KGS

INTEGRITY FIRST

“In the business world, the rear view mirror is

always clearer than the windshield.”

Warren Buffett

KGS

S. No. Topic

1.

LLP- Depreciation as per Companies Act vs. Income Tax Act

2.

Power Sector Distribution Reforms

3.

Acquisitions between various E-Com players

4.

Start a firm with just one form

5.

Synergies between India & Belgium

INDEX

This article aims to Develop understanding about LLP

Explain how depreciation is charged

Limited Liability

Partnership-Depreciation

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LLP- Depreciation as per Companies Act vs Income Tax Act

LLP Act, 2008 doesn’t provide for any particular mechanism for charging

depreciation like that in Companies Act or Income Tax Act. LLP Act is silent in

this regard. Thus, Limited Liability Partnerships are flexible to use either of the

two-Rates provided in Income Tax Act or method prescribed under Companies Act

for charging depreciation on assets.

Depreciation rates & rules as per Companies Act

2013 Depreciation as per Companies Act 2013 is calculated by considering usage life of

asset, cost and residual value. Any method WDV or SLM can be used. Schedule – II

contains a list of usage life according to class of asset; the usage life of asset shall not

be taken longer than prescribed in this schedule. Residual value should not be taken

more than 5% of cost of asset. A company is always free to take usage life shorter

than mentioned in schedule – II and residual value less than 5%.

If there is any addition to the asset or asset is sold, discarded, demolished or

destroyed then the calculation is made according to the date of such event. In other

words, if any asset is purchased or sold then the calculation will be made according

to the date of purchase or sold i.e. date wise calculation is made.

Depreciation method so used is to be shown in accounts and useful life of assets is to

be disclosed only when it is taken different from Schedule – II.

For assets in which NESD is mentioned in Schedule – II, the depreciation remains

same irrespective of the no. of work shifts. For other assets, if the asset is used for

double shifts during any time of the year then the depreciation shall be increased by

50% for that period. Similarly if asset is used for triple shifts then depreciation shall

be increased by 100% for that period.

If residual value is taken as 5% of cost of asset and life as per schedule – II then the

depreciation rates on SLM and WDV basis are given below:

Nature of AssetsUseful

Life

Rate

[SLM]

Rate

[WDV]

Rate

[IT Act]

Building (other than RCC Frame

Structure)/Factory buildings30 Y ears 3.17 % 9.50% 10%

Plant and Machinery (General) 15 Y ears 6.33% 18.10% 15%

Furniture and Fittings (General) 10 Y ears 9.50% 25.89% 10%

Motor buses, lorries, cars used in

business running on hire6 Y ears 15.83% 39.30% 30%

Computers, Laptops,etc. 3 Y ears 31.67 % 63.16% 60%

In Companies Act, depreciation is charged on individual assets while in

Income Tax Act it is charged on block of assets.

Overview of LLP

Recently most entrepreneurs have

started opting for Limited Liability

Partnership, considering it has all the

positive features of Partnership and

Companies. It is a hybrid form which

incorporates benefits of both

partnership and companies. The law

defines LLP as a corporate business

vehicle that enables professional

expertise and entrepreneurial

initiative to combine and operate in

flexible, innovative and efficient

manner, providing benefits of limited

liability while allowing its members

the flexibility for organising their

internal structure as a partnership.

Benefits of forming a LLP is its low

cost formation, liability of each

partner is limited, partners are not

liable for the acts of each other and

the major benefit is lesser restriction

and compliance are enforced on a LLP

by government as compared to the

restriction enforced on a company.

LLPs are governed by Limited

Liability Partnerships Act, 2008

enacted by Parliament of India to

introduce and legally sanction the

concept of LLP in India. As per the

Finance Bill, 2009, the income of an

LLP is taxed only the hands of LLP

and not the Partners. The entire

taxation of LLPs is similar to the

existing taxation pattern applicable to

Partnerships registered and formed

under The Indian Partnership Act,

1932. Dividend distribution tax and

Wealth Tax is not applicable to LLPs.

All LLP’s except for those having

turnover less than Rs. 40 Lacs or

contribution less than Rs.25 Lacs in

any financial year are required to get

their accounts audited annually as per

the Provisions of LLP Act.

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Calculation of depreciation as per Companies Act-

For the purpose of calculating depreciation, as per Schedule II, useful life is to be taken as 15 years in case of plant and machinery. So,

Total life of asset (in months) = 15 years * 12 months

=180 months

Balance life as on 31.3.14 = 174 months (180-6)

Now, Depreciation =

(WDV - Residual value) x No. of months for which asset

is used in current year

Balance life in the beginning of year.

