Sweat Equity Shares:

Meaning: Sweat equity shares are equity shares issued by a company to its employees or directors at a discount, or as a consideration for providing know-how or a similar value to the company.

Procedure and conditions to be fulfilled to issue Sweat Equity Shares:

A company may issue sweat equity shares of a class of shares already issued if these conditions are met:

a.   The issue of sweat equity shares should be authorised by a special resolution passed by the company in a general meeting.

b.   The resolution should specify the number of shares, current market price, consideration, if any, and the section of directors /employees to whom they are to be issued.

c.    A separate resolution should be passed if the shares to be issued (during any one year, to identified employees and promotes) is equal to or exceeds 1% of the issued capital (excluding outstanding warrants and conversion) as stood on the day of grant of sweat equity shares

d.      The Explanatory Statement should include the following details:

                                                              i.      The date of the meeting;

                                                             ii.      Reasons/justification for the issue;

                                                         iii.    The number of shares, consideration for such shares and the class or classes of persons to whom such equity shares are to be issued;

                                   iv.    The value of the sweat equity shares along with valuation report/ basis of valuation and the price at the which the sweat equity shares will be issued;

                                  v.      The names of persons to whom the equity will be issued and the person's relationship with the company;

                                                         vi.    Ceiling on managerial remuneration, if any, which will be affected by issuance of such equity;

                                                     vii.      A statement to the effect that the company shall conform to the accounting policies specified by the Central Government; and

                                                viii.      Diluted earning per share pursuant to the issue of securities to be calculated in accordance with the Accounting Standards specified by the Institute of Chartered Accountants of India.

e.   As on the date of issue, a year should have elapsed since the company was entitled to commence business. 

Listed Company: on Recognized Stock Exchanges

a.    SEBI (Issue of Sweat Equity) Regulations, 2002 has to be followed to issue sweat equity shares.

Listed Company: on Unrecognized Stock Exchanges

a. Sweat equity shares can be issued in accordance with such guidelines as may be prescribed.

b.     SEBI also prescribes the accounting treatment of sweat equity shares. Thus, sweat equity is expensed, unless issued in consideration of a depreciable asset, in which case it is carried to the balance sheet.

Unlisted Company:

a.      Unlisted Companies (Issue of Sweat Equity) Rules, 2003 has to be followed

b.      Sweat equity shares cannot be issued before one year of commencement of operations.

c.     Unlisted companies cannot issue more than 15 percent of the paid-up capital in a year or shares with a value of more than Rs 5 crores - whichever is higher - except with the prior approval of the central government. If the sweat equity is being issued for consideration other than cash, an independent valuer has to carry out an assessment and submit a valuation report.

d.  The company should also give 'justification for the issue of sweat equity shares for consideration other than cash, which should form a part of the notice sent for the general meeting'.

e.   The board of directors' decision to issue sweat equity has to be approved by passing a special resolution at a shareholders' meeting later in the year. The special resolution must be passed by 75 percent of the members attending voting for it.

f.       Sweat equity shares are no different from employee stock options with a one year vesting period. It is essential when a company is formed, to assure the financial investors that the knowhow providers will stay on, or for a start-up with limited resources to attract highly-qualified professionals to join the team as long-term stakeholders.

g.    These shares are given to a company's employees on favourable terms, in recognition of their work. Sweat equity usually takes the form of giving options to employees to buy shares of the company, so they become part owners and participate in the profits, apart from earning salary.

h.  Section 79A of the Companies Act lays down conditions for the issue of sweat equity shares.

 

Lock in period:

 

The Sweat Equity Shares issued shall be locked in for a period of three years from the date of allotment.

Issue of Sweat Equity for a consideration other than Cash

If the sweat equity is issued for consideration other than cash, then company shall comply with following:

• The valuation of the intellectual property or of the know-how provided or other value addition to consideration at which sweat equity capital is issued, shall be carried out by a valuer;
• The valuer shall consult such experts, as he may deem fit, having regard to the nature of the industry and the nature of the property or the value addition;
• The valuer shall submit a valuation report to the company giving justification for the valuation;
• A copy of the valuation report of the valuer shall be sent to the shareholders with the notice of the general meeting;
• The company shall give justification for issue of sweat equity shares for consideration other than cash, which shall form part of the notice sent for the general meeting; and
• The amount of Sweat Equity shares issued shall be treated as part of managerial remuneration .

