An In-Depth Guide to Drafting Finance SOPs in India

Finance SOPs in India are a must-have to reduce fraud, streamline workflows, and help you avoid costly mistakes.

Learn with us everything you need to know about SOPs for finance and accounting in India, including their components, regulations, and how to build your own.

Understanding Finance SOPs & Their Importance

Finance SOPs Standard Operating Procedures are detailed, step-by-step written instructions that document how routine financial tasks and processes must be performed within an organization. 

Why are Finance SOPs Critically Important in India?

• Compliance: India’s complex regulations, GST, TDS, PF/ESI, and Company Law require precision. SOPs ensure every step complies, preventing costly errors. E.g., Vendor payment SOPs enforce GSTIN checks and correct TDS deductions.
• Accuracy & Consistency: Standardized processes reduce accounting errors and ensure reliable reporting. E.g., UPI/bank reconciliation SOPs help catch discrepancies early.
• Boosts Security: Clear role separation and approval steps reduce fraud risks. E.g., Dual authorization SOPs for large payments act as safeguards.
• Efficiency & Time Saving: Eliminates confusion and speeds up onboarding and workflows. E.g., Expense reimbursement SOPs clarify required documents and approvals.
• Reliable Audit Trail: SOPs mandate documentation vital for audits and assessments. E.g., sequentially numbered invoices simplify audits.
• Trust & Credibility: Consistent practices earn trust from investors, banks, and regulators. E.g., Strong SOPs boost confidence during due diligence.
• Scalability: As businesses grow, SOPs ensure consistent financial controls across locations.

Who Needs Finance SOPs in India?

Every business in India that deals with money, taxes, vendors, or payroll needs a Finance SOP.

1. Startups

For founders managing investor expectations, tax compliance, and payroll, finance SOPs are essential. They ensure regulatory adherence and support scalable growth.

2. MSMEs: Micro, Small & Medium Enterprises

Despite limited resources, MSMEs benefit greatly from SOPs. They provide control over vendor payments and invoicing, minimize errors, and strengthen audit readiness.

3. Corporations & Multi-Branch Organizations

With distributed teams, standardized financial processes are critical. SOPs ensure uniformity across locations, simplify internal audits, and support statutory compliance.

4. NGOs & Trusts

Transparency in fund utilization is crucial. SOPs help demonstrate accountability to donors and meet audit requirements.

5. Accounting & Advisory Firms

Managing diverse client portfolios requires consistency. SOPs ensure accurate handling of GST, TDS, and payroll, and also facilitate onboarding and training of new staff.

6. Fintechs & NBFCs

Operating in a tightly regulated environment, these entities must maintain impeccable compliance. SOPs support automation of KYC, settlements, and reconciliations, and ensure alignment with RBI mandates.

Core Elements of Finance & Accounts SOPs in India

Here are the core elements covered by Finance & Accounts SOPs in India:

Statutory Compliance Integration

• GST Procedures: Steps for invoice generation with mandatory fields like GSTIN, HSN/SAC, return filing, and reconciliation.
• TDS/TCS Workflows: Dedication timelines, certificate issuance, and quarterly e-filing.
• RBI & FEMA Guidelines: For foreign transactions, export invoicing, and forex management.
• Company Law: Adherence to Companies Act 2013, e.g., board approval thresholds, related-party disclosures.

Document Control

• Mandatory Records: GST invoices, signed delivery challans, PAN copies, board resolutions, and audit trails.
• Retention Periods: Aligned with Indian laws 

Approval Hierarchies

• Delegation of Authority DoA: Clear monetary limits for approvals
• Properly defined segregation of duties:

Transaction-Specific Workflows

• Procurement: Requisition → PO → Payment
• Payroll: Attendance logs → statutory deductions → net salary processing → ECR filing
• Bank Reconciliation: Daily/weekly matching of books with bank statements 

Technology & Tools

• ERP/Accounting Systems: Steps for using Tally.ERP, Zoho Books, or SAP.
• Digital Signatures: DSC usage for e-filing GST, MCA returns, or TDS.
• UPI/Bank Integrations: Secure payment gateways with dual authorization.

