📘 What is a Gilt Fund?

A Gilt Fund is a type of debt mutual fund that primarily invests in government securities (G-secs). These are bonds issued by the central and/or state governments to borrow money. As such, gilt funds carry zero credit risk, since they are backed by sovereign guarantee, but they are sensitive to interest rate movements.

Key Features of Gilt Funds:

Feature	Description
Underlying Securities	Government bonds (short to long-term maturity)
Risk Level	Low credit risk, but high interest rate risk
Return Expectation	Moderate returns, typically 5–7% p.a. over medium to long term
Investment Horizon	Ideal for 3–5 years or more
Liquidity	High, as most gilt funds are open-ended
Regulation	Regulated by SEBI

🔹 What is a Gilt Fund Account?

A Gilt Fund Account is a folio or investment account through which an investor can:

• Invest in one or more gilt funds

• Monitor NAV, holdings, and returns

• Redeem or switch between debt schemes

It may be referred to as a Mutual Fund Account with exposure specifically to Gilt Funds. Some platforms also offer direct gilt investments via RBI Retail Direct Gilt Account, allowing investors to buy G-Secs directly from RBI.

RBI Retail Direct’:

As part of continuing efforts to increase retail participation in government securities, ‘the RBI Retail Direct’ facility was announced in the Statement of Developmental and Regulatory Policies dated February 05, 2021 for improving ease of access by retail investors through online access to the government securities market – both primary and secondary – along with the facility to open their gilt securities account (‘Retail Direct’) with the RBI.

In pursuance of this announcement, the ‘RBI Retail Direct’ scheme, which is a one-stop solution to facilitate investment in Government Securities by individual investors is being issued today. The highlights of the ‘RBI Retail Direct’ scheme are:

i. Retail investors (individuals) will have the facility to open and maintain the ‘Retail Direct Gilt Account’ (RDG Account) with RBI.

ii. RDG Account can be opened through an ‘Online portal’ provided for the purpose of the scheme.

iii. The ‘Online portal’ will also give the registered users the following facilities:

1. Access to primary issuance of Government securities
2. Access to NDS-OM.

🔄 Gilt Funds vs Share Market – A Comparison

Particulars	Gilt Funds	Share Market (Equity Investment)
Nature of Investment	Government bonds (debt instruments)	Equity shares of listed companies
Risk Level	Low credit risk, high interest rate risk	High market, business & volatility risk
Returns	Moderate & stable (linked to interest rates)	Potentially high but volatile
Ideal for	Conservative or debt-oriented investors	Growth-seeking and risk-tolerant investors
Investment Horizon	Medium to long-term	Long-term (ideally >5 years)
Volatility	Low to moderate	High
Regulation	SEBI, RBI	SEBI, Stock Exchanges
Liquidity	High in open-ended funds	High for listed shares
Taxation (LTCG >2Y)	12.5% with indexation (for funds held >2 years)	12.5% LTCG on gains > ₹1.25 lakh

📈 Who Should Invest in Gilt Funds?

• Investors looking for safety of capital with moderate returns
• Suitable during falling interest rate cycles (bond prices rise)
• Ideal for diversification in low-risk portfolios

⚠️ Risks to Consider

• Interest Rate Risk: As rates rise, bond prices fall, affecting NAV.
• No Credit Risk, but duration risk is higher in long-term gilt funds.
• Not ideal for short-term parking due to volatility from rate changes.

📑 Source References:

1. SEBI – Mutual Funds Regulations: https://www.sebi.gov.in

2. RBI Retail Direct Scheme: https://rbiretaildirect.org.in

3. AMFI – Gilt Fund Details: https://www.amfiindia.com/investor-corner/knowledge-center/types-of-mutual-funds

Disclaimer: This article is solely for educational purpose and cannot be construed as legal and professional opinion. It is based on the interpretation of the author and are not binding on any tax authority. Author is not responsible for any loss occurred to any person acting or refraining from acting as a result of any material in this article.

Nostro and Vostro accounts are two types of bank accounts used in international banking transactions. These terms originate from Latin, with Nostro meaning “our” and Vostro meaning “your”. In this article, we will discuss the meaning and differences between these two types of bank accounts.

What is a Nostro account?

A Nostro account is a bank account that a bank holds in a foreign currency in another bank. These accounts are maintained by banks to facilitate their foreign currency transactions. Nostro accounts are used by banks to hold funds that belong to their customers in other countries. These accounts are denominated in the currency of the foreign country where the account is held. Banks use Nostro accounts to receive and make payments in foreign currencies.

For example, if Bank A in the United States has a customer who wants to make a payment to a supplier in Japan, Bank A would use its Nostro account in Japan to make the payment in Japanese yen. The funds would be transferred from the customer’s account in Bank A to Bank A’s Nostro account in Japan, and then Bank A would use these funds to make the payment to the supplier in Japan.

What is a Vostro account?

A Vostro account is a bank account that is held by a foreign bank in the local currency of the country where the account is held. Vostro accounts are maintained by banks to facilitate transactions with their international customers. These accounts are used by banks to hold funds that belong to their customers in the local currency of the country where the account is held. Banks use Vostro accounts to receive and make payments in local currencies.

For example, if Bank A in the United States has a customer who wants to receive a payment from a supplier in Japan, Bank A would give its Japanese partner bank permission to open a Vostro account with Bank A. The supplier in Japan would transfer the payment in Japanese yen to Bank A’s Vostro account in Japan. Bank A would then credit the payment to its customer’s account in the United States in US dollars.

