Every organization must comply with the laws and statutes of India. Non-compliance to this framework can lead to penalties and other legal implications. Payroll and statutory compliance with prerequisite regulations and norms ensure that an organization faces no legal implications and avoids disqualifications, confiscation of licenses, fines, lawsuits, etc.
The word statutory means of or related to statutes and compliance means adherence. Therefore, Statutory Compliance means adhering to rules and regulations laid down by the government. These regulations ensure the efficient functioning of the company and the welfare of employers and employees.
HR departments and employers must ensure legal payroll statutory compliance with these laws including conducting statutory audits periodically.
While the government wants organizations to follow statutory compliances, it also helps organizations to maintain their corporate existence and avoid all legal hassles.
Every country has its own set of legal frameworks and maintaining a spotless compliance record can benefit businesses in multiple ways. It can facilitate business expansion within the country, save you from legal penalties, and also help in sustainable business growth. Lets look into some of the major benefits of statutory compliance in payroll:
- Safeguarding employee interest: Setting company policies and regulations to ensure a secure work environment for employees is crucial to any business. Besides, it is also essential for fair and professional treatment of employees at the workplace.
- Minimize legal penalties: If compliances are being followed, businesses can ensure smooth and continuous working while minimizing legal penalties and lawsuits.
- Managing Business Risks: A business that invests in substantial compliance management systems sustains goodwill. They stand a better bargaining position at the time of negotiations. Further, it avoids failures at early stages, thus ensuring superior efficiency in business processes.
- Increased efficiency: Organisations that are non-compliant fail to demonstrate dedication to business ethics. On the other hand, organizations with statutory compliance in HR can easily improve employee morale, and superior productivity, leading to low attrition rates, and increased business efficiency.
- Better PR: Statutory compliance reassures the businesss employees, investors, stakeholders, and customers.
Depending upon the industry and type of business, there are many laws, rules and regulations that an organization must comply with. Here is a statutory compliance checklist mandated by the Government of India. The list of these important Acts that affect an organization and its HR function is enclosed below:
- The Minimum Wages Act, 1948: It is central legislation designed to prevent the exploitation of labor by fixing a minimum wage rate. Cost of living, wage period, and type of job are the most common factors considered before fixing minimum wages.
- The Payment of Bonus Act, 1965: It provides an annual bonus to employees of certain establishments, calculated based on an employees salary and profits of an organization.
- The Payment of Wages Act 1936: It ensures that employees from organizations with less than 1000 employees are paid on time (before the 7th of every month) by having penalties for wages paid late by a month. However, it does not apply to people earning a monthly salary of Rs 10,000.
- The Apprentices Act, 1961: It was enacted to regulate and promote the program of training of apprentices in the industry to meet the requirements of skilled manpower.
- The Contract Labour Regulation and Abolition Act, 1970: This Act regulates the employment of contract labor in certain establishments to provide for its abolition in certain circumstances.
- The Child Labour Regulation and Abolition Act, 1986: The act prohibits the engagement of children in certain employments and regulates the conditions of work of children.
- The Industrial Disputes Act, 1946: The act regulates the concerned trade unions and individual workmen employed following Indian labor law.
- The Industrial Employment Standing Orders Act, 1946: The Act applies to every industrial establishment wherein one hundred or more workmen are employed.
- The Equal Remuneration Act, 1976: The Act provides for the payment of equal remuneration to men and women workers and prevents discrimination.
- The Factories Act, 1948: The Act sets safety standards for workers employed in factories manufacturing goods, including weaving cloth, dyeing and finishing textiles etc.
- The Employment Exchange (Compulsory Notification of Vacancies Act), 1959: The Act provides compulsory notification of vacancies to the employment exchanges.
- The Trade Unions Act, 1926: The Act provides registration of trade unions and in certain respects defines laws relating to registered trade unions.
- The Workmens Compensation Act, 1923: The Act provides for the payment by certain classes of employers to their workmen of compensation for injury by accident.
- Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979
- The Employees State Insurance Act 1946: This act aims to help employees overcome medical emergencies at the workplace. ESI is obligatory for employers who have more than 10 employees. For each paycheck, the employer contributes 3.25%.
- The Employees Provident Fund and Miscellaneous Provisions Act, 1952: It is one of the biggest social welfare contributions wherein employer and employee together contribute 12% of basic pay and DA to the employees retirement chest.
- The Payment of Gratuity Act, 1972: Gratuity is given by the employer to an employee for services rendered by him during employment. It is calculated as 15* last drawn salary* tenure of working/26.
Statutory compliance can make or break an organizations reputation. There are tons of rules and regulations involved that must be adhered to perfectly.
What are the statutory compliance in the manufacturing industry?
Manufacturing companies must comply with the provisions of the Companies Act 2013, Goods and Services Tax registration and compliance, Income Tax Act, Labour Laws, and Intellectual Property Laws including the Patents Act, Trademarks Act, and Copyrights Act.
Factories employing 10 or more workers must comply with the Factory Act and factories using 20 workers or more must obtain a license from the Chief Inspector of Factories.
Besides these statutory compliances in India, manufacturing units must comply with environmental laws including the Water (Prevention and Control of Pollution) Act 1974, the Air (Prevention and Control of Pollution) Act 1981, and the Hazardous Waste Management Rules 2016.
How to do a statutory compliance audit?
The statutory audit procedure is diverse and comprises of necessary steps:
1. Obtaining an Understanding of the Entity wherein the auditor examines industrial standards and regulation criteria. Questionnaires, checklists, and surveys help to know its operating environment.
2. In the second step, the auditor can learn about the company entitys operations control by reading industry publications and the previous years audit report.
3. Professionals conducting regulatory audits and operational measures for fraud or error prevention evaluate business procedures in the third step. Here employees participate in the process and understand operating controls that are being carried out correctly.
4. The fourth step involves a review of account balances to ensure financial reports are error-free.
5. Lastly, the auditor will conduct tests of accounts and balances on the account balances of a bank or hedge fund to ensure that audited statutory financial statements are comprehensive and correct.
What are statutory compliance deductions?
Payroll statutory compliance deductions such as provident fund, TDS, ESI, and labor welfare fund are withdrawn during processing. The organizations are legally obligated to pay these deductions to the relevant authorities and evade non-compliance.