Placing of Auditors Report before the Annual General Meeting.

In the General meeting subsequent to the issue of sweat equity, the Board of Directors shall place before the shareholders, a certificate from the auditors of the company that the issue of sweat equity shares has been made in accordance with the Regulations and in accordance with the resolution passed by the company authorizing the issue of such Sweat Equity Shares.

 

Disclosure in Director's Report:

 

The Board of Directors, shall, inter alia, disclose either in the Directors' Report or in the annexure to the Director's Report. Disclosure to include number of shares to be issued, conditions for issue, pricing formula, the total number of shares arising as a result of issue, money realised or benefit accrued to the company, diluted Earnings per Share (EPS) pursuant to issuance of sweat equity shares.

Registers :

The company shall maintain a specified register

Compliance Certificate

 

A certificate of compliance (with the rules framed by the authorities) duly signed by the auditors or practising company secretary should be placed before the shareholders at the annual general meeting. 

Tamil Nadu VAT Audit

Introduction:                                                                                                               

The Legislative Assembly of the State of Tamil Nadu in the 57^th Year of the Republic of India had formulated the Act and Rules consolidating and amending the law relating to the levy of tax on the sale or purchase of goods in the State of Tamil Nadu. The Act so formulated is the Tamil Nadu VAT Act 2006 and the Rules formulated by the Government of Tamil Nadu is the Tamil Nadu VAT Rules 2007.

Applicability:

The Act and the Rule has come into force on January 1, 2007 and it is applicable to the whole State of Tamil Nadu.

Tamil Nadu Vat Act 2006:                                                                                                                  

As per this Act every dealer shall pay tax at the rate specified on every sale of the goods specified in the First Schedule.

Every dealer dealing in goods subject to VAT, is eligible to deduct the tax paid on purchases (input tax) from the tax payable on sales, subject to the conditions prescribed.

Tamil Nadu Vat Audit:

Section 63 A – TNVAT Act, 2006

Subject to the Circular No. 09 / 2012  Dated 14th September, 2012  issued by the Department, a new Section 63-A to TNVAT Act, 2006 has been introduced by the Act No.18 of 2012.

As per this Section a registered dealer has to get his accounts audited by an accountant if the total turnover of the dealer including zero rate sale and sale in the course of inter-state trade or commerce as specified in section 3 of the CST Act, 1956 exceeds one crore rupees in a year.

The Accountant here includes a Cost Accountant or a Chartered Accountant.

Applicability: The TNVAT Audit is applicable from the FY 2012-13.

Rule 16 A of the TNVAT Rules, 2007

Rule 16A of TNVAT Rules, 2007 was formulated to provide the procedure for filing the Mandatory Audit Report with the Commercial Taxes Department.

As per this every registered dealer liable to get his accounts audited as provided under sub-section (1) of section 63 A shall furnish the audit report in Form – WW within 7 months from the end of the year in duplicate.

The following information has to be provided along with the Form WW (Audit Report U/S 63-A of the Tamil Nadu Value Added Tax Act, 2006):

-          Summary of the additional tax liability or additional refund due to the dealer as on the date of the audit for the year.

-          Annexure:

o        Part A – General Information

o        Part B – Computation of Turnover Assessable under the Tamil Nadu Value Added Tax Act, 2006

o        Computation of Purchases.

o        Details of Input Tax Credit Reversal / Adjustment

o        Turnover under the Central Sales Tax Act, 1956

o        Details of Input Tax Credit availed on purchase of Capital Goods (Other than parts and accessories)

o        Total input tax credit on Capital goods

o        Details of delayed filing of returns / payment of taxes

o        In case of trading concerns other quantitative information

The Notice for the levy of penalty / Interest will be issued in Form RR

Pre Budget 2013 Expectations

The below note covers the following areas:

1. Predictions of Budget 2013
2. Expectations by Companies
3. What a Common Man wants out of the budget 2013.

A. PREDICTIONS OF BUDGET 2013:

While preparing the Budget the following points would be considered.

