Penalty for Not Filing Annual Return

A company is an artificial judicial person and a separate legal entity capable of entering into various types of transactions. Once a company is incorporated, the Directors of the company are responsible for ensuring that various regulatory and statutory filings are filed by the company on time. Failure to file statutory filings could attract stringent penalties and could disqualify the Directors from incorporating another company in the future. The year 2018 is very significant as the penalty for non-compliance has been increased to over Rs.1 lakh by both the income tax department and Ministry of Corporate Affairs. In this article, we look at the some of the penalties applicable for company in 2018.

Increase in Penalty for Not Filing Annual Return

Normally, the Government fee for filing or registering any document under the Companies Act required or authorized to be filed with the Registrar is Rs.200. A private limited company would be required to file form MGT-7 and form AOC-4 each year and the government fee applicable if filed on time would be Rs.400. In case of delay in filing of annual return, the penalty as mentioned would be applicable: Due date for company annual return & income tax return.

Period of Delay	Current Penalty	Proposed Penalty
Upto 15 days (sections 93,139 and 157)	Rs.400	Upto Rs.3000
More than 15 days and upto 30 days (Sections 93, 139 and 157) and upto 30 days in remaining forms.	Rs.800	Upto Rs.6000
More than 30 days and upto 60 days	Rs.1600	Upto Rs.12000
More than 60 days and upto 90 days	Rs.2400	Upto Rs.18000
More than 90 days and upto 180 days	Rs.4000	Upto Rs.36000
More than 180 days and upto 270 days	Rs.4800	Upto Rs.54,000
Delay beyond 270 days	Rs.100 per day	Rs. 100 per day per form

So under the current rules, the maximum penalty applicable for delay of upto 270 days is 12X of normal fee which would be Rs.4800. The MCA on its homepage has recently announced the following:

It is proposed to amend shortly, the Companies (Registration Offices and Fees) Rules 2014 to levy additional fee @Rs.100 per day for filings under Section 92 (Annual Return) or 137 (Annual Financial Statement) of the Companies Act, 2013. Once notified, the additional fee @Rs.100 per day (beyond the normal date of filing) shall become payable in respect of 23AC,23ACA,23AC XBRL,23ACA XBRL,20B,21A, MGT-7, AoC-4,AoC-4 XBRL and AoC-4 CFS. Stakeholders are advised to take note and plan accordingly.

Following the above message, the MCA on 8th May 2018 announced the following and notified the Companies (Registration Offices and Fees) Second Amendment Rules, 2018.

The Companies (Registration Offices and Fees) Second Amendment Rules 2018 has been notified on 7th May 2018. Accordingly, in case the due date of filings under Section 92 (Annual Return) or 137 (Annual Financial Statement) of the Companies Act, 2013 expires after 30/06/2018, the additional fee @Rs.100 per day shall become payable in respect of MGT-7, AoC-4, AoC-4 XBRL and AoC-4 CFS. In all other cases where the belated annual returns or balance sheet/financial statement which were due to be filed whether under the Companies Act,1956 (23AC,23ACA,23AC XBRL,23ACA XBRL,20B,21A)or the Companies Act, 2013 (MGT-7, AoC-4, AoC-4 XBRL and AoC-4 CFS) additional fee as per the applicable slab for the period of delay up to 30th June 2018 plus @Rs.100 per day w.e.f 1st July 2018 shall become payable. Stakeholders are advised to take note and plan accordingly.

Hence, as per the The Companies (Registration Offices and Fees) Second Amendment Rules 2018, the penalty for not filing a companies annual return (Form MGT-7 and Form AOC-4) would be increased to Rs.200 per day from 1st July 2018. Thus, for a company that files its annual return 9 months after its due date, the penalty would be Rs.54,000 compared to a penalty of Rs.4800 applicable now. Hence, all Entrepreneurs who are stakeholders in a company must take notice of this important regulation and ensure that all overdue compliances for a company is filed on or before 30th June 2018. Any filing of overdue MCA annual return from 1st July 2018 would attract a significantly higher penalty of Rs.200 per day. Finally, the proposed changes include provisions for doubling of the above penalty where there is default on two or more occasions in submitting. Hence, the penalty for not filing a company's annual return could easily run into lakhs. Know more about the above penalty by reading the following articles:

Increase in Penalty for Not Filing Income Tax Return

In addition to the changes in Companies Act, the penalty under Income Tax Act has also been increased sharply. Before 1st April 2018, the penalty for not filing income tax return was Rs.5000 leviable at the discretion of the Income Tax Officer. From 1st April 2018, the penalty for not filing income tax return for company has been changed as follows: For returns filed between 1st October and 31st December a penalty of Rs.5000 will be applicable. For returns filed after 31st December, a penalty of Rs.10,000 would be applicable. Know more about penalty for not filing income tax return.