Is TDS a statutory compliance?
According to Section 192 of the Income Tax Act, every employer who is paying a salary income to his employee is required to deduct TDS from the salary income if it exceeds the basic exemption limit. Surely, TDS deduction is compulsory and it is crucial to understand the rate of such deduction and how it happens.
What is 2 statutory deductions?
Statutory deductions like Income Tax, Provident Fund, National Pension Scheme, Labour Welfare Fund, and Professional Tax are standard deductions that the employer deducts from an employees gross pay.
Navigating the complex web of laws and regulations surrounding employee taxes can be daunting, but it's crucial for any business owner. Similarly, adhering to all state and central regulations that govern how employees should be paid is crucial. Employers who violate any of these laws may face penalties affecting their bottom line. For this purpose, payroll compliance in India is a must.
Payroll compliance is an act that ensures a business adheres to all legal regulations surrounding the processing of payroll and filing of payroll-related taxes.
Payroll and compliance and compliance is difficult as each state has its own rules and regulations. As the business expands into other jurisdictions, the complexity only increases. Additionally, the unemployment rate, minimum wage requirements, and disability insurance costs vary from state to state making payroll and statutory compliance a strenuous task.
Navigating the intricate landscape of payroll regulations appears to be daunting. Despite this, adhering to these regulations offers a plethora of benefits. Todays business environment requires decorum of corporate governance for organizations to succeed in its mission. Payroll and tax compliance affects every aspect of an organization and its positive impacts. By prioritizing payroll compliance, establishments unlock a gateway to enhanced efficiency, improved employee morale, and strengthened brand image.
When employees receive accurate and timely pay, it fosters a sense of trust and fairness within an organization. This directly translates into improved employee morale and engagement. Thus, enhancing productivity and a stronger overall work ethic.
Moreover, a well-managed payroll system reflects positively on an organizations reputation. It demonstrates the organizations commitment to ethical practices and responsible employee treatment. This translates to increased retention rates, a stronger employer brand, and enhanced competitiveness in the market.
A compliant payroll system eliminates manual errors and inconsistencies. Automation and centralized management of payroll processes ensure timely and accurate payouts, minimizing errors, and streamlining workflows.
On the other hand, non-compliance with payroll laws can lead to hefty penalties and legal repercussions, jeopardizing the stability of an organization. By meticulously adhering to wage rules, tax deductions, and minimum wage requirements, organizations avoid financial burdens and safeguard their legal standing. Besides, accurate payroll data facilitates informed budgeting and forecasting, allowing organizations to optimize their financial resources effectively.
As we talk about payroll and statutory compliance, our thoughts are directed toward what Indian labor laws and acts organizations must follow to operate smoothly in the country.
Payment of Wages Act, 1936: The legislation ensures that the employer is responsible for paying timely wages to employees. Employers can choose to pay monthly, weekly, or daily basis through cheque or cash at the wage rates provided by state and central government.
Minimum Wages Act, 1948: The act defines minimum wages for employees as the cost of living in respective states. Formulated to avert labor exploitation, it considers the schedule of employment and minimum wage rates provided by central and state governments.
Employee State Insurance (ESI) Act, 1948: The Act was formulated to enable employees to tackle medical emergencies or accidents at workplace and maternity leave. While the employer contributes 3.25%, the employee contributes 0.75% to the employees insurance account.
Employees Provident Fund (EPF) Act, 1952: The Act provides provisions for the social welfare of employees wherein both the employee and the employer pay 12% of the basic pay and Dearness Allowance (DA) towards EPF.
Maternity Benefits Act 1961: The Act directs organizations with more than ten employees to award maternity benefits to their female employees. It intends to provide security by issuing full paid maternity leave from work to women for child delivery and care. However, an employee must have worked in the organization for at least 80 days to avail the benefits.
Labour Welfare Act 1965: As the Act aims to provide social security of employees, it directs employers to operate on specific conditions. For this purpose, it dictates several dos and donts to improve the working conditions of the employees.
Payment of Bonus Act, 1965: As per the provisions of the Act, the bonus is computed based on the employees remuneration and the organizations profit. Further, the act declares all employees who have worked for not less than 30 days eligible to receive bonuses from employers.
Payment of Gratuity Act 1972: Gratuity is a fixed component of an employees salary. The Act mandates all establishments including NGOs, hospitals, and educational institutions with ten or more employees to pay gratuity to employees.
Tax Deducted at Source (TDS): TDS deduction enables employers to deduct specific tax amounts before paying the employees full salary. This payroll and tax compliance applies to all employees falling under the income tax slab.
Employers that conduct business overseas must comply with international payroll rules too. The global marketplace is highly regulated and complex. Here are a few international regulations that may affect employers' payroll processes.
European Union Working Time Directive (WTD): It limits the number of hours an individual can work per week, including overtime. It also sets minimum standards for break periods and paid leaves.
Wages Protection System of UAE: The Ministry of Human Resources and Emiratisation mandates that organizations register under WPS for working in UAE and pay employees through an approved financial institution within deadlines.
UK Employment Rights Act: The Act provides guidance for reasonable dismissal notices, unfair dismissal, employment contracts, and parental leaves.
Labor Standards of Japan: It covers minimum wage rates, working hours and overtime, and other employment issues.
Labor Law of the Peoples Republic of China: It provides guidance on daily and weekly working hours for employees, working conditions, welfare, overtime, and more.
Payroll compliance is a strategic investment, a commitment to ethical practices, and responsible employee treatment to pave the way for sustainable long-term growth. Yet adhering to intricate state, national, and international laws can often be strenuous for organizations. Mistakes are unmitigable. Moreover, payroll regulations and taxes are constantly evolving and it is easy to see some of the common payroll mistakes.
- Misidentification of full-time employees as contract workers or vice versa is a common mistake with serious consequences.
- Failure to adhere to established pay schedules can erode employee trust and morale, impacting their efficiency, engagement, and productivity.
- Miscalculations in tax deductions like Income Tax, and professional tax, can result in underpayment or overpayment, leading to penalties and legal complications.
