Thursday, April 3, 2025

ROC & MCA Compliance Calendar 2025-26: Key Deadlines for Companies & LLPs

Introduction

Companies and LLPs registered under the Companies Act, 2013, or the LLP Act, 2008, must comply with various statutory filings with the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). Timely compliance helps avoid penalties and ensures smooth business operations. This guide provides a structured, date-wise compliance calendar for Companies & LLPs for FY 2025-26, ensuring seamless regulatory adherence.

Compliance Deadlines for Companies & LLPs (FY 2025-26)

DateCompliance RequirementDetailsApplicability & Threshold
30th April 2025Filing of Form MSME-1 (H1) ✅Declaration of outstanding dues to MSMEs for Oct 2024 - Mar 2025.Companies with MSME supplier dues > 45 days.
30th May 2025Filing of Form DPT-3 📑Return of deposits & money received but not deposits.Companies accepting loans/deposits.
30th June 2025Filing of Form DIR-3 KYC 🚀KYC compliance for all directors holding a DIN.Mandatory for all directors.
31st July 2025Filing of Form LLP-11 (Annual Return) 🏢Annual Return of LLP for FY 2024-25.All LLPs.
30th September 2025Filing of Form AOC-4 (Financial Statements) 🏦Filing of Balance Sheet & P&L for FY 2024-25.Companies except OPCs & small companies.
15th October 2025Filing of Form MSME-1 (H2) ✅Declaration of outstanding dues to MSMEs for Apr - Sep 2025.Companies with MSME supplier dues > 45 days.
31st October 2025Filing of Form MGT-7/MGT-7A (Annual Return) 📑Annual return of companies for FY 2024-25.MGT-7: Public & large private companies; MGT-7A: OPCs & small companies.
30th November 2025Filing of Form LLP-8 (Financial Statements) 🏦Statement of Accounts & Solvency for LLPs.All LLPs.
31st December 2025Filing of Form BEN-2 (Significant Beneficial Ownership) 🔍Disclosure of SBO for companies.Applicable if there’s an SBO.
31st March 2026Filing of Form CRA-4 (Cost Audit Report) 📊Submission of cost audit report to MCA.Companies specified under cost audit rules.

Event-Based Compliance Requirements

ComplianceDetailsApplicabilityDue Date
Form PAS-3 (Allotment of Shares) 📌Return of allotment of shares.Whenever new shares are allotted.Within 30 days of allotment.
Form MGT-14 (Board Resolutions) 🏦Filing of board resolutions with ROC.Required for major corporate decisions.Within 30 days of board meeting.
Form INC-22 (Change in Registered Office) 📍Notice of change in registered office.Whenever a company changes its office.Within 15 days of change.
Form DIR-12 (Change in Directors) 🚀Intimation of appointment/resignation of directors.Whenever a director is appointed/resigns.Within 30 days of change.
Form CHG-1 (Creation of Charge) 🏢Filing for creation/modification of charge on assets.Whenever a company takes a secured loan.Within 30 days of creation/modification.
Form SH-7 (Change in Authorized Capital) 📑Increase in authorized share capital.Whenever capital is increased.Within 30 days of resolution.

Common Mistakes & Compliance Tips

✔️ Annual Filings: Ensure timely submission of AOC-4, MGT-7, and LLP-11 to avoid late fees of ₹100 per day. ✔️ Director KYC: Failure to file DIR-3 KYC leads to DIN deactivation and penalty of ₹5,000. ✔️ Deposits Compliance: Non-filing of DPT-3 attracts penalties of up to ₹5 lakh. ✔️ MSME-1 Filings: Ensure MSME dues are reported on time to avoid penalties and legal action. ✔️ Event-Based Filings: Always file PAS-3, MGT-14, and DIR-12 within their due dates to avoid late fees.

Conclusion

Regular MCA/ROC compliance is essential for businesses to maintain good standing and avoid hefty penalties. Staying up to date with statutory requirements ensures smooth business operations and corporate governance. For professional assistance, reach out to Sandeep Ahuja & Co, Chartered Accountants.

April 2025 Compliance Calendar: Essential Tax, GST & Regulatory Deadlines for Businesses

Introduction

April marks the beginning of the financial year, making it crucial for businesses and professionals to adhere to tax and regulatory compliance requirements. Timely compliance with GST, Income Tax, TDS, PF/ESI, and other statutory filings helps avoid penalties and ensures smooth financial operations. This compliance calendar, prepared by Sandeep Ahuja & Co, Chartered Accountants, provides a structured and comprehensive guide to key deadlines for April 2025.

Compliance Deadlines - April 2025

DateCompliance RequirementDetailsThreshold/Applicability
7th April 2025TDS/TCS Payment (Income Tax) ✅Last date to deposit TDS and TCS for March 2025 to avoid interest and penalties. Late payment attracts 1% (TDS) or 1.5% (TCS) interest per month.TDS applicable if payments exceed prescribed limits (e.g., ₹50 lakh for property transactions).
ESI Contribution Payment ✅Employers must deposit Employees’ State Insurance (ESI) contributions for March 2025.Mandatory for businesses with 10+ employees (manufacturing) or 20+ employees (other sectors).