So, Depreciation = (905000-50000) * 12 / 174

= Rs. 58,965.00

Calculation of depreciation as per Income Tax Act-

For Income Tax, WDV as on 31.3.14 =Rs. 8,50,000.

Dep. rate = 15%.

Therefore dep. = 8,50,000 * 15% = Rs. 1,27,500

Net Profit computation

As per Com panies

Act Rate

As per IT Act

Rate

Gross Profit 20,00,000.00 20,00,000.00

Salary -6,50,000.00 -6,50,000.00

Depreciation -58,965.00 -1 ,27 ,500.00

Net Profit 12,91,035.00 12,22,500.00

Tax computation

Profit as per books 12,91,035.00

Add - Dep as per Comp Act 58,965.00

Less - Dep as per IT 1,27 ,500.00

Gross T otal Income 12,22,500.00 Therefore, Tax payable = Rs. 3,77,750.00

Calculation of depreciation as per Companies Act and as per IT Act

As the rates and method of calculating depreciation is different in case of Companies Act and IT Act, so it’s impact on profit in case of LLP can be analysed from the following example.

Suppose a firm XYZ LLP is having gross profit of Rs. 20,00,000. Salary expense amounts to Rs. 6,50,000. Firm has only one asset- Plant and Machinery having purchase cost Rs. 10,00,000 and was purchased on 01.09.2013. WDV of asset as on 01.04.2014 is Rs. 9,05,000 and residual value of Rs. 50,000 (@5%). Firm adopts SLM method of depreciation.

Conclusion As per the above analysis, if LLP charge depreciation as per Companies Act, 2013, Net profit as per books of accounts will be higher. But this will not increase any income tax liability of the LLP as income for tax purpose will be calculated considering the depreciation rates in the Income Tax Act. Higher net profit could assist the LLP in raising funds from the market. On the other hand, if LLP charge depreciation as per the rates of Income Tax Act, further computation of income for income tax purpose will be eliminated along with the tedious calculation of deferred tax asset/liability. So, LLP can adopt any method for depreciation as per the management decision considering the pros and cons of both the methods.

MAT vs. AMT

MAT AMT

Applicability MAT is applicable to companies AMT is applicable to LLPs

T ax Base Taxable on Book Profits Taxable on Adjusted Total Income

Meaning of T ax Base

Book Profit means the Net Profit as shown in

the Profit & Loss Account as

increased/decreased by certain items

specified under Explanation to Section 115JB

Adjusted Total income means the total

income computed under normal provisions of

the Income Tax Act as increased by the

deductions claimed, if any , under Chapter VI-

A (C) or Section 10AA

Rate of T ax

MAT rate - 18% + surcharge @ 5% if book

profit exceeds Rs. 1 crore + Education Cess

@ 3%Effective Rate (including surcharge) -

19.5%

AMT rate - 18.5% + Education Cess

@3% Effective rate - 19.05%  (Surcharge is

not applicable to LLPs)

Exem pt Incom eCompanies are liable to pay MAT on income

exempt under Section 10 (38) and 10 (34)

LLPs are not liable to pay AMT on incomes

exempt from tax

In above case adjusted total income comes out to be Rs. 12,22,500. Therefore, AMT (@ 19.05%) on this amount is Rs. 2,32,886.25.

This article aims to explain Major Issues in Power Distribution

Sector

Electricity(Amendment) Bill’2014

USAID-MoP Drum Project

Power Sector

Distribution Reforms

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Need of the Hour! – Power Sector Distribution Reforms

1) Major Issues In Power Distribution Sector

The distribution entities are in poor financial health on account of various reasons,such as:

a) High accumulated losses

b) High AT&C losses

c) High power purchasing cost

d) Unsustainable susidy resime

e) Delays in Power Tariff Correction

The present Government is contemplating addressing above issues through Electricity Amendment Bill, 2014

2) ELECTRICITY (AMENDMENT) BILL, 2014

The Electricity (Amendment) Bill, 2014 seeks to replace the Electricity Act 2003.It seeks to usher much

needed reforms in the power sector and safeguard consumer interests.

Highlights of the Amended Bill

The amendments proposed in the Bill are based on the recommendations of the 12thPlan Working Group of the Planning Commission.

Envisaging to allow Customers to choose their Electric Supplier.