Differences between Nostro and Vostro accounts

The main difference between Nostro and Vostro accounts is that Nostro accounts are held by a bank in a foreign country, denominated in the currency of the foreign country, and used to facilitate its transactions in that country. On the other hand, Vostro accounts are held by a foreign bank in the local currency of the country where the account is held, used to facilitate transactions with the bank’s international customers.

Another difference between Nostro and Vostro accounts is the ownership of the account. A Nostro account is owned by the bank that holds the account, while a Vostro account is owned by the foreign bank that opened the account.

A Nostro Account of one country can be a Vostro Account for another country, and vice versa

The Central Sales Tax Act, 1956 defines “Turnover” as follows:

Under this Act, “turnover” used in relation to any dealer liable to tax means the aggregate of the sales price received and receivable by him in respect of sales of any goods in the course of inter-State trade or commerce made during any prescribed period and determined in accordance with the provisions of the Act and rules made there under.

Further, section 8A(1) of the said Act provides that in determining turnover, deduction of sales tax should be made from the aggregate of sales price.

According to Section 2(112) of the Central Goods and Services Act, the term ‘Turnover’ is defined as:

‘turnover in State’ or ‘turnover in Union territory’ means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis) and exempt supplies made within a State or Union territory by a taxable person, exports of goods or services or both and inter-State supplies of goods or services or both made from the State or Union territory by the said taxable person but excludes central tax, State tax, Union territory tax, integrated tax and cess.

Under Section 2(91) of the Companies Act, 2013, the term “Turnover” has been defined as:

“Turnover means gross amount of revenue recognized in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year;”

“The Guide to Company Audit” issued by ICAI in the year 1980, while discussing “sales”, stated as follows:

“Total turnover, that is, the aggregate amount for which sales are affected by the company, giving the amount of sales in respect of each class of goods dealt with by the company and indicating the quantities of such sales for each class separately.

• Here the term ‘turnover’ would mean the total sales after deducting therefrom goods returned, price adjustments, trade discount and cancellation of bills for the period of audit, if any.
• Adjustments which do not relate to turnover should not be made e.g., writing off bad debts, royalty etc.
• Where excise duty is included in turnover, the corresponding amount should be distinctly shown as a debit item in the profit and loss account.”

The Statement on the Companies (Auditors’ Report) Order, 2003 issued by the Institute in April 2004, while discussing the term ‘turnover’ in paragraph 23 states `as follows:  The term, “turnover”, has not been defined by the Order. Part II of Schedule VI to the Act, however, defines the term “turnover” as the aggregate amount for which sales are affected by the company. It may be noted that the “sales affected” would include sale of goods as well as services rendered by the company. In an agency relationship, turnover is the amount of commission earned by the agent and not the aggregate amount for which sales are affected or services are rendered. The term “turnover” is a commercial term and it should be construed in accordance with the method of accounting regularly employed by the company.

The “Statement on the Amendments to Schedule VI to the Companies Act, 1956” issued by the Institute (Page 14, 1976 edition) (replaced with Guidance Note on Revised Schedule VI of the Companies Act, 1956) while discussing the disclosure requirements relating to `turnover’ stated as follows: –

The disclosure may well be determined by reference to the company’s invoicing and accounting policy and may thereby vary from company to company. For reasons of consistency as far as possible, a company should adhere to the same basic policy from year to year and if there is any change in the policy the effect of that change may need to be disclosed if it is material, so that a comparison of the turnover figures from year to year does not become misleading.”

Although, Schedule III of the Companies Act, 2013 has replaced the Revised Schedule VI of the Companies Act, 1956 in the year 2014, guidance given herein above with respect to meaning of the term “turnover” is still relevant.

The term ‘turnover’ for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are affected or services rendered by an enterprise.

• If GST or any other tax is included in the sale price, no adjustment in respect thereof should be made for considering the quantum of turnover.
• Trade discounts can be deducted from sales but not the commission allowed to third parties.
• If, however, GST or any other indirect tax recovered are credited separately to GST or other tax account (being separate accounts) and payments to the authority are debited in the same account, they would not be included in the turnover.
• However, sales of scrap shown separately under the heading ‘miscellaneous income’ will have to be included in turnover.

Considering that the words “Sales”, “Turnover” and “Gross receipts” are commercial terms, they should be construed in accordance with the method of accounting regularly employed by the assessee.

Section 145(1) of the Income Tax Act 1995 provides that income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” should be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. The method of accounting followed by the assessee is also relevant for the determination of sales, turnover or gross receipts in the light of the above discussion.

Applying the above generally accepted accounting principles, a few typical cases may be considered:

• Cash discount otherwise than that allowed in a cash memo/sales invoice is in the nature of a financing charge and is not related to turnover. The same should not be deducted from the figure of turnover.
• Discount allowed in the sales invoice will reduce the sale price and, therefore, the same can be deducted from the turnover.
• Turnover discount is normally allowed to a customer if the sales made to him exceed a particular quantity. This being dependent on the turnover, as per trade practice, it is in the nature of trade discount and should be deducted from the figure of turnover even if the same is allowed at periodical intervals by separate credit notes.
• Special rebate allowed to a customer can be deducted from the sales if it is in the nature of trade discount. If it is in the nature of commission on sales, the same cannot be deducted from the figure of turnover.
• Price of goods returned should be deducted from the figure of turnover even if the returns are from the sales made in the earlier year/s.
• Sale proceeds of fixed assets would not form part of turnover since these are not held for resale.
• Sale proceeds of property held as investment property will not form part of turnover.
• Sale proceeds of any shares, securities, debentures, etc., held as investment will not form part of turnover. However, if the shares, securities, debentures etc., are held as stock-in-trade, the sale proceeds thereof will form part of turnover.

