Taxation Scheme and Business Transactions

Questions and Answers

What is the threshold for total sales or turnover under the presumptive taxation scheme for it to be eligible without restrictions?

Rs. 50 lakhs

Rs. 3 crores

Rs. 2 crores (correct)

Rs. 1 crore

Which percentage of total turnover is deemed to be profits under the presumptive taxation scheme?

10%

8% (correct)

Under which condition can a professional declare taxable income at a fixed rate of 50% without deductions?

When maintaining marginal accounts

When following Section 44ADA (correct)

For total receipts more than Rs. 5 lakh

For all receipts received by cash

What is the new threshold for eligibility under Section 44ADA starting from FY 2023-24?

Rs. 75 lakh Signup and view all the answers

What classification must be used for revenues in the Profit and Loss statement according to the Companies Act amendments?

Revenues from Operations and Other Revenues Signup and view all the answers

In accounting, how is gross profit primarily viewed in the context of?

Trading units Signup and view all the answers

What kind of income should rental income from vacant flats be classified as in a Profit and Loss statement?

Other Income Signup and view all the answers

What is the cash receipt limit to maintain the increased threshold under Section 44ADA?

5% Signup and view all the answers

What does Gross Sales also refer to in the operating statement?

Turnover Signup and view all the answers

What must be deducted from Gross Sales to calculate Net Sales?

Excise Duty/GST Signup and view all the answers

Which of the following is not included in the calculation of Other Operating Income?

Export Sales Signup and view all the answers

What is the formula for calculating Total Income in an operating statement?

Net Sales + Other Operating Income Signup and view all the answers

What does the notation (4.A + 4.B + 4.C) represent in the operating statement?

Components of Other Operating Income Signup and view all the answers

Which of the following represents the calculation mechanism for Cost of Production in the operating statement?

(a+b+c+d+e+f) + g - h Signup and view all the answers

What is included as an adjustment when calculating Net Sales according to the provided format?

Excise Duty/GST Signup and view all the answers

Which item would you find listed under Other Operating Income in the operating statement?

Cash Assistance Signup and view all the answers

What does the Straight Line Method (SLM) of depreciation calculate?

Depreciation as a fixed amount each year Signup and view all the answers

In the Written Down Value (WDV) method, how is the amount of depreciation determined?

By multiplying the depreciation rate with the written down value Signup and view all the answers

Which of the following parameters is NOT used in both the SLM and WDV methods?

Accumulated depreciation Signup and view all the answers

What is the formula for computing yearly depreciation under the Straight Line Method?

(Original cost - Estimated scrap value) / Estimated useful life Signup and view all the answers

What happens to the book value of an asset under the WDV method over time?

It decreases each year until it reaches the estimated scrap value Signup and view all the answers

What is the key difference in how SLM and WDV methods treat depreciation amounts?

SLM results in fixed amounts while WDV results in decreasing amounts Signup and view all the answers

In the context of discounting, which statement is true?

The process involves converting future cash flows to their present value Signup and view all the answers

What does the variable 'N' represent in the WDV method formula?

The number of times depreciation is compounded in a year Signup and view all the answers

Which of the following parties is NOT involved in a contract of guarantee?

The investor Signup and view all the answers

What is the maximum maturity period for a bank guarantee as per general rules?

10 years Signup and view all the answers

In which situation would a Bank Guarantee typically be issued?

Against retention money Signup and view all the answers

According to RBI guidelines, which type of banks are excluded from the issuance of bank guarantees?

Payments Banks Signup and view all the answers

Which of the following is a purpose for which banks typically issue guarantees?

Security against supply of raw materials Signup and view all the answers

What is a recommended approach for banks regarding performance guarantees?

To exercise due caution Signup and view all the answers

What is required from contractors to receive a Bank Guarantee for mobilization of advance?

A minimum amount payment Signup and view all the answers

Which of the following is NOT a common circumstance for the issuance of Bank Guarantees?

