Income tax compliance is a critical aspect of running a business. Ensuring that your business adheres to income tax regulations not only avoids penalties but also fosters a healthy relationship with tax authorities, improves financial planning, and enhances corporate reputation.

Here’s a complete checklist by CA Manoj Mishra to help businesses in India stay compliant with income tax requirements.

Your Tax Obligations

Businesses in India are subject to specific tax obligations depending on their structure (sole proprietorship, partnership, LLP, company, etc.) and revenue. Key taxes include:

• Income Tax: Levied on the profits earned by the business.
• Goods and Services Tax (GST): Applicable for businesses with annual turnover exceeding INR 40 lakh (INR 20 lakh for special states).
• Tax Deducted at Source (TDS): Collected at the source of income generation.
• Advance Tax: Paid in installments if the tax liability exceeds INR 10,000 in a financial year.

Register for PAN and TAN

• Permanent Account Number (PAN): Ensure your business has a PAN, which is mandatory for filing income tax returns and conducting financial transactions.
• Tax Deduction and Collection Account Number (TAN): Required if your business deducts TDS for employees or vendors.

Maintain Accurate Books of Accounts

• Businesses must maintain accurate records of income, expenses, assets, and liabilities.
• Depending on turnover or professional receipts, books must be audited under Section 44AB of the Income Tax Act if they exceed specified thresholds:
  • INR 1 crore for businesses.
  • INR 50 lakh for professionals.
• Tools like accounting software (e.g., Tally, Zoho Books) can streamline record-keeping.

Determine Applicable Tax Rates

Tax rates vary based on business structure:

• Individuals and sole proprietors: Taxed as per individual income slabs.
• Partnership firms and LLPs: Flat rate of 30% plus surcharge and cess.
• Companies: Tax rates depend on turnover and opting for concessional rates under Section 115BAA or 115BAB.

Comply with TDS and TCS Regulations

• TDS Compliance: Deduct TDS on salaries, contractor payments, rent, interest, and other specified payments. Deposit the TDS by the 7th of the following month.
• TCS Compliance: If applicable (e.g., for e-commerce or specified goods), collect TCS and deposit it timely.
• Filing TDS/TCS Returns: Submit quarterly statements such as Form 24Q (for salary payments) and Form 26Q (for other payments).

File Advance Tax

• Calculate and pay advance tax in four installments:
  • 15% by June 15.
  • 45% by September 15.
  • 75% by December 15.
  • 100% by March 15.
• Regularly review profits and revise estimates to avoid underpayment penalties.

File Income Tax Returns (ITR) on Time

• Deadlines:
  • For businesses requiring audit: September 30 of the assessment year.
  • Non-auditable cases: July 31 of the assessment year.
• File using the correct ITR form:
  • ITR-3 for individuals and HUFs with business income.
  • ITR-4 for presumptive income schemes.
  • ITR-5 for partnership firms and LLPs.
  • ITR-6 for companies.

Conduct Tax Audits (if applicable)

• Applicable for businesses exceeding turnover limits as per Section 44AB.
• Submit the audit report (Form 3CA/3CB and Form 3CD) before filing the ITR.
• Appoint a Chartered Accountant (CA) for seamless tax audit compliance.

Reconcile GST and Income Tax Data

• Ensure consistency between GST returns (e.g., GSTR-1, GSTR-3B) and income tax returns.
• Cross-verify revenue reported under GST with income tax filings to avoid discrepancies during assessments.

Claim Deductions and Benefits

Businesses can reduce their taxable income by claiming eligible deductions:

• Depreciation on assets: As per the Income Tax Act.
• Business expenses: Rent, salaries, travel, advertising, etc.
• Deductions under Section 80C to 80G: Contributions to provident funds, donations, and other specified expenses.
• Presumptive taxation (Section 44AD/44ADA): For small businesses and professionals with turnover below INR 2 crore or INR 50 lakh, respectively.

Manage Capital Gains

If your business has sold assets, ensure that capital gains are reported correctly. Apply exemptions under sections like 54EC (investment in bonds) to reduce taxable gains.

Verify Form 26AS and AIS

• Form 26AS: Reconcile TDS and advance tax payments with Form 26AS, which shows tax credits available against your PAN.
• Annual Information Statement (AIS): Review detailed transaction data provided by the Income Tax Department to ensure compliance.

Stay Updated on Tax Amendments

• Tax laws change frequently, so stay informed about updates in the Union Budget or Finance Act.
• Subscribe to government notifications and engage with tax advisors to remain compliant.

Appoint a Tax Consultant

Hiring a qualified Chartered Accountant (CA) or tax consultant can simplify tax compliance. They can assist with:

• Tax planning.
• Filing returns accurately.
• Managing assessments and audits.

Respond to Notices Promptly

• Tax authorities may issue notices for mismatches, non-compliance, or additional information. Respond promptly to avoid penalties or legal actions.
• Common notices include:
  • Intimation under Section 143(1).
  • Scrutiny under Section 143(3).

Penalty Avoidance Checklist

• File returns within the deadlines to avoid late filing fees under Section 234F.
• Pay taxes on time to avoid interest under Section 234A, 234B, and 234C.
• Ensure no under-reporting or misreporting of income to avoid additional penalties.

Keep Records for Assessment

Maintain records for at least 6 years as they may be required during assessments:

• Invoices.
• Tax payment receipts.
• Audit reports.
• Correspondence with the Income Tax Department.

Use Technology for Compliance

• Utilize tax compliance software to automate filings and reminders.
• Tools like ClearTax, Zoho Books, and QuickBooks can ensure error-free filings and timely compliance.

Plan for Tax Optimization

• Invest in tax-saving instruments like PPF, ELSS, or NPS to reduce individual tax liability.
• Structure remuneration (e.g., salary, dividends) for tax efficiency.

Educate Employees About Tax Responsibilities

• If your business provides taxable benefits, educate employees about implications on their income tax.
• Offer workshops or consultations on tax-saving strategies.

GenZCFO Advice

Income tax compliance is integral to maintaining the financial health and legal standing of a business. We at GenZCFO help you by following the completed checklist, businesses can meet their obligations, optimize their tax liability, and avoid penalties. Regular audits, staying updated with legal changes, and leveraging professional advice ensure that your business remains compliant and efficient in its tax practices. We are a team of Chartered Accountants who can help you with all income tax compliances.