- Lack of documentation of payroll processes can make it difficult to reconcile discrepancies and resolve employee grievances.
- Manual data entry mistakes can lead to inaccuracies in payroll calculations
- Relying on outdated payroll software can be error-prone. Its inadequate reporting capabilities can hinder efficient payroll management.
- The absence of robust internal controls in the HR department can create vulnerabilities for fraud and manipulation.
Many of these compliance mistakes can be avoided by the use of payroll software with meticulous recordkeeping. It offers a host of compliance-related benefits including automated payments to employees and government agencies within the deadline. Organizations can also finalize a payroll compliance checklist for a deeper dive. It will help to inspect all onboarding paperwork for missing information and carefully enter data into HR.
Payroll and compliance management is a complex process, riddled and intricate regulations and ever-evolving compliance requirements. Even the most diligent efforts can fall victim to common mistakes. It is advised to hire experts for payroll compliance to avoid legal and financial repercussions.
What are the rules for payroll?
Depending upon the industry and type of business, there are many payroll rules that an organization has to follow. One of the key rules mandates organizations with less than 1000 employees to pay their employees before 7th of every month. If an organization has more than 1000 employees, they need to be paid on 10th.
What are the 5 payroll steps?
For everything to run smoothly, five payroll steps are elemental.
- Misidentification of full-time employees as contract workers or vice versa is a common mistake with serious consequences.
- First is a selection of the right payroll system: payroll software, outsourced, and manual payroll.
- The second is to develop a payroll policy for an organization in line with the provisions of the law.
- Third, creating pay stubs for easy tracking of payments.
- Fourth, establish tracking systems for an accurate record of all workers and their working hours.
- Lastly, collect, report, and update payroll records to indicate withholdings.
Why is payroll compliance important?
Payroll compliance is one of the most significant employer responsibilities as it ensures employees are compensated correctly for their work. While it helps to reduce the risk of penalties and lawsuits for businesses, it improves workforce morale and efficiency in the long run.
Why compliance is important in a company?
One of the crucial reasons that payroll and compliance management is critical in a company is that there are a plethora of state and central labor regulations and laws. Keeping up constantly with the constantly evolving legal payroll requirements will avoid serious legal repercussions and expensive fines that companies might have to pay otherwise.
The Goods and Services Tax (GST) is designed to be self-policing, and so the taxpayers are expected to voluntarily comply with the provisions of the law. Since it is susceptible to errors, taxpayers are required to self-assess their tax liability to avoid unnecessary departmental interventions and litigations.
An audit under GST is an examination of taxpayers records to verify the accuracy of their reported GST liability. It may be conducted by the tax authorities wherein taxpayers will have to cooperate and provide all relevant information and documents.
From the statutory audit that assesses the correctness of the financial statements to the compliance audit that assesses the compliance with the rules, familiarising with audits and its types under GST is crucial.
Equally essential is to know which type of audit is suitable for the taxpayers following the GST audit turnover limit. For this purpose, taxpayers will have to calculate the total turnover under the PAN. The GST audit procedure depends upon the type of audit. For instance, special audits under GST are conducted by CA CMA nominated by the commissioner while department GST audits are conducted by the commissioner or any officer authorized.
Section 2 (13) of CGST defines audit as an examination of records, returns, and other documents maintained or furbished by a registered person under this Act to verify the correctness of turnover declared, taxes paid, refund claimed, assess compliance, and input tax credit availed.
The GST Act provides for different types of audits under GST, including;
To ensure proper calculation and discharge tax liability, tax authorities conduct departmental audits regularly. Section 65 and Rule 101(3) of GST Audit Rules, the commissioner or an officer authorized by him can conduct this audit and verify the details of the records and books of account of the registered person.
The audit by tax authorities shall be conducted at the place of business of a registered person or office. An intimation of the audit is provided at least 15 days in advance and has to be completed within 3 months from the date of commencement.
As of 30th July 2021, the government has notified the removal of GST audit and certification done by CA CMA. Now the GST audit turnover limit is Rs 2 crores in a financial year, which means taxpayers exceeding the turnover limit shall submit self-certified GSTR 9C.
According to Section 66 and Rule 102 of GST Audit Rules, an authorized officer at any stage of scrutiny, inquiry, or investigation may avail of the services provided by CA CMA. The authorized officer can consider the nature and complexity of the business to know if the value has not been correctly declared or credit availed is not within the normal limits.
The expense of such special audits and examination of records returns is paid by the commissioner. The period required to audit the account can be provided with an extension of an additional ninety days. Conclusions of the special audit under GST are communicated to the auditee in Form GST ADT-04.
A limited audit is conducted only in specific cases wherein tax authorities suspect non-compliance with the provisions of the GST Act. The objective of this audit is to verify compliance with other provisions of the law and ensure the tax returns filed are correct.
This audit is initiated by the taxpayer to verify compliance with the provisions of the GST Act. The law provides for several consequences of non-compliance including fines, imprisonment, and penalties. Henceforth, taxpayers must ensure compliance.
Taxpayers are advised to keep accurate and complete books of accounts including invoices, receipts, returns, and other documents.
Understanding the five types of audits under GST is essential for businesses operating in India as it will serve as a crucial tool to ensure compliance, accountability, and transparency in the GST framework.
| Audit Type | Conducted By | Frequency | Provision |
|---|---|---|---|
| Departmental Audi | Tax authorities | Ad-Hoc | Section 65, Rule 101 (3) |
| Statutory Audit | Self | Annually | Section 35(5) |
| Special Audit | Tax authorities | Ad-Hoc | Section 66, Rule 102 |
| Limited Scrutiny | Tax authorities | Ad-Hoc | Form ASMT-10/11 |
| Taxpayer Initiated Audit | Self | As per your own discretion | GST Law |
Taxpayers are advised to keep accurate and complete records of their books of account, business transactions, file their tax returns on a timely basis. Non-compliance with the provisions of the GST law can lead to severe consequences, including fines, penalties, and imprisonment. Litigation Management Solutions (LMS) are developed with in-depth experience in litigation, knowledge of the subject, and an understanding of practical difficulties faced by various industries.
What are the 4 types of GST?