For real estate purchases Signup and view all the answers

What is the maximum percentage of the Total Project Cost that can be provided as Viability Gap Funding for infrastructure projects?

40% Signup and view all the answers

Which sectors are eligible for the higher Viability Gap Funding of up to 60%?

Water Supply, Waste Water Treatment, Health Signup and view all the answers

What is the special provision included for Pilot/Demonstration projects in the health and education sectors?

O&M Support up to 50% of the O&M Costs Signup and view all the answers

Which of the following types of projects are excluded from the competitive bidding process for private sector sponsors under the VGF Scheme?

Railway projects Signup and view all the answers

What revised support limit was approved by the Cabinet Committee on Economic Affairs for the revamped VGF Scheme as of November 2020?

60% for social sectors Signup and view all the answers

What is the total limit of Viability Gap Funding including additional grants by governments?

80% of the Total Project Cost Signup and view all the answers

In which year was the revamped VGF Scheme approved?

2020 Signup and view all the answers

Which of the following is NOT mentioned as a source of projects eligible for Viability Gap Funding?

Telecommunications Signup and view all the answers

What is the maximum validity period for a bank guarantee?

15 Years Signup and view all the answers

According to the amendment in Section 28 of the Indian Contract Act, what is the limitation period for Central & State Governments regarding bank guarantees?

30 Years Signup and view all the answers

What is the maximum time frame for a beneficiary to lodge a claim after the expiration of a bank guarantee?

3 Years Signup and view all the answers

What burden does the limitation clause in bank guarantees place on banks?

Increased capital adequacy costs Signup and view all the answers

What is the impact of the additional sub-section in Section 28 of the Indian Contract Act on bank guarantees issued before 1997?

It limits liability under bank guarantees Signup and view all the answers

What is the primary purpose of the core business of a bank?

Accepting deposits for lending and investment Signup and view all the answers

Which principle of lending focuses on the borrower’s ability to repay the loan?

Safety Signup and view all the answers

What was the Base Rate utilized for in bank lending?

The minimum rate below which banks can lend Signup and view all the answers

When was the MCLR system implemented?

01.04.2016 Signup and view all the answers

What does the formula for Base Rate include?

Cost of funds plus overhead and risk assessment Signup and view all the answers

What does the MCLR aim to improve in banks?

Transparency in pricing and asset-liability management Signup and view all the answers

Which of the following was a key difference between Base Rate and MCLR?

MCLR is updated more frequently than Base Rate Signup and view all the answers

What distinguishes the lending practices for DRI Advances from other typical loans?

They have no minimum lending rate requirement. Signup and view all the answers

What is included in the calculation of the cost of sales?

Opening stock of raw materials Signup and view all the answers

Which component is specifically mentioned as a direct cost in the cost of production?

Direct labour wages Signup and view all the answers

What should be subtracted from the cost of production to calculate the cost of sales?

Closing stock of finished goods Signup and view all the answers

Which of the following is a type of expense considered under 'other manufacturing expenses'?

Power and Fuel Signup and view all the answers

What is the effect of adding opening stock in process on the cost of production calculation?

Increases the cost of production Signup and view all the answers

Which component is NOT directly factored into the calculation of the cost of sales?

Closing stock of raw materials Signup and view all the answers

Why are depreciation costs included in the overall cost of production?

They represent the wear and tear of assets. Signup and view all the answers

Which item would be classified correctly under 'other spares consumed'?

Replacement parts Signup and view all the answers

What is the minimum charging rate for fixed-rate loans with a tenor below 3 years?

It must equal the benchmark rate for similar tenor. Signup and view all the answers

Which type of advances is allowed to charge interest based on cash flow positions of borrowers?

Agricultural advances Signup and view all the answers

What is prohibited in the context of penal charges by banks according to RBI guidelines?

Adding penal interest to the rate of interest Signup and view all the answers

How should interest on rupee advances be calculated?

