One Person Companies (OPCs) are a relatively new concept in India, introduced by the Companies Act, 2013, to encourage single-person entrepreneurship by simplifying the process of running a business under a corporate structure. OPCs combine the benefits of a sole proprietorship with limited liability, providing a unique opportunity for small business owners to scale their businesses independently.
Proper accounting and bookkeeping are essential for OPCs to comply with regulatory requirements, track finances accurately, and make informed business decisions. This blog covers the basics of accounting and bookkeeping for OPCs, detailing the relevant acts and laws, and the mandatory compliances to maintain financial health and avoid penalties.
What is an OPC?
An OPC is a company that allows a single person to own and operate a business while enjoying the benefits of limited liability protection, separating personal assets from business liabilities. OPCs are suited for entrepreneurs who wish to operate independently without partners or co-founders while leveraging a corporate structure that protects personal assets from business risks.
Key Accounting and Bookkeeping Requirements for OPCs
Accounting and bookkeeping are crucial for OPCs, both for statutory compliance and efficient business management. Key areas of focus for OPCs include:
- Income and Expense Tracking: Proper tracking of income and expenses is vital for determining the OPC’s profitability, planning for taxes, and assessing overall financial performance.
- Asset and Liability Management: Accurate records of assets, such as equipment, property, and vehicles, along with liabilities, such as loans or payables, help in accurate financial reporting and resource management.
- Preparation of Financial Statements: Financial statements such as the Profit and Loss account, Balance Sheet, and Cash Flow statement are mandatory for OPCs and form the basis for annual returns and income tax filings.
- Compliance with Indian Accounting Standards (Ind AS): OPCs with a turnover below a specified threshold are not required to comply with Ind AS but may voluntarily adopt these standards to ensure accuracy and transparency.
Governing Acts and Compliance Requirements for OPCs
OPCs in India are subject to several acts and regulations, primarily the Companies Act, 2013, Income Tax Act, 1961, and Goods and Services Tax (GST) Act, 2017. Here’s a breakdown of these governing laws and the compliance requirements they impose on OPCs:
1. Companies Act, 2013
- Applicability: The Companies Act, 2013, governs the formation, management, and regulation of OPCs in India.
- Financial Statements: Under this Act, OPCs must maintain accurate financial records and prepare financial statements, including the Balance Sheet and Profit & Loss Account.
- Annual Filing Requirements: OPCs are required to file the following forms annually with the Registrar of Companies (RoC):
- Form AOC-4: For filing financial statements.
- Form MGT-7A: For filing the Annual Return.
- Board Meeting Requirements: OPCs are exempted from conducting multiple Board Meetings, though at least one board meeting must be held every six months, with a minimum of 90 days between each.
- Audit Requirement: All OPCs must conduct a statutory audit by a Chartered Accountant, irrespective of turnover or profit levels, to ensure compliance and provide an unbiased assessment of the financial health of the business.
2. Income Tax Act, 1961
- Income Tax Filing: OPCs must file an annual income tax return, typically using Form ITR-6, by the prescribed due date. The corporate tax rate applicable to OPCs is generally 25% for companies with turnover below ₹400 crore.
- Audit under Section 44AB: OPCs with annual turnover exceeding ₹1 crore must undergo a tax audit by a Chartered Accountant under Section 44AB of the Income Tax Act.
- Advance Tax Payment: OPCs are required to pay advance tax if their income tax liability exceeds ₹10,000 in a financial year. The advance tax payments must be made in installments (June, September, December, and March).
3. Goods and Services Tax (GST) Act, 2017
- GST Registration: OPCs must register for GST if their turnover exceeds the threshold limit (₹20 lakh in most states, or ₹40 lakh for goods in certain states). Even if the turnover is below the threshold, an OPC may voluntarily register for GST to claim input tax credit on purchases.
- GST Filing and Compliance: GST-registered OPCs need to file regular GST returns, which may include:
- GSTR-1: Monthly or quarterly filing for outward supplies of goods and services.
- GSTR-3B: Monthly summary return for reporting tax liabilities.
- Annual Return (GSTR-9): Yearly filing that summarizes all GST transactions and payments.
- Maintaining GST Records: OPCs must keep records of all GST-related invoices, credit notes, and other transactions for accurate filing and compliance.
Essential Bookkeeping Practices for OPCs
- Accurate Sales and Purchase Tracking
- Documenting all sales and purchase invoices ensures compliance with GST, income tax, and internal management requirements. Proper tracking aids in efficient inventory management, cost control, and tax compliance.
- Expense Categorization
- Categorize expenses such as salaries, rent, office supplies, and utilities to help assess business performance, identify cost-saving opportunities, and streamline tax deductions.
- Bank Reconciliation
- Regular bank reconciliations ensure that recorded transactions align with bank statements, reducing the risk of errors and discrepancies.
- Depreciation Accounting
- OPCs must calculate depreciation on their fixed assets as per the Companies Act, 2013, or the Income Tax Act, whichever is more beneficial. Depreciation helps accurately reflect asset values and optimize tax liabilities.
- Periodic Financial Reporting
- Generate financial reports periodically, including the Balance Sheet, Profit and Loss Account, and Cash Flow Statement. These reports provide insights into the financial status, helping the owner make data-driven decisions.
- Using Accounting Software
- Accounting software like Tally, QuickBooks, or Zoho Books helps automate bookkeeping tasks, ensure data accuracy, and generate compliance-ready financial reports quickly.
Compliance Checklist for OPCs
| Compliance Task | Frequency | Applicable Act | Details/Forms Involved |
|---|---|---|---|
| Statutory Audit | Annual | Companies Act, 2013 | Conducted by a Chartered Accountant |
| Financial Statement Filing | Annual | Companies Act, 2013 | Form AOC-4 |
| Annual Return Filing | Annual | Companies Act, 2013 | Form MGT-7A |
| Income Tax Return Filing | Annual | Income Tax Act, 1961 | Form ITR-6 |
| GST Returns | Monthly/Quarterly/Annual | GST Act, 2017 | GSTR-1, GSTR-3B, GSTR-9 |
| Advance Tax Payments | Quarterly (if applicable) | Income Tax Act, 1961 | Paid in installments |
| Board Meeting | Twice a year (min.) | Companies Act, 2013 | Minutes of the Meeting |
Conclusion
Accounting and bookkeeping for One Person Companies (OPCs) require diligence, accuracy, and adherence to statutory obligations. With the right accounting practices, OPCs can ensure legal compliance, maintain financial health, and demonstrate credibility to stakeholders. By fulfilling their obligations under the Companies Act, Income Tax Act, and GST Act, OPCs can avoid penalties, focus on growth, and build a sustainable business. Utilizing modern accounting tools and hiring professional assistance for audits and tax filings can simplify the compliance process, allowing OPCs to operate efficiently within India’s regulatory framework.