The 4 types of GST audit under GST are; Mandatory GST audit, Departmental GST Audit, Special Audit under GST, and Statutory Audit. Taxpayers must familiarize themselves with these GST audits to gain valuable insights into the requirements, timelines, and ethical practices. This knowledge will mitigate the risk of non-compliance.
What is audit under GST?
Instead of mandatory audits by CAs, the current system relies on self-certification. GST audit ensures taxpayers are complying with the provisions of the Goods and Services Tax (GST) Act. Further, it identifies errors and discrepancies in taxpayers records. Taxpayers with an annual turnover exceeding Rs. 5 crores in a financial year were required to file a reconciliation statement on the GST portal.
Who can file GST audit?
Starting the financial year 2020-21, all registered taxpayers exceeding a turnover of Rs. 5 crores are required to get their accounts audited by a Chartered Accountant; CA CMA, and submit a copy of the audited financial statements on the GST portal.
What is the time limit for GST audit?
Tax authorities send a notice to the auditee at least 15 days prior to the audit. The entire GST audit procedure must be completed within 3 months from the date of commencement of the audit. The jurisdictional Commissioner CGST, audit can extend the audit period for a further 6 months with reasons recorded in writing.
Why is GST audit important?
The audit is crucial to verify compliance with the provisions of GST law. It ensures that taxpayers pay the correct amount of GST. The audit identifies errors and discrepancies in the records and further educates the taxpayers on the GST laws and procedures.
The Income Tax Act of 1961 has various sections regarding income tax regulations around tax audits. A business personnel or a professional will have to comply with the regulations based on their eligibility criteria.
Section 44 AB of Income Tax Act 1961 deals with the audit of accounts for individuals who meet certain requirements and need to get their accounts audited by a Chartered Accountant (CA). the section states the threshold limit mandatory for a tax audit. If a business or a professional crosses this threshold, a mandatory tax audit will be conducted for them.
Here it is important to note for taxpayers who own more than one business or profession, aggregate turnover will have to be above the threshold limit to conduct a mandatory tax audit.
A tax audit under Section AB A of Income Tax Act is an examination and assessment of the books of accounts of an organization carrying businesses or professionals. It reviews income, expenses, deductions, and their taxes.
Section 44 AB of Income Tax Act states that businesses with a gross turnover in the preceding year crossing Rs. 1 crore, will have to get a tax audit. In case, the cash transactions are less than 5%, then the threshold will be Rs. 10 crores.
Further, the section mandates that if gross receipts from a taxpayers profession crosses Rs. 50 lakhs in the preceding year, an audit becomes mandatory.
Section 44 AB also states that an audit becomes mandatory if a business or profession has opted for presumptive taxation as per Section 44 AE, Section 44DA, Section 44BB, and Section 44 BBB.
The preceding year is the year before the financial year in which the tax audit is required. However, the due date for completion of tax audit and filing returns is always 30th September of the assessment year wherein tax audit report has to be filed through Form 3 CA and Form 3CD.
Tax audit mandates proper maintenance of accounting books for the computation of taxes with the following objectives:
- Proper maintenance of accounting books avoids fraudulent activities and certification by auditor.
- Report discrepancies if any
- Report compliance with the provisions of the Section 44 AB tax audit
- Verify information filed in ITR regarding income, deductions, and taxes
- Make computation of tax and deductions easy
The tax audit reports are prepared electronically by a CA either in Form 3CA or Form 3CB. In either case, the tax auditor will furbish the prescribed particulars in Form 3CD which will form a part of audit report.
Every person who earns an income from any business or profession shall maintain books of accounts and get a tax audit done, except if they are exempted under a presumptive taxation scheme.
| Category of Person | Threshold For Tax Audit |
|---|---|
| Business | |
| Carrying Business while not opting for a presumptive taxation scheme | Total turnover, sales, or gross receipts exceed Rs. 1 crore in financial year. The threshold is Rs. 10 crores if cash transactions are up to 5% of total gross payments and receipts. |
| Carrying Business not eligible to claim presumptive taxation scheme under Section 44AD | If income exceeds the maximum amount not chargeable to tax in subsequent 5 consecutive tax years |
| Profession | |
| Carrying on profession | Total gross receipts must exceed Rs. 50 lakhs in the financial year |
| Carrying profession eligible for presumptive taxation scheme under Section 44ADA | Income must exceed the maximum amount not chargeable to income tax Under the presumptive taxation scheme, claim profit or gain lower than the prescribed limit |
| Business Loss | |
| Carrying on business while not opting for presumptive taxation scheme | Total turnover, sales, or gross receipt of taxpayers exceed Rs 1 crores. In case the taxpayer has incurred a loss from carrying a business and the taxpayers total income exceeds the basic threshold limit |
| Carrying on business (Section 44AD) and having business loss with income below basic threshold limit | 44 AB tax audit is not applicable. |
| Carrying on business (Section 44AD) and having business loss with income exceeding basic threshold limit | If a taxpayer has income exceeding the basic threshold limit and declares a taxable income within prescribed limits under presumptive tax scheme. |
All eligible businesses and professionals must comply with the jurisdiction and tax laws applicable under Section 44 AB of Income Tax Act 1961. Failure to comply with these laws may impose monetary penalties typically calculated as a percentage of the tax liability or income subjected to audit. Moreover, interest charges may be accrued on unpaid tax liability and in severe cases of repeated non-compliance, legal action may be taken against the taxpayer. In some cases, tax authorities report to credit agencies about non-compliance, negatively impacting your credit rating.
A taxpayer must comply with the provisions to avoid penalties and legal complications. All taxpayers must furnish a tax audit report and maintain complete books of accounts.
What is the difference between 44AB and 44AD?
Income tax section 44AB is applicable for businesses with total sales, turnover, or gross receipts exceeds one crore rupees in previous year or professionals who have gross recipts exceeding Rs. 50 lakhs.
Section 44 AD is applicable for businesses with turnovers not exceeding Rs. 2 crores and declared profit is not exceeding 6%.
Who are eligible for 44AD?
The scheme under section 44AD is applicable to businesses, professionals, and partnership firms. It is applicable for professionals since the simple taxation process came into effect in the financial year 2016-17. While it is applicable for India-based firms, limited liability partnership firms are not applicable. All types of businesses other than plying carriages, hiring, brokerage or commission are eligible for the Income Tax Act 1961.
