Introduction
Once a company’s incorporation is through, there comes a set of compliances that a company is liable to carry out. This is solely for the purpose of securing its legal status.
There are certain corporate formalities that the law requires for the company to continue as an officially recognized one post incorporation. The law also requires them to keep an accurate record of their activity.
There are 3 verticals of the corporate formality:
- The Corporate Records Requirement
- The Annual Reporting Requirement
- The Meetings Requirement
Formalities Post Incorporation:
1. To vet company’s master data on MCA portal:
- Authorised share capital
- Paid-up share capital
- Registered office address
- E-mail Id
- Company status
- Date of incorporation
2. Your company must show the following things right outside the registered office and get them printed on letter head:
- Name of the company
- Registered office address of the company
- Corporate identity number or CIN
- Telephone number, e-mail id
- Company’s fax contact and website address should be clearly mentioned
3. A board meeting to be conducted within a period of 30 days of incorporation in line with the following matters:
- Company’s incorporation certificate to be taken on record.
- Stating the situation of registered office – company is required to have registered office from 15th day of incorporation
- Stating 1st directors – individuals whose name should be mentioned in Articles of Association will be company’s first set of directors.
- In scenarios where no name in AOA, subscribers of MOA will be considered as primary directors.
- Preliminary Expenses would require approval.
- A bank account under company’s name should be opened before the issuing of shares take place.
- Further, appointing the 1st statutory auditors should take place under three sections:
- Appointment of internal auditor, if required
- Appointment of secretarial auditor, if required
Appointment of cost auditor, if required
- The disclosure of interest of directors at to be taken on record in company’s 1st board meeting within financial year.
- Taking on record PAN & TAN of the Company.
4. Further there must be allotment of securities along with relevant certificates after a board resolution. This also requires surrendering the letter of allotment with stamp duty payment.
5. VAT/CST application registration to be done with respective authorities for various purposes.
6. A verification of company’s registered office about the capability of receiving all communications and notices should be done with registrar.
7. There will be mention in various statutory registers as per the Companies Act, 2013:
- Register of members.
- Register of transfers.
- Register of directors & shareholdings.
- Register of charges.
- Register of Contracts – directors’ interest
- Meetings attendance registers etc.
8. In cases of Share Subscription Money i.e. the international fund received from other country instead of India, company is liable to share the transaction details with the RBI in Form FC-GPR.
Accounting, Filling and Auditing Requirement:
Financial Statement
The Companies Act states that the companies are liable to maintain financial statements every year. These statements are to be prepared from April 1 to March 31 known as financial year. This should be as per the protocols under Companies Act. India had proposed for a consolidation of its accounting protocols with IFRS – called Indian Accounting Standard. It came into existence from 1st April 2016 as mandatory for both unlisted and listed companies.
Auditing
Companies are also liable to get their financial statements audited via a chartered accountant or any chartered accountant firm registered with ICAI. These statements should get a green flag from members or shareholders in AGM. Beyond this, an internal audit is also essential for companies with a turnover exceeding 50 million. This can again be conducted via a CA or a CA firm.
Filling
Filing requires the companies to file the audited financial statement with the Registrar of Companies. But this should only be done after a go ahead from the relevant members or shareholders in the AGM.
| S. no |
Compliance |
Period |
| 1. |
Appointment of Auditor |
30 days from the date of incorporation |
| 2. |
Preparation of Financial Statement |
1st April – 31st March |
| 3. |
Annual General Meeting (AGM) |
6 months from the date of closing of financial statement |
| 4. |
Annual Return filing with registrar |
60 days from AGM |
KYC of Director: The company is liable to file KYC of all the directors every year with the ROC. This should be done on the assigned dates by ROC. If at all there’s a miss in this, the Company Director status becomes inactive.
Income Tax:
Introduction: There is a concept of residence-based taxation in India. A corporation is considered as an Indian resident if the incorporation takes place in India. It is also the case if its management and control is based in India.
Tax Registration: A company is liable to procure a tax registration commonly called PAN (permanent account number) – needed for filing the tax return and TAN (tax deduction account number) – needed for tax deduction return.
Filling: Company is liable to file a tax return. Also requires reporting the income of last year by September 30th right after the closing of fiscal year. Due date is November and not September 30 if transfer pricing.
