What is tax compliance?
Tax payment and compliance are frequently used interchangeably by people. They believe that paying taxes equates to abiding by tax regulations, although this may not always be the case. Any government that wants to raise money through taxes passes rules governing the application and imposition of taxes on enterprises.
Tax compliance refers to a taxpayer's desire to file tax returns, comply with applicable tax regulations, and pay their taxes on time. In this regard, it's critical to keep in mind that adhering to the letter and spirit of any tax legislation is necessary for tax compliance.
Why Income Tax compliance are necessary?
Legal requirement:
Any business operating in a jurisdiction where taxes are applicable is legally required to abide by those laws. Whether deliberate or not, breaking any of the relevant tax laws is considered breaking the law. Legal repercussions, including fines, penalties, and in some situations, jail time, could result from it.
Managing company reputation:
A company's reputation may be damaged by news of legal actions taken against it for tax evasion. Customers, vendors, and investors may all become seriously less trusting as a result of this. A lack of confidence from investors could stop new money from flowing into the business.
Avoiding disruptions to business operations:
The expense of conducting business may rise as a result of the potential legal repercussions of breaking any tax regulations. The tax authorities have the right to freeze a company's bank accounts and take its assets. Fighting intricate tax cases in court can be quite expensive. Small businesses' normal business activities may be affected. For firms, tax compliance therefore always results in cost savings.
Corporate Social Responsibility:
It is the duty of every business to contribute to the societal objectives of the area it serves, since the government utilizes tax money to finance development initiatives, voluntary tax compliance demonstrates a company's dedication to its CSR obligations.
Business growth and expansion:
A corporation can minimize excessive anxiety about tax implications and develop a dependable tax forecasting process by using a well-established voluntary tax compliance practice. In the end, it makes business development into new markets easier and more successful.
Objectives of tax compliance
For a company, the major objectives of tax compliance are:
- Keep an eye on tax laws and evaluate how changes to rules and regulations may affect the company.
- Establish a corporate policy requiring all employees to follow tax compliance processes.
- Keep thorough records of all business transactions for the purpose of estimating taxes.
- To prevent legal ramifications, file tax returns and pay taxes within the allotted time frames. Evaluate and enhance tax compliance procedures by conducting periodic internal audits.
Types of tax compliances in India
With a population of over a billion, India is a nation that is rapidly developing. As such, governments there must raise large sums of money through taxes to fund developmental initiatives. Thus, taxes are levied on a variety of economic activity by the federal government and state governments. All of these tax requirements must be complied with by businesses.
The major tax laws under the jurisdiction of the central government of India are:
- Customs Act.
- Income Tax Act
- Central Goods & Services Tax Act.
- Integrated Goods & Services Tax Act.
The major taxes, fees and duties imposed by the state governments are:
- Professional Tax Act.
- Stamp Duty and Registration Fees Act.
- Road Tax and Motor Vehicles Act.
- Excise Duty on Alcohol.
What is direct tax compliance?
Direct taxes are those that an organization is required to pay to the relevant governments directly. It is not possible to transfer the obligation to pay these taxes to another party. Since these are progressive taxes, the tax burden rises in proportion to the growth in taxable income.
Common examples of direct taxes in India are:
- Income taxes on individuals and corporates.
- Security transaction tax.
- Capital Gain Tax
- Gift Tax
- Dividend distribution tax.
- Wealth tax.
What is indirect tax compliance?
Governments impose indirect taxes on the use of goods and services in contrast to direct taxes. There is no correlation between the amount of these taxes and either individual income or business earnings. Despite their disparities in earning potential, the rich and the poor pay the same amount of taxes. That explains why these taxes are regressive.
The most common indirect taxes in India are:
- Services tax.
- GST
- Excise tax.
- Entertainment tax.
In order to comply with indirect tax laws, organizations must adhere to the underlying tax laws, voluntarily declare taxable operations, pay taxes on time, and submit all necessary documents for tax audits.
What are the tax compliance procedures?
Voluntary tax compliance is not something that businesses should practice on a sporadic basis as it creates more issues than it fixes. Regulations and legislation are always changing, which means that tax rules also alter. Tax law monitoring, interpretation, and adherence are made more difficult by the absence of established methods in tax compliance. The specific actions involved in voluntary tax compliance can differ based on the type of business and the sector. We can, however, provide an overview of the common tax compliance practices and they are as follows:
Tax rules and regulations are subject to change, therefore it is important to keep an eye on them, recognize them, and understand their application. It is imperative that businesses remain informed on the most recent tax rules and their ramifications. It's a full-time task that needs the assistance of knowledgeable people.
Maintain clear financial records for tax reasons. Every business transaction can impact your taxes, so it’s important to keep track of all company activities & document them, this is a crucial step to ensure you stay on top of your tax obligations.
It's time to figure out how much tax you owe the government based on your interpretation of the current tax regulations. Accurately calculate your tax liability and file the required tax returns. Make the payment on time and file your tax returns.
