Why KYC

Dear Tax Payers, KYC is the buzzword first in Banks, next in Insurance Companies, and then Chartered Accountants offices .

The Prevention of Money Laundering Act,2002 and Rules came into force from 1st July,2005, i.e., completed one month short of 10 Years.

Section 2(ha) of the Act  defines client as follows:

“client” means a person who is engaged in a financial transaction or activity with a reporting entity and includes a person on whose behalf the person who engaged in the transaction or activity, is acting;

Section 2(s) of the Act defines Person as follows :

“person”includes;—

i. an individual,

ii.  a Hindu undivided family,

iii. a company,

iv. a firm,

v. an association of persons or a body of individuals, whether incorporated or not,

vi. every artificial juridical person, not falling within any of the preceding sub-clauses, and any agency, office or branch owned or controlled by any of the above persons mentioned in the preceding sub-clauses;

I earnestly appeal to All to maintain records of Identity of your clients/suppliers contacts and all other stakeholders having dealings with the entity/organization . For this each business entity has gather/procure/obtain/seek/get the copies of following documents in order to be of immense help/use to REGULARLY discharge the entity’ s obligations under various fiscal laws viz., State Sales Tax Act, Central Sales Tax Act, Income tax Act, Central Excise Act, Customs Act, Service Tax etc., and for required proceedings under Civil, Criminal laws, as and when applicable.

IDENTITY & OTHER DOCUMENTS:

1. Income Tax PAN( Permanent Account No)

2. State VAT(Value Added Tax) Registration .

3. Central Sales Tax Registration .

4. Central Excise Registration .

5. Customs Registration .

6. Service Tax Registration .

7. Small Scale Industries/Medium Scale Registration .

8. Client Constitution: If Partnership, Partnership Deed+ Registration: If Company, Memorandum of Association+ Articles of Association + Company Incorporation/Registration ; If Society ,Bye-Laws + Registration ; If Trust , Trust Deed +Registration; If Individual , Aadhaar /Voter Identity  etc.,

9.Client CBS Bank Account No, Name of the Bank, Branch ,IFSC, MICR Code

10.Contact _Communication : Postal Address with Door No ,PIN Code; Landline Numbers , Names of Key Persons, Authorised Persons with their office /desk phone no’s, email IDs, Mobile No’s, Convenient Timings , Website URL ,etc.,

Why KYC- How KYC Documents Useful.

1. Chapter XVII-B Tax Deduction at Source ; Chapter XVII BB Tax Collection at Source of The Income Tax Act,1961.

To comply with the provisions the business entity shall have the PAN of the dealing parties with consequences of Deduction/Collection at 20% of the payments ( cannot be claimed by dealing party as PAN is not linked , will not be reflected in IT Portal TRACES)  where 1% to 10% is sufficient .

IF PAN copy is available, one can avoid errors that creep in  when taking over phones and filling in , it saves mistakes and helps compliance and satisfaction to dealing parties. With PAN copy on hand, error free Form15G/Form15H ,etc can be submitted to the Income Tax Commissioner.

2. As per the Section 44AB  of the Income Tax Act,Business entities having Turnover exceeding Rs 1,00,00,000 have to get their accounts audited by a Chartered Accountant and get his Report in Form 3CA and Particulars to be certified in Form 3CD.

i. Sl .23 of Form 3CD :

Unless the information of a Trade Creditor as to it is a Small Industry, etc., is not known, the business entity cannot furnish the particulars to the Chartered Accountant for Form 3CD purpose.

In such a case if copy of SSI/MSE Registration Certificate copy of Trade Creditor with the Industries Department is available with the business entity , it will be useful to comply.

ii) Sl 31 of Form 3CD:

Section 269SS/269 T:

Here also, Address and PAN, of loan creditors repaid  ,are required.

3. Companies:

Companies  have to report by way of Notes to Financial Statements the information regarding amounts payable to Micro, Small and Medium Enterprises .

For this purpose also , the reporting company shall have the Industrial Registration Certificate copy of its suppliers.

4. Value Added Tax/Central Excise Duty/Service Tax:

At the time of Audit /Inspection Copies VAT /CE/ST of suppliers/customers will help to satisfy the Inspectors,

Better to have a KYC Policy and implement it without delay .

The Author is a practicing CA since 1986. This is my own original not submitted to any other publisher. 

By CA M.R.Prasad