Do you know that every 2nd Startup gets Income Tax Notice for tax demands or for non-compliance, 3 out of 7 Startups finds place on the default list of Registrar of Companies due to non-compliance, 2 out of 4 Startups incur unnecessary pay-out by way of interests and penalties? Are you one of these startups? Can you be one of these startups? Are you aware of the 5 mandatory compliances for your business?
There are few basic steps which you need to follow if you wish to stay out this non-compliance list:
1. Maintain your books of accounts
Every business needs to maintain its books of accounts, be it an LLP, a private limited company, partnership or proprietorship. As per the law, every business entity needs to prepare and maintain proper books of accounts, incorporating all expenses and revenue generated for the financial year. Maintaining of books of accounts is not only required by law but it also has other benefits. For example, hassle free ITR filing, easy availability of financials for various purposes and standardization of processes.
This process briefly includes:
- Punching of all financial data in recognized accounting software like Tally ERP 9 or cloud based accounting software, like Quickbooks
- Reporting of Profit and loss statements
- Reporting of Balance Sheet Trial Balance
- Reporting Day Book & Ledgers
2. Income Tax Compliances
Income Tax compliances is a wide arena. It includes regular tax filings like TDS compliances to yearly ones like ITR filing. While conducting business operations, an entity incurs a lot of business expenses. For example, payments to vendors, purchase of software, payment of salaries, payment to your CA. These expenses qualify for deduction of TDS subject to certain limits. Missing out on these compliances can result in huge accumulation of interest and penalties, so much so that it may even lead to shut down of businesses.
In brief, these compliances include:
- Monthly Calculation & Payment of TDS (to be paid by 7th day of the succeeding month)
- Preparation and filing of the TDS Return for every quarter
- Generation of quarterly Form 16A and annual Form 16 (TDS Certificates)
- Deposit of quarterly Form 27A (26Q) and Form 27A (24Q) to NSDL Department
- Advance Tax computation and payment
- Preparation/filing of the Income Tax Return for the whole financial year
3. Statutory Audit
The objective of a statutory audit is to determine whether an entity is exhibiting a true and Annual Accounts with the Auditors of the Company It is mandatory for all private limited companies irrespective of their turnover. It is mandatory in case of LLPs only once their turnover exceeds Rs.40 lakhs or contribution exceeds Rs.25 lakhs.
Now, for private limited companies, it is not enough to just appoint a statutory auditor. The fact of this appointment has to be filed with the RoC in form ADT 1. Usually, a statutory auditor is appointed by a private limited company in its Annual General Meeting (AGM) for a term of 5 years. In such cases, the filing of ADT 1 has to be done within 15 days of such appointment.
4.Annual RoC Filings
This is an extremely vulnerable area where businesses are known to make defaults. Many a times, businesses are not even aware that they are supposed to file their returns with the Registrar of Companies (RoC). Consequently, they miss out on these deadlines and attract huge additional fines and sometimes even prosecution and shut down.
Annual RoC filing for a private limited company includes:
- Filing of Financial Statements, Director’s Report, Auditor’s Report in Form AOC 4
- Filing of Annual Return in Form MGT 7
- Filing of AOC 4 (Consolidated) if the company in question is a holding company
- Filing of Form ADT 1, subject to the provision of Companies Act.
Annual RoC Filings for an LLP include:
- Filing of annual return in Form 11
- Filing of Financial Statements in Form 8
5. Secretarial Drafting & Maintenance of Statutory Registers
This is generally mandatory for a private limited company. A Private Limited Company has to maintain various statutory registers and records as required by the Company law such as Register of shareholding, Directors and KMP, Register of Members, etc. Besides, Incorporation documents of the company, Resolutions of the meetings of the Board of Directors and members of the company are also required to be maintained by the Company.
This compliance generally includes:
- Board and General Resolutions (minimum 4 in one FY)
- Minutes of Meetings of the Board and the Members
- Director’s report, director’s responsibility statement, statement of depreciation schedule, fixed assets, etc.
- Maintenance of Secretarial Standards in Secretarial Drafting as introduced by Companies Act,2013
- Maintenance and Updation of Statutory Shareholder’s Registers as per Companies Act, 2013
- Maintenance and Updation of Statutory Register for Disclosure of Interest of directors as per Companies Act, 2013
So, these are the five basic compliances which can make things right for your business. Similarly, when ignored, these are the ones which can turn everything wrong for your business. Complying with these legal and technical processes might be quiet a hassle. Apart from being time consuming, these are often difficult to understand and even more difficult to keep a track off. Hence, in order to fulfill the compliances, businesses often end up hiring in house professionals. This often turns out to be a particularly wrong move considering the cost and effort involved. Then there is the fact that most startups cannot afford to hire and maintain in-house professionals.
Stay compliant! Stay hassle free!