India taxes individuals based on a system of income slabs. Different tax rates are assigned to different ranges of income.&nbsp;

Understanding tax slabs is crucial for several reasons.

As a person earns more, the tax liability also increases, creating a fair and progressive tax system in the country. To achieve this, the government regularly updates and announces changes to tax slabs in the Union Budget.

The income tax slabs differ between the old and new tax regimes. Let's explore the specific slab rates applicable to Individuals for FY 2022-23 (AY 2023-24) and FY 2023-24 (AY 2024-25).

Income Tax Slab Rates For FY 2023-24 (AY 2024-25)&nbsp;

Rates of the old tax regime slabs are categorized into three groups:

The new tax regime applies uniform tax rates to all individuals, eliminating the age-based distinctions in the old system. The new tax regime slabs 2023-24 are outlined below.

Applicability of Surcharge for FY 2023-24 (AY 2024-25)

The income tax <a href="https://incometaxindia.gov.in/charts%20%20tables/tax%20rates.htm">surcharge</a> is an extra fee imposed on top of the <a href="https://www.skydo.com/blog/how-to-file-taxes-under-44ada?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">regular income tax</a>. An additional tax is applied to individuals with higher income earnings in a specific financial year. Let’s look at the applicable surcharge rate under the Old and New tax regime.

However, 25% or 37% surcharge rates will not apply to income under the following sections.

Consequently, the highest surcharge rate on the tax payable for such incomes will be 15%.

Starting from the Assessment Year 2023-24, the maximum surcharge rate on tax payable for dividend income or capital gain specified in Section 112 will be capped at 15%.&nbsp;

A 4% Health and Education cess will be applied to all cases’ total income tax liability and surcharges.

Comparison of tax rates under the New tax regime and the Old tax regime for FY 2022-23 (AY 2023-24)

How do you calculate the income tax from the income tax slabs?

Let’s understand the calculation with an example.

Sanjana, aged 35, has a total taxable income of Rs. 8,50,000. She has opted for the old tax regime. Her income includes income from salary, interest and rental income. Deductions under section 80 have been reduced. Now, Sanjana wants to know her <a href="https://www.skydo.com/blog/gst-requirements-international-service-sales?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">tax liability</a> for FY 2022-23 (AY 2023-24).

*Sanjana, an individual taxpayer under the age of 60, enjoys an income exemption limit of up to Rs 2,50,000. Other taxpayers, i.e., senior and super senior citizens, have higher income tax exemption thresholds of Rs 3,00,000 and Rs 5,00,000, respectively.

Please be aware that the tax rates in the New Tax Regime are uniform for all categories of individuals, including regular individuals, senior citizens, and super senior citizens.&nbsp;

Individuals with a net taxable income of up to Rs 5 lakh qualify for a tax rebate under section 87A, resulting in zero tax liability in both the New and Old tax regimes. It's important to note that in Budget 2023, the rebate under the new regime has been extended, making income up to Rs 7 lakh tax-free from the FY 2023-24 onward.

Let's delve into effective strategies to maximize your investments while minimizing the associated tax burdens.

ELSS mutual funds provide a dual benefit of potential capital appreciation and tax savings under Section 80C of the Income Tax Act. Investing in ELSS reduces taxable income and offers a path for long-term wealth growth.

2. Explore tax-efficient investment avenues

Health insurance qualifies for tax benefits under Section 80D. You can claim tax benefits on premiums paid - up to Rs 20,000 for senior citizens and Rs 15,000 for others. For example, if you pay Rs 15,000 for your policy and Rs 20,000 for your senior citizen parent, you can claim a total tax benefit of Rs 35,000.&nbsp;

Maturity value is tax-free for sums received under critical illness insurance policies.

This strategy entails selling loss-making assets to realize the capital loss and using it to offset the gains earned by profit-making assets.

For instance, if you have a loss of Rs. 20,000 in Stock A and a gain of Rs. 30,000 from Stock B, you can sell Stock A during a market downturn to offset the gains. This way, you can reduce your taxable income. The saved amount can be reinvested for portfolio growth.