Internal Controls & Fraud Prevention

• Physical safeguards like locked cabinets for cheques, restricted access to financial software.
• Automated checks that flag duplicate invoices, budget overruns, or irregular transactions.
• Whistleblower channels as mandated by SEBI for listed entities.

Reporting & Audit Readiness

• Monthly closures schedule for book finalization,n e.g., inventory valuation, provision entries.
• Statutory reports formats for GST reconciliation, TDS certificates, and Financial Statements 
• Maintain audit trails by keeping logs for every transaction 

Vendor & Employee Management

• Vendor onboarding with KYC PAN, GSTIN, bank details, and MSME registration check.
• Employee reimbursements, e.g., per diems, travel bills, GST input claims.

Timeline Enforcement

• GST Returns
• TDS Payment
• PF/ESI contributions

Review & Update Mechanism

• Aligning SOPs with changing laws annually 
• Maintaining logs of staff SOP training sessions

Drafting Finance SOPs in India: Simplified Process

Creating a Finance Standard Operating Procedure may seem complex, but it’s about documenting clear, step-by-step financial processes your team can follow with consistency.

Here’s a simplified breakdown of the process:

Step 1: Identify and Map Finance Processes

Begin by listing all financial activities your business handles regularly. Collaborate with your finance and accounting teams; they often know exactly where inefficiencies or risks lie.

The activities may include:

• Vendor payments
• GST return filing
• Payroll processing
• Staff reimbursements
• TDS calculations and deductions
• Bank reconciliations

Step 2: Define the SOP’s Objective and Scope

Articulate:

• Purpose: What is this SOP designed to achieve?
• Scope: Which departments, processes, or roles does it apply to?

Example:

This SOP outlines the procedure for vendor invoice processing, covering receipt, verification, approval, payment, and GST input credit under applicable Indian tax laws.

Step 3: Break Down Each Process into Clear Steps

Document each task in a simple, logical sequence. The goal is to ensure anyone, even a new team member, can execute the task without confusion.

Use numbered steps for clarity. You can also use a flowchart to make the process easier to understand.

Example: Vendor Invoice Processing

1. Receive invoice via email
2. Verify GST number on gst.gov.in
3. Match the invoice against the Purchase Order in Tally
4. Route to the accounts manager for approval
5. Process payment through net banking
6. Record a transaction in accounting software

Step 4: Assign Clear Roles and Responsibilities

Define who is responsible for each task. 

Example: 

Step 5: Include Compliance References

SOPs must align with relevant Indian laws and regulations. Cite applicable sections or rules.

Key regulations to reference:

• Goods and Services Tax (GST)
• Income Tax Act
• Companies Act
• RBI Guidelines (for NBFCs and fintech companies)

Example:

As per Section 194C of the Income Tax Act, a 2% TDS must be deducted for contractor payments exceeding ₹30,000 per invoice.

Step 6: Attach Relevant Templates and Forms

Make your SOP practical by linking to required formats and tools.

Examples:

• GST-compliant invoice template (Excel or Google Sheets)
• Standard payment voucher format
• Payroll calculation sheet
• Bank reconciliation format

Step 7: Choose the Right SOP Format

Select a tool that suits your team’s workflow:

• Google Docs – Easy to update and share
• Notion / Confluence – Great for digital teams and versioning
• Tally / Zoho Books – Embed SOPs within the finance system itself

Step 8: Test, Refine, and Train

Pilot the SOP in real scenarios:

• Are all steps easy to follow?
• Does the process match real-world needs?
• Are there any bottlenecks or missing details?

Once finalized, train all relevant team members. Don’t assume people will figure it out on their own.

Step 9: Maintain Version Control and Regular Updates

Finance laws and internal processes evolve. Your SOPs should too.

Review SOPs every 6–12 months, or whenever any of the following occur:

• Changes in GST rules
• Updates to income tax thresholds
• Modifications in your internal workflows or software

Types of Accounts & Finance SOPs

Here are the main types of Finance SOPs that can be created and used in an organisation:

How Can PKC Help You With Finance & Accounts SOPs?