-          Macroeconomic issues – ie. deficits, inflation, interest rates,  savings and investment, which includes the flow of foreign funds - FII and FDI.

-          Prior to last year’s Budget 2012-13, India was battling high inflation at 9 percent, fiscal deficit at 5.9 percent of GDP and a current account deficit (CAD) at 4.2 percent of GDP. And Prior to this year’s Budget though we find that the inflation has eased, fiscal deficit at 5.3 percent of GDP and CAD at 4.6 percent of GDP does not augur well for the economy. Also, the consumer price index remains high due to food inflation

The Budget may focus on the following:

Positive Items

Unenthusiastic Items

In addition to higher fiscal deficit we also find that the value of the rupee is falling down. There by our Finance Minister (FM) may concentrate in balancing savings for individuals (allowing them to cope with inflation) with attempting to increase foreign fund flows into the country to rein in its fiscal deficit. The focus may be on laying the groundwork for channelising a greater chunk of domestic savings into the capital market. FDI in retail and civil aviation and decontrolling fuel prices may be concentrated in this Budget With pressure from rating agencies to cut down its deficit showing no signs of abating and with India’s investment grade rating in the balance, one of the priorities of Budget 2013 would be to avoid a junk rating. The Individual tax base may be increased. There may be an increase in the limit of tax deducted at source (TDS) on bank deposits. Marginal tax rates may be raised to 35-40 percent beyond the threshold. Tax incentives on various savings in financial instruments may be provided to make them more attractive for investors. The corporate bond market could also be deepened to attract foreign capital by cutting withholding tax rates. There could be sector-specific sops to encourage investment in infrastructure. Along with this, there could be an increase in limits for tax-free bonds. The capital goods sector may get some respite with an increase in import duties and higher depreciation. Budget 2013 could also elaborate more on the implementation of the Goods and Services Tax (GST), which is essential to overhaul the economy and spur GDP growth.

a.       Steps may be taken to raise government revenues from direct taxes by means of increasing the tax base. As a result more services may be brought into the tax net and also the excise duty may be increased selectively. b.       There could be an introduction of an inheritance tax. c.       Steps may be taken to curb gold imports. d.       Government Expenditure may be curbed by means of cuts in defence, railways and in other ministry budgets. Latest reports suggest he may cut the public spending target by about 10 percent. (This increased the cost of living). e.       The government may be trying to mobilize additional tax revenues.

B. (1) EXPECTATIONS FROM COMPANIES:

Auto industry hopes for excise duty cut on small cars to 10 percent from 12 percent

o        Budget may impose additional duty on diesel cars and utility vehicles

o        Roadmap expected for capital infusion into state-owned banks

o        IT services providers hope for clarity around transfer pricing norms, foreign tax credit and refund of service tax claims

o        Telecommunications companies lobby for reduction in levies and tax breaks

o        Real estate sector wants tax concessions and other fiscal benefits to builders, financiers and buyers of affordable housing

o        Retail and consumer goods companies want industry status and an independent ministry set up for retail as well as a cut in rate of service tax on commercial property rent

o        Budget may propose increase in excise duty for cement makers

o        May remove import duty on thermal coal and introduce tax-free bonds for power sector.

B. (2) OTHER EXPECTATIONS:

(i) Inverted duty structure for manufacturers of IT products. The impact of inverted duty structure is that it effectively makes direct import by end- customers or trading (i.e. import and sale) of IT products advantageous in comparison to manufacturing of IT products in India.

(ii) Nil rate of CST against Form C purchases of ITA products manufactured in India
It is recommended that sales of ITA bound products manufactured in India for subsequent sale (i.e. resale) against Form C be taxed @ 0% so that manufacturing is not placed in a disadvantageous position vis-à-vis trading/direct imports. For example, if manufacturing units are located in one State, the manufactured products attract a CST at 2% in inter-state sales, while traders/direct importers import the goods into the State of consumption and totally avoid the CST cost, thus putting domestic manufacturing at a disadvantage.

(iii) Removal of Basic Customs Duty on IT accessories. Given that such accessories such as adapters, battery, laptop carry bags, speakers form critical parts of the main IT product, imposing custom duties on the same increases the cost in the hands of the manufacturers (and disincentivises manufacturing), which impacts the pricing to end-customers.

