A guide on Statutory Compliance for IT companies State-wise

Any company must be well-organized and efficient with strict rules and regulations in place for it to function well. Rules need to be followed in every aspect of a company, especially, regarding its labour regulations. Companies established in India are to follow particular statutory compliances set by the government. These laws differ on national and state levels and non-compliance of these stipulated regulations lead to legal troubles like a penalty, fines, etc. Companies invest a lot of time and resources to ensure statutory compliance.

Many companies were established in India after the advent of government initiatives like Digital India, Skill India, and Startup India. To be statutorily compliant, a company has to meet many standards and mandates like TAN, PAN, IEC, ESI, Service Tax, etc. which are important to a company trying to pursue business prospects in India.

Since the law is very dynamic, knowing the statutory compliance rules in India is necessary to cope with any future changes that may need to be made.

What is statutory compliance?

Statutory compliance ensures adhering to the laws or regulations related to a particular business as prescribed by government bodies. These compliances ensure that the distribution of a business’ products is of a high standard. It also protects the interests of a firm and its employees. Companies neglecting to follow these compliances face the risk of legal or penal action.

Software companies mostly work online and, hence, are required to be registered to sell their services or products, according to the Companies Act, 2013. To be registered, a company has to fulfil formalities like filing a list with the names of the directors, name of the company, etc. with the office of the Registrar of Companies. An affirmation letter is sent to the company after it follows the due procedure.

State-wise list of statutory compliance

Certain regulations are under the purview of the respective state governments. Different states have distinct variations to the Income Tax Act that companies need to be compliant with.

1. Andhra Pradesh
   The Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987 requires form 5 (monthly PT remittance and filing of returns).
2. Karnataka
   The Karnataka Tax on Professions, Trades, Callings and Employments Act, 1976 demands form 9-A, 5-A (monthly PT remittance and filing of returns).
3. Gujarat
   The Gujarat Panchayats, Municipal Corporations And State Tax on Professions, Trades, Callings and Employments Act, 1976 calls for form 5 (monthly returns).
4. Maharashtra
   The Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 requires the submission of Monthly PT Remittance online.

Here is a list of Acts that are applicable centrally

1. Employee State Insurance Act, 1948 calls for monthly ESIC Contribution Challan.
2. Employees Provident Fund and Miscellaneous Provisions Act, 1952 requires reporting details of international employees through the IW-1 statement, a monthly remittance of PF contribution challan and form 7 (IF) for monthly returns for exempted employees under the EDLI scheme.

List of compliances

For statutory compliances to be followed, there should be employer contribution. Following these compliances should be a consistent process and not just a one time practice. Here is a list of statutory compliances that software companies and other organizations in India need to meet:

• Holding board meetings
• Appointing an auditor
• Yearly general meetings
• Issuing a share certificate
• Recording the minutes of meetings
• Maintaining a book of accounts
• Auditing the book of accounts
• Circulating financial reports
• Filing forms with the registrar of companies
• Maintaining statutory registers

As the company grows in size, a wide range of Provident Fund, TDS, attendance, Professional Tax, payroll, labour regulations and other statutory compliances also need to be followed.

Key Compliances

• Permanent Account Number (PAN)

PAN is issued by the Income Tax Department. A company needs to apply for it after company formation. The Income Tax Department tracks the company’s transactions and keeps a record of Income Tax payment and returns. Having a PAN card ensures that a company has its tax reduced at the maximum rate possible.

• Tax Deduction and Collection Account Number (TAN)

It is required for a company to collect or subtract tax and is issued by the Income Tax department. It is mandatory for all companies that need to deposit tax at source.

Employers paying salaries to their workers have to deduct TDS under Section 192 as per the Income Tax Act, 1961. TDS deduction has to be done by the employer before paying the employee and the deducted amount must be credited to the government before the 7th of the following month.

• Minimum wages

The Minimum Wages Act 1948, dictates fixed minimum wages for different sects of the working class. It is one of the significant labour regulations to date. While fixing the minimum rate, expenses required for the medical, educational and basic living needs of the workers are to be kept in mind. This act is under the purview of both the central and state governments.

• Goods & Services Tax (GST)

With its arrival, GST has effectively subsumed several existing taxes at central and state levels like VAT, service tax, etc. It has regulations laid down for maintenance of records and invoices, reporting purchases and sales and most importantly the way to pay taxes and file returns.

• GST Compliance Checklist

1. Learn if your business has to be mandatorily registered as per the GST registration guidelines.
2. Get your business registered.
3. Supply and collect GST compliant bills (this requires you to know):

– HSN codes (for goods) and SAC codes (for services) applicable to your supplies and their relevant tax rates

– GSTIN to be issued to your vendors and customers

4. File GST returns on time.

There are software services available to make the filing process easier.

• Professional Tax (PT)

Anyone with a profession has to pay a professional tax to their specific state government. Income tax slabs vary for different people. This tax is to be applied within a span of 30 days from the date of hire. Companies at different locations require multiple professional tax registrations with the concerned state governments. A payroll manager or payroll system usually takes care of this.

• Employee State Insurance (ESI)

This insurance is for Indian employees. This fund is handled by the Employees State Insurance Corporation (ESIC) in concurrence with the ESI Act, 1948. This scheme provides monetary and medical benefits to employees earning below 21,000/- INR monthly. The act is further applicable to:

1. Factories that are non-seasonal and have 10 employees or more
2. Theatres, newspaper establishments, restaurants, shops, etc. having 20 or more employees
3. Privately held medical and educational institutions in some states that have 20 employees or more

• Employee Provident Fund (EPF)

Established by the Ministry of Labour and Employment following the Employee’s Provident Funds and Miscellaneous Provisions Act, 1952, it is under the purview of the Employee Provident Fund Organization (EPFO). The main purpose of this Act is to help the public in areas like work, death, higher education, unemployment, marriage, sickness, etc. This act applies to:

1. Factories that have 10 employees or more
2. Companies with 20 employees or more
3. Organizations with people with income below Rs. 15,000

Some acts related to Statutory Compliance

• The Workmen’s Compensation Act, 1923
• The Trade Unions Act, 1926
• The Payment Of Wages Act, 1936
• The Industrial Employment Standing Orders Act, 1946
• The Industrial Disputes Act, 1946
• The Employees’ State Insurance Act, 1948
• The Minimum Wages Act, 1948
• The Factories Act, 1948
• The Apprentices Act, 1961
• The Payment Of Bonus Act, 1965
• The Contract Labour (Regulation & Abolition) Act, 1970
• The Payment Of Gratuity Act, 1972
• The Equal Remuneration Act, 1976
• Inter-State Migrant Workmen (Regulation Of Employment & conditions Of Service ) Act, 1979
• The Child Labour (Prohibition & Regulation Act), 1986

It is mandatory for companies to follow compliances to ensure smooth functioning. To navigate the challenging and tricky world of statutory compliances, it is important to have a payroll system in place. Statutory compliance in HR can be viewed as an organisation’s time, effort and resources spent ensuring that its payroll is compliant while undergoing a statutory audit. HR compliance is a way to depict through a company’s employment and work practices, the depth of understanding of the set laws and regulations.