Tax incentives are provisions in the tax code designed to encourage certain economic activities. They can take many forms, including exemptions, deductions, credits, and preferential tax rates. Governments can need tax incentives to promote economic development, support specific industries, and encourage innovation.

There are two ways for small businesses in India to get tax, interest, and credit benefits from the government:

1. Registration under the Startup India Action Plan (SIAP) through the Department for Promotion of Industry and Internal Trade (DPIIT)
2. Udyam Registration Portal by Ministry of Micro Small and Medium Enterprises

Udyam Registration does not provide any specific tax benefits for businesses. However, it may give some tax benefits depending on the nature of the business. Read about these incentives in detail below.

Udyam Registration Portal

The Udyam Registration Portal is an online platform that allows startups to register with the government and access the benefits and support measures provided by the Central Government of India. The portal is open to all startups that meet the eligibility criteria. In addition, the portal includes a private limited company, partnership firm, or limited liability partnership operating for less than seven years. To register on the portal, startups must provide details about their business, including their products or services, target market, and growth plans.

Startup India Action Plan (SIAP)

The Startup India Action Plan is a government initiative launched in 2016 to promote and support the growth of startups in India. The initiative provides a range of support measures to help startups get off the ground, including access to funding, mentorship and networking opportunities, and regulatory support. One of the critical ways the Startup India Action Plan helps startups is through tax incentives.

Tax Benefits under SIAP

The Startup India Action Plan provides tax benefits to eligible startups. These include income tax exemptions on profits for up to 7 years, capital gains tax exemptions, and tax deductions on expenditures incurred on research and development. These incentives can help startups retain more of their profits, invest in growth and expansion, and reduce the overall tax burden on the company.

Tax exemption under Section 80IAC of the Income Tax Act 1961 (IT Act)

Eligibility

1. Must be recognised as an eligible startup by the DPIIT
2. Must meet the conditions in Section 80IAC of the IT Act.
3. Must obtain a certificate from the Inter-Ministerial Board by submitting Form I with supporting documents.
4. The Inter-Ministerial Board may review the application and either grant a certificate or reject it.

Benefits

1. An eligible startup can claim a deduction of 100% of its business profits for three consecutive assessment years out of five years starting from the year incorporated the startup. 
2. This deduction can be claimed for any three consecutive assessment years in five years starting from the year the eligible startup is incorporated.

Tax on Employee Stock Options (ESOPs) deferred for eligible startups under section 156(2) of the Income Tax Act 1961

Eligibility

1. Must be recognised as an eligible startup by DPIIT.

Benefits

1. Can defer Income tax on ESOPs from the time they exercise them.
2. From the financial year 2020-21, the TDS will not be deducted, nor the tax is paid when filing an Income Tax Return for the year the ESOPs were allotted.
3. The tax liability for ESOPs arises within 14 days from
   1. The end of the relevant assessment year (48 months after the end of the assessment year)
   2. The date the employee sells the ESOP shares
   3. The date the employee stops working for the company allotted the ESOPs
4. The startup’s liability to deduct tax at source (TDS) on the ESOPs is also deferred.

Angel tax exemption under section 56(2)(viib) of the IT Act

Eligibility

1. The company must be an eligible startup by DPIIT.
2. The company must be a private or public company or limited liability partnership (LLP) on or after April 1, 2016, and before March 31, 2023.
3. Paid-up share capital and share premium after issuing or proposing to issue shares is less than INR 25 crore.
4. Has not invested in any assets listed in clause 4(iii) of the G.S.R. notification 127 (E) for seven years from the latest financial year’s end in which shares were issued at a premium.
5. Must file a declaration in Form 2 with DPIIT seeking exemption from section 56(2)(viib) before issuing shares. This declaration is forwarded to the CBDT(Central Board of Direct Taxes) for approval.

Benefits

1. Section 56(2)(viib) of the Income Tax Act (IT Act) levies a tax on your private company. Taxing occurs when it issues resident shares at a value above the fair market value of the shares. This tax is considered “income from other sources”.
2. This tax is exempt for eligible startups that meet certain conditions.

Availing Tax Exemptions under Section 80-IAC of the IT Act:

Startups registered on the Udyam Registration Portal and meeting the eligibility criteria can avail of tax exemptions under Section 80-IAC of the Income Tax Act. This provision allows startups to claim exemptions on their profits for up to 7 years. To claim the exemption, startups must apply to the DIPP (which means Department of Industrial Policy and Promotion) and provide evidence of their eligibility. 

