Legal Compliance: 5 Basic Law Categories for Start-ups and Small Businesses


#1

The early stages of setting up a new business will be time consuming for the founders – developing the product/service, building the team, structuring the company, attracting investments, key partnerships and marketing plans. Amid all this legal compliance related activities takes a back seat leading to legal and financial woes in the long run. Hence, it is equally important and critical that you understand the legal basics. The FIVE basic legal categories required for start-ups and small businesses.

Company Formation & Compliance
While starting up, first thing to be finalized is the legal format of your start-up. Will it be a Limited Liability Company or Private Limited Company or Partnership Firm? However, there are pros & cons in every format. Choose your format based on factors like the business objectives, nature of business, long term goals, etc. There are various incorporation requirements that you need to complete while setting up your business and also ensure periodical compliances, more specifically, with the Registrar of Companies (RoC).

Taxation & Accounting
Accounting and Taxation are another vital legal basics must for you as an entrepreneur. Taxation is both Direct and Indirect. With regard to indirect taxation, a lot has changed with the rollout of Goods and Services Tax (GST) a unified tax structure. You have to make periodical online filings along with payments. On the direct tax side, Income Tax returns, Tax Deduction at Source (TDS) and payment of the same are your annual tasks.

Dispute Resolution & Contract Laws
As you start, you are to have various form of relationships with multiple businesses and individuals – co-founders, employees, customers, vendors, investors, etc. You need to formalize these relationships to ensure clarity and reduced uncertainties. When you are signing an agreement or contract both parties are agreeing to certain conditions and at times the same can quickly turn into disagreements and result into a dispute. You have to have some knowledge on the contract laws that will help you in dispute resolution.

Intellectual Property
First and foremost, owning Intellectual Property Right will be the USP of your products or services and it will help creating a high entry barrier for your business. This will have a positive and substantial impact in your marketing. In fact, owning an Intellectual Property is an asset and carries commercial value. It will also help you a lot while fund raising. You should remember that assessing IP is not just about protecting the work you are doing, but it also to check if someone else has an IP for similar work.

Labour laws
When you are established as a company and have hired people to work for your organization, you are subject to several labour laws regardless of the size of the organization or number of employees. However, with regards to labour laws, start-ups registered under the Start-up India initiative can complete a self-declaration (for nine labour laws) within one year from the date of incorporation in order and get an exemption from labour inspection.

The existing dynamic statutory environ has made knowledge and compliance to applicable laws a challenge for entrepreneurs particularly those at the nurturing stages. It is best to outsource a legal counsel to advice and oversee your legal compliance tasks to ensure impeccable compliance in an economical way.


#2

Income tax return imposed on EPF or Employee Provident Fund is an important matter of concern for the employees. There is traditional believe works on their mind that withdrawing money from EPF account is tax-free. In reality, EPF withdrawals are taxable depending on some conditions and in some cases, TDS also get deducted. So, let’s see what is the condition that makes EPF withdrawal taxable.

If EPF withdrawals are made before completing 5 years of service period then RPF balance is taxable.

It is not compulsory that 5 years of service period must be completed with one employer to avoid Income tax return charges on EPF withdrawal. But it is essential that while leaving any organization, you must transfer your PF balance to the new organization’s PF account. And this should be done every time changing the company during the 5 years time period. The condition is well defined in which TDS will be deducted on EPF withdrawal. If the amount to be withdrawn is more than INR 50,000 then tax will be calculated and such is applicable from June 2016.

The rate at which Tax Deducted at Sources will be cut is 10% of the withdrawn amount if PAN has been produced by the employee. In other cases when PAN is not submitted, TDS will be deducted at a maximum marginal rate of 34.608%. However, positive and negative exceptions are also there related tax liabilities on this amount. If EPF is transferred from one organizational account to another organizational account then it will be deducted.

Such charges will not be deducted only if the amount has withdrawn after 5 years of the service period. Also, if the employee submits Income tax return Form 15G or Form 15H, then no deduction will be made. Both these forms declare that their income will not be taxable after the accumulation of the EPF balance. Employees below 6o years of age need to submit the Form 15G and the employees above the age of 60 years need to produce 15H.

New EPF Withdrawal Rules has been introduced in October 2016, which added new conditions on TDS deduction.

Rule 1: Restriction on withdrawal:
Full EPF amount can be withdrawn until the age of retirement. The employer contribution and the interest earned on that amount can not be withdrawn till the retirement age. Only the employee contribution and interest earned on it can be withdrawn after 5 years of service period to avoid Income tax return liabilities.

But the female employees can withdraw the full amount if they are resigning from service to get married or due to pregnancy.

Rule 2: Retirement Age
The retirement age has been specified to 58 years but a person attaining the age of 57 can withdraw the 90% of total EPF balance without getting TDS deduction.

Rule 3: PF Membership and employment
The PF membership will continue until the age of retirement as no employee will be able to withdraw the full amount till that age except the exceptions.

This new Income tax return rules made for EPF withdrawal is beneficiary for the employees who have no pension as it will secure them financially post-retirement.