Due Diligence

TDS which is the abbreviation for Tax Deducted at Source is the advance tax paid by entity/ individual responsible for making payments of professional fee, contract payments, salary, interests, royalty, and dividends among others as per the appropriate tax slabs to Government on behalf of the payee.

  • Scope framing for due diligence.
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  • Liaising with Govt. Authority.
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What is Due Diligence?


Before any major transactions, whether they be a new investment, merger, amalgamation, acquisition, strategic partnership, business sale, bank loan funding and also while hiring for any key managerial persons, it is imperative that an effort is made to gather all relevant information that is likely to affect the negotiation and decision is Due Diligence. It is an integral part of the business transactions in these days. The transaction may be small-scale or a full-fledged million dollar deal; all require this at some stage.

The aim of this 360-degree orderly investigation is to be aware of all the potential risks that the transaction may expose the parties to in future. Hence this forms an essential step before the deals are closed.

What is the Importance of Due Diligence?


It helps in preventing any unpleasant surprises that might fall in the way after the deals are closed. It is imperative that due diligence is conducted for the following reasons, among many:

  • It provides an ease in deciding the negotiation value. The negotiating team of the transaction to take on critical decisions pertaining to the said transaction. Due diligence process allows negotiating team to strategize the course of action and terms of negotiations going forward.
  • It can help to negotiate more favorable terms like reduction in the price, deferral of the purchase price, retention of part of the purchase price to improve the cash flow of Acquirer etc.
  • Due diligence aids in managing risk by helping in drawing up any Conditions precedent and Conditions Subsequent that may be required for the smoother transaction.
  • It is capable of identifying any potential deal-breakers which help the parties to focus upon the same while negotiating.
  • It provides critical inputs on the trustworthiness of the parties.
  • It most importantly allows the parties to determine whether the proposed transaction and the approach being followed is apt as per the objectives of Parties.
  • Thus it facilitates the decision-making process.
  • Due diligence reports also determine what steps are essential to be taken post the execution of the transactions.
  • It alerts the parties of the possible financial or legal issues that may arise and reduce the burden which can then either be mitigated prior to closing the transaction or plans can be formulated for post-closing actions.

What are the types of Due Diligence?


Operational Due Diligence

One must obtain a thorough understanding of the following extensively through various modes:

  1. Business Model
  2. Business operations
  3. Number of Employees
  4. Number of Customers
  5. Vendor, Production and Machinery Information
  6. Utilities etc

Tax Due Diligence which includes following

  1. Calculations of Income-tax liability, Tax return filed and paid.
  2. ESI / PF
  3. TDS payments
  4. Current tax position analysis
  5. Tax impact assessment
  6. Tax saving opportunities
  7. Identification of options for tax-neutral deal structuring etc

Financial and Accounting Due Diligence shall include many details similar to following:

  1. Verification of bank statements, cash flow information and financial statements against the transactional information
  2. Verification and valuation of all the assets and liabilities
  3. Review of business plan
  4. Business valuation
  5. Deal financing for proposed Transaction
  6. Feasibility analysis and future prospects
  7. Financial & management accounts analysis
  8. Trend analysis of revenue and cost
  9. Analysis of previous trends and forecasts

Legal Due Diligence

Relates to complete assessment of the possible legal risks related to the assets, securities, intellectual property, corporate status, contracts, employment of key managerial persons and personnel and other litigations pending for the parties.

Regulatory Due Diligence

To ensure that all of the regulatory requirements in the jurisdiction where the parties operate are being complied with. The reason being the potential debt arising firm non-compliance shall be borne by the future owners.

Environmental Due Diligence

Which is as important as the others in the category. Environmental laws and related policies are being given high importance today which thus affects the credibility of the parties.

People Due Diligence

Is also of importance since people serve as primary resources. It includes study about the employment and educational history, credibility, terminations, payments and contracts, references etc for individuals.

How Due Diligence process carried out?


There is no defined law or process defined for Due Diligence. it has thus, evolved from practice, experiences and requirements of the transaction. The common steps that are followed for most transactions are following:

  1. Deciding on the scope of due diligence which includes areas to be covered and the general timelines to be adhered to. This shall include drawing up the checklist which set out the process and expectations;
  2. Obtaining the required documents relating to the process;
  3. After a complete check-up, identifying the major issues that concern the transaction;
  4. Preparing a detailed report as per requirements of the parties.

Which professionals are involved in the process of due diligence?


Due diligence cannot be conducted by an individual person. According to its nature and depth, it requires various professionals who may be: investment bankers, corporate lawyers, Chartered Accountants, Analysts working in PE and VC firms, Loan officers in banks, company secretaries, HR managers, operations managers, accountants etc. These are the people who have detailed knowledge of the process and how to make sense out of the results.

Duration for Due diligence entirely depends on the nature of transaction and magnitude of information to be assessed. We believe that no transaction is less important and every due diligence must be conducted with persistence. Thus, timelines cannot be determined without carefully examining individual case file and understanding the requirements. 

For comprehensive reporting, the process of Due Diligence is required to be carried out in an exhaustive manner but in complete secrecy. It requires a highly specialized skill of experienced professionals who are able to conduct an in-depth analysis of risks and gains in the best interest of the client.

We are highly committed to providing an unbiased, professionally sound, perspective and confidential which shall be ideal to complement the client’s internal resources and his requirements.

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