interests and mitigate the risk of financial misstatements or fraud.
Facilitating Informed Decision-Making: Reliable financial information is essential for making informed business decisions. Audited financial statements provide stakeholders with a credible basis for evaluating an organization’s performance, assessing its financial position, and identifying potential risks and opportunities.
Detecting and Preventing Fraud: Auditors play a crucial role in detecting and preventing fraud by assessing internal controls, identifying control weaknesses, and investigating unusual transactions or discrepancies. Through their independent scrutiny, auditors help deter fraudulent activities and safeguard the integrity of financial reporting.
Ensuring Compliance: Compliance with legal and regulatory requirements is fundamental for organizations operating in any industry. Audit and assurance services help ensure compliance with accounting standards, tax regulations, industry regulations, and corporate governance principles, thereby reducing the risk of penalties, litigation, or reputational damage.
Improving Corporate Governance: Effective corporate governance relies on transparency, accountability, and ethical conduct. Audit and assurance services contribute to the overall governance framework by providing independent oversight, evaluating the effectiveness of internal controls, and promoting ethical behavior within organizations.

In conclusion, audit and assurance services play a vital role in maintaining the integrity, transparency, and credibility of financial information. By providing independent assurance on the accuracy, completeness, and reliability of financial statements and other organizational disclosures, these services instill trust among stakeholders and support informed decision-making. In today’s complex business environment, where risks and uncertainties abound, the importance of audit and assurance services cannot be overstated. They serve as a cornerstone of corporate governance, financial transparency, and stakeholder confidence, ultimately contributing to the long-term sustainability and success of organizations.

Ready to start investing? Explore your options with us today and save money with our financial strategies and planning services for both businesses and individuals.

Visit us at www.cogentprof.com Contact us via email at [email protected] or give us a call at +91 86961 99999

13 AprAllAnalysisBusinessComplianceCorporate LawTaxation

Understanding Tax Planning: Meaning, Objectives & How It Works

Tax planning is a vital aspect of financial management that individuals and businesses must undertake to optimize their tax liabilities while remaining compliant with legal requirements. In this article, we’ll delve into the meaning, objectives, and mechanisms of tax planning, shedding light on how it can benefit you or your business.

What is Tax Planning?

Tax planning is the process of organizing your finances in a way that minimizes your tax liability. It involves various strategies and techniques aimed at legally reducing the amount of taxes owed without violating tax laws. Effective tax planning requires careful consideration of financial decisions throughout the year to maximize tax efficiency.

Objectives of Tax Planning:

Minimization of Tax Liability: The primary objective of tax planning is to reduce the amount of taxes payable by taking advantage of available deductions, credits, exemptions, and other tax-saving opportunities.

Ensuring Compliance: While minimizing taxes is important, tax planning also aims to ensure compliance with tax laws and regulations. By staying abreast of tax laws, individuals and businesses can structure their transactions and operations in a manner that is both tax-efficient and legally sound.

Optimizing h Flow: Strategic tax planning can help optimize cash flow by timing income and expenses to minimize tax obligations in any given year. By managing cash flow effectively, individuals and businesses can improve their financial stability and reinvest savings into growth opportunities.

Wealth Preservation: Tax planning plays a crucial role in wealth preservation by implementing strategies that protect assets and minimize the erosion of wealth due to excessive taxation. This includes estate planning strategies aimed at minimizing estate taxes and facilitating the smooth transfer of assets to heirs.

How Tax Planning Works:

Tax planning involves a variety of strategies tailored to individual circumstances and financial objectives. Some common techniques include:

Income Deferral: Deferring income to future years can lower your current tax liability, especially if you expect to be in a lower tax bracket in the future.

Expense Acceleration: Conversely, accelerating deductible expenses into the current tax year can help reduce taxable income and lower your tax bill.

Investment Planning: Investing in tax-advantaged accounts such as IRAs, 401(k)s, or 529 plans can provide tax benefits while helping you build wealth for retirement, education, or other goals.

Strategic Use of Deductions and Credits: Maximizing deductions and credits, such as those for charitable contributions, mortgage interest, education expenses, and business expenses, can significantly reduce your tax liability.

Business Structure Optimization: For businesses, choosing the right legal structure, such as a corporation, partnership, or limited liability company (LLC), can have significant tax implications. Structuring business transactions and operations in a tax-efficient manner can lead to substantial savings.

Tax planning is an essential component of financial management that can help individuals and businesses minimize their tax burden while achieving their financial goals. By understanding the objectives and strategies of tax planning, you can make informed decisions that optimize your tax situation and preserve your wealth.

At Cogent Professionals, we specialize in helping individuals and businesses navigate the complexities of tax planning. Contact us today to learn how our expert tax advisors can assist you in developing a customized tax strategy tailored to your unique needs and objectives.

Maximize your tax savings and secure your financial future with our professional tax planning services. Contact us now for a consultation!

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09 AprAllAnalysisBusinessComplianceTaxation

Beginner’s Guide to Investing: Exploring Your Investment Options

“Beginner’s Guide to Investing: Exploring Your Investment Options” – Gain insights into various investment options and strategies to confidently kickstart your investment journey.

Are you someone who is looking to venture into the world of investments but feels overwhelmed by the sheer variety of options available? Whether you’re saving for retirement, planning for your children’s education, or simply aiming to grow your wealth, understanding the basics of investing is crucial for achieving your financial goals. In this comprehensive guide, we’ll walk you through the fundamentals of investing and explore various investment opportunities and strategies tailored for novice investors.

Understanding Investment Basics

Before diving into specific investment options, it’s essential to grasp the foundational concepts of investing. At its core, investing involves putting your money into assets with the expectation of generating returns over time. The key principles to understand include:

Risk and Return: Generally, higher returns come with higher risks. It’s essential to assess your risk tolerance before choosing investments.

Diversification: Spreading your investments across different asset classes can help mitigate risk and optimize returns.

Time Horizon: Your investment goals and time horizon will influence your investment strategy. Longer time horizons typically allow for more aggressive investment approaches.

Investment Options for Novice Investors

Stock Market: Investing in stocks allows you to own a portion of a company’s equity. While individual stocks can be volatile, investing in diversified stock index funds or exchange-traded funds (ETFs) can provide exposure to the broader market with lower risk.

