The Companies Act, 2013 mandates that certain classes of companies, are required to appoint an auditor to conduct an audit of the functions and activities of the company. India’s company law prescribes four different kinds of audits for companies, namely internal audit, statutory audit, cost audit, and secretarial audit.

Further, the Income Tax Act lays down the provisions for Tax Audit. The Tax Audit evaluates whether an individual or company has accurately filed income tax returns for an assessment year and ensure proper maintenance and correctness of books of accounts and certifications of the same by a tax auditor.

Here we examine each type of audit, what classes of companies are required to conduct it, and penalty for non-compliance.

Tax audit

The major objective of tax audit are outlined below:

  1. Ensure proper maintenance and correctness of books of accounts and certifications of the same by a tax auditor.
  2. To report prescribed information, compliance of various provisions of income tax act.
  3. Proper books maintenance, calculation, and verification of total income, claim for deductions.
  4. Reporting observations/discrepancies noted by tax auditor after methodical examinations of the books of account.

It also verifies if the individual has complied with various requirements of income tax law, such as filing income tax returns, and income tax deductions among others. The tax audit report is submitted along with the income tax return.

Who needs a tax audit?

A tax audit is mandated on all companies, LLPs, and individuals whose turnover crosses a particular threshold limit.

Here is the mandatory tax audit limit for different categories of taxpayers:

  • Any individual carrying on a business whose sales, turnover, or gross receipts of the business exceeds INR 10 million (US$140,120); or
  • Any individual carrying on a professional whose gross receipts exceeds INR 5 million (US$70,060); or
  • Any person carrying on a business where the profits and gains from the business are determined on a presumptive basis under section 44AE, 44BB, or 44BBB, and who has claimed their income to be lower than the profits or gains of his business; and,
  • Any person carrying on a business whose income is determined on a presumptive basis under section 44AD and who has claimed such income to be lower than the profit of their business yet exceeds the maximum amount which is not chargeable as income tax.

Under the union budget it was proposed that businesses registered as MSME (medium, small, and micro enterprises whose turnover is less than INR 50 million (US$700,600) will not be required to undergo a tax audit.

However, this exception will be applicable for those MSMEs that carry out less than five percent of their business transactions in cash.

Tax audit report

The audit must be conducted by a practicing licensed chartered accountant (CA). The auditor must submit the tax audit report in the following format:

  • Form 3CA: When a company is already mandated to get their accounts audited under any law. This is applicable to companies that get their accounts compulsorily audited under the Companies Act, 2013; or
  • Form 3CB: When a company or individual gets their accounts audited under the section 44AB of the Income Tax Act.

Further, the tax auditor must submit Form 3CD along with either of the above-mentioned forms, as it is a part of the audit report.

Penalty for non-compliance

If a company or an individual is found not in compliance with the tax audit provisions, or fails to conduct a tax audit, then a penalty of 0.5 percent of total sales not exceeding INR 150,000 (US$2,101) can be levied.

[tips title="Important Tip"]The due date for completing tax audit and filing of tax audit report with the income tax department is September 30 of the relevant assessment year.[/tips]

Internal audit

According to Institute of Chartered Accountant of India, the role of internal audit is to provide independent assurance that an organization’s risk management, governance and internal control processes are operating effectively. Unlike external auditors, they look beyond financial risks and statements to consider wider issues, such as the organization’s reputation, growth, its impact on the environment and the way it treats its employees.

The below chart provides the fundamental functions of an internal audit team.


Objective examination to provide accurate and current information to the stakeholders about the efficiency and effectiveness of its policies and operations, and the status of its compliance with the statutory obligations

Assessment and recommendations

Assessing and making recommendations on the effectiveness of the existing controls demonstrates informed, accountable decision making with regard to ethics, compliance, risk, economy, and efficiency


Assessing and making recommendations on the effectiveness of the existing controls demonstrates informed, accountable decision making with regard to ethics, compliance, risk, economy, and efficiency


Assessing and making recommendations on the effectiveness of the existing controls demonstrates informed, accountable decision making with regard to ethics, compliance, risk, economy, and efficiency

The internal audit is an independent function of management, which entails the continuous and critical appraisal of the functioning of an entity, with a special focus on possible areas for improvement and how to strengthen and add value to an entity’s corporate governance mechanisms.