What is the clause of 44 AD?
Small taxpayers can adopt presumptive taxation schemes of Section 44AD, 44ADA, 44AE to avoid the tedious task of maintaining accounts and getting them audited. For all eligible businesses or professionals, income is computed on the presumptive basis at the rate of 8% of the annual total sales turnover or gross receipts for the year.
What is the turnover limit for ITR 4?
The taxpayers turnover or gross receipts of the business must be less than Rs. 2 crores to avail of benefits of ITR-4 under 44 AB of income tax.
What is the last date of the 44AB tax audit?
The due date for completion of tax audit under Section 44 AB and filing returns is always 30th September of the Income Tax Act (assessment year) wherein tax audit report has to be filed through Form 3 CA and Form 3CD.
What is the penalty for 44AB?
Failure to comply with Section 44 AB of Income Tax Act means the taxpayer will have to pay a penalty of 0.5% of the annual gross sales/ turnover/ gross receipts or Rs. 1.5 lakhs. The penalty payable will be lower of the two. However in case of labor strikes, natural disasters, delay on account of tax auditor resigning, loss of books of accounts due to genuine reasons, and if a partner in charge of accounting books becomes physically incapacitated, penalty may be waived.
What is Form 3CA?
Form 3CA is where the Chartered Accountant enters the details on the audit of the account of business or profession of the assessee before proceeding to Form 3CD.
Section 24 of Income Tax Act is the key tax relief on homeownership in India. It allows for deductions on income from house property, helping taxpayers reduce their taxable income and ultimately lowering the tax burden.
Section 24 of Income Tax Act India of 1961 considers the amount of interest a taxpayer pays for home loans. Often referred to as deductions from income from house property, it allows taxpayers to assert tax exemptions on the interest of home loans. The maximum amount of deduction under section 24 of Income Tax Act is Rs. 1.5 lakhs.
The benefits of Section 24 of income tax extend beyond loan interest. Taxpayers can claim deductions for municipal taxes and interest paid on pre-construction until the year the property is acquired is also eligible for deduction in five equal installments.
Since the income from house property is taken into consideration and a person can hold more than one house, it is crucial to understand the definition of income as given in Section 24.
Section 2 24 of Income Tax Act defines income for taxation. Income is inclusive of salaries, income from house property, profits and gains of business or profession, income from other sources, capital gains, contribution of EPF account, VRS compensation, winnings from lotteries, and foreign income.
The section excludes agricultural income, income from a charitable institution or trust, and income from the Hindu Undivided Family (HUF) from the computation of income.
There are three scenarios wherein income occurs from house property:
- Housing income by way of rent.
- The annual value of the property that it deemed to be let out.
- The annual value of the property that is self-occupied
Here are a few points to keep in mind while analyzing income from house property:
Section 24 of the Income Tax Act calculates tax on house property on the Net Annual Value of the property. In case the house is vacant for a particular period and later it is let out, the owner or deemed owner receives the rent, computation of income should be done only on the rent received and not the whole year.
Contrarily, if the taxpayer’s home is vacant for the whole year, the taxpayer is residing at different locations, then income is computed from other sources like salary within the same year. This income can be carried forward for up to eight years.
Taxpayers can claim the following tax benefits;
- Tax deduction on rental income: Taxpayers can claim a flat 30% on the net annual value of the house or rental income received. This deduction is referred to as a standard deduction on rental income and is not applicable on self-occupied housing properties. The main purpose of this Section 24 deduction is to provide tax relief for any property taxes and maintenance charges for property upkeep that may be incurred during the year.
- Tax Benefit on Home Loan Interest Payment: Annual deduction of up to Rs. 2 lakhs can be claimed for repayment of home loan interest. This tax benefit is limited to the actual amount of home loan interest the taxpayer has repaid up to the maximum limit. To avail of this benefit, taxpayers must calculate the interest payment to banks or other financial institutions from where the money has been borrowed.
To be eligible for claiming deductions on interest on home loans, taxpayers must satisfy three requirements:
- If the loan obtained for a property purchased or constructed after April 1, 1999
- If the acquisition or construction of the home is finished within five years following the end of the fiscal year when the loan was taken
- If the interest certificate of the loan is easily accessible.
Following Section 24 and 80 EE of the Income Tax Act, taxpayers can avail an extra deduction of up to Rs. 50000 by meeting specified requirements under the following circumstances:
- If a home loan was taken to buy a residence for personal use
- If the taxpayer does not have any other residential property at the date of sanction of the loan
- If a taxpayer obtains a loan from a financial institution to purchase a residential home
- If the loan was approved between April 1, 2016 to March 31, 2017 (inclusive)
- If the house’s total property worth is less than Rs. 50 lakhs
- If the loan sanction amount for the purchase of a residential property is less than Rs. 35 lakhs
Taxpayers can benefit from deductions from both sections. Firstly, claim for up to Rs. 2 lakhs in tax advantage under Section 24 of the Income Tax Act, and secondly utilise Section 80 EE to collect Rs. 50000 in home loan interest.
In addition to Section 24 of the Income Tax Act, taxpayers can avail of home loan benefits of up to Rs. 1.5 lakhs in a year if the housing property is first home to the taxpayer. The same property should not cost more than Rs. 45 lakh 9affordable housing.
Taxpayers can also benefit if the loan has been sanctioned between April 1, 2019, to March 31, 2022. These interest repayment benefits are additional to the Section 80 C investment and deduction benefits that are worth up to Rs. 1.5 lakhs.
What is the limit of Section 24 exemption?
Section 24 1 of Income Tax Act exempts homeowners to claim a deduction of up to Rs. 2 lakhs on their home loan interest in case the owner or his family resides in the property. When the house is on rent, the entire interest is waived off as a deduction.
What is the difference between Section 24 and 80 EEA?
While both sections are meant to claim the deductions, there is no possession required for 80 EEA deduction. Once you start the interest payment process, you can claim an exception. However, for claim deduction under Section 24, you must have possession of the property.
What is Section 24 eligibility criteria?
