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Post Incorporation Compliances for Private Limited Companies

Registration of the Company is made easier by the Government. Now we can simply get our company registered with minimum paperwork.

Now what you all must do, just only scan all your documents and upload them.

I was remembering the year 2015 when I first register a company. That time I have made so many working papers like affidavit, DIR-2, DIR-3, INC-22, INC-32, INC-33, INC-34, INC-9, INC-10, etc. After making all these docs work was only 50% Completed. Then you will have to upload the documents, it will take around a week if everything is in order and ROC does not ask for a resubmission.

After that Apply for PAN, TAN, Register yourself in Service Tax, Excise, VAT, CST, etc. Usually, it will take up to 1-2 months.  But as we all know time changes, then came Spice, work was made something easier as compared to 2015.

Now in the previous year 2020, here comes Spice+, now if everything went well, you can register a company in 3-4 working days along with PAN, TAN, GST, Labour Law registrations.

Now your company is registered. But running a company smoothly is a difficult task. Handling finances and meeting various statutory compliances is no exception. Post – incorporation, a company must comply with various mandatory compliances under different laws. In case of non-compliance, strict penalties, interest, fines, and fees are imposed. So this editorial is based on the legal post-incorporation compliances, here you will get to know about the compliances that are required for a newly incorporated company.

Compliances under Companies Act, 2013

As you know a company is registered under the Companies Act, so first, start with Company Act compliances.

Declaration for Commencement of Business: Form INC-20A

  • Time Limit:  Within 180 days from the date of incorporation.
  • What if the form is not filed?
    • Cannot commence business/borrow money.
    • Additional fees (up to 12x of normal fees)
    • Penalty for Company: INR 50,000
    • Penalty for officers in default: INR 1,000 per day (max INR 1,00,000)

First Board Meeting

  • Time Limit:  Within 30 days from the date of incorporation.
  • At the first board meeting, the directors must disclose their interest in any company, firm, or other association of individuals, by giving a notice in writing in Form MBP 1.

Appointment of Statutory Auditor and filing Form ADT-1

  • The first auditor to be appointed within 30 days from the date of incorporation.
  • Form ADT-1 is filed to intimate the Registrar of Companies (RoC) about auditor appointment.
  • The time limit to file Form ADT – 1 is 15 days from the date of appointment of the auditor.
  • Form ADT-1 is optional in case of appointment of first statutory auditor but
  • Auditor for subsequent years (for a term of 5 years) is appointed at an AGM and filing of Form ADT -1 to be made within 15 days of appointment.

Issuance of share certificates

  • Time Limit:  Within 2 months from the date of incorporation.
  • Consequences of non-compliance:
  • Penalty for Company: INR 50,000
  • Penalty for every officer in default: INR 50,000

Annual General Meeting

  • Applicability: Every Company, other than One Person Company (OPC)
  • Time Limit:
  • First AGM: within 9 months from the close of the first financial year (FY) (i.e., 31st December)
  • Subsequent AGM: within 6 months from FY end. (i.e., 30th September)
  • The time gap between 2 AGMs should not be more than 15 months.
  • Notice: 21 clear days’ notice
  • Documents to be laid before members in AGM: Financial statements along with Director’s Report.
  • Consequences of non-compliance:
  • Fine for Company: up to INR 1,00,000
  • Fine for every officer in default: up to INR 1,00,000
  • In case of continuing default: Additional INR 5000 per day

Preparation of Annual Financial Statements and filing Form AOC -4

  • Every Company needs to prepare and file its financial statements with RoC in Form AOC-4 every year.
  • Time Limit:
  • Companies other than OPC: 30 days from date of AGM
  • OPC: 180 days from close of FY
  • Consequences of non-compliance:
  • Late fees: INR 100 per day+ additional fees for e Form.
  • Penalty for Company: INR 10,000and in case of continuing default further penalty of INR 100 per day (maximum of INR 2,00,000)
  • Penalty for MD & CFO/other officers: INR 10,000and in case of continuing default further penalty of INR 100 per day (maximum of INR 50,000)

