SBS-Digest-EJournal-Jan-2020

Volume -47 January -2020 Pages 1-9 SBS Interns’ For Private circulation only Digest An attempt to share knowledge By Interns of SBS and Company LLP

SBS Interns' Digest www.sbsandco.com/interns-digest CONTENTS INCOME TAX......................................................................................................................................1 SECTION 194N OF THE INCOME TAX ACT, 1961-TDS ON CASH WITHDRAWAL..........................................................................1 INTERNAL AUDIT ...............................................................................................................................8 STANDARD ON INTERNAL AUDIT (SIA) 330 INTERNAL AUDIT DOCUMENTATION......................................................................8

INCOME TAX SECTION 194N OF THE INCOME TAX ACT, 1961-TDS ON CASH WITHDRAWAL Contributed by Pavani S & Vetted by CA Madhusudhan Introduction: ØThe Government has introduced Section 194N in the Union Budget 2019 proposed on 5 July 2019.Section 194N is made applicable from September 1, 2019. ØSection 194N is introduced to promote digital payments and reduce the use of cash. Moreover, it will help the government to keep track of cash flow and hence check the generation of unaccounted wealth. Section 194N: ØSection 194N has been introduced via Union Budget 2019, the first Fiscal Budget presented by Honourable Finance Minister Nirmala Sitharaman. As per this provision, TDS will be deducted on cash withdrawals exceeding Rs.1 crore. The tax deduction would be made starting from 01September 2019. Further, while calculating the limit of Rs 1 crore limit all accounts maintained by a person with one bank are to be considered. Example: Mr.Gupta has withdrawn amount in following manner. Calculate the TDS to be deducted. • Rs 50 lakh from Branch A of SBI Bank on 4 Aug 2019 • Rs 30 lakh from Branch B of SBI Bank on 21 Sep 2019 • Rs 40 lakh from Branch C of SBI Bank on 18 Jan 2020 • Rs 20 lakh from Branch D of ICICI Bank on 19 Jan 2020 Calculation of TDS to be deducted under section 194N: Amount Particulars 50,00,000 Amount withdrawn from Branch A of SBI Bank (A) 30,00,000 Amount withdrawn from Branch B of SBI Bank (B) 40,00,000 Amount withdrawn from Branch C of SBI Bank (C) Amount withdrawn from ICICI Bank (D) - Total (A+B+C) 1,20,00,000 Less: Threshold Limit under section 194N 1,00,00,000 Amount eligible for TDS under section 194N TDS @2% by SBI Bank 20,00,000 40,000 1 |Page

As per section 194N, TDS to be deducted only if amount withdrawn from different branches of one Bank SGeSctTioonn1H9e4aNlthofctahre IsnecrovmiceesTax Act, 1961-TDS on cash withdrawal are to be considered. So, amount withdrawn from ICICI bank is not considered. Need for introducing Section 194N: ØOne of the key initiatives taken by the NDA Government is ‘Digital India’ programme. To encourage the same and pave a way ahead towards a cashless economy, section 194N was introduced in Budget 2019. Levy of 2% TDS on cash withdrawals exceeding Rs 1 Crore in a FY will result in more digital payments. Adding a contribution to the government's digital India initiative. Rate of TDS u/s 194N and when TDS is required to be deducted: ØAs per section 194N of the Income Tax Act TDS will be deducted at the rate of 2% on cash withdrawal in excess of Rs. 1 crore. ØTDS will be deducted at the time of making the payment to the account holder. ØLet’s say if cash withdrawn by Mr Gupta is Rs. 1 crore then in that case TDS will not be deducted. Since the amount does not exceed Rs 1crore. Who is responsible to deduct TDS u/s 194N: ØThe person (payer) making the cash payment will have to deduct TDS under Section 194N. Here is the list of such persons: i. A banking company covered under Banking Regulation Act, 1949 (including any bank or banking institution referred to in section 51 of that Act); ii. Aco-operative society engaged in carrying on the business of banking; or iii. A post office Who are liable to pay TDS on cash withdrawals u/s 194N: ØTDS deduction on cash withdrawal u/s 194N is applicable to all taxpayers, including i. An Individual ii. A Hindu Undivided Family (HUF) iii. A Company iv. A partnership firm or an LLP v. A local authority vi. An Association of Person(AOP) or Body of Individuals (BOIs). vii. An Artificial Judicial Person (AJP) 2 |Page

