Leverage

Leverage Meaning: Leverage means the magnification of returns with the use of fixed costs.

Before going to types of leverages we need to know about some of the costs they are

• Fixed Costs : fixed costs are those costs which does not change or alter with changes in the units produced. They can further be divided into two types they are

1. Operating Fixed Costs: These are the costs which occur due to the day to day management and working of a business concern. E.g. Rent Salary Wages etc
2. Financial Fixed Costs: These are the costs which occur due to the capital present in the organisation. E.g Interest on Debentures, Dividend on preference shares etc.

Legal Terms

Ratify: to confirm and adopt the act of another even though it was not approved beforehand.

Caveat Emptor : it means ‘ let the buyers beware ‘ ” The basic premise that the buyer buys at his/her own risk and therefore should examine and test a product himself/herself for obvious defects and imperfections. Caveat emptor still applies even if the purchase is “as is” or when a defect is obvious upon reasonable inspection before purchase. Since implied warranties (assumed quality of goods) and consumer protections have come upon the legal landscape, the seller is held to a higher standard of disclosure than “buyer beware” and has responsibility for defects which could not be noted by casual inspection (particularly since modern devices cannot be tested except by use and many products are pre-packaged).

The Negotiable Instruments Act

CHAPTER-ITHE NEGOTIABLE INSTRUMENTS ACT– 1881(XXVI of 1881 – 9^th December, 1881)   The Negotiable Instrument Act 1881 is the legislative enactment of the law relating to three classes of negotiable instruments namely, Promissory Notes, Bills of Exchange and cheque which are in common use in monetary transactions. The Act came into force on 1^st March, 1882. The Bankers should; therefore, have clear knowledge of the various provisions of the Act as amender up to date.  The Key terms in the Negotiable Instrument Act 1881 are briefly quoted below:  

► Sec. 1: Application of the Act: All the negotiable instruments are guided by this Act.

 ► Sec. 3-B: Banker: “banker” includes any person acting as a banker, and accepting deposits from public for the purpose of lending or investing, and also includes any post office savings bank 

► Sec. 3-C: Bearer: Bearer means a person who by negotiation comes into possession of a negotiable instrument. 

► Sec. 3-f: Material Alteration: Alteration of important parts of negotiable instruments. The material parts include, date, the sum payable, the time and place of payment, etc. 

► Sec. 4: Promissory Note: A “promissory note” is an instrument in writing (not being a bank-note or a currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. 

► Sec. 5: Bill-of-Exchange: A “bill of exchange” is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

► Sec. 6: Cheque: A “cheque” is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. 

► Sec. 8: Holder: The “holder” of a negotiable instrument means any person who is in possession thereof and to receive or recover the amount due thereon from the parties thereto.

 ► Sec. 9: Holder in due course: “Holder in due course” means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque if payable to bearer, or the payee or indorsee thereof, if payable to order, before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. 

► Sec. 10: Payment in due course: “Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. 

► Sec. 13: Negotiable Instrument: A Negotiable Instrument mean a Promissory Note, Bill of Exchange or Cheque payable wither to order to or to bearer which are transferable from hand to hand by way pf negotiation but does not  contain words prohibiting transfer or indicating an intention that it shall not be transferable. ►Example: Pay to Mr. Rahman or bear/order 

► Sec. 14: Negotiation: When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute that person the holder thereof, the instrument is said to be negotiated. 

► Sec. 15: Endorsement: When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or face thereof or on a slip of paper annexed thereto, or so signs for the same purpose a stamped paper intended to be completed as a negotiable instrument, he is said to indorse the same, -and is called the ” indorser “. 

► Sec. 18: If the amount undertaken or ordered to be paid is stated differently in figures and in words, the amount stated in words shall be the amount undertaken or ordered to be paid. 

► Sec. 29-B: Forged or Unauthorized Signature: An instrument having forged signature of the drawer or the persons required for it is not treated as instrument.

► Sec. 30: Liability of Drawer: The drawer of the Negotiable Instrument will remain responsible to the payee till its paid off.

► Sec. 31: Liability of the Drawee of Cheque: The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment, must pay the cheque when duly, and in default of such payment, must compensate the drawer for any loss or damage caused by such default.

► Sec. 36: Liability of Prior Parties to Holder in due course: Every prior party to a negotiable instrument is liable thereon to a holder in due course until the instrument is duly satisfied.