10th April 2025IT eFiling Start Date (AY 2025-26) 🏢The Income Tax Department starts accepting IT returns for FY 2024-25.All taxpayers.
Professional Tax (PT) Payment ℹ️PT on salaries for March 2025 (Due date varies by state).Applicable as per state laws.
GSTR-7 Filing (GST TDS Deductors) 💰Businesses deducting TDS under Section 51 of the CGST Act must file GSTR-7 for March 2025.Applicable for specific taxpayers deducting GST TDS.
GSTR-8 Filing (E-commerce Operators) 🛒E-commerce operators must submit the GST TCS return for March 2025.Mandatory for registered e-commerce operators.
11th April 2025GSTR-1 Filing (Monthly Filers) 📑Monthly GST filers must report outward supplies for March 2025. Late filing attracts ₹50 per day (₹25 CGST + ₹25 SGST).Businesses with turnover exceeding ₹5 crore.
13th April 2025GSTR-1 (QRMP - Jan-Mar 2025) 📊Taxpayers under the QRMP scheme must furnish invoices to facilitate ITC claims.QRMP scheme participants (turnover up to ₹5 crore).
15th April 2025PF & ESI Contribution Payment 🏦Employers must deposit Provident Fund (PF) and ESI contributions for March 2025.PF applicable for employers with 20+ employees.
18th April 2025CMP-08 Filing (GST Composition Taxpayers) 🏢Composition taxpayers must file CMP-08 for Jan-Mar 2025.Applicable for composition dealers (turnover up to ₹1.5 crore).
20th April 2025GSTR-3B Filing (Monthly Filers) 📌Monthly GST filers must declare tax liability and claim ITC for March 2025.Businesses with turnover exceeding ₹5 crore.
22nd April 2025GSTR-3B Filing (QRMP - South India) 🌏QRMP taxpayers in South India must file their quarterly GSTR-3B for Jan-Mar 2025.QRMP scheme participants.
24th April 2025GSTR-3B Filing (QRMP - North India) 🌍QRMP taxpayers in North India must file their quarterly GSTR-3B for Jan-Mar 2025.QRMP scheme participants.
25th April 2025GST PMT-06 Payment (QRMP Taxpayers) 💳QRMP taxpayers must deposit their monthly tax liability for March 2025.QRMP scheme participants.
30th April 2025Opt-in/Opt-out of GST Quarterly Scheme 🔄Last date to opt into or out of the GST quarterly return scheme for Apr-Jun 2025.Applicable for businesses with turnover up to ₹5 crore.
TDS Payment in Form 26QB, 26QC, 26QD, 26QE 🏠Payment of TDS on property, rent, contractor payments, and crypto assets for March 2025. Late deduction attracts a penalty equal to the TDS amount.₹50 lakh (Property), ₹2.4 lakh (Rent), ₹30,000 (Contractor Payments), ₹10,000 (Crypto Assets).
GSTR-4 Filing (Composition Taxpayers - FY 2024-25) 📑Annual GST return filing for composition taxpayers.Composition taxpayers (turnover up to ₹1.5 crore).
Form 24G Submission (Income Tax) 🏦Government deductors must submit Form 24G for centralized TDS processing.Applicable to government deductors.
TDS Filing for Property Transactions 🏡Filing of TDS returns (Form 26QB, 26QC, 26QD) for property and rental payments made in March 2025.₹50 lakh (Property), ₹2.4 lakh (Rent).

Common Mistakes & Compliance Tips

✔️ GSTR-1 & GSTR-3B: Ensure timely filing to avoid late fees and maintain smooth ITC claims. ✔️ TDS Payments: Late payment attracts 1-1.5% interest per month. ✔️ PF & ESI: Ensure contributions are correctly calculated as per employee salaries. ✔️ GST Composition Scheme: Verify eligibility before opting in. ✔️ Professional Tax (PT): Some states, like Maharashtra, impose a yearly PT liability of ₹2500 for non-compliance.

Conclusion

Staying compliant with tax and regulatory deadlines is essential for businesses to maintain financial discipline and avoid unnecessary penalties. As Chartered Accountants, we recommend planning ahead and consulting with experts to ensure timely submissions.

For professional assistance with your compliance requirements, feel free to reach out to Sandeep Ahuja & Co, Chartered Accountants.

Wednesday, April 2, 2025

Form 3CD Tax Audit 2025: Understanding New Disclosure, Disallowance & Compliance Norms

The Central Board of Direct Taxes (CBDT) has introduced amendments to Form 3CD, applicable from April 1, 2025, for tax audits under Section 44AB of the Income-tax Act, 1961. These changes impact the nature of information required for disclosures, taxability, and disallowances, making it essential for businesses, professionals, and auditors to prepare well in advance.

This guidance note outlines the detailed reporting requirements under the revised clauses, explaining what information needs to be captured, how it affects taxability, and what working papers businesses and auditors should maintain.

Key Amendments in Form 3CD – Clause-wise Nature of Information Required

Clause 36B – Reporting of Buyback of Shares

Nature of Information Required:

  1. Details of buyback transactions, including:

    • Date of buyback approval

    • Number of shares bought back

    • Buyback price per share

    • Total amount paid for buyback

  2. Cost of acquisition of shares bought back, including:

    • Original purchase price

    • Mode of acquisition (IPO, secondary market, ESOP, etc.)

  3. Tax treatment of buyback:

    • Whether tax under Section 115QA has been paid by the company

    • Capital gains computation for shareholders, if applicable

Compliance & Audit Preparation:

  • Maintain buyback approval documents, resolutions, and payment proofs.

  • Cross-check whether the buyback tax was correctly deducted and reported.

Clause 12 – Addition of Section 44BBC (Presumptive Taxation for Certain Professionals)

Nature of Information Required:

  1. Applicability of Section 44BBC:

    • Whether the taxpayer is engaged in broadcasting, telecasting, or sports event rights

    • Total gross receipts from such activities

  2. Presumptive taxation computation:

    • Whether 10% of gross receipts is being offered as taxable income

    • If not opting for 44BBC, details of books of accounts maintained

Compliance & Audit Preparation:

  • Maintain a separate ledger for broadcasting-related income.

  • Verify whether TDS deductions under Section 194E/195 have been properly recorded.

Clause 19 – Removal of Certain Deductions

Nature of Information Required:

  • Confirmation that the following deductions are not claimed:

    • Section 32AC – Investment in plant & machinery

    • Section 32AD – Investment in backward areas

    • Section 35AC – Expenditure on eligible projects

    • Section 35CCB – Agricultural development programs

  • Review of tax computation to ensure these deductions are not included in taxable income calculations.

Compliance & Audit Preparation:

  • Review prior years’ tax filings to identify any carried-forward claims.

  • Ensure adjustments in financial statements for businesses affected by the removal of these deductions.

Clause 21 – Disclosure of Legal Contravention Settlements

Nature of Information Required:

  1. Breakdown of legal expenses, specifying:

    • Legal fees paid for representation

    • Fines, penalties, and settlements paid

    • Nature of the offense (contractual dispute, regulatory non-compliance, etc.)

  2. Justification of deductibility:

    • Section 37(1) disallows expenses related to penalties and legal contraventions.

    • Only pure legal fees for defense or compliance-related matters are allowed.

Compliance & Audit Preparation:

  • Maintain separate accounting for legal fees vs. fines and penalties.

  • Review agreements, legal notices, and case settlements to justify expense claims.

