In business, tax and regulatory compliances can be overwhelming and puzzling, and abiding by taxation laws is important for a business to get legal recognition. Failing to do so can not only attract heavy penalties but also threaten business reputation. More often than not, companies end up getting trapped in non-compliance penalties not because of deliberate tax evasion but because of lack of knowledge. As one of the leading advisory and consultancy services in the country, we have seen several businesses unknowingly bear consequences of non-compliance with taxation laws. Here are a few common mistakes which your business can learn from to ensure long-term uninterrupted growth.
Lack of Knowledge About Business Structure
You will be surprised to know how many business owners do not know how vastly their business choice structure affects their tax obligations, liabilities and eventually growth. Registering as the wrong business entity can have severe consequences and pose unwarranted risks, as different structures (e.g., sole proprietorship, partnership, LLC, corporation) are taxed differently. Each has its unique tax burden and choosing the wrong one can have your business charged a higher tax. Restructuring the business legally becomes another financial liability for businesses.
Skipping Timely Financial Audits
Financial transparency and healthy practices begin with tax audits. In India, the Income Tax Act legally binds businesses with over 1 Cr income to get their tax audits done professionally. By the 30th of September every year, eligible professionals and businesses must have their receipts, financial statements, vouchers and other financial records examined and verified. The process is important to see that tax regulations, deductions and exemptions align with corresponding laws, after which a report is generated which is submitted to tax authorities by the deadline. Needless to say, missing the deadline attracts a major penalty, in case prior permission with a valid reason was not sought.
No Proactive Account Reconciliation
Many businesses are not aware of healthy practices like proactive account reconciliation, which entails systematic and routine comparison of internal financial records with external financial statements like bank transaction statements to detect record discrepancies before statutory financial audits. A good practice is carrying out a reconciliation every month, which also helps in fraud risk management while ensuring reliability and transparency in financial data. When you avoid doing so, you might also be at risk of paying more taxes than you owe, as reconciliation helps to identify claimable business expenses.
Not Taking Expert Help
Whether you are seeking help from a known friend or corporate tax compliance services, the importance of having someone who knows the ins and outs of the financial industry, especially the difference between tax evasion and tax avoidance cannot be overstated. Experts understand the intricacies of keeping proper digital records and ensuring periodic audits while also having in-depth knowledge of the financial classification of expenses, which can be lifesaving for businesses. Without their guidance, a business might struggle to keep afloat when the time for taxing comes.
Today, consulting firms like TRC offer top-class corporate tax compliance services that help businesses in end-to-end tax filing and maintaining all compliance and regulatory requirements. From helping you become organised in keeping invoices, receipts, and bank statements to expense tracking to preventing business risk overstating or understating tax liabilities, we can help you in endless ways to achieve financial health.
