Importance of Statutory compliance

What Is Statutory Compliance?

Statutory compliance, in HR, refers to the legal framework within which organizations must operate, in the treatment of their employees.

Every country has several hundreds of federal and state labour laws that companies need  to align with. This list is forever being added to.

A lot of your company’s effort and money goes into ensuring compliance to these laws which could deal with a range of issues; from the payment of minimum wages to maternity benefits or professional taxes.

Therefore, dealing with statutory compliance requires for companies to be well-versed with the various labor regulations in their country of operation.

What Is The Need For Statutory Compliance?

Adhering to statutory compliances is necessary for all big and small companies in the world to keep their businesses safe from the legal trouble. A deep knowledge of statutory compliances is required to minimize the risk associated with the noncompliance of statutory requirements and payroll.

In today’s competitive and legal business world, it is very challenging for employers to manage statutory compliances without a good payroll consultant . This blog discusses the statutory requirements for Indian payroll system.

There are a number of statutory requirements for Indian companies and companies have to spend a significant amount of time in their payroll management to ensure that they are compliant with the legal regulations. If companies fail to adhere to statutory compliances, they may have to face heavy penalties which are several times more than complying with legal guidelines.

The Statutory Compliances Required For Indian Payroll

The common Statutory requirements that companies have to follow for their payroll management in India are:

Statutory Requirements For Minimum Wages

This act provides for fixing minimum rates of wages for skilled and unskilled laborers. It not only guarantees money for bare minimum survival requirements of workers but also takes care of education, medical requirements, and some level of comfort of workers.

The Minimum Wages Act being a state subject, the statutory compliance of a centralized Payroll management is to cater for the payment of minimum wages to an organization’s workers spread out across different states.Payment of ‘Overtime’ wages to workers is also a statutory requirement as per the Factory Act & Payment of Wages Act. It affects sectors like manufacturing & construction.

TDS Deduction

Every employer who is paying salary to employees has to deduct TDS under section 192 of the Income tax Act, 1961, if the salary is more than maximum amount exempt from tax. The employers also need to generate Form 24Q and Form 16 in time. Some of the salary components that impact TDS deduction are: HRA, Special allowance, Leave travel allowance, Children education allowance, Medical allowance, Investments.

Statutory Compliances For ESI Fund And PF Deduction

ESI fund, maintained by ESIC is applicable to employees earning Rs 15,000 or less per month to provide the cash and medical benefits to them and their families.

PF is a compulsory contributory fund for the future of employees after their retirement or for their dependents in case of their early death.

Professional Taxes

Professional tax or employment tax is a state-based tax. It is one of the statutory deductions from the gross income before computing the tax.

Gratuity

Gratuity is the amount given to employees by employer when they leave the job after completing five years in service. Gratuity is calculated as Basic + DA divided by 26 * No of years of service *15.

The payroll consultant takes care of all the above given compliance requirements and statutory deductions required in India. They allows you to manage your PF and ESI preferences, manage professional tax, select the salary heads applicable to you, manage TDS through investment declarations and automatically calculate salaries after TDS deduction while processing payroll.

How to Maintain Safe Distance from Income Tax Department???

         

    How to Maintain Safe Distance from Income Tax Department?

Do you Want to keep an Arm`s Length Distance from the Income Tax Department?

Obviously the Answer is YES!!! But the Question here is How???

Here are a list of expenses/investments, which at any point of time performed by you may invite undue attention from the Income Tax Personnel.

 1. Depositing Cash Aggregating to Rs.10 Lakhs Per Annum in your Savings and Account.

2. Making Credit Card Payments of more than Rs.2 Lakhs Per Annum.

 3. Investment in Mutual Fund Units worth more than Rs.2 Lakhs.

 4. Investment in Debentures/Bonds, amounting more than Rs.5 Lakhs.

 5. Investment in Shares worth more than Rs.1 Lakh.

 6. Investment in Gold ETF worth more than Rs.1 Lakh.

 7. Investment in RBI Bonds worth more than Rs.5 Lakhs.

 8. Purchase/ Sale of any Immovable Property exceeding Rs.30 Lakhs.

 9. Receipt of Cash Payment exceeding Rs.2 Lakhs for Sale of any    Goods/Services.

 10. Cash Deposit or Withdrawls aggregating to Rs.50 Lakhs or more in a financial year in one or more Current Account.

To Keep an eye on Such High value transactions of the taxpayers ,the Income Tax Department has  developed a statement of financial transaction  called “Annual Information Return”(AIR).

On the basis of this AIR, the department shortlists their targets  and further sends them an Income tax notice.

    What do you mean by an Annual Information Return??