The turnover or gross receipts in respect of transactions in shares, securities and derivatives may be determined in the following manner:

(a) Speculative transaction: A speculative transaction means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Thus, in a speculative transaction, the contract for sale or purchase which is entered into is not completed by giving or receiving delivery so as to result in the sale as per value of contract note. The contract is settled otherwise and squared up by paying out the difference which may be positive or negative. As such, in such transaction the difference amount is ‘turnover’. In the case of an assessee undertaking speculative transactions there can be both positive and negative differences arising by settlement of various such contracts during the year. Each transaction resulting into whether a positive or negative difference is an independent transaction. Further, amount paid on account of negative difference paid is not related to the amount received on account of positive difference. In such transactions though the contract notes are issued for full value of the purchased or sold asset, the entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions for determining the liability to audit vide section 44AB.

(b) Derivatives, futures and options: Such transactions are completed without actual delivery of shares or securities or commodities etc. These are squared up by receipts/payments of differences. The contract notes are issued for the full value of the underlined shares or securities or commodities etc. purchased or sold but entries in the books of account are made only for the differences. The transactions may be squared up any time on or before the striking date. The buyer of the option pays the premia. The turnover in such types of transactions is to be determined as follows:

• The total of favorable and unfavorable differences shall be taken as turnover.
• Premium received on sale of options is also to be included in turnover. However, where the premium received is included for determining net profit for transactions, the same should not be separately included.
• In respect of any reverse trades entered, the difference thereon, should also form part of the turnover.

(c) Delivery based transactions: Where the transaction for the purchase or sale of any commodity including stocks and shares is delivery based whether intended or by default, the total value of the sales is to be considered as turnover.

Further, an issue may arise whether such transactions of purchase or sale of stocks and shares undertaken by the assessee are in the course of business or as investment. The answer to this issue will depend on the facts and circumstances of each case taking into consideration the nature of the transaction, frequency and volume of transactions etc.

In case such transactions are for the purposes of investment and income/loss arising therefrom is to be computed under the head ‘Capital Gains’, then the value of such transaction is not to be included in sales or turnover for deciding the applicability of audit under section 44AB.

However, in case such transactions are in the course of business, then the total of such sales is to be included in the sale, turnover or gross receipts as the case may be, of the assessee for determining the applicability of audit under section 44AB.

The term “gross receipts” is also not defined in the Act. It will include all receipts whether in cash or in kind arising from carrying on of the business which will normally be assessable as business income under the Act. Broadly speaking, the following items of income and/or receipts would be covered by the term “gross receipts in business”:

• Cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India;
• Any indirect tax re-paid or repayable as drawback to any person against exports under the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995;
• The aggregate of gross income by way of interest received by the money lender;
• Commission, brokerage, service and other incidental charges received in the business of chit funds;
• Reimbursement of expenses incurred (e.g., packing, forwarding, freight, insurance, travelling etc.) and if the same is credited to a separate account in the books, only the net surplus on this account should be added to the turnover for the purposes of Section 44AB;
• The net exchange rate difference on export sales during the year on the basis of the principle explained in (v) above will have to be added;
• Hire charges of cold storage;
• Liquidated damages;
• Insurance claims – except for fixed assets;
• Sale proceeds of scrap, wastage etc. unless treated as part of sale or turnover, whether or not credited to miscellaneous income account;
• Gross receipts including lease rent in the business of operating lease;
• Finance income to reimburse and reward the lessor for his investment and services;
• Hire charges and instalments received in the course of hire purchase;
• Advance received and forfeited from customers.
• The value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession.

The following items would not form part of “gross receipts in business” for purposes of section 44AB:

• Sale proceeds of fixed assets including advance forfeited, if any;
• Sale proceeds of assets held as investments;
• Rental income unless the same is assessable as business income;
• Dividends on shares except in the case of an assessee dealing in shares;
• Income by way of interest unless assessable as business income;
• Reimbursement of customs duty and other charges collected by a clearing agent;
• In the case of a recruiting agent, the advertisement charges received by him by way of reimbursement of expenses incurred by him;
• In the case of a travelling agent, the amount received from the clients for payment to the airlines, railways etc. where such amounts are received by way of reimbursement of expenses incurred on behalf of the client. If, however, the travel agent is conducting a package tour and charges a consolidated sum for transportation, boarding and lodging and other facilities, then the amount received from the members of group tour should form part of gross receipts;
• In the case of an advertising agent, the amount of advertising charges recovered by him from his clients provided these are by way of reimbursement. But if the advertising agent books the advertisement space in bulk and recovers the charges from different clients, the amount received by him from the clients will not be the same as the charges paid by him and in such a case the amount recovered by him will form part of his gross receipts;
• Share of profit of a partner of a firm in the total income of the firm excluded from his total income under section 10(2A) of the Income-tax Act;
• Interest, remuneration received by Partner from partnership firm.
• Write back of amounts payable to creditors and/or provisions for expenses or taxes no longer required.

Thus, the principle to be applied is that if the assessee is merely reimbursed for certain expenses incurred, the same will not form part of his gross receipts. But in the case of charges recovered, which are not by way of reimbursement of the actual expenses incurred, they will form part of his gross receipts.

