Compliance Of Tax Reporting
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Compliance is the action or event of carrying out a request or duty. These obligations may include social obligations, financial obligations, legal requirements, and other things.
Business doesn’t operate in a vacuum; it’s part of a larger social system that affects other members of the community. Businesses take advantage of the resources in the environment where they are found and provide resources for the society where they are found as well. Business operations and procedures should have a positive impact, hence there are standards, rules, norms, and other requirements that must be followed in order to achieve those goals.
Compliance can be divided into two categories: voluntary compliance and required compliance.
Legislation under which the company operates and government decrees for social security, tax collection, worker welfare, etc. both impose mandatory compliances.
Similar to mandatory compliance, voluntary compliance is essential for the efficient operation and overall development of the organisation. Examples include accounting compliance and adherence to internal control systems.
The following are examples of legally mandated mandatory compliances:
a) Tax compliance :
In India, both the federal government and the state governments impose taxes. There are two different types of taxes: direct tax and indirect tax.
While indirect tax is paid by the person paying it, the actual cost is carried by the end user, direct tax is imposed directly on the person paying it, as its name suggests. The GST, or taxes on the sale of goods or services, is a prime example of an indirect tax (Goods & Services Tax). The end consumer who is buying or using the goods or services actually bears the burden of all taxes paid across the whole supply chain in the context of GST, even though tax is paid by the person making sales of goods or services.
On the contrary direct tax i.e. income tax is levied directly on income of person earning it and paid by him too.
As like every other person businesses are also supposed to pay income taxes on their earnings. And for true and correct computation of income liable to tax, there are certain requirements for maintenance of books of accounts, statutory records etc. besides
In the context of direct taxes business are entrusted with statutory obligation for collection and payment of advance tax (i.e. TDS) from other stakeholders.
Apart from businesses, other category of person are equally and severally liable for payment of income taxes once they are liable for that. It can be anyone despite not having business activities like Individuals, Charitable organizations, Political Parties, Resident welfare associations, Religious Institutions etc.
Following are the compliance requirements during the income tax compliance era:
- PAN and TAN issuance and allocation
- TDS Conformity
- Foreign Transfers
- Tax planning and relief
- Assessment & appeals of taxes
As far as enterprises are concerned, they are required by law to collect and pay indirect taxes, hence they are subject to the associated compliance burden.
Following are the compliance requirements during the Goods & Services Tax era:
- Registrations for GST
- GST Audit
- GST Returns
- GST Consultancy
b) Compliance with labour laws:
As soon as a business begins operations, staff must be sent out to handle daily operations. Thus, the company employing them must guarantee the welfare of their employees.
Government creates rules that must be followed by business establishments in order for that assurance to be fulfilled. Employee Provident Fund Law, Employee Insurance Scheme Law, Gratuity Law, Contract Labour Law, etc. are examples of common labour law legislation.
The following are the compliances in the era of labour law compliance:
- Registration for Employee Provident Funds
- Digital Challan Cumulative Return
- Linking and Claims for UAN
- PF Legal Cases
- Registration of an Employee Insurance Scheme
- Challan Cumulative Electronic
- ESI Legal Cases
- Contract Worker’s Licensing
- Return for the Year at Shram Suvidha Porta
c) Compliant with Social Security
Compliance with social security laws ensures that the effects of business operations and products won’t be detrimental to or beneficial to society as a whole. The following are the typical social security compliances:
- Drug License
- FSSAI License
- Fire Department Permit
- Pollution Board Consent
d) Compliance with laws
The laws under which a corporation operates also specify certain compliances that must be met in order to maintain the law’s original intent and achieve its intended goals.
The legal requirements are as follows:
- Yearly Return
- Meeting minutes and resolutions
- Filing of MCA Forms
- Administrative audit
- MOA/AOA Amendments
- Share Transfer
- Transfer of Registered Office
- Filing of forms with RBI
- FDI/ODI Foreign Investments Advisory
- Interpretation of Treaties
- Registration for RERA
- Advisory RERA
The illustration of voluntary compliances is;
a) Accounting conformity
Accounting is the process of accurately recording and summarising business transactions to provide the end outcomes of business operations. Businesses can only survive if they are profitable and can be understood through proper accounting practises. Even if the company is losing money, timely information about it is crucial to enable corrective and preventive actions that will minimise or eliminate the loss. In addition, statutes call for the upkeep and preservation of accounting records, therefore from both perspectives, accounting compliance is equally important.
In the period of accounting compliances, there are
- Creation and Use of an Accounting System
- Accounting Principles and IFRS
- Gathering of Accounts
b) Adherence to an internal control system.
A system that is in place to ensure that business processes are carried out in a way that is efficient, effective, and guarantees not only intended end outcomes but also prevents improper use and loss of organisation assets and properties
By drafting internal control policies and effectively implementing them, an internal control system can be built and maintained.
In the era of internal control systems, compliance Observations are as follows.
- Internal Control System Design and Implementation
- Internal Control