Clause 22 – Revised MSME Payment Reporting

Nature of Information Required:

  1. Classification of vendors into:

    • Micro Enterprises

    • Small Enterprises

  2. Details of payments due to MSMEs, including:

    • Total outstanding as of year-end

    • Breakdown of payments made within and beyond 45 days

    • Interest payable under Section 23 of the MSMED Act

  3. Disallowance of delayed payments:

    • Expenses related to delayed payments beyond the due date are disallowed under Section 43B(h).

Compliance & Audit Preparation:

  • Maintain MSME vendor classification list with Udyam Registration details.

  • Generate aging reports of outstanding MSME payments.

Clause 26 – Adjustments in Section 43B Reporting

Nature of Information Required:

  1. Breakdown of statutory payments made, including:

    • GST, TDS, PF, ESI, bonus, gratuity

  2. Date of actual payment vs. due date:

    • If payment is delayed beyond the due date of return filing, it will be disallowed.

Compliance & Audit Preparation:

  • Ensure statutory liabilities are cleared within the return filing deadline.

  • Cross-check bank statements for actual payment dates.

Removal of Clauses 28 & 29 – Share Valuation Reporting Omitted

Nature of Information Required:

  • Though omitted from Form 3CD, businesses still need to maintain Rule 11UA valuation reports for:

    • Shares issued at a premium (Section 56(2)(viib))

    • Shares received at less than fair market value (Section 56(2)(viia))

Compliance & Audit Preparation:

  • Ensure valuation reports are in place for share transactions.

  • Verify that any premium charged on shares has been taxed appropriately.

Clause 31 – Dropdown-Based Loan & Deposit Reporting

Nature of Information Required:

  1. Loan and deposit transactions, categorized by:

    • Type of transaction (secured loan, unsecured loan, deposit, advance, etc.)

    • Nature of lender/borrower (company, firm, individual, etc.)

    • Compliance with Sections 269SS & 269T (cash transactions over ₹20,000).

Compliance & Audit Preparation:

  • Maintain detailed ledgers for all loans and deposits.

  • Review whether any transactions violate cash deposit/loan restrictions.

Conclusion

The amendments to Form 3CD significantly impact the nature of information required for tax audits, focusing on detailed disclosures, proper tax treatment, and elimination of outdated deductions.

Businesses must:

  • Ensure correct reporting of buybacks, MSME payments, and legal settlements.

  • Avoid claiming discontinued deductions and ensure timely payment of statutory dues.

  • Maintain proper documentation for loans, deposits, and share transactions.

For professionals conducting tax audits, it is critical to:

  • Review books of accounts for non-deductible expenses and disallowed payments.

  • Ensure compliance with MSME reporting norms and loan classification rules.

  • Verify supporting documents for all disclosures made under revised Form 3CD.

By integrating these changes into audit planning and compliance review, businesses and professionals can ensure seamless tax audits and avoid potential penalties for misreporting.

Guide to ESOPs: Accounting, Taxation, Compliance & Strategic Growth for Businesses

Employee Stock Option Plans (ESOPs) are more than just an employee benefit—they are a powerful tool for wealth creation, talent retention, and business expansion. When structured effectively, ESOPs can align the interests of employees with company growth, optimize tax efficiency, and enhance financial planning. However, without proper accounting, taxation strategies, and compliance, ESOPs can become a liability instead of an asset. This guide provides a 360-degree view of ESOPs, covering everything from financial accounting and tax planning to regulatory frameworks and international comparisons—ensuring that businesses maximize their benefits while staying fully compliant.

ESOPs, or Employee Stock Option Plans, allow employees to acquire company shares at a preferential price. These programs serve as incentives, promoting employee ownership and aligning individual performance with company growth. Companies allocate shares to an ESOP trust, which then distributes them based on tenure, performance, or other criteria.

Key Components of ESOPs

  1. Shares: Represent ownership in the company, granted to employees under predefined conditions.

  2. Vesting: The period employees must wait before exercising their stock options.

  3. Trust: A legal entity managing and holding shares on behalf of employees.

  4. Administrator: An entity or individual responsible for the execution of ESOP policies.

  5. Valuation: Conducted by independent firms to determine the fair market value of the stock options.

ESOP Accounting

Cost Calculation & Recognition

  1. Expense Calculation: The cost of ESOPs is calculated based on the fair market value at the grant date, adjusted for expected lapses.

  2. Expense Allocation: Companies spread costs over the vesting period rather than booking them upfront.

  3. Expense Recognition: The cost is recorded annually in financial statements as an employee benefit expense.

  4. Tracking & Reporting: Ensures compliance with accounting standards and financial accuracy.

Accounting Methodologies

  1. Black-Scholes Model: Estimates the fair value of stock options based on volatility, risk-free rates, and stock price movements.

  2. Binomial Model: Evaluates the likelihood of future stock price movements in discrete intervals.

Example Accounting Entries

Company P Ltd. grants 10,000 ESOPs with a vesting period of 4 years. Exercise price is ₹100, while the fair market value is ₹200.

Yearly Expense Recognition:

  1. Year 1

    • Employee Benefit Expense A/c Dr. ₹2,50,000

    • To Share-Based Payment Reserve A/c ₹2,50,000

    • (Recognition of Year 1 ESOP cost)

  2. Year 2

    • Similar entry for ₹2,50,000

  3. Year 3 (4000 unvested options lapse)

    • Share-Based Payment Reserve A/c Dr. ₹1,00,000

    • To Employee Benefit Expense A/c ₹1,00,000

    • (Reversal due to lapses)

  4. Year 4

    • Employee Benefit Expense A/c Dr. ₹2,50,000

    • To Share-Based Payment Reserve A/c ₹2,50,000

  5. Exercise Period Accounting

    • Bank A/c (6000×₹100) Dr. ₹6,00,000

    • Share-Based Payment Reserve A/c Dr. ₹9,00,000

    • To Equity Share Capital A/c ₹60,000

    • To Securities Premium A/c ₹14,40,000

    • (Shares issued upon exercise)

Taxation of ESOPs

Tax Implications for Employees

  1. At the Time of Exercise:

    • The difference between market price and exercise price is taxable as perquisite income under salary.

    • Tax is deducted at source (TDS) by the employer.

  2. At the Time of Sale:

    • Capital gains tax applies. The tax rate depends on the holding period.