The Inter-Ministerial Board setup by the DIPP validates Startups for granting tax-related benefits. The Board comprises the following members:

1. Convener,(Additional Secretary, Department of Industrial Policy and Promotion)
2. Representative of Ministry of Corporate Affairs, Member
3. Representative of the Ministry of Electronics and Information Technology, Member
4. Representative of the Department of Biotechnology, Member
5. Representative of the Department of Science & Technology, Member
6. Representative of Central Board of Direct Taxes, Member
7. Representative of Reserve Bank of India, Member
8. Member (Representative of the Securities and Exchange Board of India)

Documents required to apply through the Form-1 for the tax exemptions under section 80-IAC of the IT Act are

1. Copy of Memorandum of Association and Board Resolution (if any)
2. Copies of Annual Accounts (Updated financial statements – Balance Sheet and Profit & Loss statement, certified by CA – for the last three financial years
3. Copies of income tax returns for the last three financial years
4. Updated Pitch deck and Video

Availing Angel Tax Exemption under Section 56(2)(viib) of the IT Act:

The Angel Tax Exemption is an Income Tax Act provision allowing startups to claim exemptions on investments received from angel investors. To avail of this exemption, startups must be registered on the Udyam Registration Portal and meet the eligibility criteria, which include being a private limited company or a limited liability partnership that has been in operation for less than seven years. In addition, startups must also provide evidence of the investment received from the angel investor, such as a copy of the investment agreement.

Subject to the fulfilment of additional prerequisites, a qualified startup must file a legally signed statement in Form 2. The DPIIT shall transmit such declaration to the CBDT upon receipt. Other documents needed are

1. Form of the declaration on letterhead;
2. Section 140 of the IT Act requires the declaration to be digitally signed by a person authorised to verify the return of income.

The Startup India Action Plan is a valuable resource for startups in India, providing a range of support measures, including tax incentives, to help them grow and succeed. By registering on the Udyam Registration Portal and availing of the tax exemptions and deductions provided under the initiative, startups can reduce their overall tax burden and retain more profits to invest in growth and expansion.

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Difference between profit maximisation and wealth maximisation

Understanding the difference between profit maximisation and wealth maximisation, requires understanding the concepts of profit and wealth.

Wealth relates to and reflects your whole financial condition and net worth, whereas profit refers to the amount of money you make on an investment or business enterprise.

Increasing profits is always a desirable thing. However, there are some circumstances where raising earnings and relying primarily on them could be harmful to the company’s health and, in the long term, negatively impact total wealth.

Profit maximisation and wealth maximisation are the two main goals of financial management. As the name suggests, profit maximisation refers to increasing a company’s profits, whereas wealth maximisation strives to raise an entity’s value.

Because profit serves as a gauge of efficiency, maximising profit is the company’s primary goal. On the other hand, the goal of wealth maximisation is to increase the stakeholders’ value.

What is Profit Maximisation in Financial Management?

For any business that seeks to maximise its earnings, the profit maximisation principle is a crucial idea to comprehend. Finding the most profitable manner to produce goods or deliver services is profit maximisation in financial management. It simply means to increase the company’s profitability.

One of the most specific goals of every business is profit maximisation or maximisation of surplus value. In general, profit in accounting and business jargon refers to the portion of the money that remains after revenue surpasses the costs involved in production.

Here, cost refers to the money spent on production, while revenue refers to the money a business makes from selling its products and services. In other words, this profit can be viewed as the long-term net benefit received by shareholders from a corporation.

What is Wealth Maximisation in Financial Management?

Maximising wealth is something that both people and companies should strive to do. 

Profit maximisation is the goal of every business owner, even though wealth maximisation is the company’s goal.

In other words, wealth maximisation aims to increase the owner’s wealth, whose value is determined by the stock price. As a result, maximising wealth differs from maximising profit.

Profit Maximisation vs. Wealth Maximisation: Comparison Table

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Meesho is the biggest and most reputable reseller marketplace in India. It is an e-commerce platform where resellers can sell products online via Facebook and WhatsApp.

The platform was established in 2015 by two IIT Delhi graduates named Vidit Aatrey and Sanjiv Barnal and now has about 2.6 crore resellers.

Resellers can choose from any listed products and sell them to their customers using social networking apps like Facebook, Instagram, and WhatsApp, owing to the online platform that connects them to manufacturers that list their goods on the Meesho App.

Meesho wants to create a setting where anyone may start a business without needing to invest money.

How to Sell on Meesho?

The selling process on Messho is quick. The vendor should sign up for the Meesho Seller app and proceed with the basic instructions to register for selling on Meesho.

Prerequisite: To start the procedure, the Meesho seller has to have a valid bank account and GSTIN number.

