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TAX ADVISORY New Regime vs Old Regime for AY 2026-27 Which Saves You More Tax? Slab rates · Worked examples · Break-even deductions NDS Advisors · September 2026 ₹12.75L Effective nil-tax ceiling under the new regime 4 incomes ₹10L, ₹15L, ₹20L, ₹30L worked in full 31 Jul 2026 Filing deadline to lock in your chosen regime NEW REGIME SLABS AT A GLANCE UP TO ₹4,00,000 NIL ₹8,00,001 TO ₹12,00,000 10% SECTION 87A REBATE UP TO ₹12,00,000 ABOVE ₹24,00,000 30% STANDARD DEDUCTION: ₹75,000 NEW · ₹50,000 OLD NDS Advisors · Tax Advisory & Planning TAX ADVISORY · SEPTEMBER 2026 ⚠  There is no universal winner. The new regime wins at low deductions, the old regime catches up and overtakes it as deductions rise, and the break-even point shifts with income. Confirm the current slab rates and thresholds before relying on any figure below. The new tax regime saves more tax for most salaried individuals earning up to ₹12,75,000 per year — they pay zero tax under the new regime thanks to the ₹75,000 standard deduction and the Section 87A rebate for taxable income up to ₹12 lakh. Above that, the two regimes trade the advantage back and forth depending on how much the taxpayer can claim in deductions and exemptions, and the crossover point moves as income rises. The new tax regime saves more tax for most salaried individuals earning up to ₹12,75,000 per year — they pay zero tax under the new regime thanks to the ₹75,000 standard deduction and the Section 87A rebate for taxable income up to ₹12 lakh. For individuals earning ₹15 lakh to ₹30 lakh, the answer depends on one number: total deductions. If your deductions under the old regime — Section 80C, 80D, 80CCD(1B), HRA exemption, home loan interest under Section 24(b), and other eligible deductions — exceed approximately ₹3.75 lakh to ₹4.25 lakh, the old regime typically produces lower tax despite its higher slab rates. Below that deduction threshold, the new regime’s lower rates win. This is the essential framework for the new regime vs old regime comparison for AY 2026–27, and this guide provides the exact slab rates, worked examples at four income levels (₹10 lakh, ₹15 lakh, ₹20 lakh, and ₹30 lakh), and a step-by-step decision process so you can determine which regime saves you more tax. NDS Advisors provides tax advisory services that include personalised old vs new regime analysis for individuals and businesses across India. Key Takeaways The new regime is the default from AY 2024-25. Taxpayers must actively elect the old regime if they want it, rather than the other way around. Zero tax up to roughly ₹12.75 lakh under the new regime. The ₹75,000 standard deduction plus the full Section 87A rebate up to ₹12,00,000 taxable income combine to erase tax entirely for most salaried earners in that band. The break-even deduction level rises with income. Roughly ₹3.75–₹4.25 lakh of deductions at ₹15 lakh income, widening to ₹6.5–₹8 lakh at ₹30 lakh income. The old regime’s advantage is concentrated in a handful of deductions. Home loan interest, HRA, 80C, 80D and 80CCD(1B) are what move the needle; everything else is marginal. The choice can be revisited every year for salaried taxpayers. Those with business or professional income face restrictions on switching back once they opt out of the new regime. What Are the Exact Slab Rates Under the New and Old Tax Regime for AY 2026–27? Table 1 — New Tax Regime Slabs, Section 115BAC (Default from AY 2024-25) Income Slab Rate Up to ₹4,00,000 Nil ₹4,00,001 to ₹8,00,000 5% ₹8,00,001 to ₹12,00,000 10% ₹12,00,001 to ₹16,00,000 15% ₹16,00,001 to ₹20,00,000 20% ₹20,00,001 to ₹24,00,000 25% Above ₹24,00,000 30% Standard deduction ₹75,000 Section 87A rebate Full, up to ₹12,00,000 Most Chapter VI-A deductions (80C, 80D, 80E, 80G, 80TTA) and exemptions (HRA, LTA) are not available under the new regime. Table 2 — Old Tax Regime Slabs Income Slab Rate Up to ₹2,50,000 Nil ₹2,50,001 to ₹5,00,000 5% ₹5,00,001 to ₹10,00,000 20% Above ₹10,00,000 30% Standard deduction ₹50,000 Section 87A rebate Full, up to ₹5,00,000 All deductions remain available under the old regime — 80C (₹1.5L), 80D, 80CCD(1B) (₹50K), HRA, LTA, Section 24(b) home loan interest (₹2L), 80G, 80E, 80TTA. A 4% health and education cess applies to tax under both regimes. How Does the Tax Compare at ₹10 Lakh, ₹15 Lakh, ₹20 Lakh, and ₹30 Lakh Income? The following four worked examples compare the actual tax payable under both regimes for a salaried employee at different income levels, assuming typical deduction scenarios. All examples include 4% cess. Table 3 — Tax Payable at Four Income Levels, New vs Old Regime Gross Salary New Regime Tax Old Regime Tax Winner ₹10,00,000 ₹0 ₹54,600 (₹2.5L deductions) New, by ₹54,600 ₹15,00,000 ₹97,500 ₹1,06,600 (₹5L deductions) New, by ₹9,100 ₹20,00,000 ₹1,92,400 ₹1,95,000 (₹7L deductions) Nearly equal ₹30,00,000 ₹4,75,800 ₹4,75,800 (₹8L deductions) Exactly equal Old regime figures shown are at the deduction level closest to break-even for that income; lower deduction levels favour the new regime by a wider margin. Illustrative figures only — verify against your own numbers. Example 1 — Gross Salary ₹10,00,000: New Regime: Gross salary ₹10,00,000 minus standard deduction ₹75,000 = taxable income ₹9,25,000. Tax: ₹4,00,000 × 0% + ₹4,00,000 × 5% + ₹1,25,000 × 10% = ₹20,000 + ₹12,500 = ₹32,500. But taxable income is below ₹12,00,000, so Section 87A rebate applies — tax = nil. Total tax (new regime) = ₹0. Old Regime (with ₹2.5 lakh deductions — ₹1.5L 80C, ₹25K 80D, ₹50K 80CCD(1B), ₹25K 80TTA): Gross salary ₹10,00,000 minus standard deduction ₹50,000 minus deductions ₹2,50,000 = taxable income ₹7,00,000. Tax: ₹2,50,000 × 0% + ₹2,50,000 × 5% + ₹2,00,000 × 20% = ₹12,500 + ₹40,000 = ₹52,500 + cess ₹2,100 = ₹54,600. Winner: New regime saves ₹54,600. Example 2 — Gross Salary ₹15,00,000: New Regime: ₹15,00,000 minus ₹75,000 = ₹14,25,000. Tax: ₹4L × 0% + ₹4L × 5% + ₹4L × 10% + ₹2,25,000 × 15% = ₹20,000 + ₹40,000 + ₹33,750 = ₹93,750 +

FINANCIAL REPORTING Ind AS 112: Disclosure of Interests in Other Entities What NFRA Flags Most Often, and How to Fix It Subsidiaries · Joint ventures · Associates · Structured entities NDS Advisor · September 2026 4 categories Subsidiaries, JVs, associates, structured entities 5 failures Most cited in NFRA audit quality reviews FY 2016-17 Ind AS 112 alongside Ind AS 110/111 WHAT MUST BE DISCLOSED SUBSIDIARIES Ownership, material NCI, restrictions Full detail JVS & ASSOCIATES Equity method, summarised financials If material STRUCTURED ENTITIES Nature, exposure, support given Most missed CONSOLIDATION AND DISCLOSURE ARE SEPARATE TESTS NDS Advisor · Financial Reporting & Ind AS Advisory FINANCIAL REPORTING · SEPTEMBER 2026 ⚠  Boilerplate is the failure, not the omission. Naming an entity and a percentage is not a disclosure. NFRA repeatedly cites Ind AS 112 notes that name entities but never explain the judgement behind control, materiality or exposure. Confirm the current position before relying on any figure below. Ind AS 112 is the standard that NFRA cites most frequently when identifying disclosure failures in Indian corporate group financial statements. In audit quality review after audit quality review, the National Financial Reporting Authority has found that companies provide generic, boilerplate disclosures about their subsidiaries, joint ventures, associates, and structured entities — disclosures that name entities and percentages but fail to explain the significant judgements behind control determinations, omit summarised financial information for material subsidiaries with non-controlling interests, and ignore unconsolidated structured entity exposures entirely. It prescribes no recognition and no measurement of its own; it collects the disclosure obligations that follow