      • Short-Term (≤ 12 months): Taxed at slab rates (for unlisted shares) or 15% (for listed shares).

      • Long-Term (> 12 months for listed, > 24 months for unlisted): 10% on gains above ₹1 lakh (for listed), 20% with indexation (for unlisted).

Tax Implications for Companies

  1. ESOP expenses are deductible under Section 37 of the Income Tax Act.

  2. TDS Compliance is mandatory while issuing ESOPs.

  3. GST is not applicable on ESOP transactions.

Tax Strategy for ESOP Holders
  • Delay Exercise: If the company’s valuation is expected to rise, early exercise might lead to a higher tax liability.

  • Sell After Holding Period: Holding ESOPs for longer ensures reduced capital gains tax.

  • Use ESOP Loans: Some companies offer loans to exercise ESOPs, minimizing cash outflow.

Compliance and Regulatory Requirements

India-Specific Compliance

  • SEBI Guidelines: Applicable for listed companies.

  • Companies Act, 2013: Section 62(1)(b) governs ESOP issuance.

  • Income Tax Act, 1961: Covers taxation aspects.

International Compliance Standards

  • United States: Governed by IRC 409A and SEC regulations.

  • United Kingdom: Enterprise Management Incentives (EMI) scheme offers tax benefits.

  • Singapore: ESOPs taxed at exercise, with preferential capital gains rules.

  • Germany: ESOPs taxed at exercise but with specific exemptions for startups.

  • Australia: Employee Share Schemes (ESS) taxation applies based on deferral or upfront assessment.

Industry-Specific ESOP Planning

  1. Startups:

    • Offer ESOPs as a cash flow-friendly incentive.

    • Design vesting schedules strategically to retain key talent.

    • Utilize tax-deferral strategies to minimize employee burden.

  2. SMEs:

    • Use ESOPs as a retention tool for senior management.

    • Implement liquidity events to facilitate employee exits.

  3. Large Corporations:

    • Structure ESOPs with performance-based vesting.

    • Explore trust-based ESOPs to align long-term growth.

Case Study: Startup vs. Large Corporation

Company A (Startup) offers ESOPs with a 4-year vesting period and an exercise price of ₹10 (FMV ₹50). Employees delay exercise to avoid high perquisite taxation.

Company B (Listed Corporation) grants ESOPs at ₹500 (FMV ₹700). Employees exercise early due to expected dividend payouts.

Conclusion

ESOPs, when structured correctly, provide a win-win for companies and employees. Strategic tax planning, compliance adherence, and tailored ESOP structures based on industry needs are crucial for maximizing benefits. Proper ESOP accounting and taxation strategies ensure minimized tax liabilities and optimized business growth.

Implementing an ESOP is not just about rewarding employees—it’s about building a future-proof company. By leveraging the right accounting methodologies, strategic tax planning, and strict compliance adherence, businesses can turn ESOPs into a catalyst for growth. Whether you're an entrepreneur exploring ESOPs for the first time or a CFO refining your company's equity compensation strategy, this guide ensures that you navigate the complexities with confidence. A well-executed ESOP can transform employees into stakeholders, creating a workforce that is invested in the company's success—ultimately driving innovation, retention, and long-term financial stability

Guide on TDS on Rent Paid to Non-Resident (NRI) and Resident Landlords

Introduction

Tax Deduction at Source (TDS) on rent payments is a significant compliance requirement under the Income Tax Act, 1961. It applies to both individuals and businesses making rental payments to landlords, whether resident or non-resident. The applicable provisions are Section 194-IB for resident landlords and Section 195 for non-resident landlords. Non-compliance may lead to interest, penalties, and disallowance of rent as an expense in the case of businesses. This guide explains the legal provisions, compliance responsibilities, TDS deduction and deposit procedures, due dates, lower deduction certificate (LDC) application process, and penalties for both salaried individuals and businesses.

TDS on Rent Paid to Resident Landlords under Section 194-IB

Legal Provision (Extract from the Income Tax Act, 1961):

Section 194-IB: “Any individual or Hindu Undivided Family (HUF) responsible for paying to a resident any rent exceeding fifty thousand rupees per month shall, at the time of credit or payment, whichever is earlier, deduct income-tax at the rate of five percent (5%).”

Amendment Effective from 1st October 2024: “The rate of deduction shall be two percent (2%) for deductions made on or after this date.”

Applicability and Compliance Responsibilities

  • This provision applies to individuals and HUFs who are not required to get their books audited under Section 44AB of the Income Tax Act.

  • Threshold Limit: Rent exceeding ₹50,000 per month.

  • TAN Not Required: The tenant can deduct TDS using their PAN.

  • Time of Deduction: TDS should be deducted once in the last month of the financial year (March) or at the time of lease termination, whichever is earlier.

  • Due Date for Payment & Filing of Form 26QC: The deducted TDS must be deposited with the government within 30 days from the end of the month in which deduction was made.

Compliance Responsibilities of Salaried Individuals and Businesses

For Salaried Individuals (Tenants Paying Rent Above ₹50,000 per Month)

  • If the landlord is a resident, TDS at 2% (w.e.f. 1st Oct 2024) must be deducted and Form 26QC must be filed.

  • If the landlord is an NRI, TDS must be deducted at 30% + surcharge & cess, and Form 27Q must be filed.

  • Failure to deduct and deposit TDS may lead to notices from the Income Tax Department.

For Businesses (Companies & Firms as Tenants)

  • Businesses paying rent to resident landlords must deduct TDS under Section 194-I, which prescribes 10% on rent for land/building.

  • For NRI landlords, businesses must deduct TDS under Section 195 at 30% + surcharge & cess, unless an LDC under Section 197 is obtained.

  • Businesses must obtain a TAN (Tax Deduction and Collection Account Number) and file quarterly TDS returns (Form 26Q for residents, Form 27Q for NRIs).

Penalty for Non-Compliance

  • Interest on Late Deduction (Sec 201(1A)):

    • 1% per month or part thereof for delay in deduction.

    • 1.5% per month or part thereof for delay in deposit after deduction.

  • Late Filing Fee (Sec 234E): ₹200 per day of delay, capped at the TDS amount.

  • Penalty for Non-Filing (Sec 271H): ₹10,000 to ₹1,00,000.