► Sec. 50: Effect of Indorsement: The indorsement transfers the property of negotiable instrument to the indorsee with the right of further negotiation; but the indorsement may, by express words, restrict or exclude such right, or may merely constitute the indorsee an agent to indorse the instrument, or to receive its contents for the indorser, or for some other specified person.

► Sec. 51: Who may negotiate: Every sole maker, drawer, payees or indorsee, or all of several joint makers, drawers, payees or indorsees, of a negotiable instrument may, if the negotiability of such instrument has not been restricted or excluded by section 50, indorse and negotiate the same.

 ► Sec. 58: Defective Title: A person who receives an instrument which has been lost or by means of fraud or any unlawful mean is not entitled to receive the proceeds unless he claims as holder in due course. 

► Sec. 85: Cheque Payable to Order: Where a cheque payable to order claims to be endorsed by or on behalf of the payee, and where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course. Notwithstanding any endorsement thereon claims to restrict or exclude further negotiation.

► Sec. 85-A:  Drafts drawn by one branch of a bank on another payable to order. Where any draft drawn by one office of a bank upon another office of the same bank for a sum of money, purports to be endorsed by or on behalf of the payee, the bank is discharged by payment in due course.

 ► Sec. 87: Effect of Material Alteration: Any material alteration of a negotiable instrument renders the same void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties, and any such alteration, if made by an indorsee, discharges his indorser from all liabilities to him in respect of the consideration thereof. 

► Sec. 89: Payment of Instrument on which Alteration is not apparent: Where a negotiable instrument has been materially altered but is not apparent, or where a crossed cheque which is not apparent, payment thereof by a person or banker otherwise in due course, shall discharge such person or banker from all liability thereon without being questioned by reason of the instrument having been altered or the cheque crossed.

Revocation of Banker’s Authority: The banker can legally return a valid cheque under the following conditions:

(a)                Countermand of  Payment

(b)               Notice of Customer’s Death

(c)                Notice of Customer’s Insolvency

(d)               Insufficient Funds

(e)                Standing instruction as assignment.

► Sec. 123: Cheque Crossed Generally: Where a cheque bears across in its face  an addition of the words “and company” or its abbreviation between two parallel transverse lines, or those lines simply, either with or without the words “not negotiable” that addition shall be deemed to be have the cheque crossed generally. 

► Sec. 123-A: Cheque Crossed “Account Payee”:  For such crossing, the cheque-

(a)                Shall  cease to be negotiable

(b)               Shall be the duty of the bank to credit the proceeds only to the account of the payee as mentioned.

► Sec. 124: Cheque Crossed Specially: Where a cheque bears across in its face an addition of the name of the banker, either with or without the word “not negotiable”, the cheque shall deemed to be crossed specially.

 ► Sec. 126: Payment of Cheque Crossed Generally: The banker on whom a generally crossed cheque is drawn, shall not pay it otherwise than to banker. 

►Payment of Cheque Crossed Specially: The banker on whom a specially crossed cheque is drawn, shall not pay it otherwise than to banker to whom it is crossed.

► Sec. 127: Payment of Cheque Crossed Specially-more than once: Where a cheque is crossed specially to more than one banker, except to an agent, the bank on whom its drawn shall refuse it.

 ► Sec. 128: Payment in Due Course of Crossed Cheque: Where the banker on whom a crossed cheque is drawn- has paid the same in due course, the banker paying the cheque, and (in case such cheque has come to the hands of the payee) the drawer thereof, shall respectively be entitled to the same rights as they would respectively be entitled to and placed in if the amount of the cheque had been paid to and received by the true owner thereof. ► Sec. 129: Payment of Crossed Cheque Out of Due Course: Any banker paying a cheque crossed generally otherwise than to a banker, or a cheque crossed specially otherwise than to the banker to whom is crossed, or to his agent, the banker shall be liable to the true owner of the cheque for any loss, and may sustain owing to the cheque having been so paid.  

► Sec. 130: Cheque bearing “not negotiable”: A person taking a cheque crossed generally or specially, bearing the words “not negotiable,” shall not have nor shall be capable of giving, a better title to the cheque than that of the person from whom he took it.

► Sec. 131: Non Liability of Banker Receiving Payment of Cheque: A banker who had in good faith received payment for a customer of a cheque crossed generally or specially to himself, shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the for receiving such payment.

► Sec. 131-A: The above provisions shall apply to any draft, as defined in section 85A, as if the draft were a cheque.