from decisions made under Ind AS 110, Ind AS 111 and Ind AS 28. Ind AS 112 is the standard that NFRA cites most frequently when identifying disclosure failures in Indian corporate group financial statements. In audit quality review after audit quality review, the National Financial Reporting Authority has found that companies provide generic, boilerplate disclosures about their subsidiaries, joint ventures, associates, and structured entities — disclosures that name entities and percentages but fail to explain the significant judgements behind control determinations, omit summarised financial information for material subsidiaries with non-controlling interests, and ignore unconsolidated structured entity exposures entirely. These are not trivial omissions. Ind AS 112 (Disclosure of Interests in Other Entities) requires entity-specific, quantitative disclosures that enable investors, lenders, and regulators to evaluate the actual risks embedded in a corporate group structure — the restrictions on moving cash between entities, the extent of non-controlling interests, the off-balance-sheet exposures through structured vehicles, and the judgements management has made about who controls what. For Indian business groups operating through layered holding structures, cross-holdings, and special purpose vehicles, getting Ind AS 112 right is a regulatory, audit, and investor-relations imperative. NDS Advisor provides financial reporting services that include comprehensive Ind AS 112 disclosure preparation, significant judgement documentation, and NFRA-ready consolidation review. Key Takeaways Subsidiaries get the fullest disclosure. Group composition, material non-controlling interests with summarised financials, restrictions on assets and cash, and changes in ownership without loss of control. Joint ventures and associates need summarised financial information when material. Immaterial ones can be aggregated, but the aggregate still needs carrying amount, profit or loss and comprehensive income. Unconsolidated structured entities are the most underreported category. Securitisation trusts, ARCs, infrastructure SPVs and AIFs all qualify, and many Indian companies never identify them as in scope at all. Significant judgements come first, not last. Control conclusions, joint arrangement classification and investment entity status must each be explained, entity by entity. Consolidation and disclosure are separate obligations. A group can consolidate correctly and still fail Ind AS 112 — the two are tested independently. What Must Companies Disclose About Their Subsidiaries Under Ind AS 112? Subsidiary disclosures are the most extensive component of Ind AS 112 because the consolidation of subsidiaries creates the highest complexity and the greatest risk of information loss for users of financial statements. The standard requires disclosures across four dimensions for every subsidiary in the group. Group Composition and Ownership Structure The entity must disclose the name of each subsidiary, its principal place of business and country of incorporation (if different), the proportion of ownership interest held by the parent, and the proportion of voting rights held (if different from ownership). This information maps the group structure for users. For Indian promoter-led groups with multi-layered holding structures — a holding company owning an intermediate holding company that owns operating subsidiaries — the full ownership chain must be visible. Where control exists without majority ownership (de facto control through contractual arrangements, board nomination rights, or economic dependence), the basis for the control conclusion must be disclosed under the significant judgements requirement. Material Subsidiaries with Non-Controlling Interests — Detailed Quantitative Disclosures For each subsidiary where non-controlling interests are material to the reporting entity, Ind AS 112 demands a full set of quantitative data: the NCI’s proportion of ownership and voting rights, profit or loss allocated to NCI during the period, accumulated NCI at the end of the period, and dividends paid to NCI. Beyond these headline numbers, the standard requires summarised financial information for each material NCI subsidiary — current assets, non-current assets, current liabilities, non-current liabilities, revenue, profit or loss, other comprehensive income, total comprehensive income, and cash flows from operating, investing, and financing activities. This summarised information must be presented before inter-company eliminations — showing the subsidiary’s standalone performance, not the consolidated view. The entity must also provide a reconciliation from the summarised financial information to the NCI carrying amount in the consolidated balance sheet. Companies undergoing due diligence rely on these disclosures to evaluate the standalone performance and minority rights of each significant subsidiary. Restrictions on Assets and Cash Transfers Ind AS 112 requires disclosure of any significant restrictions on the parent’s ability to access or use the assets of subsidiaries, or to settle their liabilities. These restrictions include regulatory capital requirements (common for banking and insurance subsidiaries), statutory reserves that cannot be distributed as dividends, foreign exchange controls that limit the repatriation of funds from overseas subsidiaries, and contractual

AUDIT Basic & Diluted EPS Under Ind AS 33 How to Calculate It, Step by Step Numerator · Weighted average shares · Treasury share method Mumbai · Navi Mumbai · Vashi · August 2026 2 figures Basic and diluted, equal prominence Para 64 Retrospective bonus restatement FY 2016-17 Ind AS 33 converged with IAS 33 THE EPS FORMULA AT A GLANCE BASIC EPS NUMERATOR Profit to parent less preference dividend P − PD DENOMINATOR Weighted average shares outstanding WANS DILUTED EPS ADDS Every dilutive potential equity share + options DILUTED EPS IS NEVER HIGHER THAN BASIC NDS Advisors · Chartered Accountants · Mumbai · Navi Mumbai · Vashi AUDIT · AUGUST 2026 ⚠  The EPS formula is short; the judgement sits in the adjustments. Undeclared preference dividends still reduce the numerator, a bonus issue restates already-audited prior years, and options only count when in the money. Confirm the current position before relying on any figure below. Basic and diluted EPS under Ind AS 33 are calculated by dividing profit attributable to ordinary equity holders of the parent by the weighted average number of equity shares outstanding, with diluted EPS adding back the earnings effect and the share effect of every dilutive potential equity share. The two figures answer different questions. Basic EPS measures what each share earned on the capital actually in issue. Diluted EPS answers a harder question: what would each share have earned if every convertible instrument, option and warrant already outstanding had been exercised? The formula is short. The judgement sits in the adjustments. Preference dividends that were never declared still reduce the numerator. A bonus issue restates prior years that were already audited. Employee stock options only count when they are in the money. Getting the figure wrong is one of the most common causes of restatement in Indian financial statements, because the number sits on the face of the profit and loss account where every analyst reads it first. Teams that would rather have the calculation reviewed before the auditor does can hand it to our Ind AS implementation team, but every finance controller should still understand the shape of it. Key Takeaways Two figures, equal prominence. Ind AS 33 requires both basic and diluted EPS on the face of the statement of profit and loss, for continuing operations and for total profit, even when the number is a loss. Cumulative