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MCA issues new rules on voluntary exit of companies-FourV Update

New Delhi: Companies keen to exit their business for various economic reasons can now hope for quick regulatory clearance with the government operationalising the newly set up Centre for Processing Accelerated Corporate Exit (CPACE).

 

The Ministry of Corporate Affairs on Monday notified the rules authorising CPACE to handle this work, taking over the task from RoCs across the country. CPACE is set up at the Indian Institute of Corporate Affairs, an institution attached to the ministry.

 

The amended rules for removal of companies from the official register will be effective 1 May, the ministry said while also bringing out the forms for voluntary closure.

The move of shifting voluntary closure of companies to a centralised agency is part of a revamp of the approval process for various corporate filings aimed at uniform and quick decision-making process.

 

The ministry also replaced three forms that are related to the process of striking off the names of companies while giving the all-India jurisdiction to CPACE for voluntary closure of companies.

The forms entail some changes, including provision for disclosing pending litigation, explained Virender Bhasin, Executive Director, Entity Setup and Management at Nexdigm, a consultancy.

 

“The changes are welcome and it will accelerate the pace of strike applications pending with respective ROCs at a faster pace after introduction of centralized processing centre for exit. Also, some modifications in the form will provide better transparency resulting in good governance,” said Bhasin.

 

Companies chose to go for voluntary closure for various economic reasons including unviability of the business or changed circumstances. For closure, the companies should not have any unmet liability. Voluntary closure is different from government’s action of removing a company from the register for defaulting on filing statutory documents for two consecutive years, although most such defaulting companies may also be defunct. 

 

Income tax department has sent notices to about 8,000 taxpayers-FourV Technologies Pvt Ltd

India’s income tax department has sent notices to about 8,000 taxpayers who have made large donations to charitable trusts, suspecting them to be attempts at tax evasion. Data analytics suggested these taxpayers were making donations disproportionate to their income and expenditure, officials told ET.

 

Those served notices include salaried and self-employed individuals, apart from companies.

 

The IT department is also looking into independent tax professionals who facilitated these transactions.

 

“In all 8,000 odd cases, the donation was exactly the amount required to lower the tax slab or get a full exemption and was paid by cash,” a tax official said. “Also, an exceptionally high amount was paid to tax professionals, even by a straight salaried person.”

 

The notices were sent over three weeks from mid-March to early April and were for the assessment years 2017-18 to 2020-21. More notices are likely in the coming weeks.

 

In the case of businesses, mostly small ones, the amount paid to charitable trusts was out of sync with income, the officials said.

 

In these transactions, cash contributions are returned to the taxpayer along with a donation receipt after deducting a commission, helping the assessee evade tax, they said.

 

The department is also tracking charitable trusts that are offering fake bills to taxpayers. While no action has been initiated against them so far, they may lose their tax exemption status if there is wrongdoing.

 

Data analytics being used

 

Contributions to certain funds and charitable institutions are allowed as deductions from income under Section 80G of the Income Tax Act. Depending on the nature of the institution, 50-100% of the contribution may be allowed as deduction. Such donations are also subject to limits linked to income.

 

Data analytics is being used to track misuse of some deductions under the old income tax regime, especially Section 80G, along with 80 GGC and 80GGB, which entitle taxpayers to deductions in income tax for donations to charitable trusts and political parties, said the official cited above.

 

The income tax department is separately investigating donations to dormant political parties and has already sent several notices.

 

Budget data shows ₹1,430 crore tax foregone in FY22 on Section 80G contributions by companies.

 

In the case of individuals and Hindu Undivided Families (HUFs), the revenue foregone on Section 80G donations was 1,729 in FY22, up from 1,541 in the preceding year.

 

Tax experts said that while such evasion was possible in the past, strict compliance and synchronised data collection by the tax department will make it difficult with measures such as disallowing donations above 2,000 in cash.