Classes of companies required to conduct internal audit

An internal audit must be conducted by either a chartered accountant, or a cost accountant.

Not all companies are mandated to conduct an internal audit. Under the Companies Act, 2013, the following classes of companies have to carry out an internal audit:

  • Every listed company
  • Every unlisted public company with paid-up capital exceeding INR 500 million (US$7 million) in the previous financial year
  • Every unlisted public company that has a turnover greater than INR 2 billion (US$28 million) in the previous financial year
  • Every unlisted public company with outstanding loans and liabilities exceeding INR 1 billion (US$14 million) at any point during the previous financial year
  • Every unlisted public company with outstanding deposits exceeding INR 250 million (US$3.5 million) in the previous financial year
  • Every private company that has a turnover of more than INR 2 billion (US$28 million) in the previous financial year
  • Every private company that has had outstanding loans and liabilities exceeding INR 1 billion (US$14 million) at any point

Penalty for non-compliance

For non-compliance with an internal audit, no specific penal provisions are mentioned under the Companies Act, 2013.

Since no punishment has been specified, any sort of non-compliance will be prosecuted under Section 450 of the Companies Act, 2013. The section further states that the company and the auditor will be fined up to INR 10,000 (US$140) in case of any non-compliance.

Key guidelines for conducting an internal audit

Keeping the importance of the internal audit function in mind, the Securities and Exchange Board of India (SEBI) introduced mandatory and recommendatory corporate governance provisions in Clause 49 of the Listing Agreement applicable to only listed companies.

As per Clause 49, an audit committee is required to review the following:

  • Whether the internal audit is being made functional in proper order by reviewing the structure of the internal audit department, personnel recruited, and seniority of the official who shall be heading the department, frequency of audits, and terms of remuneration of the chief internal auditor.
  • Internal audit reports relating to weaknesses found in internal controls.
  • The findings of any internal investigation by internal auditors into matters where there is a suspected fraud or irregularity, or a failure of internal control systems of a significant impact.
  • The chief executive officer (CEO) and the chief financial officer (CFO) are required to certify to the board of directors that they accept responsibility for the effectiveness of internal controls, and that they have disclosed to the auditors and the audit committee any deficiencies in the operation of internal controls and steps taken for their rectification.

The above clauses are part of the Listing Agreement, with which every entity listed on India’s stock exchanges must comply.

Statutory audit

The purpose of the statutory audit is to determine whether a company is providing an accurate representation of its financial situation by examining the information, such as books of account, bank balance, and financial statements.

All public and private limited companies have to undergo a statutory audit. Irrespective of the nature of the business or turnover, these companies are mandated to get their annual accounts audited each financial year.

 Meanwhile, an LLP must undergo a statutory audit only if its turnover in any financial year exceeds INR 4 million (US$55,945) or its capital contribution exceeds INR 2.5 million (US$34,963).

How to conduct a statutory audit?

For this purpose, every company and its directors must first appoint an auditor within 30 days from the date of registration of the company in its first board meeting.

At each Annual General Meeting (AGM), the shareholders of the company must appoint an auditor who holds the position from one AGM to the conclusion of the next AGM. The Companies (Amendment) Act, 2017 maintains that the auditors can only be appointed for a maximum term of five consecutive AGMs.

However, in individual and partnership firms, auditors cannot be appointed for more than one or two terms, respectively.

Who can conduct a statutory audit?

As per the law, only an independent chartered accountant, or a chartered accountant firm, or limited liability partnership firm (LLP) with majority of partners practicing in India are qualified for appointment as an auditor of a company.