preference dividends are deducted whether or not declared. This single distinction between cumulative and non-cumulative shares is where numerator errors concentrate. Bonus issues are restated, never time-weighted. Paragraph 64 makes retrospective restatement of every period presented mandatory — even for a bonus issue after the reporting date but before approval. Options use the treasury share method. Only the difference between shares issued on exercise and shares notionally repurchased at average market price is added to the denominator. Antidilutive instruments are excluded but still disclosed. In a loss-making period every class is antidilutive, so diluted loss per share equals basic loss per share. What Is Earnings Per Share and Why Does Ind AS 33 Require It? Earnings per share is the portion of an entity’s profit attributable to each equity share outstanding during a reporting period. Ind AS 33, Earnings per Share, prescribes how it is measured and presented so the figure means the same thing across companies and periods. The Ind AS 33 earnings per share requirement is about comparability before computation: without a common denominator rule, two identical businesses could report materially different EPS simply by counting shares differently. Anyone asking what earnings per share means in a reporting context is really asking about comparability. Ind AS 33 standardises the denominator rather than defining profit. It takes profit as the other standards measure it and concentrates on which shares count, for how much of the year, and which potential shares must be assumed into existence. That is why the EPS calculation under Ind AS 33 becomes mechanical once share movements are mapped correctly. Which Companies Must Report Basic and Diluted EPS Under Ind AS 33? Ind AS 33 applicability starts with a scope test: the standard applies to entities whose ordinary shares or potential ordinary shares are publicly traded, and to entities in the process of issuing shares in a public market. Where an entity presents both consolidated and separate financial statements, the EPS information required by the standard is presented in the consolidated statements. In practice Ind AS 33 applicability is wider than that scope test suggests. Division II of Schedule III to the Companies Act, 2013 requires earnings per equity share, basic and diluted, on the face of the statement of profit and loss for every company preparing Ind AS financial statements. So an unlisted company inside the roadmap presents EPS even though the standard’s own scope paragraph would not compel it. The roadmap is set by the Companies (Indian Accounting Standards) Rules, 2015. Phase I covered listed and unlisted companies with net worth of ₹500 crore or more from FY 2016-17. Phase II added all remaining listed companies other than those on SME exchanges, and unlisted companies with net worth of ₹250 crore or more, from FY 2017-18, together with their holding, subsidiary, joint venture and associate entities. Companies outside the roadmap apply AS 20 under the Companies (Accounting Standards) Rules, 2021. Plan a conversion to Ind AS before the year you are caught, not during it. How Do You Calculate Basic EPS Under Ind AS 33? The basic EPS formula divides profit or loss attributable to ordinary equity holders of the parent entity by the weighted average number of shares outstanding during the period. Both halves of that basic EPS formula need work before the division makes sense, and this is where the EPS calculation under Ind AS 33 stops being arithmetic. On the numerator, start with profit or loss from continuing operations attributable to the parent, then deduct the after-tax amount of preference dividends. The distinction that catches teams out is between cumulative and non-cumulative preference shares.

BUSINESS VALUATION ESOP Valuation in India A Section 56(2) Compliant Guide, 2026 Rule 3(8) · Section 17(2)(vi) · Rule 11UA · Section 192(1C) Mumbai · Navi Mumbai · Vashi · August 2026 180 days Validity of the valuation report Category I Merchant banker, SEBI-registered 48 months Startup TDS deferral, s.192(1C) ONE OPTION, THREE VALUATIONS AT GRANT — ACCOUNTING VALUE Share-based payment expense in the P&L Ind AS 102 AT EXERCISE — MERCHANT BANKER FMV Perquisite = FMV less exercise price Rule 3(8) ON TRANSFER — BOOK-VALUE FORMULA Section 56(2)(x) on the recipient Rule 11UA STALE REPORT → SECTION 192 SHORT DEDUCTION NDS Advisors · Chartered Accountants · Mumbai · Navi Mumbai · Vashi ESOP & VALUATION · AUGUST 2026 ⚠  One share, two different fair values. The merchant banker figure under Rule 3(8) drives the perquisite at exercise; the Rule 11UA book-value figure drives Section 56(2)(x) on a later transfer. A chartered accountant’s certificate or a registered valuer report cannot substitute for either — and that substitution is the single most common error we correct. ESOP valuation in India is the process of determining the fair market value of a company’s shares so that employee stock options can be granted, exercised and taxed correctly under the Income-tax Act, 1961 and the Companies Act, 2013. For an unlisted company, that value must be certified by a merchant banker registered with SEBI under Rule 3(8) of the Income-tax Rules, 1962 before an employee exercises an option, because the perquisite tax the employee pays is computed on that certified figure. A wrong number carries real consequences: the company under-deducts tax at source under Section 192, the employee receives a demand two years later, and the scheme becomes a diligence problem in the next funding round. For founders who use equity to hire senior talent without burning cash, the ESOP valuation report is not paperwork. It decides how much tax lands on your team, and when. Key Takeaways Only a Category I merchant banker will do. For unlisted shares, Rule 3(8) names the SEBI-registered merchant banker specifically — a registered valuer under Section 247 performs a different statutory function. The report expires in 180 days. Fair market value may be certified as on the exercise date or any earlier date within 180 days of it, and no further. Rule 3(8) and Rule 11UA are not interchangeable. One drives the Section 17(2)(vi) perquisite, the other drives Section 56(2)(x) on transfers. Angel tax is gone; Section 56(2)(x) is not. Section 56(2)(viib) was abolished for shares issued on or after 1 April 2024, but secondary transfers below fair value remain chargeable on the recipient. The startup deferral is timing, not relief. Section 192(1C) pushes the TDS out by up to forty-eight months for DPIIT recognised startups holding a Section 80-IAC certificate. What Is ESOP Valuation in India and Why Is It Legally Required? ESOP valuation in India is an independent determination of the fair market value of unlisted shares, used at two separate moments in the life of a stock option. It is legally required because Section 17(2)(vi) of the Income-tax Act, 1961 defines the taxable perquisite as the fair market value of the shares on the date of exercise, reduced by the amount the employee actually pays. Without a valuation, that figure cannot be computed at all. An employee stock option is a right, not an obligation, to buy a fixed number of shares at an ESOP exercise price locked in on the grant date. Two different valuations attach to it. Valuation one — accounting, at grant Drives the share-based payment expense recorded under Ind AS 102 or, outside the Ind AS framework, the ICAI Guidance Note on Accounting for Employee Share-based Payments. This number shapes what your profit and loss statement looks like to an investor. Valuation two — tax, at exercise Drives the Section 17(2)(vi) perquisite. This number decides what your employee owes the tax department. Boards routinely conflate the