Filing of Form MGT -7 (Annual Return)

  • Applicability: Every Company
  • Time Limit:
  • Companies other than OPC: 60 days from date of AGM
  • OPC: 240days from close of FY
  • Consequences of non-compliance:
  • Late fees: INR 100 per day+ additional fees for e Form.
  • Penalty for Company: INR 10,000and in case of continuing default further penalty of INR 100 per day (maximum of INR 2,00,000)
  • Penalty for every officer: INR 10,000and in case of continuing default further penalty of INR 100 per day (maximum of INR 50,000)

DIN E-KYC (filing of Form DIR – 3 KYC)

  • Applicability: Every person who is allotted a DIN and status of DIN is shown as ‘approved’
  • Time Limit: 180 days from the end of FY (i.e. 30th September of succeeding FY)
  • Consequences of non-compliance:
  • DIN is marked as ‘de-activated.
  • To re-activate, Form DIR -3KYC to filed with fees of INR 5,000.

Others

  • Board Meetings: Minimum 4 Board Meetings to be held every year with not more than 120 days’ gap between two meetings.
  • Maintenance of all financial records – Bookkeeping and Accounting.
  • Maintenance of secretarial documents like Notices, Minutes, Board and Shareholder Resolutions, statutory registers like the Shareholder register, Related Party Transaction register, etc.
  • Filing of other forms like Form DPT -3 (for deposits taken, time limit: 90 days from the end of FY), MSME -1 (for transactions with MSME).

Compliances under Income-tax Act, 1961

  • Advance Tax

    • Meaning: Income Tax needs to be paid in advance during the financial year instead of lump sum payment at year-end. This is known as pay tax as you earn.
    • Applicability: if total tax payable (on estimated total income) for the financial year is ≥INR 10,000
    • The amount payable and Due Date:
Due Date Advance Tax Payable (cumulative)
On or before 15th June 15% of estimated total tax liability for that FY
On or before 15th September 45% of estimated total tax liability for that FY
On or before 15th December 75% of estimated total tax liability for that FY
On or before 15th March 100% of total tax liability for that FY
  • Consequences of non-compliance (no payment/ short payment):

    • Assessee (the company) deemed as ‘Assessee in default’ and recovery proceedings can be initiated.
    • Interest u/s 234B: if payment of advance tax by Assessee (the company) is less than 90% of the total tax liability, then it will be liable for interest @ 1% p.m. or part of the month from 1st April till the date of payment of tax.
    • Interest u/s 234C: if the advance tax paid in any installment (s) is less than the prescribed percentage of installment amount, interest is levied @ 1% p.m. for the period of default as illustrated in the table below:
Installment and Due Date % Of total tax payable (cumulative) Int. u/s 234C levied if advance tax deposited is less than below % of total tax payable Period of default
I – 15th June 15% 12% 3 months
II – 15th Sept  45% 36% 3 months
III – 15th Dec 75% 75% 3 months
IV- 15th March 100% 100% 1 month

Tax Deduction at Source (TDS) and Tax Collection at Source (TCS)

Tax Deduction at Source (TDS)

  • TDS compliances are one of the most important and any non-compliance leads to several detriments (tax deduction not given for payments made along with interest, fees, and penalty being levied).
  • TDS is not applicable on all payments, but only on specific payments and for amounts greater than threshold limits which are mentioned under the Income Tax Act (there are more than 30 specific payments). So, it is wise to check TDS applicability before making any payment.
  • Most common payments that require tax deduction at source:
    • Salary Payments (Sec 192)
    • Payment to Contractors (Sec 194C)
    • Payment to professionals/ freelancers (professional fees) (Sec 194 J)
    • Payment of Commission or Brokerage (Sec 194H)
    • Rent Payments (Sec 194-I)
    • Payment to Non-Residents (Sec 195)

For a complete list of payments subject to TDS, applicable rates, and threshold limits you can go to: Revised TDS/TCS Rate as Applicable wef 14.05.2020

  • Compliances attached to TDS and consequences of non-compliance:

(i) Monthly payment of TDS: Once the tax is deducted, the deductor (payer) needs to deposit the TDS to the government monthly. TDS must be deposited using Challan ITNS-281. Below are the due dates for making payment of tax deducted:

Tax deducted during TDS to be deposited by
First 11 months i.e., April to Feb 7th of the NEXT month
Last month i.e., March 30th April 
    • If tax was not deducted, simple interest @ 1% p.m. or part of the month is levied starting from the date on which tax was deductible till the date of deduction of tax.
    • If there is a delay in depositing TDS, simple interest @ 1.5% p.m. or part of the month is levied for the period of default. This means even a delay of 1 day will attract interest for the whole month (i.e., 1.5% for the month)
    • In case of failure to deduct or failure to pay the tax deducted, further legal consequences can be:
      • A penalty equal to the amount of tax not deducted / not deposited can be levied.
      • Can also lead to prosecution leading to imprisonment ranging between 3 months to 7 years.
      • Disallowance of expenses – either 100% disallowance or 30% disallowance

(ii) Quarterly TDS Statements: A person who is required to deduct tax at source is required to file quarterly statements (returns) of TDS. There are different forms for different types of payments (Form 24Q – salary payments; Form 26Q – other than salary payments, Form 26QB – for purchase of immovable property; Form 27Q –payments other than salary to non-residents). Below are the due dates for TDS Statements:

Quarter Due date
Q1 (April to June) 31st July
Q2 (July to Sept) 31st October
Q3 (Oct to Dec) 31st January
Q4 (Jan to March) 31st May
    • Any delay in filing of TDS statements attracts fees of INR 200 per day of default (however, fees shall not exceed the number of TDS)
    • The penalty can also be levied which can be in the range of INR 10,000 to INR 1,00,000.
    • Issuance of TDS Certificates: It is the responsibility of every tax deductor to issue TDS certificates to the payee in the prescribed form. The frequency and time limit to issue different types of TDS certificates is given below:
Form Nature of payment covered Frequency Due Date
Form 16 Salary payments Annually 15th June of next F.Y.
Form 16A All other payments Quarterly Q1 – 15th Aug

Q2 – 15th Nov

Q3 – 15th Feb

Q4 – 15th June of next F.Y.

Form 16B Immovable property purchase Transaction dependent Within 15 days of filing a TDS return for the same
    • If TDS certificates are not issued within the time limit, a penalty of INR 100 per day is levied.

Tax Collection at Source (TCS)

  • In the case of TCS, the seller must collect an amount in addition to the sale value from the purchaser as tax and deposit the tax so collected with the government. Like TDS, there are specific transactions to which TCS provisions are applicable.
  • Compliances attached to TCS and consequences of non-compliance:

(i) Monthly payment of TCS: Once a tax is collected, the collector(seller) needs to deposit the TCS to the government monthly. The due date for depositing the amount of tax collected is 7 days from the end of the month in which tax was required to be collected.

    • If tax was not collected, simple interest @ 1% p.m. or part of the month is levied starting from the date on which tax was collectible till the date of deposit of tax.
    • In case of failure to collect or failure to pay the tax collected, further legal consequences can be:
      • A penalty equal to the amount of tax not collected / not deposited can be levied.
      • Can also lead to prosecution leading to imprisonment ranging between 3 months to 7 years.

(iii) Quarterly TCS Statements: A person who is required to collect tax at source is required to file quarterly statements (returns) of TCS in Form 27D. Below are the due dates for TCS Statements:

Quarter Due date
Q1 (April to June) 15th July
Q2 (July to Sept) 15th October
Q3 (Oct to Dec) 15th January
Q4 (Jan to March) 15th May of next F.Y.
    • Any delay in filing of TCS statements attracts fees of INR 200 per day of default (however, fees shall not exceed the amount of TCS)
    • A Penalty can also be levied which can be in the range of INR 10,000 to INR 1,00,000.