The Companies Act specifically disqualifies the following individuals or firms from becoming an auditor:

  • A corporate body other than the LLP registered under the Limited Liability Partnership Act, 2008
  • An officer or employee of the company
  • A person who is a partner with an employee of the company or employee of a company employee
  • Any person who is indebted to a company for a sum exceeding INR 1,000 (US$14) or who have guaranteed to the company on behalf of another person a sum exceeding INR 1,000 (US$14)
  • Any person who has held any securities in the company after one year from the date of commencement of the Companies (Amendment) Act, 2000
  • Any person who has been convicted by a court of an offence involving fraud and a period of 10 years has not elapsed from the date of such conviction

Internal audit report

The Company Auditor’s Report Order (CARO), 2020 requires an auditor to report on various aspects of the company, such as fixed assets, inventories, internal audit standards, internal controls, statutory dues, among others.

The auditor must follow the auditing standards as recommended by the Institute of Chartered Accountants of India (ICAI). In case the auditor uncovers any fraud during the audit must report it to the government immediately. After the audit is completed, the auditor should submit the audit report to the members and shareholders of the company

Penalty for non-compliance

For non-compliance with a statutory audit, fines range from INR 25,000 (US$351) to INR 500,000 (US$7,029) for the company.

For every officer in default, imprisonment of up to one year, or fine of INR 10,000 (US$140) to INR 100,000 (US$1,405), or both.

Cost audit

A cost audit is the verification of the cost account, and functions as a check on the company’s adherence to cost accounting standards. Cost accounting is used to understand the company’s total cost of production by assessing its variable and fixed costs. Through a cost audit, the company can take a closer look at their cost of production and find effective ways to reduce their cost on labor, materials, and overheads.

Who should maintain cost records?

Maintenance of cost records apply to a company in the following cases:

  • If the company is engaged in the production of goods, or providing services, as prescribed under the law; or
  • If the company’s overall turnover from all its products and/or services is INR 350 million (US$4.9 million) or more during the immediately preceding financial year.

Who is mandated to get their cost records audited?

Companies in India should get cost records audited in the following cases:

  • The overall annual turnover of the company from all its products and services during the immediately preceding financial year is INR 500 million or INR 1 billion (US$7 million or US $14 million) or more depending on whether the company’s sector is regulated or unregulated; and
  • The aggregate turnover of the products and services for which cost records are required to be maintained is INR 250 million or INR 350 million (US$3.5 million or US$4.9 million) depending on whether the company’s sector is regulated or unregulated.

Under the Companies Act, company industrial activity has been classified under two categories – regulated and unregulated sectors.

Regulated sectors include industries like petroleum products, drugs and pharmaceuticals, fertilizers, and sugar to name a few. While, the unregulated sectors cover industries, such as arms and ammunitions, cement, tea and coffee, milk products, and turbo jets and propellers, among others.

Companies exempted from cost audit

The cost audit requirement does not apply to the companies that meet the following criteria:

  • Companies covered in Rule 3 of the Companies (Cost Records and Audit) Rules, 2014;
  • Companies that earn revenue from exports in foreign exchange that exceeds 75 percent of its total revenue; or
  • Companies that operate in an SEZ.

Penalty for non-compliance

Cost audits must comply with the auditing standards set by the Institute of Cost and Works Accountant of India, and the audit must be conducted by a practicing cost accountant.

The cost auditor must submit the audit report to the board of directors of the company within 180 days from the financial year closure. Then, this audit report must be filed with the central government within 30 days of receiving the report.

In case a company is found not in compliance with the cost audit provisions under the under the Companies Act, 2013 and the Companies (Cost Records and Audit) Rules, 2014 – the following penalty can be levied:

  • Fines that range from INR 25,000 (US$351) to INR 500,000 (US$7017), depending on the level of non-compliance.
  • For every office in default, imprisonment of up to one year, or fine of INR 10,000 (US$140) to INR 100,000 (US$1403), or both.

Secretarial audit

Certain types of businesses in India are mandated to prepare their secretarial audit and secretarial compliance report or will risk being non-compliant under key company legislation and rules of corporate governance.

Who needs a secretarial audit?

Every listed company, public companies with either a paid-up share capital of INR 500 million (US$7.03 million) and upwards, or public companies with a turnover of INR 2.5 billion (US$35.02 million) are required to submit secretarial reports.