Rounded off to the nearest rupee Signup and view all the answers

What is the stipulation for penal interest charges for loans to borrowers under the priority sector?

No penal interest should be charged for loans up to Rs. 25,000. Signup and view all the answers

In regards to loans under consortium arrangements, what flexibility do banks have?

Each member bank can set their interest rate based on their MCLR. Signup and view all the answers

Which of the following best describes how penal charges should be structured?

They should be reasonable and not discriminatory. Signup and view all the answers

What should happen to penal charges according to the RBI guidelines?

They must be detailed in a board-approved policy. Signup and view all the answers

What is the maximum credit facility that can be extended against guarantees for a Bank or Financial Institution?

20% of Tier-I capital Signup and view all the answers

Which requirement must service importers meet to obtain a guarantee?

Have a Credit Risk Rating of 'A' and be a client for at least 3 years Signup and view all the answers

What is the minimum cash margin required in normal circumstances for guarantees?

25% Signup and view all the answers

What condition must be fulfilled regarding the securities for a Bank Guarantee?

Primary/collateral security must be extended if available Signup and view all the answers

What is the purpose of the UNCITRAL Convention established in 1995?

Providing guidelines for independent guarantees and standby letters of credit Signup and view all the answers

What aspect of Demand Guarantees does the URDG cover?

Formulating worldwide rules for Demand Guarantees Signup and view all the answers

In which situation can branches allow a 100% cash margin for LCs/BGs?

If they've exhausted all sanctioned limits Signup and view all the answers

What type of security is considered fully secured when backed by a counter guarantee from a first-class bank?

The guarantee is treated as fully secured Signup and view all the answers

What is the highest possible score on the TransUnion CIBIL Score range?

900 Signup and view all the answers

What does a D&B rating signify?

The financial status of entities globally Signup and view all the answers

What score is assigned to borrowers with no credit history by CIBIL?

-1 Signup and view all the answers

Which entity maintains the 'Caution list' in India?

Export Credit Guarantee Corporation (ECGC) Ltd. Signup and view all the answers

What is the purpose of the Central Repository of Information on Large Credits (CRILC)?

To maintain a list of borrowers with aggregate credit exposure over certain limits Signup and view all the answers

What percentage of the project cost must the private player initially bear for constructing the project highway?

60% Signup and view all the answers

What does a CIBIL Score of 2.0 introduce to the scoring system?

A risk index score for individuals with limited credit history Signup and view all the answers

What aggregate credit exposure amount requires banks to submit quarterly data to CRILC?

Rs. 5 crores and above Signup and view all the answers

What is the fixed operations period defined in the concession period for the project?

15 years Signup and view all the answers

What kind of risk does the private sector bear in this arrangement compared to the government?

Minimal risk Signup and view all the answers

Which component is NOT included in the cash construction support provided to the concessionaire?

Interest on project cost Signup and view all the answers

How is the interest rate for semi-annual annuity payments calculated?

Bank Rate + 3.00% Signup and view all the answers

Which index is used for inflation indexing of project costs?

Weighted average of WPI and CPI Signup and view all the answers

How does the government's funding responsibility in this arrangement compare to that under EPC contracts?

It is reduced to 40% Signup and view all the answers

Who is responsible for toll collection in this arrangement?

Government Authority Signup and view all the answers

What is the maximum penal charge that can be applied to loans sanctioned to individual borrowers for purposes other than businesses?

Equal to the penal charges applicable to non-individual borrowers Signup and view all the answers

Which of the following is a requirement for the disclosure of penal charges in loan agreements?

Quantum and reason for penal charges must be clearly disclosed Signup and view all the answers

Starting from which date do the new instructions regarding penal charges come into effect?

April 1, 2024 Signup and view all the answers

Which of the following types of financing do the instructions regarding collateral security not apply to?

Credit Cards Signup and view all the answers

What is regarded as Primary Security in bank financing?

Assets created from bank finance such as inventory and machinery Signup and view all the answers

What defines collateral security as sought by banks?