3) USAID-MoP DRUM Project

The Ministry of Power, Government of India and United States Agency for International Development (USAID) designed the Distribution Reform Upgrades

and Management (DRUM) project with the purpose to demonstrate best commercial and technological practices that improve the quality and reliability of power distribution in Urban and Rural Distribution

Protecting Consumer Interest by putting a cap on tariff for retail sale of electricity through the

regulator and one of the supply licensees would be a government controlled company.

Proposed to issue multiple supply licensees by segregating the distribution sector from power supply business while continuing with the carriage as a regulated activity

Penalising Institutions which is violating the Grid Power Supply

Accepting implementation of USAID- MoP DRUM Project

Minimum 10% of Power should be generated from renewable sources

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circles in the country. The project is in synch with the Government of India’s policy on power sector reforms, the Electricity Act 2003 and the APDRP scheme. DRUM is a 5-yr. bilateral project with a planned Life-of-Project funding of US $30 million. It has 4 main components-

Component 1: National Strategy and Alternate Financing

Component 2: State Planning and Design

Component 3: Distribution Reforms Pilot Projects

Component 4: Water-Energy Nexus Activity

In November, 2014, Government of India approved 3 Key Projects aimed at improving Transmission and Distribution of Power:

Rs.43,033 crore Rural Electrification Scheme-Deendayal Upadhyaya Gram Jyoti Yojana.

Rs.32,612 crore scheme for strengthening distribution in Urban areas.

Rs.5,200 crore scheme for strengthening power distribution in six North-East States.

Source: www.powermin.nic.in

This article aims to explain Recent acquisitions among various e-

commerce companies

Agenda behind these acquisitions

Acquisitions between

various E-Com players

Acquisitions between various E-Com players

Buyer Seller Deal Size About the transaction

Zomato - an online restaurant search and discovery ser-vice provider

Urbanspoon-a web-site & mobile applica-tion that lists infor-mation and reviews on restaurants in six countries

Reports peg this amount to be at over $50 million

The acquisition marks Zomato’s entry into the United States

After this acquisition, Zomato is now present in 22 countries across the world

Nextable- an online table reservation plat-form

Terms of the deal haven’t been dis-closed except that it is a cash and stock deal

The new service is going to be called as Zomato Book, which enables customers to make restaurant reservations online through Zomato

Zomato will now own the communication channel between hotels and customers via online ordering and table reservations

Make My Trip – Indian online travel company to em-power the Indian traveler with instant booking and com-prehensive choices

Mygola - a travel planning service that lets travelers reach human guides to do online research for their trip

Size of the deal is not disclosed

Entire Mygola team have joined the MakeMyTrip family to focus on cutting-edge innovation in online travel

This acquisition is done through earlier announced Innovation Fund ( received about Rs 440 crore so far )which is formed to invest in start-up or early-stage companies in the travel technology space

The aim behind this acquisition is to get a greater foothold in the mobile space which will help MakeMyTrip expand its business

The acquisition will be valuable in strengthening the Company's proposition in understanding traveler’s planning and related areas of customer engagement

Soon after this acquisition, MakeMyTrip has adopted a new brand positioning, in-cluding a new logo and tagline. The old tagline, 'Memories Unlimited', has made way for 'DilToh Roaming Hai’

Ola - mobile app for personal transporta-tion

Taxi For Sure - a travel experience pro-vider that helps people book a cab in the sim-plest way possible

$200 mn in a cash and equity deal

Ola has further deepened its footprint with TaxiForSure’s operator led model

Ola and TaxiForSure will continue to operate as separate entities

The leadership and all of the 1700 em-ployees shall continue to work with TaxiForSure, with Arvind Singhal (cur-rently COO) being appointed the CEO

Twitter - an online social networking service that enables users to send and read short 140-character messages called "tweets"

ZipDial – missed call marketing platform

Amount has not been disclosed, but according to re-ports the transac-tion was estimated between $40-$50 million

This acquisition will significantly in-crease their investment in India

This acquisition gives Twitter a new en-gineering office in Bangalore

Twitter can make great content more accessible to everyone with ZipDial

Twitter could now use ZipDial to reach developing markets-users with meager data plans or patchy internet connectivity

Flipkart - an e-commerce company

Appiterate- a mobile engagement and mar-keting automation company

Terms of the deal haven’t been dis-closed

As Flipkart has already announced that from next year onwards it will drive its business through mobile app. Thus, to improve and expand its mobile app capa-bilities, it has acquired Appiterate, a company which combines the power of mobile apps and big data to allow them to do one-on-one targeting of their users though push notifications and in-app messages

(Source: VC Circle)

This article aims to

Explain how a firm can be

registered with a single form

INC-29

Start a firm with just

one form INC-29

Start a firm with just one form INC-29

Entrepreneurs keen on setting up new enterprises will be able to incorporate one, by filing just one

form starting today, as part of the government’s drive to make it easier to do business in the

country.