 ► Principal Parts of Negotiable Instruments: 

(a) Date; (b) Amount; (c) Time for Payment; (d) Place of Payment; (e) Stamp.

► Objective of Crossing a Cheque: A cheque is crossed to provide security of property, prevent fraud and crime by enabling drawers and holders to direct payment to be made only through banker, and also to provide protection to the paying banker as well as to the collecting banker.

 ► Sec. 131-B: Protection to Banker Crediting Cheque Crossed “Account Payee”: Where a cheque without having apparent crossed “Account Payee” or having an altered crossing, presented to the banker, and he in good faith collects & credits the proceeds thereof to a customer, the paying banker shall not be in any liability by reason of the cheque having such crossing                             CHAPTER-IIMONEY LAUNDERING IN BRIEF BASED ONMONEY LAUNDERING PREVENTION ACT-2002  1.0 MONEY LAUNDERING: 

Among five core risk areas in Banking, outline by Bangladesh Bank, money laundering is one of the important one. As part of global initiative to combat money laundering activities, Bangladesh Bank has forwarded the Guidance Notes on Prevention of Money Laundering in the country.

 1.1 DEFINITION OF MONEY LAUNDERING:  Section 2 (THA) of Money Laundering Prevention Act-2002 defines money laundering as, (Au) Properties acquired or earned directly or indirectly through illegal means;     (Aa) Illegal transfer, conversion, concealment of location or assistance in the above act of the properties acquired or earned directly of indirectly through legal or illegal means; 1.2 REASONS FOR COMBATING MONEY LAUNDERING: 

Money laundering has potentially devastating economic, security, and social consequences. Money laundering is a process vital to making crimes worthwhile.

1.3 STAGES OF MONEY LAUNDERING:

Money laundering is a done in three basic stages which may comprise numerous transactions by the launders that could alert a financial institution to criminal activities. These three stages are explained on the following:

  

ILLICIT ACTIVITY  ▪ Drug production & trafficking;▪ Other Criminal Activities

PLACEMENT

LAYERING

INTEGRATION

              
FIG: The Money Laundering Stages

►PLACEMENT: The physical deposit of the initial proceeds derived from illegal activity; i.e., making initial deposit of the money earned in an illegal way.

►LAYERING: Separating unlawful proceeds from their source by creating complex layer of financial transactions. E.g. – Transferring the money to another account.

 ►INTEGRATION: After successful completion of the layering process, integration schemes place the laundered proceeds back into the economy in the form of as normal business funds.    1.4 THE OFFENCE OF MONEY LAUNDERING: 

The money laundering offences are as under, in short:

► It as an offence for any person to obtain, retain, transfer, remit, conceal, or invest moveable or immoveable property acquired directly or indirectly through illegal means.

► It as an offence for any person to illegally conceal, retain, transfer, remit, or invest moveable or immoveable property even when it is earned through perfectly lawful means.

► It as an offence for any individual or entity to provide assistance to a criminal to obtain, conceal, retain, transfer, remit, or invest moveable or immoveable property if that person knows or suspects that those properties are the proceeds of criminal conduct.

► It as an offence for the bank, financial institutions and other institutions engaged in financial activities not to retain identification and transaction records of their customers

► It as an offence for the bank, financial institutions and other institutions engaged in financial activities not to report the knowledge or suspicion of money laundering to Bangladesh Bank ASAP it reasonably practicable after the information is revealed.

► It as an offence for any person to violate any freezing order issued by the Court on the basis of application made by Bangladesh Bank.

► It as an offence for any person to express unwillingness, without reasonable grounds to assist any enquiry officer in connection with an investigation into money laundering.

      1.5 PENALTIES FOR MONEY LAUNDERING: 

All offences under this Act are non-bailable commission and punishable in terms of a minimum imprisonment for six months and a maximum of up to seven years plus a fine amounting to double the money laundered.

   2.0 ANTI-MONEY LAUNDERING POLICY AND PROCEDURES OF THE BANK: 

The Bank formulates a set of policies to comply with the rules for combating money laundering. These policies include establishing adequate procedures for customers due diligence, reporting, record keeping, internal control, risk management and communication in order to prevent money laundering activities.

The Central Compliance Unit (CCU) has been established to monitor the anti-money laundering activities of banks according to the guidelines and circulars of Bangladesh Bank. This unit also exchanges information with the Anti-Money Laundering Department of Bangladesh Bank regarding the organization’s anti-money laundering programs.

