Ensuring accurate financial reporting and adhering to key accounting compliances are important for startups and growing businesses in India. Just like delivering excellent customer service generates repeat business and enhances reputation, adhering to local accounting laws and regulations guarantees that your business runs smoothly and stays legally protected.
A lot of young entrepreneurs in India however are not aware and up to date with accounting compliances laid down for startups and businesses. In this blog, Finsmart Accounting – trusted globally for accounting outsourcing in India – will share a list of accounting compliances every startup should pay heed to in 2022. Let’s get started with our compliance guide:
Accounting Compliances for Startups in India
In India, accounting compliances for startups and businesses fall into multiple categories. Due to the vastness of this topic, we will be covering only the major compliance categories.
Here are key accounting compliances every startup in India must adhere to:
#1 TDS compliance
Since you are running a startup/new business, it is obvious that your main goal is to make profits from products or services rendered. You may also be processing different types of payments such as salaries of the employees, professional fees, or commission payments to contractors.
According to the Income Tax Act, anyone making a payment for a job or service is supposed to pay tax to the Indian government if the payment crosses a limit or rate specified by the income tax department. This form of tax is called Tax Deducted at Source (TDS). Startups that pay TDS to the government and deductee are entitled to a tax deduction on basis of Form 26AS.
The compliance due dates for TDS returns filling are 31st July for Q1 (April to June), 31st October for Q2 (July to September), 31st Jan for Q3 (October to December), and 31st May for Q4 (January to March) respectively. If not paid on time, business owners also have to pay penalty fees for the late deposit of tax liability.
#2 GST compliance
Okay, we bet most of our readers are aware of this accounting compliance. For those who aren’t, GST compliance is basically a rating given by the Indian government to show entrepreneurs how compliant their businesses are with existing tax norms. It is mandatory for startups and businesses to adopt the GST compliance rules set by the government.
Why do you ask? When your startup has a good GST compliance score, it earns the trust of authorities as well as potential clients. Follow these steps in order to maintain GST compliance:
- File GSTR-1 and GSTR-2: Indian startups should file their GSTR-1 and GSTR-2 by the 10th and 15th of every month. Include all outward and inward transactions in these GSTR-1 and GSTR-2 forms.
- Pay tax dues: While filing net tax returns, it is also important for startups to pay all their tax dues. Because filing a GST return without taking care of dues can make your next return bogus. Also, it can affect your compliance score and make it difficult for your clients to request input tax credits.
- Submit annual return: Filing GSTR-1 and GSTR-2 to abide by GST compliance rules isn’t enough. One also needs to prepare and submit a consolidated annual return with the registrar before the 29th of November every year.
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#3 Statuary compliance
One of the most important accounting compliance that every startup in India should have in 2022. Statuary compliance is a legal framework within which a startup has to perform its operations while dealing with its employees. Basically, it asks you to treat your workers in accordance with several central and state labor laws of India.
Complying with the statuary rules and regulations shows that your employees are treated as per governmental norms. Indian startups that fail to adhere to statuary compliance may face legal troubles such as penalties and fines.
Here are common Statutory requirements that startups are supposed to follow for HR and payroll management in India:
- Payment of Wages Act (1936): The provisions of this act hold that employees be paid on time.
- Minimum Wages Act (1948): This act prevents the exploitation of labor by fixing a minimum wage rate.
- Payment of Bonus Act (1965): The payment of the Bonus Act asks for paying bonuses to employees annually in different establishments including factories and startups with more than 20 people.
- Maternity Benefits Act (1961): Applicable for startups with more than 10 employees, it safeguards the employment of women during the time of maternity and plies with full paid absence from work.
- Employee State Insurance Act (1948): This act helps employees prevail over unanticipated circumstances including medical emergencies, maternity leave, or disability situations concerned with the workplace.
