The Indian government is taking steps to improve the reporting system for corporations to discourage the establishment of shell companies that evade taxes and engage in financial misconduct. The new reporting system will require companies to submit their annual returns, financial statements, and other necessary filings in web-based forms with enhanced security and authentication features.

Enhanced Security Measures and Know-Your-Customer Requirements

The government is taking measures to prevent the creation of shell companies with fake directors in the new reporting system by increasing security and know-your-customer requirements. This is in response to the Serious Fraud Investigation Office taking action against a company in Gurugram in 2022 for allegedly creating shell companies linked to Chinese entities. The new system includes two-factor authentication, and the data entered on the form before submission will be verified in real-time with the government’s previous filings to prevent errors and improve compliance.

Real-Time Oversight of Statutory Filings

The new system is designed to provide real-time oversight of statutory filings by 1.5 million registered active companies through technology. This will improve compliance and prevent errors. The government will be able to identify discrepancies in the filings and take action against companies that are not complying with the regulations.

Rollout of New Statutory Forms

The Ministry of Corporate Affairs is planning to introduce about 40 new forms in the third version of its MCA21 portal, which has been built from the beginning. On average, 7 to 7.5 million statutory forms are filed annually, and more than 7.5 million were filed on the portal in FY23, despite the transition to the new system being phased in.

Migrating Annual Return Forms to the New System

The government plans to move the annual return forms to the new system for the upcoming filing season. Companies need to file these forms within 60 days of their annual general meeting, which should happen within six months of the end of the financial year. Despite some initial problems, the filings on the MCA21 portal were strong in FY22. About 2.8 million forms were filed for the nine new web-based forms, which is more than the 2.65 million forms filed in the same period the year before.

Completion of Transition to the New Reporting Regime

In the recently ended financial year, there were many filings done by corporations under the new reporting regime which shows that the government’s initiative towards e-governance is almost complete. Additionally, in the previous year, there were more financial statements and annual returns filed compared to the year before.

Why In News

The Indian government is taking strong measures to tackle the issue of shell companies and financial misconduct by introducing a new reporting system for corporations. Under this system, companies will have to submit their annual returns, financial statements, and other necessary filings in web-based forms with enhanced security and authentication features, including real-time oversight and two-factor authentication. This initiative is aimed at improving compliance, deterring tax evasion, and preventing money laundering in the Indian corporate sector.

MCQs about India’s New Corporate Reporting System

  1. What is the purpose of the new reporting system for corporations being introduced by the Indian government?
    A. To prevent tax evasion by shell companies and financial misconduct.
    B. To make it easier for companies to file their annual returns.
    C. To reduce the number of active companies in India.
    D. To increase the number of statutory forms required to be filed annually.
    Correct Answer: A. To prevent tax evasion by shell companies and financial misconduct.
    Explanation: The new reporting system aims to discourage the establishment of shell companies that evade taxes and prevent financial misconduct such as tax evasion, fund diversion, and money laundering.
  2. What are the enhanced security measures included in the new reporting system for corporations?
    A. Two-factor authentication and real-time verification of data.
    B. Increased number of statutory forms to be filed.
    C. Reduction of know-your-customer requirements.
    D. Removal of all security measures for ease of filing.
    Correct Answer: A. Two-factor authentication and real-time verification of data.
    Explanation: The new system includes two-factor authentication, and the data entered on the form before submission will be verified in real-time with the government’s previous filings to prevent errors and improve compliance. The government is also taking measures to prevent the creation of shell companies with fake directors by increasing security and know-your-customer requirements.
  3. What is the Ministry of Corporate Affairs planning to introduce in the third version of the MCA21 portal?
    A. About 40 new forms.
    B. A reduction in the number of forms.
    C. An elimination of all statutory forms.
    D. No changes to the current forms.
    Correct Answer: A. About 40 new forms.
    Explanation: The Ministry of Corporate Affairs is planning to introduce about 40 new forms in the third version of its MCA21 portal.
  4. What is the expected outcome of the new reporting system for corporations?
    A. To deter tax evasion by shell companies and prevent financial irregularities.
    B. To increase tax evasion by shell companies.
    C. To reduce compliance by corporations.
    D. To promote the establishment of shell companies.
    Correct Answer: A. To deter tax evasion by shell companies and prevent financial irregularities.
    Explanation: The new web-based forms with enhanced security features and authentication requirements are expected to deter tax evasion by shell companies and prevent financial irregularities like the diversion of funds and money laundering.

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