Statutory Compliances

Major Laws, Rules & Regulations Governing Businesses & Establishments in India

Company Law: A company must file copies of its annual report with the Registrar of Companies each year. The annual report shall consist of profit and loss accounts, balance sheet, auditors’ report, and director’s report, an annual return (indicating changes in shareholding patterns and changes in directors) (annual return has to be submitted at least once in five years), etc- An annual general meeting (AGM) of all members must be held each year. Board of directors’ (BoD) meetings must be held in each quarter of the year.
Import & Export- In case the business involves import or export of goods, an Importer-Exporter Code Number (IE code) must be obtained from the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry– the DGFT gives incentives for exports- an exporting firm must register with the appropriate exporters’ body, like MPEDA (for seafood exporters), the Marine Products Export Development Authority, Software Technology Parks of India (STPI), etc, to avail of exemption in income tax- a firm engaged in international trade must be careful to adhere to the guidelines laid down by Foreign Exchange Management Act (FEMA)-
Labour laws: Contract Labour Act– Employee’s State Insurance (ESI): For sickness, injury & maternity- ESI is applicable to: (i) All industries employing more than 20 people and manufacturing without the aid of power and, (ii) Employing more than 10 people and manufacturing with the aid of power. Here also, the employer collects the amount from the employees’ salaries and deposits it along with his/her contribution- Equal Remuneration Act- Factories Act- Gratuity: Gratuity is a lump sum paid to an employee when he/she leaves the organization after having worked for more than five years, at the rate of 15 days’ wage for every year of service- Minimum Wages Act- Payment of Wages Act- Provident Fund-
Pollution Control: No Objection from state Pollution Control Boards (PCBs);
Profession Tax: The entrepreneur has to pay profession tax at the rates prescribed in the laws of each state. Generally, such payments are one-time payments to be made on or before a specified date. An application must be made to obtain the Profession Tax Registration Number– The profession tax, an entrepreneur must deduct on a monthly basis a fixed amount of profession tax from salaries paid to his/her employees and pay it to the government on behalf of the employees. A separate Employer’s Registration Number must be obtained in such cases. Generally, profession tax is to be deducted only if the salary of the employee exceeds at certain amount. For example, in Maharashtra, profession tax is deductible only if the salary of the employee exceeds Rs. 2000 per month.
Tax Laws- Central Excise: Excise registration number must be obtained if the business is engaged in the manufacturing of the goods that come under central excise. The following steps have to be followed to submit central excise: (i) Find out if the product comes under central excise, (ii) Find out its classification, (iii) Find out its rate of duty, (iv) Pay the tax, (v) File returns- Central excise is paid on manufactured goods; excise is not paid on services. To come under the ambit of central excise, the products must have the following characteristics: (i) The goods must be manufactured, (ii) The goods must be movable, (iii) The goods must be marketable, (iv) The goods must be notified in the Central Excise Tariff Act- Governing Legislations- Central Excise Act and several other rules and notifications pertaining to it- Under the ‘CENVAT principle, excise duty need not be paid if excise duty has already been paid on the component used in the manufacturing of a particular product. Like an AC manufacturer is eligible to reduce his/her excise liability by the amount equivalent to the excise paid in the manufacture and sale of the compressor, pump, grill, and other components that are assembled to make an AC. The CENVAT can also be used to offset the excise paid on capital goods such as plant and machinery- A start-up may get registered as a small-scale industry (SSI). The SSIs with a turnover of less than Rs 150 lakh per annum are exempted from paying excise- The following practices can prove to be beneficial while paying central excise: (i) Give bill directly to the buyer, (ii) Advise all distributors and dealers of your products to be registered- (iii) Avail of SSI concession if your unit is eligible, (iv) Know your product properly. There may be an opportunity for reclassifying your product in a lower-rate slab. For example, motor vehicles of different carrying capacities attract different rates of excise, (v) Avail of all concessions under CENVAT, (vi) Let the customer pay separately for add-ons such as transport and warehousing expenses so that it does not get included in calculating the total excise liability- Income Tax: The financial year