Most businesses in India fail to understand how to maintain their financial records to be in compliance with the law. If you’re a small business owner or an aspiring entrepreneur, you must know the legal requirements for accounting and bookkeeping. These practices help your company comply with Indian regulations and monitor your company’s finances.
Many businesses in India outsource Accounting & Bookkeeping Services to manage this essential aspect of operations. It saves time and it ensures all legal requirements are met without errors. Let’s simplify these requirements.
What Are the Legal Requirements for Accounting and Bookkeeping in India?
Here are the major legal requirements for accounting and bookkeeping in India:
1. Keeping True Books of Accounts
Indian law demands that all companies keep up-to-date books of accounts. But what does this mean? It means keeping records of all the financial transactions – sales, purchases, payments and receipts – systematically documented. For this, you may manage these records internally or you may utilize Accounting & Bookkeeping Services.
With the changes in Companies Act, 2013 and the Income Tax Act, 1961, businesses must maintain these records for 8 years. Keep accurate accounts to monitor your business performance and stay away from future legal issues.
2. Legal Framework & Compliance
India’s accounting and bookkeeping regulations are founded primarily on 2 pieces of legislation: Companies Act, 2013 & the Income Tax Act, 1961.
- Companies Act, 2013: This specific Act requires businesses to maintain detailed financial records including financial statements, profit and loss statements and cash flow statements. Companies also must file annual financial statements to ROC. This is often a tough task and lots of businesses use Accounting and Bookkeeping Services to remain compliant.
- Income Tax Act, 1961: This Act specifies formats and methods for keeping books of accounts. It’s applicable to sole proprietorships, partnerships and corporations. As non-compliance can lead to penalties, most businesses use professional Accounting & Bookkeeping Services to fulfill all requirements.
Businesses that practice specific occupations (such as medical doctors, architects and lawyers) also must keep particular records under the Income Tax Rules.
3. GST Compliance
Companies in India are additionally obliged to adopt GST accounting norms with the enforcement of the Goods & Services Tax (GST) in 2017. This includes maintaining records of tax invoices, purchase registers along with other GST documents. Filing GST returns on time is essential and failing to do so can mean heavy fines.
Because of so many GST regulations to deal with, partnering with Accounting & Bookkeeping Services can help. These services handle your GST accounts, file returns on time and keep your business compliant.
4. Kinds of Records You Must Keep
A few of the records that businesses in India must keep include:
- Sales and Purchase Records: You ought to keep track of each sale and purchase transaction.
- Cash and Bank Transactions: All payments and bills in cash and from banks have to be recorded.
- Assets & Liabilities: You must track assets like machinery and liabilities like loans or unpaid invoices.
- Inventory Records: In case your business handles inventory, you must keep detailed inventory logs.
These requirements may be frustrating, yet Accounting & Bookkeeping Services can certainly help you organize the records so you can concentrate on expanding your business.
5. Audit Requirements
Another important accounting and bookkeeping function in India is audits. You may be subjected to statutory audits based on the nature and dimensions of your business. Companies, for instance, are obligated by law to have their accounts audited every financial year under the Companies Act, 2013.
Likewise, in case your business turnover exceeds 1 crore (or 50 lakh for professionals), you need a Tax audit under the Income tax Act. This particular audit verifies that your financial statements are present and in accordance with tax laws. Many companies select Accounting & Bookkeeping Services to prepare for these audits and provide the expertise to avoid discrepancies.
6. Choosing the Right Accounting Method
In India, businesses might have cash or accrual basis accounts:
- Cash Basis: Income & expenses are recorded when money is actually received or paid.
- Accrual Basis: Income and expenses are reported as earned or incurred, not as exchanged money.
The method you pick depends upon your business type and size. Companies and LLPs must use the accrual basis. Using professional Accounting and Bookkeeping Services will enable you to select the best method and follow legal norms.
7. Understanding TDS (Tax Deducted at Source)
Another essential task in bookkeeping in India is the TDS. Some payments to contractors, professional fees and rent require businesses to charge tax at source. Proper TDS records and regular returns must be maintained with the tax department.
Not managing TDS properly could result in fines and interest penalties. To avoid this, many businesses engage Accounting & Bookkeeping Services that are familiar with TDS.
Final Thoughts
All Indian companies must know the legal requirements of accounting and bookkeeping in India. From keeping comprehensive records to completing TDS and GST compliance, these are time-consuming and complex tasks. Professional Accounting and Bookkeeping Services will deal with the compliance while freeing up time to expand your business. By utilizing expert assistance, you not only satisfy legal obligations but lay a foundation for sound financial management.
For all your accounting and bookkeeping needs, consult StartupFino and obtain professional, trustworthy service.
FAQs
1. What are the essential accounting records I have to maintain in India?
You have to maintain records of all the monetary activities – bank transactions, cash, purchases, and sales, including assets, debts, and inventory records. Conformity with such requirements is mandatory and can be efficiently managed by Accounting & Bookkeeping Services.
2. How long must businesses keep accounting records in India?
Companies should maintain accounting data for a minimum eight years under the Companies Act, 2013. This is essential for audits, tax assessments and legal verification. Using Bookkeeping and Accounting Services organizes these records and also makes them accessible.
3. What is a tax audit and who must undergo one?
A tax audit is a review of legal documents required legally for tax filings. It’s applicable to businesses with a turnover over one crore or to professionals making over 50 lakh. Accounting & Bookkeeping Services help you prepare for these audits and maintain compliance.
4. Should I use professional accounting and bookkeeping services?
While it is not mandatory, professional services help maintain accuracy, satisfy compliance and simplify complicated tasks including GST and TDS management. They save time and help you stay away from expensive errors, therefore they’re more of an investment for most Indian companies.