Additional security such as mortgage or pledge Signup and view all the answers

What role do Credit Information Companies (CICs) play in lending?

They provide credit records to help assess borrower creditworthiness. Signup and view all the answers

What is the maximum credit facility limit for collateral-free loans to MSEs as directed by RBI?

Rs. 10 Lakhs Signup and view all the answers

What type of contract allows a project developer to expand an infrastructure facility and rent it from the government?

Contract Add and Operate (CAO) Signup and view all the answers

What is a key characteristic of the Lease-Develop-Operate (LDO) model?

The government receives payments under a lease agreement. Signup and view all the answers

In the Engineering-Procurement & Transfer (EPC) model, who bears the full cost of the project?

The government Signup and view all the answers

Under the Operate-Maintain-Transfer (OMT) model, what is the primary role of the appointed organizations?

To establish operational training and maintenance Signup and view all the answers

What advantage does the Develop Operate and Transfer (DOT) model provide to private developers?

They can develop adjacent properties. Signup and view all the answers

What type of fee does the concessionaire pay in the Toll-Operate-Transfer (TOT) model?

A one-time upfront toll rights fee Signup and view all the answers

Which of the following statements correctly describes the financial burden of the Engineering-Procurement & Transfer (EPC) model on the government?

It incurs a high financial burden for the government. Signup and view all the answers

What happens to the project at the end of the contract in the Contract Add and Operate (CAO) model?

It may or may not be transferred back to the government. Signup and view all the answers

What should be included under the signatures of officials signing a bank guarantee?

Name, designation, and code numbers of the officers Signup and view all the answers

What is the initial period for which a bank guarantee is issued as security in Directorate General of Supplies and Disposal contract administration?

Six months beyond the original delivery period Signup and view all the answers

What clause can banks incorporate in their bank guarantee to avoid complications later?

An automatic extension clause Signup and view all the answers

Who should be advised to confirm the genuineness of the bank guarantee issued?

The beneficiary of the bank guarantee Signup and view all the answers

Which type of paperwork is required for the bank guarantee to be valid?

Non-judicial stamp paper Signup and view all the answers

What is a necessary condition for guarantees issued in favor of Customs Houses?

They should have a self-renewal clause Signup and view all the answers

What should banks mention in their guarantee bonds concerning their correspondence with the State Governments?

The names of the beneficiary departments and purposes Signup and view all the answers

What characteristic should bank guarantees issued for DGS&D contracts share with those issued in favor of Customs Houses?

An automatic extension of the guarantee period Signup and view all the answers

What is the maximum duration for which a bank guarantee can be issued?

15 years Signup and view all the answers

According to the limitation clause in the Indian Contract Act, which of the following statements is true regarding the invocation of a bank guarantee?

The limitation period is 30 years for Central & State Governments. Signup and view all the answers

Which amendment has increased the burden on banks regarding the issuance of bank guarantees?

Banking Laws Amendment Act 2012 Signup and view all the answers

Prior to 1997, what characteristic did bank guarantees typically contain regarding claims?

A specified claim period for invocation. Signup and view all the answers

How long is the standard limitation period for individuals or entities other than Central & State Governments for claiming under a bank guarantee?

3 years Signup and view all the answers

What is the purpose of a moratorium in the context of a term loan?

To provide a repayment holiday before installment payments begin Signup and view all the answers

Which of the following best describes the zero date in a project?

The start date from which project performance is measured Signup and view all the answers

What does the term 'door to door tenor' refer to?

The expected loan repayment duration including moratorium Signup and view all the answers

What is typically included in an implementation schedule?

Detailed timelines for major project phases Signup and view all the answers

What is the role of a draw-down schedule in a construction project?

To detail the timing of fund withdrawals based on construction progress Signup and view all the answers

What does a trial run in a project help to accomplish?

Identifying logistical issues in a small-scale setting Signup and view all the answers

What does the LEASE-DEVELOP-OPERATE (LDO) model primarily involve?

