Govt will do Random Scrutiny for all MCA / ROC Corporate filing
The Ministry of Corporate Affairs or the MCA is primarily concerned with administration of the Companies Act 2013, the Companies Act 1956, the Limited Liability Partnership Act, 2008 & other allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with law. MCA is now set to launch random electronic scrutiny of corporate filings later this year as it seeks to use technology to improve supervision and compliance.
Purpose for inculcating electronic scrutiny
- A key focus for his ministry is to improve compliance, while undertaking a series of steps to make life easier for businesses, including through decriminalisation of laws.
- Although there is a marked improvement in compliance rate over the last few years, MCA has a long way to catch up with jurisdictions such as Singapore.
- Unlike a few years ago when less than 50% of the companies would file their returns by the prescribed deadline, now the level has gone up.
- For instance, there is around 75% compliance for financial year 2018-19.
How will MCA carry out the said scrutiny?
- There will be stratified random sampling of the returns.
- MCA is deciding the percentage of returns that will be taken up for electronic scrutiny.
- The computer-driven scrutiny will be similar to the one undertaken by the income tax authorities that take up a few returns.
- While the scrutiny work will begin earlier, Version 3 of MCA-21, which was announced in the Budget, will have a system of red flags, which will include frequent resignation by auditors or directors, companies with a low paid-up capital but high turnover or high level of related-party transactions.
- While the database is moved to the electronic platform, the MCA field officers comprising regional directors and registrars of companies typically open the books when there is an investigation or a complaint.
- But the government is now seeking to improve oversight as well as compliance.
- The new electronic module will immediately send out an alert to companies if they miss the deadline for filing returns or other compliance.
- Similarly, non-filers will be tracked and, at first, prodded to file, all using electronic means.
- Risk-profiling is also part of the same exercise.
Auto filing of return to also come into place
- In addition, MCA is moving to a pre-field and auto filing regime for returns that will help companies comply more easily.
- As part of the exercise, a web-based form is being implemented replacing the current system. Nearly 90% pre-filling will happen.
- These pre filed ITR’s will make tax compliance easier for everyone.
- This will also make the filling of the income tax returns convenient, encourage more people to reveal their true incomes and not misreport their income to evade tax.
- This will provide greater transparency in the process.
- Apart from reducing the time required to file a return, automation will also ensure the accuracy of data as chances of errors while filing taxes get reduced substantially.
- This would in turn translate into less tax litigation which would be beneficial for taxpayers as well taxmen.
To further reduce the burden on companies, especially the smaller ones, the Budget has also announced an increase in the threshold. Companies with paid-up capital of up to Rs 2 crore and turnover of up to Rs 20 crore will fall under small category. Earlier, this threshold for paid-up capital was Rs 50 lakh and turnover level was Rs 2 crore. Nearly two lakh companies will benefit from this.