Tax Payment: Income tax is paid through partial payment sets mentioned here:
| Due Date |
Percentage of Estimated Tax |
| 15th June |
15% |
| 15th September |
45% |
| 15th December |
75% |
| 15th March |
100% |
Withholding Tax: All corporations and even foreign entities are liable to deduct tax on the governed verticals of income during payment or during the credit to the account – depending on the timeline at certain applicable rates. This is then handed to the treasury of the government within a period of 7 days from the closing of the month. Have a look at the payment and compliances are mentioned below to understand in depth:
| Particular |
Due Date |
| The Payment |
7th day of following month
(exception for March – April 30)
|
| The Filling |
15th day of following month from quarter end |
| The Certificate |
30th of following month
(For salaried – 30th May)
|
| 15th March |
100% |
Transfer Pricing:
The transfer pricing regulation states that the price of international deal or any specific in-country transaction between two or joint enterprises should be computed with reference to the Arm’s Length Principle.
Documentation requirements: The code suggests information and documentation that should be maintained by the taxpayer for clearly quoting that the price adheres to the arm’s length principle.
The taxpayers are liable to manage and maintain the leads and documentations with respect to the transaction taken place between associated enterprises.
Now, the taxpayer having foreign transactions lesser than 1crore and domestic is less than 5 crores are free from maintaining the set documents. It is essential that the documents can justify arm’s length structure.
Accountant’s report: Essential for all taxpayers to set an independent account report when it comes to foreign and domestic dealings. The report must be closed by the due date filing of tax return.
Expatriate: The tax incidence solely stands on an individual’s residential status. Expatriates assigned to India first time are also liable to pay tax for initial two years of their stay. They are taxable as below:
- Income in India
- Income accruing in India
The salary earned in India for services exhibited in India is counted to be India-sourced income. Therefore, it falls under taxable category no matter the place of receipt and residential status of expatriate. But there is always a refuge available regarding such Income domestic tax laws or the DTAA within India and home country. Though, there are reasonable conditions to be met in both scenarios.
Withholding Tax: The employer is supposed to withhold tax on the employment salary at applicable rates and issue the same to government’s treasury within 7 days from month closing during which the salary is paid. (Exception for March – timeline is extended till April 30, applicable even for non-Indian resident.)
Tax Return Filling: A tax return is required to be filed with the income tax authority at the closing of each year. 31 July of the is the due date of every assessment year. However, a late filing can also be done post the expiry of one year from the closing of the assessment year. It is essential to file returns digitally if income is beyond 10 lakhs.
Custom duty: The import of goods in India requires a custom duty payable by the importer of the goods. This is also levied on export of some of the goods. The rate of custom duty stands on a classification governed under Custom Tariff – which is in line with the International Harmonized System of Nomenclature – broadly 37.47%
Customs duty generally comprises the following components:
- Basic Customs Duty (BCD)
- Social Welfare Surcharge (SWS)
- Goods & Service Tax (GST)
It is accepted and allowed that the GST on import goods can be considered credit against the GST tax liability, which is obviously subject to reasonable conditions.
In scenarios of import via related parties, the circumstance is typically referred to the Special Valuation Branch authorities by the customs authorities to validate if the transaction is based on arm’s length principle. Determination and deposit of duty before clearance of goods is required.
Goods & Service Tax:
Taxes like Central Excise duty, additional excise duty, service tax, special additional duty along with state taxes like VAT, central sales tax, entertainment tax, entry tax etc are all replaced by GST. The rate structure of GST has four-tier vertical – 5%, 12%, 18%, 28%
The minimum limit under GST in 2 million of average turnover in a financial year. The limit is reduced to 1 million in certain states. A payer can claim the input credit through documents like invoice, entry bill, debit note. If the payment does not happen within a period of 180 days, input credit amount will be extended to the output liability. The period of claiming input credit is only 6 months from the closing of financial year. The key compliances under GST are described below:
| Particular |
Due Date |
| Payment of GST |
20th of next month (31st March for the march) |
| Monthly Return of GST |
10th of next month |
| Annual Return |
31st December of next financial year |
Secretarial Compliances: The companies need to follow secretarial matter under the Companies Act and report to the registrar of companies. The key compliances are mentioned below:
| Particular |
Compliance |
| Change in Address |
Mandatory |
| Change in Director |
Mandatory |
| Statutory Registers |
Mandatory |
| Resident Director |
Mandatory |
| Allotment of shares |
Mandatory |
| Board Meeting |
A minimum 4 board meeting must be held every year, and the time gap between two consecutive meeting cannot exceed 120 days |
| Annual General Meeting |
6 months from the date of closing of financial statement |
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