The corporate ecosystem in India operates within a robust regulatory framework designed to ensure transparency, accountability, and governance. For multinational corporations (MNCs) with subsidiaries in India, navigating the country’s intricate compliance landscape is critical. Adherence to mandatory secretarial compliances not only safeguards organizations from legal and financial penalties but also reinforces stakeholder confidence.
This detailed explainer unpacks the essential compliance requirements under Indian corporate laws, providing clarity on the obligations that companies must fulfill to maintain governance standards.
1. Compliance with the Companies Act, 2013
The Companies Act, 2013, is the cornerstone of corporate governance in India, setting forth statutory requirements for companies. Key compliance mandates include:
1.1 Board Meetings
- Frequency: A minimum of four board meetings must be held in a financial year, ensuring not more than 120 days gap between two meetings. For small companies, holding at least two meetings annually is sufficient.
- Documentation: Accurate recording of minutes, agenda circulation, and resolutions passed is critical.
1.2 Annual General Meeting (AGM)
- Applicability: Public companies are required to convene AGMs within six months of the end of the financial year.
- Agenda: Matters such as approval of financial statements, appointment/reappointment of auditors, and dividend declaration are discussed.
1.3 Maintenance of Statutory Registers
- Registers such as the Register of Members, Register of Directors and Key Managerial Personnel (KMP), and Register of Charges must be meticulously maintained.
1.4 Filing of Returns
- Annual Return (Form MGT-7): Contains details of shareholders, directors, and other key information.
- Financial Statements (Form AOC-4): Submission of audited financials, directors’ report, and related documents.
2. Secretarial Standards Issued by ICSI
The Institute of Company Secretaries of India (ICSI) has issued Secretarial Standards (SS) to standardize governance practices. Compliance with these standards is mandatory under Section 118(10) of the Companies Act, 2013. The key standards include:
2.1 SS-1: Meetings of the Board of Directors
- Details protocols for convening and conducting board meetings, including notice periods, quorum requirements, and recording of minutes.
2.2 SS-2: General Meetings
- Covers AGMs, extraordinary general meetings (EGMs), and postal ballot processes, emphasizing transparency and uniformity in meeting procedures.
3. Compliance with SEBI Regulations
For listed companies or entities intending to access the capital markets, adherence to the regulations of the Securities and Exchange Board of India (SEBI) is essential.
3.1 SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR)
- Quarterly Compliances: Submission of financial results, corporate governance reports, and shareholding patterns.
- Material Events Disclosure: Timely reporting of material events such as mergers, acquisitions, and changes in management.
3.2 Insider Trading Regulations
- Implementation of a code of conduct for prevention of insider trading and maintaining structured digital databases.
4. Labor Law Compliances
Indian subsidiaries of MNCs must also adhere to labor laws that govern employee welfare, rights, and workplace practices. Key legislations include:
4.1 Employees’ Provident Fund (EPF)
- Mandatory contributions by both employer and employee for organizations employing 20 or more people.
4.2 Employees’ State Insurance (ESI)
- Applicable to entities employing 10 or more workers with wages below the prescribed threshold.
4.3 Payment of Gratuity Act
- Ensures gratuity payments to employees upon retirement or resignation after five years of continuous service.
4.4 Maternity Benefit Act
- Provides maternity leave and other benefits to female employees.
5. Tax Compliances
Indian tax regulations are multifaceted and require meticulous attention to detail. Subsidiaries of global corporations must ensure compliance with both direct and indirect taxes.
5.1 Corporate Taxation
- Filing of income tax returns (ITR) and advance tax payments as per applicable slabs.
- Transfer pricing documentation and compliance to ensure arm’s length transactions.
5.2 Goods and Services Tax (GST)
- Timely filing of monthly, quarterly, and annual GST returns.
- Reconciliation of GST input tax credit with supplier filings.
5.3 Tax Deducted at Source (TDS)
- Deduction and remittance of TDS on payments such as salaries, rent, and professional fees.
6. Foreign Exchange Management Act (FEMA) Compliance
For MNC subsidiaries, FEMA regulations govern cross-border transactions, including foreign direct investment (FDI), external commercial borrowings (ECB), and repatriation of profits. Essential FEMA compliances include:
6.1 Annual Return on Foreign Liabilities and Assets (FLA)
- Mandatory filing by all entities receiving FDI or making overseas investments.
6.2 External Commercial Borrowings (ECB)
- Reporting and adherence to RBI guidelines on ECB utilization and repayment.
6.3 Transfer Pricing Regulations
- Ensuring pricing of inter-company transactions complies with international standards.
7. Environmental and Industry-Specific Compliances
Certain industries, such as manufacturing, pharmaceuticals, and IT, are subject to additional regulatory requirements.
7.1 Environmental Clearances
- Adherence to pollution control norms and obtaining necessary certifications from state pollution control boards.
7.2 Industry-Specific Approvals
- Licensing and approvals from regulatory bodies such as the Drug Controller General of India (DCGI) or Software Technology Parks of India (STPI).
8. Penalties for Non-Compliance
Non-compliance with Indian laws can result in severe penalties, including fines, imprisonment of responsible personnel, and restrictions on business operations. Recent trends indicate increased scrutiny by regulators, making adherence to compliance requirements a top priority.
How Finsmart Accounting Can Support
Finsmart Accounting offers tailored solutions to help global MNCs manage their secretarial compliances effectively. With expertise in Indian regulatory frameworks, Finsmart ensures accurate filing of returns, maintenance of statutory registers, and timely fulfillment of all compliance obligations. By leveraging cutting-edge technology and deep domain knowledge, Finsmart minimizes risks and simplifies compliance management, enabling companies to focus on strategic growth initiatives.By outsourcing accounting, payroll, and secretarial tasks to our team, you can focus on driving business growth and success.
Partner with Finsmart Accounting today for a worry-free compliance experience tailored to your specific needs.
Book a consultation today: https://calendly.com/finsmart_accounting/30min
India Business Head
Mrs. Dipali Phadke is a qualified Chartered Accountant with more than 20+ years of experience in the field of Accounting, Taxation and Payroll. She is the backbone of Company’s Operations and heads India Business at Finsmart Accounting
