Common Accounting Mistakes Made By Startups


1. Negligent Accounting Practices

Most entrepreneurs will admit that they are not expert accountants. Yet, these same entrepreneurs try to handle their finances in house. This costly mistake forces startup founders to focus their attention on things like payroll and bank reconciliation rather than solely focusing on how to grow their business.

A trained professional will ensure your records are up to date, record transactions properly, and keep track of your accounts receivable and payable. This will allow you to spend your time and resources into expanding your business.

2. Mixing Business and Personal Finances

One of the most common accounting mistakes business owners make is to mix their business and personal finances. Keep these separate and distinct to provide a more precise track record of what was really used for business and what was specifically related to personal use only.

3. Accounting Software

When searching for the best accounting softwares, startups should look for the ones that serve their business objectives, are affordable and are easy to use for them. A business accounting software keeps your data organized and provides you the relevant information whenever you need it.

Choosing a good business software is a tedious task as it involves a lot of research on your part. This selection can make or break a business, as an accounting solution helps small businesses to take informed decisions. Being an startup you wouldn’t want a complex solution for your accounting operation.

At present, a lot of accounting solutions are available in India like Zoho, Quickbooks, etc. in the online model and Tally ERP 9, Marg, Busy, etc. in the offline mode.

4. Poor Record Keeping  

When you ask owners of startups what their biggest problem is for their tax preparation and bookkeeping, there is one common answer that you will likely receive — tracking small expenses and finding lost receipts/challans/counterfoils etc.

Accounting is very time-consuming. The majority of startup owners are busy with business development as well as other essential functions, so when it comes to recording transactions — they have a tendency to procrastinate.

Not having an efficient system for filing documents also results in receipts getting lost. Proper documentation is necessary for CA audits and to generate accurate financial reports. Installing invoicing software of having small lock-up boxes throughout your work area can make it convenient to scan and save important receipts. Also, take the time to do periodic accounting and bookkeeping.

5. Confusion between employees and contractors

Many owners of startup businesses view taxes as something that only occurs at the end of their fiscal year. However, that overlooks other critical tax payments.

The majority of small business owners are confused about payroll tax preparation. They don’t understand the differences between employees and independent contractors/ professionals. If you fail to accurately calculate and pay the taxes you owe, you can be held liable and also be charged expensive fines. These problems can be prevented by becoming knowledgeable about the tax laws that relate to your business or you can hire an accountant or tax service in order to prevent heavy fines and losses.

TCS on sale of Goods- Section 206C(1H) w.e.f. from 1st October 2020

  1. The new section 206C(1H) of the Income Tax Act, 1961 has been introduced by the Finance Act, 2020 for Tax Collection at Source(TCS) on sale of goods.
  • The provisions of this sub section is applicable and notified from 1.10.2020.
  • The provisions of this sub section is applicable in following circumstances:

a) It is applicable to all the sellers who are engaged in sale of goods. The term “seller” has been defined in the act.

b) The term “seller” means a person whose total sales, turnover or gross receipts from the business carried on by him exceeds Rs. 10 crores during the financial year immediately preceding financial year in which the sale of good is carried out.

c) Thus, the sellers who had a turnover/sales/gross receipts exceeding Rs. 10 crores in financial year 2019-20 will be required to collect TCS in financial year 2020-21.

d) If any person has turnover/sales/gross receipts below the above mentioned limit then it is out of scope of the term ‘seller’, meaning thereby the provision of this sub section shall not be applicable on that type of assessee.

e) The applicability criterion for TCS has to be considered & checked for every year

4. The provision of this subsection will not be applicable in the following circumstances:

  • This sub section is not applicable for export of goods & goods already covered under the existing provisions i.e., 2O6C(1), 206C(IF) and 2O6C(IG) governing TCS under chapter XVII-BB of the Income Tax Act,1961.
  • 206C(1) covers alcoholic liquor, tendu leaves, timber, other forest produce, scrap, coal, lignite and iron ore. 206(1F) covers motor vehicle of the value exceeding Rs.10,00,000/-. 206C(1G) covers overseas tour program package.
  • This subsection is not applicable in a case where value or aggregate value of sale consideration to an entity is below or equal to Rs. 50 lakhs during the year.
  • This subsection is not applicable if the buyer is Central Government / State Government / Local Authority / an Embassy / High Commission / Consulate & the representative of foreign states.
  •  This sub section is not applicable on import of goods.
  • This sub section is not applicable on a person who is notified by Government, (nothing is notified till date)
  • This subsection shall not apply if the buyer is liable to deduct TDS under any other provisions of the Act on the goods purchased by him from the seller and he has deducted such amount.
  1. The rate of TCS will be 0.1% of the value or aggregate value of the sale consideration if the buyer furnishes the PAN/AADHAR and in other cases it shall be considered as 1% of the value or aggregate value of the sale consideration.
  1. However, for financial year ending 31.03.2021, the rates of TDS and TCS are reduced to 75% and therefore the rates will be 0.075% and 0.75% respectively.
  1. Every person who is collecting tax at source under this sub section is required to submit a quarterly TCS return in Form 27EQ.  The TCS collected by the seller will be reflected in the Form 26AS of the buyer.
  1. The tax is to be collected at source from the buyer at the time of receipt of the amount from the buyer towards sale consideration.
  1. The TCS is to be collected at the time of receipt of the sale consideration. Therefore, it will be required to keep track of the receipt of sale consideration for the bills/invoices made after 01.10.2020.
  1. Though the provisions is effective from 01.10.2020, for calculating the Rs.50,00,000/- limit, sales of entire financial year will have to be taken into consideration.          
  1. The TCS has to be collected only on the figure of sale exceeding Rs.50,00,000/-.
  1. The TCS amount collected after every month is to be remitted to the Government by 7th of the next month.
  1. Though TCS is collectible on receipt basis practically it would be prudent to mention the TCS as a separate line item in the bills/invoices.
  1. In the context of law, even on the advances received TCS will have to be collected. 

AGM due date extended to 31st December 2020

AGM Extention

The Annual General Meeting (AGM) due date for the financial year ended 31st March 2020 for all companies has been extended to 31st December 2020. A huge relief has been granted by the Ministry of Corporate Affairs by way of granting an extension of 3 months for holding the Annual General Meetings. Companies with the AGM due date of 30th September 2020 can conduct their AGM by 31st December 2020. The company is not required to file a separate application in form GNL-1 for an extension.