(iv) Enhancement of MRP abatement. Considering the prevalent rates of excise duty, sales tax in addition to logistics/transportation costs and dealer margins, we recommend that this anomaly should be corrected by increasing the abatement from existing rate to 40% on IT products.

C. WHAT A COMMON MAN WANTS OUT OF THE BUDGET 2013.

TAX EXEMPTION

With rising inflation hitting pockets hard, raising the tax exemption limit to 300,000 rupees from 200,000 rupees would leave more disposable income in the hands of taxpayers, particularly those in the lower income bracket.

INVESTMENT LIMIT

The Income-Tax Act provides for a deduction of up to 100,000 rupees for certain investments/expenses such as retirement funds and insurance payments. In the absence of state-funded social security schemes, it is important for people to secure their post-retirement life. Increasing the limit to 300,000 rupees will encourage such investments. Further deductions like Section 80CCF (investing in infrastructure bonds) are also welcome as apart from encouraging savings, they also enable the government to direct the funds to priority sectors.

HOUSE LOANS:

Every Indian dreams of owning a house. But while property prices are soaring, the interest deduction of 150,000 rupees on self-occupied property is too low. The limits should be increased to 500,000 rupees.

HEALTHCARE

The rising cost of medical care is hurting the common man. Raising the exemption limits for reimbursement of medical expense to 75,000 rupees from 15,000 rupees should provide some succour. The deduction limit under section 80D for health insurance premiums should also be increased to 50,000 rupees from 15,000 rupees with more and more people opting for health insurance

ALLOWANCES

While conveyance and education expenses have surged, the exemption limits haven't kept pace. These limits should be increased in proportion to the amounts spent.

STANDARD DEDUCTION

Salaried employees incur various expenses for upgrading their skill sets. But they are not allowed deduction of any expenses incurred during employment. A standard deduction up to 30 percent of salary with an upper limit of 75,000 rupees should be provided.

ESOPs

Employee Stock Option Scheme (ESOPs) issued free of cost or at concessionary rates are taxed on the difference between fair market value and the amount actually paid by the employee. Levy of income tax on date of exercise creates a liability on the employee to pay tax on gains which are purely notional. Such taxation makes ESOPs less lucrative. Since ESOPs are a critical, motivational and retention tool for companies to retain talent, they should be taxable only on sale of shares.

REFUNDS

Revenue authorities need to ensure taxpayers get refunds and tax credit on time. This will encourage more Indians to pay tax.

SECURITIES TRANSACTION TAX:

The current Securities Transaction Tax (STT) is seen as a stumbling block for institutions as well as reluctant individual investors in the equity market and they have been demanding a reduction. This could be met to an extent to boost the investment sentiment but could be balanced with the introduction of a Commodity Transaction Tax (CTT). This could be a tool to curb excessive speculation and bring in transparency in commodity transactions.

MCA Notification and Circulars – Dec 2012

MCA Notification:

1. Amendment to the Directors Identification Number Rules 2006:

Dated: Dec 24, 2012

Crux of the Circular:

1. These rules have replaced the existing form DIN 1 and DIN 4.

Annexure to be attached to DIN 1:

An affidavit is to be taken from the applicant as said in the below link. The affidavit is to be notarized in Non Judicial stamp paper of RS. 10 and the same has to be scanned and attached to the Form DIN 1.

http://mca.gov.in/Ministry/pdf/G.S.R%28E%29_DIN1_24dec2012.pdf

Below link is for DIN 4:

http://mca.gov.in/Ministry/pdf/G.S.R%28E%29_DIN4_24dec2012.pdf

2. Change in the Form 18:

Date: Dec 24, 2012

Crux of the Circular:

As per the Companies (Central Government’s) General Rules and Forms (Seventh Amendment) Rules, 2012, the Ministry has amended the Form 18, the standard filing for situation of the registered office or any change thereof. Under the new form, onus has been put on the chartered accountant (CA), cost accountant or company secretary (CS) who verifies the filing to physically check the existence of the company.

http://mca.gov.in/Ministry/pdf/G.S.R%28E%29_Form18_24dec2012.pdf

http://www.business-standard.com/india/news/cacs-to-physically-verify-company-addresses/200933/on

MCA Circulars:

1. Extension of date in filing the Cost Audit. Company Report in the XBRL format:

Circular No : 43/2012 dated Dec 26, 2012

Crux of the Circular:

As per this circular all the Companies / Cost Auditors are allowed to file the Cost Audit Reports and Compliance Reports for the year 2011-12 [including the overdue reports relating to any previous year(s)] with the Central Government in the XBRL mode, without any penalty, within 180 days from the close of the company’s financial year to which the report relates or by January 31, 2013, whichever is later.

http://mca.gov.in/Ministry/pdf/General_Circular_43_2012.pdf

2. Filing of Form 68 for rectification of mistakes in Form 1, Form 1A and Form 44:

Circular No : 42/2012 dated Dec 21, 2012

The Companies are allowed to rectify the mistakes made in Form 1, Form 1A and Form 44 filed in electronic form by filing Form 68 with the respective fee as follows:

Fee details to be filed along with Form 68:

For Form 1 and 1A : Rs. 1000

For Form 44: Rs. 10000

Form 68 has to be filed with 365 days from the date of approval of the aforesaid forms by the Registrar concerned.

In this regard the first Form 68 can be filed within 180 days from the effective date of this circular ie. Dec 23, 2012

http://mca.gov.in/Ministry/pdf/General_Circular_42_2012.pdf

NBFC – Core Investment Company

Criteria to be fulfilled to be a NBFC under section 45 I of the RBI act 1934.

-          The most important is that the principal business of the Company should be evident enabling us to classify it as an NBFC.

[As per the RBI press release in April 1999 Principal business is that if the financial assets of a company are more than 50 per cent of its total assets (netted off by intangible assets) and income from financial assets is more than 50 per cent of the gross income]

Core Investment Company

Core Investment Companies (CICs) were not considered as carrying on the business of acquisition of shares and securities in the following circumstances, namely,

(i)       not less than 90% of their assets were in investments in shares for the purpose of holding stake in the investee companies;

(ii)     they were not trading in these shares except for block sale (to dilute or divest holding);

(iii)    they were not carrying on any other financial activities; and

(iv) they were not holding / accepting public deposits.

As such, companies fulfilling the above criteria were not required to obtain Certificate of Registration (COR) from RBI under Section 45 IA of the RBI Act 1934. It has been found in practice, that it is very difficult to determine whether a company has invested in the shares of another company for the purpose of holding stake or for the purpose of trade. Even where initially investments had been made in some cases for holding stake in the investee company, for various reasons these shares were sold or additional shares were purchased. Such absence of clarity is not in the interest of the system. It was therefore decided that investing in shares of other companies, even for the purpose of holding stake should also be regarded as carrying on the business of acquisition of shares in terms of Section 45I(c) (ii) of RBI Act.  –

- Even if the company is running in losses on fulfilling the above said criteria it would still be considered to be a Core Investment Company (CIC) as per the RBI regulations.

http://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=7391#ci

RBI bans loans to buy gold in any form

MUMBAI: The Reserve Bank of India (RBI) on Monday notified a total ban on banks from advancing any loans to its customers for purchasing gold in any form, which includes primary gold, gold bullion, gold jewellery, gold coins, units of gold Exchange Traded Funds ( ETF) and units of gold mutual funds.

In its October 30 policy meet, the central bankBSE -0.20 % had announced this decision. However, the banking regulator said that banks are allowed to give loans for "genuine working capital requirements to jewelers".

The notification was issued after it was found that there was a significant rise in the import of gold into India in recent years. The step by the central bank came on concerns that direct bank financing for the purchase of gold in any form — that is bullion, primary gold, jewellery , gold coin, etc — could lead to fuelling of demand for gold in the country.

Over the last one year, despite a 10% rise in the price of gold in India, the demand for the yellow metal during the July-September quarter was up 27% on an annual basis, data from World Gold Council showed.

Since India remains one of the biggest importers as well as consumer of gold in the world, the surge in gold imports in turn has been putting pressure on the country's trade balance.

Primarily this is the reason for the government's recent push to curb gold demand and import, the decision by RBI is a direct fallout of the government's decision, market players said. 

 

 

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-bans-loans-to-buy-gold-in-any-form/articleshow/17290032.cms