Bonds: Bonds are fixed-income securities issued by governments or corporations. They offer regular interest payments and return the principal amount at maturity. Bonds are generally considered safer investments than stocks but offer lower potential returns.

Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets. They offer professional management and diversification, making them suitable for novice investors.

Real Estate: Real estate investment can provide passive income through rental properties or capital appreciation through property appreciation. Real estate investment trusts (REITs) offer an alternative for investors looking to invest in real estate without directly owning properties.

Robo-Advisors: Robo-advisors are automated investment platforms that use algorithms to create and manage diversified investment portfolios based on investors’ goals and risk tolerance. They offer low-cost, hands-off investment solutions for novice investors.

Strategies for Success

Start Early: Time is your most valuable asset when it comes to investing. The power of compounding allows your investments to grow exponentially over time, so it’s crucial to start investing as early as possible.

Stay Consistent: Consistent investing, regardless of market fluctuations, can help you take advantage of dollar-cost averaging and reduce the impact of market volatility on your portfolio.

Educate Yourself: Continuously educate yourself about investment fundamentals, market trends, and investment strategies. Books, online resources, and reputable financial advisors can provide valuable insights to help you make informed decisions.

Diversify Your Portfolio: Diversification is key to managing risk and optimizing returns. Spread your investments across different asset classes, industries, and geographical regions to minimize concentration risk.

Monitor and Rebalance: Regularly review your investment portfolio to ensure it remains aligned with your goals and risk tolerance. Rebalance your portfolio periodically to maintain your desired asset allocation.

Investing can seem daunting for novice investors, but with the right knowledge and guidance, it can be a rewarding journey towards financial freedom. By understanding the basics of investing, exploring various investment options, and implementing sound investment strategies, you can embark on your investment journey with confidence. Remember, investing is a marathon, not a sprint, so stay disciplined, stay focused, and reap the rewards of your investments over time.

Ready to start investing? Explore your options with us today and save money with our financial strategies and planning services for both businesses and individuals.

Visit us at www.cogentprof.com Contact us via email at [email protected] or give us a call at +91 86961 99999

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04 AprAllComplianceTaxation

7 Crucial Reasons Why Bookkeeping is Vital for Your Business’s Success

Maintaining proper bookkeeping practices is indispensable for any business, offering numerous benefits such as accurate budgeting, tax preparedness, organizational efficiency, and more. Here are seven compelling reasons why prioritizing bookkeeping is essential for the success of your business:

Facilitates Accurate Budgeting:
Bookkeeping streamlines the budgeting process by meticulously organizing income and expenses, providing a clear overview of financial resources and costs. A well-defined budget serves as a financial roadmap, aiding in planning for future expenses and fostering business growth. Without accurate and up-to-date records, budgeting becomes a mere exercise in guesswork.

Ensures Tax Preparedness:
With consistent bookkeeping practices, businesses are better prepared for tax obligations, avoiding last-minute scrambles and potential penalties. Detailed financial records enable accurate prediction of tax outcomes, ensuring compliance with HMRC requirements and minimizing stress during tax season.

Maintains Organized Records:
Regular bookkeeping prevents the chaos of last-minute searches for crucial business information, reducing the likelihood of missed deadlines and errors. By staying proactive and keeping records up to date, businesses can effortlessly access vital information when needed, enhancing efficiency and reliability.

Facilitates Goal Setting:
Clear and accurate financial records are essential for setting achievable business targets. Without reliable data for analysis, it becomes challenging to establish growth goals and measure progress effectively. By maintaining meticulous records, businesses can map out goals more accurately and strategize for sustainable growth.

Ensures Compliance with Regulations:
Adhering to government regulations, such as Making Tax Digital (MTD) initiatives, is imperative for businesses. Digital bookkeeping not only fulfills regulatory requirements but also streamlines the tax process through the use of applications and software. Utilizing user-friendly apps simplifies compliance efforts and eliminates the need for costly outsourcing.

Provides Peace of Mind:
Well-organized books alleviate the stress and anxiety associated with financial uncertainty and regulatory compliance. With tidy financial records and timely tax filings, business owners can enjoy peace of mind, knowing that their financial information is in order and ready for review, allowing them to focus on core business activities.

Facilitates Continuous Learning:
Engaging in bookkeeping activities, whether through digital platforms, workshops, or online resources, presents valuable learning opportunities for business owners. By gaining insights into their finances, individuals can make informed decisions and enhance their financial literacy, ultimately contributing to business success.

Now that the importance of bookkeeping is clear, take proactive steps to implement effective bookkeeping practices in your business. Access our free checklist for valuable tips on bookkeeping and leverage professional support from Cogent Professionals to optimize your financial management processes and achieve greater success. Start your journey towards financial efficiency today!

Visit us: www.cogentprof.com

Email: [email protected] | +91 86961 99999

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04 AprAllAnalysisBusinessComplianceTaxation

Financial Planning 101: Building a Solid Foundation for Your Future

Financial Planning 101: Building a Solid Foundation for Your Future” – Explore essential principles and best practices for effective financial planning to secure your financial future.

In today’s rapidly changing financial landscape, securing your financial future requires more than just earning a steady income. It demands strategic planning, discipline, and a comprehensive understanding of essential financial principles. Whether you’re just starting out in your career or preparing for retirement, establishing a solid foundation through effective financial planning is paramount. In this guide, we’ll delve into the fundamental principles and best practices to help you navigate the journey towards financial security.

Define Your Financial Goals:

The first step in effective financial planning is to clearly define your short-term and long-term financial goals. Whether it’s buying a home, saving for your children’s education, or retiring comfortably, having specific, measurable goals will help guide your financial decisions.

Create a Realistic Budget:

A budget is a crucial tool for managing your finances effectively. Start by tracking your income and expenses to understand your spending habits. Then, create a budget that allocates funds for essential expenses, savings, and discretionary spending. Be sure to review and adjust your budget regularly to stay on track.

Build an Emergency Fund:

Life is full of unexpected surprises, and having an emergency fund can provide a financial safety net during challenging times. Aim to save at least three to six months’ worth of living expenses in an easily accessible account. This fund will help cover unexpected expenses like medical bills or car repairs without derailing your long-term financial goals.