• Create a seller account or register on Meesho

After you create a seller account on Meesho by providing your mobile number, email address, and Meesho seller details, you will need to go through an authentication process using the OTP you will receive on your mobile number. Once you have accessed the supplier panel, you can choose to receive updates on your mobile number by clicking on the appropriate option.

• List down product catalogues.

The following vital element is adding product catalogues to the Meesho platform. Meesho can produce catalogues for goods with several designs.

A catalogue with four to five products increases your likelihood of getting an order. The uploading of well-organised catalogues with excellent product images is required.

Product catalogues with top-notch images and thorough product description aid resellers in selling the listed goods. One can upload a single catalogue or several.

Meesho offers two options for catalogue uploads:

• Bulk upload of catalogues

1. When you select “Catalogue upload” on the Supplier Panel, you have two choices: a) Bulk add new catalogues and b)Create a single catalogue.
2. To access the following page, click “Add new catalogue in bulk”;
3. In the search box, type the product category and choose the right category from the drop-down menu.
4. You will have the choice to download a Template after choosing the product category. If a template still needs to be made available, click Download Template. The template that may be downloaded resembles an excel sheet.
5. The first sheet of the template is for instructions, while the second sheet is for product information. Don’t fill out columns A through C; instead, fill out the other columns as directed.
6. Click the upload template button in the Supplier panel; a popup to choose the template file will appear. Choose the proper template file, then upload it.

• Upload just one catalogue

1. Select the option “Add a Single catalogue” after selecting Catalogue upload on the Supplier Panel.
2. Choose the right category from the drop-down list in the search box on the following page. Check out the instructions for adding product photos. Upload product photos using your computer.
3. Fill out the form with the product information. (If a product is available in numerous colours, there is no need to enter information for each colour separately). Selecting “Copy input details to all items” will copy input information to all goods.
4. Click “Submit Catalogue” and confirm the submit action.

• Receiving Orders

Once product catalogues are available on Meesho, Meesho sellers begin informing their clients about the product via Facebook, Instagram, WhatsApp, and other social media channels.

One of the critical factors in attracting customers is setting the appropriate price. Meesho is a price recommendation tool that gives reasonable rates for a product compared to the competition.

A key component of Meesho’s effort to improve the user experience is the Next-Day Dispatch (NDD) programme. When an order is received under NDD, the Meesho seller is required to ship it the following day.

Meesho will prioritise certain products on the product page if a Meesho seller is eligible for the Next-Day Dispatch (NDD) programme. This also activates the product page’s NDD tag. On average, an NDD tag increases clients’ interest by 12%.

• Delivering Products

Meesho notifies customers via email and the App-Supplier panel when an order is received. Acknowledge the Order.

You can also obtain the manifest and label from the supplier’s panel. Put the label on the packaging once the goods have been packaged.

One must give the package to Meesho’s logistics partner because Meesho handles the product’s shipping at no cost.

Meesho offers an extensive network of logistics partners who will pick up the merchandise from your location and deliver it to the customer’s address. Consequently, you don’t need to worry about shipment.

• Payment Process for Orders

Payments for purchased goods, including orders for “Cash on Delivery,” will be transferred into the selected bank account on the 15th day following the order’s delivery. On the Mesho Supplier panel, you may view these payment-related specifics.

Details on payments, including deposited balances, upcoming payments, and more, may be seen in the Meesho seller panel. You should be aware that the Meesho commission is paid with every product sale.

Why sell on Meesho?

Even though there are numerous e-commerce platforms accessible, sellers still favour Meesho for the following reasons:

• Wide range of products

There are millions of products listed on Meesho, spanning a wide range of categories. This gives Meesho sellers a great opportunity to find the right products to sell and reach a large number of potential customers.

• Meesho has a low commission rate

Meesho’s commission rates are the lowest in the e-commerce sector, and Meesho doesn’t charge commission on a lot of products. Additionally, GST of 18% is charged on the commission fee as required. Meesho doesn’t have a fixed fee, collection fees, or any other hidden fees, unlike many other e-commerce platforms.

• The App is simple to list and use

The Meesho App is easy to use. Catalogue listing is quite easy, and payments are promptly received and presented on the app.

• Selling hubs vs Selling destinations

Meesho offers a great selection of platforms. Suppliers can significantly increase their earnings and give Meesho sellers competitive prices.

Benefits Of being a Meesho Seller

Selling on Meesho offers the following advantages:

• It is the best choice for homemakers and small business owners who want to launch a company without making a significant financial commitment.
• Accessible product listing, affordable delivery, and prompt payment are all provided.
• Meesho offers a significantly more stable competitive environment for new and small businesses than other e-commerce marketplaces.
• On the marketplace, there are no commission fees for Meesho sellers.

