Starting a business in India is an exciting journey, but managing taxes can be challenging.
Many startups unintentionally make errors in tax matters that can result in fines, cash flow problems, or difficulties with regulators. This guide highlights the **top 10 most common tax mistakes made by Indian startups** and offers practical tips to help you avoid them.

1. Delaying GST Registration

Mistake: Some startups delay registration for GST, believing it’s only needed once they start making a profit.

How to Avoid: If your sales exceed the threshold (₹20 lakh or ₹40 lakh depending on your state and business type), register for GST right away.
Even service-based startups may need to register if they work with bigger companies.

2. Ignoring TDS Deduction Requirements 

Mistake: Startups often forget to deduct TDS (Tax Deducted at Source) from payments such as salaries, rent, or contractor fees.

How to Avoid: Know when TDS applies and ensure timely deduction and deposites.
It is also necessary to file TDS returns on a quarterly basis.

3. Poor Record-Keeping

Mistake: Failing to keep proper records of income, expenses, invoices, and tax-related documents.

How to Avoid: Use accounting software or hire a professional to maintain clear and organized records.
This helps simplify tax filing and protects your business in case of an audit.

4. Misclassifying Business Expenses

Mistake: Mixing personal and business expenses can draw the attendtion of tax authorities

How to Avoid: Make a clear distinction between personal and business transactions. only claim deduction for costs that are directly related to your business

5. Failing to File Income Tax Returns on Time

Mistake: Some startups delay or skip filing their ITRs, assuming they aren’t liable if they have no profit.

How to Avoid: Even if you have no taxable income, you should still file your return.
Late filing can result in fines and prevent you from carrying forward losses.

6. Not Claiming Eligible Deductions

Mistake: Startups often miss out on deductions that are available under sections like **80JJAA**, **80IAC**, or those related to research and development.

How to Avoid: Work with a tax professional to identify all available deductions and include them in your planning.

7. Incorrect GST Filings

Mistake: Submitting inaccurate GST returns or incorrectly claiming input tax credits.

How to Avoid: Always double-check your GSTR-1 and GSTR-3B before submitting them.
Regularly compare your input credit claims with the GSTR-2B to avoid notices from the authorities.

8. Not Registering Under the Startup India Scheme

Mistake: Missing out on benefits offered by the Startup India initiative, such as tax exemptions and easier compliance.

How to Avoid: Obtain recognition from DPIIT and register your startup under the scheme.
This can provide benefits like a 3-year tax holiday and better access to government tenders.

9. Improper Salary and Capital Structure

Mistake: Not setting up a clear salary or remuneration structure, which can cause issues with tax and fundraising processes.

How to Avoid: Establish a proper capital and compensation structure from the beginning.
Seek professional guidance when raising capital or issuing equity.

10. Overlooking Advance Tax Payments

Mistake: Failing to pay advance tax when required, which can result in interest penalties.

How to Avoid If your estimated tax liability for the year is more than ₹10,000, you must make advance tax payments in four installments as specified.

Conclusion:

While taxes may not be the most exciting aspect of running a startup, they are essential to your long-term growth and compliance.
Staying informed and following the rules can help you avoid costly errors and allow you to focus on growing your business. Consider working with a tax expert who understands the unique challenges faced by Indian startups.