GST Compliance Checklist for Startups in India: The Complete Guide

For an Indian startup, treating GST compliance as an afterthought is the first, and perhaps most costly, mistake you can make. This isn’t just “paperwork” or “something the accountant handles.” GST is a core business function, a silent partner in your venture that directly impacts your cash flow, your product pricing, your supply chain, and your very legal standing. Ignoring it is like building a skyscraper on a weak foundation.

We know you’re not a tax expert, and you shouldn’t have to be. In this is a detailed article we provide , practical checklist for founders, by founders and tax professionals. We are here to help you to get the exact rules you need to follow, and the step-by-step actions to take to keep your startup safe, compliant, and ready for growth.

1. The First Hurdle: Do You Even Need GST Registration?

Don’t assume you are too small for GST. The rules are not just about your total sales. First, you must understand what “Aggregate Annual Turnover” means. It includes the total value of:

• All your taxable sales.
• All your exempt sales (even if no tax is charged).
• All your export sales.
• All sales from different branches under the same PAN.

The Turnover-Based Rule:

• For Services:** If your total annual turnover (all-India) crosses **₹20 lakh**, you must register. (For special category states like Mizoram, Manipur, Nagaland, this limit is ₹10 lakh).
• For Goods: The limit is higher. You must register if your annual turnover crosses **₹40 lakh**. (For special category states, this is ₹20 lakh).

The Compulsory Registration Rules (The Startup Trap!):

This is what most new businesses miss. You must register for GST, irrespective of your turnover, if you do any of the following:

• Make Inter-State Sales: If you are based in Delhi and sell even ₹1 of goods or services to a client in Gurgaon (Haryana), you must get GST registration.
• Sell on E-Commerce Platforms: If you plan to sell your products on Amazon, Flipkart, Myntra, or any other e-commerce marketplace (as per Section 9(5)), you need a GSTIN from day one, even before your first sale.
• Are a Casual Taxable Person: If you are setting up a temporary stall or pop-up shop at an event or exhibition in another state.
• Pay Tax under Reverse Charge: If you are required to pay GST under the Reverse Charge Mechanism (RCM).
• Are an Input Service Distributor (ISD) or a non-resident taxable person.

Professional Advice: Even if you are not legally required to (based on GST registration eligibility), you might *choose* to register voluntarily.

Pro: You can claim Input Tax Credit (ITC) on your business purchases (like laptops, software, office rent).

Con: Your compliance burden begins immediately. You must file regular returns.

The Verdict: If your customers are other businesses (B2B), you will likely have to register. No business will buy from you if they can’t claim GST credit on your invoice.

2. Your First Big Choice: Regular Scheme vs. Composition Scheme.

Once you decide to register, you have a choice. This decision impacts your taxes and compliance for the entire year.

The Startup Verdict: 99% of tech-enabled startups, B2B businesses, and any company with plans to scale must choose the Regular Scheme. The Composition Scheme is only for small, local B2C businesses that do not need to claim ITC. This choice also relates to your overall business structure as a startup.

3. The Core GST Compliance Checklist: Your Routine.

This is the day-to-day, month-to-month work. Get this right, and you will be fine.

✅ Phase 1: Initial Setup (One-Time).

• Get your GSTIN: Apply on the official GST portal. See our guide on Online GST Registration.
• Pro-Tip: Get a separate business current account before applying. It keeps your finances clean.
• Display your Certificate: You must display the GST registration certificate in a prominent place at your principal place of business.
• Display GSTIN on Signboards: Your business name and GSTIN must be on a signboard at your office entrance.
• Update Invoices: Your GSTIN must be on all your Tax Invoices, letterheads, and other business documents.
• Get Accounting Software: Do not try to manage GST on Excel. Invest in a good, GST-compliant accounting software (like Tally, Zoho Books, etc.) from day one.

✅ Phase 2: Daily Compliance (Invoicing).

Your invoice is the single most important document in GST.

A valid Tax Invoice must have:

• Your business name, address, and GSTIN.
• The customer’s name, address, and GSTIN (if they are registered).
• A unique, sequential invoice number.
• Date of issue.
• HSN Code (for goods) or SAC Code (for services): This is a mandatory classification of your product or service.
• Description of goods/services.
• Taxable value, rate of tax (CGST, SGST, IGST), and total tax amount.
• Place of Supply (This determines if it’s IGST or CGST/SGST).

The E-Invoicing Alert! (Critical for 2025)

This is no longer just for large companies.

• The Rule: If your aggregate annual turnover (in any financial year from 2017-18 onwards) exceeds ₹5 crore, you are mandatorily required to generate e-invoices.
• What this means: You cannot use your regular Tally or Zoho invoice. You must first upload your invoice data to the government’s Invoice Registration Portal (IRP), which will validate it and return a unique Invoice Reference Number (IRN) and QR code. Only an invoice with this QR code is considered valid.
• New Notification: If your turnover is over ₹10 crore, from April 1, 2025, you have only 30 days from the invoice date to upload it to the IRP.

✅ Phase 3: Monthly & Quarterly Compliance (Filing Returns).

This is where you report your sales, claim your ITC, and pay your taxes.