Ensure that tax loss harvesting aligns with your overall financial goals and plan by considering a discussion with a financial professional or tax advisor.

<a href="https://www.skydo.com/blog/how-can-the-right-chartered-accountant-help-your-tech-export-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Consult financial professionals or tax advisors</a> for effective tax planning and strategic advice. Their expertise can provide tailored insights aligned with your financial goals and ensure a well-informed approach to optimize your tax situation.

If you need help deciding what is right for you, we will connect you with our panel of Indian and US-based CA / CPAs. Feel free to reach out to us.

Q1. How is a taxpayer's income categorized?

Ans: A taxpayer's income falls into five categories outlined in Section 14 of the Income Tax Act. These include Income from salary, Profits from a business or profession, Income from House Property, Capital Gains, and Income from Other Sources.

Q2. Is it possible to avail of 80C deductions while choosing the new tax slabs 2023-24?

Ans: No, under the new tax regime, several deductions and exemptions, including those under section 80C, are not permitted. Opting for the new tax regime means foregoing the ability to claim deductions under section 80C.

Q3. What do "Previous Year" and "Assessment Year" mean?

Ans: We have two important terms in income tax provisions: (i) Previous Year and (ii) Assessment Year. Previous Year is when you earn income, typically from April 1st to March 31st. The year right after the Previous Year, from April 1st to March 31st, is called the 'Assessment Year.'

For example, the Previous Year is from April 1, 2023, to March 31, 2024 (FY 2023-24). The corresponding Assessment Year is from April 1, 2024, to March 31, 2025 (AY 2024-25).

Q4. What is the tax exemption limit for calculating income tax rebate under section 87A?

Ans: For FY 2023-24 (AY 2024-25), the rebate limit has been increased to Rs. 7,00,000 under the new tax regime. This means a resident individual with taxable income up to Rs 7,00,000 will receive Rs 25,000 or the amount of tax payable (whichever is lower) as tax relief. However, the old tax regime's threshold limit will remain the same, i.e., Rs 12,500 if taxable income is up to Rs 5,00,000.

Q5. How much is the standard deduction for FY 2023-24?

Ans: You can claim a standard deduction of ₹50,000 to the income taxable under the head ‘Salaries.’ The standard deduction is a tax benefit that can be claimed irrespective of the amount spent on Transport or Medical Allowance. It applies to individuals earning a salary or pension income.

Prepare for the upcoming year's tax season by understanding the tax slabs for 2023-24 and optimizing your tax savings. 

Tax Slabs in 2023-24: Plan Ahead for Next Year Tax Savings

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Rohit Khuranna

Facilitating international transactions as an international business is as common as sipping a morning coffee. Yet, they must navigate a hidden financial obstacle: Forex markups. These stealthy charges on foreign exchanges can silently chip away at a company's profits, leaving you blindsided by unexpected costs.&nbsp;

Picture this - you've just closed an excellent business deal overseas, only to see a large chunk of your earnings disappear due to hidden fees. This is the danger of Forex markups; many times, these fees are hidden, until it's too late. These charges appear minimal at first look but add up quickly, resulting in much higher costs for businesses of all sizes.&nbsp;

These hidden expenses lurk at every step, whether you're a multinational company procuring supplies from overseas or an IT export startup paying distant developers in a different currency. But what if there was a way to bypass those unexpected fees, reduce lengthy wait times, and sidestep cumbersome paperwork?&nbsp;

<a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">Skydo</a> makes it easier for businesses to identify and reduce hidden costs to keep more profits. Here’s how.

An issue that frequently arises in international trade is managing <a href="https://www.skydo.com/blog/future-of-cross-border-payments-2030-and-beyond?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">cross-border payments</a>. With their complex fee structures and lengthy processes, traditional banks have been the default choice yet completely outdated. Enter Skydo, a platform designed to alleviate these issues and promote transparency and efficiency.