Manage Debt Wisely:

While some level of debt is unavoidable for most people, it’s essential to manage it wisely. Focus on paying off high-interest debt first, such as credit card balances, while making minimum payments on other debts. Avoid taking on new debt whenever possible, and consider consolidating or refinancing existing debt to lower interest rates.

Invest for the Future:

Investing is a critical component of building long-term wealth and achieving financial independence. Consider your risk tolerance, investment goals, and time horizon when creating an investment strategy. Diversify your portfolio across different asset classes to minimize risk, and regularly review and rebalance your investments as needed.

Plan for Retirement:

Retirement may seem far off, but it’s essential to start planning for it as early as possible. Estimate your retirement expenses, including healthcare costs and lifestyle preferences, and calculate how much you need to save to maintain your desired standard of living. Take advantage of employer-sponsored retirement plans like 401(k)s or IRAs, and consider working with a financial advisor to create a personalized retirement plan.

Review and Adjust Regularly:

Financial planning is not a one-time event but an ongoing process. Review your financial goals, budget, and investment strategy regularly to ensure they align with your current circumstances and future aspirations. Make adjustments as needed to stay on track towards achieving your financial goals.

Effective financial planning is essential for building a solid foundation for your future financial security. By defining your goals, creating a realistic budget, building an emergency fund, managing debt wisely, investing for the future, planning for retirement, and regularly reviewing and adjusting your financial plan, you can take control of your finances and achieve your long-term financial objectives. Remember, the key to success is consistency, discipline, and a willingness to adapt to changing circumstances.

Start building your financial foundation today for a brighter tomorrow.

Visit us: www.cogentprof.com

Email: [email protected] | +91 86961 99999

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04 AprAllBusinessComplianceCorporate LawTaxation

Navigating Tax Law Changes in India: A Comprehensive Guide for Businesses

The taxation landscape in India undergoes continuous evolution, with new tax rules in 2023 introducing numerous updates that can challenge businesses to keep pace. This dynamic environment requires adaptability from both the government, responding to economic shifts and technological advancements, and businesses, ensuring compliance with evolving laws and regulations. To effectively navigate these changes, here are key strategies for businesses to consider:

I) Engage Professional Expertise: Partnering with a reputable accounting or tax advisory firm can provide invaluable guidance. These professionals offer timely alerts on pertinent law changes and clarity on any ambiguities, aiding businesses in staying compliant.

II) Establish Effective Amendment Dates: Identifying the effective date of amendments is crucial. Establishing a soft deadline well in advance allows for adequate preparation to ensure compliance by the effective date.

III) Determine Tax Type and Adjustments: Understanding whether amendments pertain to direct or indirect tax laws informs the timing of necessary adjustments. Direct tax changes often require post-financial year adjustments, while indirect tax amendments may necessitate immediate action, such as updating point-of-sale systems for GST rate changes.

IV) Assess Departmental Impacts: Evaluate and communicate the impact of changes across various departments within the organization. Clear communication ensures that relevant departments, such as Accounts Payable or Cashiers, are informed of changes affecting their responsibilities.

V) Develop Optimal Tax Strategy: Significant amendments may prompt the need to devise a tax strategy that optimizes liability while ensuring compliance. Collaboration with external professionals can aid in crafting effective strategies to address emerging tax challenges.

Adaptability and proactivity are essential qualities in navigating tax amendments. Businesses must remain vigilant, particularly during critical periods like the Union Budget announcement in February, where tax changes are typically unveiled. While tax laws may continue to evolve, proactive preparation and strategic planning empower businesses to effectively manage tax risks.

For further insights on tax preparedness, contact Cogent Professional, a leading chartered accountant firm based in Hyderabad, at [email protected].

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03 AprAllBusinessComplianceTaxation

Maximizing Tax Savings: Strategies for Small Business Owners

In today’s economic landscape, saving money is a priority for everyone. However, as responsible citizens, paying taxes is also a crucial duty. With the financial year drawing to a close this March, it’s essential to be prepared for tax obligations. While we don’t advocate avoiding taxes or considering them a waste of money, we do believe in maximizing savings within legal boundaries.

To aid you in this endeavor, it’s vital to understand the deductions and exemptions available that can help reduce your tax liability. Every rupee saved in taxes can be reinvested into your burgeoning business. Therefore, let’s delve into some tax-saving strategies that every entrepreneur or small business owner in India should be aware of:

Optimal Business Structure:

When establishing a new business, selecting the appropriate legal structure is critical. This decision impacts compliance, tax efficiency, and operational matters. Depending on ownership and residency, businesses can be classified differently, each with its tax implications.

Leverage Income Tax Act Deductions:

Section 80C of the Income Tax Act offers deductions for investments made in various assets, including life insurance premiums, medical insurance premiums, Public Provident Fund (PPF), National Savings Certificates (NSC), and fixed deposits with a tenure of five years or more. Maximizing these deductions can significantly reduce your taxable income.

Diligent Expense Tracking:

Maintaining meticulous records of all expenses, no matter how insignificant they may seem, can lead to substantial tax benefits later on. Even seemingly mundane expenses can qualify as legitimate business expenses, enhancing your understanding of cash flows and profitability.

Capitalize on Home-Based Business Claims:

Operating a business from home allows for claiming various expenses related to the “home office,” such as rent, utility bills, property tax, and mortgage interest. This deduction is particularly advantageous for online businesses, contributing to significant tax savings.

Employ Family Members:

Hiring family members who have no other income sources enables your company to pay them up to ₹2.5 lakhs per year without incurring any tax liability for the relative. This presents a significant advantage for home-based eCommerce businesses.

Utilize Input Tax Credits (ITC):

For businesses subject to GST, availing Input Tax Credit on purchases made for business growth is imperative. Proper accounting treatment of these expenses as capital expenditures enhances eligibility for ITC, thereby reducing the overall tax burden.

Leverage Depreciation Cuts:

Under section 35AD of the Indian Income Tax Act, manufacturing businesses can claim up to 15% depreciation, with an additional 20% for specific assets. This applies to machinery and vehicles used for business purposes, bolstering tax savings.

Timely Tax Filings:

Submitting tax returns before the due date ensures the full utilization of tax benefits and avoids penalties. Professional assistance can provide actionable recommendations for maximizing deductions, and online platforms offer convenient tax filing options.

Charitable Donations for Tax Savings:

Contributing to registered charities not only serves a noble cause but also reduces your tax burden. Ensure to retain receipts for tax purposes.