However, India’s Ministry of Corporate Affairs (MCA) announced that a company with outstanding loans or borrowings from banks or public financial institutions of over INR 1 billion (US$14.08 million) or more will have to undergo a mandatory financial and secretarial audit.

It is hereby clarified that the paid-up share capital, turnover, or outstanding loans or borrowings as existing on the last date of latest audited financial statement will be taken into account.

A practicing company secretary (PCS) conducts the secretarial audit and prepares the audit report.

Annual secretarial audit report

Companies who are mandated to file a secretarial audit report will use form no. MR-3 under the Companies Act, 2013. For the secretarial audit report, the company should meet requirements under the following regulations:

  1. Companies Act, 2013
  2. Securities Contracts (Regulation) Act, 1956
  3. Depositories Act, 1996
  4. Foreign Exchange Management Act, 1999 and rules and regulations made thereunder to the extent of foreign direct investment, overseas direct investment, and external commercial borrowings
  5. The guidelines and regulations prescribed under the Securities and Exchange Board of India (SEBI) Act. These are:
    1. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
    2. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992
    3. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009
    4. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999
    5. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008
    6. The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client
    7. The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009
    8. The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998
    9. Other laws that may be applicable specifically to the company

Further, compliance must be observed with the applicable clauses of secretarial standards as issued by the Institute of Company Secretaries of India. As well, the listing agreements entered by the company with a stock exchange (if applicable) also need to be examined.

Annual secretarial compliance report

The annual secretarial compliance report is to be submitted by the listed entity to the stock exchanges within 60 days of the end of the financial year. The format for the report can be found at Annex-A of the SEBI circular.

[tips title="Important Tip"]For the purpose of secretarial compliance, companies can use the services of the same practicing company secretary (PCS) who performed the secretarial audit. Entities are required to furnish all documents and information that the PCS might need to file the compliance report.[/tips]

For the secretarial compliance report, compliance with the following regulations should be checked:

  1. Securities and Exchange Board of India (SEBI) Act, 1992 and the regulations, circulars, guidelines issued thereunder
  2. Securities Contracts (Regulation) Act (SCRA), 1956, and rules made thereafter and the regulations, circulars, guidelines issued thereafter by SEBI

This report should be signed by the PCS who checked and verified the compliance or their supervisor’s details along with the certificate of the practice number issued by the Institute of Company Secretaries of India.

Reporting fraud

If the PCS detects that fraud is or was committed against the company by officers or company employees during the secretarial audit, they must report it to the central government within 60 days of knowledge. A copy must be submitted to the board or the audit committee seeking their response within 45 days.

Managing a GST audit

The GST system requires taxpayers to self-assess their tax liability and pay their tax without any intervention by the tax authorities. The law provides for a robust audit mechanism to measure and ensure compliance by the taxable person.

The GST audit checks the accuracy of information furnished, taxes discharged, refund claimed, and input tax credit availed by the individual taxpayer.

Audit by chartered accountants or cost accountants

The GST law requires every registered taxable person whose turnover during a financial year exceeds the prescribed limit of INR 20 million (US$261,746) to get their accounts audited by a chartered accountant or a cost accountant.

To file the audit, the taxpayer must submit the following documents electronically:

  • An annual return using the form GSTR-9 by December 31 of the next financial year (the government has extended the due date for filling 2018-19 annual returns, and the related audited reports to June 30, 2020);
  • A copy of audited annual accounts;
  • A certified reconciliation statement in the form GSTR-9C, reconciling the value of supplies declared in the return with the audited annual financial statement; and
  • Any other particulars as prescribed under the law

The deadline for GSTR-9C (reconciliation statement) for FY 2018-19 has been extended to June 30, 2020. For businesses with an annual turnover of less than INR 50 million (US$654,364), filing of GSTR-9C for FY 2018-19 will be waived off.

In this category of audit, the government prescribes different types of annual return: GSTR-9 is for regular taxpayers and GSTR-9A is for composition scheme.