In case of profession, the expression “gross receipts” in profession would include all receipts arising from carrying on of the profession. A question may, however, arise as to whether the out-of-pocket expenses received by him should form part of his gross receipts for purposes of this section.

Normally, in the case of solicitors, advocates or chartered accountants, such out of pocket expenses received in advance are credited in a separate client’s account and utilized for making payments for stamp duties, registration fees, counsel’s fees, travelling expenses etc. on behalf of the clients. These amounts, if collected separately either in advance or otherwise, should not form part of the “gross receipts”.

If, however, such out of pocket expenses are not specifically collected but are included/collected by way of a consolidated fee, the whole of the amount so collected shall form part of gross receipts and no adjustment should be made in respect of actual expenses paid by the professional person for and/or on behalf of his clients out of the gross fees so collected. However, the amount received by way of advance for which services are yet to be rendered will not form part of the receipts, as such advances are the liabilities of the assessee and cannot be treated as his receipts till the services are rendered.

It may be noted that in cases where the assessee carries on more than one business activity, the results of all business activities should be clubbed together. In other words, the aggregate sales, turnover and/or gross receipts of all businesses carried on by an assessee would be taken into consideration in determining whether the prescribed limit (Presently Rs. 1 crore & Rs 10 crore for certain specified cases) as laid down in section 44AB has been exceeded or not. However, where the business is covered by section 44B or 44BBA, turnover of such business shall be excluded. Similarly, where the business or profession is covered by section 44AD or 44ADA or 44AE and the assessee opts to be assessed under the respective sections on presumptive basis, the turnover thereof shall be excluded. So far as a partnership firm is concerned, each firm is an independent assessee for purposes of Income-tax Act. Therefore, the figures of sales of each firm will have to be considered separately for purposes of determining whether or not the accounts of such firm are required to be audited for purposes of section 44AB.

It must also be understood that the issue whether the turnover exceeds the prescribed limit (Presently Rs.1 crore & Rs 10 crore for certain specified cases) in the case of business or the gross receipts exceed the prescribed limit (Presently Rs. 50 lakhs) in the case of profession is to be determined in each year independent of the results obtained in the preceding year or years. Further, this section applies only if the turnover exceeds the prescribed limit according to the accounts maintained by the assessee.

If the Assessing Officer wants the assessee to get his accounts audited in cases where the figures of turnover as appearing in the books of account of the assessee do not exceed the prescribed limits, he has an option to pass an order under section 142(2A) directing the assessee to get his accounts audited from a chartered accountant as may be nominated by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

Under section 28(v), any interest, salary, bonus, commission or remuneration, by whatever name called, due to or received by, a partner of a firm from such firm shall be chargeable under the head profits and gains of business and profession. However, partner does not do any business independently but firm was carrying on business in which assessee is only a partner, therefore, remuneration received by assessee from partnership firm cannot be treated as gross receipt/turnover.

FAQs

1. Whether the sales by a commission agent or by a person on consignment basis forms part of the turnover of the commission agent and/or consignee as the case may be?
   In such cases, it will be necessary to find out, whether the property in the goods or all significant risks, reward of ownership of goods belongs to the commission agent or the consignee immediately before the transfer by him to third person. If the property in the goods or all significant risks and rewards of ownership of goods continue to belong to the principal, the relevant sale price shall not form part of the sales/turnover of the commission agent and/or the consignee as the case may be.
   If, however, the property in the goods, significant risks and reward of ownership belongs to the commission agent and/or the consignee, as the case may be, the sale price received/receivable by him shall form part of his sales/turnover.
2. Will the securities purchased by the share brokers on behalf of their customers be accounted in the turnover of share brokers?
   Share brokers, on purchasing securities on behalf of their customers, do not get them transferred in their names but deliver them to the customers who get them transferred in their names. The same is true in case of sales also. The share broker holds the delivery merely on behalf of his customer. The property in goods does not get transferred to the share brokers. Only brokerage which is being accounted for in the books of account of share brokers should be taken into account for considering the limits for the purpose of section 44AB.
   However, in case of transactions entered into by share broker on his personal account, the sale value should also be taken into account for considering the limit for the purpose of section 44AB. The case of a sub-broker is not different from that of a share broker.
3. While calculating the value of the turnover, whether we should include any extra and ancillary charges to the value?
   The invoices may involve ancillary charges such as those relating to packing, freight, forwarding, interest, commission, etc. It is suggested that generally the value of turnover should be disclosed exclusive of such ancillary and extra charges, except in those cases where separate demarcation is not possible due to the accounting system followed by the company or where the company’s billing procedure involves a composite charge inclusive of various services.
4. Whether any amount received in advance for services which are yet to be rendered, will form part of the gross receipts?
   The amount received by way of advance for which services are yet to be rendered will not form part of the receipts, as such advances are the liabilities of the assessee and cannot be treated as his receipts till the services are rendered.
5. A question may arise in the case of an assessee carrying on business and at the same time engaged in a profession as to what are the limits applicable to him under section 44AB for getting the accounts audited?
   In such a case, if an assessee’s professional receipts are, say, rupees fifty-four lakhs but the total sales, turnover or gross receipts in business are, say, rupees seventy-two lakhs, it will be necessary for the assessee to get the accounts of the profession and also the accounts of the business audited because the gross receipts from the profession exceed the limit of rupees fifty lakhs. If, however, the professional receipts are, say, rupees forty-two lakhs and total sales turnover or gross receipts from business are, say, rupees eighty-six lakhs, in these circumstances, gross receipts, turnover etc. from profession or business is not in excess of the limits specified in section 44AB for mandate of audit.