Branch’s Anti-Money Laundering Compliance Officers (BAMLCO) has also been designated to observe and supervise the anti-money laundering activities of the Branches.

A number of circulars, highlighting the gravity of the situations and the steps to be taken to combat money laundering, have been issued through CCU. In order to ensure strict compliance of Anti-Money Laundering rules, the Officials of the Bank shall observe and perform the following rules and procedures:

►The BAMLCO shall observe/ supervise the procedure of reviewing the consistency of the customer’s transactions with their normal legitimate business and personal activities and report unusual and suspicious transactions periodically to CCU. The CCU will then submit the same to Bangladesh Bank.

►Transactions in the account of customer will be considered as unusual, if it is inconsistent with the amount declared in the Transaction Profile (TP) and KYC Profile and if satisfactory explanations are not provided on that account.

►KYC Profile and Transaction Profile of the customer shall have to be obtained at account opening stage for proper identification of the customer, his/her business, source of fund, transaction, etc. and TP is to be updated in case of any changes made. Transactions in any account shall not be allowed if the customer fails to meet the requirements relating to his/her identity. “Letter of Thanks” is to be sent to the account holders and the introducers at the address provided during opening of the account. If the letter is returned undelivered, transactions shall not be allowed without proper verification of the account holder’s identity.

►All the concerned desk officers of the branch shall review the transactions of the account in order to identify any inconsistency with the amount declared in TP & KYC Profiles. On findings of such inconsistency, they shall report to BAMLCO.

►The BAMLCO/ any other authorized officer nominated by the Head Branch shall make surprise verification of the account opening procedure regularly to identify any gap therein and then examine the transaction of the accounts to detect whether any account has been opened in fake name or without the completion of required documentation formalities or any unusual transaction has been done.

►The branch shall preserve evidence and detailed information of all the clients according to the clause 19 (1) (Ka) of Money Laundering Prevention Act-2002.

►The branch shall preserve evidence and records about transactions of all accounts and all remittance data at least for five years after the date of such transactions are made an account is closed or a business relationship ends

►The branch shall keep necessary information and records in respect of large cash transactions, online remittance, etc. Remittance shall be allowed after obtaining and satisfying about full names and address of the concerned remitter and the payee.

►The branch shall send all the necessary statements and reports regarding Anti-Money Laundering Activities to CCU timely to meet the requirements of regulatory authority.

►The Branch Management Committee (BMC) shall apply appropriate customer due diligence to effectively evaluate transactions and report promptly unusual and suspicious transactions to the Bangladesh Bank through CCU.

►The BMC shall also ensure that all officials of the Branch are communicated with all necessary policies, guidelines, circulars, parameter, legal requirements, etc. in connection with prevention of money laundering.

►All officials of the bank required to read manuals, guidelines, policies, circulars, etc. in connection with anti-money laundering activities in order to acquire proper knowledge. They also remain vigilant and alert to ensure that the law and regulations, guidelines, policies, and procedures in respect of anti-money laundering activities are being forwarded and report to the concerned authority against illegal, unusual, suspicious activities in any account.

►All officials of the Bank shall be held accountable for non-compliance with the requirements of anti-money laundering procedures.

     3.0 CHECK-LIST FOR PREVENTION OF MONEY LAUNDERING: A. BRANCH COMPLIANCE UNIT: 

►That the branch has a compliance officer entitled Branch Anti Money Laundering Compliance Officer (BAMLCO).

►The BAMLCO has sufficient experience and seniority.

►The BAMLCO has necessary support of senior management to perform his/her responsibilities.

►He is well conversant about the AML Act 2002, AML circulars and guideline notes on prevention of money laundering.

►He attends a formal training in the last one year.

►He keeps himself updated with the regulations.

►He confirms reporting of suspicious transaction repots received so far from the dealing officers of the branch.

►He confirms reporting of suspicious transaction reports received so far from the dealing officers of the branch.

► BAMLCO carries out monitoring and reviewing of sufficient quality and frequency to ensure that the business and operations are in compliance.

►The monitoring carried out appears adequate including relevant high-risk accounts activities.

►From sample reviews carried out by BAMLCO consider that they are of sufficient depth and quality.

 B. EMPLOYEE AWARENESS: 

►The HOB/BAMLCO ensures that all branch employees receive formal training on AML program.

►The employees of the branch are familiar with the banks own anti-money laundering policies, procedures and programs as well as national policies and BB guidelines.