Taxpayers must note that the annual return is applicable to all registered persons in GST except input service distributors, casual taxable persons, non-resident taxable persons, and persons liable to deduct tax at source.

For the reconciliation statement, it is advisable for GST registered entities to have a copy and maintain their accounts as a proof to show correctness with regard to the following:

  • Production of the goods (taxable inward supply of goods and/or service or both taxable outward supply of goods and/or services or both);
  • Stock of goods;
  • Input tax credit availed; and
  • Output tax payable and paid.

General GST audit

This is a general audit of the business transaction. Here, the commissioner or any other officer authorized by the commission may undertake the audit of any registered person for such period, at such frequency, and in such manner as prescribed under the GST law.

The audit may be conducted at the place of business of the registered person or in the office of the commissioner or officer authorized by the commissioner.

The time-frame for carrying out the audit is three months. The officials serve registered taxpayers an advance notice at least 15 days prior to the audit commencement. Starting from this day, the audit must be completed within three months. In special cases, the authorized officer can extend the time-period for audit completion by not more than six months.

During the course of GST audit, the authorized officer may require the registered person to:

  • Provide the necessary facility to verify the books of account or other documents as required; and
  • Furnish such information as required and render assistance for timely completion of the audit.

Special GST audit

Special audits are audits ordered by a GST Officer and conducted by a Chartered Accountant or CMA. An assistant commissioner of the GST can order a GST special audit when he/she suspects that the assessee declared taxable values incorrectly or provided the utilized input tax credit inappropriately. These disparities may include:

  • Incomplete audit
  • Discrepancies observed in the liability with the intention to evade tax
  • Incorrect revenue declaration

The officer orders a special audit through Form GST ADT-03 and the taxpayer should audit the accounts after or before the commencement of any scrutiny, enquiry or investigation. The GST Officer shall select the CA or CMA to perform the audit and the taxpayer should cooperate with the Auditor for completion of the audit.

Once the audit is complete, the CA or CMA would submit the findings of the audit in Form ADT- 04. A special audit must conclude by an auditor within 90 days. In rare cases, the due date may extend to another 90 days by the Commissioner, based on an application made by the CA or CMA.

On conclusion of a special audit under GST, the taxpayer is provided with an opportunity to be heard in respect of any material gathered in the special audit which is proposed to be used in any proceedings against the taxpayer.

How to prepare for the GST audit and annual return filing

Companies that have a presence in multiple locations, in the form of a subsidiary or branches across the country, must compute annual turnover on all India PAN basis. The GST Law treats every entity of a company located in more than one state or union territory as distinct.

This means that if the company is registered in more than one state or union territory, and the aggregate turnover from all such states exceeds INR 20 million (US$261,746) then the company must get state-wise accounts audited under the GST law.

Aggregate turnover includes the value of all exempt supplies and exports under the same PAN, on an all India basis. In cases, where companies have multiple GSTIN state-wise registrations on the same PAN, traders and dealers must internally derive their turnover GSTIN-wise and declare the amount in the Form GSTR-9C.

Companies that have multiple registrations within the state must maintain separate accounts as the law requires companies to file a reconciliation statement separately for each (GSTIN) registration within the state.

[faq title="FAQ:Common Compliances for Companies in the Indian Regulatory Landscape" ui="accordion"]

What are the challenges companies face while ensuring that necessary regulatory compliances are completed?

Managing compliances  in today’s highly complex economic and regulatory environment is no easy task. Companies face many challenges, including:

  • Rapid globalization
  • Ongoing developments in tax and other allied laws
  • Changes in accounting standards
  • Increased demand from regulatory authorities for greater transparency and cooperation
  • Acute shortage of qualified professionals
  • Obtaining accurate data in an efficient manner
  • Global trends towards centralization of compliances
  • An ever-evolving technology ecosystem

Can you list a few common laws and legislations that are applicable to companies in India?

The following laws are applicable to companies in India.

  • The Companies Act 2013 and Rules thereof.
  • Labor and Employment Laws
  • Environmental Laws
  • Tax and Stamp Duty

Can you explain the scope of compliances under Companies Act, 2013?