TDS on Rent Paid to Non-Resident Landlords under Section 195

Legal Provision (Extract from the Income Tax Act, 1961):

Section 195(1): “Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in Section 194LB or Section 194LC or Section 194LD) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head ‘Salaries’), shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force.”

Applicability and Compliance Responsibilities

  • This section applies to any person making rental payments to an NRI landlord, regardless of whether the payer is an individual or a business.

  • No Minimum Threshold: TDS is applicable on any amount of rent paid.

  • TAN Requirement: The tenant must obtain a TAN before deducting and depositing TDS.

  • TDS Rate for NRIs:

    • 30% on the rent amount + Surcharge & Cess (if applicable).

    • If an LDC (Lower Deduction Certificate) under Section 197 is obtained, the reduced rate applies.

  • Time of Deduction: Deduction must be made at the time of credit or payment, whichever is earlier.

  • Due Date for Payment & Filing of TDS Returns (Form 27Q):

    • Q1 (Apr-Jun): 31st July

    • Q2 (Jul-Sep): 31st October

    • Q3 (Oct-Dec): 31st January

    • Q4 (Jan-Mar): 31st May

Lower Deduction Certificate (LDC) under Section 197 for NRIs

  • NRIs can apply for an LDC through Form 13 to request TDS deduction at a lower rate.

  • The application is submitted online through TRACES.

  • If approved, tenants must deduct TDS at the prescribed lower rate instead of 30%.

  • The LDC must be obtained before rent payment to ensure compliance.

Penalty for Non-Compliance

  • Interest for Late Deduction & Deposit (Sec 201(1A)):

    • 1% per month for failure to deduct TDS.

    • 1.5% per month for failure to deposit after deduction.

  • Late Filing Fee (Sec 234E): ₹200 per day.

  • Penalty for Non-Filing (Sec 271H): ₹10,000 to ₹1,00,000.

Conclusion for Compliance

AspectResident Landlord (Sec 194-IB)NRI Landlord (Sec 195)
TDS ApplicabilityIf rent > ₹50,000/monthNo minimum threshold
TDS Rate2% (from Oct 1, 2024)30% + surcharge + cess
TAN RequirementNot RequiredMandatory
TDS Deduction TimingLast month of FY / Lease terminationEvery payment (monthly/quarterly)
Form for Filing TDS Return26QC27Q
Due Date for Payment30 days from deductionQuarterly
Penalty for Late Deduction/Deposit1%-1.5% per month1%-1.5% per month

Ensuring timely TDS deduction, deposit, and filing helps tenants avoid legal consequences while allowing landlords to claim credit for the taxes deducted. NRIs can further optimize tax liability by applying for a Lower Deduction Certificate (LDC) under Section 197

Tuesday, April 1, 2025

Guide to Tax, TDS & GST Changes Effective from 1st April 2025

Guide to Tax, TDS & GST Changes Effective from 1st April 2025

Executive Summary: Key Tax & Compliance Updates

Starting 1st April 2025, the government has introduced several significant changes in Income Tax, TDS (Tax Deducted at Source), and GST (Goods and Services Tax). These updates will have substantial implications for both businesses and individuals, including NRIs. Key changes include:

🔹 Revised Income Tax Slabs offering relief to middle-income earners.
🔹 Higher TDS Thresholds to reduce compliance burdens for various transaction types.
🔹 Updated Tax Audit Limits beneficial for businesses relying on digital transactions.
🔹 TCS on High-Value Transactions revised for improved tracking and compliance.
🔹 Stricter GST Compliance Rules, including mandatory e-invoicing and invoice matching.
🔹 Mandatory Disclosure Requirements for Foreign Assets & Cryptocurrency Transactions.
🔹 Tax Benefits for Startups extended until 2030.
🔹 Strategic Tax Planning Insights for businesses, professionals, and NRIs.

Income Tax, TDS & Compliance Updates

Key Changes in TDS Rules

Below are the major TDS (Tax Deducted at Source) updates, including threshold changes:

Transaction TypeTDS Rate (Until 31.03.2025)New TDS Rate (From 01.04.2025)New Threshold
Rental Income (Sec 194I)10%10%₹6 lakh/year (previously ₹2.4 lakh)
Interest Income (Sec 194A)10%10%₹1 lakh/year (previously ₹40,000)
Property Sale (Sec 194IA)1%1%₹50 lakh (unchanged)
Commission & Brokerage (Sec 194H)5%5%₹50,000 (previously ₹15,000)

 Tax Planning Strategies on TDS

  • For Landlords: If your annual rent is close to ₹6 lakh, splitting the rental income across multiple tenants can help avoid TDS deductions.

  • For Fixed Deposits (FDs): Reinvest across multiple banks or accounts to ensure interest income remains below ₹1 lakh per account, thus avoiding TDS deductions.

  • For Property Sellers: Plan property sales across two financial years to stay under the ₹50 lakh threshold, reducing your TDS liability.

Tax Audit Threshold & Compliance Changes

Revised Tax Audit Limits

Changes in the tax audit limits now benefit digital businesses:

Entity TypePrevious LimitNew Limit (From 01.04.2025)
Businesses (Cash Transactions >5%)₹1 crore₹1 crore (unchanged)
Businesses (95%+ Digital Transactions)₹10 crore₹20 crore
Professionals₹50 lakh₹75 lakh

Compliance Action Plan for FY 2025-26

  • Ensure digital transactions exceed 95% to avail a higher tax audit threshold.

  • Review vendor contracts for updated TDS changes.

  • Reconcile GST-ITR turnover to avoid mismatches and potential scrutiny.

GST Updates: Compliance & ITC Changes

Major GST Changes Effective from 1st April 2025

ChangePrevious RuleNew Rule (From 01.04.2025)
E-InvoicingMandatory for businesses with ₹10 Cr+ turnoverMandatory for ₹5 Cr+ turnover
Input Tax Credit (ITC) MatchingAllowed with minor mismatchesStrict invoice matching required
GST Amnesty SchemeLast announced in 2024No new scheme announced
Late Fee for GSTR-1 Non-Filing₹50 per day₹100 per day

Tax Planning Strategies for GST

  • Ensure timely e-invoicing compliance to avoid penalties and ensure smooth filing.

  • Reconcile GST filings with ITR to prevent mismatches and reduce the risk of scrutiny.

  • Utilize available ITC optimally to reduce GST liabilities and ensure the full benefit of input credits.

