Private Equity Funding process (Brief):

Private Equity or Venture Capital funding is Buzz word now. With the success of various funded projects both PE\VC funds and Companies looking for Funds are looking for growth and expansion via this route.

Why is this information essential for me?

Whether you are a member of finance and accounting team, an entrepreneur, a PE consultant or just interested in getting knowledge, knowing this process will be of great help.

What do we mean by Private Equity?

In simple words it (P.E. fund) is a company that invests in your company, provide you with much needed funds for set-up, expansion or diversification. It will stay invested and once your company makes profit and valuations are strong, it will make an exit i.e. sell of its investment and make profits.

Sounds interesting and exciting, but wait!!!!

 Raising funds is not that easy, to understand this we need to step into the shoes of PE fund and answer these questions:

1)   Why shall I invest my money in particular company ?

Answer: Definitely for profit. 

2)How much profit I expect?

Answer: Definitely more than what I can earn from other investments.

3)Will I invest in every project that comes to me .

Answer: No, I will invest only in the most profitable project.

And you may even look for other qualities like entry barrier, innovation, future viability etc.

Thus, you yourself gave the answer as to what qualities your project should have to get funding.

The process:

1. Deciding as to whether we should go for PE funding.
2. Preparing a Business plan
3. Deciding on and contacting a P.E. fund that suites our need
4. Presentation of business plan and initial negotiations
5. Business valuation
6. PE fund approves the plan and gives its consent for further processes
7.  Due-diligence
8. Final negotiations
9. Signing the agreement

This process is time consuming and requires around 6 to 12 months for completion.

This blog is a part of series of blogs related to P.E. funding.

Will be coming up with each process in much details, don`t forget to go through these forth coming blogs.

Any queries, suggestions or advice contact : info@adhauassociates.co.in

Income tax on salary earned abroad

By Nonresident and when no taxes paid in abroad

Recently I was working on a particular case for one of my Clients an employee in Merchant Navy. He wanted to prepare his nil Income tax return, as he believed that because his stay in India was less than 182 his income cannot be taxed in India and no tax to be paid either in India or in any other country. He is not the only one, most of us think so. Professionals with knowledge of taxation will also express the same views, as his residential status for income tax purpose is Nonresident.

Is it right to do so?

If someone is earning Income he should definitely pay tax on it either in India or Abroad. The income cannot be exempted in both the countries. Even the Tax authorities in India think so and that’s why the decision given by Authority for Advance Rulings (AAR).

What`s this case about?

Mr. M was working in an Indian company and was a non resident for taxation purpose being out of india for more than 182 days. He was deputed to Norway .When he filed his Income tax return in India he showed this income as exempted and so did not paid any tax in India on that income as services were rendered out of India.

As per the Double taxation avoidance agreement Norway could have taxed the income, but no tax was either deducted by the employer nor paid by the employee in Norway . In such case the assessee cannot claim any relief. The decision is based on expression ‘may be taxed’ used in the treaty. Therefore Tax authorities stated different views as compared to those expressed in case of British Gas (I) Pvt. Ltd (British Gas India (P) Ltd. v CIT [2006] 157 Taxman 225 (AAR)) as here no taxes were paid in Norway. The Authorities stated that if taxes are not paid in other contracting state where services are rendered (i.e. Norway) it can be taxed in contracting state (i.e. India in our case)

Is it fair?

Yes it is fair, but I think some sort of relief should be provided (As deduction U/S 80 RRB - which is no longer applicable)while taxing this sort of income in India as in some countries the cost of living is high and even the salary may not be structured to result in lesser tax liability ( example medical reimbursements, HRA may not be stated and so no benefits can be taken).

In case on queries related to taxation contact me on e-mail ID:  info@adhauassociates.co.in

Double Taxation Avoidance Treaties

What do we mean by double taxation?

As the name suggests it means that the same income is taxed more than once i.e. the person earning the income need to pay tax on same income in two or more different countries. Example:  Warren earned income in UK, therefore he need to pay income tax on that income and therefore income tax was deducted on that income in UK (Withholding), however for tax purpose he is a resident in India, so need to pay tax on that income even in India, thus he ends up paying double tax . If the tax rate applicable is 30% you can imagine the net proceeds in hand (around 40%).

What’s the need for double taxation treaties?

To overcome this problem of same income being taxed twice or more, Economies throughout the globe started entering into double taxation avoidance agreements, different countries have different treaties with different countries. Though these treaties are based on UN model of double tax avoidance agreements; there might be slight differences between every treaty. These treaties guide how the income should be taxed if tax is payable in two or more countries, which country should provide the credit for tax, how the benefits are to be taken etc.

India has entered into double taxation treaties with round 100+ countries. These treaties specify the reliefs that can be taken, how they can be taken etc.The treaties has different provisions for income under different heads e.g  Business profits, salary, interests etc (mentioned as articles).