- Employees Provident Fund Act (1952): An important accounting and payroll compliance for startups with more than 20 employees, it asks you and employees to put up 12% and 3.67% of basic pay as well as dearness allowance (DA) to their retirement chests.
- Labor Welfare Fund Act (1965): Focusing on the welfare of employees working in industries, it asks organizations based in some Indian states to provide facilities to laborers (who are working for more than 5 years) for improving their working conditions, lifting the standard of living, and delivering social security.
- Payment of Gratuity Act (1972): Gratuity is given by startups and organizations to employees for the business services developed by them. Only employees who have worked for a minimum of 5 years within the company can receive gratuity.
#4 Taxation compliances
A lot of startups in India believe that filing income tax returns are optional. And some even think of them as a nuisance. What they don’t know is that staying compliant with accounting and taxation laws, declaring the correct income for each year, and paying the right amount of taxes on time are more important than ever in 2022.
Here are some taxation compliances that startups and thriving businesses ought to adhere to:
- Income Tax Act (1961): An act to charge, oversee, accumulate, and retrieve income tax in India, it asks startups and business owners to file income tax returns, tax audit reports, TDS returns, and assessment of tax liability.
- GST Act (2017): This act has replaced many indirect taxes in India including excise duty and VAT. It asks startups to add indirect federal sales tax to the cost of certain goods and services offered by their business. Entrepreneurs have to file monthly, quarterly, and annual returns.
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#5 Company-law compliances
Our list will be considered incomplete without talking about this accounting compliance. Company Act 2013 regulates the formation and functioning of corporations and startups, their responsibilities, directors, and the dissolution of a business. The company-law compliances are based on meetings with board members, filing important forms, auditing information, and creating reports.
Here are some mandatory company-law compliances for startups to consider in 2022:
- Annual meeting: Aside from 4 board meetings, startups and registered businesses in India are supposed to hold an annual general meeting of their members every year in which they can talk about aspects like approval of financial statements, the appointment of auditors, and declaration of dividends.
According to law, the first AGM should be conducted within 9 months from the conclusion of the financial year. It can be carried out within 6 months in subsequent years.
- Board meetings: The law state that the first board meeting must take place within 30 days of the startup’s foundation. The registered business is supposed to carry out at least 4 meetings with a maximum gap of 120 days between each other.
- Appointment of auditor: This company-law compliance asks startups to appoint an auditor for a period of 5 years. They also are ought to submit the appointment details with the ROC in Form ADT-1.
- Director’s report: Registered startups in India are required to prepare a director’s report as per Section 134 of the Companies Act 2013. Submitted using Form AOC-4 during annual filing, the director will include data containing financials, state of affairs, changes made in the company’s compositions, declared dividends, and loans.
- Maintenance of statutory registers and books of accounts: Another important company-law compliance for startups in India. A company is supposed to prepare and maintain different statutory registers including a register of members, shareholders, charges, employee stock options, shares/other securities bought back, and directors and key managerial personnel as per Sections 85 and 88 of the Companies Act 2013.
- Circulation of financial statements: This accounting compliance asks startups to prepare an annual document and have it approved by the auditor of the company. It tells your stakeholders about the financial condition of the business.
There you go!
We covered the most important accounting compliances that every startup must meet in order to operate without hiccups in India.
Accounting and Business Compliance: Endnotes
Although it is true that abiding by so many laws and regulations can get a bit overwhelming for startups and young entrepreneurs, complying with them ensures smooth business operations. Hire Finsmart’s team of outsourced accounting and tax filing experts if nothing makes sense.
With deep domain expertise and experience with ever-changing laws and regulations, our team will ensure that your compliance needs are taken care of.
Got any queries to ask? Send them to email@example.com and have them answered by our experts.
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Shalaka Joshi is the founder of Finsmart Accounting and operates in the capacity of Director. A Chartered Accountant passionate about outsourcing and problem-solving, Shalaka has more than 20 years of experience in the field of accounting, payroll and MIS reports.