Section 80JJAA: Deduction to businesses for employing new employees

by Income Tax

Eligibility:

  • Applicable to Assessees:
    • Indian companies or individuals, HUFs, partnerships, or other entities engaged in business.
    • Assessee must have income from business and must be liable for audit under Section 44AB (Tax Audit).
  • Eligible Business:
    • All businesses except businesses engaged in manufacturing or production of apparel, footwear, or leather products (for which separate provisions apply).

Quantum of Deduction:

  • Deduction Amount:
    • 30% of additional employee cost for three assessment years, including the year in which the employment is created.

Key Definitions:

  • Additional Employee:
    • A person employed during the financial year.
    • Excludes:
      • Employees whose total monthly emoluments exceed ₹25,000.
      • Apprentices under the Apprentices Act, 1961.
      • Employees working for less than 240 days in a year (150 days for businesses in the manufacturing of apparel, footwear, or leather products).
      • Rehired employees or employees transferred from another business.
  • Additional Employee Cost:
    • Total emoluments paid or payable to additional employees during the financial year.
    • For existing businesses: Only the increase in employee cost over the previous financial year is considered.
    • For new businesses: The total emoluments paid or payable are treated as additional employee cost.
  • Emoluments:
    • Wages paid or payable to employees but excludes:
      • Employer contributions to provident funds or other funds.
      • Perquisites as defined in Section 17(2).
      • Any lump-sum payments like gratuity or severance pay.

Conditions for Claiming Deduction:

  • Payment through Banking Channels:
    • Salary or wages must be paid through bank transfers or account payee cheques to qualify.
  • Statutory Compliance:
    • Employers must comply with statutory obligations like provident fund and employee welfare contributions.
  • Audit Requirement:
    • The deduction can only be claimed if the taxpayer’s accounts are audited, and the auditor certifies the details in the prescribed Form 10DA.
  • Threshold for Days of Employment:
    • Employees must work for at least:
      • 240 days in the financial year (general).
      • 150 days for businesses in manufacturing apparel, footwear, or leather products.

Exclusions:

  • Employees employed by a business in case of reconstruction or reorganization of an existing business.
  • Employees in cases where the business takes over another business.

Illustration:

  • Suppose a business employs 50 new employees, each with a monthly salary of ₹20,000.
  • The annual emoluments for these employees = ₹20,000 × 12 × 50 = ₹1,20,00,000.
  • Deduction: 30% of ₹1,20,00,000 = ₹36,00,000 (for 3 consecutive years).

Important Points:

  • Carry Forward of Unclaimed Deduction:
    • No provision exists for carrying forward this deduction if not claimed in the respective assessment year.
  • Applicability to Startups:
    • Startups also benefit from this deduction as long as they meet the criteria.
  • Misreporting or Non-Compliance:
    • Any misreporting in claiming this deduction may result in penalties or disallowance of the deduction.

For More Information you can contact us at Groomtax

What Is A Foreign Direct Investment In India? | FDI GroomTax

What Is A Foreign Direct Investment In India? (FDI)

by Blog

If you often wonder, What is Foreign Direct Investment in India? Well, A foreign direct investment (FDI) occurs when a business or investor from outside the country buys a stake in the company. The phrase typically refers to a commercial decision to buy a substancial portion of a foreign company or to buy it altogether in order to expand its operations to a new area. It is not frequently used to refer to an investment in foreign firm stock.

 

How do FDIs Operate?

FDIs operate when companies that are thinking about making a foreign direct investment often only examine open economies with trained labour and above-average growth potential for the investor. The value of minimal government regulation is also common. FDI typically includes non-capital investments as well. It might also entail the provision of management, technology, and tools. The fact that foreign direct investment develops effective control over the foreign company, or at the very least significant influence over its decision-making, is one of its key characteristics.

 

 

What are the special considerations under FDI?

There are number of special considerations under FDI and here we’ll learn about them.

  • A foreign subsidiary or associate firm can be established, a controlling stake in an existing foreign business can be purchased, or a merger or joint venture with a foreign business can be made. These are just a few examples of the various ways that foreign direct investments can be made.
  • According to rules set by the Organisation for Economic Co-operation and Development (OECD), a foreign business must have at least a 10% ownership holding in order for foreign direct investment to acquire a controlling interest.
  • Its scope is open-ended. In some circumstances, obtaining less than 10% of a company’s voting shares can result in the establishment of an effective controlling interest in the business.

These are some of the special consideration under FDI

 

 

(FDI) Foreign Direct Investment in India

FDI or Foreign Direct Investment in India plays an important role. Foreign direct investment is a significant source of funding for India’s economic growth. After the crisis of 1991, India began its economic liberalisation, and FDI has steadily expanded ever since. India now ranks first internationally in the greenfield FDI ranking and is a member of the top 100-club for ease of doing business (EoDB).