Embrace Digital Transactions:

Digital payments offer dual benefits of tax compliance and transaction security. Avoiding cash payments above ₹20,000 per day enables tax deductions, while electronic invoices provide robust documentation for tracking expenses and transactions.

In an era where every rupee saved counts, embracing efficient business practices and leveraging available tax-saving avenues can significantly benefit small business owners. With Cogent Professionals, you gain free access to connect and resources simplifying business operations and financial management. We offer seamless solutions to empower your business journey.

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11 MarAllComplianceCorporate LawTaxation

Understanding the Tax Implications of Technical Services: Section 9(1)(vii) Explained

In the dynamic realm of international commerce, the taxation of technical services delineated in Section 9(1)(vii) serves as a crucial link between economic activities, legal frameworks, and fiscal responsibilities, intricately weaving together the complexities of cross-border transactions with the imperative need for regulatory clarity and compliance.

Fees for technical services [Section 9(1)(vii)]

Fees for technical services [Section 9(1)(vii)]
Any fees for technical services will be deemed to accrue or arise in India if they are payable by –
(i) the Government.
(ii) a person who is resident in India

Exception: Where the fees is payable in respect of technical services utilized in a business or
profession carried on by such person outside India or for the purpose of making or earning any
income from any source outside India.

(iii) a person who is a non-resident, only where the fees are payable in respect of services
utilised in a business or profession carried on by the non-resident in India or where such services
are utilised for the purpose of making or earning any income from any source in India.
Fees for technical services mean any consideration (including any lumpsum consideration) for
the rendering of any managerial, technical or consultancy services (including providing the
services of technical or other personnel).

However, it does not include consideration for any construction, assembly, mining or like project
undertaken by the recipient or consideration which would be income of the recipient chargeable
under the head ‘Salaries’

According to this section, any income received in India by a non-resident for fees for technical
services rendered in India or outside India is taxable in India, irrespective of whether the nonresident has a business connection or permanent establishment in India.

The term “technical services” typically refers to any consideration for rendering managerial,
consultancy, or technical services. This could include services such as:

Engineering services
Technical consulting
Software development services
Technical testing and analysis
Technical assistance in setting up plants or machinery
Any other services of a technical nature

As per India-UK Treaty:
As per para (4) of the Article-13, the term “fees for technical services” means payments of any
kind to any person in consideration for the rendering of any technical or consultancy services
(including the provisions of services of technical or other personnel) which:

(a) are ancillary and subsidiary to the application or enjoyment of the right, property
or information for which a payment described in paragraph (3)(a) of this Article is
received; or
(b) are ancillary and subsidiary to the enjoyment of the property for which a payment
described in paragraph (3)(b) of this Article is received; or
(c) make available technical knowledge, experience, skill, know-how or processes, or
consist of the development and transfer of a technical plan or technical design.

As per India-US Treaty:
As per Para – 4 of Article – 12, fees for included services” means payments of any kind to any
person in consideration for the rendering of any technical or consultancy services (including
through the provision of services of technical or other personnel) if such services :
a) are ancillary and subsidiary to the application or enjoyment of the right, property or
information for which a payment described in paragraph 3 is received ; or
b) Make available technical knowledge, experience, skill, know-how, or processes, or
consist of the development and transfer of a technical plan or technical design.

Significance of Make Available Clause:
In treaties there is make available clause in Article 12/13 which mandates that services should
“make available” technical knowledge, experience, skill, know how or processes.
The term make available has far reaching significance since it limits scope of FTS. This clause
want to retain the exclusive rights for taxing the transaction where there is no transfer or
dissemination of knowledge or skill involved.

The expression “make available” is used in the sense of one person supplying or transferring or
imparting technical knowledge or technology to another.

Technology is considered made available when the service recipient is enabled to absorb and
apply the technology contained therein without the help of service provider in the future. In
other words, technology, know-how, knowledge etc. is considered to be made available when the
service receiver is able to use such technology, know-how, knowledge etc. as owner
independently in future work.

Analysis of above provisions
➣Should be rendition of services.
➣Includes provision of services of technical and other personnel
➣The terms managerial, technical and consultancy are not defined anywhere in the
Income Tax Act, 1961. In the absence of definition under Income Tax Act the common
and general meaning of these terms should be taken into consideration (GVK Industries
Ltd. [2015] 371 ITR 453 (SC)).

In General – Consultation means an act of asking for “advice or opinion” .

Supreme Court observed that consultation means a meeting in which a party consults
or confers and eventually it results in human interaction that leads to rendering of advice.

As per Delhi ITAT in Le Passage to India Tours & Travel (P) Ltd. [2014] 369 ITR 109,
it is held that not all kinds of advisory qualify as technical services. For any consultancy
to be treated as technical services, it would be necessary that a technical element is
involved in such advisory. Thus, the consultancy should be rendered by someone who
has special skills and expertise.

➣The expression “managerial service” needs to be considered in a commercial parlance.
It has been interpreted as follows:

It signifies service for management of affairs or services rendered in performing
management functions.
It involves controlling, directing or administering the business.
It means managing the affairs by laying down certain policies, standards and
procedures and then evaluating the actual performance in light of the procedures
so laid down

➣Services are of technical nature when special skills or knowledge or education related to
a technical field are required for the provision of such services. A mere use of a standard
facility does not result into availing of technical services although such facility has been
developed with the usage of technology. (E-bay International AG vs ADIT (2012) 25
taxmann.com 500 (Mum))
➣Technical services are not limited to the professional services referred to in Article 14,
paragraph 2. Services performed by other professionals, such as pharmacists, and other
occupations, such as scientists, academics, etc., may also constitute technical services if
those services involve the provision of specialized knowledge, skill and expertise.
➣The ordinary meaning of “consultancy” involves the provision of advice or services of a
specialized nature. Professionals usually provide advice or services that fit within the
general meaning of consultancy services although they may also constitute management
or technical services.
➣The terms “management,” “technical” and “consultancy” do not have precise meanings
and may overlap. Thus, for example, services of a technical nature may also be services
of a consultancy nature and management services may also be considered to be services
of a consultancy nature.