The most essential criterion to avail of benefits of Section 24 Income Tax India is that the property must be self-owned. While tax benefits is fixed at 30%, there is no maximum limit specified under Section 24 (a).
Taxpayers can avail tax deduction of up to Rs. 2 lakhs under Section 24 (b) if they have taken a home loan on or after April 1, 1999. Taxpayers must possess an interest certificate showing the interest amount payable against the borrowed amount. The property should be built or owned within five years from the financial year it was borrowed.
What is Section 24 for joint owners?
Joint owners can enjoy maximum tax benefits of up to Rs 2 Lakhs on the amount paid towards the interest on home loans as per their ITR statements. The amount paid towards interest is proportional to the percentage ownership of each co-applicant.
However, to avail of the tax benefits, both co-owners and co-borrowers are the same. Their name must be on the loan book to request the benefit.
What is Section 24 deduction list?
Section 24 deductions can help reduce tax outgo. A standard deduction of 30% is applicable on the net annual value of the property even if the definite expenditure on the property is higher or lower. Besides, tax exemption is allowed on the interest amount of property that is repaired, acquired, constructed, reconstructed, or renewed.
Introduced in the Union Budget 2020, the new tax regime launched an era of dual system of taxes for individuals and Hindu Undivided Families (HUFs). With new tax slabs and rates, individuals can opt for either of the two methods in place, i.e. old and new tax regimes. However, once you choose either of the two methods, the taxpayer will have to stick to the chosen regime for that financial year.
Tax season can be a daunting time for taxpayers who want to maximize their deductions. New tax regime deductions are expenses that you can subtract from your taxable income. It effectively reduces the amount of income taxes you pay, thus lowering your tax liability. Think of it as chipping away at your taxable income.
Not all expenses qualify as deduction allowed in new tax regime, numerous deductions are available under various sections of the tax code. While most deductions and exemptions have been discontinued, some deductions allowed in new tax regime include HRA, LTA, 80C, 80D, and more.
Understanding the deductions in your specific tax regime is crucial to minimizing tax burden and saving your hard-earned money.
Let’s look into some of the deductions and exemptions that are still allowed:
Deduction under Section 80 CCD(2): This deduction applies to salaried individuals as they can claim a deduction for the employer’s contribution to the pension scheme. Employees working in the private sector can claim 10% of their salary. Under the subsection of Section 80CCD, the new tax regime deductions for government employees is up to 14% of basic salary + dearness allowance.
- Standard Deductions: Budget 2023 has extended the standard deduction of Rs. 50000 to the new tax regime for FY 2023-24 onwards. With this, the benefit from standard deduction remains the same under new and old tax regimes.
- Gratuity: Gratuity payouts i.e. the amount paid on completion of 5 years or more of continuous service is a deduction under new tax regime. The limit for gratuity that is tax-free is Rs. 20 lakhs during the lifetime of a taxpayer. Gratuity paid on the death of a taxpayer is fully exempted.
- Leave encashment: Section 115 BAC, allows non-government employees to use leave encashment as tax exemption. This income is not taxable up to a limit of Rs. 3 lakhs.
- Public Provident Fund (PPF) and Sukanya Samriddhi Account earnings: The interests earned and maturity amounts received from both these schemes are tax exempted.
- EPF Contribution by Employer: Employer contribution to Employee Provident Fund (EPF) which is up to 12% of basic and dearness allowance is a deduction available in new tax regime. The exemption applies to a maximum contribution of Rs. 7.5 lakhs annually for all such accounts.
- Amount withdrawn from NPS: An amount withdrawn up to 60% of your NOS account balance at maturity is tax deductible. Partial withdrawals of up to 25% of your self-contribution are tax-free.
- Voluntary Retirement Scheme (VRS) Proceeds: VRS proceeds of up to Rs. 5lakhs are exempted from tax.
- Allowances for Official Duties: The permissible deductions in the new tax regime include; transport allowances for specially-abled individuals, allowances to cover transportation costs, compensations for travel expenses from official tours, and daily allowances.
There are many new tax regime deductions, however, several major deductions from the old tax regime are not allowed in the new tax regime. These include:
- Section 80D deduction for health insurance payment
- Section 24 (b) deduction for interest paid on home loan
- Section 10 (5) Leave Travel Allowance (LTA)
- Deduction from family pension under 57 (iia)
- House Rent Allowance (HRA) under section 10 (13A)
| Total Deductions | Tax Regime Beneficial |
|---|---|
| Rs. 1.5 Lakhs or less | New regime |
| Rs. 1.5 lakhs to Rs. 3.75 lakhs | Depends upon Income level* |
| Rs. 3.75 lakhs or more | Old regime |
*If gross total income is less than R.s 7.5 lakhs or Rs. 10 lakhs any tax regime can be followed. For gross total income Rs. 8 to 9 lakhs, old tax regime shall be beneficial and for gross total income above Rs. 10 lakhs, the new tax regime will be beneficial.
The government introduced the new tax regime to simplify calculations and reduce tax burden on Indian taxpayers. Taxpayers can select from either of the two tax regimes for efficient tax planning. While choosing two tax regimes consider the two main parameters; the tax exemption you currently avail, and the deduction you currently claim.
You will loose exemptions under the new tax regime if your taxable income includes;
- HRA (if you are living in rented accommodation)
- Food coupons
- Leave allowance, and
- Compensation for phone bills.
The new tax regie excludes the following:
- Home loan EMI for self-occupied property
- 80C investments like life insurance premiums
- 80D investments like health insurance premiums
Taxpayers should find out the total amount of exemptions and deductions to avail. Subtract it from the income and calculate the tax payable under the old regime.
Further, taxpayers can compute taxable income without claiming such benefits. Compute the tax payable as per the new tax rates.
Taxpayers can compare the tax amounts to make a wise decision. For better understanding, it is advised that taxpayers use the comparison tool available on the official website of the income tax department.
Remember, not to make your investment decisions solely based on tax savings. For instance, the old tax regime is appropriate for life insurance policyholders as tax deductions will translate to greater savings. While life insurance does provide tax savings, it should not be the only reason for this investment.
Is there any exemption in the new tax regime?
