January 2024

MSME Payment Rule

Orderly Payments or Orderly Chaos? Examining the New MSME Payment Rule and its Impact, 30 Jan 2024

New MSME Payment Rule, implemented under the 2024-25 assessment year, mandates buyers to clear dues to MSMEs within 45 days of delivery, and has caused a ripple effect through the business landscape. While the intent of timely payments for struggling MSMEs is noble, the abrupt implementation and lack of clarity seem to be creating unintended consequences like many cancelled orders in the wake of the new MSME Payment Rule.

Understanding the Rule:

The new rule stipulates strict timelines for buyer payments: 45 days for goods and 60 days for services. Any delay incurs a compounded interest penalty, significantly increasing the cost of delayed payments for buyers. Additionally, outstanding dues after March 31st are deemed income for the buyer, potentially pushing some into higher tax brackets.

Industry Concerns:

The rule, while well-meaning, has sparked several concerns. Firstly, the short notice and lack of transition period have caught many businesses unprepared. Large companies, used to longer credit cycles, are scrambling to adjust their internal processes, leading to order cancellations and delayed payments. Secondly, the hefty penalties add further pressure on buyers, especially startups and those facing cash flow challenges.

Beyond Headlines:

Some sectors, like FMCG and pharmaceuticals, with established supply chains and strong buyer-seller relationships, are adapting quicker than others. Additionally, the rule could incentivize more prompt payments in the long run, fostering a healthier business environment for MSMEs.

MSME Payment Rule

Recommendations for a Balanced Approach:

To achieve the true goals of the rule, while minimizing disruptions, some suggestions emerge:

Phased Implementation: A gradual roll-out with clear communication and ample time for businesses to adjust would have ensured smoother transitions.

Targeted Penalties: Instead of a blanket penalty, a tiered system based on buyer size and past payment history could offer more flexibility and mitigate unintended consequences.

Dispute Resolution Mechanism: A quick and efficient mechanism for resolving payment disputes is crucial to prevent the rule from being misused or misinterpreted.

MSME Payment Rule

The Final Order:

The new MSME Payment Rule undeniably aims to address a chronic issue faced by small businesses. However, its effectiveness hinges on a balanced approach that prioritizes both timely payments for MSMEs and operational feasibility for buyers. Open communication, targeted implementation, and a focus on dispute resolution are crucial to ensure this well-intentioned rule doesn’t lead to unintended chaos in the marketplace.

By learning from the current challenges and working collaboratively, we can ensure that the new rule truly empowers MSMEs while maintaining a healthy and resilient business ecosystem for all.

©CS SHIKHA PUBBI

Practicing Company Secretary

Shikha Pubbi & Associates (SPCS),

Company Secretaries

https://spcsfirm.in/

Disclaimer: While the information presented in this article is based on factual sources, the interpretation and opinions expressed are solely those of the author.

Orderly Payments or Orderly Chaos? Examining the New MSME Payment Rule and its Impact, 30 Jan 2024 Read More »

National Youth Day

From Resolution to Action: National Youth Day – A Canvas of Dreams and Deeds, 12 Jan 2024

In the vibrant tapestry of India’s future, young people hold the needle and thread. National Youth Day isn’t just a calendar marker; it’s a vibrant canvas where “Sankalp Se Siddhi” — resolutions take form, dreams transform into deeds. Across fields, young Indians are rewriting equations – scientists delving into the mysteries of the genome, artists painting vivid narratives of social change, entrepreneurs scaling mountains of digital disruption. Yet, potential alone paints an incomplete picture.

This day demands a resolute gaze at the canvas, acknowledging the brushstrokes of hardship. Unequal access to education, the spectre of unemployment, and the weight of social barriers – these are the dark patches vying for space on the canvas. But within each challenge lies an opportunity for a bold stroke of defiance. Education must open its doors wider, embracing inclusivity and nurturing diverse talents. Skills must be honed, not just for jobs, but for building solutions to India’s complex challenges. Innovation, the fuel of progress, needs fertile ground – where disruptive ideas take root and blossom into tangible change.