Judicial Precedents:

➣The term managerial services, ordinarily means handling management and its affairs.
As per the concise oxford dictionary, the term managerial services means rendering of
services which involves controlling, directing, managing or administering a business or
part of a business or any other thing. (Endemol South Africa (Proprietary) Ltd. vs
DCIT [2018] 98 taxmann.com 227 (Mum ITAT))

➣The word technical is involving or concerning applied and industrial sciences.
Consultancy is generally understood to mean advisory services. Further, it may be fair to
state that not all kind of advisory could qualify as technical services. For any consultancy
to be treated as technical services, it would be necessary that a technical element is
involved in such advisory. Thus, the consultancy should be rendered by someone who
has special skills and expertise in rendering such advisory. (Skycell Communication
Ltd. vs DCIT [2001] 251 ITR 53)

➣The expression technical service would have reference to only technical service rendered
by a human being. It would not include any service provided by machines or robots.
(DDIT (International Taxation) vs Avavya Global Connect Ltd. [2011] 43 SOT 439)

➣Consultancy Services would mean something akin to advisory services pursuant to
deliberation between parties. (CIT vs Grup Ism (P) Ltd. [2015] 278 CTR 194 (Delhi))

➣The term consultancy services, in common parlance, means providing advice or advisory
services by a professional. Usually consultancy services are professional services
requiring specialized qualification, knowledge, expertise of a professional person, and
are more dependent on skill, intellect and individual characteristics of the person
rendering it. (Endemol South Africa (Proprietary) Ltd. vs DCIT [2018] 98
taxmann.com 227 (Mum ITAT))

Are you navigating the complexities of technical service taxation? Whether you’re a business owner, consultant, or taxpayer, understanding the nuances of Section 9(1)(vii) is crucial.

Stay informed and ensure compliance with the latest regulations. Reach out to us for expert guidance and assistance in managing your tax obligations effectively.

Let’s simplify the process together.

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23 FebAllCompliance

New Labour Law Codes and its Implications

The recently enacted Labour Code of 2022 in India is set to usher in significant modifications to the current compensation framework and various employment benefits. The Indian government has streamlined 29 national labor laws into four key labor codes:

The Code of Wages 2019
The Industrial Relations Code 2020
The Code of Social Security 2020
The Occupational Safety, Health and Working Conditions Code 2020

While these four codes have been enacted, they are currently pending effective implementation dates.

Key Provisions of New Labour Code 2022 and the Implications to the Employers:

The Wage Code:
The new wage code consolidates regulations pertaining to wages, bonuses, and associated matters. It introduces a standardized definition of ‘wages,’ encompassing an employee’s basic pay, dearness allowance, and retaining allowance (if applicable), with a minimum requirement of 50% of the total cost to the company. This could lead to a reduction in take-home salary in certain instances, as it may positively impact provident fund contributions and other social security benefits, which are calculated based on an employee’s basic pay or wages. Furthermore, the Act mandates the establishment of minimum wages, potentially imposing an additional financial burden on employers.

The OSH Code:
The OSH Code applies to workers, i.e., persons not engaged in managerial or administrative role, or supervisory role with a monthly wage exceeding INR 18,000. However, the provisions relating to health and working conditions apply to all employees.
The Code provides a national database for interstate migrant workers to collect, compile and analyse occupational safety and health statistics. The OSH Code also requires mandatory health checkups in establishments. Further, consent is required from the workers for overtime work for which they shall be remunerated twice the wages.

The SS Code:
The SS code provides for a separate social security fund for the unorganized workers. Under the SS Code, the Employees’ State Insurance benefits shall be extended to all industries involved in hazardous processes, i.e., irrespective of the number of employees engaged by such industries. Also, the gratuity will have to be paid on a proportionate basis to the employees employed on fixed-term contracts. The increased focus on the social security provisions for workers will ensure the optimisation of the labour force and the availability of skilled labour for employers.

The IR Code:
The IR Code looks to optimise the ease of doing business with various changes such as, the increase in threshold limit from 100 to 300 workers for the applicability of standing orders to industrial establishments. The threshold of workers for permission for layoff, retrenchment and closure in industrial establishments is increased to 300 workers. Workers’ disputes are to be resolved within 1 year by the Industrial Tribunals which will have 2 members to facilitate faster disposal of cases. Mass casual leave by more than 50% of workers on a day and strikes can be done only after adhering to certain requirements such as notice, etc.

The code emphasizes on recognition of trade unions in industrial establishments for collective bargaining. Under the IR Code, where only one trade union of workers is functioning in an industrial establishment, then the employer shall, subject to such criteria as may be prescribed, recognise such trade union as the sole negotiating union of the workers. If more than one trade union of workers functioning in an industrial establishment, then the trade union having support of 51% or more workers shall be recognised by the employer as the sole negotiating union of the workers. However, in industrial establishments in which no trade union has a membership of more than 51%, a negotiating council of trade unions shall be constituted for the purpose of collective bargaining.

Further, as per the IR Code, at the time of retrenchment of workers, the employer should contribute to the reskilling fund set up for the reskilling of retrenched workers.

The Code also restricts the engagement of contract labour/third party employees in certain core activities, which will require the organizations to review their arrangements for the engagement of the workforce.

Contract Labour Registration and Abolition Act 1970

Objective and Compliances	Regulate the employment of contract labour in certain establishments	•Registration of Establishment by Principal Employer •Maintenance of Registers(like muster roll, wage register) •Filing of Half yearly and annual returns by Principal employer •Display of abstracts of the Act on Notice board in English & local language
Applicability		•Establishment where 20 or more workman are employed in a particular year as contract labour
Key Compliances	Statutory obligations to be incorporated for contractors as Principal employer	•Contractors should be engaged in purpose as stated in the Registration certificate along with the purpose of work provided. •Contract labour shouldn’t be engaged for main activities of establishment but for ancillary activities.
Statutory Filings	Due dates and Forms	•Form I – Application for Registration under CLRA •Form V – Certificate from Employer – as and when event occurs •Form VIB- Notice of commencement or completion of contract work by Principal Employer – as and when event occurs •Form XXV –Annual return of Principal employer under CLRA – before 31st January every year
Registers to be Maintained		•Form XII – Register of Contractors •Form XVI- Muster roll •Form 13- Register of wages •Form XIII – Register of workmen employed •Form XXVI- Register of employment •Form XXIII- Register of overtime