two, then discover during due diligence that neither is defensible. Our business valuation services team handles both. Which Laws Govern ESOP Valuation in India? Four instruments govern ESOP valuation in India: the Companies Act, 2013 for issuance, the Income-tax Act, 1961 for taxation, the Income-tax Rules, 1962 for the valuation mechanics, and the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 for listed companies. Unlisted companies deal with the first three. Table 1 — The governing provisions and what each one does Provision What it governs Section 62(1)(b), Companies Act, 2013 with Rule 12, Companies (Share Capital and Debentures) Rules, 2014 How an ESOP scheme under the Companies Act, 2013 is approved, who counts as an eligible employee, and the minimum one-year gap between grant and vesting Section 17(2)(vi), Income-tax Act, 1961 Brings the exercise-date gain into the employee’s salary income as a perquisite Rule 3(8), Income-tax Rules, 1962 Prescribes how the fair market value of unlisted shares is arrived at, and by whom Section 56(2)(x) with Rule 11UA Applies where shares move between parties for inadequate consideration, typically in secondary sales rather than at allotment Sections 192 and 192(1C) Tax deduction at source and the deferral available to eligible startups 📋 One relaxation for private companies. The Ministry of Corporate Affairs exemption notification dated 5 June 2015 allows private companies to approve an ESOP scheme under the Companies Act, 2013 by ordinary resolution rather than the special resolution otherwise demanded by Section 62(1)(b). The consolidated text of the Income-tax Rules, including Rule 3 and Rule 11UA, is published on the Income Tax Department portal at incometax.gov.in and is the version to work from, since these rules are amended frequently. Who Can Issue an ESOP Valuation Report in India? For an unlisted company, only a merchant banker registered with SEBI as a Category I merchant banker can issue the ESOP valuation report used to compute the perquisite under Rule 3(8) of the Income-tax Rules. A registered valuer appointed under Section 247 of the Companies Act, 2013 performs a different statutory function

REGULATORY ADVISORY Foreign Investment in India FDI Routes, Caps and 2026 Rules Automatic route · Sectoral caps · FC-GPR · FC-TRS · FLA Mumbai · Navi Mumbai · Vashi · August 2026 USD 81 bn Total FDI inflows, FY 2024-25 100% Insurance FDI from Feb 2026 30 days To file Form FC-GPR RBI REPORTING CLOCK ALLOT SHARES AFTER FUNDS ARRIVE Refund within 75 days if the round fails 60 days FORM FC-GPR ON THE FIRMS PORTAL Valuation, CS certificate, FIRC and KYC 30 days FC-TRS ON SHARE TRANSFER FLA return every 15 July · Form DI in 30 days 60 days LATE FILING: ₹7,500 PER RETURN · UNDER 3 YEARS NDS Advisors · Chartered Accountants · Mumbai · Navi Mumbai · Vashi FDI & FEMA · AUGUST 2026 ⚠  The rulebook is mid-rewrite. Insurance moved to 100 percent FDI in February 2026, portfolio caps tightened in June 2026, and draft rules that would replace the Non-debt Instruments Rules, 2019 are open for comment until 31 August 2026. Confirm the current position before structuring any round. Foreign investment in India is capital brought into Indian companies, businesses, or assets by persons resident outside India, and it operates through defined legal channels under the Foreign Exchange Management Act, 1999. Most sectors today allow 100 percent foreign ownership without any prior approval, which is why India recorded total FDI inflows of USD 81 billion in FY 2024-25, its strongest year yet. The framework matters to more than multinationals: an Indian startup issuing shares to a US angel, a family business bringing in an NRI shareholder, and a foreign company opening an Indian subsidiary in Mumbai all sit inside the same rulebook of routes, sectoral caps, prohibited sectors, pricing rules, and RBI reporting. The rules are also in the middle of their biggest refresh in years, with insurance opened to 100 percent foreign ownership in February 2026 and a complete replacement of the investment rules now in draft. This guide from NDS Advisors, Chartered Accountants in Mumbai, explains how foreign investment in India works in 2026 and the FEMA compliance steps every recipient company must complete. Key Takeaways India runs a negative list. 100 percent FDI under the automatic route is the default; only a short list of sectors carries caps, conditions, or a complete bar. Insurance moved to 100 percent in February 2026 under the automatic route, ending the 74 percent cap set in 2021 — though LIC stays capped at 20 percent. The FDI-FPI boundary now bites. A portfolio investor breaching the cap must divest within five trading days or the whole holding is reclassified as FDI. Pricing is the contravention no late fee can cure. Shares to a non-resident cannot be issued below certified fair value, and that surfaces years later at exit. Reporting runs on fixed clocks: allotment in 60 days, FC-GPR in 30, FC-TRS in 60, Form DI in 30, and the FLA return every 15 July. What Is Foreign Investment in India and What Forms Does It Take? Foreign investment is any investment made by a person resident outside India into Indian equity instruments, capital, or assets, and Indian law splits it into distinct forms with different rules. The form decides the caps that apply, the reports that must be filed, and how easily the money can leave. The four main channels are: Foreign Direct Investment (FDI): a strategic stake of 10 percent or more in a listed company, or any equity investment in an unlisted company, made with a lasting interest and usually with a say in management. This is the route for subsidiaries, joint ventures, and startup funding rounds. Foreign Portfolio Investment (FPI): holdings in listed shares and securities below 10 percent of a company, made through SEBI-registered foreign portfolio investors purely for market returns, with no role in management. NRI investment: investment by Non-Resident Indians and Overseas Citizens of India, made either on a repatriable basis or on a non-repatriable basis, where the non-repatriable route is treated almost on par with domestic money. Debt and hybrid routes: external commercial borrowings, foreign venture capital investment, and investment in convertible instruments, each governed by its own FEMA regulations and reporting formats. Everything in this guide flows from one principle: the money may enter freely in most sectors, but every rupee must be priced, documented, and reported correctly. That is the heart of FEMA advisory work for investee companies. What Are the Automatic Route and Government Route for FDI in India? FDI in India enters through two routes. Under the automatic route, the foreign investor and the Indian company need no prior approval from the government or the RBI; they invest first and report afterwards. Under the government route, the proposal must be approved by the concerned ministry through the Foreign Investment Facilitation Portal before any money moves, a process that typically takes several weeks. Which route applies depends on the sector and, in one important case, on the investor’s location. Since Press Note 3 of 2020, any investment whose beneficial owner is situated in a country sharing a land border with India requires prior government approval regardless of sector. The 2026 amendments relaxed this only for small holdings, permitting portfolio investments below 10 percent in listed companies without approval, while controlling stakes from these jurisdictions remain firmly in the government route. For everyone else, the automatic route for FDI covers the overwhelming majority of Indian business activity. 📋 Note on the land-border rule. The test is beneficial ownership, not the address on the share certificate. An investment routed through a third country still needs government approval if a person or entity in a land-border country sits anywhere in the ownership chain — and a later change in that chain can trigger a fresh approval requirement, so cap tables need continuous monitoring rather than a one-time check at closing. Which Sectors Have FDI Sectoral Caps and Which Are Prohibited in 2026? India follows a negative-list approach: 100 percent FDI under the automatic route is the default, and