FAQs on Meesho Seller

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A letter of credit, or LC, is a legal document that ensures the buyer will pay the seller. It is provided by a bank and guarantees prompt and complete payment to the vendor. If the buyer cannot make such a payment, the bank pays the entire sum or the outstanding balance on the buyer’s behalf.

Types of letter of credit

The following groups can be made up of letters of credit:

• Sight Credit

Documents covered by this LC are payable immediately upon the provision of the necessary paperwork. For instance, a businessperson can get the money they need by giving a lender a bill of exchange and a sight letter of credit. A sight letter of credit is more immediate than other letters of credit.

• Acceptance Credit/Time Credit

Usance bills are bills of exchange that are drawn and payable after some time. Under acceptance credit, these bills are accepted upon presentation and eventually paid on their respective due dates.

For instance, a business might order supplies from a supplier and get the products the same day. The invoice will be sent with the delivery of the products; however, the business may have up to 30 days to make payment. The sale is in effect during this 30-day window.

• Revocable and Irrevocable Credit

Revocable LCs are credits that can have their terms and conditions changed or revoked by the issuing bank. The recipients will not be informed in advance of this termination. An irreversible credit is one whose terms and conditions cannot be changed or revoked. As a result, the LC’s stated pledges bind the opening bank.

• Confirmed Credit

Only irrevocable LC may be confirmed. A confirmed letter of credit (LC) is one in which a banker other than the issuing bank adds its own confirmation to the credit.

The beneficiary’s bank would deliver the paperwork to the confirming banker in the case of confirmed LCs.

• Traveller’s Letter of Credit

This letter assures travellers that issuing banks would accept draughts made at specific foreign banks.

• Standby letter of credit

If the buyer or the bank’s client fails on the contract, a standby letter of credit (SLOC) is a legal document that ensures the bank’s commitment to making payment to the seller.

A standby letter of credit facilitates international trading between businesses unfamiliar with one another and operating under various legal and regulatory frameworks.

A SLOC does not ensure that the buyer will be satisfied with the items, even though the buyer and seller are assured of receiving the goods and payment, respectively. 

Parties involved in Letter of Credit

• Applicant: The person who asks his bank to issue a letter of credit is referred to as the applicant.
• Beneficiary (exporter): A beneficiary is a seller paid according to the process.
• Issuing bank: The buyer requests a letter of credit issued by the issuing bank (also known as an opening bank).
• Advising bank: The advising bank, which is often situated in the exporter’s nation, is in charge of transferring papers to the issuing bank on the exporter’s behalf.
• Confirming bank: The issuing bank’s undertaking is further guaranteed by the confirming bank. This issue arises when the exporter is dissatisfied with the issuing bank’s guarantee.
• Negotiating bank: The LC documents submitted by the exporter are negotiated by the negotiating bank. In exchange for repayment under the credit, it pays payments to the exporter, subject to the correctness of the papers.
• Reimbursing bank: The payment account is created by the issuing bank at the reimbursing bank. The reimbursing bank accepts the claim, which resolves the negotiations, acceptance, and payment received through the negotiating bank.
• Second Beneficiary: A person who can act in the original beneficiary’s place in their absence is the second beneficiary. Under these circumstances, the second beneficiary receives the exporter’s credit, subject to the transfer agreement’s restrictions.

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A company that is GST-registered sends the purchaser a tax invoice. Such an invoice specifically states the GST rate applied to the sold goods and services.

Some businesses with GST registrations, however, are not permitted to add taxes to the invoices they issue. These merchants must issue a Bill of Supply. When GST is not applicable to a transaction or when GST is not to be recouped from clients, a Bill of Supply is provided.

Who should issue the Bill of Supply?

The registrants listed below should issue Bills of Supply:

• Composition Dealer

If you are a business whose sales are less than 1.5 million rupees, you can opt to pay taxes under the composition scheme. If you choose to pay taxes under the composition scheme, you will have to pay the tax yourself. You cannot ask your customers to pay the tax for you. You will not be allowed to charge the tax in your invoice. Instead, you will have to give a bill of supply.

• Exporters

The GST component of an exporter’s invoice is not necessary. This is because supplies for export are not taxed. Therefore, a Bill of Supply may be provided in place of a tax invoice when exporting products.

In their Bill of Supply, the dealer must include the following information: “Supply meant for export on payment of IGST” and “Supply meant for export under bond or letter of undertaking without payment of IGST.”

• Exempted Goods Supplier

A Bill of Supply must be issued by a registered dealer whenever exempt items or services are supplied. For instance, a registered taxpayer must submit a Bill of Supply rather than a tax invoice when supplying raw agricultural products.