 

Routes by which India receives FDI

Here are the routes by which India receives FDI

 * Automatic route: Automatic route is where the RBI or Indian government’s prior approval of the non-resident or Indian company for FDI is not necessary.

 

* Government route: Government route is where approval from the government is required. Through the Foreign Investment Facilitation Portal, which enables single-window clearance, the company will need to submit an application. After consulting with the Department for Promotion of Industry and Internal Trade (DPIIT), the Ministry of Commerce, the appropriate ministry receives the application and either approves or rejects it. The Standard Operating Procedure (SOP) for processing applications under the current FDI policy will be published by DPIIT.

 

Sectors that fall under the “up to 100% Automatic Route” category are

– Medical Devices: up to 100%

– Pension: 49%

– Infrastructure Company in the Securities Market: 49%

– Insurance: up to 49%

– Petroleum Refining (By PSUs): 49%

– Power Exchanges: 49%

 

The following industries fall under the “up to 100% Government Route” category:

– Banking & Public sector: 20%

– Broadcasting Content Services: 49%

– Mining & Minerals separations of titanium-bearing minerals and ores: 100%

– Core Investment Company: 100%

– Food Products Retail Trading: 100%

– Multi-Brand Retail Trading: 51%

– Print Media (publications/ printing of scientific and technical magazines/speciality journals/ periodicals and facsimile editions of foreign newspapers): 100%

– Print Media (publishing of newspapers, periodicals and Indian editions of foreign magazines dealing with news & current affairs): 26%

– Satellite (Establishment and operations): 100%

 

FDI Prohibition

FDI prohibition are a few sectors where all forms of FDI are outright forbidden. These sectors are

– Atomic Energy Generation

– Any Gambling or Betting businesses

– Lotteries (online, private, government, etc)

– Investment in Chit Funds

– Nidhi Company

– Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea plantations, Pisciculture, animal husbandry, etc)

– Housing and Real Estate (except townships, commercial projects, etc)

– Trading in TDRs

– Cigars, Cigarettes, or any related tobacco industry

 

Governmental measures to boost FDI into India

There are certain schemes and measures that government do in order to boos FDI into India

  • To entice foreign investment, government programmes like the 2020 production-linked incentive (PLI) scheme for electronics manufacturing have been announced.
  • The government’s revision of the FDI Policy 2017 to allow 100% FDI under the automatic route in coal mining activities increased the FDI influx in 2019.
  • The government confirmed in 2019 that investments in Indian firms involved in contract manufacturing are also permitted under the 100% automatic route if they are carried out through a valid contract, even though FDI in manufacturing was previously under the 100% automatic route.
  • The administration also allowed 26% FDI in the digital sectors. The market in India offers a considerable market opportunity for the foreign investors because of favourable demographics, significant mobile and internet penetration, massive consumption, and technology acceptance.
  • The Government of India’s online single-point interface with investors to assist FDI is known as the Foreign Investment Facilitation Portal (FIFP). It is managed by the Ministry of Commerce and Industry’s Department for Promotion of Industry and Internal Trade.
FDI investment is anticipated to rise
  • Foreign investors have expressed interest in the government’s efforts to privatise airports and allow commercial train operations
  • Future substantial investments are also anticipated in valuable industries like defence manufacturing, where the government increased the FDI quota under the automatic method from 49% to 74% in May 2020.

 

FDI AND FEMA

For nations where cash is scarce, foreign direct investment (FDI) has been a crucial source of funding. A person or organisation can invest money from abroad in an Indian company through foreign direct investment. The Foreign Exchange Management Act (FEMA), 1999, governs India’s foreign direct investment policy, which is overseen by the Reserve Bank of India (RBI). FDI is defined as an investment that is more than 10% in value or that is made from outside the country, according to data published by the Organization for Economic Co-operation and Development (OECD).

 

FEMA is a crucial resource for the expansion and development of numerous Indian industries. FEMA’s key goals are to encourage orderly growth, balance payments, and allow international trade while also maintaining India’s access to foreign currency. The following is a list of significant FEMA provisions for compliance with foreign investment:

– Foreign Assets and Liabilities as well as Annual Return

– Commercial loans from outside sources.

– Report on Annual Performance.

– Form for Advance Reporting.

– Single master form

– Form FC-GPR

  • FC-TRS Form
  • ODI form

Check Why We Are One Of The Best FEMA Consultants In India?

What does startup valuation mean in India? | GroomTax

What Does Startup Valuation Mean In India?

by Starting A BusinessStartupValuation

When we think about the word, Startup Valuation, there are times when we often think about what does startup valuation mean in India? Now that India is taking center stage in global markets due to high growth & reform expectations, demographic dividend, and significant demand, many Indian startups have emerged, especially in the last couple of years, building scalable businesses (substantially Tech-enabled) to solve a variety of problems we face in our daily lives. Internet-based companies have experienced unprecedented growth throughout the world. 