Annual Information Return (AIR) of “High value transactions” is required to be furnished under Section 285 BA of the Income Tax Act,1961 by “Specified Persons” in respect of “Specified transactions” registered of recorded by them during the financial year.

    Who provides the high value transaction information to prepare the Annual Information Return (AIR)?

                        1.      Banks

                        2. Mutual Fund Companies

                        3. Companies Issuing Bonds/Debentures

             

                        4. Companies Issuing Shares

                        5. Credit Card Companies

                        6. Sub-Registrar Offices on Real Estate Deals.

    How can I trace my High Value Transactions reported under Annual Information Return (AIR)?

            The Assesse can trace his/her high value transactions reported under Annual Information Return, in their 26AS Report under AIR Section. Any transaction of the assesse which has been categorized as a High Value Transaction, will be therein.

    What are the types of  Income Tax Notices under Income Tax Act,1961?

The following are the few types of Income Tax Notices under Income Tax Act,1961:

1.   Notice u/s 142(1) of Income Tax Act,1961:

This Section provides that the department may make necessary enquiries before completing assessment. Assessing Officer can issue notice under section 142(1) asking the taxpayer to file the return of income if he has not filed the return of income or to produce or cause to be produced such accounts or documents as he may require and to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the taxpayer, whether included in the accounts or not) as he may require.

2.   Intimation u/s 143(1) of Income Tax Act,1961:

This intimation is like preliminary checking of the return of the return of income and also final assessment of your returns. The time limit for the notice to be served is up to 1 year after completion of relevant  Assessment Year

3.   Notice u/s 143(2) of Income Tax Act,1961:

This notice is known as “Scrutiny Notice”. If you get notice u/s 143(2) it means your income tax return has been selected for detailed scrutiny by your Jurisdictional Assessing Officer. Notice under section 143(2) should be served within  6 months from the end of financial year in which the income tax return is filed.

4.   Notice u/s 148 of Income Tax Act,1961:

If AO has reasons to believe that any income chargeable to tax has escaped assessments, he may assess or re-assess such income, which is chargeable to tax and has escaped assessment.

ü  Notice under section 148 can be issued within a period of 4 (*) years from the end of the relevant assessment year. If the escaped income is Rs. 1,00,000 or more and certain other conditions are satisfied, then notice can be issued upto 6 years from the end of the relevant assessment year.

ü  In case the escaped income relates to any asset (including financial interest in any entity) located outside India, notice can be issued upto 16 years from the end of the relevant assessment year.

Notice under section 148 can be issued by AO only after getting prior approval from the prescribed authority.

5.   Notice u/s 156 of Income Tax Act,1961:

Where any  tax, interest , penalty, fine or any other sum is payable in consequence of any order passed, the Assessing Officer shall serve upon the assesse a notice of demand, specifying the sum do payable. The tax so  demanded is payable, generally within 30days of the service of notice of demand, which may be reduced by the Assessing Officer with the prior approval of Joint Commissioner of  Income Tax (JCIT).

In case of delay in payment of tax, the assesse shall be deemed to be in default and liable to pay simple interest u/s 220(2) at the rate of one percent for every month or part thereof from the end of period allowed u/s 156 of Income Tax Act,1961, further penalty u/s 221(1) may be imposed.

6.   Intimation u/s 245 of Income Tax Act,1961:

Where any amount of refund is pending to the assesse and also any sum is payable under the Act, the AO may adjust the amount to be refunded with the sum payable by the assesse. Basically it can be related to the “Inter Adjustment of transactions”. Under this Intimation u/s 245 of Income Tax Act,1961,the Assessing Officer intimates the effect of the adjustments made with the amount due to assesse. It indicates the adjusted amount which can be either merely intimation or demand notice of lesser amount still payable after adjustment.

7.   Notice for Non Filing of Income Tax Return:

               

        This is type of notice is generally received      when a person fails to file Income Tax Return for a particular year(s) when he had  filed the same for the previous years and also given to people who enter into high financial value transactions but have failed to file Income Tax Return. Generally, this Notice will receive manually i.e. by post or by hand etc..,

          9.Notice for Non Quoting of PAN:

If assesse enters into high financial value transactions without quoting of PAN then Income Tax department will send notice for non quoting of PAN under section 139A(5) and 272B of Income Tax Act,1961.Then Assesse should furnish reply within 15 days of receipt of notice for Non Quoting of PAN.

Conclusion:

In the end, One last question which everyone might have,

How to avoid receiving a notice from the income Tax Department?

            The most important step is to file your Income Tax returns on time and file them Correctly. Always re-check your tax credit with the 26AS statement. Disclose all your Taxable as well as Exempt income under the right head.