Contents of Bill of Supply

A Bill of Supply should include the following information:

• The supplier’s name, address, and GSTIN
• Bill of Supply reference (Each Bill of Supply must have a distinct number for that financial year that is no longer than 16 characters long and generated consecutively)
• Issued on and If the receiver is registered, then mention name, address, and GSTIN.
• The Bill of Supply also contains accounting codes for services or HSN code for goods.

Based on the amount of revenue in the previous financial year, the minimum number of digits is as follows:

• Product/service details
• The value of the products or services after adjusting for any discounts or reductions
• Digital or manual signature of the vendor 

Can a registered person issue a bill of supply?

A registered person must issue a bill of supply in place of an invoice if they only deal in exempted supplies or use the composition scheme (composition dealer).

What is the difference between invoice and bill of supply?

For all types of taxable sales, whether they are local or central, a Tax Invoice is used; conversely, a Bill of Supply is used for all types of exempt sales or sales done by composition dealers.

The post Bill of Supply appeared first on MyBillBook.

What is the QRMP scheme?

The Quarterly Reports Monthly Payment (QRMP) program, which is in effect as of January 1, 2021, enables registered taxpayers with combined revenue of up to INR 5 crores in the most recent financial year to file returns every quarter and pay taxes monthly.

Prior to the QRMP scheme, taxpayers had to file GSTR-1 and GSTR-3B every month. Now, they just have to do so once every three months.

For instance, you can now only submit your returns once from April through June, and you can pay your taxes by the May deadline. By this plan, you must pay taxes every month (i.e., the first two months of a quarter) using the fixed sum method (via a pre-filled challan) or the self-assessment method (due tax amount after adjusting ITC).

If you choose this plan, you’ll remain a part of it until you reach the turnover level or decide to leave.

Why is the QRMP scheme important?

• Small business taxpayers need to be aware of this plan since it would reduce the number of returns they must file annually.
• The optional Invoice Furnishing Facility (IFF) is another alternative for qualifying taxpayers under this program.
• Four GSTR-1 returns can be submitted through IFF each year, and you can upload invoices for the first two months of a quarter rather than waiting until the end of the quarter before filing the return. 

Criteria for the QRMP scheme

• This program is only available to those who are required to file Form GSTR-1 and Form GSTR-3B returns.
• Your prior fiscal year’s total yearly income must have been up to INR 5 crores or less. If your turnover exceeds this limit, you will no longer be eligible for the program starting next quarter.
• Your last GSTR-3B return that was due should have been submitted.
• You should not have any data saved in Form GSTR-1 in the portal for the time frame you specify for the scheme. You can choose the plan after wiping the Form GSTR-1’s recorded data.

How to avail the QRMP scheme

• Visit the GST portal to opt-in or out of the QRMP scheme.
• Select Login →Services → Returns.
• Next, select the option to opt-in for quarterly returns.

Payment of taxes under the QRMP scheme

You must submit Form PMT-06 and create a payment challan to pay taxes for the first two months of a quarter. Every month’s payment is due by the 25th of the following month. 

There are two payment options available:

• Fixed-sum approach

If your most recent GSTR-3B was filed quarterly, you could obtain a pre-filled challan for 35% of the tax amount (paid in cash) from the previous quarter. However, you cannot access the 35% challan if you are a new taxpayer, have not submitted your most recent GSTR-3B, or have chosen to forgo the Composition plan.

If your most recent GSTR-3B was submitted every month, you could obtain a pre-filled challan for the entire tax amount (paid in cash) in the final month of the preceding quarter.

• Self-evaluation technique

It is the current approach where a taxpayer can pay the tax due by considering the tax due on both inbound and outbound supply and the available input tax credit.

The taxpayer must manually calculate their monthly tax obligation and submit form PMT-06 with the payment. For establishing the amount of ITC available for the month, the taxpayer might use form GSTR-2B.

There are also other circumstances where no deposit may be necessary, such as:

• For the first month of the quarter, either the electronic cash/credit ledger balance is sufficient to cover the tax bill for that month, or there is no tax liability.
• For the second month of the quarter, either there is enough money in the computerised cash/credit ledger to cover the total taxes owed for the first and second months, OR there are no taxes owed.

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Days Sales Outstanding (DSO) measures the average time it takes a business to get payment from a client after a transaction.

Business owners can also view DSO as the time it takes for credit sales to be converted to cash or as the time it takes for receivables to be collected.

How to calculate Days Sales Outstanding with the DSO formula

You can calculate your Days Sales Outstanding (DSO) using this simple formula: 

DSO= (Net Credit Sales/Accounts Receivable)x No. Of Days

Let’s understand the above with the help of an example:

As a small business owner, Max sells his goods and collects customer payments within 30 days of each sale. This prompt payment policy helps him keep the cash flow moving and ensures that he can cover his costs and continue to grow his business.