Government agency leasing existing infrastructure Signup and view all the answers

What characterizes the ramp-up period in project financing?

Initial product development leading to maximum utilization Signup and view all the answers

Which of the following is true about the capitalized interest during a moratorium period?

It is added to the total loan amount and repaid later Signup and view all the answers

Which of the following statements accurately reflects the OPERATE-MAINTAIN-TRANSFER (OMT) model?

It focuses on training, maintenance, and operation management. Signup and view all the answers

What is a key characteristic of the ENGINEERING-PROCUREMENT & TRANSFER (EPC) model?

Government bears all costs and invites private bids for engineering services. Signup and view all the answers

Under what conditions does the TOLL-OPERATE-TRANSFER (TOT) model operate?

An upfront fee is paid for toll rights with a fixed duration. Signup and view all the answers

Which statement best describes CONTRACT ADD AND OPERATE (CAO)?

The developer expands the facility and leases it from the government. Signup and view all the answers

What advantage does the DEVELOP OPERATE AND TRANSFER (DOT) model provide to private developers?

Rights to develop adjacent properties and economic benefits. Signup and view all the answers

What primary issue does the EPC model address regarding funding?

Minimizing financial burden on the government. Signup and view all the answers

Which model allows for varying degrees of property development by a private developer?

DEVELOP OPERATE AND TRANSFER (DOT) Signup and view all the answers

What is the minimum claim period required to be included in a bank guarantee as specified in the amendment?

One year Signup and view all the answers

What is the maximum percentage of Tier-I capital that can be exposed per borrower for guarantees favoring other banks or financial institutions?

20% Signup and view all the answers

What should happen if a beneficiary claims after the expiry of the specified claim period in a bank guarantee?

The claim will be automatically rejected. Signup and view all the answers

How is the risk weight applied to guarantees issued by banks?

It applies to the borrowing entity on whose behalf the guarantee is issued. Signup and view all the answers

What is recommended to be included at the end of every bank guarantee issued, regarding the claim?

The date of expiry of the guarantee for claims. Signup and view all the answers

What is the total aggregate exposure limit for guarantees issued by banks favoring other banks or financial institutions?

50% of Tier-I capital Signup and view all the answers

Which of the following best describes the exposure of a bank when lending against guarantees of other banks or financial institutions?

It is treated as an exposure on the guaranteeing bank. Signup and view all the answers

What condition applies to guarantees issued on behalf of borrowers?

They must only be issued for existing borrowers. Signup and view all the answers

What is the significance of the Date of Commencement of Commercial Operations (DCCO) in project loans?

It is the date from which the unit starts its commercial operations. Signup and view all the answers

Why is it preferable to have a longer Tail Period in infrastructure project financing?

It provides more time for project profitability before debt repayment. Signup and view all the answers

Which of the following is a characteristic of the Public-Private Partnership (PPP) model?

There is a defined allocation of risks between public and private entities. Signup and view all the answers

In a Design, Build, Finance, Operate and Transfer (DBFOT) model, what happens after the concession period?

The facility is transferred back to the public authority. Signup and view all the answers

What defines the Operations & Maintenance (Service Contract) model in PPP?

It allows private entities to manage services for a specified duration. Signup and view all the answers

What is a common feature of all types of Public-Private Partnerships?

Open competitive bidding for selecting private partners. Signup and view all the answers

How does 100% FDI in equity of SPVs benefit the PPP sector?

It allows more private investment and interest in public projects. Signup and view all the answers

What is typically included in the legal structure of a PPP?