When you receive an international payment via Skydo, you get real-time exchange rates for your transactions. This way, you get the most accurate and competitive rate in the market without any <a href="https://www.skydo.com/blog/hidden-fees-in-bank-rates?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">hidden charges</a> while achieving complete value for money on your transaction.

Our straightforward pricing model makes it easy for you to forecast your expenses. For transactions under USD 2,000, a fee of USD 19 is applied. For those exceeding this threshold, the fee is USD 29. With our transparent approach, you can have peace of mind knowing exactly what you're paying for.

Imagine the savings your business could achieve by eliminating the cumulative costs of traditional banks for international transactions! With Skydo's currency conversions, businesses can save up to 10 lakhs annually. Don't just take our word for it; verify these savings using our<a href="http://bit.ly/3MOk7P0"> convenient savings calculator</a>.&nbsp;

The Skydo platform is meticulously designed to cater to global and emerging enterprises' needs. Our user-friendly interface offers a seamless experience, making international transactions straightforward and efficient.&nbsp;

With Skydo, setting up an international account is quick and hassle-free. In just 5 minutes, you can establish an account that upholds the highest legal compliance standards. No more lengthy processes, only business agility.

Skydo streamlines the entire payment process and brings transparency, cost savings, and unparalleled ease of use. With a range of innovative features, Skydo is the modern solution to age-old payment challenges. Here's the step-by-step process that makes cross-border transactions hassle-free and profitable for your business.

Step 1: Setting up your international bank account

With Skydo, it's a breezy <a href="https://www.skydo.com/blog/seamless-payment-experience-with-international-bank-accounts?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">5-minute</a> affair. All it takes is a straightforward KYC process, entering your business details, uploading a few documents and voilà, you're ready to roll.

Need to bill your clients? Create and send professional invoices at zero cost. With Skydo, invoicing isn't just free; it's incredibly intuitive.  

<a href="https://www.skydo.com/blog/transforming-your-invoicing-experience-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Click here</a> to learn more about how to use Skydo’s invoicing tool free of cost.

Let your customer take the stage. They make local payments, enjoying the comfort and confidence of dealing within their region.

Step 4: Hello, Skydo international accounts

As soon as your client completes the payment, the funds are securely tucked in your Skydo international account, ready for the next move.

The funds begin their voyage, moving smoothly to Skydo's trusted bank partners in India.

Your money gets converted into INR. Rest assured, it's getting the best rates in town.

Step 7: A Warm welcome to your Indian bank account

Without much ado, the money finds its way to your Indian bank account, ready for you to use as you see fit.

An added service most valued by our customers–you get your FIRA and Skydo payment receipts generated, keeping everything above board and crystal clear.

In an era where clarity and transparency are essential, Skydo is leading the charge to set new standards for global financial transactions. With this innovative payments platform, you're not just adopting a system – you're joining a movement towards open, honest dealings.&nbsp;

See the difference firsthand with a <a href="https://www.skydo.com/?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=demo_click">quick demo</a>. Experience the Skydo advantage and be at the forefront of this transformative trend in cross-border payments.

Q1. What are Forex markups, and how do they impact international business transactions?

Ans: Forex markups refer to the additional charges imposed on currency conversion in international transactions. They impact businesses by increasing costs, affecting profit margins, and potentially deterring international trade.

Q2. What steps can businesses take to identify and reduce hidden costs in international transactions?

Ans: Businesses can identify hidden costs in international transactions by thoroughly reviewing contracts, understanding exchange rate mechanisms, and leveraging technology to track transaction fees and fluctuations in currency values.

Q3. How can I assess the true cost of Forex fees on my international transactions?

Ans: To assess the true cost of Forex fees, businesses should calculate the total expenses, including transaction fees, currency conversion charges, and any other associated costs incurred during international transactions.

Q4. What types of Forex fees should I be aware of beyond transaction fees?

Ans: Beyond transaction fees, businesses should be aware of additional Forex fees, such as spread costs, intermediary bank charges, and potential regulatory fees, which can contribute to the overall expense of international transactions.

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A powerful empire crumbles, not from external forces, but from within. Like the parasite that silently multiplies and destroys, unchecked financial non-compliance can undermine even the mightiest businesses.