     C. SOUND KYC PROCEDURES: ►KYC FOR ACCOUNT HOLDERS: 

▪ Account opening procedures and documentation are compiled with the requirement of BB guidance notes and accordingly obtained and reviewed.

▪ Test samples new account-personal, corporate or other to check the satisfactory identification has been obtained, verified and recorded.

▪ The Bank has a separate KYC profile pro-forma.

▪ Test a sample KYC profile to check all relevant information has been obtained.

▪ The Branch covers KYC for all products of the bank.

▪ The Branch classifies their customers on the basis of risk involved.

▪ Classification procedures has been obtained and reviewed satisfactorily.

▪ Additional information obtained in respect of high-risk customers.

▪ High-risk customer’s KYC profile is obtained and examined that have fulfilled all relevant information, documentation, and requirements.

  ►KYC FOR WALK IN/ONE-OFF CUSTOMERS: 

▪ The Branch makes KYC for one off/walk in customers.

▪ Sample of KYC for such customers is obtained and reviewed to check whether verification of identity is reasonably practicable.

  4.0 REASONS BEHIND MONEY LAUNDERING: 

Criminal engages in money laundering for three main reasons. They are:

► Money represents the lifeblood of the organization that engages criminal conduct for financial gain because it cover operating expenses, replenishes, inventories, purchases the services of corrupt official to escape detection and further the interest of the illegal enterprises, and pays for an extravagant lifestyle. To spend money in these ways, criminals must make money they derived illegally appear legitimate.

►A trail of money from an offense to criminals can become incriminating evidence. Criminals must obscure or hide the source of their wealth or alternatively disguise ownership or control to ensure that illicit proceeds are not used to prosecute them.

►The proceeds from crime often become the target of investigation and seizure. To shield ill-gotten gains from suspicion and protect them from seizure, criminal must conceal their existence or alternatively, make them look legitimate.

Besides the above reasons, criminals attempt to transfer money for:

▪ Dealing in ammunition;

▪ Drug trafficking;

▪ financing terrorist activities;

▪ Evasion of taxation;

▪ Disguise or remove proceed of threat/fraud/bribe;

▪ Making blackmail payments, and

▪ Paying ransom for kidnappers;

  5.0 METHODS/WAYS OF MONEY LAUNDERING: 

► Drug trafficking;

 ► Financial crimes (bank fraud, credit card fraud, investment fraud, advance fee fraud, embezzlement, over-invoicing, and under-invoicing, intermingling of legal and illegal money, use of bank loan arrangements); 

► Dirty money placed in the financial system;

► Illegal trade in goods, gold, and drugs;

► Hundi/Hawala;

► Purchase and sale of luxury items;

► Bribery, extortion, robbery, street level purchase of drugs;

  6.0 NECESSITY OF COMBATING MONEY LAUNDERING: 

►Money laundering has potentially devastating economic, social and security consequences. It provides fuel for drug dealers, smugglers, terrorists, illegal arms dealers, corrupt public officials, etc. This enhances the cost of the govt. to enforce law and health care expenditure.

 ► Money laundering diminishes govt. taxes revenue and indirectly harms honest tax payer. 

► Money laundering distorts assets and commodity prices, and leads to misallocation of resources. For financial institutions it can lead to an unstable liability base ad unsound asset structures; thereby, creating risks of monetary instability, and even systematic crises.

► Money laundering may result in crowding out of private sector business by criminal organizations.

► The magnitude of money laundering is between 2 to 5 percent of world gross GDP (US $ 800 billion).

► Money laundering transfers economic power from market, govt. and citizens to criminals.

► Money laundering may be used to corrupt national institutions; weaken ethical standards, corrupt democratic institutions.

► Money laundering erodes confidence in financial institutions; weaken reputation and standing of any financial institution.

  7.0 MAIN FEATURES OF MONEY LAUNDERING PREVENTION ACT-2002: ► Duty and responsibility of Bangladesh Bank includes: 

• To carry out investigation regarding crimes under money laundering;
• To supervise and monitor the activities of banks, financial institutions, and other institutions involved in financial activities.
• To obtain reports relating to money laundering from banks, financial institutions and other institutions involved in financial activities.
• To impart training facility for the officers and employees of banks, financial institutions, and other institutions involved in financial activities.