National Youth Day

Young India’s voice is a symphony of dreams. From tech wizards weaving the future of industry to rural changemakers revitalizing villages, their aspirations echo across the land. But dreams unaccompanied by action remain whispers in the wind. This day is a clarion call for translating resolutions into resolute steps. The digital landscape beckons with its boundless possibilities, urging young creators to tell stories that bridge divides and spark empathy. Community engagement, the bedrock of social progress, beckons young hands to heal wounds and build bridges across social chasms.

Swami Vivekananda, a prominent Indian philosopher and spiritual leader, delivered numerous inspiring and thought-provoking quotes that continue to resonate with the youth of India. Here are some quotes specifically directed towards the Indian youth:

  1. “Arise, awake, and stop not until the goal is reached.”
  2. “You have to grow from the inside out. None can teach you, none can make you spiritual. There is no other teacher but your own soul.”
  3. “The greatest religion is to be true to your own nature. Have faith in yourselves.”
  4. “In a conflict between the heart and the brain, follow your heart.”
  5. “Stand up, be bold, and take the blame on your own shoulders. Do not go about throwing mud at other; for all the faults you suffer from, you are the sole and only cause.”
  6. “Strength is life, weakness is death. Expansion is life, contraction is death. Love is life, hatred is death.”
  7. “Condemn none: if you can stretch out a helping hand, do so. If you cannot, fold your hands, bless your brothers, and let them go their own way.”
  8. “Take risks in your life. If you win, you can lead. If you lose, you can guide.”
  9. “The more we come out and do good to others, the more our hearts will be purified, and God will be in them.”
  10. “The greatest sin is to think yourself weak.”

These quotes reflect Swami Vivekananda’s emphasis on self-confidence, inner strength, and the pursuit of a purposeful life. They continue to serve as a source of motivation and guidance for the youth in India and beyond.

National Youth Day isn’t a celebration of what is, but a pledge for what can be. It’s a canvas waiting to be splashed with ambition, innovation, and unwavering grit. Let young India wield the brush not just with passion, but with purpose. Let each stroke be a testament to their “Sankalp,” paving the way for a future where every dream finds its rightful place on the vibrant tapestry of a new India.

Let’s take an oath today … to work hard and smart to turn our dreams into reality. If every youth take such oath, then in no time we are a developed nation.

©CS SHIKHA PUBBI

Practicing Company Secretary

Shikha Pubbi & Associates (SPCS)

Disclaimer: The interpretation and opinions expressed are solely those of the author.

From Resolution to Action: National Youth Day – A Canvas of Dreams and Deeds, 12 Jan 2024 Read More »

Dematerialization, Indian Private Limited Companies

Goodbye Physical Certificates! Dematerialization Ushers in New Era for Indian Private Limited Companies, 10 Jan 2024

In a significant move, the Ministry of Corporate Affairs (MCA) issued a notification on October 27, 2023, mandating the dematerialization of shares for all private limited companies (except small companies) in India. This policy change marks a crucial step towards enhanced transparency, efficiency, and investor protection within the private company landscape.

What is dematerialization?

Dematerialization refers to the conversion of physical share certificates into electronic form, held in an investor’s demat account. This process eliminates the need for paper certificates, simplifying share transfer, dividend payments, and other corporate actions.

Dematerialization, Private Limited Companies, Digital Certificates
Impact of the notification:
  • Increased Transparency and Efficiency: Dematerialization simplifies recordkeeping and reduces the risk of fraud associated with physical certificates. It also streamlines share transfers, settlements, and dividend payments, fostering greater efficiency in corporate transactions.
  • Improved Investor Protection: Dematerialization safeguards investors from losses due to theft or damage of physical certificates. It also facilitates easier tracking of shareholding patterns, promoting transparency and investor confidence.
  • Enhanced Corporate Governance: This move aligns India with global best practices in corporate governance, making the private company sector more attractive for domestic and foreign investors.
Timeline and Implementation:

The notification provides a phased timeline for compliance. Private companies to dematerialise their existing securities within a period of 18 months from closure of FY ending on 31 March 2023, i.e. till 30th Sep. 2024 and issue new securities only in dematerialised form. The MCA has also set up a dedicated framework to support companies and investors through this transition.

The above private companies ensure that, entire holding of securities of its promoters, directors, key managerial personnel have been dematerialized before making the following offers:

  • Fresh issue of any securities
  • Buyback of securities
  • Bonus shares
  • Rights offer
Exemption:

Small companies and Government companies are exempted to comply with the requirement of mandatory dematerialisation.