Penalty for Non-Compliance

As illustrated above, the penalty for non-compliance for a company is set to be over Rs.1 lakh per annum from 2018, which is a significant increase compared to the previous years. Further, the MCA is also disqualifying directors of non-compliant companies for a period of 5 years actively to curb shell companies. Hence, its important for all Entrepreneurs to be aware of the upcoming changes to the rules and file any overdue compliances at the earliest.

Annual Compliance for Company

IndiaFilings provides an easy and online process for maintaining annual compliance for a company. The service includes accounts preparation, drafting of financial statements, conducting of board meetings & annual general meeting, filing of income tax return and filing of MCA return all at a very low cost of Rs.19899. Know more about IndiaFilings services for company annual return filing here or get in touch with an IndiaFilings Advisor at sales@indiafilings.com.

Section 403 of Companies Act

Section 403 of Companies Act and the proposed amendment to Section 403 which deals with penalty for not filing annual return on time is reproduced below for reference:

403. ¹[(1) Any document, required to be submitted, filed, registered or recorded, or any fact or information required or authorised to be registered under this Act, shall be submitted, filed, registered or recorded within the time specified in the relevant provision on payment of such fee as may be prescribed:²^_[Provided that where any document, fact or information required to be submitted, filed, registered or recorded, as the case may be, under section 92 or 137 is not submited, filed, registered or recorded, as the case may be, within the period provided in those sections, without prejudice to any other legal action or liability under this Act, it may be submitted, filed, registered or recorded, as the case may be, after expiry of the period so provided in those sections, on payment of such additional fee as may be prescribed, which shall not be less than one hundred rupees per day and different amounts may be prescribed for different classes of companies: Provided further that where the document, fact or information, as the case may be, in cases other than referred to in the first proviso, is not submitted, filed, registered or recorded, as the case may be, within the period provided in the relevant section, it may, without prejudice to any other legal action or liabilityunder this Act, be submitted, filed, registered or recorded as the case may be, on payment of such additional fee as may be prescribed and different fees may be prescribed for different classes of companies: Provided also that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of a higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable.] ^3_[(2) Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.] Exception/ Modification/ Adaptation 1. In case of Nidhi company Section 403 shall apply, with the modification that the filing fees in respect of every return of allotment under sub-section (9) of section 42 shall be calculated at the rate of one rupee for every one hundred rupees or parts thereof on the face value of the shares included in the return but shall not exceed the amount of normal filing fee payable. - Notification dated 5th june, 2015.

Amendments to Section 403

Substituted by the Companies (Amendment) Act,2017 - Yet to be notified by Central Government

In section 403 in sub-section (1) for the words:-

"Provided that any document, fact or information may be submitted, filed, registered or recorded, after the time specified in relevant provision for such submission, filing, registering or recording, within a period of two hundred and seventy days from the date by which it should have been submitted, filed, registered or recorded, as the case may be, on payment of such additional fee as may be prescribed:

Provided further that any such document, fact or information may, without prejudice to any other legal action or liability under the Act, be also submitted, filed, registered or recorded, after the first time specified in first proviso on payment of fee and additional fee specified under this section."

The following sub-section shall be substituted, namely :-

"Provided that where any document, fact or information required to be submitted, filed, registered or recorded, as the case may be, under section 92 or 137 is not submited, filed, registered or recorded, as the case may be, within the period provided in those sections, without prejudice to any other legal action or liability under this Act, it may be submitted, filed, registered or recorded, as the case may be, after expiry of the period so provided in those sections, on payment of such additional fee as may be prescribed, which shall not be less than one hundred rupees per day and different amounts may be prescribed for different classes of companies:

Provided further that where the document, fact or information, as the case may be, in cases other than referred to in the first proviso, is not submitted, filed, registered or recorded, as the case may be, within the period provided in the relevant section, it may, without prejudice to any other legal action or liabilityunder this Act, be submitted, filed, registered or recorded as the case may be, on payment of such additional fee as may be prescribed and different fees may be prescribed for different classes of companies

Provided also that where there is default on two or more occasions in submitting, filing, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or liability under this Act, be submitted, filed, registered or recorded, as the case may be, on payment of a higher additional fee, as may be prescribed and which shall not be lesser than twice the additional fee provided under the first or the second proviso as applicable."

Substituted by the Companies (Amendment) Act,2017- Yet to be notified by Central Government

In section 403 for sub-section (2) for the words:-

"(2) Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1)before the expiry of the period specified in the first proviso to that sub-section with additional fee, the company and the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default."

The following sub-section shall be substituted, namely :-

"(2)Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default."

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