A <a href="https://www.pwc.com/gx/en/issues/upskilling/global-culture-survey-2021.html">survey report</a> found that 67% of firms believe business compliance is becoming more complex. With recession looming over the global economy, businesses cannot afford to take any risks when complying with financial regulations. The fallout from non-compliance can be severe, resulting in hefty fines, legal action, and damage to a company's reputation.&nbsp;

To avoid this, staying current with financial regulations and requirements is important. Let's drill down the five ways to make your business financially compliant this year.

Tip 1: Stay Updated With Existing Laws + Regulatory Changes

A recent study conducted by PwC revealed that <a href="https://brandfolder.com/resources/compliance-challenges-for-financial-services/">40% of CEOs</a> are worried about the constant changes impacting their organisation, as they fear it may result in non-compliance with laws and regulations.&nbsp;

The utilisation of compliance calendars is a valuable asset in such circumstances. These calendars are frequently offered at no cost and serve the purpose of aiding individuals in monitoring important dates and obligations, such as tax deadlines, financial report filings, and various regulatory business compliance requirements including <a href="https://vakilsearch.com/gst/registration">registering GST online.</a>

Moreover, you can access different resources like government websites ( such as the <a href="https://www.rbi.org.in/">RBI</a>, <a href="https://www.sec.gov/">Securities and Exchange Commission</a>, <a href="https://www.ftc.gov/">Federal Trade Commission</a>, <a href="https://www.mca.gov.in/content/mca/global/en/home.html">MCA</a> and <a href="https://www.sebi.gov.in/">SEBI</a>), professional organisations, and <a href="https://legal.economictimes.indiatimes.com/etnewsletter.php">industry newsletters</a> to stay informed and updated. Your proactive approach saves you from potential fines and disruptions in your supply chain, and your customers appreciate your reliable and compliant business practices.

Tip 2: Implement Robust Financial Management Systems

Have you heard the story of the Roman Empire? They had lots of money from winning wars, but when they stopped winning, things got bad. They spent too much and messed up their money, which caused lots of problems and helped lead to their downfall. This shows us the importance of being careful and managing money well.

Like the Romans, we must also understand our money situation, especially when things change. Financial management systems can help us do just that. They give us a clear picture of how we're doing and help us make better money decisions. Believe me. We don't want to end up like the Romans!

As <a href="https://www.linkedin.com/in/mrdeepshah/">Deep Shah</a>, Co-founder of <a href="https://www.linkedin.com/company/twiseidiot/mycompany/">The Wise Idiot</a>, explained - “The three major benefits of using financial management systems are: time-saving (since it's directly linked to my bank account, enabling faster payments and reconciliation or even GST filing), ease of use (with intuitive UI and cloud-based technology), and easy analysis (almost every report I need is already templated and ready).”

But the foundation of any effective financial management system rests upon the fundamental accounting process. Here are some basic steps of accounting:

To automate the above process, you can use standard accounting software. This tool allows for streamlined financial record-keeping, reducing the likelihood of errors and improving efficiency. With <a href="https://www.skydo.com/blog/top-accounting-tools-for-a-streamlined-bookkeeping-experience-for-tech-exporters?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">accounting software</a> like ZohoBooks, and Xero, businesses can easily track expenses, manage accounts payable and receivable, and reconcile bank statements.

<a href="https://www.linkedin.com/in/kevinsyng/">Kevin Singh</a>, Founder of <a href="https://www.linkedin.com/company/viralinbound/">Viral Inbound</a>, described - “Using popular accounting software has been essential for our business to operate smoothly and make informed financial decisions. It's a valuable investment that has helped us save time, reduce errors, and focus on growing our business. And for us, ZohoBooks has been a great choice for our accounting needs.”

Another key component of the financial management systems is financial audits. These audits are important to ensure accuracy and business compliance. They identify errors and areas for improvement, build trust with investors, and demonstrate a commitment to transparency.&nbsp;

Just as a seatbelt is vital for safety and protection in an accident, accurate financial records are essential for protection and accountability in an audit or investigation.