An agreement detailing risk allocation between parties. Signup and view all the answers

Study Notes

Taxation and Presumptive Taxation Schemes

Over 95% of business transactions should utilize banking channels.
Individuals opting for a presumptive taxation scheme under section 44AD are exempt if their total sales or turnover does not exceed Rs. 2 crores (or Rs. 3 crores if 95% of receipts are online).
A minimum of 8% (or 6% for amounts received through prescribed banking methods) of total turnover is deemed as profits for tax purposes.
Businesses under this scheme must maintain books of accounts.
Professionals can declare taxable income at a fixed rate of 50% of their gross receipts without expense deductions.
For FY 2022-23, the gross receipt threshold under section 44ADA was Rs. 50 lakh, which increased to Rs. 75 lakh from FY 2023-24, with stipulations on cash receipts.

Profit and Loss Statement Analysis

Profit and Loss statements provide insights into an enterprise’s turnover, profit/loss, and operational efficiency.
"Gross Profit" is primarily relevant for trading units, while "Operating Profit" applies to manufacturing or service units.
Revised Companies Act mandates revenue classification into Operation Revenue and Other Revenues.
Non-financial companies must further categorize operational revenue into products, services, and other revenues.

Operating Statement Format

Gross Sales (total sales including excise duty).
Net Sales calculated as Gross Sales minus excise duty/GST.
Includes other operating income categorized into duty drawbacks, cash assistance, and others.
Total income sums Net Sales and Other Operating Income.
Cost of Production includes depreciation, factored through two main methods: Straight Line Method (SLM) and Written Down Value (WDV).

Depreciation Methods

SLM calculates depreciation based on the formula involving original cost, estimated scrap value, and useful life.
WDV method reduces the book value yearly, calculating depreciation as a percentage of remaining book value.

Discounting Concept

Discounting reverses compounding, determining current worth of future cash flows using a discount factor.

Viability Gap Funding (VGF)

VGF provides financial support (up to 40% of Total Project Cost) for public-private partnership infrastructure projects that are economically justified but not financially viable.
The revamped scheme allows up to 60% funding for social sectors and up to 80% for pilot projects in health and education.
Eligible projects must primarily be in roads, railways, seaports, airports, and power sectors.

Contract of Guarantee Parties

Three parties in a bank guarantee: the applicant (client), the beneficiary (guarantee recipient), and the guarantor (usually the bank).

Purposes of Bank Guarantees

Issued for EMD in tenders, mobilization advances, security against raw material supplies, retention money, and warranties.

RBI Guidelines on Bank Guarantees

Banks must focus on financial guarantees and exercise caution in performance guarantees.
No bank guarantee should typically exceed 10 years in maturity unless approved by the board.
Non-fund-based facilities are generally restricted to clients enjoying credit facilities from the bank.

Credit Appraisal and Financial Statements Analysis

Banks predominantly operate by accepting deposits for lending and investment, with the credit portfolio being vital on the asset side of their balance sheets.
Cardinal lending principles include Safety, Liquidity, and Profitability, essential for assessing borrowers' ability and willingness to repay loans.
Financial appraisal is conducted to evaluate borrowers' capacity to repay, and banks maintain quality assets to mitigate default risks.
Interest rates are differentiated based on borrower risk categories.

Lending Rates

Benchmark Prime Lending Rate (BPLR): Withdrawn on July 1, 2010; previously offered loans to creditworthy borrowers at sub-PLR rates, reducing banks' interest income.
Base Rate: Implemented on July 1, 2010, and withdrawn on April 1, 2016; established as the minimum lending rate except for certain exempt cases (e.g., DRI advances).
Marginal Cost of Funds Based Lending Rate (MCLR): Effective from April 1, 2016; introduced for pricing transparency and better asset-liability management, disallowing lending below MCLR.

Components of MCLR

Banks must have a comprehensive interest rate policy approved by the Board.
Offers on advances can be fixed or floating, but cannot be below the benchmark rate for a certain maturity.
Interest is applied monthly for most advances, while agricultural loans may have different scheduling based on crop cycles.
Penal interest cannot exceed reasonable limits and should be non-discriminatory.

Penal Charges Guidelines

RBI mandates that penal charges for non-compliance must not be added to the interest rate; no capitalization of penal charges is allowed.
A board-approved policy on penal charges is required, ensuring fairness and reasonableness in penalty amounts applied.

