Regulatory compliances for SMEs explained

A compliance checklist that SMEs need to keep track of to avoid the loss of money and repute.


Considered as the backbone of economy, the SME sector plays a very crucial role in the country’s development. However, it is often seen that SMEs often lack knowledge and experience when it comes to compliance, and that often result into long-term penalties and disputes. Therefore, it is important that SMEs keep a track of the laws applicable to them and do the necessary filings.

Though the compliance will vary from sector to sector, but here’s the list of general applicable compliances:

1. Companies Act (if incorporated in Company structure)

a) Holding of Board meeting: Every company shall hold at least four board meetings each year. The time gap between two board meetings shall not exceed 120 days. The first board meeting shall be held within 30 days from the date of incorporation of the company.

b) Holding annual general meeting: Every company is required to hold an Annual General Meeting (AGM) of shareholders each year, within a period of six months for the adoption of financial statements and other events, including auditor appointment, director regularization etc., from the date of closing of the financial year i.e. around 30th September each year. However, the first AGM of the company can be held within a period of nine months from the date of closing of the first financial year i.e. around 31st December.

c) Filing of annual return: As per Section 92 of Companies Act, 2013, every company is required to prepare the annual return in the prescribed form i.e. MGT-7 and file with the Registrar within 60 days from the date on which the annual general meeting is held or from the last day on which the annual general meeting should have been held [in the case where no annual general meeting is held] i.e. around 30th November each year. If any company defaults the filling of the annual return, it will be liable to pay Rs.100 per day as additional fees until the form is filled.

d) Filing of financial statement: Every Company is required to file a copy of the financial statements, in the prescribed form i.e. AOC-4 with the Registrar within 30 days from the date of annual general meeting i.e. around 30 October each year. In case of delay in filing the financial statement, the company will be liable to pay Rs 100 per day as additional fees until the form is filled.

e) Filing of MSME Return: All the companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services, are required to file a half-yearly return (MSME Form-I) with the Registrar by 31st October for the period between April and September and by 30th April for the period between October and March.

f) Filing of DPT-3 Return: Every Company accepting deposits or having outstanding receipt of money or loan by a company but not considered as deposits as per the Companies (Acceptance of Deposits) Rules, 2014 is required to file DPT-3 on or before the 30th day of June, of every year, with the Registrar of Companies.

g) Filing of Director’s KYC: Every director of the company, who has been allotted ‘Director Identification Number’ as on 31st March of a financial year, is required to file their DIR-3 KYC on or before 30th September of each year. If the director has done KYC through DIR-3 KYC e-form in the previous year, he/she is required to file DIR-3 KYC Web. If any director defaults the KYC, then his DIN will be deactivated and Rs 5,000 fine will be imposed on further filling of the KYC form.

h) Maintaining minute book: Every Company is required to maintain ‘minutes of every meetings’ held in its ‘minutes book’, which should be consecutively numbered and shall be kept at the Registered Office of the company or at other such place that may have been approved by the Board.

i) Director’s attendance sheet: Every Company shall maintain separate attendance registers for the meetings of the Board and meetings of the Committee. Every Director, Company Secretary who is in attendance and every Invitee who attends a Meeting of the Board or Committee thereof shall sign the attendance register.

j) Related-party transactions: Often companies enter into various transactions with the promotors or their relatives or the related entities. The Company is required to take approval of the Board if it decides to enter into any transaction with the related party within the prescribed limit, as per section 188; and if it exceeds the prescribed limit the consent of shareholders is required.

k) Filing of disclosure of interest: Every Director shall at the first Board meeting of the company or in first Board meeting of every financial year disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in form MBP-1.

