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Annual compliances for a start-up in India
The legal requirements to be undertaken by a start-up annually, in order to comply with Indian laws and regulations, are referred to as annual compliances for startups in India.
Essentials for an entity to qualify as a start-up in India
As per the Government of India under G.S.R. notification 127 (E), an entity shall qualify as a start-up if:
- It is incorporated as a Private Ltd. Co., Partnership firm, Limited Liability Partnership, or a One Person Company. However, it shall not be created by splitting or reconstructing an existing business.
- It has been less than 10 years since the date of its incorporation.
- It’s annual turnover has not exceeded Rs. 100 Crore in any of the financial years.
- It satisfies any of the following conditions. It is working towards:
- Innovation of new products/processes/services or
- Development of new products/processes/services or
- Improvement of existing products/processes/services
Checklist for annual compliances for a start-up in India:
- Business licensing related compliance
A startup requires to attain multiple permits and licenses in order to operate its business. One such common license is the “Shop and Establishment License” applicable to all businesses under the Shop and Establishment Act which applies to all premises where trade, business or profession is carried out.
- Compliances under Company Law
1. Annual return. An Annual Return has to be prepared containing the particulars mentioned in Section 92 of the Companies Act, 2019 as they stand on the close of the financial year.
2. Annual General Meeting (AGM) and Board Meeting. All Startup companies (except for One-Person Company) are required to hold one AGM in a year. The First board meeting shall be held within 30 days of its incorporation, and thereafter at least four Board meetings shall be held every year.
3. Documentation like director’s report, Report of AGM, Minutes of the AGM and the Board meetings, books of accounts, financial statements, etc.
4. Appointment of Auditor.
- Compliances under Tax Laws
Depending upon the nature and business operations two types of taxes – Direct (Income Tax) and indirect taxes (GST, Excise duty, Customs duty, etc.) are levied on Startups in India. Some of the GST based compliances include:
1. Any business whose turnover exceeds Rs 40 lakhs in a financial year is required to register under GST. This limit is Rs 20 lakh for service providers.
2. The optional scheme provides for a lower amount of tax with minimum compliance for certain businesses having turnover up to Rs 1.5 crore in a year.
3. Monthly return, Annual return are part of mandatory compliances under GST and GST audit for certain suppliers.
- Compliances under Labor Laws
Startups can be subject to several labour laws like minimum wages, PF payment, Gratuity, Maternity benefits, protection against sexual harassment. Startups that are registered under the Start-up India initiative can complete a self-declaration (for nine specific labour laws) within one year from the date of incorporation and get an exemption from labour inspection. They can also file a self-certified return for the second and third year to continue with this exemption.
- Other compliances
Startups have to comply with several other laws such as Environmental Laws like The Water (Prevention & Control of Pollution) Act, 1974 etc. and other compliances like IPR based compliances, etc.
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