Security in Lending

Banks may require a 100% cash margin for guarantees.
Guarantees must follow prescribed formats with no onerous clauses, capped at a maximum of 15 years duration.
Limits for credit facilities against guarantees are capped at 20% of the bank's Tier-I capital.

International Bank Guarantees (IBG)

Banks may issue IBGs for service imports (non-physical imports) to clients with a strong credit rating and reputable banking history.
A minimum cash margin of 25% is standard, with higher margins for special cases (110% for foreign LCs/BGs).

International Treaties and Rules

UNCITRAL Convention: Adopted in 1995, effective January 1, 2000; establishes law for international demand guarantees and counter-guarantees.
URDG: Issued by the International Chamber of Commerce, providing a standardized framework for demand guarantees worldwide.

Limitation Clause

Introduced in 1997 in the Indian Contract Act, emphasizing that agreements that extinguish rights after a specified period are void to that extent.
Beneficiaries can lodge claims if defaults occur within the validity of bank guarantees, with limitation periods set at 30 years for government claims, and 3 years for others.

Increased Burden on Banks

The extended limitation periods have raised capital adequacy costs and liability risks for banks regarding issued guarantees.

Project Transfer and Contractual Models

At the end of the contract tenure, the project is transferred to the government.
Contract Add and Operate (CAO): Allows project developers to expand and rent an infrastructure facility from the government; the transfer back to the government is uncertain.
Develop Operate and Transfer (DOT): Provides private developers with favorable conditions to build and develop adjoining properties, allowing them to benefit from their investments, including rents and property value increases.
Lease-Develop-Operate (LDO): Government retains ownership of infrastructure, receiving lease payments from private lessees who finance development and manage operations.
Operate-Maintain-Transfer (OMT): A facilities management contract where organizations manage operation, maintenance, and training after project completion.
Engineering-Procurement & Transfer (EPC): The government bears full costs for infrastructure development; private sector participation is limited to engineering expertise, posing a significant financial burden on the government.
Toll-Operate-Transfer (TOT): Concessionaire pays an upfront fee to gain toll rights for up to 30 years, with proceeds funding new infrastructure programs.

Loan and Penal Charges Regulations

Penal charges for individual borrowers for non-business loans must not exceed those for non-individual borrowers.
Lenders must disclose penal charge details in loan agreements and on their websites.
Reminder communications about non-compliance must include applicable penal charges and underlying reasons.
Regulations become effective from April 1, 2024, but do not apply to credit cards or external borrowings.

Security and Due Diligence in Financing

Primary Security: Includes assets financed by banks, such as inventory, machinery, and receivables.
Collateral Security: Additional security from borrowers, e.g., mortgages or pledges, not typically required for MSEs up to ₹10 Lakhs, and possibly raised to ₹25 Lakhs for reliable businesses.
Credit Information Companies (CICs): Share borrower credit data to help banks assess creditworthiness and prevent multiple financing; CIBIL was established based on RBI recommendations in 2001.
CIBIL Score ranges from 300 to 900, indicating credit quality, with updates introducing risk indices for individuals with less than six months of credit history.

DUNS Rating and Credit Verification

DUNS Rating: Provided by Dun & Bradstreet, used for evaluating the credit history of entities globally.
Before making credit decisions, officers must check for negative information about borrowers, such as wilful defaulters and caution lists maintained by ECGC.

Central Repository of Information on Large Credits (CRILC)

Maintains records of borrowers with credit exposure over ₹5 Crores, requiring banks to submit quarterly updates on borrower exposure.
In project financing, the private player covers 60% of project costs and constructs highways, transferring them to the government upon completion.
The government handles toll collection and compensates the concessionaire through semi-annual annuity payments based on project milestones.

