The Companies Act 2013 is responsible for corporate governance in India. Section 92 of the act mandates that every company has to prepare a return called an Annual Return in the manner as prescribed by the Ministry of Corporate Affairs containing details about the registered office address, principal business activities, subsidiary companies and associate companies, shares, debentures, other securities, promoters, directors, and key managerial personnel. Annual Return is a mandatory requirement for businesses of all sizes. All businesses, whether small startups, medium-sized companies, or large corporations, are required to file Annual Returns within 60 days of the Annual General Meeting (AGM). Incorrect or not- filing Annual Returns on time can lead to hefty penalties on the directors of the company. In this guide, we will explore the top 10 common mistakes that can occur while filing the annual return and tips to avoid them.
Common Mistakes While Filing Annual Returns
1. Missing the Deadline
One of the most common mistakes that businesses make is missing the deadline for filing their Annual Return. As per Section 92 of the Companies Act 2013, a company is required to file its Annual Return within 60 days from the date of its Annual General Meeting (hereinafter referred to as AGM). For companies that are not required to hold an AGM, the Annual Return must be filed within 60 days from the end of the financial year. Not filing the Annual Return on time can lead to hefty fines and penalties. In case a company does not file its Annual Return for two financial years continuously, the company will be termed ‘inactive company’, and RoC will initiate a ‘strike-off’ process to remove the company’s name from the Ministry of Corporate Affairs (hereinafter referred as MCA) records.
Tip to Avoid: Use a reminder system, either digital or manual, to keep track of filing dates. It is also a good practice to review your company’s filing dates at the beginning of the year or after the AGM and make sure that all the documents are ready before the filing deadline.
2. Incorrect or Incomplete Information
It is crucial to provide correct details when filing the company’s Annual Return. Financial reports, detailed business activities, information about the shareholders, etc., should be correct. If any of the details are incorrect, the company may face fines or delays.
Tip to Avoid: Before submitting anything, carefully double-check all the details to ensure accuracy. Double-check your financial records to make sure that they’re correct. If you’re unsure about anything, it is advisable to get the help of a professional.
3. Not Updating Business Information
As businesses grow and change, it is important to keep the company’s records up-to-date. Changes in business address, directors, shareholders, or shareholding percentages must be reflected in the Annual Returns. Failure to update the information can cause discrepancies that might trigger legal issues, audits, or penalties.
Tip to Avoid: To avoid this mistake, always update your company’s information. You can adopt the practice of reviewing your company’s records and compare them against filings every year.
4. Forget to Include Financial Statements
The company’s financial statements, such as income statements, balance sheets, and cash flow statements, are essential parts of your annual return. If you forget to include them or if they are incomplete, your filing could be rejected, or you might face delays or audits.
Tip to Avoid: Before you submit your Annual Return, make sure that you have double-checked your financial statements. Arrange a meeting with your accountant and go through everything to ensure that the figures in the financial statements are correct and up to date.
5. Failure to File for Non-Active Companies
Some companies fail to understand that if they are inactive or dormant, they still have to file an Annual Return. Many businesses mistakenly believe that if they are not earning any income, they can skip filing Annual Returns. However, failure to file returns for dormant companies can still result in penalties.
Tip to Avoid: Even if your company is inactive or dormant, make sure to submit the required annual return on time. If your company has no significant transactions or activity, you may still need to declare it dormant in your filing.
6. Filing for the Wrong Tax Year
It’s very common to mix up filing for the wrong tax year, especially when there is confusion around your company’s fiscal year or financial cycle. If you file for the incorrect period, you could face penalties, interest charges, or even an audit.
Tip to Avoid: First, verify your company’s fiscal year and the exact period for which you need to file the Annual Return. Double-check the dates, and if you are unsure, consult an accountant or tax professional to ensure everything is accurate and on time.
7. Failure to Pay Outstanding Taxes or Fees
Some businesses think that filing the return is enough, but if there are unpaid taxes or fees, filing the Annual Return will not be accepted on the MCA portal. Failing to settle any dues before submission can result in delays, penalties, or even legal consequences.
Tip to Avoid: Before submitting your annual return, make sure that all taxes and fees are paid. You can contact your tax authority or check online to confirm that your payments are up-to-date.
8. Neglecting to Sign or Authorize the Return
An unsigned or unauthenticated return is as good as not filing it at all. Under the Companies Act 2013, the Director, Company Secretary, and Company Secretary in Practice are authorized to sign the Annual Returns. At the end of the annual return, it is crucial to seal the return with the company’s stamp. If the return is not signed and stamped properly, the Annual Return could be rejected.
Tip to Avoid: Make sure the authorized person in your company signs the return before submission. If you’re submitting online, check that the digital signature or electronic signature is in the right place.
9. Not Keeping Proper Records for Future Audits
Maintaining accurate business records is crucial, particularly in the event that the tax authorities want to examine your organisation by the way of audit. Unnecessary issues and delays may result from incomplete or disorganised financial papers.
Tip to Avoid: It is advisable to hire a professional who can maintain clear records of all financial transactions, receipts, and filings throughout the year.
10. Ignoring Professional Assistance
This is one of the most common mistakes committed by companies, especially small enterprises. Many small business owners try to handle their annual returns on their own to save money. However, the procedure for filing the Annual Return can be complex and tough. It is pertinent to note that even a minor error might result in hefty fines and dire consequences. Therefore, getting help from a professional is suggested. They can save you from these hazards.
Tip to Avoid: Do not be afraid to ask a tax counsellor, accountant, or legal professional for assistance if you are unsure about the filing procedure or tax laws. Their knowledge and experience can save you time and prevent expensive mistakes.
Annual Return Filing Checklist
- Verify filing deadline
- Confirm business information (address, directors, shareholders)
- Prepare accurate financial statements (income statement, balance sheet, cash flow)
- Ensure all outstanding taxes and fees are paid
- Review and update legal documents (business structure, ownership, director changes)
- Ensure the return is signed by an authorized person
- Consult with an accountant or legal professional if needed
Conclusion
Annual return filing for a company is a complicated process that requires close attention to detail, cross-checking every piece of information provided despite its seeming simplicity. Not filing financial statements correctly, spelling mistakes in the information, and not updating the company’s information can significantly impact your business. Annual Return filing is not just a statutory obligation, but it helps maintain the good reputation of the business in the eyes of investors and the general public. Investors/New Stakeholders closely observe the Annual Returns of the company before investing any penny. Therefore, correct filing is important for the growth of business. It is advisable to seek the help of a professional who can help you out with the filing procedure.
Related Services
- Annual Compliance Filing for Private Limited Company
- Annual Compliance Filing for LLP
- Annual Compliance Filing for OPC
FAQs
1. How often do I need to file Annual Returns for my business?
Annual Returns are typically required once a year, but the frequency can vary by jurisdiction.
2. Can I file Annual Returns late?
Late filing is possible but may incur penalties, interest, or even legal consequences depending on your jurisdiction.
3. What happens if I provide incorrect information on my Annual Return?
Incorrect information may result in the return being rejected or an audit being initiated.
4. Do I need a tax advisor to file Annual Returns?
While not mandatory, consulting a tax advisor can help ensure your return is filed correctly and on time.
5. What documents do I need to file Annual Returns?
You will need financial statements, shareholder details, and company information such as director changes or business addresses.
6. Can I file my Annual Return online?
Yes, you can file the Annual Return online on the MCA Portal.