Computation of Total Income and Filing of Income – Tax Return

  • Applicability: Every company registered in India must file an Income Tax return irrespective of any income, profit, or loss. Even the dormant companies with no transactions are required to file the return.
  • The companies file their Income Tax Return in ITR-6.
  • Due Date:
    • Companies to whom Transfer Pricing provisions apply (TP Report): 30th
    • Other Companies: 31st
  • Consequences of non-compliance:
    • Fees levied for delay in filing ITR.
      • ROI filed till 31stDecember: INR 5,000.
      • ROI filed beyond 31st December: INR 10,000.
      • If Total Income < 5 Lakhs: INR 1,000 (irrespective of the date of filing return)
  • Interest @ 1% p.m. or part thereof levied on amount of unpaid tax u/s. 234A (in addition to interest u/s. 234B)
  • Certain losses of the past shall lapse and shall not be carried forward to next year.
  • Ineligible to claim various deductions under chapter VI-A.
  • Assessment proceedings, other penalties, and prosecution can be initiated based on the circumstances of the case.

Others

  • Tax Audit u/s 44AB: If turnover exceeds a specified threshold amount (INR 1 crore / INR 5 crore depending on whether cash receipts/ cash payments are > 5% of total receipts/payments), a tax audit is applicable and an audit report from CA is mandatory. In case of non-compliance / delay in filing tax audit reports, a penalty of 5% of turnover (subject to maximum INR 1,50,000) is levied.
  • Transfer Pricing: If transfer pricing provisions are applicable, a transfer pricing report from an accountant is required & specified documents/ information must be maintained. Failure to furnish transfer pricing reports attracts a penalty of INR 1,00,000. Failure to maintain appropriate documentation attracts a penalty of 2%of the value of international transactions.
  • Report/ Certificate from CA may be required for claiming a few deductions/exemptions.
  • A valuation report from CA or merchant bankers may be required in certain cases.

Compliances under Goods and Services Tax (GST) Act

Registration

  • Voluntary Registration: Companies opt for voluntary registration, even though the turnover is below specified limits due to advantages like:
    • Claim input tax credit (ITC) of taxes paid on purchases/procurements and can utilize the same for payment of taxes due on supply of goods or services.
    • Most corporates prefer dealing with suppliers who are GST registered as it ensures seamless flow of ITC.
    • Banks and financial institutions lend working capital loans at lower rates as they are in a better position to determine cashflows based on GST returns data.
  • Registration on crossing specified Turnover: There are three limits of turnover mentioned i.e., INR 10 lakhs, INR 20 Lakhs, and INR 40 Lakhs. The turnover limit applicable will depend upon the state of registration and whether the supply consists of goods only or services only or a combination of both.
  • Compulsory Registration: Compulsory registration is required in certain cases such as inter-state suppliers, casual taxable persons, persons required to deduct TDS / collect TCS under GST, E-commerce operators, commission agents, etc.
  • The penalty of 100% of the tax due or INR 10,000– whichever is higher, is levied in case of failure to register under GST.

GST Returns and Payment

  • Return filing is mandatory under GST. Even if there is no transaction, you must file a NIL return. There are various returns to be filed on a monthly/quarterly/annual basis depending on the nature of the business.
  • The common returns are:
    • GSTR -1 / IFF: for outward supplies of goods and services,
    • GSTR -3B: self-declaration of all outward supplies made, input tax credit claimed, tax liability ascertained, and taxes paid.
  • Tax liability has to be paid before filing GSTR -3B.
  • Consequences of non-compliance:
    • Cannot file a return if you do not file the previous month/quarter’s return. Hence, late filing of GST returns will have a cascading effect leading to heavy interest, fees, and penalties.
    • In case of delay in making payment of taxes due, interest @ 18% p.a. is levied.
    • Delay in filing GST Returns attracts a late filing fee of INR 50 per day (max INR 5000)

Others

  • Determining HSN/SAC and charging appropriate GST rate on supplies
  • Proper invoicing of outward supplies / obtaining LUT for exports.
  • Maintenance of records for correctly claiming ITC (Reconciliation with GSTR -2A)

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