Financial Risk Distribution and Government Responsibility

Government's responsibility is reduced under the Hybrid Annuity Model (HAM), limiting its project funding obligation to 40%.
The private sector arranges 60% of project capital, minimizing risks for private players, such as regulatory and commercial risks, falling under the government’s purview.
Payments to the concessionaire will be inflation-indexed, and maintenance responsibilities last for the concession period.

Bank Guarantees and Contractual Safety Measures

Guidelines for bank guarantees emphasize incorporating automatic extensions and ensuring beneficiaries confirm guarantee genuineness.
Guarantees must be prepared on non-judicial stamp paper, ensuring security in contract administration and compliance with regulations outlined by the Customs Department.

Project Transfer Models

End of Tenure: Projects are typically transferred to the government upon completion of the agreed tenure.

Contract Add and Operate (CAO)

Involves expansion and renting of infrastructure facilities by private developers from the government.
The project duration is agreed upon, with potential non-transfer back to the government.

Develop Operate and Transfer (DOT)

Private developers get favorable terms for infrastructure projects, including development rights for adjacent property.
Investment benefits include increased property values and rental income.

Lease-Develop-Operate (LDO)

The government retains ownership of existing infrastructure.
Private lessees finance development and manage operations under a lease agreement.

Operate-Maintain-Transfer (OMT)

A facilities management contract focusing on the establishment and management of operational and maintenance tasks.
Typically implemented post-completion of the project.

Engineering-Procurement & Transfer (EPC)

Often used for infrastructure projects like highways.
Government bears full costs, inviting private bids only for engineering expertise.

Toll-Operate-Transfer (TOT)

Concessionaires pay an upfront fee for toll rights, usually for 30 years.
Funds from tolls are utilized for new infrastructure developments.

Zero Date

Marks the effective start of a project, critical for timing activities like financing and clearances.

Moratorium

A repayment holiday on term loans; initial moratorium spans from the first disbursement to the first repayment due date.
Interest during moratorium may be capitalized or paid upon charging.

Door to Door Tenor

Represents the total period for the borrower to repay the debt, inclusive of moratorium durations.

Implementation Schedule

A vital time management document outlining the major phases of project work and expected deliverables.

Draw-Down Schedule

A detailed disbursement plan for funds related to construction projects, aligning with construction progress.

Trial Run

A preliminary small-scale implementation to test project logistics and communication effectiveness before full roll-out.

Ramp Up Period

The timeframe from initial product development to full operational capacity, marked by ongoing improvements.

Date of Commencement of Commercial Operation (DCCO)

Set by banks during project loan sanction; marks when a project starts commercial operations.

Tail Period

The interval between planned debt repayment completion and the operating period end; longer tail periods are advisable for infrastructure finance.

Public-Private Partnership (PPP)

Collaboration between government entities and private sector for developing public assets/services with well-defined risk allocations.
Allows up to 100% Foreign Direct Investment (FDI) in Special Purpose Vehicles (SPVs) under the automatic route.

Different Types of PPP

DBFOT/BOT: Private sector designs, builds, finances, and operates the project, transferring ownership to the public sector afterward.
Operations & Maintenance (Service Contract): Government contracts for specific service delivery over a shorter time than typical concession contracts.

Limitation Clause

Changes made in 1997 and 2012 to the Indian Contract Act alter the liability and claim provisions related to bank guarantees.
New amendments require a minimum one-year claim period in guarantees, enabling banks to reject claims beyond this timeframe.

Issuing Guarantees Favoring Other Banks/FIs

Limits for guarantee exposure set at 20% of the bank's Tier-I capital per borrower; total limits capped at 50%.
Guarantees must be issued on behalf of existing borrowers only.

Lending Against Guarantees of Other Banks/FIs

Such lending considered an exposure to the guaranteeing entity and counted within interbank exposure limits.

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This quiz explores the details of business transactions under the presumptive taxation scheme, focusing on banking channels and online receipts. Learn about the thresholds for total sales and conditions for compliance. Test your knowledge on the provisions applicable to business entities under Section 44AD.