There are many exemptions in the new tax regime. However, taxpayers will have to forego 70 deductions in the new tax regime if they choose the new tax regime over the old one.
Is interest deduction allowed in the new tax regime?
Yes, homeowners can claim a deduction for interest on home loan under the new tax regime if the said home is put on rent. The deduction for interest paid on home loan if restricted to Rs. 2 lakhs in case of self-occupied property.
What are the benefits of new tax regime?
The government introduced the new tax regime to reduce the tax burden for taxpayers. While this new tax regime simplified the tax laws, it also removed the complicated calculations of the deduction percentages. Moreover, the new tax regime helps to save on taxes on long-term investments too.
Can we claim 80C and 80D in new tax regime?
Deductions under new tax regime including the popular ones like 80C (for investments), 80D (for medical insurance premiums), and 80E (for education loan interest) are no longer allowed.
What is the Section 10 exemption in the new tax regime?
Certain exemptions are considered special allowances under Section 10 of the Income Tax Act. These exemptions are granted to specific individuals who are high court judges, UNO employees, Supreme Court and High Court judges entitled to receive Sumptuary Allowance, and Indian citizens working as government employees outside India.
Your company trademark is any slogan, symbol, or brand name associated with your products or services. It may contain a combination of letters, words, symbols, numerals, or all of these to identify your product source. It must be easy to read and remember and never lose its distinctive character or exclusiveness that makes it different from the others. Remember, the consumer's decision to purchase your product or service is highly influenced by the reputation and goodwill of your brand, and these are specifically generated when you own a registered trademark. There are huge benefits of trademark registration in India, with the most relevant one being your company is perceived as a reliable brand.
One of the greatest federal trademark registration benefits is that when consumers perceive that a company with a registered trademark is highly reliable, there are fewer chances for the registered trademark owners to sell low-quality products or services as it would hurt their brand identity.
The benefits of trademark registrations do not end here. Besides making your brand, company, service, or product stand out, a registered trademark ensures no lookalike is impersonating your services or products across the market. This is one of the greatest benefits of trademark registration in India, which eliminates the possibility of rebranding.
Another MSME benefit for trademark registration is that it safeguards the intellectual properties of a company while securing its rights at the same time. Every upcoming and existing entrepreneur needs to know about the different benefits of registration of a trademark to get one and operate in the market successfully.
Also, the trademark registration process is not too challenging, and by following the right steps, you can go through it easily and conveniently. Nowadays, more and more businesses are opting for online trademark registration because of flexibility in timing and fast procedure. Now, let's understand the benefits of federal trademark registration in detail:
The best trademark registration benefit for MSME is helping you enjoy the exclusive right over your trademark. You can use the same trademark for all the products or services included in the classes or categories applied for trademark registration. It offers your business the exclusive right to take legal action against any entity or business that attempts to violate your right by using your business's trademark unauthorised.
A registered trademark creates a distinguished brand image or identity. This is one of the best benefits of trademark registration. And when your business has an exclusive brand identity, it creates appeal and attracts relevant customers to purchase its products or services. This makes it easier to commercialise or market a product with an exclusive brand identity that perfectly matches the market requirements. Communicate your products' quality, vision, and various other attributes along with your business enterprise with trademark registration in India.
Yet another major benefit of trademark registration is it helps establish goodwill and trust in a brand. The already-established quality of your service or product is known to every individual through your registered trademark. The trademark makes your brand popular among the customers, which builds trust in the customers, further helping create permanent and loyal customers who always choose to buy from you.
Trademark registration recognises the product quality of your brand because consumers attach the product quality to your brand name. This will help you to attract new customers who differentiate your business's product quality by your brand name or logo.
Registering a trademark is more like creating an asset or intellectual property. Registered trademarks are ideally rights created to be assigned, sold, commercially contracted, or franchised.
Registering your trademark gives you the immediate right to the ® symbol on your logo. This states that you have a registered trademark, and no other business can use the same. If any third party violates this registered trademark, you have the right to take legal action against the infringer.
Registering a trademark online is quick and affordable, and once you complete the process, there are no other fees you need to take care of. Your trademark remains protected for ten years, after which you need to pay a small renewal fee. So, this is one of the most cost-efficient ways for companies to create an exclusive image.
Registering your trademark in India does not offer you global brand protection. If you want to register your trademark in nations other than India, you can use your trademark registration in India as the base trademark application. This will make it easier for you to file for global trademark registration in foreign nations.
A registered business trademark creates a positive image of an organisation in the young minds looking to join the big brands in the industry. Hence, more candidates are attracted to brands with registered trademarks, reducing hiring costs and other related activities.
A registered trademark connects a company's products and its customers. Businesses can easily build a customer base by providing innovative and efficient products. Further, your trademark helps you retain and expand your customer base. Trademark registration further grants you the exclusive rights to use the trademark for ten years, which protects your business profits. By growing their business and launching new products, companies may reap the benefits of having a huge customer base.
Trademark registration in India helps to safeguard a company's brand identity. However, trademark registration online involves several procedures and government follow-ups that can be challenging. At https://adca.in/, they have the best experts to make it easier to break down the process while doing most of the work on your behalf. So, register a trademark today and protect your company's slogan, logo, or brand now!
How important is a registered trademark?
A registered trademark prevents unauthorised use of company or individual products or services. It also helps the customers identify a brand's products or services, helping them recognise the brand on the market and distinguish it from its competitors.
What is the advantage of registering a trademark Class 12?
Registering trademark Class 12 involves vehicles and their varied accessories. This kind of registration offers vehicle protection against its use by other companies. Brands that get their bicycles, cars, mountain bikes, cycles, airplanes, trucks, and boats trademark registered get exclusive rights of the trademark, and no other company from the related field is allowed to use the same trademark.
Why is a trademark valuable?
Trademarks are valuable because they serve as symbols of the course of products or services, making it easier for customers to identify and distinguish between varied brands. They are also valuable because they offer legal protection for business owners, preventing others from using the same names or logos that may deceive or confuse consumers.
Is it compulsory to register a trademark?
No, it's not compulsory to register a trademark, but trademark registration serves as the most apparent evidence of the ownership of the trademark. If you do not want other related businesses as yours to use your logo or other information to represent their products or services, go for trademark registration.
