HI,
I am working in an Indian NGO and we are getting grants from our USA based funding agency. As a general practice we are booking expenses in our books of accounts. However under certain case for ex. salary of some staff members based in India we are booking their salary expenses in to our USA based cost centre wherein salary is being paid by us in India. These expenses are not being reflected in our books of accounts. I would like to know whether the above practice is allowed as per the FC or IT act
With best regards
Sweety
Agreed, with comment by Rajiv above. There does not seem to be sufficient clarity in the comment provided by you. Suggest take some professional help on this, to ensure you stay on the right side of compliance.
Hi, It seems like making payment without the corresponding expense and seems accounting software is strictly standard and controlled. If the staff is working for a project controlled by US entity, then it must be going to that cost center.
Whatever it may be, you need to justify to authorities the complete account of foreign receipts and if it does not get reflected in books then it would not get reduced either in Income tax as application of income nor as utilization in FCRA and would become taxable. Moreover, since payment is getting reflected in bank statement, you would need to justify the outgo. You can either ask the financial controller of the company about the current treatment, telling the repurcussions. If it is the case of staff working for the parent entity, then it is payment on their behalf. What you can do in this case, is to have a grant agreement for a lumpsum amount (including all the specific expenses on their behalf) with parent entity and have a consultancy agreement (between you and those staff including all their expenditure) deducting appropriate TDS. Also to advise the staff to obtain service tax registration if the payment is exceeding Rs. 10 lacs in a year. Remember to submit report on utilization of grant to complete the loop.