First Year COMPLIANCE Startup Compliance Checklist India 10 Must-Dos in Your First Year INC-20A · First auditor · GST & TDS · DPIIT · First AGM · ROC Mumbai · Navi Mumbai · Vashi · August 2026 30 days First auditor & board meeting 180 days Form INC-20A deadline 9 months To the first AGM FIRST-YEAR DEADLINE CLOCK FIRST BOARD MEETING & AUDITOR Sections 173(1) and 139(6) 30 days SHARE CERTIFICATES TO SUBSCRIBERS Section 56(4), stamp duty payable 60 days FORM INC-20A COMMENCEMENT Section 10A, after capital paid in 180 days MISSED INC-20A: ₹50,000 + ₹1,000 / DAY NDS Advisors · Chartered Accountants · Mumbai · Navi Mumbai · Vashi COMPLIANCE · AUGUST 2026 ⚠  Deadlines below run from the date of incorporation, not from first revenue. A company with no customers and no bank balance carries almost the same filing calendar as one with turnover. Confirm the current position before acting on any specific due date. Startup compliance in the first year means completing roughly ten statutory obligations under the Companies Act, 2013 and the tax laws, most of which are triggered by the date of incorporation rather than by revenue. A newly incorporated private limited company must appoint its first auditor within 30 days, hold its first board meeting within the same 30 days, issue share certificates within 60 days, and file the declaration of commencement of business in Form INC-20A within 180 days — whether or not it has earned a single rupee. That last point is where most first-time founders come unstuck. Company law obligations attach to the entity, not to its trading activity, so a startup with no customers and no bank balance carries almost the same filing calendar as one with revenue. Startup compliance penalties are equally indifferent: ₹50,000 for a missed INC-20A, ₹5,000 for a missed director KYC, and daily accruals on late annual filings. This checklist sets out what falls due, when, and what it costs to get it wrong. Founders who would rather delegate the whole calendar can hand it to our startup services team, but every founder should still understand the shape of it. Key Takeaways Six of the ten first-year items fall due within six months of incorporation — long before there is a finance team to handle them. Form INC-20A is the single most expensive miss: ₹50,000 on the company, ₹1,000 per day on each officer in default up to ₹1,00,000, plus grounds for strike-off. Every company must be audited regardless of turnover, profit or activity — a nil-revenue startup still files AOC-4, MGT-7 and an income tax return. DPIIT recognition alone does not give the tax holiday. The Section 80-IAC deduction needs a separate Inter-Ministerial Board certificate. Angel tax is gone from assessment year 2025-26, but Section 68 on unexplained cash credits still applies, so investor source-of-funds documentation still matters. What Does Startup Compliance Actually Cover in the First Year? Startup compliance covers four separate streams that run in parallel: company law filings with the Registrar of Companies, tax registrations and returns, labour and state-level registrations, and the annual audit and accounts cycle. Each stream has its own regulator, its own deadlines and its own penalties. Founders tend to think of startup compliance as one thing that happens once a year in September. In practice the first-year calendar front-loads heavily. Six of the ten items below fall due within the first six months of incorporation, long before there is a finance team to handle them. The annual cycle, which most people picture when they hear the phrase, is only the tail end. The entity type also changes the answer. A private limited company carries the heaviest load. An LLP files Form 11 and Form 8 and escapes most of the board and general meeting machinery. A proprietorship has no corporate filings at all, only tax ones. Everything that follows assumes a private limited company, because that is what venture-funded startups almost always are. Which Startup Compliance Tasks Fall Due in the First 30 Days? Three: the first board meeting, the appointment of the first statutory auditor, and opening the company bank account so subscribers can pay in their share capital. All three are usually handled in a single sitting. Section 173(1) of the Companies Act, 2013 requires the first board meeting within 30 days of incorporation. Section 139(6) requires the Board to appoint the first auditor in the same window; if it does not, the members must do so within 90 days at an extraordinary general meeting. The first auditor holds office until the first annual general meeting concludes. Companies that have just completed private limited company registration frequently let this 30-day window pass because the certificate of incorporation feels like the finish line rather than the starting gun. Getting the bank account open early matters more than it appears. Subscription money must actually be received before Form INC-20A can be filed, and account opening at Indian banks routinely takes three to four weeks for a new company. A delay here cascades into the 180-day deadline. 📋 Note on the first financial year. A company’s first financial year may run up to fifteen months. A company incorporated in October 2025 can close its first books on 31 March 2027 rather than 31 March 2026. This is useful, but it does not postpone INC-20A, the auditor appointment or the board meeting, all of which run from the date of incorporation. What Are the 10 Must-Dos on a Startup Compliance Checklist for India? This startup compliance checklist is ordered by when each item falls due rather than by importance, because in the first year sequence is the whole problem. Work through them in this order and nothing collides. Hold the first board meeting and appoint the first auditor. Both within 30 days of incorporation. Record the minutes properly, since the auditor appointment, the bank account resolution and the registered office confirmation typically flow from this meeting. A private limited company must hold at least four board meetings a

ACCOUNTING & BOOKKEEPING In-House Accounting vs Outsourcing What Works for Small Businesses in India Cost comparison · Compliance · Growth stage · Hybrid models Mumbai · Navi Mumbai · Vashi · August 2026 ₹3.6L–5.5L In-house cost / year ₹1.8L–3.6L Outsourced cost / year 15+ Years experience ANNUAL COST BENCHMARK IN-HOUSE JUNIOR ACCOUNTANT All-in cost with PF, ESIC, gratuity ₹3.6L – ₹5.5L IN-HOUSE SENIOR ACCOUNTANT Mid-level hire with full loaded cost ₹7.8L – ₹13.2L OUTSOURCED FULL PACKAGE Books + GST + TDS + ITR ₹1.8L – ₹3.6L VIRTUAL CFO: ₹40K – ₹1L / MONTH NDS Advisors · Chartered Accountants · Mumbai · Navi Mumbai · Vashi ACCOUNTING & BOOKKEEPING · AUGUST 2026 ⚠  Cost figures are indicative for Mumbai / Navi Mumbai. Actual salaries and outsourced fees vary by transaction volume, industry and scope. Use the framework below to size the requirement for your business before deciding. Every small business owner in India faces the same question at some point: should you build your own accounting team, or hand the numbers over to an external firm? Hire the wrong person in-house, and you face salary costs, PF, ESIC, and the risk of a single point of failure when they resign. Outsource to the wrong firm, and you might get late filings, poor communication, and no one who truly