What is the best use of a trademark?
The best use of a trademark involves the following:
The identification of the source of your products or services.
Legal protection for your brand.
Guarding against fraud and counterfeiting.
It protects your brand image while ensuring that other businesses do not infringe on your intellectual property.
So, have you decided to form a business? Then knowing the difference between limited and unlimited company is necessary to determine the type of company most suitable for your proposed business. Understanding this difference and selecting the right structure can help you save your assets from business creditors. Understanding the difference between limited and unlimited liabilities is of prime importance from the perspective of the company shareholders and is elaborated below.
The difference between limited and unlimited liability is directly related to the compulsions of the business owners, whether their compulsions are restricted to the amount of invested funds or whether they will be personally liable. Varied business and business structures hold varied liability levels regarding obligations and debts. While the owners of general partnership and proprietorship businesses may be subject to unlimited liability, where they hold responsibility for all or a certain part of the obligations and debts of their business, members of limited liability firms and corporate shareholders may, however, hold responsibility for the obligations and debts of their business to the extent of their respective investments. Such individuals also enjoy the protection of their assets.
Limited liability involves restricting owner or investor liability to the amount of money invested or contributed to the organisation. Limited liability company owners are safer when the organisation faces bankruptcy because their losses are restricted to their share of obligations, debts, and contributions. They can, in no way, be held responsible for losses beyond the money that they have contributed. A corporation is one of the most popular forms of a limited liability organisation.
If an organisation goes bankrupt, the shareholders may lose their entire investment in the company but will not be held liable for the losses beyond their share of contribution. Such companies have several major advantages for the owners but may also have disadvantages. Of course, the managers or owners of a limited liability firm are protected against personal liability, which means their assets cannot be seized to make payments for losses. But this can make the owners behave recklessly since they are protected against all odds of losses.
There is a huge difference between limited and unlimited company. In the unlimited liability company structure, the liability of the investors or owners is not limited to their share of contribution. There is no restriction on the losses that need to be borne by the owners or investors. For instance, if a company loses Rs. 100, 000 and the owner has invested Rs. 50, 000, he or she will immediately lose that money. And since it is an unlimited liability company structure, the owner’s compulsion to pay does not end with Rs. 50, 000. They must dispose of their personal property or take other measures to recover Rs. 50, 000.
Since the risk is high in an unlimited liability firm, the returns are also higher, which is a win-win situation for the owners. A higher rate of return to the owners is always possible if the company succeeds in the market.
Safety is another major point of difference between limited and unlimited company. While a limited liability firm is safe for its owners as their liability remains restricted to their share of contributions in the firm, the unlimited liability company structure is unsafe as there is no restriction on the losses the owners will have to bear.
Another difference is that the owners of limited liability firms are considered investors or providers of finances that the company can use. On the other hand, the owners of an unlimited liability firm are part of the company and are held personally responsible for the losses.
When a company or individual functions in the limited liability company structure, the assets attributed to the concerned individual or company cannot be seized to repay debt compulsions attributed to the firm. Funds used for investment in the company, like the purchase of company stock, are considered company assets in question and can conveniently be seized in the event of insolvency. Other assets considered the company’s possession, like equipment, machinery, real estate, investments made in the company’s name, and even goods that have long been produced but not sold, are subject to liquidation after a seizure.
Without the limited liability company structure, many company investors might be reluctant to possess equity ownership in organisations, while businessmen would be aware of taking up new ventures. That’s because creditors and stakeholders could easily claim the owners’ and investors’ assets in case the organisation loses more money than it possesses. This does not happen with limited liability, where the most that can be lost is the invested amount and any personal asset held off-limit.
Limited liability companies are more beneficial than unlimited liability companies in that the shareholders remain protected from liabilities incurred by the firm. Also, shareholders do not need to provide additional funds above the contributions they have already made. The time, cost and formalities of setting up a limited liability firm might mean a lot of hard work. But business owners should aim to achieve the limited liability status to safeguard their personal assets when they face difficulties.
On the other hand, an unlimited liability company structure exists in sole proprietorships and general partnerships. The owners of such companies are inextricable from business and are personally accountable for the organisation’s liabilities. But besides being entitled to the losses the company makes, the unlimited liability company owners are also entitled to profits made by the company after making tax payments. Nevertheless, if an unlimited liability business owes debts, it cannot pay the same with company funds. The owners will be liable to pay off the debts, and with time their assets or wealth may be seized to cover the debt.
Unlimited liability companies are sole proprietorship businesses most of the time and are, therefore, easy to set up and even dismantle, giving business owners huge autonomy. Also, these companies do not need to disclose their fiscal records in the same way as the limited liability companies offering them major tax benefits based on the size of their profits. Such companies are also subject to fewer compliance rules retaining all of their profits after making tax payments.
Nevertheless, unlimited liability companies even have a few caveats, like they could add good stress to the business's complexities. This may prove extensively damaging if the owners are forced to use their assets to pay off huge company debt. Since unlimited liability firms carry greater risk, securing funding for such companies becomes difficult.
So, an unlimited liability company would be the right choice if you want a simple business life with limited paperwork. However, if you do not want to run the personal risk of operating an unlimited liability company, a limited liability company structure is your way to go. For any kind of help, like business establishment or taxation, company legal matters, or auditing services, contact the experts at https://adca.in/.
Why would a company be unlimited?
Being an unlimited company offers advantages like having a separate legal identity and enabling the company to take out agreements in its own name instead of the names of shareholders and directors.
Is unlimited company allowed in India?
Yes, as per Section 2 (92) of the Unlimited Company in India Act, an unlimited company can be incorporated in India either with or without share capital.
What is a co-operative company?
A cooperative is a member-owned business managed by and for the benefit of the members only. Dissimilar to traditional businesses, members of a cooperative have their voice in the way the business runs.
What is an unlimited company?
An unlimited company is where the members have unlimited liability. Therefore, the company always has the right to use all the personal assets of its shareholders to meet debts while winding up.
What are the benefits of unlimited company?
One of the major benefits of unlimited company is separate legal personality that enables the company to enter into agreements in its own name. Such companies also have the potential to outlive specific directors and shareholders.
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