Employee’s Provident Fund and Miscellaneous Provision Act 1952

Objective and Compliances

Regulation of PF, Pension fund and deposit linked insurance for employees

•Calculation and deposit of PF within prescribed statutory limit
•Filing of statutory returns
•PF transfers, loan against PF, pension etc

Applicability

•Every establishment having 20 or more employees
•Voluntary registration for less than 20 employees is also notified under the Act

Key Compliances

As an Employer and as a Principal employer

•Salary calculation shouldn’t be less than Minimum wages prescribed for PF Calculation
•Contractors deployed through contract labour should have a check by a Principal employer
•Option of Voluntary Provident fund
•Principal employer responsible for default of contractors

Statutory Filings

Monthly Returns

•Monthly ECR to be filed before 15th of every month
•International worker return to be filed before 15th of every month

Registers to be Maintained

As an Employer

•Eligibility Register
•Form 2- Nomination and declaration form by new employee

Employment Exchange Act 1960

Objective and Compliances		•Compulsory notifications of all vacancies in private sector establishments
Applicability		•Notification of vacancies within 15 days •Display of Abstracts of the Act in English and local language
Key Compliances		•Notification of vacancies within 15 days •Display of Abstracts of the Act in English and local language
Statutory Filings	Quarterly Returns	•Filing of quarterly return within 30 days of end of quarter. Quarter ending period 31st March, 30th June,30th September, 31st December

Employment State Insurance Act 1948

Objective and Compliances		•Compulsory insurance of specified employees •Medical benefits, maternity benefits, dependants benefits etc
Applicability	To all factories and establishments	•In which 10 or more are employed
Key Compliances	As an Employer and Principal Employer	•Principal Employer responsible for default of contractors
Statutory Filings	Monthly Returns & Annual returns	•Before 21st of every month •Form 01-A –before 31st Jan every year
Registers to be maintained		•Attendance and wage registers •Register of payments/contributions – Form 6 •Accident register – form 11 •Employee register –Form 7

Payment of Bonus Act 1965

Objective and Compliances		•Payment of bonus to person employed in establishment on the basis of profits or basis of production
Applicability	Applicable for Establishment and Factory	•In which 20 or more persons are employed in a year drawing remuneration of wages 21000/- per month
Key Compliances		•Computation of gross profits and bonus payable as per the computation •Payment of bonus within statutory time limit
Statutory Filings	Annual Filings	•Form D- Before 31st Jan every year
Registers to be maintained		•Form A – Allowance of surplus in the format specified •Form B –Set on and Set off of allowable surplus •Form C – Amount of bonus due to each employee

Factories Act 1948

Objective and Compliances		•It primarily deals with safety measures, welfare measures, working hours etc
Applicability	Applicable for Establishment and Factory	•In which 10 or more persons are employed in a year
Key Compliances		•It provides the safety measures, working hours, annual leaves with wages, weekly holidays, weekly hours, overtime , crèches etc
Statutory Filings	Annual Filings	•Before 31st January every year
Registers to be maintained		•Form 15 and 16- Register of leave with wages •Form 20- Accident register •Form 29- Muster roll •Form 13- Register of workers •Form 10- Register of compensatory holidays

Maternity Benefit Act 1961

Objective and Compliances		•It provides full and healthy maintenance of woman and her child while she is not working
Applicability	As an Employer and Principal Employer	•For all women employed in Factories, Establishments of 10 or more
Key Compliances		•Claim of benefits •Leave for illness arising out of pregnancy •Grant of maternity leaves with benefits
Statutory Filings	Annual Return	•Before 31st January every year
Registers to be maintained		•Form 22-Maternity benefit register •Form A – Muster roll •Form 19- Maternity form benefit

Shops and Establishment Act

Objective and Compliances		•TO provide working conditions of work and employment in shops and establishments
Applicability		•Applicable to all establishments/commercial establishments
Key Compliances		•Need to check on working hours,overtime spent, rate of overtime wages •Maintenance of registers in prescribed format by employers •Display of license and abstracts of the act on notice board of the company
Statutory Filings
Registers to be maintained		•Form A- Application for registration/renewal •Form C- Certificate of registration/Register of employees •Form F –Register of leave with wages •Form H – Leave with wages book •Form J – Leave details •Form P – Notice of display •Form Q – Appointment letter •Form R – Permission to allow women employees to work after 8PM •Form N – Register of employment and overtime payment •Form T – Combined Muster roll with wage register •Form U- Combined Annual return

Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act 2013 and Rules

Objective and Compliances		•To protect and prevent women from any sexual harassment in their places of work and provide them to lead healthy and professional safe life
Applicability		•It is applicable to all women workmen employed by employer at his workplace.
Key Compliances		•Constitution of Internal Complaints Committee (ICC) with majority constitution of women and an external nominee who is familiar with issues of sexual harassment •Conduct of awareness workshops at regular intervals •Display of penal consequences of sexual harassment if any
Statutory Filings	Annual Returns	•To be filed before 31st January every year
Other Points to be noted		•Documents to be maintained as per the sequence of events if any •Non –compliance shall be penalized with a fine of Rs.50,000 and can be extended for cancellation of business license incase of repeated non-compliance. •Display of Notice of Sexual Harassment policy on Notice board with details of Name and contact number of ICC Members

Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act 1979

Objective and Compliances

•To regulate employment of inter – state migrant workmen & provide for their conditions of services

Applicability

Employer/Principal Employer

•It is applicable to all establishments/contractors employing 5 or more Inter-State migrant workmen on any day in the financial year.

Key Compliances

•Registration under the said act
•License of contractors, welfare and other facilities to inter-state workmen etc

Statutory Filings

Half yearly and Annual Returns

•Form XXIII – Half yearly return – before 30th July and 30th Jan on details of workers engaged and wages paid and other amenities provided

Registers to be maintained

•Principal Employer to maintain register of contractors –Form XII
•Principal Employer and contractor to maintain registers – Form XIII
•Termination Certificate – XIV
•Muster Roll – XVII and XVIII
•Register of Overtime – XXII
•Display of Abstracts on Notice board

National And Festival Holidays Act 1963

Objective and Compliances		•To provide for the grant of national and festival holidays to employees
Applicability	Employer/Principal Employer	•It is applicable to all establishments
Key Compliances		•Mandatory National and Festival Holidays •Compensatory Holiday when employee works on any holiday
Statutory Filings	Annual Returns	•To be filed before 31st December every year
Other Points to be noted		•Display of list of holidays on Notice board of the company for a particular calendar year •Entitlement of twice the wages and substituted holiday within six months to such employee who worked on any holiday.

