India has over 1,12,718 DPIIT-recognised startups operating in 56 industries. This rapid growth makes India the third largest startup hub worldwide. But one main component in this particular entrepreneurial boom gets overlooked: statutory compliance. Being a startup founder, the number of laws, guidelines and regulations may be perplexing. However adherence to these rules is a legal obligation in addition to a key to sustainable growth.
Understanding Statutory Compliance
Statutory compliance is a business’s compliance with government legal, regulatory and financial requirements. For startups in India, this consists of rules for company formation and operation, taxation, labour and finances. Each of these areas has certain laws which regulate how businesses can operate inside government bounds.
Why is Statutory Compliance Essential?
Statutory compliance is essential because of the following reasons:
- Legal Protection: Compliance saves your startup from lawsuits and even possible company closures.
- Building Trust: It makes trust among customers, investors and partners.
- Employee Welfare: Respecting labour laws means your workforce is treated safely and fairly.
- Reputation Management: Non-compliance may harm your brand image.
Risks of Non-Compliance
The consequences for non-compliance are severe and varied:
- Financial Penalties: In 2023, Konwert India Motors Private Limited was penalised for not filing the MGT 14 form required under the Companies Act 2013.
- Legal Repercussions: Non-compliance may result in lawsuits, wasted disruption, resources, and time of business operations.
- Reputational Damage: Lost trust is tough to recover. Non-compliance may destroy customer trust and investor confidence.
The Startup Compliance Checklist: Role of Chartered Accountants
Chartered Accountant (CA) specialised in startup advisory see numerous young businesses fail because of compliance oversights. Checklist to keep your startup on track:
1. Tax Compliances.
a. Direct Taxes (ITR, TDS)
- Register for PAN & TAN.
- File Income Tax Returns (ITR) yearly.
- Deduct & deposit TDS as per Income Tax Act, 1961.
- For DPIIT-recognised businesses: Tax holiday under Startup India.
b. Indirect Taxes (GST)
- Register for GST if your turnover exceeds 40 lakhs (20 lakhs for service providers).
- File monthly / quarterly GST returns.
- Know the GST categories which apply to your business.
- Get informed about GST rate changes.
c. Tax Liabilities for Investors
- Know that funds from investors are taxable as “income from other sources.”
- Know the implications of Angel Tax after changes to Budget 2023-24.
- If DPIIT-recognized, you’re exempt from new angel tax norms.
d. Foreign Company Tax Liabilities in India
- Meet Income Tax Act, 1961 & GST regulations.
- Consider Double Taxation Avoidance Agreements (DTAAs), if necessary.
2. Industrial Relations & Labour Laws
a. Industrial Disputes
- Learn the Industrial Disputes Act, 1947.
- Establish methods for amicable dispute resolution.
b. Minimum Wage
- Follow the Minimum Wages Act, 1948.
- Pay at least the state/district minimum wage.
- Keep accurate wage records to avoid penalties.
c. PF & ESI
- With more than 20 employees, register for PF and ESI.
- Contribute 12% to PF of basic salary + DA.
- Ensure timely ESI registration & contributions.
d. Maternity & Paternity Leave.
- Provide 26 weeks paid maternity leave under the Maternity Benefit Act, 1961.
- Offer paternity leave as a progressive policy.
e. Sexual Harassment at Workplace
- In case you have much more than ten employees, Form an ICC.
- Train staff on the Protection against Sexual Harassment (POSH) Act, 2013 (Section 3).
f. Safety & Health at work
- Safety guidelines : See Factories Act, 1948.
- Perform safety assessments and training.
g. Gratuity Laws
- For over ten employees: See Payment of Gratuity Rules, 1972.
- Reserve gratuity funds for employees who complete five years.
h. Equal Remuneration Act, 1976
- Equal pay for equal work for every gender.
- Keep transparent salary structures.