SPECIAL MENTION ACCOUNT (SMA)

Special Mention Account (SMA) is an account which is exhibiting signs of incipient stress resulting in the borrower defaulting in timely servicing of her debt obligations, though the account has not yet been classified as NPA as per the extant RBI guidelines. In 2014, the classification of Special Mention Accounts (SMA) was introduced by the RBI to identify those accounts that has the potential to become an NPA/Stressed Asset. There are three types of SMA – SMA 0, SMA1 and SMA 2. They are usually categorized in terms of duration.

SMA SUB-CATEGORIES	BASIS FOR CLASSIFICATION
SMA – 0	1-30 Days
SMA – 1	31-60 Days
SMA – 2	61-90 Days

EXAMPLE:

Assuming due date for an account as 4th day of every month (say 4th Aug, 2022):

• If the EMI/entire dues of a particular account are not received into the bank account before the day end process is run on the 4th calendar day i.e the due date, the account shall be treated as overdue after day end process. Accordingly, this account shall be classified as SMA-0. The account shall remain classifies under SMA-0 until the end of the 30^th day.
• If this account remains continuously overdue even after the completion of day end process on 30th day from the initial due date, after its classification as SMA-0, the account shall be classified as SMA-1 and shall continue to remain under this head till the 60^th day.
• Similarly, if the account continues to remains overdue even after the end of 60 days, it shall get classified as SMA-2 upon running of day end process on the 61st day from the initial due date. The maximum days to remain under SMA -2 is 90 days.

If the account remains continuously overdue for 90 days, it shall get classified as NPA (Non-Performing Asset) upon running of day end process on the 91st day from the initial due date.

NON-PERFORMING ASSETS (NPAs)

A non-performing asset (NPA) is a classification used by financial institutions for loans and advances that are in default or in arrears. In general, loans are classified as NPAs when the payment is outstanding for a period of 90 days or more, though some lenders can use shorter or longer time window in considering a loan or advance past due based on the conditions of the loan. A loan can be classified as a nonperforming asset at any point during the term of the loan or at its maturity.

Nonperforming assets (NPAs) are listed on the Balance Sheet of every bank or other financial institution. After a specified period of non-payment by the borrower, the lender will force the borrower to liquidate any assets that were pledged in the debt agreement. In case no assets were pledged, the lender may have to write-off the asset as a bad debt. He can also sell it at a discount to any collection agencies.

Nonperforming creates a significant burden on the balance sheet of the lender. The nonpayment of interest or principal reduces the lender’s cash flow, which can disrupt budgets and decrease earnings. Loss provisions created on loans are set aside to cover any potential losses which may occur, and it therefore reduced the capital available with the Banks. Once the defaulted loans are determined, the actual losses are written off against the earnings. Carrying a significant amount of NPAs on the balance sheet over a period of time is an indicator to regulators that the financial fitness of the bank is at risk.

PURPOSE OF NPAs

It is crucial for both the borrower as well as the lender to be aware of their assets whether they are performing or non-performing assets.

In case of the borrower, if the asset is a non-performing asset and interest payments are not done, it can affect their credit and growth possibilities in a negative way. It might hamper their ability to obtain any future borrowing.

In case of the bank/lender, interest earned on loans acts as a main source of income. Therefore, non-performing assets will affect their ability to generate adequate income and thus, their overall profitability. Keeping a track of NPAs is highly significant for banks since it will adversely affect their liquidity and growth abilities.

Non-performing assets would be manageable, but it depends on the amount of NPAs how many there are and how far they have stayed overdue. Most banks can take on a fair amount of NPAs in the short term. However, if the volume of NPAs continue to increase over a period of time, it threatens the financial health and future success of the lender.

TYPES OF NON-PERFORMING ASSETS (NPA)

• Term Loans, Cash Credit and Overdraft Facilities are treated as NPA if the installment of the loan, whether principal or interest, is due for more than 90 days.
• Agricultural Advances are considered as NPAs if the principal payments have stayed overdue for the specified period of time. The specified period is defined as
  • two or more crop seasons/harvest seasons for short duration crops, and
  • one crop duration for long duration crops.
• There could be other types of NPAs, including residential mortgages, home equity loans, credit card loans, non-credit card outstanding, and direct & indirect consumer loans. Expected payment on any account is overdue for more than 90 days would be classifies as NPA.

CLASSIFICATION OF NPA FOR BANKS

Classification of NPAs can be done among 3 categories:

1. Sub- Standard Assets: Sub-standard assets are those assets that have remained NPAs for a period of less than or equal to 12 months (91 days to 12 months) and the risk of the asset is normal. Risk is significantly higher as compared to Standard Assets. Banks are generally ready to take some reductions in the market value on the loan amounts categorized under this.
2. Doubtful Debts: The term ‘Doubtful Debt’ itself means that there is a very low chance of recovery of its advances/loans from the party. Doubtful assets are those assets that have remained under sub-standard NPAs for a period of more than 12 months. Such advances can put the bank’s liquidity and reputation in jeopardy.
3. Loss Assets: The final classification of non-performing assets is loss assets. This loan is identified either by the bank itself or by an external auditor/ internal auditor. The bank, in this case, has to write off the entire loan amount outstanding.