understands your business. The right answer depends on the size of your business, the complexity of your transactions, your compliance obligations, and your growth trajectory. NDS Advisors is a leading Chartered Accountant firm headquartered in Andheri East, Mumbai, serving businesses across Mumbai, Navi Mumbai, Vashi, and Pune. With 15+ years of experience and a team of 75+ qualified professionals, we work with startups, MSMEs, and growing enterprises across sectors including manufacturing, retail, real estate, healthcare, jewellery, textiles, and IT services. This guide walks you through everything you need to know about the in-house vs outsourcing decision — the real costs, the hidden risks, and the practical framework for making the right call for your business stage. Key Takeaways The full cost of an in-house accountant is 40–60% higher than the salary alone once you load PF, ESIC, gratuity, leave encashment and recruitment. Outsourced accounting typically costs ₹1.8–3.6 lakh per year for a small business, against ₹3.5–5.5 lakh for a junior in-house hire — before attrition and skill-gap risks. Early-stage businesses (₹0–5 crore) almost always benefit from outsourcing because the compliance load is manageable by a CA firm and the cost gap is widest. High-transaction or operationally complex businesses — retail chains, jewellery manufacturers, construction — may need in-house capacity supported by external compliance expertise. The hybrid model — a junior in-house bookkeeper plus an outsourced CA firm for compliance and advisory — is often the best fit for businesses in the ₹5–15 crore range. What Does Accounting for a Small Business in India Actually Involve? Before comparing in-house and outsourcing, it helps to be precise about what “accounting” covers. The scope is wider than most business owners realise: Day-to-day bookkeeping — recording sales, purchases, payments, receipts, and journal entries in a system like Tally or Zoho Books. Bank reconciliation — matching your bank statements with your books every month to catch errors and missing entries. GST compliance — filing GSTR-1 and GSTR-3B every month (or quarterly under QRMP), reconciling GSTR-2B for ITC claims, and filing the annual GSTR-9. TDS compliance — deducting TDS at the correct rates on applicable payments, filing quarterly TDS returns (Form 24Q, 26Q), and generating Form 16 / 16A. Income tax filing — preparing and filing the annual ITR, computing advance tax liability, and handling any notices from the Income Tax Department. Payroll processing — calculating salaries, deducting PF, ESIC, and professional tax, and maintaining compliance with the EPF Act, 1952. Financial reporting — preparing monthly P&L, balance sheet, and cash flow statements so you have real visibility into performance. Statutory audit support — maintaining books in a manner that supports the annual statutory audit under the Companies Act, 2013, or tax audit under Section 44AB of the Income Tax Act. A small business generating ₹1–5 crore in annual revenue typically needs 40–80 hours of accounting work per month, depending on transaction volume and compliance complexity. ⚠ MSME owners frequently underestimate compliance. GST alone requires monthly filings, ITC reconciliation, and an annual return — each with specific deadlines and penalties for non-compliance under Section 122 of the CGST Act, 2017. How Has Small Business Accounting Evolved in India? Before India’s economic liberalisation in 1991, small business accounting was almost exclusively manual. Proprietorships and partnerships maintained hand-written ledger books, and the typical owner either managed the books personally or employed a “munimji” — a trusted in-house accounts keeper. Tax compliance was simpler: sales tax was state-administered, income tax compliance was limited, and TDS obligations were narrower. The 1991 liberalisation introduced regulatory complexity that manual systems could not handle. VAT (2005), e-filing (2006), expanding TDS obligations, and the phased introduction of digital compliance frameworks all raised the bar. Software like Tally entered mainstream use in the late 1990s — digitising bookkeeping but still requiring skilled in-house operators. The GST transition in July 2017 was the single biggest shift. Filing GSTR-1, GSTR-3B, GSTR-2B reconciliation and GSTR-9 created a workload that many in-house departments could not absorb. The post-2017 environment has made professional accounting knowledge — not just bookkeeping skill — a genuine necessity for compliance. Cloud accounting platforms (Zoho Books, ClearBooks) and API-linked GST filing software have made it possible to outsource without losing visibility. Today, outsourcing does not mean losing control; it means gaining expertise without the overhead. NDS Advisors provides Outsourced Accounting Services in Mumbai using cloud platforms that give business owners real-time access to their books. What Does an In-House Accountant Actually Cost? Most owners focus on the salary. The full cost is significantly higher: Table 1 — True cost of an in-house accountant in Mumbai Cost Component Junior Accountant Senior Accountant Monthly CTC ₹20,000 – ₹30,000 ₹45,000 – ₹75,000 Employer PF (12% of basic) ₹2,400 – ₹3,600

ACCOUNTING & BOOKKEEPING Choosing Accounting Software for a Small Business in India A Compliance-First Guide Turnover thresholds · E-invoicing · Inventory · CA access TallyPrime · Zoho Books · Busy · Marg · ERPNext July 2026 · ~12 min read · Mumbai, Navi Mumbai & Vashi 4 Turnover gates 7 Options compared 6 Ways it goes wrong AGGREGATE TURNOVER GATES GST REGISTRATION Services ₹0.20 cr GST REGISTRATION Goods ₹0.40 cr E-INVOICING MANDATORY IRN and QR code on every invoice ₹5 cr 30-DAY REPORTING LIMIT On how late an invoice can be reported ₹10 cr FIND YOUR GATE BEFORE THE SHORTLIST NDS Advisors · Chartered Accountants · Mumbai · Navi Mumbai · Vashi ACCOUNTING & BOOKKEEPING · JULY 2026 ⚠  No vendor has paid for inclusion here. Feature sets, pricing and statutory thresholds all change — confirm the current position on the GST portal and directly with the vendor before you subscribe. Almost every article on this subject is a ranked list. Number one, number two, number three, a table of features, a verdict. The difficulty is that the ranking is meaningless without knowing the business, because the software that is genuinely excellent for a Bandra design consultancy is close to useless for a Vashi trading firm carrying two thousand stock items. So this guide is organised the other way round. It starts with what your business is obliged to do, works out what that forces the software to handle, and only then looks at what is available. That order matters, because the compliance obligations are not negotiable and the software preferences are. Key Takeaways There is no single best accounting software for Indian small businesses. There is only the software that matches your turnover, your compliance obligations and the way your business actually moves goods or bills clients. Compliance thresholds, not features, should drive the shortlist. Crossing the e-invoicing threshold changes what your software must be able to do, whatever you thought of it before. TallyPrime and Zoho Books cover most of the market between them — broadly, desktop and inventory-heavy on one side, cloud and service-business on the other. QuickBooks is not an option in India. Intuit stopped new sign-ups in 2022 and existing Indian users lost access in 2023, yet it still appears in comparison articles and vendor lists. Whether your accountant can work in the software matters more than any feature comparison. Software your CA cannot open becomes a monthly export-and-email exercise. Migration cost is the real switching cost. Opening balances, ledger masters, stock and GST history