Although the majority of clients pay on time, some frequently miss payments. Max is trying to determine how effective the accounts receivable process is. 

His yearly financial accounts look like this:

• Accounts Receivable: Rs. 50,000
• Net Credit Sales: Rs. 550,000

DSO = (50,000/550,000) * 365 = ~ 33.18

Cash sales transactions are typically excluded from the DSO calculation formula because it only accounts for credit sales.

Divide your final accounts receivable by the total credit sales for the period (monthly, quarterly, or annually), multiply the result by the number of days in the period, and you’ll have your answer.

How does DSO impact your business?

DSO is a helpful indicator that you can use to assess several essential business aspects, including how soon your customers pay you, your firm’s liquidity, the volume of sales you generate over time, the effectiveness of your sales staff, customer satisfaction, and client retention.

There is no one size fits for the DSO number; it depends on your company size. For instance, a DSO of 45 days might not be an issue for a significant company, but it is dreadful for a small company.

You can use that information to improve your business practices by regularly tracking your DSO trends. To get the most accurate results, it’s best to measure your DSO periodically instead of basing changes on individual DSO results.

3 Ways to reduce DSO

There are several ways to reduce DSO, which are:

• Offering incentives for prompt payment

Offering incentives for early payments accelerate the payment process, as discounts and early-bird offers are well-received by customers. Ensure that your invoices contain the late fee terms and conditions so that the customers know about them upfront.

• Improving customer communication and collections processes

When you offer recurring services, auto-charging is usually the best option. Storing your customers’ credit card details means you can charge them automatically on the due date, which makes things much easier for you. All you have to do is inform your customers about this policy when you set up the system. You should also notify them before and after you charge them.

• Invest in online billing software

Your procedure for collecting payments needs to be planned out and precise. You might achieve that by investing in the online billing software. You can promptly charge your clients as soon as a sale is made. And online billing software can help you do that.

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This blog summarises the invoicing types and their purpose and helps you choose the proper invoice before you send them out. 

The following are the types of invoices.

The Invoices Sent for One-time Transactions

You would use these invoicing types in simple transactions between a buyer, seller, or service provider.

Sales Invoice

A sales invoice is commonly called the “regular” invoice. You can use this as a buyer to request a product or service payment and as a legal transaction record after the payment is complete. The invoice has fields:

• Seller information
• Buyer’s address
• Delivery date
• Payment terms
• Items and their rates
• The total price
• The buyer’s bank details
• Payment links

Proforma Invoice

You can use a proforma invoice as an estimated invoice by the seller and send it to the buyer before providing any goods or services. The invoice has fields:

• Items to be sold
• Quantity and price of items
• Delivery date
• Shipping address

You can screen the proforma invoice before asking the seller to start working on their side of the deliverables. 

Consolidated Invoice

A consolidated invoice is an invoice that groups all the existing invoices under your name when you are the buyer and compiles them into a single invoice with one total. Consolidated invoices save you a lot of time since you would never have to pay for individual invoices.

Overdue Invoice

An overdue invoice means an invoice passed the due date mentioned when you send an invoice. Typically, a sales invoice becomes an overdue invoice when you, as a buyer, fail to complete your payment within the stipulated date. Whenever this situation arises, you become a defaulter. Your seller can use this invoice for the following:

• Sending reminders on payment 
• Sending notifications about late fees
• Take a legal action
• Waive off your overdue invoice

The Invoices Sent for Projects

Retainer Invoice

You will receive a retainer invoice if you are a buyer to collect prepayments for an upcoming task. You have to pay the amount mentioned in the retainer invoice to reserve and access the seller’s business services. Usually, people use retainer invoices when collecting advance payments for capital or logistics or protecting against cancellation.

Interim Invoices

These partial invoices contain only a portion of the final invoice’s fee for funding the project and covering the operational expenses. You can use the interim invoices for larger, more expensive projects because you can break the total amount into smaller invoices to make it more affordable. The percentage of work completed or milestones achieved throughout the project determines the amount entered.

Timesheet Invoice

You might come across the timesheet invoices when your business charges your clients based on their employee’s work timings. Timesheet invoices generally apply for services. You can calculate them by defining each employee’s per-hour charges and multiplying them by the total hours worked on the project.