for the purpose of income tax is from April 1 to March 31 each year- Every year, at the end of the year, return of income got to be filed on or before the deadline for the same, as prescribed by govt. from time to time- In case, the turnover exceeds Rs. 40 lakh from business or Rs. 10 lakh from profession, some more relaxations in deadlines follow- A sole trader or sole proprietorship concern need not to file separate income tax if the proprietor is already a tax payer- An advance income tax must be paid during the year on estimated income in instalments of 30 per cent on or before September 15, another 30 per cent on or before December 15 and the balance 40 per cent on or before March 15- Any shortfall in such advance tax paid must be adjusted and paid on determining the actual income and tax thereon at the end of the year. If the proprietor does not have a permanent account number (PAN), apart from filing his/her income tax return, he/she must make application for PAN- A partnership firm and a company must prepare annual accounts, determine income, pay income tax thereon, and file return of income each year. They have to make application for PAN, which must be quoted, wherever required- In case of a partnership, income tax must be paid during the year on estimated income in instalments of 30 per cent on or before September 15, another 30 per cent on or before December 15 and the balance 40 per cent on or before March 15, just like a proprietorship. A company must pay advance income tax on estimated income in instalments of 15 per cent on or before June 15, next 15 per cent on or before September 15, another 30 per cent on or before December 15 and the balance 40 per cent on or before March 15- A partnership or a company must also deduct income tax at source on certain payments made by it and pay to the government. For this purpose, it must apply for a Tax Deduction Account Number (TAN)– Sales Tax: If the business consists of buying and selling goods and materials, a sales tax registration number must be obtained- In case, sales or purchases are likely to take place outside the state as well as within the state, both Central Sales Tax Registration Number as well as the Local Sales Tax Registration Number must be obtained- Some municipal bodies impose an Octroi or entry tax on entry of goods- Sales tax has to be paid, either on monthly, quarterly, half-yearly, or annual basis depending on the turnover. A return has to be filed at the end of each month or quarter. The rates of sales tax are given in the respective sales tax laws of each state. In most states, value added tax (VAT) has replaced local sales tax. There are five slabs of VAT: (i) Zero per cent for essential commodities, (ii) One per cent on bullion and precious stones, (iii) Four per cent on industrial inputs and capital goods and items of mass consumption, (iv) All other items 12.5 per cent, (v) Petroleum products, tobacco, liquor, etc., attract higher VAT rates that vary from state to state. One major benefit of VAT is the standardization of rates and procedures across the country. Some of the main features of VAT are as follows: (i) Input tax credit even on capital goods, (ii) Credit is carried forward for two years and then it is refunded in case it cannot be offset, (iii) Uniform rates throughout the country- (iv) Self-assessment of possible tax liability is allowed- (v) Audit- (vi) Interest can be claimed on delayed payments- The following important considerations have to be kept in mind for the payment of Central and state sales tax (or VAT): (i) Sell after stock transfer, (ii) Be careful of bogus stock transfer, (iii) Collect Forms C, D, F, and H on time, (iv) Advise your dealer to be registered, (v) Use ‘input tax credit’ on capital goods, (vi) Encourage dealers to get registered, (vii) Ensure that purchase and sales registers and stock-books are maintained, (viii) Claim interest for delayed payment- Service Tax: Service tax was introduced in India in 1994 when Manmohan Singh was the Finance Minister- Currently, over two lakh assesses in more than 60 different services pay service tax annually- At the commencement of the business, the firm has to apply for registration under the service tax rules and the certificate of registration is issued within seven days. Service tax is levied at the rate of 12% of the value of the services billed- The service tax has to be paid quarterly on the 25th day of the month following the quarter. In case of corporate bodies, this tax has to be paid monthly on the 25th day of the following month. Returns have to be filed on a half-yearly basis, again on the 25th day of the month following the end of the half-year.
Variety Of Submissions And Inspections: Inspectors can come for bathroom inspections, to check on weights and measures, and many surprise visits can also take place to check your stock, working conditions, and business records.

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