all have to move, which is why the choice is worth getting right early. Start With the Thresholds, Not the Shortlist Four numbers determine most of what your accounting system has to be capable of. Find where your business sits against them before looking at a single product page. Chart 1 — The turnover thresholds that change what your software must do GST registration — services ₹0.20 cr GST registration — goods ₹0.40 cr E-invoicing becomes mandatory ₹5 cr 30-day e-invoice reporting limit ₹10 cr Thresholds are based on aggregate annual turnover and are those generally applicable; special category states apply lower GST registration limits, and specific categories are required to register irrespective of turnover. Thresholds have been revised more than once — confirm the current position on the GST portal before relying on them. The shape of that chart is the point. Nothing much changes between the registration thresholds and ₹5 crore — a competent billing package will cope. At ₹5 crore the requirement changes in kind rather than degree, because invoices must now be reported to the invoice registration portal and carry an IRN and QR code before they are valid. Software that cannot do that stops being a preference and becomes a blocker. Two further obligations sit alongside these and are easy to overlook: E-way bills are required for consignments above the prescribed value, so any business moving goods needs the software to generate them without a separate portal exercise. TDS obligations arise regardless of turnover in many cases, and a system that cannot track deduction, deposit and return data will push that work back onto spreadsheets. What Is Actually Available, and Who Each Option Suits The Indian market has consolidated around a handful of serious options for small businesses, plus a long tail of mobile-first billing apps. This is not a ranking — the right-hand column is the part that matters. Table 1 — The main options for Indian small businesses Software Type Suits Watch for TallyPrime Desktop, with remote access options Trading, manufacturing and distribution; inventory-heavy businesses; anywhere your accountant and auditor expect Tally data Multi-location and remote working need deliberate setup rather than being the default Zoho Books Cloud Service businesses, consultancies, agencies and startups; multi-user access; businesses wanting automation and integrations Deep inventory and manufacturing needs may outgrow it or need add-on modules Busy Desktop Trading and distribution, particularly where dealer or scheme management matters Cloud access is not its native strength Marg ERP Desktop Pharmaceutical and FMCG distribution, where batch and expiry tracking is essential Highly specialised; less suited outside those verticals Vyapar and similar mobile-first apps Mobile and desktop Micro businesses, retail counters and sole proprietors needing billing and basic books Reporting depth is limited as you grow; plan the exit early ERPNext Open source, self-hosted or cloud Businesses wanting no per-user licence cost and willing to invest in implementation Needs real implementation effort and someone to maintain it SAP, Oracle, Microsoft Dynamics Enterprise Groups with complex consolidation, multi-entity or multi-country needs Cost and implementation scale are well beyond a small business Positioning is based on typical use, not on vendor claims. No vendor has paid for inclusion here. Feature sets and pricing change frequently — check the current plan directly with the vendor before subscribing. A Correction Worth Making: QuickBooks Left India This still appears in comparison articles, in vendor round-ups and on the websites of firms that have not revisited their content in a while. It is out

ACCOUNTING & TAXATION Foreign Currency Under Ind AS 21: Where Your Books and Your Tax Computation Disagree Imported capital assets · Branch translation · Forward contracts Book to tax reconciliation · Exchange difference schedule August 2026 · ~12 min read · Mumbai, Navi Mumbai & Vashi 2 Rulebooks apply 10 Situations mapped 6 Recurring errors ONE TRANSACTION — TWO ANSWERS MACHINE IMPORTED · USD 1,00,000 BOOKS · IND AS 21 Asset ₹83,00,000 ₹4,00,000 loss to profit or loss TAX · ICDS VI Asset ₹87,00,000 ₹4,00,000 added to cost of asset BOOK BLOCK ≠ TAX BLOCK, EVERY YEAR AFTER Carry the difference as a reconciling item — you do not elect one treatment NDS Advisors · Chartered Accountants · Mumbai · Navi Mumbai · Vashi ACCOUNTING & TAXATION · AUGUST 2026 ⚠  Two rulebooks govern the same transaction. Ind AS 21 decides what goes in your books; ICDS VI and the specific provisions of the income tax law decide what goes in your tax computation. Where they diverge you carry a reconciling item — you do not elect one treatment. An importer in Navi Mumbai buys a machine from Germany in October and pays for it in March. The rupee weakens in between. The accountant books an exchange loss, the auditor signs it, and everyone assumes the matter is closed. Then the tax computation is prepared, the loss is added back, and the owner wants to know why a real cost that left the bank account is not deductible. It is a fair question with an unsatisfying answer: because the accounting standard and the tax law are asking different things. Ind AS 21 asks how the transaction should be reported to shareholders. The tax provisions ask what should be taxed and when. Where those purposes diverge, so do the numbers — and the business is left maintaining two versions of the same fact. This article sets out where that happens and what has to be tracked. Key Takeaways Two rulebooks govern the same transaction. Ind AS 21 decides what goes in your books; ICDS VI and the specific provisions of the income tax law decide what goes in your tax computation. They do not always agree. The largest divergence involves imported capital assets. Where an asset is acquired from outside India, exchange differences arising on payment are adjusted to the cost of that asset for tax purposes, on a payment basis — while Ind AS 21 sends the same difference to profit and loss. That single rule creates a permanent split between your book fixed asset register and your tax block of assets, and it persists for the whole life of the asset. Translating an overseas branch produces another divergence. Ind AS 21 parks the difference in a reserve within equity; for tax the branch is treated as though its transactions were your own, so the difference reaches income. Forward contracts diverge too. Premium or discount at inception is amortised over the life of the contract for tax, while your books may carry the instrument at fair value. None of this is optional. If you report under Ind AS and have foreign currency exposure, a separate exchange difference working is not good practice — it is the only way the return can be filed correctly. Two Rulebooks, One Transaction It helps to be clear about what governs what. Ind AS 21 governs your financial statements. It determines how transactions in a foreign currency are recorded, how monetary items are restated at the reporting date, and where the resulting differences are presented. ICDS VI governs the computation of taxable income. The Income Computation and Disclosure Standards were notified for computing income under business or profession and other sources for taxpayers on the mercantile system. They do not affect your books at all — they exist only for the return. Specific statutory provisions override both. Where the law makes express provision for exchange differences on assets acquired from outside India, that provision prevails over the general standard. The result is a reconciliation, not a choice. You do not elect one treatment. You apply Ind AS in the books, apply the tax rules in the computation, and carry the difference as a