• The tasks performed
• Charges per hour
• Total worked hours 
• Start and end date of the project
• Administrative fees

Final Invoice

A final invoice refers to the last invoice you send at the end of your project. It highlights the total amount owed to the product or service provider. You can calculate the total by deducting the retainer and interim invoice amounts from the total amount owed. Like a regular invoice, the final invoice has the following fields:

• Payment terms
• Invoice creation date
• Items
• Subtotal
• Deductions (retainer and interim invoice totals)
• Invoice total

The Memos

You can use memos to make corrections to past transactions instead of sales.

Credit Memo

A credit memo is an invoice used when the seller owes the buyer money, unlike when the buyer pays the seller. It is a document you would receive as a buyer that acknowledges the owed amount and issues a form of a credit to you from the seller. You can use these issued credits for future purchases from the same seller. 

If you are a buyer, you can issue credit notes when:

• You want to cancel an order
• You wish to return a product
• The product or service is not satisfactory
• You have received damaged products
• You wish to get compensated for an invoicing error
• Your seller wants to offer you a discount on your next purchase

Debit Memo

You can use a debit memo to issue to clients for making changes to past invoices and increasing the total amount owed by your clients if you are a seller. It differs from a sales invoice because people use a sales invoice when selling a product or service as a debit memo to adjust invoice totals of previously sold products or services.

Mixed Invoice

A mixed invoice is any invoice that combines the items in a credit and debit memo, showing the aggregate as the total.

Other invoices

Commercial Invoice

If you are a buyer, you can use a commercial invoice document as proof of an international transaction between you and your seller for legal purposes and vice versa.

You can primarily use these documents to calculate tariffs, determine taxes, and obtain customs clearance for the shipment in and out of the country.

Recurring Invoice

A recurring invoice is an invoice you can regularly send for products or services offered repeatedly. The frequency of sending these invoices is:

• Weekly
• Monthly
• yearly 

To continue using the product or service, the customer must ensure the payment of these invoices on time. 

Invoice Based on Formats

Digital Invoice

A digital invoice is an invoice you generate using softwares like myBillBook when you buy items. For developing a digital invoice, you will need to input information like:

• Your seller’s details
• items’ names
• Quantity
• Price
• total money owed

On receiving these data, the software will create an invoice for them. In addition, you can customise these digital invoices using word processors, spreadsheet tools, downloadable templates, online invoice generators, and dedicated invoicing software.

E-invoices

An e-invoice is an invoice document in a structured format, unlike a digital invoice. You can issue, receive, and process it electronically without manual intervention. 

E-invoices are interoperable between different billing systems, so a buyer’s accounting system can read and understand receipts and invoices created by the seller’s invoicing system. Thus e-invoices automate the end-to-end Accounts Receivable and Account Payable processes. 

In addition, they also help reduce the scope for tax evasion since you can file taxes using e-invoices directly. You can also automate e-invoice creation using our e-invoicing solution, myBillBook, which would help you create e-invoices in less than 20 seconds.

Before drafting the invoice, consider its aim. Then, choose the appropriate invoice types that will do the task. Or use a specialised solution like myBillBook allows you to perform billing.

The post Types of Invoices appeared first on MyBillBook.

Cost accounting is a method used in business to track, analyse, summarise, and research a company’s expenses related to any process, service, product, or organisation. Hence for every company today, there is a need for cost accounting.

What is the Importance of Cost Accounting?

Cost accounting helps the management in making cost control techniques and strategic planning for your company to increase cost-effectiveness. Additionally, it aids in management’s determination of where they must control the cost. Apart from the needs of cost accounting mentioned, it has many other advantages that can help your business, like:

Managing the Cost of the Product

Your management can predict a product or service’s cost and selling price using cost accounting, enabling you to create business policies. Your management can also come up with ways to keep costs under control while still achieving maximum profitability.

Calculating the Overall Cost Per Unit

Cost accounting procedures establish the overall cost per unit of a good or service and set a selling price for the company.

Displaying Activities Based on Profit

Your management can use this knowledge to stop non-profitable activities while growing and increasing profits.

Cost Comparisons Through Time

You can use data from cost sheets created for multiple periods to compare costs over time for the same good or service.

Cost Accounting Elements

Materials, labour, and costs comprise the three basic cost element categories. Overhead costs are those associated with indirect materials, labour, and expenses.

Material Cost

The price of the raw materials needed to make an item is known as the “material cost. You can classify it as:

1. Direct material: is used directly in producing a product, and you use them as the finished items. For instance, you can use cloth or wood to create things like furniture or shirts.
2. Indirect material: is the material used in the production of completed goods but cannot be ascribed to particular physical units. Using a saw to cut wood for furniture or a pair of scissors to cut fabric for shirts are two examples.

Labour Cost

Labour refers to the people who can turn raw materials into finished things.