 TCS on High-Value Transactions

 Major TCS Changes

Transaction TypePrevious TCS RateNew TCS Rate (From 01.04.2025)New Threshold
Foreign Remittance (LRS)20%10%₹10 lakh/year
Purchase of Goods Above ₹50 Lakh0.1%RemovedNot Applicable
Overseas Tour Packages5%5%₹10 lakh/year

 Tax Planning Tips on TCS

  • For NRIs: Split remittances across multiple years to stay below the ₹10 lakh threshold and avoid the 10% TCS.

  • For High-Value Goods Purchasers: The removal of TCS on goods purchases above ₹50 lakh is a major benefit for businesses involved in bulk purchases. Focus on ensuring TDS compliance under Section 194Q.

  • For Overseas Tourists: Plan your travel expenses to ensure the total cost remains below ₹10 lakh per year to avoid TCS. If exceeding ₹10 lakh, the TCS rate increases to 20% on the excess.

New Disclosure Requirements & Risk Areas

Mandatory Disclosures in ITR

  • Foreign Assets: NRIs and residents are now required to report foreign investments and assets more comprehensively.

  • Cryptocurrency Transactions: Separate disclosure for cryptocurrency holdings and transactions is now mandatory.

  • GST & Income Tax Turnover Matching: Businesses must ensure that the turnover reported in GST returns matches the figures in their Income Tax Returns (ITR).

 Risk Areas & Penalties

Non-CompliancePenalty
Non-disclosure of foreign assetsUp to ₹10 lakh per default
Mismatch in GST & ITR turnoverTax scrutiny and demand
TDS non-compliance100% penalty on TDS amount + interest

Tax Planning Strategies for NRIs, Startups, and Businesses

For NRIs

  • Invest in NRE Fixed Deposits to earn tax-free interest in India.

  • Use Capital Gain Bonds (Sec 54EC) to reduce tax on property sale.

  • Split foreign remittances across years to avoid TCS.

For Startups

  • 80-IAC Tax Benefits for startups have been extended until 2030.

  • Angel Tax Exemption is applicable for DPIIT-registered startups.

  • Lower Corporate Tax (15%) for new manufacturing units until 2027.

For Businesses

  • Explore Tax Incentives for Digital Transactions: Digital businesses can benefit from increased tax audit limits and other incentives.

  • Lower Corporate Tax Rate for new businesses in the manufacturing sector (15% until 2027).

 Compliance Checklist for FY 2025-26

  • Review new TDS limits for rent, interest, and commission.

  • Verify tax audit applicability based on turnover and digital transactions.

  • Ensure foreign asset & cryptocurrency disclosures in ITR.

  • Update accounting software to comply with new GST-ITR reconciliation rules.

  • Plan remittances to optimize TCS exposure and avoid penalties.

The tax landscape in India has undergone substantial changes with the new tax and compliance regulations. By understanding and implementing these updates, businesses, professionals, and NRIs can ensure that they remain compliant while optimizing their tax liabilities. Key areas to focus on include TDS threshold changes, updated tax audit limits, and GST reconciliation. With proper tax planning and strategic compliance, taxpayers can minimize penalties and avoid scrutiny

Note on GST, TDS for Invoice Issuance and Service Provision under GST and Income Tax (Up to 31st March 2025 and From 1st April 2025)

Introduction:

In the current tax framework, understanding the time limits for issuing invoices under GST and the implications of TDS under Income Tax is crucial for businesses, especially those offering HR services. The timing of the issuance of invoices directly impacts the GST filing, and the deduction of TDS must align with the time of payment or credit, whichever is earlier. Moreover, with the amendments coming into effect from 1st April 2025, businesses must stay updated with changes to ensure compliance.

This guidance note outlines:

  • The time limits for invoice issuance under GST for HR services,

  • The interplay between TDS and GST,

  • The law language as per the CGST Act and Income Tax Act, and

  • Examples and practical advisories to ensure seamless compliance.

Time Limit for Issuance of Invoices under GST

GST Time Limits for Issuing Invoices for Goods:

Section 31(1) of the CGST Act, 2017 stipulates the following for issuing invoices on the supply of goods:

  1. In case of supply of goods involving movement: The tax invoice must be issued before the removal of goods for supply to the recipient. This means that the invoice is required before the goods are shipped to the buyer, ensuring that the tax is accounted for as soon as the goods are dispatched.

    Law Language: "A registered person supplying taxable goods shall issue a tax invoice before or at the time of removal of goods for supply to the recipient."
    Interpretation: If the goods are being shipped to a buyer in another state or location, the invoice must be issued before dispatch.

  2. In case of supply of goods without movement: If the supply does not involve the movement of goods (for example, for installation or construction services), the invoice must be issued before or at the time of delivery of the goods.

    Law Language: "Where the supply does not involve the movement of goods, the tax invoice shall be issued before or at the time of delivery of goods to the recipient."
    Interpretation: The key point here is that the invoice must reflect the point at which the buyer gains control of the goods.

  3. Continuous Supply of Goods: In cases of continuous supply of goods (e.g., subscription-based services or recurring supply), the invoice must be issued before or at the time of each payment or statement of accounts provided by the supplier.

    Law Language: "Where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time of each such statement or payment."
    Interpretation: For continuous supplies, each payment or statement triggers the requirement to issue an invoice.

GST Time Limits for Issuing Invoices for Services:

As per Section 31(2) of the CGST Act, 2017, the time limits for issuing invoices for the supply of services are as follows:

  1. Normal Supply of Services: For services provided, the invoice must be issued within 30 days from the date of supply of services.

    Law Language: "A registered person supplying taxable services shall, subject to the provisions of section 12 of the Act, issue an invoice, before or at the time of supply of such service."
    Interpretation: In essence, for HR services, such as outsourced manpower or professional services, the invoice must be raised within 30 days of providing the service.

  2. Continuous Supply of Services: For services that are supplied continuously (e.g., HR outsourcing services), the invoice must be issued before or at the time of each payment or statement of accounts issued by the supplier.

    Law Language: "In case of continuous supply of services, the invoice shall be issued before or at the time of each payment or statement of accounts."
    Interpretation: In HR services, if payment is received monthly or quarterly, the invoice must be issued at each payment stage.