✅Specialized financial management SOPs for accurate budgeting processes

✅Expert consultants with cross-industry finance SOP experience

✅Customized accounting procedures tailored to your requirements

✅Real-time financial control systems with step-by-step documentation

✅Training programs ensuring staff compliance with financial SOPs

✅Regular SOP reviews and updates for evolving compliance

✅Audit-ready documentation with transparent financial process mapping

✅Collaborative approach involving key financial stakeholders

✅Ongoing maintenance support for long-term SOP effectiveness

Key Considerations for Effective SOP Implementation in India

When implementing finance SOPs in India, here are a few things you must consider: 

Keep It Simple

Use plain English/Hindi and flowcharts for easier understanding. 

Avoid legal jargon. For example,  instead of “Sec 43B(h) compliance”, write “Pay MSMEs within 45 days”

Involve the Right People

Include CAs (legal checks), process owners (e.g., AP Manager), and ground staff (Tally operators).

For a business with operations in multiple states, add state-specific experts for local levies.

Align With Your Tools

Match SOPs to tools like Tally (GST invoices), GSTN portal (filing), or Razorpay (payments).

Add screenshots of e-filing steps for clarity.

Add Controls & Checks

Your SOP should help prevent mistakes and fraud.

Add:

• Approval levels (₹10K by finance exec, ₹1L by CFO)
• Mandatory documents (invoice, PO, approval email)
• Dual sign-off for payments over a limit
• Audit trail tracking

This is critical for companies with multiple users or remote teams.

Set Review Timelines

Each SOP should mention when to review it. Put this at the bottom:

•   Last updated: April 2025
•   Next review due: October 2025

Create a Central SOP Repository

Use cloud storage with version history for your SOPs. It makes it easier to track changes.

Test the SOP Before Rollout

Pilot with one branch/vendor category and then measure time/error rates.

Gather feedback and incorporate changes into the SOP.

Train Your Team

Even the best SOP is useless if your team doesn’t follow it.

Run a simple training session where you take the team through the SOP, explaining each step and answering doubts. 

Record the session for new hires

Track Compliance

Keep an eye on due dates and penalties. Every month, go over this with your group.

Assign One SOP Owner

Designate a Compliance Manager/CA to update SOPs and resolve queries.

How Often Should You Review Finance SOPs in India?

In India, it is preferable to review finance SOPs at least once a year. However, several variables can affect the frequency

Annual Review (Mandatory):

Align with the financial year-end to incorporate:

• Union Budget changes -tax rates, compliance rules, etc.
• Companies Act/RBI updates
• Ind AS/accounting standard revisions

Event-Triggered Reviews (Immediate):

• GST Council announcements, e.g., new HSN codes, e-invoicing thresholds
• MCA warnings on CSR spending and board approval limits
• RBI circulars, e.g., FEMA revisions, NACH mandates
• Audit Findings 

Quarterly Checks (Advisory):

Verify high-risk SOPs, such as those pertaining to payroll, TDS, GST, and post-filing deadlines.

Frequently Asked Questions

1. Why are Finance SOPs critical in India?

They ensure compliance with laws like GST, TDS, and the Companies Act to avoid penalties. SOPs also standardize processes across teams for accuracy and audit readiness.

2. What must Indian Finance SOPs include?

Mandatory elements: GST invoice checks, TDS timelines, approval hierarchies, and MSME 45-day payment rules. Tools and compliance deadlines must be specified.

3. How often should SOPs be updated?

Review annually post-Budget; update within 48 hours of GST Council changes. Trigger immediate revisions for MCA/RBI circulars or audit findings.

4. How to train teams on SOPs effectively?

Conduct workshops in regional languages (e.g., Hindi/Tamil). Simulate GSTN/e-filing workflows for hands-on practice.

5. When to review high-risk Finance SOPs?

It is a good practice to review high-risk finance and accounting SOPs, such as GST/TDS, quarterly.