3. Additional Compliances
a. Data Privacy
- Conform with the Digital Personal Data Protection Act, 2023 and IT Act, 2000
- Implement effective data protection measures.
- Collect user consent for data collection and usage.
b. IP Protection
- Learn the Patents Act of 1970 ; Trade Marks Act, 1999; Designs Act, 2000; also Copyright Act of 1957.
- Register your trademarks, patents and designs.
- Do not infringe on others IP rights.
c. Environmental Compliances
- Follow the Environment Protection Act, 1986; Air & Water (Control and Prevention of Pollution Acts) Acts.
- Get needed environmental clearances.
- Manage hazardous waste per 2016 Rules.
CA Tips for Better Compliance
Here are some essential tips from qualified CAs for better statutory compliance by startups:
- Start Early: Start compliance efforts on day one. It is simpler to set up systems right than to repair them later.
- Use Technology: Automate GST filing, TDS deductions & PF contributions with software for compliance management.
- Stay Updated: For regulatory changes on the spot, sign up for CA newsletters or CBDT updates.
- Document Everything: Make accurate records for inspections and audits.
- Perform Internal Audits: Regular self-assessments catch problems before they become serious.
- Educate Your Team: Train your staff on compliance issues relating to their roles.
- Plan for Growth: New compliance requirements will apply as you scale. Plan ahead.
- Create a Compliance Calendar: Mark important dates for tax filings, returns and renewals.
- Seek Professional Help: Engage a CA or compliance expert for complicated areas like tax planning or labour laws. Choose StartupFino as your compliance expert for trouble-free compliances of your startup.
- Don’t Ignore Minor Details: Even small oversights like not updating a registered address can result in penalties.
Sector Specific Compliances
As per CAs, there are industry specific regulations that add another layer of conformity to the compliance checklist:
- E-commerce: Follow FDI policies, consumer protection rules and platform governance norms.
- FinTech: Respect RBI guidelines & KYC norms and data localization guidelines.
- HealthTech: Respect telemedicine guidelines, data privacy (including health data) along with medical device laws.
- EdTech: See UGC guidelines for online education and child data protection laws.
The role of a CA in Your Compliance Journey
A Chartered Accountant is more than a number cruncher; he is also your partner in compliance:
- Assessment of Risk: CAs identify your startup’s compliance requirements.
- Tax Optimisation: Using their expertise, you can take advantage of items like the startup tax holiday.
- Audit Support: CA’s insights keep you audit-ready, always.
- Investor Relations: Excellent compliance records improve investor confidence.
- Growth Planning: As you grow, CAs enable you to deal with the evolving compliance needs.
Conclusion
Statutory compliance is a growth catalyst in India’s growing and competitive startup ecosystem. It safeguards your business, employees and reputation. Treating compliance like a strategic priority would mean you are not only following guidelines – you are setting the foundation for sustainable success.
In the startup world, growth is celebrated, but sustainable growth is revered. And at the heart of sustainability is flawless statutory compliance. CA partners help you move higher so your innovative ideas are able to fly – free from compliance worries. Together with CA expertise, entrepreneurs in India can build a compliant, prosperous startup nation.
FAQs
What are statutory compliances for startups?
Statutory audit Compliances require checking the company financial statements, watching banking activities and also search for fraudulent transactions. This is a statutory audit that every startup has to follow – no matter how much profit they generate in a year.
What is a compliance checklist?
A compliance audit checklist is a compliance tool utilised by external or internal auditors to decide in case a business adheres to central regulations, business standards and company policy.
Do startups have to follow tax-related compliance?
Startups must adhere to labour laws, tax laws, intellectual property laws and other things. Non-Compliance with these statutory requirements could lead to legal fines and penalties.
What are post-funding compliances for startups?
Post-funding compliance means ensuring your startup adheres to all regulations and laws in force after you get funding.
What are the statutory compliances applicable to startups?
Statutory compliance is the legal framework which the central or state government enacts to regulate business operations. In this instance it is the framework around startups.