reconciling item. Worth knowing about the history: parts of ICDS VI were challenged and struck down by the Delhi High Court on the basis that unrealised differences on translating foreign operations were notional rather than real income. The legislature responded by inserting an express provision confirming that gains or losses on specified foreign currency transactions are to be treated as income or loss computed in accordance with the notified standards. The point matters because it tells you the divergence is deliberate, not an oversight waiting to be corrected. Where the Two Treatments Part Company Table 1 — Same transaction, two answers Situation In your books under Ind AS 21 In the tax computation Trade receivable or payable in foreign currency, restated at year end Exchange difference to profit or loss Broadly the same treatment — recognised as income or expense Settlement of a foreign currency trade payable Difference to profit or loss Broadly the same — no adjustment usually needed Asset acquired from outside India, paid for later Exchange difference on the liability goes to profit or loss Adjusted to the actual cost of the asset when payment is made, not deducted Foreign currency loan taken specifically to acquire that imported asset Exchange difference to profit or loss Adjusted to the cost of the asset on repayment Foreign currency liability for an asset purchased within India To profit or loss Follows the general standard rather than the imported-asset rule Non-monetary items carried at historical cost Not retranslated Not retranslated — differences neither taxable nor deductible Translating an overseas branch or foreign operation Difference to other comprehensive income, held in a translation reserve Treated as though the branch transactions were your own, so it reaches income Forward contract taken to hedge an existing exposure Measured under the financial instruments standard, often at

TAX UPDATES Section 43B(h): MSME Vendor Payment Compliance Checklist 45-day / 15-day payment rules · UDYAM verification Year-end disallowance checklist · Form 3CD disclosure FY 2026-27 · Mumbai & Pune 45 Days (with agreement) 15 Days (no agreement) 10 Year-end checklist items MSME CLASSIFICATION — SEC 43B(h) MICRO Inv ≤ Rs. 1Cr · TO ≤ Rs. 5Cr 43B(h) APPLIES ✓ SMALL Inv ≤ Rs. 10Cr · TO ≤ Rs. 50Cr 43B(h) APPLIES ✓ MEDIUM Inv ≤ Rs. 50Cr · TO ≤ Rs. 250Cr DOES NOT APPLY ✗ UDYAM CERTIFICATE REQUIRED TO VERIFY CA Nainit Savla · Founder, NDS Advisors · Mumbai & Pune NDS ADVISORS · CHARTERED ACCOUNTANTS ⚠  Section 43B(h) applies to FY 2026-27 — Outstanding MSME payables at March 31, 2027 will be disallowed if not paid within prescribed limits. Act before year-end. When Finance Act 2023 introduced Section 43B(h) into the Income Tax Act, it created a new compliance obligation for every Indian business that purchases goods or services from Micro or Small Enterprises: pay within the time limits prescribed under the MSMED Act or lose the tax deduction for that year. Three financial years on, Section 43B(h) non-compliance remains one of the most common — and most avoidable — tax disallowances found during NDS Advisors’ tax audit and advisory engagements across Mumbai and Pune. The reason is straightforward: many businesses have not built a systematic process to identify which vendors hold Udyam Registration as Micro or Small Enterprises, track payment due dates for each MSME invoice, and flag outstanding balances before the March 31 year-end. Without that system, the disallowance under Section 43B(h) is invisible until the tax audit — at which point it increases taxable income, creates additional tax liability, and requires disclosure in the Form 3CD report. What Is Section 43B(h) and How Does It Work? Section 43B of the Income Tax Act lists categories of expenditure that are deductible only when actually paid, not when accrued. The Finance Act 2023 added clause (h) to this section, effective from FY 2023-24 (AY 2024-25 onwards). Section 43B(h) in plain terms: Any sum payable to a Micro or Small Enterprise registered under the MSMED Act 2006 for goods or services supplied shall be allowed as a deduction only if paid within the time limits prescribed under Section 15 of the MSMED Act. If not paid within those limits, the sum is disallowed in the year it was incurred and becomes deductible only in the year in which it is actually paid. The critical word is “accrual basis” — Section 43B(h) overrides the normal accounting practice of recognising expenses when incurred. Even if your books show the expense and payable in full compliance with accounting standards, if the actual cash payment to the MSME vendor did not happen within the prescribed window, the disallowance applies for income tax purposes. Which Vendors Are Covered? The Micro and Small Distinction This is the most important initial determination. The provision applies only to Micro and Small Enterprises as classified under the MSMED Act 2006. It does not apply to Medium Enterprises or to unregistered vendors. Enterprise Category Investment in Plant & Machinery Annual Turnover Sec 43B(h) Applies? Micro Enterprise ≤ Rs. 1 crore ≤ Rs. 5 crore YES ✓ Small Enterprise ≤ Rs. 10 crore ≤ Rs. 50 crore YES ✓ Medium Enterprise ≤ Rs. 50 crore ≤ Rs. 250 crore NO ✗ Unregistered vendor (no UDYAM) Not applicable Not applicable NO ✗ The MSME classification is based on the vendor’s own Udyam Registration certificate. A buyer cannot independently determine a vendor’s MSME classification — it must be verified from the UDYAM certificate issued by the Ministry of MSME. This creates a practical compliance step: collect the UDYAM certificate from every vendor before recording them in the accounting system, and note whether they are Micro, Small, or Medium. Payment Timelines Under Section 43B(h) Section 43B(h) references the payment timelines set out in Section 15 of the MSMED Act 2006. Situation Payment Deadline Key Rule Written agreement exists between buyer and MSME supplier 45 days from date of acceptance of goods/services Contract cannot extend beyond 45 days — any clause giving longer credit is invalid No written agreement (or agreement silent on payment terms) 15 days from date of acceptance of goods/services 15 days is the “appointed day” under MSMED Act — no exceptions What Counts as “Acceptance”? Physical receipt and actual acceptance of goods or completion of services → date of acceptance Delivery made, no objection raised within 15 days → date of delivery = deemed date of acceptance For services: date the service was completed and accepted by the buyer For partial deliveries: date of acceptance of each delivery consignment separately ⚠ Critical distinction: The 15-day / 45-day clock starts from acceptance date, not from the invoice date. If goods are delivered on July 1 but the invoice is dated July 10, the clock starts from July 1. Many businesses get this wrong when tracking payment due dates. How Section 43B(h) Disallowance Is Computed: A Worked Example Worked Example — FY 2026-27 Company ABC (Mumbai-based trader) has MSME vendor XYZ registered as a Small Enterprise under UDYAM. ABC purchases goods from XYZ with a written payment agreement of 30 days from acceptance. Invoice Date of Acceptance Due Date (30 days) Amount (Rs.) Paid by 31 Mar? Invoice 1 1 Feb 2027 3 Mar 2027 5,00,000 Yes — paid 28 Feb Invoice 2 10 Feb 2027 12 Mar 2027 3,00,000 No — outstanding 31 Mar Invoice 3 1 Mar 2027 31 Mar 2027 2,00,000 Yes — paid 31 Mar Invoice 4 15 Mar 2027 14 Apr 2027 4,00,000 Not yet due at 31 Mar Section 43B(h) disallowance for FY 2026-27 = Rs. 3,00,000 (Invoice 2 only) Invoice 1 and Invoice 3 paid within due date → Allowed. Invoice 4 not yet due at March 31 → Allowed in this year. Invoice 2’s Rs. 3,00,000 is added back to taxable income for FY 2026-27. At 25% tax rate → additional