7 Consequences of Non-Compliance your Business Can't Afford

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7 Consequences of Non-Compliance Your Business Can’t Afford

When running your own business, we often miss out on compliances. Which is quite normal as these are the last things that come to mind. We have summarised a few Consequences of non-compliance that can hurt your business.

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Importance of a Financial and legal Structure

Finance is one of the most lightly taken aspects in business. Infact, while thinking of growing your business, the finance and legal aspects are often missed. Especially in case of start ups. While it is quite evident that finance is rather the key element. Most of the sucessuful companies have either focused on this from the beginning. Or have given the due importance in their early stages.

In this article we cover some of the most commonly ignored compliances. Also, we include their liabilities and how to deal with them.

1) Profession Tax – Registration, Payment and Returns

As a business entity, one of the first things to do on starting your business is your PT registration. PT registration is mandatory in a number of states in India. There are 2 types of PT registrations. One is for the business organisation itself. And the other one is for its employees.

Penalty in case of Non-Registration-

If professional tax registration is not obtained then there is a penalty of Rs. 5 per day in case of an employer and Rs.2 in case of a person.

Penalty in case of Late Payment –

An interest of upto 2% per month may be charged on late payment. However, incase of failure to comply with the act, the PT authority may impose a penalty of upto Rs.5000.

Penalty in case of Late Filing of Return –

In case of late filing of return, pay penalty of Rs.1000. That is, for every month of late filing of return, pay a penalty of Rs. 1000 for that month.

2) Certificate for Commencement of Business

INC20A is the form to obtain certificate for commencement of business. INC20A is to be filed within 180 days of incorporation of the company. Obviously finishing this early is better. A company cannot start its business without this. The consequences of non-compliance are high specailly in this case.

- What is the penalty if Form INC-20 not Filed?
  - Company liable to pay Rs. 50,000
  - Every officer who is in default liable to pay Rs. 1000/- per day of default upto a Maximum Rs. 1,00,000/-.
- What are the Consequences if the form is not filed within time?
  - Registrar may initiate action for the removal of the name of Company
  - Company cannot borrow money
  - Company cannot start business

3) Appointment of Auditor

As such there are no specific penalty provision for non appointment of auditor. However, if the auditor is not appointment within 30 days of incorporation then

- - Appointment to be done in EGM within 90 days
  - If still not appointed then the ROC will appoint your auditor. We have to apply to the ROC for the appointment

There is a way to appoint the auditor even after these dates. However, its possible only after paying the penalty amount for late filing of the forms. The cost of appointment greatly increases if not done in time. Moreover, the ROC has the power to appoint whichever auditor he wishes to.

4) TDS (Tax Deducted at Source)

What are penalty provisions for non-deduction of TDS?
Consequences of non-compliance with TDS provisions are huge. The assessing officers levy Interest, fee and penalties for non-compliance.
Consequences of non-deduction of TDS
Disallowance of expense. This means the expense is added back to the taxable income. That is, add the whole expense to the profits. Or more simply pay tax on the entire amount.
Late deduction of TDS
Tax is to be deducted at the time of payment/credit getting due or payment whichever is earlier. In cases of late deduction, pay interest @ 1% per month of the TDS amount. However, this is subject to maximum of TDS amount.
Late payment of TDS
Due day to pay TDS is on every 7th day of the succeeding month. In case of delay, pay interest @ 1.5% per month of TDS amount. Subject to a maximum amount of TDS.
Late filing of TDS return
Due date for filing TDS returns are on the last day of the month following quarter. That is, 31st July, 31st October, 31st January and in the case of March it is 31st May. Incase of delay, pay fees @ Rs 200/- per day. Subject to a maximum of the TDS amount. Example – Lets say Rs. 20000 is the TDS amount for Q1. Due date of the TDS return was 31st July. But its filed on 31st August. Total fees of Rs 6200 (200/- per day for 31 says) shall be paid before filing of return.
Penalty for late filing of TDS return
Incase of delayed filing of TDS return, the Assessing Officer may levy of penalty. The penalty can be between Rs. 10,000 to Rs.1,00,000. This penalty is in addition to any other interest or fee.

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5) Annual Returns and other ROC returns –

Annual returns comprise of AOC 4 and MGT -7. Due date of filing these documents is within 30/60 days of the AGM. Delay in filing these returns has large penalties.

Penalty of Rs. 100 per form per day is payable. Note that this is in case of delayed filing of the return. In the case of non filing of the return, pay Rs. 1000 for every day of default. Subject to a max of Rs 10 Lakhs. Also, Directors of the company pay a separate penalty of Rs 1 Lakh +Rs 100 for each day of default. Subject to a max of Rs. 5 Lakhs

This is just the penalty for the annual ROC returns. The number of returns to be submitted to the ROC has risen in these last few months. The Consequences of non-compliance with such provisions is huge. Even more details are available on the MCA site

5) Director and Company KYC

Note that Director KYC is now an annual compliance. Also, Director KYC is done through form DIR 3 KYC. Above all, form DIR 3 KYC is due on the 30th of April every year. Pay a penalty of Rs. 5000, as a result of delay in filing returns.

Similarly Company KYC is also an annual compliance. Also, Company KYC is done through form INC 22A. Above all, form INC 22A is due on the 25th of April. Pay a penalty of Rs. 10,000, as a result of delay in filing returns.

7) GST (Goods and Services Tax) –

Penalty for delay in filing returns – Late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST.

As a result of opting for composition scheme even though its no applicable – Penalty 10% of tax due or Rs. 10,000 – whichever is higher

As a result of the following, Penalty of 100% of tax due or Rs. 10,000 (whichever is higher) is applicable –

Wrongfully charging GST rate— charging higher rate; or
Not issuing invoice; or
Not registering under GST

We can be easily reached at communications@goforfiling.com incase you have any questions about the article.

Need help with any registration services, filing or any other compliances or services, we can be reached at the above email.

7 Consequences of Non-Compliance your Business Can’t Afford