In this article we are going to discuss some of the key things you need to know about annual tax filings and compliances for a business
Annual Tax Filing For Startups: If you own a business, then you will know the importance of the due dates to file tax returns. It becomes more significant if you are a startup, which is funded by a Venture Capital/Angel firm or if you are looking out for a third-party investment. Remember that even if your business has not made any transactions or has incurred losses you will have to file taxes.
Let’s assume you’re a business owner, then there are two dates that are of absolute importance to you. September 30 and October 30. The first because it’s the due date for filing the Income Tax Return for your company, the latter as it is the due date for filing the annual financial statements with the Registrar of Companies (RoC).
These dates are more crucial if you are a VC/Angel funded startup or are on the lookout for such a third party investment. A prerequisite for this is a zero non-compliance business environment.
There are many startups that die in the first couple of years, at times months, due to various reasons. Additionally, there are many such startups that think that they have no business transactions and/or have incurred losses, which means they are not to file taxes. That is not true and in reality, every company/Limited Liability Partnership (LLP) has to comply with five basic compliances irrespective of its business situation. Let’s take a look at them.
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Accounting and Bookkeeping
One of the worst nightmares of businessmen is recording the transactions and preserving bills and invoices to back financial statements. Avoiding this leads to serious repercussions. For example, at the time of incorporation, a company pays the registration fees, name approval fees and stamp duty to RoC. In addition to this, the company’s promoters also hire a professional firm to guide them through the entire incorporation procedure, which again involves cash outflow.
These expenditures that are incurred, irrespective of them being pre-incorporation in nature, provide tax-saving benefits to the company. This benefit may be to the extent of almost one-fifth of such expenses every year.
Additionally, invoices that carry break-ups of VAT and service tax are a boon with respect to claiming credit for both. It is imperative that the company keeps records of all expenses that have been made specifically for business purposes since these are liable for deduction against revenues. Even if one does not make profits but ends up making losses, it is still advisable to maintain records of the same.
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Penalty for Non-Compliance:
In case of non-compliance, persons responsible shall, in respect of each offence, be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 50,000 but which may extend to Rs. 5,00,000 or both in case of companies.
Income Tax Return Filing
The most authentic proof of income earned is the due filing of income tax return. However, there are still many who do not file it as they are unaware of the procedure thus required. Many startups tend to appoint a tax consultant to help them get various benefits of filing a tax return on time. Let’s see what all these benefits may be: But many do not file tax returns as they are unaware of the procedure. Startups should appoint a tax consultant who will help them avail the benefits of filing tax return in time. Some of the benefits include:
- Filing timely returns will save one from the assessments of income by the income tax officials.
- A business suffering losses can take it forward and then set it off with future profits.
- For making an investment, filing income tax return on time is essential.
- Once the income tax return is filed, tax refunds can be claimed.
The due date for filing this return is September 30 each year. However, it is imperative to note that if your business works in tandem with transfer pricing provisions, this due date changes to November 30 each year.
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Penalty for Non-Compliance:
Late filing of return will attract interest u/s 234A i.e. if the assessee fails to file income tax return within the time prescribed by Section 139, he/she shall be liable to pay interest at one percent per month or part of the month from the due date of filing of return to the actual date of filing of its return. In addition to this, a penalty can be levied up to Rs. 5,000 for non-filing of tax returns u/s 271F.
However, please note that the year has to close on March 31 each year for the purpose of filing income tax filings. For that purpose, you only need to file a simple format of Profit and Loss Account and Balance Sheet with the department. Post that you can prepare the return and file it within the due date.
Statutory Audit Compliances
Companies are supposed to get their accounts audited annually. Also, those LLPs having a turnover of more than Rs 40 lakh or Rs 25 lakh contribution in any financial year are required to get their accounts audited annually as per the LLP Act.
The LLP Act provides that the partners of such LLP if decided not to get audit of the accounts of the LLP then such LLP shall include in the Statement of Account and Solvency a statement by the partners to the effect that the partners acknowledge their responsibilities for complying with the requirements of the Act and the Rules with respect to preparation of books of account and a certificate in the Form 8. No such exception is provided to companies.
ROC Compliances
Every company, irrespective of having a share capital or not , has to file its financial reports with the corporate affairs ministry on an annual basis. It constitutes a component of ‘Annual RoC Filing’ mandated by Companies Act, 2013. As a part of annual filing, Companies incorporated under the Companies Act 2013, are required to file the following e-forms with the RoC:
- Form 23AC is to be filed for balance sheet which is applicable to all companies unless there is a special class of the same.
- Form 23ACA is to be filed for the purpose of filing the profit and loss account.
- Form 20B is for filing annual returns by companies having share capital.
Penal Provisions
The penal provisions under the RoC are strict, and enough that there have been companies that have shut down because of the same. The additional fees can be as high as up to a staggering12 times of what the normal fees is. Also, please note that there are certain provisions that have huge penalties on a per day basis on officers and companies too.
Companies Act 2013 also has provisions of hard crust penalties like imprisonment of company directors on grounds of severe non-compliance.
As a part of Annual Filing, LLPs are required to file the following e-forms with the RoC:
- Form 8 is to be filed for the purpose of statement and solvency.
- Form 11 is to be filed as regards to annual returns of a LLP.
Penal Provisions for Limited Liability Companies
Surprisingly, there are no slabs for LLPs in case of late filing fee. With respect to this, the rule of computation is Rs 100 per day of the delay in requisite filing. The number of days of delay in filing is calculated from the due date of filing to the actual filing date.
We’ve time and again mentioned that these compliances have to be adhered to properly and on time, irrespective of whatever business situation you are in. if one does not comply, the repercussions of the same can also lead to a full-fledged shutting down of the company in question.
Many startups and businesses usually hire a tax consultant to help them reap the benefits of filing tax returns within the deadline. However, there are companies that fail to file tax returns just because they are not aware of the tax filing procedure. Having seen the benefits of timely filing of taxes, your business is sure to avail the same.
Conclusion
Compliances and their forms can get very confusing, harrowing and can cause anxiety due to the technical aspects of it. Several fields require information that only someone trained in the field of taxation can understand. So it is always advisable to engage an expert who is experienced in these matters and can guide you with the various compliances. If you have any queries or require any guidance with regard to any regulatory matters, feel free to get in touch with us and we will ensure that your concerns are resolved by our team of legal experts.
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