Example for HR Services: Invoice Issuance on 31st March 2025

Let’s consider a scenario in which an HR outsourcing service was provided throughout March 2025.

  • Invoice for Services: The service provider must issue the invoice on or before 31st March 2025. This is because the service was provided during March 2025, and under Section 31(2), the invoice must be issued within 30 days of the service being provided. Hence, raising the invoice on 31st March 2025 is perfectly compliant.

    Law Language: "The invoice for the services rendered in a month shall be issued within 30 days from the end of the month."

TDS and GST Interaction

The TDS provisions under Section 194J of the Income Tax Act apply to payments made for professional or technical services, including HR services. Under these provisions, the TDS is deducted at the time of payment or credit, whichever occurs first.

  1. TDS Deduction: TDS on HR services is deducted at 10% when the payment exceeds INR 30,000 in a financial year.

    Section 194J of the Income Tax Act:
    "Any person making payment to a resident for professional or technical services shall deduct tax at the rate of 10% at the time of credit or payment, whichever is earlier."

    Interpretation: Whether the payment for the service is made on 31st March 2025 or 1st April 2025, the deduction should occur at the time of credit or payment, whichever is earlier.

    • Example: If the invoice is issued on 31st March 2025 for services rendered in March 2025, but the payment is made on 1st April 2025, TDS will be deducted on 1st April 2025, as that is when the payment was made.

Amendments in GST Law from 1st April 2025

Starting from 1st April 2025, there will be significant amendments to GST provisions affecting continuous supply of services, including HR services:

  1. Continuous Supply of Services: New guidelines may be introduced for invoicing and GST returns related to the continuous supply of services. The amended provisions will likely streamline the timing of invoice issuance for periodic services (like HR outsourcing) to ensure more consistent reporting and GST compliance.

  2. GST Returns and Filing Deadlines: As per the amendments, there will be more structured filing requirements for businesses engaged in continuous services, ensuring real-time matching of invoices and tax returns.

  3. TDS on GST and Adjustments: There may be new provisions on how TDS deductions are reported and adjusted in the GST returns, which could affect businesses providing HR services.

Columnar Guidance on Invoice Issuance, TDS Deduction, and GST Filing

AspectUp to 31st March 2025From 1st April 2025Key Consideration
Invoice for ServicesRaise by 31st March 2025 for services provided in March 2025New GST invoicing rules for continuous services post-1st April 2025Ensure timely invoice issuance for March 2025 services by 31st March
TDS on PaymentDeducted at the time of payment or credit (whichever is earlier)TDS rules remain unchanged from 1st April 2025Deduct TDS at the time of credit/payment to avoid mismatches in returns
Continuous SupplyInvoices issued after completion of service or at end of service periodNew rules for continuous supply services for better matching in returnsStay updated on new invoicing timelines for continuous services
GST Returns FilingFile GSTR-1 and GSTR-3B as per invoice datesMore structured filing requirements for continuous service providersReview updated GST return filing procedures post-April 2025

Conclusion:

For HR services and continuous supply of services, the invoice must be issued by 31st March 2025 for services rendered during March 2025. The TDS will be deducted on the payment or credit (whichever is earlier), as per Section 194J of the Income Tax Act.

The amendments in GST from 1st April 2025 will bring in more streamlined procedures for continuous service providers, including HR outsourcing companies. As such, businesses must remain aware of the new rules to ensure compliance with both GST and TDS obligations.

This guidance note highlights the important aspects related to invoice issuance under GST, the interaction with TDS, and provides clear examples for better understanding. Stay prepared for the upcoming changes in GST law to maintain smooth compliance and avoid any mismatches or penalties.

Monday, March 31, 2025

Compliance Checklist for MSME Payments and Tax Audit Reporting under Section 43B(h) for AY 2025-26

Introduction

The Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, and the Income Tax Act are key legislative tools that regulate and govern the recognition of MSMEs in India. With MSMEs being a backbone of the Indian economy, playing a vital role in both goods and services sectors, ensuring their financial health through timely payments and compliance with legal obligations is crucial.

Effective from Assessment Year (AY) 2025-26, Section 43B(h) of the Income Tax Act introduces provisions for payments made to Micro and Small Enterprises (MSEs). According to this provision, businesses are required to make payments within specified time limits—15 days for goods and services without a written agreement, and 45 days if a written agreement exists. Any failure to adhere to these timelines will result in the disallowance of expenses related to such payments, leading to potential tax repercussions.

This checklist provides businesses and auditors with a clear, step-by-step approach to ensure compliance with the regulations under Section 43B(h). It covers crucial aspects, such as MSME classification, timelines for payments, handling delayed payments, and tax audit disclosures. By adhering to the following guidelines, businesses can reduce risks, avoid penalties, and streamline their tax processes.

Checklist for Compliance with Section 43B(h) of the Income Tax Act (Effective AY 2025-26 and onwards)

1. Applicability of Section 43B(h)

Scenario: A company purchases raw materials from an MSME supplier on May 1, 2025, without a written agreement. Payment is due on May 21, 2025. To comply, the company must ensure the payment is made by May 16, 2025 (15 days from acceptance).

  • Ensure compliance from AY 2025-26 onwards.

  • Payments to Micro and Small Enterprises (MSEs) must be made within the prescribed time limits:

    • 15 days from acceptance for goods and services without a written agreement.

    • 45 days from acceptance if a written agreement specifies the credit period.

  • Medium Enterprises are not covered under this provision.

  • Example: If the company buys professional services from an MSME on April 1, 2025, the payment must be made by April 16, 2025 if no written agreement exists. Delaying this payment will lead to the disallowance of the related expense for tax purposes.

2. MSME Classification & Registration Verification

Scenario: A business uses the services of an MSME registered as a manufacturer. The supplier's Udyam Registration is cross-verified, and their GST registration is checked to confirm that they are indeed registered as a service provider or manufacturer.

  • Ensure the supplier has a valid Udyam Registration Certificate.

  • Verify the supplier’s GST registration to confirm whether they are a trader, manufacturer, or service provider.

  • Traders registered under MSME are not covered—only payments for goods and professional services are subject to disallowance under Section 43B(h).

  • Example: An MSME supplier providing manufacturing services must be verified for both Udyam and GST registrations. Payments for goods and professional services provided by such MSMEs will fall under the Section 43B(h) disallowance if not paid within the specified timelines.