Small company means a company, other than a public company, whose paid-up share capital is less than or equal to (<=) ₹ 4 crores and turnover as per the last financial year is less than or equal to (<=) ₹ 40 crores. Following are not considered as small company:

  • Holding company or a subsidiary company
  • Section 8 company
  • Company/ Body Corporate governed by any Special Act
Dematerialization, Private Limited Companies, Digital Certificates
Challenges and Considerations:

While the benefits of dematerialization are undeniable, challenges exist. Some companies may face initial hurdles in understanding and adapting to the new system. Additionally, ensuring access to demat facilities for investors in rural areas and remote locations requires careful attention.

Conclusion:

The MCA’s notification mandating dematerialization of shares for private companies is a welcome step forward. It paves the way for a more efficient, transparent, and investor-friendly environment within the sector. While challenges remain, the potential benefits for both companies and investors are significant. By providing adequate support and guidance, the MCA can ensure a smooth transition and unlock the full potential of this policy shift.

©CS SHIKHA PUBBI

Practicing Company Secretary

Shikha Pubbi & Associates (SPCS)

Disclaimer: While the information presented in this article is based on factual sources, the interpretation and opinions expressed are solely those of the author.

Sources:

Goodbye Physical Certificates! Dematerialization Ushers in New Era for Indian Private Limited Companies, 10 Jan 2024 Read More »

Tax HUFs

OOps HUFs under Scanner of Tax Authorities: Latest News and Developments 8 Jan 24

The Hindu Undivided Family (HUF) is a unique tax-paying entity in India, offering several advantages. However, recent news reports indicate that HUFs are increasingly coming under the scanner of tax authorities.

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Multiple Cases Under Investigation:

Income Tax Department (ITD): In August 2023, the ITD reported detecting over 89 high-value foreign remittance cases involving HUFs. The alleged tax evasion in these cases exceeded ₹100 crore in several instances.

Central Board of Indirect Taxes and Customs (CBIC): The CBIC is conducting a special drive to identify and penalize shell companies availing fake input tax credit (ITC) claims under the Goods and Services Tax (GST) regime. Many HUFs are suspected to be involved in these fraudulent activities.

Reasons for Increased Scrutiny:

  • Tax Evasion Concerns: Authorities suspect that certain HUFs misuse their tax benefits to evade taxes. This includes splitting income to avoid higher tax brackets and claiming undue deductions.
  • Shell Company Misuse: Shell companies, often disguised as HUFs, are allegedly creating fake invoices and claiming ITC without supplying any goods or services. This leads to significant tax revenue loss for the government.
  • Data Analytics: Advancements in data analytics allow authorities to identify suspicious financial transactions associated with HUFs, facilitating targeted investigations.

Potential Consequences:

  • Increased Audits: HUFs can expect increased scrutiny from tax authorities in the coming months. This may include audits and requests for additional documentation to verify income and tax compliance.
  • Penalties and Prosecution: HUFs found guilty of tax evasion or other financial offenses may face penalties, including fines and imprisonment.
  • Changes in Tax Regulations: The government may consider tightening regulations governing HUFs to prevent misuse and ensure compliance with tax laws.
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Implications for HUFs:

  • Increased Compliance Burden: HUFs need to be more vigilant about maintaining proper records and documentation to support their tax filings.
  • Professional Guidance: Seeking complete professional advice from legal and tax consultants becomes crucial to ensure compliance and avoid potential legal troubles.
  • Transparency and Accuracy: HUFs should prioritize transparency and accuracy in their financial dealings to build trust with tax authorities.

Conclusion:

The increased scrutiny of HUFs by tax authorities highlights the need for greater transparency and compliance within this unique tax entity. HUFs must be proactive in maintaining accurate records and adhering to all relevant regulations to avoid any legal issues. Seeking professional guidance and staying informed about the latest developments can help HUFs navigate the changing tax landscape effectively.

©CS SHIKHA PUBBI

Practicing Company Secretary

Shikha Pubbi & Associates (SPCS)

Disclaimer: While the information presented in this article is based on factual sources, the interpretation and opinions expressed are solely those of the author.

Sources:

OOps HUFs under Scanner of Tax Authorities: Latest News and Developments 8 Jan 24 Read More »

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