While explaining the importance of record-keeping, CA <a href="https://www.linkedin.com/in/kanan-bahl/">Kanan Bahl</a>, Founder of Fingrowth Media, describes, "It is a famous saying in the CA Practice lobby - Compliance is costly, but non-compliance is far more costly. If applicable, one must keep appropriate financial records per the relevant statutes.

There are many penalties under <a href="https://www.skydo.com/blog/gst-format-matters-heres-why-and-what-it-includes?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">GST and Income tax laws</a>. Just to name one small cost of non-compliance - ₹25,000 is the penalty u/s 271A of the Income Tax Act, 1961 for not keeping book-keeping records u/s 44AA."

Accurate financial records clearly show a company's financial activities, ensuring transparency and accountability. Therefore, it's essential to prioritise the accuracy and completeness of financial records to ensure business compliance with regulations and maintain the company's reputation and financial stability.&nbsp;

Here are some tips for proper record-keeping for your business:

Tip 4: Engage a Professional Financial Advisor

Embarking on international business can be exciting, but many financial challenges exist, including cash flow problems due to long payment terms. The production, technical expenses, and maintenance costs can be challenging to manage upfront. Moreover, the fallout from non-compliance can have serious consequences, including significant financial penalties, adding another layer of complexity to the business.&nbsp;

With a wealth of knowledge and expertise in finance, taxation, and regulations, a financial advisor can help you successfully navigate the challenges of conducting business internationally and ensuring your company remains financially stable. Here are some more benefits of having the right professional financial advisor.

However, when seeking to engage the services of a financial advisor or accountant, assessing their performance becomes imperative by examining specific Key Performance Indicators (KPIs). This is essential to guarantee that their services align with your business's long-term objectives. Consider the following significant KPIs when evaluating potential candidates:

As per business requirements and need, companies can also hire an in-house financial expert.&nbsp; This person can manage the day-to-day financial operations of the business, provide strategic financial advice, and ensure compliance with relevant regulations.&nbsp;

Rohit Khurana, a Chartered Accountant professional and finance lead at Skydo, gives insights on hiring a full-time financial expert “Despite the business needs, if your turnover is more than ten core, then you have hired a full-time CS or CA as per Govt. law”. An in-house financial expert can also work closely with other departments within the business to develop financial plans and budgets.

To mitigate the risks associated with financial compliance, businesses should collaborate with a financial advisor and provide ongoing employee training. This will effectively ensure that employees stay up-to-date with the latest financial compliance requirements and possess the knowledge to comply.

Regular training sessions can be offered to employees to inform them about changes to financial compliance rules and procedures. Standard operating procedures (SOPs) can also be created to educate employees on various financial compliance topics, such as:

Moreover, a C-suite executive can act as a compliance officer to establish and maintain a culture of compliance in the organisation. This includes setting compliance objectives, monitoring compliance activities, and regularly training employees. Businesses can protect their financial stability and uphold a favourable reputation by prioritising financial compliance and offering continuous support and training to employees.

Maintaining financial compliance is not an option. It is necessary for any business that wants to succeed in today's world. Navigating the complex web of financial regulations and requirements can be daunting. Still, with the right mindset and tools, it is possible to make your business financially compliant this financial year.

Start prioritising your financial compliance today to minimise the risk of financial non-compliance and keep your business running smoothly in the long run!

Q1: Why is financial compliance important for businesses?

Ans: Financial compliance is crucial for businesses as it ensures adherence to laws and regulations, preventing hefty fines, legal action, and damage to the company's reputation. Non-compliance can lead to severe consequences, making it essential for businesses to stay current with financial regulations.

Q2: How can businesses stay updated with existing financial laws and regulatory changes?

Ans: Businesses can stay updated by utilizing compliance calendars, accessing government websites (such as RBI, SEC, FTC, MCA, and SEBI), following professional organizations, and subscribing to industry newsletters. Proactive monitoring helps prevent non-compliance and ensures reliable business practices.