1. Direct labour consists of people who participate actively in the production of goods. For instance, people working in manufacturing or production units refer to direct labour.
2. Indirect labour refers to employees whose work you cannot specifically attribute to one product and who do not directly involve in the manufacturing process. For instance, salespeople and directors fall under indirect labour.

Expenses

Costs incurred by a firm usually fall into this category, except for material and labour costs. 

1. Direct expenses: are connected to particular cost units and are also known as chargeable expenses, like the cost of direct labour, raw material costs, utilities, and rent.
2. Indirect expenses: any expense that does not qualify as direct is an indirect expense, such as printing expenses, utility expenditures, and legal advice.

Overhead Costs

Overhead charges are comparable to indirect costs. However, “overhead” has a broader definition that includes indirect labour, materials, and expenses. The following are the three categories that categorise overhead expenses:

1. Factory overhead: refer to the costs associated with manufacturing, production, or other expenses necessary for the efficient operation of a factory. Utilities, insurance, and manufacturing rent are a few examples.
2. Office and administrative overhead: refers to the cost associated with managing and running a business, such as an office equipment like printers and stationery.
3. Selling and distribution overhead: means the costs associated with marketing a product, obtaining orders, and distributing goods and services.

Cost Accounting Methods

Cost accounting techniques are of four types:

1. Standard cost accounting: uses ratios to assess how well you use labour and materials to manufacture things in a typical setting. 
2. Activity-based cost accounting: is a method that uses a specific good or service to assign the cost of each organisation’s operation. The activity analysis decides these cost categories, improving the cost accuracy of goods and services.
3. Lean accounting: is a collection of principles and procedures that manufacturers use to receive quantitative feedback. Lean accounting emphasises visual and lean-focused performance measurements rather than activity-based or standard costing. The price of producing an extra output unit is called the marginal cost is a new name for this approach. 
4. Marginal cost: A marginal cost analysis can investigate the relationship between production volume, selling price, costs, expenses, and profits by subtracting the variable cost from the revenue and dividing the result by the revenue.

In conclusion of cost accounting, don’t forget to make it a point to equip yourself with cost accounting to know the cost of producing every single item for your company.

Read more articles related to Working Capital

Working Capital Management
Contra Entry
Types Of Working Capital

The post The Importance of Cost Accounting appeared first on MyBillBook.

This Form 16 is a certificate issued by your employer. It certifies the details of your salary for the year and the TDS deduction. These are the scenarios when the form showing a TDS deduction is necessary:

1. Income from salary for the financial year is more than the basic exemption limit of Rs 2,50,000 
2. Total income for deduction includes your disclosed income from other sources. 

Form 16 means acknowledging that your deducted tax amount deposit is complete with the Income Tax department. The deadline for issuing a form 16 is by the 15th of June. 

Every form 16 document has two parts: Part A and Part B.

Part A of Form 16

Part A of form 16 contains the following information about the employer and employee:

• Name and address
• PAN and TAN details
• Length of employment
• TDS deductions with the government

Part B of Form 16

Part B of form 16 includes salary, other income, allowed deductions, and tax payable.

How to Download Form 16

You can always download the form 16 document from the Income Tax department’s website https://www.incometax.gov.in/iec/foportal.

Is There an Eligibility Criterion for Form 16?

Yes. Any salaried person with a tax deduction by the employer at the source is eligible to get Form 16. Irrespective of whether your income falls under the tax exemption limit, the employer must issue a Form 16 if they have deducted tax at the source.

How to Check or Verify the Form 16

1. Navigate to the official website of the income tax portal.
2. Login using a username (your PAN) & password
3. Browse to the ‘e-file’ tab and click on ‘View 26AS’ under the ‘Income Tax Returns’ option
4. Once you get redirected to the TRACES website, click on the ‘View Tax Credit’ tab.
5. Then, click on ‘Verify TDS Certificate.’ Fill in the required details in Form 16 (Part A) except for the source of income.
6. Select your source of income from the drop-down menu on the page
7. Click on ‘Validate’ to check the authenticity of your Form 16.
8. Verify whether the details on the form and those shown on the website will be the same.
9. Contact your employer immediately to correct the Form 16 in case the website displays that your Form 16 is invalid.

For the verification of the digital signature of your Form 16 

1. Open Form 16 in an Adobe reader.
2. Right-click on the digital signature on the last page of form 16.
3. Then, click on ‘Validate Signature.’
4. If it displays valid, then the sign is valid.

Other Things to Know About Form 16

1. Your employer cannot deduct any TDS and issue a form 16 if your income is below the basic exemption limit.
2. You might have more than one form 16 document if you worked with more than one employer during the tax year.

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