 

If this question ever comes to your mind, What does Startup Valuation mean in India then, Startup valuation is, to put it simply, the process of determining a company’s valuation, or how much it is worth. At the seed fundraising round, an investor makes a financial commitment to a business in exchange for equity in a piece of the enterprise. Because it enables them to choose how much ownership to give a seed investor in exchange for money, valuation is essential for business owners. For an investor, it is also crucial since they need to know how many shares of the business they will receive in return for the initial money they contributed.

 

What is the importance of Startup Valuation?

Investors frequently choose to fund early-stage businesses because they can see the full potential of the business. There are is so much that startup needs to do in its initial stage and here are some of the importance of Startup valuation. An early-stage startup should assess the worth of the company for the following reasons:

 

* Helps attract investments

Investors are constantly looking for company plans with a strong business strategy and a thorough and accurate assessment and startup valuation helps attract investments. You must create a solid business strategy that is supported by solid financial information as an early-stage startup. Without this information, investors might not be interested in your investment proposition. The decision of an investor to invest in the growth of an early-stage business depends heavily on the startup’s value. Startup valuation definitely helps attract investments.

 

* Helps predict future sales

Various financial metrics must be used in order to help predict future sales and profits of the company. An early-stage startup’s value is used to calculate the right amount of supplies and other investments that will help to ensure the company’s growth. It’s critical to keep in mind that early-stage firms may face unforeseen challenges, making their success questionable. Using an early-stage startup’s valuation can boost the company’s projected sales.

 

* Helps in determining the potential of a business

Different sorts of early-stage startups exist, each with a unique potential. Knowing the startup valuation will help in determining the potential of a business. While some firms might not even survive to the following quarter, others might be extraordinarily successful. It’s crucial to be aware that evaluating a startup’s potential can aid in your decision regarding which business to pick.

 

* Making Decisions

Making decisions is aided by startup value. The process of knowing your business is valuation. The entrepreneur needs to be aware of the company’s true value before making any decisions, such as deciding how much equity to issue to the investor or concluding any deals. When you know the valuation of your startup, making decisions comes handy.

 

 

Here are few more Importance of Startup Valuation :- 

* Negotiation Authority

Knowing the true value of your startup business will make it much simpler for you to negotiate a fair price during mergers. it also helps you being a negotiation authority. When a larger firm wants to make you its daughter company in the early stages, startups merge. If you have all the value figures for your startup endeavour at that time, you can simply accept the request. Being in the position of negotiation authority comes with its own benefits.

 

* Setting the future

Setting the future is important for an entrepreneur. The entrepreneur is able to predict the company’s future and existing state with the help of a proper startup valuation study. As a result, the business owner will be better able to set their sights on the desired outcomes, devise plans for achieving those outcomes, and adapt and put into practise new plans for advancing the startup’s present stage. You may quickly and simply benefit from Startup Valuation after you have accurate valuation information for your business.

 

* The true value is known

Startup valuation is important when trying to persuade investors to give money to your business. As for the investors, they learn what they will get in return for their investment, which benefits both the company and the investors. The Startup Valuation benefits are primarily derived from the procedure and the true value is known.

 

Importance of startup valuation is important to every business because it influences how much equity an entrepreneur must provide to an investor in exchange for the necessary money. This suggests that in exchange for a seed investment, a firm that is valued higher must grant a smaller percentage of equity or shares to the investor. Startup valuation is crucial from an investor’s perspective as well as from the perspective of entrepreneurs since it enables investors to estimate the return they will get on their investment.

 

What are the Valuation Factors for Startups?

Now that we have seen how a proper or incorrect valuation can make or break a deal, the next obvious question is what are the valuation factors for startups. Before learning how it’s done, let’s take a closer look at the variables that affect a company’s valuation:

 

Here are a few valuation factors for Startups

* Traction

It is one of the key elements affecting seed stage valuation. Traction primarily serves as the quantitative indicator of growing client demand for a startup. Traction is the most crucial factor in persuading investors to put money in a company since it plainly shows expansion and growth.

 

* Reputation

The founders must make sure they have a good reputation in the market before moving forward with the valuation round. The founder’s reputation and abilities are two of the most crucial factors that investors consider before making an investment.

 

* Prototype

A key element that can affect an investor’s choice is the creation of a prototype. Therefore, make sure the prototype is ready before preparing to pitch to an investor.

 

* Pre-valuation revenues

Revenues are unquestionably crucial for any business since they simplify the assessment process for investors. Therefore, if a product has already been launched and is making money, it may influence an investor’s choice in favour of that firm and serve as a true deal-breaker.

 

* Distribution Channel

It is highly probable that the product or service will also be in its early stages throughout the startup phase. Due of the potential impact on valuation, founders should exercise caution when choosing the distribution channel.

 

* The Industry

Investors are quite likely to pay a premium if the company is in a booming sector of the economy. This suggests that it’s critical to pick the appropriate industry because it will raise a company’s value