Q3: What are the benefits of implementing robust financial management systems?

Ans: Implementing financial management systems provides benefits such as time-saving, ease of use, and easy analysis of financial data. Standard accounting software like ZohoBooks and Xero can automate processes, streamline record-keeping, and improve overall efficiency.

Q4: Why is proper record-keeping essential for financial compliance?

Ans: Accurate record-keeping is vital for transparency, accountability, and compliance with regulations. It helps in demonstrating financial activities, ensuring accuracy, and protecting a company from potential penalties and fines.

Q5: How can businesses mitigate financial challenges and ensure compliance when operating internationally?

Ans: Engaging a professional financial advisor can help businesses navigate international challenges. Financial advisors assist in managing finances, identifying and mitigating financial risks, developing long-term financial plans, ensuring compliance with regulations, and providing objective advice.

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In the dynamic world of Information Technology (IT) services, success relies on technical expertise and robust financial management. IT service providers must have a firm grasp of the required accounting documents. This paperwork encapsulates critical financial information, facilitating precise decision-making and ensuring compliance with tax regulations. They are the backbone of economic health, enabling IT service providers to set sail confidently towards success.

A Purchase Order (PO) represents an official request from the buyer to the supplier to procure specific goods or services. The Purchase Order outlines critical details such as the type and quantity of items required, agreed-upon prices, delivery terms, payment conditions, and other essential terms and conditions.

For an IT services export company, purchase orders are focal in ensuring smooth operations and maintaining healthy client relationships. When an IT export service provider receives a purchase order from a client, it acknowledges the client's commitment to acquiring the specified services. Therefore, it creates a sense of security for the service provider, as the terms now bind the client.

Moreover, IT service industry purchase orders help streamline the procurement process. They provide clear instructions to suppliers, reducing the risk of misunderstandings and ensuring that the requested services or products are delivered accurately and on time.

Proforma Invoices: The Preliminary Picture

Proforma invoices are essential financial documents used in the early stages of a business transaction. Unlike final invoices, proforma invoices are not legally binding; they serve as a preliminary outline of the terms and conditions of a potential sale or service engagement. These invoices provide buyers with an estimate of the costs involved before the actual transaction.

These invoices are crucial in IT services, particularly in cross-border transactions. When dealing with international clients, proforma invoices become invaluable for customs clearance and international trade compliance. They assist clients in understanding the scope of the proposed services and the associated costs, enabling them to make informed decisions before proceeding with the purchase.

Many founders and business owners may find this aspect confusing. The timeline to share proforma <a href="https://www.skydo.com/blog/transforming-your-invoicing-experience-with-skydo?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">invoices</a> is before the goods are delivered or commenced services. They prelude the final transaction, giving clients sufficient time to review and confirm their orders.

Although proforma invoices are not considered official tax documents, they can impact GST compliance. IT service providers must ensure that the proforma invoice or e-invoice<a href="https://www.skydo.com/blog/what-is-e-invoicing-under-gst-and-who-needs-to-generate-it?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link"> includes accurate GST</a> details, such as GST rates and applicable taxes, to maintain transparency with clients and avoid discrepancies during the final invoicing process.

An invoice is crucial in the IT service industry because it formalises the exchange of goods or services for monetary compensation. It provides concrete evidence of a completed transaction. It ensures that the IT service provider and the client are on the same page regarding the terms, deliverables, and agreed-upon costs.

An <a href="https://www.skydo.com/blog/how-to-implement-e-invoicing-what-the-reduced-threshold-of-rs-5-crores-means-for-your-business?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">effective invoice</a> should include several key components: the IT services' details, with itemised descriptions and corresponding costs. Additionally, the invoice or e-invoice should specify the payment terms, such as due date and accepted payment methods, to facilitate timely payments and cash flow management.

For IT service providers, revenue recognition is decisive for accurate financial reporting and decision-making. Invoices mark the point of revenue recognition, indicating the delivery of services or milestones achieved.

