When we chanced upon this question about the typical problems that are faced by startups in Finance, tax and compliance on Quora, it sparked our interest. This is, of course, our domain of expertise and we would love it if we can educate the future entrepreneurs on these problems and how to solve them. It prompted our Managing DirectorMr. Sanjeev Lamba to provide an excellent and detailed answer which is reproduced here for your benefit:
In today’s scenario, statutory reporting and compliance has become too complex as flexibilities has been reduced and compliances have increased. Some of the typical problems which are faced by the startups are listed below:
- In India Tax Structure is very complex. So there is a need to take services from Experts. But due to cash flow issues, a start up cannot afford to hire a full time CFO along with team of experts, so most of the time a start up tends to do things as per their wish which can create problem for them in future.
- TDS compliance :- No company can make any Tax deductible payment without deducting TDS so it is mandatory for the startups to get TAN and PAN right from their first day of operations.
- Service Tax :-After July 2012, some of the basic services fall under the categories of Reverse Charge, so it’s also advisable to take service tax registration in the beginning irrespective of the business falling under service tax category or not, if they are taking any services which falls under reverse charge mechanism.
- VAT & CST:-After initiating online operations, VAT & CST need to be submitted and their regulations must be complied.
- Funding:-If any startup raises funds through private placement then it has to take care of compliance under Companies Act. If money has been raised through foreign country one has to take care of FEMA and RBI compliances as well.
- Other Compliance :- Apart from these there are Labour Laws, PF and various local laws which need to be understood and complied with which may vary from state to state
One needs to hire a professional expert/agency to understand the applicability of laws as they vary from industry to industry and state to state. Problem for a start up is that it cannot afford to hire full time CFO along with competent team due to cash flow issues, so it is inclined to handle these complex issues by taking services from unorganised sector.
You can read the complete discussion on quora here.