ØNo tax shall be required to be deducted if cash withdrawal from bank or post office is made by the SGeSctTioonn1H9e4aNlthofctahre IsnecrovmiceesTax Act, 1961-TDS on cash withdrawal following recipients: i. Central or State Government ii. Any Bank including Co-operative bank iii. Post Office iv. Full-Fledged Money Changer (FFMC) licensed by the Reserve Bank of India and its franchise agent in Notification No. 80/2019-Income Tax Act, 1961 dated 15th October, 2019. v. White Label Automated Teller Machine Operators (WLATMO’s) and Cash Replenishment Agencies (CRA’s) in (NN 68/2019)- Income Tax Act, 1961 dated 18 September 2019. vi. As per recent notification (NN 70/2019) dated 20 September 2019 – No TDS under section 194N shall be deducted on cash withdrawal made by, a) Commission agents or b) Trader operating under Agriculture Produce Market Committee (APMC) for the purpose of making payments to the farmers on account of purchase of agriculture produce. vii. Such other person or class of persons, which the Central Government may, by notification in the Official Gazette, specify in consultation with the Reserve Bank of India. TDS credit u/s 194N: ØThe notification issued (NN 74/2019) dated 27 September 2019 states: \"In the Income-tax Rules, 1962, in rule 37BA, after sub-rule (3), the following sub-rule shall be inserted, namely:- Notwithstanding anything contained in sub-rule (1), sub-rule (2) or sub-rule (3), for the purposes of section 194N, credit for tax deducted at source shall be given to the person from whose account tax is deducted and paid to the Central Government account for the assessment year relevant to the previous year in which such tax deduction is made.” Rule 37BA of the Income Tax Act deals with the rules and process of claiming TDS credit. Time limit for filing TDS Return and TDS Certificate: ØEvery deductor responsible for deduction of tax from payment other than salary shall file quarterly return in Form 26Q and issue quarterly TDS certificate by following dates: Quarter Due date of filing TDS return Due date for TDS Certificate April to June 31st July 15th August July to September October to December 31st October 15th November January to March 31st January 15th January 31st May 15th June 3 |Page

ØIf a person fails to deduct TDS: SGeSctTioonn1H9e4aNlthofctahre IsnecrovmiceesTax Act, 1961-TDS on cash withdrawal • Interest is levied at the rate of 1% per month or part of the month from the date on which the tax was deductible to the date on which such tax is deducted. ØIf a person has deducted tax but has failed to deposit tax: • Interest is levied at the rate of 1.5% per month or part of the month from the date on which the tax was deducted to the date on which such tax is actually paid. • The deductor will also be liable to pay fee under sec 234E for default in furnishing quarterly TDS return in Form 26Q, which is Rs. 200 for every day during which failure continues. However, the fees shall not exceed the maximum amount of TDS deducted. It is mandatory to pay late fee before furnishing return. Important Points: ØCBDT has issued a Press Release dated 30-08-2019for calculating the threshold limit, all the cash withdrawals made from one bank from 01-04-2019 should be considered but TDS to be deducted only on amount withdrawn on or after 01-09-2019, if exceeded threshold limit. ØFrom the above point it is clear that even if the amount of withdrawals exceeded Rs. 1 crore before 30/08/2019 there will be no TDS. ØFor any transaction involving issue of bearer cheque will also fall under the purview of section 194N and accordingly TDS shall be deducted. ØIt is necessary for the banks and similar entities to maintain a record of every payment made in cash that is above Rs.1 Crore in the previous year. ØTDS as the amount of cash withdrawal on which tax is deducted cannot be classified as income and the sole purpose behind such provision is to discourage cash transactions and to get trails of such transactions. The details of such TDS deducted in the year will also reflect in Form 26AS. This article is contributed by Pavani S, Intern of SBS and Company LLP. The author can be reached at [email protected] 4 |Page