2. Compliances under LLP Act (if incorporated in LLP structure)

a) Filing of LLP agreement: The LLPs are required to file the LLP agreement in Form-3 with the Registrar within 30 days from the date of incorporation. If the filing of LLP agreement is delayed, a penalty of Rs 100 per day shall be paid until it is filed.

b) Filing of LLP annual return: An LLP is required to file the Annual Return with the Registrar (Form 11) within 60 days of closure of its financial year i.e. around 30th May each year. A penalty of Rs 100 per day shall be payable from the due date of filing return, until filed.

c) Filing of LLP financials: An LLP has to file its annual accounts with the Registrar in Form 8 within 30 days from the end of six months of such financial year. Hence, the filing of accounts is to be filed on before 30th October every year. A penalty of Rs. 100 per day shall be payable from the due date of filing return, until actually filed.

d) Audit of LLP accounts: If in case the LLP has an annual turnover exceeding Rs. 40 lakhs or whose contribution exceeds Rs. 25 lakhs, LLP shall get its accounts audited by a qualified Chartered Accountant or a Chartered Accountants firm.

3. Income Tax
  • As per the Income Tax Act, LLP has to close its financial year as on 31st March every year and file the returns with Income Tax Department on the applicable dates. In the case of LLP whose annual turnover is more than Rs. 60 lakh, the accounts have to be audited as required under Income Tax Act as well.
  • The Companies registered in India must file Income tax Return on or before 30th September for the previous financial year. If the company fails to file income tax return, it shall be liable to pay Rs. 10,000 penalty.
4. Tax Deducted at Source (TDS)

It is the liability of the Company to deduct the TDS on the specified payments and make the payment of TDS deducted by it to the Government. As per the Income Tax Act, if a person who is liable to deduct tax at source fails to deduct TDS or after deducting fails to pay, he shall be liable to pay interest at the rate of 1 per cent per month from the date on which such tax was deductible to the date on which such tax was deducted. And, if a person fails to pay the amount of TDS, which he has deducted from the payment made, interest will be charged at the rate of 1.5 per cent per month or part of the month from the date on which it was deducted till the date of payment.

5. Goods and Services Tax (GST)

Every regular dealer is required to furnish the details of:

a) Outward supplies of taxable goods or services in Form GSTR-1 on the 10th of every succeeding month

b) Auto-populated details of inward supplies made available to the recipient on the basis of Form GSTR-1 furnished by the supplier by 11th of succeeding month in GSTR-2A

c) Details of inward supplies of taxable goods and/or services for claiming input tax credit. Addition (Claims) or modification in Form GSTR-2A should be submitted in Form GSTR-2 by 15th of succeeding month

d) Monthly return on the basis of finalization of details of outward supplies and inward supplies, along with the payment of amount of tax, by 20th of succeeding month in GSTR-3

e) Annual Return – furnish the details of ITC availed and GST paid, which includes local, interstate and import/exports, in Form GSTR 9 by 31st December next year

6. For the Companies that have received Foreign Direct Investment

Any Company that has investment from the foreign entities are required to comply with the following:

a) FCGPR: An Indian company issuing capital instruments to a person resident outside India shall report in Form FC-GPR to Reserve Bank of India, not later than 30 days from the date of issue of capital instruments. Consequences of non-filing leads to Compounding of Contraventions under FEMA, 1999.

b) FCTRS: A company shall file Form FC-TRS when transfer of shares or convertible securities between a non-resident and resident takes place. The form FC-TRS shall be filed with the authorised dealer bank within 60 days of transfer of capital instruments or receipt/remittance of funds, whichever is earlier. Consequences of non-filing leads to Compounding of Contraventions under FEMA, 1999.

c) Annual Return of foreign liabilities and assets: An Indian company which has received FDI or an LLP which has received investment by way of capital contribution in the previous year(s) including the current year, should submit form FLA on or before the 15th July each year.

Money saved is money earned. Therefore, it is very important for the companies to comply with the laws applicable. The SMEs should take note that non-compliance not only result in the pecuniary losses, but the losses can also be in the form of imprisonment in few cases and even lead to an unnecessary loss of repute for the business.