Payment of Gratuity Act 1972

Objective and Compliances		•It is a social security measures to employees who has rendered continuous service
Applicability	Employer	•It is applicable to all establishments having 10 or more employees
Key Compliances		•It is applicable for employees who rendered continuous services for five years or more •Registration of establishment •Payment of Gratuity
Statutory Filings	Annual Returns	•To be filed before 31st January every year
Registers to be maintained		•Display of abstract of the Act •Form F – Nomination •Form C- Notice of Closure

Welfare Fund Act 1987

Objective and Compliances		•It is a social security measures to employees and contribution is done by both employee and employer
Applicability	Employer	•It is applicable to all establishments having 5 or more employees
Key Compliances		•It is applicable for employees who rendered continuous services for five years or more •Registration of establishment •Payment of Gratuity
Statutory Filings	Annual Returns	•To be filed before 15th January/15th July every year
Registers to be maintained		•Form A – Register of wages •Form E – Register of Unclaimed wages

Payment of Wages Act 1936

Objective and Compliances		•To regulate payment of wages for employees
Applicability	Employer	•It is applicable to all establishments
Key Compliances		•Payment of wages within 7 days/10 days of succeeding month •Display of Abstracts of the Act •Display of wages paid date on notice board of the company
Statutory Filings	Annual Returns	To be filed before 31st January every year
Registers to be maintained		•Form B – Register of wages •Form II – Register of deductions for damage or loss •Form C – Register of Fines •Form III – Register of advances •Form XI – Register of attendance

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15 DecAllCompliance

Determining a Company’s Tax Residency Through Place of Effective Management [PoEM]

Determining a Company's Tax Residency Through Place of Effective Management [PoEM]

The Place of Effective Management (PoEM) is a crucial factor in determining the residential status of companies established in foreign jurisdictions, particularly in the context of tax treaties involving India. This criterion holds significant importance and serves as a pivotal element in preventing occurrences of double taxation.

According to section 6(3) of the Income-tax Act, 1961, a company is deemed a resident of India if it meets either of the following conditions:

a) It qualifies as an Indian company.
b) Its place of effective management is situated in India.

In essence, PoEM acts as a decisive factor in delineating the tax obligations of foreign-based companies, ensuring clarity and fairness in the global taxation landscape.

The term “Place of Effective Management” (PoEM) refers to the pivotal location where crucial management and commercial decisions essential for the overall functioning of an entity are made.

Commercial decisions encompass significant choices such as:

a) Initiating a major manufacturing facility
b) Ceasing a substantial product line.

For Income Tax purposes, the determination of residential status must be conducted annually, necessitating the assessment of PoEM on a yearly basis. However, it’s noteworthy that these PoEM provisions do not extend to companies with a turnover or gross receipts of Rs 50 crore or less in a financial year.

The guiding principles for establishing PoEM include:

Active Business Outside India (ABOI) Test
Key Management Test
Head Office Test
Miscellaneous

These principles collectively aid in pinpointing the precise location where decisions crucial to the entity’s operations are formulated.

1) Active Business Outside India (ABOI) test

The Active Business Outside India (ABOI) test determines the Place of Effective Management (PoEM) of a company. If a company engages in active business outside India, its PoEM is presumed to be outside India when the majority of its board meetings are conducted abroad. For a company to qualify as having ABOI, it must meet the following criteria:

a) Passive Income Threshold:

The company’s passive income, comprising income from the exchange of goods with associated enterprises and earnings from royalty, dividend, capital gains, interest, or rental income, should not exceed 50% of its total income.

b) Asset Location:

Less than 50% of its total assets should be situated in India. For depreciable assets, the value is calculated as the average of the Written Down Value (WDV) at the beginning and end of the financial year. If asset valuation is not required for tax purposes, the value will be based on the company’s books of account.

c) Employee Distribution:

Less than 50% of its total number of employees should be located in India or be residents of India. The total number of employees is determined by averaging the count at the beginning and end of each year.

d) Payroll Expenses:

The payroll expenses incurred on these employees should be less than 50% of the company’s total payroll expenditure. The term ‘payroll’ encompasses salaries, wages, bonuses, and all other employer-paid employee costs.

Note: These ratios are to be evaluated based on the average of the data from the previous year, with consideration given to the two years preceding it.

2) Key Management Test

The assessment of Place of Effective Management (PoEM) for companies within India involves a two-stage evaluation when the Active Business Outside India (ABOI) is not a factor:

i) Identification of individuals responsible for pivotal management and commercial decisions encompassing the entire company,
ii) Determination of the location where these decisions are formulated.
It is crucial to note that, in determining a company’s PoEM, the emphasis lies more on the place where commercial decisions are made rather than where they are executed.
The critical decisions steering the company can emanate from:
(i) The board of directors,
(ii) An executive committee duly authorized by the board, or
(iii) Senior management acting within the bounds of board authorization.

3) Head Office Test

The assessment of a company’s Place of Effective Management (PoEM) hinges significantly on the strategic positioning of its Head Office. Several key considerations come into play when determining the location of a company’s head office:

i) In cases where the senior management and support staff are centralized in a single location, that specific place becomes the designated head office of the company.
ii) For companies adopting a more decentralized structure, where senior management members are dispersed across various locations, the head office is identified as the primary location where these senior executives are based. This could also be the place they habitually return to after traveling or where they convene to make pivotal decisions crucial to the company’s operations.
iii) If the senior management is spread across different locations but engages in meetings through remote means such as telephone or video conferencing, the head office is then determined to be the location where the highest echelon of management, such as the Managing Director or Financial Director, is situated.
iv) In instances where a company’s decentralization is so extensive that pinpointing a specific head office becomes impractical, the location of the head office becomes irrelevant in determining the PoEM.

It’s important to note that while a company may have multiple places of management, there can only be one effective place of management in any given case. The determination of PoEM remains contingent upon the unique facts and circumstances of each situation.

4) Miscellaneous Considerations

In cases where the factors mentioned earlier do not distinctly establish the Place of Effective Management (POEM), additional secondary factors come into play. These include:

i) Location where the primary activities of the company are conducted; or
ii) Location where the company’s accounting records are maintained.