From 1 May 2015, the Ministry of Corporate Affairs (MCA), will provide one integrated company

incorporation form in place of eight forms required earlier, making compliance and reporting

procedures easier for businesses.

INC-29 will provide the following services through a single e-form:

1. Allotment of Director Identification Number (DIN)

2. Name of a company, and

3. Incorporation of a company

The latest move comes by the government in wake of India’s falling rank globally in an annual

World Bank report that measures the various parameters of doing business in the country. The

Ease of Doing Business survey captures the ease with which one can open, conduct and close down

business.

The country’s rank slipped by two notches to 142 in 2015 compared to the previous year. In 2006,

when the index was launched, India was ranked 116. On the crucial ‘Starting a Business’

parameter, the country was ranked 158, again down two places from the preceding year.

Entrepreneurs have long complained about the various hassles they face while setting up business

in India, so much so that many start-ups prefer to incorporate their businesses in countries like

Singapore. The reason for this range from multitude of forms to a plethora of of permission from

central and state governments. Even if it’s a single-person company, the range of forms required to

be filled included separate applications for obtaining DIN, obtaining a DSC (digital signature

certificate), form INC-1 for approval of the name of the company, form INC-7 for registration of

the company along with memorandum of association and articles of association, form INC-22 for

intimation of registered office and form DIR12 for each director.

Also if the form is found incomplete or if the name is found to be similar with any existing

company or registered trademark, the form can be filed again, but this option is available only

once, in case form filed for second time also found to be incomplete or any discrepancies found the

form will be rejected by the registrar. The payment made by the applicant can be refunded by

following the refund procedure under the rules.

Summary

The Modi government is trying to put their best step forward to attract as many start-ups as they

can, to help Indian economy achieve their target GDP or growth level. New start-ups would also

generate employment opportunities which would further benefit the Indian economy. This step is

a further extension of PM Modi’s effort to remove red tapism which is very much prevalent in the

previous processes. This step would definitely attract new start-ups to come and set up their

business in India with huge investment opportunities and reduced set up time by simply filing one

form or say less number of forms.

This article aims to Describe synergies between India & Belgium

Provide opportunities for potential investors

in India & Belgium

Synergies between

India & Belgium

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Synergies between India & Belgium

Foreign Direct Investment

Belgium has emerged as the 21st largest investor in India between April 2000 to June 2014 and the 10th largest

within the EU. The cumulative FDI inflows from Belgium into India amounted to US $ 770.61 million from April

2000 to June 2014. Several Indian companies, particularly in the IT and software sector, have established base in

Belgium to cater to the Belgian as well as European markets, one such example is collaboration in the telecom

sector between Tech Mahindra and Base Telecom.

Major Agreements signed between India & Belgium

Some of the important agreements signed and in force between India and Belgium are as follows:

MoU between the National Bank of Belgium and Reserve Bank of India concerning Mutual Cooperation,

signed in Brussels on 13 March 2013;

Arrangement between India and Belgium on the Gainful Occupation of spouses of Diplomatic and

Consular Staff (in force from 13 December 2014); Social Security Agreement from November 2006;

Agreement on cooperation in the field of Science & Technology, signed in November 2006; Agreement

on Avoidance of Double Taxation (DTAA), signed in August 1997;

Bilateral Investment Protection Agreement (BIPA) signed between India and Belgium-Luxembourg

Economic Union (BLEU) in November 1997

Capital-

New Delhi

Capital- Brussels

GDP (total) - $530.048

billion (2014)

Area Total

30,528 km2

Population (2014 census) – 1.1198 crores

Government- Federal Parliamentary

Constitutional monarchy Area in total- 3,287,590km2

GDP- $2047

billion (2014)

Population (2014) -

127.6 crores

Government-Federal

Parliamentary

Constitutional Republic

Profile of India (Source: Indian government)

Profile of Belgium (Source: Belgium Government)

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India and Belgium trade relations (in USD Million):

India's exports to Belgium

S.No. Commodity 2013-2014

% of Total

2014-2015(Apr-

Dec)

% of total

1 Natural Or Cultured Pearls, Precious Or Semiprecious Stones Jewels Coin etc.

2,678.31 42.00 2,011.08 48.51

2 Organic Chemicals 394.15 6.18 331.4 7.99 3 Iron And Steel 353.27 5.54 194.95 4.70 4 Fish And Crustaceans, Mollusks And Other