 ► Money Laundering Court: 

• Court will not accept any petition for judgment under this law unless written application is forwarded by Bangladesh Bank or persons authorized by Bangladesh Bank.
• All crimes under this Act are non-bailable.
• Court is authorized to issue crook order on the property of convicted persons under this Act on written application from Bangladesh Bank or persons authorized by Bangladesh Bank
• Court is authorized to issue freezing order on the property of convicted persons under written application from Bangladesh Bank or persons authorized by Bangladesh Bank.

   ►Appeal: 

• Convicted/aggrieved party/persons may appeal before the Honorable High Court against the, verdict, decree, order passed by Anti-Money Laundering Court within 30 days of passing of verdict by the court.

 ►Crime and Punishment: 

• Punishment for Money Laundering: Persons found convicted under this Act may be jailed minimum for a period of six months and maximum up to seven years and may be fined to provide double the amount of convicted amount.
• Punishment for Violating Crook Order: Persons violating crook order under this Act may be jailed for a minimum period of one year or may be fined up to Taka Ten Thousand or both.
• Punishment for Violating Freezing Order: Persons violating freezing order under this Act may be jailed for a minimum period of one year or may be fined up to Taka Five Thousand or both.
• Punishment for Divulgation of Information: Persons found convicted of disclosing information/data detrimental to the process of investigation under this Act, may be jailed for a minimum period of one year or may be fined up to Taka Ten Thousand Taka or both.

 ►Responsibility of the banks, financial institutions and other institutions engaged in financial activities in preventing and identifying money laundering: 

• Banks, financial institutions and other institutions involved in financial activities at the time of transactions of customers’ account will preserve true identification of customers and their overall information. In case of closure of accounts, banks will preserve transaction records up to five years madder during the previous period.
• Banks will supply required aforesaid information to Bangladesh Bank.
• Bangladesh Bank will be informed by banks regarding unusual transactions and suspected transactions by account holders.
• Bangladesh Bank may impose fine up to Taka One Lac but not less than Taka Ten Thousand for not preserving, supplying, or deliberately failing to supply information to Bangladesh Bank by Banks.

  8.0 Guidelines: 

► Guidelines Regarding Account Holders: A task force has been constructed under the Chairmanship of Deputy Governor, Bangladesh Bank and taking representations from Police Dept., Revenue Dept. of the Govt., and from banks to supervise the on-going money laundering drive in the country. Bangladesh Bank has established Anti-Money Laundering Dept. to co-ordinate the implementation of all activities relating to money laundering. Bangladesh Bank issued guidelines for banks on July 17, 2002 relating to account holders:

·        Date of birth/age of account holder;

·        TIN number (if applicable)

·        Copies of Passport or Certificate from employees or Certificate from Ward Commissioner/UP Chairman.

·        Full address of remitter and beneficiary in respect of inland remittance if they are not account holders.

 ► Preventive Guidelines: These include: 

• Know Your Customer (KYC)
• Recognition of suspicious transactions.
• Compliance with laws and regulations
• Co-operation with law enforcing agencies.
• Training/internal audit/policy formulation.

Source Esnips

Companies Act – 1956

Company Meaning and Definition

As per section 2(10) r/w 3(1)(i): Company is a company formed and registered under this act or an existing company

Features of a company

• Separate Legal Entity/ Artificial Person created by law: One of the most distinguishing features of a company is that it is a separate legal entity. No other business organizations prior to the founding of company was a separate legal entity. A company once it receives the incorporation certificate becomes a body corporate. It is different from that of its members and one company is different from that of another company. Some of the cases which support this are:

1. Salomon v/s Salomon Co ltd
2. Guzdar V/s CIT
3. Lee v/s Lee air farming ltd

• Limited Liability: The Liability of the members of the company is limited. That is to say that the liability of the company is limited only upto the amount of guarantee in case of a company limited by guarantee and limited upto the amount of face value of the shares in case of a company limited by shares and both guarantee and face value of the shares in case of a company limited by shares as well as guarantee.But some of the cases where the general rule of limited liability does not apply are:

1.   Section 45: according to this section if the no of members fall below the statutory limit i.e. 2 or 7 as the case may be and carries on business for more than 6 months  without subsequent increase in the no of members then the contracts entered into by such a company during such period the remaining members liability for such contracts will be made liable unlimitedly.

Salary

The first head under the income tax is salary

COMPUTATION OF SALARY FOR THE PY 2007-2008

 

Now In a Broader Sense lets understand the meanings

1. Basic Salary: The Amount which the employee receives

2. Salary and Wages: Salary and wages are no different concepts in income tax. If salary or wages or both are more the minimum limits then both are taxable. But in accountancy we give wages as an direct expenditure where as salary is categorised as indirect expenses.

