Tax Compliance & Litigation
Questions in Mind
1) We are a private limited Company and right now we are just in the expansion stage and there are no revenues in the Company, do we need to accomplish any compliance for the Company?
Well, this is a common query which fundamentally turns up in the mind of all the start-ups. Most of the private limited Companies give a miss to this because of unawareness about the laws. There are lots of compliances which a recently built-in Company also has to abide by. Failing which may screw the business in long run. The indispensable lists of compliance for private limited Companies are mentioned below:
· Appointment of Statutory Auditor.
· Statutory Audit of a Company by a practicing Chartered Accountant/Firm
· Filing of Income Tax Returns
· Filing of specific annual forms as prescribed by the Registrar of Companies.
· Organizing the minimum specified Board Meetings, Annual General Meetings and keeping a note of them, either digitally or manually.
· Maintaining of statutory registers as mandate by Companies Act.
2) Is it, so how TaxSamadhan can help me in taking care of all the basic compliance? Further, is there any procedure wherein I can outsource my entire accounting practice to TaxSamadhan?
As a layman, no one knows what comes first and what comes second. We at TaxSamadhan.co.in comprise of team of Chartered Accountants, Company Secretary, Lawyers and post graduates with considerable working experience who can help you in each and every step. Let us run you down what all we provide:
· Book Keeping and Accounting either via online support or interval visit by our team members.
· Quarterly Advance Tax Planning and Payment
· Quarterly Accounts Finalisation.
· Real time advisory of all Direct and Indirect Taxes
· Calculation of all Direct and Indirect Taxes on monthly basis and depositing the same to the treasury
· Filing of all Direct and Indirect Tax Returns.
· Helping in Equalisation Levy Advisory and Compliance
· Cloud Based Payslips and Salary Structuring
· All Payroll & labour law advisory & Compliance.
· Real time advisory on all accounting, taxation and corporate law matters.
· Advisory on time to time registrations either state or centralized
· Procuring registrations required for the business model.
· Income Tax Return Filing
· Other annual filings as mandate by ROC.
· Maintaining of proper registers.
· Secretarial Drafting.
· Statutory Audit by our associate practicing Chartered Accountant.
3) What are the initial registrations and requirements, a newly incorporated Private Limited Company should comply with?
The moment, a private limited Company is incorporated, it would entail the subsequent essential requirements:
· Display Company’s Identity and other Details.
· Applying for PAN and TAN of the Company.
· Appointment of Company Auditor.
· Open A Bank Account And Issue Shares To Subscribers
· Applying for Professional Tax Enrolment.
· Getting Shops and Establishment Registrations.
· Getting the Trade license.
4) What is the role of a CFO (Chief Financial Officer) in a Company?
To put forth in a nutshell, the CFO of a company is the single person answerable for the finances of the company. The answerability takes the entire accounting mechanism which is followed in the company, application of money and revenue sources in a consolidated whole. The role of a CFO stretches to preparation of budgets, establishing budgetary control points and internal checks, planning the reserves and surplus of the company, retention of profits and ploughing back the profits back into the company.
5) Why is it not feasible for a start-up or SME to appoint a full time CFO in the organization?
Hiring a CFO is always a cost intrinsic matter. Start-ups or SMEs are often not in a position to spend oodles on the same. Hence, it is not feasible for them to appoint a full time CFO.
6) What is book-keeping? How is it important?
Book-keeping involves taking record of all sums of money received and expended by the company and the matters in respect of which receipts and expenditure takes place, all sales and purchases of goods, the assets and liabilities of the company in a meaningful way which is interpretable to the owners of the organization, third parties, Government authorities and the auditors of the organization. Proper books of accounts shall not be deemed to be kept if such books as are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions and if such books are not kept on accrual basis and according to the double entry system of accounting.
7) Absence of proper accounting system will create mayhem to the entire financial control of the organization. That is understood. Is there any penalty associated with it?