Aquatic Invertebrates. 205.57 3.22 158.62

3.83 5 Articles Of Apparel And Clothing Accessories,

Knitted Or Crocheted. 181.27 2.84 117.89

2.84 6 Tobacco And Manufactured Tobacco Substitutes. 206.92 3.24 104.73 2.53 7 Nuclear Reactors, Machinery And Mechanical

Appliances 119.28 1.87 94.82

2.29 8 Articles Of Iron Or Steel 102.55 1.61 80.35 1.94 9 Articles Of Apparel And Clothing Accessories, Not

Knitted Or Crocheted. 134.67 2.11 73.59

1.78 Others 2,001.33 31.38 977.96 23.59

Total 6,377.32 4,145.39

India's imports from Belgium

S.No. Commodity 2013-2014 % of total 2014-

2015(Apr-Dec)

% of total

1 Natural Or Cultured Pearls, Precious Or Semiprecious Stones Jewels Coin etc.

9,015.85 83.85 7,242.81 84.27

2 Nuclear Reactors, Machinery And Mechanical Appliances.

276.46 2.57 207.46 2.41

3 Plastic And Articles Thereof. 228.59 2.13 202.42 2.36

4 Iron And Steel 133.88 1.25 135.08 1.57

5 Organic Chemicals 163.88 1.52 120.06 1.40

6 Miscellaneous Chemical Products. 91.59 0.85 78.77 0.92

7 Aluminum And Articles Thereof. 41.89 0.39 52.68 0.61

8 Ships, Boats And Floating Structures.

78.56 0.73 43.31 0.50

9 Pharmaceutical Products 57.57 0.54 42.03 0.49

Total 10,752.04 8,595.23 (Source: Department of Commerce, India)

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Why should Belgium invest in India

India is the world's second largest producer of textiles and garments. India is now the fourth largest

crude steel producer in the world and the largest producer of sponge iron. As per the above data Belgium

is more interested in importing iron & steel and its articles. Indian chemical Industry is 6th in the world

and 3rd in Asia. India is ranked fifth in terms of production, consumption, export and expected

growth. Investment in such a diverse industry oriented country would be highly beneficial.

Abundant manpower supply is available

Belgian business interests in India cover dredging, chemicals, engineering goods, machinery, electronics

and software, fertilizers.

Indians can partner Belgium in logistics, infrastructure, clean technology, renewable energy sectors. As

many as 160 Belgium companies have invested in India compared to 80 Indian companies who have

invested in the European country.

Why should India invest in Belgium

A lower (progressive) tax rate may apply to companies that are more than 50% owned by individuals. All

companies subject to resident or non-resident corporate tax benefit from the risk capital or notional

interest deduction that is computed on the companies adjusted equity capital (including retained

earnings).

Belgium still occupies an enviable global trade position. As the trade between the two countries is more

concentrated on gems and jewellery to the extent of 75-80%. As per the data provided above Belgium

exports almost double gems and jewellery as imported from India.

Foreign investors have attractive opportunities for investment in different industries and sectors such as

Chemical industries, automotive industry, Greenfield investment projects, Agro-food sector,

pharmaceuticals industry, R&D, industrial metal and services.

In Belgium regional authorities provide incentives to investors for setting up an enterprise in their area.

Various government incentives and exemptions are provided to-

o Environmental investments

o Energy saving investments

o Renewable energy

o CHP (cogeneration)

Belgium government also provides direct aid, labor and training incentives, R&D and international trade

opportunities. Besides it also gives subsidies to enterprises that create jobs, reduced security payment to

employers and special tax regime for individuals that include foreign executives, researchers and

specialists.

KGS

Contact Name E-mail Mobile Mr. Anuj Somani anujsomani@kgsomani.com +91 9871098777 Mr. Bhuvnesh Maheshwari bhuvneshmaheshwari@kgsomani.com +91 9810031993

Head office: Branch Offices: Network Offices: DELHI MUMBAI BANGALORE

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CHENNAI KOLKATA

Disclaimer

• This material and the information contained herein prepared by the authors is of a general nature and does not exhaustively deal with the subject discussed. • Although the authors have put their earnest effort in providing accurate and appropriate information, the article is not intended to be relied upon as the sole basis for any decision which may affect you or your business. The authors recommend you take professional advice before acting on specific issues. • KGS is neither responsible for any views, opinions and statements made by the authors nor is liable for consequences, if any, arising from actions based on such views or opinion.

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