For Indian IT service providers, GST is a significant factor in financial transactions. Invoices must comply with <a href="https://www.skydo.com/blog/what-is-e-invoicing-under-gst-and-who-needs-to-generate-it?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">GST regulations</a>, including the proper Goods and Services Tax Identification Number of the service provider and the client and accurate GST rates for the services provided.

A credit note is a corrective document issued by a seller to a buyer, indicating a reduction in the amount owed for various reasons, such as errors, refunds, or discounts.&nbsp;

In IT services, credit notes are the remedy when discrepancies arise, such as overbilling, inaccurate invoicing, or the need for refunds. They provide an official record of the adjustments made, rectifying the previous transaction and ensuring that the client's account accurately reflects the revised financial status.

By issuing timely credit notes, IT service providers also demonstrate transparency and a commitment to rectifying errors promptly. It fosters a sense of trust and reliability. Credit notes may hold unique significance in local or street-level business practices.&nbsp;

In certain regions, credit notes might be a customary way of acknowledging and settling disputes or compensating clients for minor inconveniences.

Debit Notes: The Additional Charge Advocates

Debit notes are official documents that request buyers to settle extra amounts owed to sellers beyond the original agreement. IT service providers issue debit notes in various scenarios, such as scope expansions, price adjustments, and reimbursable expenses.

Proper accounting measures for debit notes include detailed documentation of reasons for issuing the debit note, timely communication with the client, invoice reconciliation for transparency, and adherence to <a href="https://www.skydo.com/blog/understanding-gstin-requirements-for-export-businesses-in-india?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">GST compliance</a> if applicable.

GST Certificate and LUT Registration: Enabling Compliance and Input Tax Credit in India&nbsp;

Under the GST regime, the GST Certificate and <a href="https://www.skydo.com/blog/everything-you-need-to-know-about-lut?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Letter of Undertaking or LUT</a> Registration play crucial roles in this system. The GST Certificate is issued upon successful GST registration, confirming an entity's eligibility to collect GST from customers and claim <a href="https://www.skydo.com/blog/how-to-claim-input-tax-credit-refund-in-india?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Input Tax Credit (ITC)</a> on eligible purchases.&nbsp;

Accurate document usage is paramount in claiming ITC, as any discrepancies may lead to rejections or potential penalties.

For businesses engaged in exports, the LUT is indispensable. It allows exporters to supply goods or services without paying GST upfront and is valid for a specified period. By avoiding upfront tax payments, businesses can improve cash flow and competitiveness in the global market.

Understanding its importance and compliance requirements is crucial for businesses to optimise GST benefits and thrive in the Indian marketplace.

Using Accounting Software: Simplifying Document Management

From invoices and purchase orders to credit and debit notes, accounting software automates it all, saving time and reducing errors. <a href="https://www.skydo.com/blog/skydo-dashboard-for-all-your-needs?utm_source=blogs&amp;utm_medium=website&amp;utm_campaign=post_link">Centralising data</a> ensures seamless document retrieval and secure storage, promoting efficient record-keeping.

When selecting accounting software, consider features like customisable templates for invoices and purchase orders, real-time data syncing, and automated reminders for due payments. Advanced software can integrate with tax systems, simplifying GST compliance by automatically calculating taxes and generating accurate reports.

By utilising reliable accounting software, businesses can streamline document management, maintain regulatory compliance, and gain a competitive edge in today's fast-paced financial landscape.

Navigating the Accounting Landscape with Confidence

In financial management, understanding the significance of different accounting documents is the compass that guides IT service providers towards success.

By grasping the roles of these documents, IT service providers can maintain healthy client relationships, ensure accurate financial reporting, and optimise tax benefits. Utilising accounting software further simplifies document management, promoting efficiency and compliance.

Q1. What are source documents in accounting?

Ans: Source documents in accounting are the original records that provide evidence of a transaction. These documents are the foundation for accounting entries and include invoices, receipts, bank statements, and contracts.

Q2. What are the 5 source documents in accounting?

Ans: The five main source documents in accounting are invoices, receipts, checks, purchase orders, and credit memos. These documents substantiate financial transactions and are crucial for accurate record-keeping.