INTERNAL AUDIT STANDARD ON INTERNAL AUDIT (SIA) 330 INTERNAL AUDIT DOCUMENTATION Contributed by Raju D & Vetted by CA Bhyrav Introduction: Documentation is important for the success of audit works, Documentation is the supporting and evidence for the work performed by an auditor, it also helps the auditor to assure whether the audit was conducted in accordance with the audit plan, It assists the engagement team to plan and perform the audit and also assure whether all compliances were verified during the audit process, It enables the conduct of quality control reviews and inspections (both internal and external). Through this article I have mentioned the aspects mentioned about Documentation in Internal Audit Standards i.e., SIA-330. Key Concepts: ØInternal Audit: Internal auditing is a continuous process of appraisal of an organization’s operations and evaluation and monitoring of risk management, reporting, and control practices. It is an independent and objective oriented assurance and consulting activity designed to add value and improve an organization's operations. It Help an organisation to accomplish it’s objectives and to improve the effectiveness of the operations of an organisation in totality. ØMandatory applicability of Internal Audit, Section138(1) of Companies Act 2013: As per the section 138 of Companies Act 2013 certain class of companies are required to Audit .The following class of companies shall be required to appoint an internal auditor or a firm of internal auditors, namely: - (a) Every listed company; Always applicable (b) Every unlisted public company having– i). Turnover(income) of two hundred crore rupees or more during the preceding financial year; or ii). Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year; or iii).Paid up share capital of fifty crore rupees or more during the preceding financial year; or iv).Outstanding deposits of twenty-five crore rupees or more at any point of time during the preceding financial year; and 5 |Page

c) Every private company having: GStSaTnodnarHdeoanltIhntcearrneasleArvuidciets(SIA) 330 Internal Audit Documentation I). Turnover of two hundred crore rupees or more during the preceding financial year; or ii). Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred crore rupees or more at any point of time during the preceding financial year ØStandards on Internal Audit (SIAs) The Standards on Internal Audit (SIAs) are a set of minimum requirements that apply to all members of the ICAI while performing internal audit of any entity or body corporate. As per Section 138 of Companies Act, 2013, the Board of a Company may, besides a Chartered Accountant, appoint a cost accountant or any other professional to conduct Internal Audits. The ICAI recommends the adoption of the SIAs by non- members of the ICAI who are performing internal audits so as to ensure a consistent approach and quality in the discharge of their professional duties Internal Audit Documentation (SIA)330 1. Introduction: “Internal Audit Documentation” refers to the written record (electronic or otherwise) of the internal audit procedures performed, the relevant audit evidence obtained and conclusions reached by the Internal Auditor on the basis of such procedures and evidence (“work papers” or “working papers”).The Internal Auditor is expected to record and collate all the evidence obtained in the form of complete and sufficient audit documentation. This Standard explains certain key requirements in the process of collection, preparation, retention and subsequent review of internal audit documentation. 2. Scope: This Standard applies to all internal audit assignments. The nature and content of documentation is covered in a separate implementation guide on the subject. 3. Objectives: The objectives of preparing complete and sufficient audit documentation is to: Validate the audit findings and support the basis on which audit observations are made and conclusions reached from those findings; ?Aid in the supervision and review of the internal audit work; and ?Establish that work performed is in conformance with the applicable pronouncements of the Institute of Chartered Accountants of India. ?The overall objective of preparing audit documentation is to allow the internal auditor to form an opinion on the outcome of the assignment. ?The internal audit documentation must stand on its own and not require any follow-up clarifications or additional information to arrive at the same conclusions 6 |Page