These supplementary criteria contribute to a comprehensive assessment, offering further insights into determining the POEM when the primary factors may not yield a clear conclusion.

Example 1:

IQL INC., a sourcing entity for a leading Indian multinational group, is incorporated in the United States as a 100% subsidiary of VQL Ltd, an Indian company. The sole assets of the company are warehouses located in the USA, and all employees are based in the country. Over the past three years, the company’s total income can be categorized as follows:

i) 30% of income originates from transactions where purchases are made from non-associated enterprises and subsequently sold to associated enterprises.
ii) Another 30% of income is derived from transactions involving purchases from associated enterprises and subsequent sales to associated enterprises.
iii) An additional 30% of income is generated through transactions where purchases are made from associated enterprises and sold to non-associated enterprises.
iv) The remaining 10% of income is in the form of interest.

Interpretation:

In this scenario, passive income constitutes 40% of the company’s total income. This passive income is comprised of:

i) 30% from transactions where both the purchase and sale involve associated enterprises.
ii) 10% from interest. IQL INC. fulfills the initial requirement of the active business test outside India. Given that neither assets nor employees of IQL INC. are situated in India, the company satisfies the other criteria of the test. Therefore, it can be concluded that the company is actively engaged in business outside India.

Example 2:

In the context of IQL INC, we revisit the scenario presented in Example 1, but with a distinctive element. IQL INC boasts a workforce of 50 employees, with the majority—47 employees—dedicated to managing the company’s warehouse, storekeeping, and accounts, all stationed in the USA. Meanwhile, the key leadership roles, including the Managing Director (MD), Chief Executive Officer (CEO), and sales head, are based in India. The overall annual payroll expenditure for these 50 employees amounts to INR 5 crore, with INR 3 crore specifically allocated to the MD, CEO, and sales head.

Interpretation:

Upon analysis, it is evident that the initial condition of the active business test is met, given that only 40% of IQL INC’s total income is passive. Moreover, over 50% of the workforce operates outside India, and all company assets are situated abroad. However, a critical point arises as the payroll expenditure related to the MD, CEO, and sales head—who are Indian residents—surpasses 50% of the total payroll expenditure. This specific factor leads to the conclusion that, despite satisfying certain criteria, IQL INC cannot be deemed as actively engaged in business outside India.

Example 3:

The fundamental details align with those in Example 1. Adding to these, it’s noteworthy that every director at IQL INC is a resident of India. In the pertinent previous year, the Board of Directors convened for 5 meetings, with two in India and three abroad—specifically, two in the USA and one in the UK.

Interpretation:

Scrutinizing the facts as laid out in Example 1, it is evident that IQL INC actively conducts business beyond the borders of India. The preponderance of board meetings transpiring outside India implies that the Presumptive Place of Effective Management (POEM) for IQL INC is to be considered as being outside India.

Example 4:

The circumstances mirror those outlined in Example 3, with the additional revelation that the Assessing Officer has confirmed a crucial aspect: while the senior management team at IQL INC signs all contracts, decisions on contracts exceeding INR 10 lakh require a recommendation from IQL INC to be submitted to VQL Ltd. It is VQL Ltd that ultimately decides whether to accept or reject these contracts. Notably, more than 99% of contracts during the previous year exceeded the INR 10 lakh threshold, and this pattern has persisted over several years.

Interpretation:

These details strongly indicate a substantial influence from the parent company, VQL Ltd, over the effective management of IQL INC. Consequently, even though IQL INC actively conducts business outside India and conducts a majority of its board meetings abroad, it is suggested that the Place of Effective Management (POEM) for IQL INC should not be presumed to be outside India in such instances. The preeminent role played by VQL Ltd in decision-making implies a significant influence that shapes the POEM considerations for IQL INC.

Example 5:

An Indian multinational conglomerate operates through its local holding company, A Co., situated in country X. A Co. oversees 100% downstream subsidiaries, namely B Co. and C Co. in country X, and D Co. in country Y. A Co.’s income is derived exclusively from dividends and interest generated by investments in its subsidiaries. The Place of Effective Management (POEM) for A Co. is located in India and is administered by the ultimate parent company of the group. Notably, subsidiaries B Co., C Co., and D Co. are actively involved in business operations beyond India, with board meetings conducted in country X and Y for B Co. and D Co., respectively.

Interpretation:

Merely having the POEM of an intermediate holding company in India does not automatically imply that the POEM of its subsidiaries shares the same jurisdiction. It is imperative to individually assess each subsidiary. In the presented scenario, despite A Co.’s POEM being in India, the subsidiaries B Co., C Co., and D Co. operate independently, engaging in active businesses outside India. The majority of their board meetings also take place beyond India. Consequently, the presumption is that the POEM of B Co., C Co., and D Co. lies outside the borders of In

Example 6:

VDKS Inc., a Swedish company with its headquarters in Stockholm, lacks a permanent establishment in India. However, it established a liaison office in Mumbai in April 2023, adhering to RBI guidelines. The purpose of this office is to oversee day-to-day business operations in India, promote awareness about the company’s products, and explore potential opportunities. The liaison office is involved in making decisions related to routine operations and handles support functions that are preparatory and auxiliary. Nonetheless, significant management and commercial decisions remain the prerogative of the Board of Directors in Sweden.

Interpretation:

In this scenario, VDKS Inc. being a foreign company would be considered a resident in India for the Previous Year (P.Y.) 2023-24 only if its place of effective management in that year is in India. Despite having a liaison office in India, the location where decisions pertaining to day-to-day operations and preparatory or auxiliary support functions are made does not impact the determination of the place of effective management. Consequently, VDKS Inc., as a foreign company, maintains its non-resident status for the Assessment Year (A.Y.) 2024-25, given that its place of effective management remains outside India in the P.Y. 2023-24.

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Determining a Company's Tax Residency Through Place of Effective Management [PoEM]

1) Active Business Outside India (ABOI) test

2) Key Management Test

3) Head Office Test

4) Miscellaneous Considerations

Example 1:

Interpretation:

Example 2:

Interpretation:

Example 3:

Interpretation:

Example 4:

Interpretation:

Example 5:

Interpretation:

Example 6:

Interpretation:

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