To find areas where tax compliance is lacking, conduct internal audits. Voluntary maintenance of tax compliance depends on internal review of tax accounting and returns. It assists companies in identifying any gaps in the previously listed tax compliance procedural procedures. Implementing recommendations found in tax audit findings is also crucial.
Respond to tax notices and orders - Tax notices and orders serve as a means of keeping taxpayers and the tax authority in touch. Legal issues could arise if tax letters are not responded to within the allotted period.
How SKMC Global can help?
Income tax compliance related service providers help individuals and businesses handle their tax responsibilities accurately and efficiently. SKMC Global offers expert's guidance on tax laws, filing procedures, and planning strategies to make sure clients follow income tax rules. Our income tax department team also assist in lowering tax liabilities, avoiding issues & ensuring compliance with both local and international tax regulations.
Tax Return Preparation and Filing
One of the primary duties of service providers is to prepare and file income tax returns for individuals and corporations. Gathering all the financial data—such as income statements, expenditures, credits, and deductions—necessary to ensure proper tax filing. Making certain that tax returns are filed in accordance with the most recent modifications to tax laws and current tax guidelines. Making certain that tax returns are filed on the due date in order to avoid late filing penalties and interest. Facilitating electronic filing to enable the safe and speedy submission of tax returns to the tax authorities.
Tax Planning and Strategy
Figuring out if credits, deductions, and allowances—like retirement contributions, tax-exempt investments, and depreciation—can reduce the overall tax burden. Advising businesses on how to expand their operations and deals (such asset purchases, mergers, and acquisitions) in order to lower their tax obligations.
Calculating future tax liabilities and helping clients with tax preparation while taking changes to business performance or tax laws into consideration. Establishing plans to use investment accounts, retirement plans, or other financial instruments to delay tax obligations. Keeping track of changes in tax laws, like new reporting rules, tax code updates, or tax incentives. Assisting clients in following both local and international tax rules, especially for multinational companies dealing with taxes across borders, transfer pricing, and double taxation agreements.
Managing Tax Audits and Disputes
Acting as a representative during audits, answering inquiries from tax authorities, providing explanations, and providing supporting documentation. Settling disputes with tax authorities, such as disagreements on tax liabilities, deductions, or penalties, and negotiating settlements or agreements. Assisting clients in contesting unfavorable tax rulings and, if necessary, providing support in tax-related court proceedings.
Tax Compliance for Businesses
Calculating and submitting projected quarterly tax payments to help businesses avoid underpayment fines. Ensuring accurate profit, loss, and deduction reporting during the preparation and filing of corporate tax returns. Making certain that multinational firms follow transfer pricing regulations and create transfer pricing documentation to support the pricing of intercompany transactions. Making certain that dividends, interest, royalties, and service fees paid to non-residents are paid in compliance with withholding tax regulations.
Payroll Tax Compliance
Correctly calculating employee income tax withholding, Social Security, Medicare, and other employment taxes. Creating and filing payroll tax returns with the relevant authorities, such as Forms 940 and 941 in the US or similar forms in other countries. Ensuring timely submission of payroll tax forms to avoid penalties for late filing or underpayment. Assisting businesses in issuing employee tax documents, such as W-2s or 1099s in the US or similar forms in other nations.
International Tax Compliance
Coordinating international initiatives to lower tax liabilities in several jurisdictions while upholding compliance with both domestic and foreign tax laws. Utilizing double taxation treaties to assist clients in avoiding paying taxes on the same income in multiple countries. Helping people and businesses claim international tax credits for taxes paid to other countries, so reducing overall tax payments. Making sure that international reporting laws like the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) are followed.
Tax Documentation and Record-Keeping
Assisting clients in organizing and managing their financial documents, invoices, receipts, and other records needed for tax filing and audits. Making certain that clients have the appropriate documentation to support the credits, exemptions, and deductions they list on their tax returns. Ensuring that all tax records are accurate and readily available for review in order to help clients prepare for potential audits.
Tax Compliance for Nonprofits
Helping NGOs to maintain their tax-exempt status and record their financial activity by submitting the required documentation. Ensuring that taxable revenue that does not fall under the organization's exempt purpose is appropriately reported and providing charities with information on how to adhere to unrelated business income (UBI) laws. Making certain that NGOs follow donor reporting guidelines and provide tax-compliant donation receipts.
Tax Advisory and Consultation Services
We providing expert advice on specific tax matters, such as the tax treatment of specific investments, business expenditures, or real estate transactions. Helping clients arrange their investments to reduce liabilities and maximize tax advantages. Giving customers regular updates on tax code changes and offering guidance on how these changes impact their tax compliance strategies and needs. Helping individuals and businesses receive tax credits for eligible investments, such sustainable energy projects or affordable housing. Identifying state or local tax incentives that can reduce the overall tax burden of businesses operating in specific regions or industries.
As a responsible income tax compliance services provider firm in India, SKMC Global always assisting individuals and businesses in meeting their tax obligations and optimizing their tax positions. We help our clients avoid fines and take advantage of available tax benefits through our accurate tax preparation, smart tax planning, audit support & regulatory compliance.