Income Tax Expert

Every year commonly controlled company prepares a combined or consolidated financial statement for tax and reporting purposes. Inter Company Reconciliation (ICR) is the process that helps parent company to split from its subsidiaries companies by location. Each year, commonly controlled business must prepare a combined or consolidated financial statement for tax and reporting purposes. The inter company accounting process is an important process for parent companies with subsidiaries or companies split by location. ICR helps in avoiding double counting of transactions as it also helps in maintaining accurate reports. Even it helps the companies to avoid misrepresentation of a firm's financial position.

Fund Flow

1. Fund flow is based on working capital.

2. Fund flows tells about the various sources from where the funds are generated.

3. Fund flow is useful for understanding long term financial strategy.

4. Changes in current assets and current liabilities are shown through the schedule of changes in working capital.

Cash Flow

1. Cash flow is based on only one element of working capital that is cash.

2. Cash flow starts with the opening balance of cash and closes with the closing balance of cash.

3. Cash flow is useful for understanding short term strategies that affects liquidity of the business.

4. Changes in current assets and current liabilities are shown in the cash flow.

The basic conditions for being resident and ordinarily resident is the same condition that satisfies the residential status of an individual and additional conditions for Resident and ordinarily resident in India in a given previous year are mentioned below:

1. If you are resident in India in at least 9 out of 10 previous years as per the basic conditions that satisfies the residential status of an individual preceding the relevant previous year.

2. If you are in India for a period of at least 730 days during 7 years preceding the relevant previous year.

3. An individual or HUF becomes ROR in India if the individual fulfills at least one of the basic conditions that satisfies the residential status of an individual both the additional conditions.

The limited liability company (LLC) is a business structure combining both the characteristics of a corporate and of partnership. As a corporate entity it protects its owners against personal liability on the other hand for tax purposes it is treated as a non corporate business organization. A limited liability company enjoys various benefits like owners or members of the company have limited liability due to the company’s separate legal existence, system of profit distribution is very flexible. Unlike a corporate organization it does not have to keep minutes or resolutions and is easier to operate. Tax advantage is the important benefit which a limited liability company enjoys as all the profits, losses and expenses are shared by the individual members. Thus the double taxation of paying corporate tax and individual tax is avoided. With all the above benefits limited Liability Company has few disadvantages also as the company comes to an end after the expiry or insolvency of its members.

Minimum of following three amounts is available as HRA exemption:

1. Actual House Rent Allowance provided by employer to employee.

2. House Rent paid in excess of 10% of Salary.

3. 50% of Salary in case House is located in Metro cities (Mumbai, Delhi, Kolkata, Chennai) or 40% in case of any other cities.

For all three conditions mentioned above relevant period is very important. Means if there is any change in Salary, HRA paid to employee, location of rented house and actual rent paid by employee HRA need to calculate from that relevant change Hence one should avoid calculating HRA on annual basis if there is any change in above factors.

Meaning of Salary for calculating HRA (Basic Salary + Dearness allowance if terms of employment so provide + fixed percentage of turnover achieved by employee)

There are two systems of Accounting:

☛ Cash System of Accounting: This system records only cash receipts and payments. This system assumes that there are no credit transactions. In this system of accounting, expenses are considered only when they are paid and incomes are considered when they are actually received. This system is used by the organizations which are established for non profit purpose. But this system is considered to be defective in nature as it does not show the actual profits earned and the current state of affairs of the organization.

☛ Mercantile or Accrual System of Accounting: In this system, expenses and incomes are considered during that period to which they pertain. This system of accounting is considered to be ideal but it may result into unrealized profits which might reflect in the books of the accounts on which the organization have to pay taxes too. All the company forms of organization are legally required to follow Mercantile or Accrual System of Accounting.

Recurring Duties:

☛ Deciding the financial needs

☛ Raising the funds required

☛ Allocation of funds

☛ 1. Fixed assets management

☛ 2. Working capital management

☛ Allocation of Income

☛ Control of Funds

☛ Evaluation of Performance

☛ Corporate Taxation

Other duties: To prepare annual accounts, carrying out internal audit, safeguarding securities, present financial reports to top management. Etc.

Non recurring Duties:

☛ Preparation of financial plan at the time of company promotion

☛ Financial adjustments in times of liquidity crisis

☛ Valuation of the firm at the time of acquisition and merger etc.