A Useful Checklist for Managing Statutory Compliance Audits in India

Every business operating in India must adhere to a wide range of legal and statutory obligations. From payroll compliance to tax filings and employee welfare regulations, these rules ensure that a company functions ethically and transparently. However, managing and preparing for a statutory compliance audit can be a challenging task, especially when multiple laws, documents, and departments are involved.

To help businesses stay audit-ready, here’s a comprehensive checklist for managing statutory compliance audits in India, along with tips to streamline the process effectively.

Understanding Statutory Compliance Audits

A statutory compliance audit is a systematic review of an organisation’s adherence to various laws and regulations applicable to its operations. These laws cover labour, taxation, environment, company governance, and employee welfare.

The main goal of the audit is to verify whether the company is fulfilling its legal responsibilities, including:

• Timely payment of statutory dues
  
• Proper maintenance of registers and returns
  
• Compliance with labour and employment laws
  
• Adherence to safety and welfare standards
  

Failure to comply with these regulations can lead to financial penalties, legal action, and reputational damage. Hence, maintaining an audit-ready environment is not optional; it’s essential.

Key Areas Covered in Statutory Compliance Audits

Statutory audits typically focus on these major areas:

1. Payroll Compliance – Salary structure, tax deductions (TDS), and provident fund (PF) management
   
2. Tax Compliance – GST, professional tax, and income tax filings
   
3. Labour Law Compliance – Adherence to laws such as the Payment of Wages Act, Factories Act, Shops and Establishment Act, and ESIC Act
   
4. Environmental and Safety Compliance – Applicable for manufacturing or infrastructure-based businesses
   
5. Corporate Governance Compliance – Ensuring adherence to the Companies Act, 2013 provisions and related ROC filings
   

Knowing which laws apply to your business is the first step in being prepared for a statutory audit.

Payroll and Tax Compliance Checklist

Payroll is one of the most scrutinised areas during a statutory audit. HR and finance teams must ensure the following:

• Employee Records: Maintain updated employee master data with PAN, Aadhaar, bank details, and joining documentation.
• Salary Structure: Ensure that all salary components (basic pay, HRA, allowances) comply with applicable tax and labour laws.
• TDS Compliance: Verify correct tax deductions under Section 192 and timely remittance to the government.
• Provident Fund (PF): Maintain PF registers, employee contributions, and payment challans.
• ESIC Contributions: Ensure contributions are made accurately and on time for eligible employees.
• Professional Tax: Deduct and deposit as per state-specific rules.
• Form 16 and 24Q Filings: Confirm timely submission of tax forms and quarterly returns.

Tip: Automating payroll processes through a reliable payroll management system can help reduce human error and ensure 100% compliance.

Labour Law Compliance Checklist

Labour laws are a critical component of any statutory audit in India. Companies must ensure adherence to the following:

• Employment Agreements: Every employee should have a legally compliant employment contract.
• Attendance and Leave Records: Maintain records digitally or manually to verify working hours, leaves, and overtime.
• Minimum Wages Act: Ensure payment of wages according to the latest state-wise wage notifications.
• Payment of Bonus Act: Calculate and distribute bonuses to eligible employees.
• Gratuity Act Compliance: Ensure gratuity is paid to employees who have completed five years of continuous service.
• Maternity Benefit Act: Verify that benefits are provided to eligible women employees.
• Shops and Establishments Act: Maintain proper registration and renewal certificates for business premises.
• Equal Remuneration Act: Ensure gender equality in pay structure.

Tip: Schedule quarterly internal reviews with labour law services to detect and address compliance gaps before facing an external audit.

Company Law and ROC Compliance Checklist

For companies registered under the Companies Act, 2013, ROC (Registrar of Companies) filings and corporate governance requirements are mandatory.

• Annual Filings: Submit Form AOC-4 (financial statements) and Form MGT-7 (annual return) within deadlines.
• Board Meetings: Maintain records of board meetings and resolutions.
• Director KYC: File DIR-3 KYC for all directors annually.
• Statutory Registers: Maintain registers of members, directors, and shareholding.
• Auditor Appointments: Ensure that auditors are appointed and Form ADT-1 is filed.

Tip: Missing ROC deadlines attracts penalties. Set automated reminders for filing dates or outsource compliance management to professionals.

Health, Safety, and Environmental Compliance

Manufacturing and industrial companies must comply with environmental and safety regulations:

• Factory Licenses and Renewals under the Factories Act, 1948
• Pollution Control Board Approvals (Consent to Operate and Establish)
• Fire Safety Certificates
• Occupational Health and Safety Reports
• Waste Disposal Compliance Reports

Non-compliance can result in immediate shutdowns or suspension of licenses, especially for large-scale operations.

Audit Documentation Checklist

Proper documentation is the backbone of a successful compliance audit. Ensure the following are up-to-date and organised:

• Employee Records and Payslips
• PF & ESI Payment Receipts
• Tax Returns and Payment Challans
• Statutory Registers and Licenses
• Policy Documents (HR, Leave, Gratuity, etc.)
• Audit Reports from Previous Years

Tip: Store all compliance-related documents digitally to ensure easy retrieval during audits. Cloud-based compliance tools can help maintain version history and track updates.

Internal Audit and Monitoring

Conducting regular internal audits is one of the most effective ways to stay compliant. It helps detect discrepancies early and prepares the company for external inspections.

Internal audits should focus on:

• Reviewing payroll and HR documentation
  
• Validating statutory payments and filings
  
• Ensuring policy adherence and recordkeeping accuracy
  
• Checking for legal updates in labour and tax laws
  

Tip: Create a quarterly compliance calendar to assign responsibility for each compliance area to specific team members.

Common Challenges in Managing Compliance Audits

Many organisations struggle during audits due to the following reasons:

• Incomplete or outdated employee data
  
• Lack of centralised documentation
  
• Manual recordkeeping errors
  
• Unawareness of frequent legal changes
  
• Poor communication between HR, finance, and compliance teams
  

These challenges can be mitigated with automation tools, expert advisory support, and regular compliance reviews.

Benefits of Being Audit-Ready

Maintaining compliance not only avoids penalties but also strengthens an organisation’s reputation. Key benefits include:

• Legal protection from regulatory actions
  
• Improved investor confidence and transparency
  
• Enhanced employee trust through timely compliance
  
• Operational efficiency from reduced administrative work
  
• Better business continuity, even during regulatory inspections
  

Being prepared for audits reflects a company’s professionalism and ethical business practices.

Conclusion

Statutory compliance in India involves dealing with complex and evolving regulations. However, a structured checklist can make managing compliance audits much easier. By ensuring accurate documentation, timely filings, and regular internal reviews, organisations can build a strong compliance foundation and avoid unnecessary risks.

Outsourcing compliance management to professionals also helps ensure accuracy, efficiency, and peace of mind.

Stay 100% Audit-Ready with Paysquare

Managing multiple compliance requirements can be time-consuming and error-prone. That’s where Paysquare, a trusted leader in payroll and statutory compliance outsourcing, makes a difference.

With deep expertise in Indian payroll laws, labour regulations, and statutory filings, Paysquare ensures that your business remains compliant at all times. From payroll accuracy to tax filings and audit support, Paysquare takes care of everything, so you can focus on growing your business confidently.

Choose Paysquare for streamlined statutory compliance and payroll management services and audit readiness, every single time.