Duty Credit Scrips is an initiative scheme introduced by the Government of India under the Foreign Trade Policy in 2015. Duty Credit Scrips were introduced to provide incentive to the Exporters to boost the inflow of forex in India. What these scrips are to exporters is same as for what vouchers are to shopaholics. These can be issues to Exporter of Goods as well as Services. Exporters get these scrips from the government for exporting goods or services outside India. These Scrips can be used to set off duties while importing to India.

The value of scrip varies from scheme to scheme, product to product and country to country. However, the scrip value in most of the cases is in the range of 2% to 5% of the realized FOB Value (in free foreign exchange). Validity of Duty Credit Scrips varies according to the nature of the scrips.  

Exporters can use Duty Credit Scrips (DCS) for the payment of:

PURPOSE OF DUTY CREDIT SCRIPS

• Duty Credit Scrips can be used by the exporters to pay their tax liabilities on imports, if any.
• DCS are transferrable in nature. So, if the exporters do have enough imports to set off these scrips, Exporters can sell them to those who import and can set off against their own tax liabilities.
• Duty Credit Scrips can also be revalidated on special request to DGFT (Directorate General of Foreign Trade) under crucial circumstances.
• Duty Credit Scrips cannot be used to set-off CGST/SGST/IGST liability.

DOCUMENTS TO BE SHARED WITH AUTHORITY FOR OBTAINING DCS

• Copy relating to the foreign inward remittance certificate
• Copy of IEC code.
• CA certificate
• Copy of RCMC certificate, i.e. Registration cum membership certificate
• Copy relating to the invoice
• Copy of foreign exchange earned
• List of directors (in case of companies)
• Board resolution

WHAT IS REMISSION OF DUTIES AND TAXES ON EXPORT PRODUCTS (RoDTEP) SCHEME

A scheme designed to provide rewards to exporters to offset infrastructural inefficiencies and associated costs. The Duty Credit Scrips and goods imported/ domestically procured against them shall be freely transferable. The Duty Credit Scrips can be used for:

(i) Payment of Basic Customs Duty and Additional Customs Duty specified under sections 3(1), 3(3) and 3(5) of the Customs Tariff Act, 1975 for import of inputs or goods, including capital goods, as per DoR Notification, except items listed in Appendix 3A.

(ii) Payment of Central excise duties on domestic procurement of inputs or goods,

(iii) Payment of Basic Customs Duty and Additional Customs Duty specified under Sections 3(1), 3(3) and 3(5) of the Customs Tariff Act, 1975 and fee as per paragraph 3.18 of this Policy.

Objective of the RoDTEP scheme is to promote the manufacture and export of notified goods/ products. To apply for RoDTEP scheme, an IEC is required. Other pre-requisites as mentioned in the Chapter 3 of Foreign Trade Policy and Hand book of Procedures may be referred.

WHAT IS SERVICE EXPORTS FROM INDIA SCHEME (SEIS) SCHEME

Under the framework of the SEIS Scheme, under implementation since 01.04.2015, service exporters for eligible service categories, are granted benefits in the nature of transferable Duty Credit Scrips as a percentage of Net Foreign Exchange earned on export of the eligible services in a financial year. The Duty Credit Scrips can be used Payment of Basic Customs Duty and certain other duties as listed in para 3.02 of FTP 2015-20

Pre-Requisites for Applying for SEIS Scheme

All eligibility criteria are outlined in FTP and HBP however salient ones are:

• Should have an active IEC at the time of rendering services
• Should have certain minimum earnings
• Should have exported eligible services as notified in Appendix 3D/3E/3X (Appendix 3X will be applicable on claim for FY 2019-20 and Appendix 3D/3E will be applicable for other year claim)
• Does not fall under ineligible categories as in public notice 45 dated 05.12.2017
• Services provided under Modes 1 and 2 only are allowed for claim for eligible services
• Negative Net Foreign Exchange earnings (NFE) makes the entitlement under zero for the financial year

WHAT IS REBATE OF STATE AND CENTRAL LEVIES AND TAXES (RoSCTL) SCHEME

Scheme to rebate all embedded State and Central Taxes/levies for meant for exports of made-up articles & garments. Pre-Requisites for Applying for RoSCTL Scheme is that an IEC is required.

WHAT IS EXPORT PROMOTION CAPITAL GOODS (EPCG) SCHEME

The objective of the Export Promotion Capital Goods (EPCG) Scheme is to facilitate import of capital goods for producing quality goods and services and enhance India’s manufacturing competitiveness. EPCG Scheme allows import of capital goods for pre-production, production and post-production at zero customs duty. Capital goods imported under EPCG for physical exports are also exempt from IGST and Compensation Cess up to 31.03.2020. Alternatively, the exporter may also procure Capital Goods from domestic market in accordance with provisions of paragraph 5.07 of FTP. Capital goods for the purpose of the EPCG scheme shall include:

– Capital Goods as defined in Chapter 9

– Computer systems and software which are a part of the Capital Goods

– Spares, moulds, dies, jigs, fixtures, tools & refractories

– Catalysts for initial charge plus one subsequent charge

EPCG scheme covers manufacturer exporters with or without supporting manufacturer(s), merchant exporters tied to supporting manufacturer(s) and service providers.

WHAT IS TRANSPORT AND MARKETING ASSISTANCE (TMA) SCHEME

The “Transport and Marketing Assistance” (TMA) for specified agriculture products scheme aims to provide assistance for the international component of freight and marketing of agricultural produce which is likely to mitigate disadvantage of higher cost of transportation of export of specified agriculture products due to trans-shipment and to promote brand recognition for Indian agricultural products in the specified overseas markets.