4. Requirements: GStSaTnodnarHdeoanltIhntcearrneasleArvuidciets(SIA) 330 Internal Audit Documentation ?The internal auditor shall record the nature, timing and extent of completion of all internal audit activities and testing procedures in the form of reproducible documents ?Documentation shall be complete and sufficient to support the analysis conducted on the audit evidence, the identification of findings, the formulation of audit observations and the drafting of the internal audit reports based on the findings. ?Documentation shall clearly state the purpose of the procedure, the source of evidence, the outcome of the audit work and also identify the performer and reviewer ?The internal audit function shall maintain a written process explaining the manner in which documentation will be prepared, reviewed, stored and finally discarded, to ensure quality and conformance to Standards on Internal Audit 5. Time limit for compilation of working paper: ?The internal audit work paper files shall be completed prior to the issuance of the final internal audit report. Any pending administrative matters shall also be completed within sixty days of the release of the final report . ?Ownership of working papers: ?The ownership and custody of the internal audit work papers shall remain with the Internal Auditor. Where part of the audit work is outsourced to an external audit service provider or an expert, and reliance is placed on the work papers to issue the internal audit report, the ownership of the work papers shall be assumed by the Internal Auditor from the third party. ?However, where reliance is placed only on the report of the third party who insists on retaining ownership to their work papers, adequate provisions shall be in place to have access to the work papers, if and when required (e.g., for quality review purposes). 6. Explanatory Comments: ?Nature of Documentation: ?Documentation includes written records (electronic or otherwise) of various audit activities and procedures conducted, including evidence gathered, information collected, notes taken, and meetings held. “It includes, for example, internal memoranda, letters of confirmation and representation, Internal Audit Documentation checklists, external reports and correspondence (including e-mail) concerning significant matters”. Abstracts or copies of the entity’s records, significant and specific contracts and agreements may be included as part of internal audit documentation, if and when appropriate. ?These documents need not necessarily be printed on paper and soft/ electronic/ digital version may be used and filed. However, where alternate method of recording and storage is used, it must be reproducible in print form if required, similar in nature to the original documents 7 |Page

?Content and sufficiency of Documentation: GStSaTnodnarHdeoanltIhntcearrneasleArvuidciets(SIA) 330 Internal Audit Documentation ?The content and extent of documentation is a matter of professional judgment since it is neither practical nor necessary to document every matter or observation. However, all significant matters which require exercise of judgment, together with the Internal Auditor’s conclusion thereon, shall be included in the internal audit documentation. Professional judgement is applied well if documentation helps achieve the objectives. Nevertheless, documents shall be: I). Sufficient and complete to avoid the need for follow-up inquiry; ii). Useful and relevant to the objectives of the audit procedure; iii). Undergo at least one level of review or approval; and iv). Dependable and reliable to allow a peer reviewer to reach the same conclusion. ?Documentation Process: ?Internal audit documentation shall be collated and arranged logically in files as audit work papers and retained to support the performance of the internal audits as per a written process. ?All audit work papers shall be retained in accordance with the legal and company’s retention policy and only shared with those who are authorized to access them. ?Advice of legal counsel and/or approval of senior management or engaging authority shall be obtained prior to releasing any audit documentation to external parties. ?Timely Completion of Documentation: ?Audit working papers shall be compiled into internal audit files soon after the completion of all audit procedures, while pending matters may be closed during the draft stage of audit reporting. ?The final internal audit report shall not be released unless all significant audit evidence have been collected and documented. ?The administrative process of arranging the final audit files shall be completed within sixty days of the release of the final report. ?Confirmation of Compliance: ?To confirm compliance of audit procedures with this SIA, a list of the documents required is required, as follows: I). Written documentation policy and process on audit work papers, as part of the Internal Audit Manual; ii). Work paper files for each audit assignment, reviewed and approved with cross reference to the Internal Audit Program, where appropriate. ?Effective Date ?Currently this Standard is recommendatory in nature and will made applicable for internal audits beginning on or after a date to be notified bythe Council of the Institute. This article is contributed by Raju D, Intern of SBS and Company LLP. The author can be reached at [email protected] 8 |Page

SBS Interns' Digest www.sbsandco.com/digest SATURDAY SESSIONS S.No. Event Date Speaker Venue 04/01/2020 Afsha SBS - Hyd 1 An overview on payment of bonus act,1965 SBS - Hyd 11/01/2020 Rambabu SBS - Hyd 2 Overview on Disclosure requirements of Supriya SBS - Hyd Current liabilities 18/01/2020 Raviteja SBS - Hyd 25/01/2020 Sravanthi SBS - Hyd 3 E-Invoicing under GST Gnaneswar 4 AS-22 Accounting for taxes on Income 5 A work around of cash and cash equivalents 6 TCS under GST SESSION TIMINGS: 2:30 to 4:30 PM A work around of cash and cash equivalents An overview on disclosure requirements of current - Sravanthi liabilities - Rambabu AS-22 Accounting for taxes on Income - Ravi Teja E-Invoicing under GST - Supriya TCS under GST - Gnaneshwar 9 |Page

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