Startup Tax Compliance Checklist: Year One

Operating a startup in India requires navigating a multi-layered regulatory stack across incorporation, business licensing, monthly tax payments, quarterly reporting, and annual corporate audits. This comprehensive first-year compliance checklist outlines the legal, tax, and labor obligations under the Companies Act 2013, Income-tax Act, GST Act, and labor laws, helping founders avoid severe non-compliance penalties.

Phase 1: Immediate Post-Incorporation Compliance (Days 1–30)

Once you receive your Certificate of Incorporation (COI) from the MCA (Ministry of Corporate Affairs), the first 30 days are critical for establishing your legal and financial presence:

1. Open a Current Bank Account: Startups must open a corporate current account. Under RBI KYC (Know Your Customer) guidelines, you must submit the COI, PAN of the company, Memorandum of Association (MOA), Articles of Association (AOA), Board Resolution authorizing account operations, and PAN/Aadhaar of the authorized directors.
2. Appoint First Statutory Auditor (Section 139): The Board of Directors of a company must appoint the first Statutory Auditor (a practicing Chartered Accountant) within 30 days from the date of registration. If the board fails, the shareholders must appoint the auditor at an Extraordinary General Meeting (EGM) within 90 days. The appointment is filed with the ROC in Form ADT-1.
3. File Disclosure of Director's Interest (Form MBP-1): Every director must disclose their concern or interest in other companies, LLPs, or firms in the first board meeting of the financial year, filed in Form MBP-1.
4. Declaration of Commencement of Business (Form INC-20A): Under Section 10A of the Companies Act, a company cannot commence any business or exercise borrowing powers until directors file a declaration confirming that every subscriber to the MOA has paid the value of the shares agreed to be taken by them. This form must be filed within 180 days of incorporation; failure leads to severe company fines and potential strike-off.

Phase 2: Post-Incorporation Registrations and Licenses

Depending on the nature and scale of operations, a startup must secure several registrations before issuing its first B2B invoice:

• GST Registration: Mandatory if aggregate annual turnover crosses Rs. 40 lakh for goods or Rs. 20 lakh for services. However, if you sell goods inter-state or through e-commerce portals, registration is compulsory under Section 24 from day one with zero threshold. Apply online in Form REG-01.
• TAN (Tax Deduction and Collection Account Number): Mandatory for every business entity that is liable to deduct tax at source (TDS) on salaries, contractor bills, professional fees, or rent. Quote this 10-digit alphanumeric number on all TDS challans and returns.
• MSME / Udyam Registration: Registering on the government's Udyam portal classifies the startup as a Micro, Small, or Medium Enterprise. MSME status provides critical protection against delayed client payments under Section 15 of the MSMED Act (clients must pay within 45 days of acceptance of goods/services; failure triggers interest at 3x the RBI rate and disallowance of the expense for the client under Section 43B(h) of the Income-tax Act).
• Professional Tax (PT) Registration: Professional tax is a state-level tax levied on trades and employment. Startups must obtain PT registration (Employer's PT Enrollment Certificate and Employee's PT Registration Certificate) within 30 days of hiring employees, with monthly/annual filings depending on the state.
• Shop and Establishment License: Obtained from the local municipal authority/labor department where the office or shop is located, within 30 days of starting operations.
• Import Export Code (IEC): Mandatory if the startup plans to import raw materials or export goods/services. Granted by the Directorate General of Foreign Trade (DGFT).

Phase 3: Recurring Monthly Compliance Stack

To maintain portal accesses and avoid interest penalties, accounting teams must follow a strict monthly schedule:

Phase 4: Quarterly compliance (Advance Tax & TDS Returns)

Every quarter, startups must estimate their income, pay advance tax, and file detailed tax withholding statements:

• Advance Tax Installments (Section 208): If the company's estimated net tax liability exceeds Rs. 10,000 in a financial year, it must pay advance tax in four instalments: 15 June (15%), 15 September (45%), 15 December (75%), and 15 March (100%). Delayed payments attract interest under Sections 234B and 234C.
• Quarterly TDS Returns: File Form 24Q (TDS on salaries) and Form 26Q (TDS on non-salaries) on or before the last day of the month following the quarter-end (31 July, 31 October, 31 January, and 31 May). Non-filing attracts a late fee of Rs. 200 per day under Section 234E.
• Quarterly Board Meetings: Under Section 173 of the Companies Act, every startup (which is not classified as a Small Company or One Person Company) must hold at least four Board Meetings in a calendar year, with a maximum gap of 120 days between two consecutive meetings. Small companies must hold at least one board meeting in each half of a calendar year, with a gap of not less than 90 days.

Phase 5: Annual Tax, Statutory Audits, and MCA Reporting

At the close of the financial year, startups must close their books, undergo statutory audits, and file detailed corporate disclosures:

1. Statutory Audit (Companies Act 2013): Every registered company must have its financial accounts audited by a practicing Chartered Accountant, regardless of its turnover or profit status. Even inactive/loss-making companies must undergo statutory audit.
2. Tax Audit under Section 44AB: Mandatory if the startup's annual business turnover exceeds Rs. 10 crore (where cash transactions are under 5%) or Rs. 2 crore (in other cases). Filed in Form 3CD by 30 September.
3. Holding the AGM (Section 96): The Annual General Meeting (AGM) must be held within 6 months of the close of the financial year (typically by 30 September). For newly incorporated companies, the first AGM must be held within 9 months from the date of closing of the first financial year.
4. Filing Company Accounts (Form AOC-4): Upload audited balance sheets, profit & loss statements, director's report, and statutory audit reports to the MCA portal in Form AOC-4 within 30 days of the AGM.
5. Filing Company Annual Return (Form MGT-7): File the company's annual return containing details of shareholders, directors, and share capital in Form MGT-7 within 60 days of the AGM.
6. Filing Income Tax Return (ITR-6): Companies must file their ITR-6 return on or before 31 October. LLPs must file ITR-5.

Startup India Recognition (DPIIT) and Tax Exemptions

Startups can unlock substantial tax and regulatory exemptions by registering with the Department for Promotion of Industry and Internal Trade (DPIIT):

• Section 80-IAC Tax Holiday: Eligible startups can claim a 100% tax exemption on profits for 3 consecutive financial years out of their first 10 years of operations. Conditions: The startup must be recognized by DPIIT, incorporated as a Private Limited Company or LLP between 1 April 2016 and 31 March 2025, and have a turnover not exceeding Rs. 100 crore. Apply to the Inter-Ministerial Board (IMB) for certification.
• Angel Tax Exemption (Section 56(2)(viib)): Under Section 56(2)(viib) of the Income-tax Act, if a company issues shares to investors at a premium exceeding the Fair Market Value (FMV), the excess premium is taxed as "Income from Other Sources" (commonly known as Angel Tax). Recognized startups are exempt from Angel Tax, provided their aggregate paid-up share capital and share premium after the issue does not exceed Rs. 25 crore, and they file a declaration in Form 2 on the DPIIT portal.

Summary Compliance Timeline for a First-Year Startup