To apply for TMA scheme, an IEC is required. Other pre-requisites as mentioned in the Chapter 7 of Foreign Trade Policy and Hand book of Procedures may be referred.

SALE OF DUTY CREDIT SCRIPS (DCS)

In case, the holder (Exporter) of these scrips is unable to use them for any reason, he/she can sell them in the market. Buyer (Any Importer) of the scrips would usually buy them at a discount on the face value. The buyer of the scrips would not pay the full value of the scrips.
For example: If a holder has a Duty Credit Scrip worth Rs.2,00,000 and he is unable to use them, he should sell it in the market. Since the buyer of these scrips would not pay the full amount, it should be sold at a discount. The buyer may buy these scrips at Rs.1,80,000 instead of Rs.2,00,000.

Although these scrips are sold for Rs.1,80,000, It would still have the face value of Rs.2,00,000 and can be used for the payment of duties equivalent to Rs.2,00,000. The Buyer of these scrips gets the benefit of Rs.20,000 by paying Rs.1,80,000 instead of Rs.2,00,000. And the seller benefits from the transaction by encashing at least Rs.1,80,000 because the scrip would have been useless until its validity if he wouldn’t have used it or sold it.

An Agency for Specialized Monitoring (ASM) is a mechanism of the bank, which allows it to take several steps to prevent or minimize the number of money laundering cases and misappropriation of funds. ASMs are committed to providing due diligence support in India.

ASM audits involve extensive analysis of a company’s transactions, operations, and financial health. The broad scope of ASM Audit work involves the following activities:

• Stock & Receivable Audit
• Cash flow Monitoring
• Sales/Purchase Monitoring
• End Use of Funds/Siphoning of Funds
• Verification of group company transactions at arms-length
• Validation of Drawing Power as per Banks’ sanctioned terms
• LIE Work for Term Loans/Projects
• Review of project progress vis-a-vis scheduled milestones, Capacity Utilization, asset book size, quality and diversification.
• Verification of re-valuation of assets if any
• Verification of routing of project revenue and expenses through designated bank accounts
• Verification of project expenses, payments to creditors and advances to suppliers
• Review of unbilled revenue and WIP and justifiable reasons for the same
• Litigations/Contingent Liabilities including letters of comfort
• Pre-disbursement verification of some specific high value transactions as the Banks may deem necessary
• External Ratings, statutory and regulatory compliances, insurance cover.
• Assessment of Quarterly Key Financial Indicators/Movement in stock exchanges
• Movement in promoter holding in the company from time to time and percentage holding pledged to financial institutions and banks to raise capital
• Any other Key Areas Review (KAR) which the Banks find necessary to be monitored

DOCUMENTS REQUIRED TO BE SUBMITTED:

The Firm / Company shall submit their application / details in the prescribed format (self-attested)

• Registration with professional bodies / organizations.
• GST Registration Certificate
• Details of all the Key Personnel comprising their name, qualification and their education.
• CV as per format provided of all key personnel, including that of technical / financial experts.
• Memorandum and Articles of Association along with Certificate of Incorporation for company / registered partnership deed along with the Registrar of Firm certificate in case of partnership firms
• Audited Balance sheets along with all annexure for preceding 2 years
• Other documents supporting their expertise in any particular field
• Letters of empanelment from other banks / financial institutions, if any
• Details of projects undertaken as per format provided
• Letters of assignments from other clients / lenders.

All these documents need to be complete and shall be uploaded successfully. No manual submission is required for the application under ASM.

FEE STRUCTURE FOR APPLICATION OF ASM (2022-23):

• Application Fee for Fresh Empanelment is Rs.50,000 and for the Renewal of registration is Rs.25,000.
• After being shortlisted, Empanelment Fee is Rs.1,00,000 for General Category and Rs.1,50,000 for Specialized category (irrespective of being fresh applicant or existing applicant).
• The Fees mentioned above is non-refundable under any circumstance and exclusive of GST.

PROCEDURE TO APPLY for ASM:

1. Invitation for application by IBA (https://www.iba.org.in/)
2. Submission of application with supporting documents (details mentioned below) by ASMs
3. Successful Payment of stipulated application fees by the ASMs
4. Scrutiny of the application and eligibility by the Working Group constituted by IBA
5. Finalization of eligible agencies for empanelment
6. Payment of stipulated Empanelment fees by the ASMs
7. Approval of the panel by the Managing Committee of IBA
8. Publication of the approved list of empaneled ASMs
9. Sharing of the approved panel with member banks

AFTER APPLICATION

• After submitting the application, the applicant shall wait for being shortlisted. The shortlisting process would take a period of around a month.
• Once shortlisted, the applicant would receive a mail from IBA for further payment of Rs.1,00,000/ Rs,1,50,000 as per the General/Special category respectively. Once the Payment has been made, it would be represented by the “Tick” on the Payment Tab.
• The category (General/Special) would be decided and mentioned in the mail by the Managing Committee accordingly.

FINAL SELECTION

• Once the additional amount has been paid, IBA would take minimum of 30 days to process all the applications.
• The final decision shall be declared by IBA through a mail. If the firm has been empaneled for taking us ASM assignments, an empanelment letter would be attached in the mail. That empanelment letter has to be signed by the authorized signatory and shall be uploaded in the online portal under the ‘Confirmation’ tab.