3. Maximum amount of deduction in case of deductions u/s 80C 80CC and 80CCB is Rs. 1,00,000/-

GRATUITY

Gratuity is a retirement benefit. It is guided by the Payment of Gartuity act of 1972.

Costing Cost accounting

Meaning

Cost Accounting as the name suggests it is the combination of costing and accounting. Meaning ascertainment of cost with proper recording of transactions.

Objectives

The Objectives of Cost accountancy are as follows:

1. Determination of selling price
2. Ascertainment of Profit
3. Determination of cost of producing a unit
4. Cost Reduction or cost control
5. Enable Better management
6. Take business decisions

Cost Concepts and Terminologies

1. Cost Object: These are the objects which have a separate measurement
2. Direct Cost: The cost which are related to the cost objects directly are called as direct costs. These costs are traceable easily and hence called as direct costs.
3. Indirect Cost: These are the costs which cannot be traced easily and hence these are called as indirect costs
4. Pre determined Cost: These are the costs which are calculated based on certain generally accepted assumptions. They are calculated on factors affecting costs
5. Standard Cost:

Income Tax (A.Y. 2007-2008)

Hey this is all about income tax for the assesment Year(A.Y.) 2007-2008. I will be posting all those tings that i am learning right now. Please correct me if there are any mistakes. If you want to get in touch wit me mail me @ praveen.1989@gmail.com.

Well lets start with what is an Assement year?

Assesment year is the year in which you will be assessed for the income of the previous year. Oh i forgot to tell you about the previous year, it is the year in which we all earn the income. In other words we can tell that it is the financial year in respect to accountancy concepts.

Person:  One of the next important terms in the income tax act is person. Person means an individual, an association of persons popularly called as AOP’s, a Partnership firm, a company, a body of individuals, HUF- Hindu Undivided family, company, or an artificial judicial person.

VAT – Value added tax (FAQ’s)

Frequently Asked Questions

1. What is Value Added Tax {VAT) ?

VAT, means “a tax on the value addition at different stages of manufacturing and distribution of goods”. It is the transaction tax levied on supply of oods made by a dealer in the course of hisbusiness. It is a multi-point tax with a benefit of set-off or credit for tax paid on purchase of goods. VAT is expected to replace the general sales tax law.

2. Whether there will be a single VAT law for the whole Country?

No. Each State will enact a separate VAT Act. However, theempowered committee will issue guidelines based on which States will have to enact the VAT laws and thereby ensure uniformity in law across the Country.

3. Whether the central Sales Tax Law (CST) will be abolished?

No. The CST law will remain to be operational The CentralGovernment has indicated that the CST law will be abolished in a phased manner over a period of three years.

4. How does one ascertain the rate of tax on the goods sold?

All goods not listed in Schedules of the VAT Act are liable at the RNR of VAT. Schedules to the VAT law provide the, classification and rate of tax other than RNR.

5. Is credit for input tax allowed in all cases?

A registered dealer is eligible to claim input tax credit on Purchases of :
•raw materials / inputs used in manufacturing
•goods for resale;
•capital goods;
•packing material; and
•tools and’ accessories used in the business.
However, the original /duplicate Tax Invoice is necessary to be eligible to claim input tax.

6. What proof is needed to claim input tax?

An original Tax Invoice to substantiate a claim for input tax
credit. If one do not possess such a, document you must obtain
one, otherwise you will not be eligible to claim a credit.
7. How does one claim input tax credit?

In the VAT return each month net tax is computed (i.e., output tax minus input tax). If the claim for input tax credit exceeds the amount of output tax on the return, one is entitled to a refund or to carry forward a credit. In case of exporters refund of input tax will be made periodically.

8. For a new branch of business in a different locality, can the same VAT number be applicable?

Yes. The same VAT number is used for branch. One need to intimate the Department about this event, giving all pertinent details such as the Name and address of the new branch, the increase in the number of employees and the estimated increase of the turnover of your business.

9. Should VAT charged be separately disc1osed in the invoice or can an invoice be issued inclusive of VAT ?

Yes. In the VAT Act of certain States the selling price can be inclusive of VAT. However, in such cases the tax rates is required to be disclosed.

10. Is there any prescribed form of Debit / Credit Note?

There is no format prescribed in respect of Debit / Credit Note. However, the VAT law requires certain details to be furnished in the Debit / Credit-Note for which you may refer the relevant chapter.