The scope of compliances under the Companies Act covers but is not limited to the following:

The Companies Act, amongst other provisions, lays down detailed guidelines regarding qualification and appointment/ removal of directors, retirement of directors, their remuneration, passing board resolutions, arranging board and shareholders meetings, oversight on related party transactions, timely maintenance of books of accounts and the preparation and presentation of annual accounts (matters that must be included in the annual reports of the companies), filing of forms with the Registrar of Companies periodically, etc.

Subsequent to the completion of all legal formalities required for incorporation, and the issuance of the certificate of incorporation, the company is recognized as a separate legal entity in the eyes of the law, distinct from its members who have incorporated the entity.

Whether it is a private or a public company, various things are supposed to be dealt with post incorporation. There are matters that must be undertaken in the first board meeting immediately post incorporation, and then there are tasks that are required to be carried out on a periodical basis.

A company conducts its business through its Directors who are accountable in the event of failure to comply with the above compliances.

Soon after a company is incorporated, but no later than 30 days, an appointed director is under  obligation to call the First Board Meeting by issue of notice (together with the agenda) of the meeting at least seven days prior to the meeting. Several important matters need to be resolved in this first board meeting.

A company must also place its sign board outside the registered office address, with its name, registered office address, company identification number, e-mail ID, and phone number (mandatory fields as per the current mandate), Website address and fax number, if any, stated on it. These details must also be printed on all business letters, billheads, and all other official publications.

As mentioned under section 173(1) of the companies act of 2013, a company must convene at least four board meetings, in addition to the first board meeting, with a gap of no more than 120 days between two consecutive board meetings in a calendar year. Detailed minutes of the meetings should be prepared, recording the important actions taken by the Board of Directors and the same must be maintained as a permanent document by the company. Within 30 days from the meeting, the minutes must be prepared, duly signed, and maintained in a minute’s binder.

Similarly, on allotment of shares, the company must issue share certificates to those who have been allotted the shares and must maintain both a members register and a shares allotment register. A company is also required to file various financial statements along with the auditor’s report and annual return before the due date every financial year with the Registrar of Companies.

Additionally, there are several instances wherein a company has to intimate the concerned Registrar of Companies, on a timely basis, about the appointments/ removal of directors and certain other changes in a prescribed manner.

The above-mentioned compliance requirements under the Companies Act is not an exhaustive list. Some companies may also be required to ensure several other additional compliances such as registration under the GST, Professional Tax, and Shops and Establishment Act. It is important to understand that the responsibility of complying with the central and state by-laws is indeed, a continuous process.

What is the scope of compliances under Labor and Employment Legislation?

The scope of compliances under Labor and Employment Legislation covers, but is not limited to, the following:

Businesses with production lines, factories, must consider and comply with a host of statutes such as:

  • The Employees' State Insurance Act, 1948
  • The Maternity Benefits Act, 1961
  • The Industrial Disputes Act, 1948
  • The Contract Labor (Regulation and Abolition) Act, 1970
  • The Trade Union Act, 1926
  • The Equal Remuneration Act, 1976
  • The Payment of Gratuity Act, 1972
  • The Workmen’s Compensation Act, 1923
  • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, etc.

The above statutes govern pressing issues such as duration of work, conditions of employed workers, minimum wages and remuneration, rights and obligations of the trade unions, insurance cover for employees, maternity benefits, employment retrenchment, payment of gratuity/provident fund, payment of bonus, and regulations of the contract labor, amongst other issues concerning employees.

However, many provisions of the existing labor laws trace their origins to the time of the British Colonial era, and with changing times, many of them have either became ineffective or do not have any contemporary relevance. Rather than protecting the interests of workers, these provisions ensured unwarranted difficulties for them.

The web of legislations back in the British colonial era were such that workers had to fill four different forms to claim a single benefit. Therefore, the present Government has repealed the outdated Labor Laws and has codified 29 of such labor Laws into four new Labor Codes.