Q3. What are business documents in accounting?

Ans: Business documents in accounting encompass a wide range of records, including source documents and internal documents like financial statements, ledgers, and journals. They collectively form the documentation trail that supports the business’ economic activities and decisions.

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Sending money abroad can feel overwhelming, especially when understanding the compliance requirements. One key challenge Indian residents face is knowing when and how to file Form 15CA and Form 15CB, essential documents for making international payments to non-residents.

For example, if you run a software company in India and must pay USD 10,000 to a US-based UI/UX consultant, your bank will ask for Forms 15CA and 15CB before processing the payment.&nbsp;

Does that sound relatable? Don't worry. We're here to simplify it for you.

This blog will explain exactly what these forms are, why they matter, and how to file them easily. Let's get started!

Form 15CA is a declaration form required under Indian tax law, specifically <a href="https://www.incometax.gov.in/iec/foportal/help/all-topics/statutory-forms/popular-form/form15ca-faq#:~:text=As%20per%20Section%20195%2C%20every,be%20furnished%20in%20Form%2015CA.">Section 195 of the Income Tax Act</a>. It must be submitted by any person making payments to non-residents or foreign companies when such payments are deemed taxable in India. This form ensures that the correct amount of tax is deducted at source (TDS) before the payment (remittance) is made.

Form 15CA helps the Income Tax Department monitor foreign remittance details and their tax implications. It also assists non-residents in claiming credit for taxes deducted in India.&nbsp;

TDS rate declaration: The form requires disclosing the TDS rate applicable to the payment. This rate may be based on either <a href="https://www.incometax.gov.in/iec/foportal/help/all-topics/statutory-forms/popular-form/form15ca-faq#:~:text=As%20per%20Section%20195%2C%20every,be%20furnished%20in%20Form%2015CA.">Section 195 of the Income Tax Act</a> or any lower rate specified in a relevant DTAA.

Deductions: The payer must ensure that TDS is deducted at the source before paying, reflecting compliance with Indian tax obligations.

Form 15CB is a certificate from a Chartered Accountant (CA) required before filing Part C of Form 15CA. This certificate ensures compliance with the Double Taxation Avoidance Agreement and Income Tax Act for accurate tax deductions on payments. When making taxable payments above ₹5 lakhs to non-residents, you must first obtain this CA certificate and then use it to file Part C of Form 15CA.

Quick note: A DTAA is an agreement between two countries that helps determine the tax rates and obligations when making cross-border payments. For example, when paying a US-based consultant, the India-US DTAA helps decide which tax rate applies to your payment and how much TDS needs to be deducted before sending the money abroad.

TDS rate certification: In Form 15CB, the CA certifies the TDS rate applied to the payment. The rate could be determined as follows:

Deductions overview: The CA also confirms that all necessary deductions have been made according to legal requirements before remittance.

Let's break down Form no. 15CA into simple, digestible parts. Think of it as a document with four versions (A, B, C, and D), each for specific situations.

Part A: For taxable payments up to ₹5 lakhs

Use this version when you've got special permission from the tax officer (Assessing Officer) under <a href="https://www.incometax.gov.in/iec/foportal/help/all-topics/statutory-forms/popular-form/form15ca-faq">Section 195(2), 195(3), or 197</a> to:

Think of it as a pre-approved tax discount. When filing, you'll need to show the official permission letter.

Details required: Payer (remitter) and recipient (remittee) information and the AO's order details.

This is for bigger payments. You'll need to use this when:

Important: You'll need your CA to provide Form 15CB first before filing this part. This extra step helps verify your tax calculations for larger amounts.

Use this when your payment isn't taxable in India. For example:

Even though these payments might be exempt, you must declare them through Part D of Form 15CA.

💡Quick Tip: When you're paying non-resident service providers (like international consultants, developers, or designers):

Remember: These forms are for sending money abroad, not for receiving international payments.

Form 15CA is not required in the following situations:&nbsp;

Form 15CB is not required in the following situations:&nbsp;