First, which one are you?

• Monthly Filer: If your turnover is above ₹5 crore.
• Quarterly Filer (QRMP Scheme): If your turnover is up to ₹5 crore. This is the default for most new startups, and highly recommended.

Understanding the Returns:

• GSTR-1: This is your Sales Report. You list all your invoices here.
• GSTR-3B: This is your Summary & Payment Report. You declare your total sales, total ITC claimed, and pay the final tax.
• GSTR-2B: This is your Purchase Report. It is auto-generated by the GST portal and shows all the invoices your suppliers have filed against your GSTIN. You can only claim ITC for invoices that appear in your GSTR-2B.

The Reverse Charge Mechanism (RCM) Trap:

For some specific purchases, you (the buyer) have to pay the GST, not the seller. The common ones for startups are:

• Services from a Goods Transport Agency (GTA).
• Legal fees paid to a lawyer or law firm.
• Services imported from a foreign company (e.g., your Google Ads, AWS, or Stripe bill).

You must pay this GST in cash (you can’t use ITC) and then you can claim it back as ITC in the next month.

✅ Phase 4: Annual Compliance (Year-End).

After the financial year ends, you have two main filings.

• GSTR-9 (Annual Return): This is a consolidated summary of all your monthly/quarterly returns.

  – Mandatory: If your annual turnover is above ₹2 crore.

  – Optional: If your turnover is up to ₹2 crore.

• GSTR-9C (Reconciliation Statement): This is a self-certified statement reconciling your GSTR-9 with your audited financial statements.

  – Mandatory: If your annual turnover is above ₹5 crore.

Due Date: The deadline for both is December 31st following the end of the financial year.

4. The Secret to Saving Money: Input Tax Credit (ITC).

This is the biggest benefit of GST. Mastering Input Tax Credit (ITC) is key.

In simple terms: GST you pay on your business purchases (inputs) can be used to reduce the GST you owe on your sales (outputs).

But you can’t claim it for everything. First, you must follow the 4 Golden Rules for Claiming ITC:

1. You must have a valid Tax Invoice from your supplier.
2. You must have received the goods or services.
3. Your supplier must have filed their GSTR-1 and paid the tax. This is critical. The invoice must appear in your GSTR-2B report on the portal. If your supplier doesn’t file, you can’t claim the credit.
4. You must have filed your own GSTR-3B return.

Pro-Tip: Reconcile your purchase invoices with your GSTR-2B every single month before filing your GSTR-3B. This single habit will save you thousands in lost ITC and prevent future notices.

The “Blocked Credit” List (Section 17(5)).

The government has “blocked” ITC on certain expenses. You cannot claim GST paid on:

• Motor Vehicles: GST on cars or other passenger vehicles (unless you are in the business of selling cars or running a transport service).
• Food and Beverages: GST on team lunches, client dinners, or outdoor catering.
• Club Memberships: GST on gym, club, or health and fitness memberships.
• Employee Insurance: GST on life insurance or health insurance (unless it is made mandatory by the government).
• Construction: GST on works contracts for constructing an office or building.
• Free Samples: Goods lost, stolen, destroyed, or given away as gifts or free samples.

5. Record Keeping: Your Proof for the Taxman.

If you get a notice, your records are your only defence.

• What to keep: All sales invoices, purchase invoices, payment vouchers, credit notes, debit notes, stock registers, and ITC records.
• How long to keep them: You must maintain all records for a minimum of 6 years from the due date of filing the annual return for that year.
• Where to keep them: At your principal place of business, as declared in your GST registration.

6. What Happens if You Ignore All This? (The Penalties).

The system is automated, and penalties are non-negotiable.

• For Late Filing: A late fee of ₹50 per day (₹25 CGST + ₹25 SGST) for GSTR-1 and GSTR-3B. For *Nil* returns, it is ₹20 per day.
• For Not Paying Tax: This is the most dangerous. You have to pay interest at 18% per year on the outstanding tax amount. This can destroy your cash flow.
• For Incorrect Invoicing: Penalties can be up to ₹25,000 per invoice.
• For Not Registering: A penalty of 10% of the tax due or ₹10,000, whichever is higher.
• Other Consequences: Non-compliance can lead to your e-way bill generation being blocked, and persistent failure can lead to the cancellation of your GST registration. Claiming fake ITC, even unknowingly, can lead to severe penalties and prosecution.

Final Professional Advice for Founders.

1. Hire a Professional: Get a good Chartered Accountant (CA) or tax consultant before you register. Do not hire the cheapest option; hire someone who is responsive, understands startups, and uses modern tools. This is more important than your initial company incorporation.
2. Automate: Use good accounting software. It is a necessary cost, not a luxury.
3. Reconcile: Make it a monthly habit to reconcile your purchase invoices with your GSTR-2B. This ensures you never lose ITC.
4. Pay on Time: Even if you make a mistake in your filing, never default on paying your tax liability. The 18% interest is a killer.

GST compliance is not a burden; it’s the foundation of a scalable and legal business. Get it right from day one, and you will save yourself sleepless nights and massive penalties down the line. For more detailed guides on GST returns or GST registration, visit our experts at taxgst.in.