For ensuring workers’ right to minimum wages, the Central Government has amalgamated 4 laws in the Wage Code, 9 laws in the Social Security Code, 13 laws in the Occupational Safety, Health and Working Conditions Code, 2020 and 3 laws in the Industrial Relations Code. By getting these Bills passed in the parliament, the Central Government has made significant headway in changing the standard of living of workers.

These labor reforms will enhance ease of doing business in the country. Employment creation and output of workers will also improve. The benefits of these four Labor Codes will be available to workers in both the organized and unorganized sector. Now, the Employees’ Provident Fund (EPF), Employees’ Pension Scheme (EPS) and coverage of all types of medical benefits under Employees’ Insurance will be available to all workers.

Companies must put consistent effort to ensure that proper compliance of these various statutes vis-à-vis the working condition for its employees are in order, and that the HR policies are formulated in accordance with the guidelines mentioned in the central and state by laws.

What is the scope of compliances under Environmental Laws?

The scope of compliances under Environmental Laws covers, but isn’t limited, to the following:

Environmental and pollution control matters fall under the ambit of various statutes such as:

  • The Environment (Protection) Act, 1986
  • The Water (Prevention and Control of Pollution) Act, 1974.
  • The Air (Prevention and Control of Pollution) Act, 1981
  • Hazardous Wastes (Management, Handling and Trans boundary Movement) Rules, 2008
  • The Manufacture, Storage, and Import of Hazardous Chemicals Rules, 1989
  • The Indian Forest Act, 1927
  • The Forest (Conservation) Act, 1980
  • The National Environment Tribunal Act, 1995
  • The Public Liability Insurance Act, 1991, etc.

Companies are required to comply with the provisions of these environmental laws to the extent specifically applicable to their business operations. The consequences of non-compliance with the provisions of any such statutes and rules are provided in the respective statutes.

What is the scope of compliances under Tax and Stamp Duty related laws?

The scope of compliances under the Tax and Stamp Duty related laws covers, but is not limited, to the following:

There is a federal tax structure in India and taxes are levied by both the Central and State Governments, along with other local regulatory authorities. These taxes are broadly classified as:

  • Direct Tax (which includes income tax, dividend distribution tax, minimum alternate tax (MAT), share buy-back tax),
  • Indirect Tax (which includes GST, Excise Duty, Customs Duty, Entry Tax, R&D Cess), and
  • Charges on transactions (including stamp duty, securities transaction tax, and commodity transaction tax).

All Indian companies are subjected to payment of tax and stamp duty for their business transactions undertaken during any financial year and on the income generated from such operations. Delayed/ non-payment and inadequate payment of tax and stamp duty may attract moderate to heavy penalties, cause enforceability issue of the documents and, in some cases, impounding of the documents by the authority.

Apart from the ones mentioned above, are there any other enactments that are applicable for companies in India?

Whilst the above explained laws and enactments lays down the general laws governing a company in India, local state laws also play a very important role. Therefore, the need for companies to be mindful of adhering to local state laws in which they are registered and conducting their business must not be overlooked.

What are the consequences of non-compliance of the provisions of Acts and Enactments as mentioned above?

The policy and procedures regulating, and governing Indian corporations have been progressively liberalized and simplified over the last few years. However, there are several compliance mandates that must be adhered to, failure to do so could trigger various compliance risks such as disqualification of directors, attracting of penal provisions and in some cases even imprisonment of the directors and key management personnel.

What is compliance risk and how can companies manage it?

Compliance risk refers to an exposure to legal penalties, financial forfeiture, and the material loss an organization faces when it fails to act in accordance with industry laws and regulations, internal policies, or prescribed best practices. Compliance risk can also be referred to as integrity risk. Several compliance regulations are enacted to ensure that companies operate ethically and in a fair manner.

Compliance risk management constitutes the widely known collective governance, risk management, and compliance (GRC) discipline. The three fields have been known to overlap frequently in the areas of internal auditing, incident management, operational risk assessment, and compliance with regulations such as the Sarbanes-Oxley Act of United States. Penalties for compliance violations include payments for damages, fines, and voided contracts, which can lead to a loss of reputation and business opportunities for organisations, as well as devaluation of its franchises.


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