The Indian government is giving startups a lot of attention and support in terms of taxation, compliance, and funding. Although there was a significant decrease in funding in 2022 as a result of an increase in the number of late-stage investments that were declined, experts predict that Indian startups will have a more promising future in 2023 and the years to come. All because of their strong economic unit and ability to weather the current global economic crisis.
Recent market studies predict that over the next five years, startups will boost India’s GDP by up to 5%, which is now 2.5%–3%. Over 77,000 startups were acknowledged by the Department for Promotion of Industry and Internal Trade as of August 2022. (DPIIT). Startups are playing a big role in propelling India’s innovation-driven economic stability.
Startups, as business entities, look for the necessary financing promptly at various stages. Transparency in the allocation and use of cash can be maintained with adequate business audit and tax compliance.
Being a leading provider of startup accounting, company audit, and taxation services in Kolkata, MPVD & Associates primarily work with new organisations that lack adequate financial management skills or a thorough understanding of the newest accounting standards. In this article, MPVD describes the goals, advantages, and strategies for startups to have a company audit.
Statutory and Non-Statutory Audits for Startups in India
To ascertain whether the company’s operations are legal and its accounting records are accurate, the audit entails reviewing the company’s financial records. There are statutory audits that involve government laws and regulations and non-statutory audits, including tax audits, that businesses must do independently of government agencies.
When a company’s annual revenue exceeds Rs 1 crore, the Finance Act 2020 requires it to undergo a tax audit. Additionally, if the taxpayer’s cash receipts are kept to 5% of the gross revenues or turnover, the threshold limit is raised to Rs 5 crore with effect from AY 2020–21 under the amended Finance Act 2021.
This also applies to taxpayers, who can only get 5% of their total compensation in cash. In the case that cash transactions do not account for more than 5% of overall transactions, the threshold limit of Rs 5 crore is increased to Rs 10 crore. The audit shall be conducted once each fiscal year to meet statutory requirements.
What Types of Companies Require a Tax Audit?
Not all startups need to undergo tax audits. Depending on the type of organisation and the nature of the firm, several criteria make a financial audit necessary. Section 44AB of the Income Tax Act contains provisions about tax audits.
The tax audits apply to business entities and independent professionals offering a service. Businesses must conduct a tax audit if their annual gross revenues or sales revenue totalled more than Rs. 1 crore in any prior year. If the gross proceeds from the profession reach Rs. 50 lakhs during the financial year, a tax audit is necessary in the case of an independent professional providing a service.
The table below demonstrates the people or entities required to undergo a tax audit per Section 44AB:
| Type of Business or Person | Category | Threshold |
| Business | Limited Liability Partnership | When turnover exceeds Rs. 40,00,000/-
When contributions exceed Rs 25,00,000/- in a fiscal year |
| Carrying out business without a presumptive taxation scheme | When turnover exceed Rs.1 crore in the FY
The turnover threshold for a tax audit has been raised to Rs. 10 crores in the Finance Act 2021, which applies to cash transactions that account for up to 5% of total gross receipts and payments.
| |
| Qualified for the presumptive taxation scheme complying with Section 44AE, 44BB, or 44BBB | Claims profits or gains that are below the limit specified under the presumptive taxation regime. | |
| Qualified for the presumptive taxation scheme under Section 44AD. | Declared taxable income that is greater than the basic tax threshold but less than the prescribed amount, under the presumptive tax scheme. | |
| Profession ➔ CAs and Accountants ➔ Advocates and ➔ Legal Professionals ➔ Architects ➔ Artists – Film Actors, Producers, Directors, Music Directors etc. ➔ Authorised representatives ➔ Engineers and Technical Consultants ➔ Designers and Decorators ➔ Medical Professionals ➔ Lenders and Investors
| Carrying on a professional without presumptive taxation scheme under Section 44ADA | Gross earnings exceeding 50 lacs in a financial year. |
| Qualified for Presumptive Taxation Scheme under Section 44AD | Claims earnings or profits below the statutory threshold under the presumptive taxation system or Income that is greater than the maximum amount exempt from income tax.
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According to Section 44AB of the Income Tax Act, tax audit reports must be completed and filed by September 30th of the assessment year. The deadline for filing a tax audit is the 30th of November of the assessment year if the taxpayer is also responsible for a transfer pricing audit.
What Are The Company Audit and Taxation Services Offered by MPDV & Associates for Startups
As a leading CA firm in Kolkata, MPVD & Associates has the power to examine financial data, confirm its veracity, and make sure that new businesses operating in India abide by tax regulations. The most important aspect of our company’s audit and tax services is protecting startups from irregularities and the risks of fraudulent accounting while also assisting them in identifying ways to streamline and improve operational efficiency. MPVD auditors serve in a variety of roles across many sectors to make it all possible.
- Audits planning for startups
- Provide compliance guidelines for accounting standards
- Analyze financial processes to make sure businesses are conducted effectively.
- Monitor and track cash flow to ensure 100% accurate accounting of company funds
- Investor Rights Agreement verification
- Prepare the financing paperwork and compile the reports
- Conducting improvisations from previous year audits
Regular financial audits will only improve a startup’s capacity to assess its state of affairs and make sure that the financial data is accurately portrayed. An audit is used as a study of the records by lenders, authorities, and investors. It establishes transparency in the tracking of financial resources and their use by startups. For entrepreneurs, having thorough documentation is the best approach to making company and tax audits simple. MPVD & Associates assists startups with expenditure management, a high-quality payroll provider, and easy access to reports that you can instantly share with audit teams.
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