The process of starting a business in India has much more than product development, customer acquisition, and fundraising. Timely and proper compliance with taxes is one of the most significant activities of any start-up.

Most startups are very concentrated in their initial stages of growth and end up neglecting their tax payments. Nevertheless, the slightest mistakes or failure to meet the deadlines may result in fines, extra interest, official fines, and unjustified financial pressure.

A tax compliance checklist will assist the start up to be organised and prevent legal complications and give the start up a good base to grow further.

Securing Mandatory Tax Registrations

The initial action to comply with taxes is to acquire all the required registrations immediately after incorporation.

Any startup will have to acquire:

• Permanent Account Number (PAN)
• Tax Deduction and Collection Account Number (TAN).

Additional registrations can also be needed depending on the nature of the business.

To illustrate, a startup will be required to register as per GST provided that:

• It has a higher turnover than what is stipulated.
• It is the sale of goods or services between states.
• It has e-commerce operations.

Registrations under Provident Fund (PF), Employee State Insurance (ESI), and Professional Tax are also mandatory for startups that have employees.

• Provident Fund (PF)
• Employee State Insurance (ESI)
• Professional Tax, as applicable.

By having those registrations early, it can save time and compliance problems in the future.

Maintain Proper Books of Accounts

One of the best things about tax compliance is accurate bookkeeping.

Any business start up is expected to keep precise and updated records of:

• Sales and income
• Expenses
• Bank transactions
• Invoices
• PayrollInvestments and loans

Having good books of accounts is one way of making sure that the tax returns are being filled properly and the financial statements are showing the true status of the business.

It is possible to simplify this process with the help of accounting software and minimize the threat of mistakes.

Comply with GST Requirements

The most significant compliance area of Indian startups is Goods and Services Tax.

Upon registration under GST, a startup will have to:

• Issue GST-compliant invoices
• Collect GST, where necessary.
• Turn in the file GST on time.
• Balancing purchase and sales records.

GST returns might be required to be submitted monthly or quarterly depending on the nature of business.

Failure to file within the stipulated deadline may attract fines and interest. Moreover, non-conformity to the GST requirements may have an impact on the capacity of the startup to receive input tax credit.

Startups need to also check on a regular basis the GST rate that applies on the product or service that they provide.

Deduction and Deposit TDS.

When a startup remits some payments to its employees, professional fees, rent or even payments to its contractors, it can be obliged to take off Tax Deducted at Source (TDS).

The amount so deducted must be deposited with the government in the stipulated period of time.

Besides, the startup will need to:

• File TDS returns
• Grant employees or vendors issue TDS certificates.
• Maintain supporting records

Most startups fail to meet TDS requirements at the beginning because they need to hire freelancers, consultants, or agencies. Non-compliance may, however, attract penalties and disallow business expenses.

Remittance of Advance Tax

Startups with a tax liability that is likely to exceed the stipulated limit must pay advance tax in installments throughout the year.

In most cases, there are four installments of payable advance tax.Interest can be paid in case the amount required is not paid within the due time.

Most start-ups are waiting for the expiry of the financial year when they calculate their taxable income but on realization that they owe a lot of interest. This can be prevented by monitoring profits on a regular basis.

Submit Income Tax Returns in Time.

All startups are required to submit an annual income tax filing although the venture may not have earned substantial income.

The turnover ought to encompass:

• Earned income of the year.
• Expenses and deductions
• Tax paid
• Financial statements

The filing requirements can vary depending on the organisation of the startup.

The companies also might be required to make annual returns to the ministry of corporate affairs.

The significance of filing on time is that the late returns are subject to penalties and also future fundraising, bank loans and investor due diligence may be impacted.

Monitor Startup-Specific Tax benefits.

Some of the startups that are eligible can receive tax incentives in the Startup India initiative.

Recognised startups can be in a position to claim:

• Tax holiday benefits
• Exemptions on capital gains
• Relief from angel tax provisions

Nevertheless, such benefits are provided under the condition that the startup should comply with certain requirements, eligibility criteria, and adhere to the necessary procedures.

Most startups are failing to take these opportunities because they are not even aware of them.

Staying Prepared for Taxes and Audits

Even the most diligent and cooperative startups can occasionally receive notices from tax authorities. Maintaining a proactive stance is essential for handling such inquiries without disrupting business operations.

The majority of these official notices typically concern the following areas:

• Inconsistencies or errors in GST or TDS entries.
• Delayed filings of statutory returns.
• Incomplete or missing documentation required for verification.

It is highly advantageous to keep all corporate records systematically organized and updated. Having a structured filing system ensures that whenever a need to respond to an inquiry arises, the required information can be provided quickly and accurately to the authorities.

Furthermore, as a startup expands its operations and turnover, it may become subject to mandatory tax audits. Undergoing an audit is a formal process that verifies the accuracy of financial statements and tax compliance. By establishing robust internal controls early on, startups can navigate these audits smoothly and demonstrate financial transparency to stakeholders and investors.

Even cooperative startups can sometimes be given notices by tax authorities.

The majority of notices concern:

• Wrong GST or TDS entries.
• Delayed filings
• Incomplete documentation

It is also more convenient to keep all the records in order and updated so that whenever the need to respond arises, the answers are quickly and accurately provided.

Some of the startups can also be subjected to a tax audit as the business expands.

Final Thoughts

Compliance with tax is not a legal necessity only but a necessity in creating a stable and credible business. Start-ups that remain organised, keep good records and submit returns in time are in a better position to grow, access funds and achieve success over a long period of time.

To prevent the imposition of fines and other complications, it is possible to create a compliance calendar and review the obligations regularly to avoid penalties and other unnecessary complications in startups.

We at Badami & Kamath Chartered Accountants, provide assistance to startups to achieve easier tax compliance, filing, and strategic advice that can help them grow their business sustainably.