Accounting and Payroll are essential pillars of every business. Beyond financial management, they involve adherence to legal frameworks, ensuring compliance with statutory laws and regulations. Here’s a breakdown of their importance and legal aspects every business should know.

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1. Accounting: Legal and Regulatory Insights

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Accounting is not just about maintaining financial records; it’s a legal obligation under various laws in India.

Key Legal Requirements in Accounting:

Companies Act, 2013:

Every company must maintain proper books of accounts, including records of assets, liabilities, income, and expenses.

Financial statements must comply with the prescribed accounting standards.

Income Tax Act, 1961:

Businesses must maintain books of accounts if turnover exceeds specified limits.

Accurate records ensure proper tax filing and audit compliance.

GST Act, 2017:

GST-registered entities must maintain detailed records of sales, purchases, input tax credits, and GST returns.

Non-compliance can result in penalties.

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Why Accounting is Crucial:

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• Enables statutory audits and regulatory filings.

• Ensures transparency for stakeholders.

• Serves as evidence during legal disputes or tax assessments.

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2. Payroll: Laws Every Employer Should Know

Payroll isn’t just about salary disbursement—it’s a legally regulated process that ensures employee welfare and compliance with labor laws.

Key Labor Laws Governing Payroll in India:

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The Payment of Wages Act, 1936:

• Mandates timely payment of wages to employees.

• Employers must adhere to pay cycles as per the law

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Employees' Provident Fund (EPF) and Miscellaneous Provisions Act, 1952:

• Applicable to establishments with 20+ employees.

• Employers must deduct and deposit contributions to the PF fund monthly.   

Employees' State Insurance (ESI) Act, 1948:

Applicable to establishments with 10+ employees (earning up to ₹21,000/month).

Provides medical and financial benefits to employees.

Income Tax Act, 1961:

Employers must deduct TDS on salaries exceeding the exempt limit.

Filing of quarterly TDS returns (Form 24Q) and issuing Form 16 to employees is mandatory.

The Professional Tax Act (state-specific):

Employers must deduct and pay professional tax as per the rules of the state in which the business operates.

 

Importance of Payroll Compliance:

Protects businesses from legal penalties and reputational damage.

Ensures employees receive the benefits they are entitled to.

Enhances employee trust and satisfaction.

 

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3. Understanding Payroll Deductions

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Payroll involves various statutory deductions, including:

• EPF Contribution: Employee and employer contribute 12% of basic salary.

• ESI Contribution: Employee contributes 0.75% and employer 3.25% of gross salary.

• TDS: Deducted as per applicable tax slabs.

• Gratuity: Mandatory for employees completing 5+ years of continuous service.

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4. Key Compliance Deadlines

• GST Filings: Monthly or quarterly GST returns as per the chosen scheme.

• TDS Deposits and Returns: Monthly deposit by the 7th and quarterly returns by the 31st of the subsequent month.

• EPF and ESI Contributions: Monthly payment by the 15th of the following month.

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Why Staying Compliant Matters

Non-compliance can lead to:

• Heavy penalties and fines.

• Legal proceedings or suspension of operations.

• Damage to reputation among employees and stakeholders