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Many entrepreneurs are focused on revenue growth, but overlook the importance of compliance when seeking financing for their business or investors. Banks and investors don’t just look at profit numbers on their own; they scrutinize compliance records.
At Taxoo, we often assist businesses that have loan applications that were denied or delayed because of delayed filings, tax mismatches and audit gaps. This article will explain how non-compliance directly affects business loans and funding opportunities in India.
What is the importance of compliance in the eyes of Banks and Investors
The financial institutions assess:
- ROC file status
- Tax return information for income tax
- GST file uniformity
- Audit reports
- TDS conformity
Any minor breach of the law could signal risks or financial risk management.
1. ROC Non-Compliance Red Flags
Check with banks if companies have been able to file:
- roc filing due date
- roc return due date
- Last date for roc
- Last date for filing a roc
The pending ROC applications could lead to:
- Rejection of loan
- Refusal to approve credit
- Documentation required for additional requirements
A clean ROC record boosts confidence of lenders.
2. Audit Gaps Reduce Credibility
Many lenders want clarification regarding:
- What is statutory audit?
- Recent audited financial statements
When audit report results are not timely or are not complete, it can raise concerns about internal control of financial transactions.
3. GST Non-Compliance Can Impact Cash Flow Assessment
Banks review:
- Regular GST return forms
- Congruity in reporting of turnover
- The alignment between GST and tax information for income
Inability to keep track of GST tax returns and due dates could result in a discrepancy in the reported revenue.
4. TDS and Section-Based Mismatches Create Questions
Reporting that is incorrect or inconsistency for:
- 194s tds section
- 194r
may create financial reporting inconsistencies.
There is confusion about:
- 194s tds income in which head
- 194s of the Income Tax Act applicable
could affect trust in lenders in the event that it is not addressed.
5. Expense Disallowance Under Section 14A
Improper handling of exempted income in the context of:
- sec 14a
could result in reassessment or tax demands that negatively impact loan appraisal.
6. One Person Company (OPC) and Small Business Risk
If your company is structured in the following manner:
- One person registration for a company
- Registration for OPC
- The registration process for OPCs
- One-person company registration online
Directors are personally responsible for their own compliance.
Small companies are viewed by lenders as having to be able to maintain a good governance.
7. Failure to comply with the rules increases risk rating
Financial institutions utilize internally-developed risk score models. Non-compliance may:
- Credit risk perceptions are increased.
- Increased interest rates
- Reduce loan eligibility
- Delay funding rounds
Investors should also check compliance prior to investing.
How Taxoo Can Help Businesses Stay Funding Ready
Taxoo can provide:
- ROC deadline tracking
- GST Return management
- TDS Section verification (194S 194R, 194S)
- Section 14A expense evaluation
- Audit coordination
- Review of compliance with the loan
The approval process for funding is smoother with compliance records that are clear.
Final Thoughts
Revenue alone is not enough to secure the funding. History of compliance plays a crucial part in:
- Approval of loans
- Confidence in the market
- Business valuation
Inconsistently ignoring compliance could block your potential for growth.
With the help of structured compliance from Taxoo companies are able to maintain their financial credibility and remain ready for the possibility of funding at any point