Source- BCA

The Banking system normally using the services of CA profession to examine the banking operations from a “Safety and Soundness” perspective.

 Regulator Reserve Bank of India (RBI) has been depending upon the CA profession to ensure that the Banking system remains under control.

Statutory Audit -Every Bank under the respective Act to get its accounts audited. Reserve Bank of India Act requires RBI to have statutory audit and the rights and obligations of the Statutory Auditor are specified in the Act.

All the Financial Institutions in the country also have to get their accounts audited under the respective laws. The Co-operative Societies Act (Central and State) also prescribe statutory audit.

It is interesting to study the specific Sections under the respective laws and the Rules framed thereunder in relation to rights and obligations of the Statutory Auditor. There are certain fine distinctions in the rights as well as the obligations under the different laws. The Statutory Auditor therefore has to study them carefully while undertaking statutory audit.

Internal Audit -The banks appoint Chartered Accountants to carry out Internal Audit. The process of appointment, scope of audit, the frequency of audit and the levels to which Internal Auditors submit report differ from bank to bank.

Concurrent Audit – The Banks have been using the services of CA firms to carry out concurrent audit of banks in big way. The auditors are required to check transactions and documents on an ongoing basis when they carry out concurrent audit. The number of branches of various banks in the country is very large and therefore the scope for the audit profession is also very large.

Stock Audit -The banks appoint CA firms to verify and report on the stocks maintained by the borrowers of the Banks. The auditors are required to report on the system of record keeping and verify the actual stocks held on a timely basis.

Revenue Audit -The banks appoint CA firms to check the income of the branches and require the auditors to check that all the revenues of the bank are properly and regularly accounted for.

Credit Audit– Some banks ask CA firms to review and report on certain credit proposals. The CA firms look into the loan transaction covering the process of sanction, documentation and operation of the loan account. Such credit audit can bring out the lacunas, if any, in the processing and sanctioning of loans as well as the problems in documentation and monitoring of loan accounts.

KYC Audit– The importance of the documents taken at the time of opening of a bank account is tremendous. RBI is insisting on the banks that their guidelines about Know Your Customer (KYC) are extremely important. Therefore, some banks appoint auditors to verify and report on KYC documents.

NPA Audit– The identification of Non-performing Assets is extremely important for the bank since this aspect has impact on the income recognition and provisioning requirements. Certain banks appoint auditors to check whether the loan assets are correctly identified as Non-Performing Assets and consequently whether the income recognition and provisioning requirements are correctly followed.

Investment / Treasury -Audit RBI has issued specific guidelines on the investments to be made by the banks including the CRR & SLR requirements. Many banks appoint auditors to check that the Investment policy is correctly followed and all the investments are done in accordance with the RBI directives. These reports are required to be submitted at predetermined frequencies.

System Audit -Practically all banks in the country use computers. Many banks use core banking solutions which cover majority of their branches across the country. Certain banks use Software systems which cover some of their branches. In all these cases, it has become essential to appoint agencies to carry out Systems Audit. CA firms are well suited to carry out these System Audits.

About PTEC:

PTEC means Professional Tax Enrollment Certificate. Professional tax is levied by the State Government as a source of revenue and it’s a Direct Tax. PTEC permits to pay the professional tax of the business entity (Private Ltd, Public Ltd, OPC, etc) and also of the owner or professional (sole proprietor, partner, director, etc).

Self-employed persons who carry out Business or Profession on their own and fall in the ambit of profession tax are liable to pay the tax themselves to the state government.

Key States where professional Tax is applicable are Andhra Pradesh, Gujarat, Karnataka, Kerala, Maharashtra, Telangana, West Bengal.

Maximum Amount of Professional Tax – PTEC:

 A maximum of Rs. 2,500 can be levied as professional tax- PTEC per financial year.

Registration:

As per Section 5 of The Maharashtra State Tax, 1975 every person (other than partnership firms) obtain a PTEC registration is mandatory within 30 days from the date of incorporation or start of the Business / Professional Practice.

New sub section (3A) of section 5 inserted which says “Notwithstanding anything contained in this section, a company, which has been incorporated under the provisions of the Companies Act 2013, after the date of commencement of the Maharashtra State Tax on Professions, Trades, Callings and Employments (Amendment) Act, 2020, shall at the time of its incorporation, obtain the certificate of enrollment and certificate of registration under this Act.”.

Due Date for Payment of PTEC:

Payment Options:

Process of Payment of Tax Online (Rs.2500):

1. Go to site https://www.mahagst.gov.in/
2. Click on e-payment tab and select the option – e-payment returns as shown below

3) Select e-payment returns

4) Select option PAN and enter PAN & captcha.

5) Select Act – PTEC Act-  as given below

Form ID- FORM_VIII

F.Y- Select F.Y. for which payment pertains.

Amount- INR 2500/-

Location & Mobile No. and then click on proceed

6) Select Option – Agree

7)Then site redirect to payment gateway and do the payment

8) Save the Challan.

Process of Payment of Tax Online (OTPT Option):

1. Go to site www.mahagst.gov.in
2. Click on e-payment tab and select the option – PTEC OTPT payment as shown below

3) Select – Make a new OTPT payment

And put 11 digits PTEC TIN .

4) Select the correct Schedule Entry.

Select years minimum 3 years and Maximum 35 years.

Location & Mobile No. and then click on proceed.

5) Select Option – Agree

6)Then site redirect to payment gateway and do the payment

7) Save the Challan.