If a company contravenes any provisions of these rules, the company and every officer thereof who is in default, including the persons referred to in sub-section (6) of section 209 of the Companies Act, 2013, shall be punishable as provided under sub-section (2) of section 642 read with sub-sections (5) and (7) of section 209 of Companies Act, 2013. Section 642(2) – Any rule made under sub- section (1) may provide that a contravention thereof shall be punishable with fine which may extend to five hundred rupees and where the contravention is a continuing one, with a further fine which may extend to fifty rupees for every day after the first during which such contravention continues. Sec 209(5) – If any of the persons referred to in sub- section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company there under, he shall, in respect of each offence, be punishable with 6[imprisonment for a term. which may extend to six months, or with fine which may extend to one thousand rupees, or with both Sec 209(7) – If any person, not being a person referred to in sub- section (6), having been charged by the managing agent, secretaries and treasurers, 2[ managing director, manager] or Board of directors, as the case may be, with the duty of seeing that the requirements of this section are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with 1[ imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.
8) Many of our customers had deducted our taxes while paying our invoices. How can that taxes be claimed?
Definitely many of your customers will deduct taxes while paying the invoices and will pay you the lesser amount. You can claim the equivalent tax deducted at source while filing the yearly income tax returns of your organization.
9) This means it is not at all sensible to maintain accounts without having a check on each expense our organization incurs. How will TaxSamadhan.org.in help and educate us in this?
Since we would undertake the day to day accounting assignment of your business, we would ensure and provide the following –
· Proper section applicability while deducting tax at source
· Proper base of calculation of tax deducted at source
· Monthly computation of tax deducted at source
· Monthly payment of TDS in respective challans by due date in the succeeding month
· Quarterly filing of TDS returns within the prescribed due dates.
· Submission of quarterly TDS Certificates
10) Wait a minute. This means if our organization is required to deduct tax at source on bills / invoices raised on us, then our customers shall also deduct tax at source on our invoices and pay us a lesser amount. Right?
True. In this case, the clients of your organization shall deduct tax at source on the billed amount and pay the net amount. But interestingly, your organization shall be entitled to the tax credit equivalent to the amount of tax deducted, and eligible to claim the same while filing the yearly income tax returns. It is mostly seen not a prudent decision for small businesses and new businesses to hire a CFO or full time senior accountant to take care of the entire finances and do hand-holding for all the necessary tax and regulatory compliances. The directors / promoters of the company either do not have time or resource to actually get involved themselves or afford to hire a full time CFO at a premium CTC. Even if the affordability is not a matter of concern, it is a challenging task to get a CFO who has a prior experience working in a similar business model, since in today’s dynamic and innovative business models which are creating worldwide impact, there is no spoon fed system of controlling finances which can work.
11) How can we be sure that our client has deposited the tax deducted at source with the Income Tax authorities? Can TaxSamadhan.co.in help us on that?
Certainly. TaxSamadhan.co.in is an E-Return Intermediary authorized by Income Tax Department. We can access your Tax Credit Statement at any given point of time and provide the relevant information. We can readily inform if any tax at source has been deducted on your income and never deposited, or if deposited, the credit has not been given to your organization. This is a purely Value added service which in-house CFOs fail to provide.
12) Is there any fixed explicit rate on which I can deduct taxes on my certain expenditures?
Regretfully, the rates for deducting taxes on expenditure are not fixed. The rates for deduction of taxes at source are different which depends upon the category and amount of expenditure to be made. The type and amount of expenditure has to be taken into consideration to conclude the rate and section of the Act, under which the tax shall be deducted.
13) I forgot to deduct tax at source on certain expenses incurred by my organization. Is there any penal provisions?
Regretfully yes, and fatal in nature. First of all, the expenditure on which tax has not been deducted at source, or deducted but not paid, shall be disallowed under Income Tax Act, 1961, which means that the deductibility of such expense shall not be allowed, which shall increase the net profits of your organization and thereby increasing the net tax liability of your organization. Failure to deduct taxes or wrong deduction of TDS (non-deposit, short deposit or late deposit):
Nature of Demand
Quantum of demand or penalty
Failure to deduct tax at source
Equal to tax amount deductible but not deducted
Failure to deposit tax at source
Equal to tax amount not deposited
@1.5% p.m. of tax not deducted
Rigorous imprisonment for a term for a minimum of 3 months which may extend to 7 years and with fine
Failure to apply for TAN No. u/s 203A
Failure to issue TDS certificate u/s 203
Rs. 100 every day during which the failure continues subject to maximum of TDS amount.