11. Whether separate registration for H.O. branch godown factory show room required?

VAT Act that specify VAT registration & single VAT number for each business concern. Additional places of business to be intimated to the department (VAT-2 Form)

12. Whether separate form (like Form 37) required to purchase industrial inputs by manufacturing Units. ?

No such form is prescribed special rebates U/S14 and 11(5) takes are of the situation. See 19 stipulate (repayable) of tax for change of use of goods.

13. What is the format of purchase register /sales register ?

Rule 33 specify the details to be maintained for daily transaction (Sec. 31). Such format is not specified in the rules. The detail like Sl. No. Suppliers name, Date of invoice No, quantity discretional goods, Value of goods Value at tax & gross value are to be maintained A Tentative format is enclosed herein.

14. What happens if goods purchased on industrial inputs by manufacturer are sold as re-sale. ?

U/s 11(5) special rebating (Sec.14), if VAT paid on purchases in excess of 4% such excess is only available on INPUT TAX.

15. How to transport goods meat for job work & return.?

See 53(2)(b) is like present KST Act see 28-A required delivery note to be carried VAT -505/515 are format of delivery note under Rule 157(1) (a). A Company format 515 is enclosed.

16. Whether ITEM to ITEM relating of sales & purchase (MAPPING) is required to claim set off.?

Generally No. See 31 mentions that true &correct shall be maintained in Kannada or English or Hindi or such other language notified.
Rule 34 every wholesaler dealer, importer, exporter and manufacture shall maintain monthly stock account.
Every manufacture shall maintain monthly production, quantitative derails of raw-materials, and manufactured. Generally Items relating (MAPPCNG) is not required. However the input edit restrictions require such mapping situation in case of URD purchase input reversal, partial rebate, and special rebate scheme.

17. Whether URD purchase of capital goods are liable for VAT at purchase point.?
Yes, u/s 3(2) at 4%. Under Section III entry 15 and eligible for Input Tax ended u/s15.

18. Retail pharmaceuticals Distributor, Retail provision store are not able to maintain item by item sales bills say 2Tables sold. What is the procedure?
U/S 16special accounting scheme where a dealer is unable to identity each individual sale, its value or the rate of tax rule 132 provides for apportionment input tax. It also proved for special method to be mutually agreed

Depreciation

Depreciation is the reduction in the value of the asset.

Reasons for Depreciation:

1. Wear and tear
2. Accidents
3. obsolescence
4. Others.

Assets are recorded on the balance sheet at their original cost; this is called the
historical cost. Historical cost minus all depreciation expenses recognized on the asset
since purchase is called the net book value. Depreciation is not taken out of these assets
directly. It is instead recorded in a contra asset account: an asset account with a normal
credit balance, typically called “accumulated depreciation”. Balancing an asset account
with its corresponding accumulated depreciation account will result in the net book value.
The net book value will never fall below the salvage value, meaning that once an asset is
fully depreciated, no further expenses will be taken during its life. Salvage value is the
estimated value of the asset at the end of its useful life. In this way, total depreciation for
an asset will never exceed the estimated total cash outlay (depreciable basis) for the asset.

There are various methods of depreciation they are

1. Straight line method
2. Written down value method of diminishing value method
3. Annuity method

The most used methods of depreciation are the first two.

Why should we depreciate the value of the asset?

The best way to save money is by depreciating the value of the assets used in the business. This not only helps to reduce the tax but also helps in saving money for future to buy a new asset when the old asset becomes completely useless.

Value Added Tax – VAT

Meaning of VAT-Value Added Tax

The tax levied on at each stage of production onlu on the value added by the manufacturer represented by the [erfect va;ue and the value of the work performed on such purchased commodity. Basically VAT as its name suggested is waged on the value added to certain products hence leading to widening of tax givers and reducing the burden which falls only on a single person or a firm.

What is the difference between Sales Tax and VAT?
VAT is levied on all goods & services while sales tax is only levied on goods. Thus, a lower tax rate is needed to collect the same amount as sales tax. VAT has no cascading effect. The VAT mechanism of auto-control reduces tax evasion, therefore enhancing income tax collection. VAT is levied at import.

Another striking difference between vat and sales tax is that vat is applied not only manufacturing but also on sales and services also.

Vat is not a common tax for one and all states they differ from each other. But still there is body to govern these states. Generally they charge these taxes at the rate of 1 0 and 4 percent.