The ministry of corporate affairs (MCA) is set to launch random electronic scrutiny of corporate filings later this year as it seeks to use technology to improve supervision and compliance, a top official said.

“There will be stratified random sampling of the returns. We are deciding the percentage of returns that will be taken up for electronic scrutiny,” MCA secretary Rajesh Verma told TOI.
The computer-driven scrutiny will be similar to the one undertaken by the income tax authorities that take up a few returns. While the scrutiny work will begin earlier, Version 3 of MCA-21, which was announced in the Budget, will have a system of red flags, which will include frequent resignation by auditors or directors, companies with a low paid-up capital but high turnover or high level of related-party transactions.

While the database has moved to the electronic platform, the MCA field officers comprising regional directors and registrars of companies typically open the books when there is an investigation or a complaint. But, the government is now seeking to improve oversight as well as compliance.

The new electronic module will immediately send out an alert to companies if they miss the deadline for filing returns or other compliance. Similarly, non-filers will be tracked and, at first, prodded to file, all using electronic means, Verma said. Risk-profiling is also part of the same exercise.

In addition, MCA is moving to a pre-field and auto filing regime for returns that will help companies comply more easily. As part of the exercise, a web-based form is being implemented replacing the current system. “Nearly 90% pre-filling will happen,” an officer said.

Verma said a key focus for his ministry is to improve compliance, while undertaking a series of steps to make life easier for businesses, including through decriminalisation of laws. “Although there is a marked improvement in compliance rate over the last few years, we have a long way to catch up with jurisdictions such as Singapore,” he said. Unlike a few years ago when less than 50% of the companies would file their returns by the prescribed deadline, now the level has gone up. For instance, there is around 75% compliance for financial year 2018-19.

To further reduce the burden on companies, especially the smaller ones, the Budget has also announced an increase in the threshold. Companies with paid-up capital of up to Rs 2 crore and turnover of up to Rs 20 crore will fall under small category. Earlier, this threshold for paid-up capital was Rs 50 lakh and turnover level was Rs 2 crore. Nearly two lakh companies will benefit from this.

Team- Intellex Strategic Consulting Pvt Ltd,,,

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