Failure to furnish statement of perquisite or profit in lieu of salary u/s 192(2C)
Rs. 100 every day during which the failure continues subject to maximum of TDS amount
Failure to mention PAN of the deductee in the TDS statements and certificates
14) What are the consequences if there is a delay in filing TDS returns?
If the TDS returns are not filed within due date, a late filing fee of Rs 200 per day until the return is filed. You have to pay this for every day of delay until the fine amount is equal to the amount you are supposed to pay as TDS. In addition to this, the assessing officer may direct a person who fails to file the statement of TDS within due date to pay penalty minimum of Rs.10,000 which may extended to Rs.1,00,000.
15) Understood. But there is confusion here. My organization bills customers during the entire year to the tune of Rs 15 lacs, and therefore the net receivable in the current account is Rs 13.5 lacs, after a deduction of 10% TDS. Now with a total salary cost of Rs 5 lacs, rent expense of Rs 2 lacs, office maintenance expense and other business developmental expenses of Rs 5 lacs and director’s remuneration of Rs 3 lacs, there is no profits for the year in the organization. What happens to the tax credit of Rs 1.5 lacs in such case?
Every organization shall, on or before the due date, furnish a return of its income in the prescribed form. As per the provisions of section 139 of the Income Tax Act, 1961 the due dates for filing of returns of income for different category of assessee are as under:
· 30th September of Assessment Year – Company, LLP (with tax audit), Partnership Firms (with tax audit), Sole Proprietorships (with tax audit).
· 31st July of Assessment Year – LLP (without tax audit), Partnership Firms (without tax audit), Sole Proprietorships (without tax audit)
A Company or Firm or LLP is required to furnish the return of income in all the following illustrative cases, a company or firm or LLP is under an obligation to file Return of income:
· A newly incorporated company or Firm or LLP which has not commenced business.
· A foreign company/foreign firm operating in India and having no incomes in India
· A company or firm or LLP whose entire income is exempt from Income Tax.
· A company or firm or LLP which is in the process of setting up the business.
· A company or firm or LLP which has incurred Loss.
· A company or firm or LLP which has closed all its activities and is in the nature of a defunct company or firm or LLP.
TaxSamadhan.co.in has a dedicated team of professionals who shall file the return of income and claim the refund of Rs 1.5 lacs. This again is a purely Value added service which in-house Chartered Accountants fail to provide.
16) Alike the earlier discussion, is there a fine due to non-filing of Income Tax return or delayed filing of Income Tax return?
If a person who is required to furnish a return of his income, as required under sub-section (1) of section 139 or by the proviso to that sub-section, fails to furnish such return before the end of the relevant Assessment Year, the Assessing Officer shall direct that such person shall pay, by way of penalty, a sum of Rs 5000.
Apart from the penalty, there are some of the major disadvantages of non-filing /delayed filing of returns which runs briefly as under –
· Return cannot be revised.
· Business loss (Speculation or otherwise), capital loss, loss due to owning and maintaining of race horses cannot be carry forwarded.
· Loss of Interest on refund u/s 244A.
· Interest u/s 234A will be charged.
17) I have received an intimation under section 143(1) for my Company? What does that mean?
Anytime someone receives a notice from the Income Tax Department, there seems to be an overwhelming sense of fear that goes with it. Just looking at such envelopes can bring thoughts of impending fines and appearances and adds to the stress of daily life. But not all notices come bearing bad news. While some bear great news such as tax refunds, there are a few that are more of an announcement or statement of facts and have no positive or negative impact. One such notice is the Intimation under section 143(1) which is being received by all assesses who have filed their income tax returns. This notification is a computer-generated message stating any errors made or any interest found payable or refundable. This message is generated automatically and has no human intervention. These intimations are often sent via email within a time frame of 1 year from the financial year in which the return was filed.