  • New MSME Classification Limits (effective from April 1, 2025):

    • Micro: Investment up to ₹2.5 Cr, Turnover up to ₹10 Cr.

    • Small: Investment up to ₹25 Cr, Turnover up to ₹100 Cr.

    • Medium: Investment up to ₹125 Cr, Turnover up to ₹500 Cr (Not applicable for 43B(h)).

3. Disallowance Considerations

Scenario 1: A business purchases goods from an MSME supplier, records the expense, but makes the payment 60 days later. In this case, the expense will be disallowed under Section 43B(h) despite the goods being in inventory.

  • Confirm that the supplier is a registered Micro or Small Enterprise under Udyam.

  • Identify payments that remain outstanding beyond the 15 or 45-day timelines.

  • Ensure that the purchase amount has been debited to the Profit & Loss account in the same financial year.

  • Example: If a purchase is made from an MSME on January 1, 2025, and payment is made on March 1, 2025, the expense will be disallowed for FY 2024-25 as the payment was made beyond the 15/45-day limit.

  • Payments made after March 31, but within the MSME Act’s timelines, will not be disallowed for tax purposes.

4. Interest Implications Under MSMED Act

Scenario: A business fails to make timely payments to an MSME supplier, and the supplier charges interest at three times the RBI-notified rate. The business is liable for interest payment, which is not tax-deductible.

  • Interest on delayed payments is calculated at three times the RBI-notified rate, compounded monthly.

  • Even if the MSME supplier waives the interest, it is still legally owed.

  • Example: If a business delays a payment, leading to ₹5,000 interest being charged by the MSME supplier, this interest amount is not deductible for tax purposes.

  • Interest paid or payable under Section 16 of the MSMED Act is not deductible under the Income Tax Act.

5. Disclosure & Compliance Requirements

Scenario: An auditor identifies a payment that was due to an MSME on January 30, 2025, but was paid on February 15, 2025. The auditor must disclose the delayed payment in the tax audit report.

  • Financial Statements (As per Section 22, MSMED Act):

    • Outstanding principal and interest amounts (separately).

    • Interest paid during the year on delayed payments.

    • Interest accrued but not yet paid.

    • Interest payable for future periods.

  • Tax Audit Report (Form 3CD, Clause 22 & Clause 26):

    • Clause 22 mandates the disclosure of unpaid amounts to MSMEs beyond the prescribed time limits. If payments remain overdue beyond the prescribed timelines, they must be reported in the tax audit report.

    • Clause 26 includes a specific sub-clause for reporting disallowance under Section 43B(h) of the Income Tax Act.

    • Auditors must verify and reconcile MSME payments with financial statements, ensuring that payments to MSMEs which are delayed beyond the prescribed timelines are disclosed properly.

    • Example: If a payment is overdue, the auditor must disclose the amount in Clause 22 and report disallowed expenses in Clause 26.

6. Revised MSME Payment Reporting in Clause 22 of Form 3CD

The latest amendment to Clause 22 of Form 3CD mandates more detailed reporting for payments made to MSMEs under India’s MSME Development Act, 2006. Taxpayers must disclose the following key details for enhanced compliance and transparency:

  • Total amount payable to MSMEs under Section 15 of the MSMED Act.

  • Amount of interest that cannot be claimed as a deduction under Section 23 of the MSMED Act due to delayed payments.

  • A clear distinction between:

    • Payments made within the prescribed period (15/45 days).

    • Payments delayed beyond the due date (overdue payments).

This updated reporting requirement aims to improve the accuracy of disclosures and provide clearer insights into the taxpayer’s compliance with MSME payment obligations.

7. Modifications in Clause 26—Deduction under Section 43B of Income-tax Act, 1961

Clause 26 of Form 3CD has been revised to enhance the clarity of reporting and differentiate between various categories of payments covered under Section 43B. The modification emphasizes specific reporting of amounts allowed as deductions only upon actual payment:

  • Previously, this clause only required the disclosure of amounts allowable upon actual payment of statutory dues (e.g., taxes, duties).

  • The amendment refines the language and includes specific references to payments under Section 43B(h) (related to MSME payments) and clarifies that payments to MSMEs which are delayed beyond the prescribed timelines will result in disallowance of expense.

This change ensures that auditors properly distinguish between eligible payments and those that are disallowed for tax purposes, improving the accuracy and transparency of financial statements.

8. Key Differences Between MSMED Act & Section 43B(h)

CriteriaMSMED ActSection 43B(h) (Income Tax Act)
ApplicabilityMicro & Small EnterprisesMicro & Small Enterprises
Due Date for Payment15/45 days15/45 days
Interest on Delay3X RBI Bank Rate (compounded monthly)No interest provision under IT Act
DisallowanceNot applicableDeduction disallowed for delayed payment
Interest DeductibilityNot deductible (Sec 23, MSMED Act)Not deductible
CoverageGoods & ServicesGoods & Professional Services

9. Practical Steps for Businesses

Scenario: A company implements an automated system to alert finance teams about payment due dates to ensure compliance with MSME payment timelines.

  • Verify MSME status before recording purchases and availing professional services.

  • Ensure timely payments (within 15/45 days) to avoid disallowance of expenses.

  • Maintain records of outstanding MSME dues for financial reporting and tax audits.

  • Recognize and disclose interest on delayed payments as per the MSMED Act.

  • Implement automated payment tracking systems to avoid unintentional disallowance.

  • Example: Set up automated reminders in the accounting system to ensure payments are made within the required timeframe, thus avoiding disallowance due to delays.

10. Summary & Final Takeaways

Scenario: A business must ensure that payments to MSMEs are always made within the prescribed timelines to avoid penalties and tax consequences.

  • Section 43B(h) applies from AY 2025-26 onwards, impacting expense deductions for delayed payments.

  • Payments to Micro & Small Enterprises must be made within 15/45 days to avoid disallowance.

  • Traders registered as MSMEs are excluded—only payments to service providers and manufacturers are covered.

  • Professional service payments to MSMEs must comply with 15/45-day payment timelines.

  • Interest on late payments under the MSMED Act must be recognized and disclosed, but it is not tax-deductible.

  • Form 3CD reporting and financial statement disclosures must be made to avoid penalties.

  • Proactive payment management and MSME verification are crucial to ensure tax compliance and prevent financial impact.