Year-End Income Tax Compliances for Indian Startups: What You Need to Complete Before March 31, 2025

Overview : This guide outlines the essential income tax compliance requirements for Indian Companies, LLP and other startups before and after March 31, 2025, explained in simple terms. As the financial year 2024-25 comes to an end, entrepreneurs are preparing to fulfil their year-end compliance obligations. For startups and small businesses, income tax would seem a little technical and burdensome while focusing on growth. However, being aware of the compliance requirements is also essential.

Why Income Tax Compliance Matters

View tax compliance as the most critical compliance and essential for the continuing growth of the startup after incorporation of company or LLP Registration. Investors closely examine your financial and compliance management, and messy tax affairs can raise red flags for potential investors, partners, and customers. For example, Rahul, the founder of a SaaS startup in Bangalore, missed a significant funding opportunity due to non-compliance with tax laws, irregular tax filings and pending notices, which investors interpreted as poor compliance management.

You should avoid similar situations and pay attention to tax and regulatory compliance for your company. Setindiabiz has a robust team to help you achieve the required efficiency in the tax and regulatory compliance process, keeping the cost of meeting mandatory compliances low.

Advance Tax

The fourth and final instalment of advance tax for FY 2024-25 is due on March 15, 2025. This isn't just another deadline—it's your last opportunity to accurately estimate your annual income and pay the corresponding tax before the financial year ends.

• Many first-time entrepreneurs make the mistake of thinking income tax is something to worry about only when filing returns. This couldn't be further from the truth. The Income Tax Act requires you to pay tax as you earn income, not just at the end of the year. That's why the advance tax system exists.
• If your expected tax liability for the year exceeds ₹10,000, you're required to pay advance tax in instalments. By mid-March, you should have already paid 75% of your estimated annual tax liability through the first three instalments. The final instalment requires you to pay the remaining balance based on your updated income projections.
• Missing this deadline or underpaying can be costly. Interest penalties under Sections 234B and 234C accrue at 1% per month on the unpaid amount. For a startup with an annual tax liability of ₹10 lakhs, even a three-month delay means an additional ₹30,000 in interest—money that could be better invested in your business.

The MSME Payment Compliance

Under Section 43B(h) of the Income Tax Act, payments to Micro and Small Enterprises (MSEs) must be made within the time specified in the MSME Development Act to claim tax deductions in the current financial year.

• The MSME Act generally requires payments to be made within 45 days from the date of acceptance of goods or services. If you delay these payments beyond this period and into the next financial year, you can only claim the deduction in FY 2025-26—even if the expense relates to the current year.
• This requirement mainly affects tech startups and service companies that work with numerous small vendors and service providers. Take a moment to review all your outstanding payments to vendors. Check which ones qualify as MSMEs (they should have a Udyam Registration Certificate ) and prioritise clearing these dues before March 31, 2025.

Tax-Saving Investments and Expenditures: The Year-End Rush

March is when everyone suddenly remembers their tax-saving investments, and startups are no exception. If your business operations allow for timing flexibility on certain expenses, the year-end can be a strategic time to incur them. For the startup as an entity, consider whether any planned business expenditures can be accelerated into the current financial year. These might include:

• Equipment or Asset Purchases : Equipment upgrades you've been considering can be purchased before March 31 instead of in April. If you're planning to expand your office space or refurbish existing premises, completing these before year-end allows you to claim depreciation for the current year.
• Software Renewals : Renewing software subscriptions or professional memberships before they expire (even if the expiry falls in the next financial year) can give you an additional deduction in the current year.
• Employment Matter : For you as an individual and for your employees, personal tax-saving investments under Section 80C must be completed before March 31 to be eligible for deduction in FY 2024-25. As a founder, your personal tax planning is just as important as your business tax planning.

I recall a conversation with Priya, who founded a health-tech startup in Mumbai. She was so focused on her business's tax compliance that she completely neglected her personal tax planning. She realised in the last week of March that she had made no tax-saving investments for herself. While she rushed to make investments, many good options were already closed for the year, limiting her choices and tax benefits.

Updated Income Tax Returns (ITR-U): Last Chance for FY 2019-20

March 31, 2025, is the last date for filing an Updated Return (ITR-U) for FY 2019-20. The updated ITR filing in form ITR-U is a facility allowing taxpayers to declare additional income or correct errors in original returns within 24 months from the end of the relevant assessment year.

If your startup needs to report any previously undisclosed income or correct any errors in the original return for FY 2019-20, this is your final opportunity. While filing an updated return does come with additional tax liability and applicable interest, it helps avoid more severe penalties or prosecution that might result from discrepancies discovered during departmental scrutiny.

Several startups have utilised this facility to clean up historical non-compliances, particularly those that occurred during their early days when their accounting systems weren't fully developed. It's worth reviewing your FY 2019-20 filings to ensure everything was properly reported.

TDS Compliance: The Year-End Reconciliation

Tax Deducted at Source (TDS) is an ongoing compliance requirement, but the year-end brings special significance to TDS Tax Deducted at Source (TDS) is an ongoing compliance requirement, but the year-end brings special significance to TDS reconciliation. Before March 31, 2025, ensure that you've correctly deducted TDS on all applicable payments and that the deductions match what's reported in your quarterly TDS returns.

Many startups encounter challenges with TDS compliance, either by neglecting to deduct TDS when necessary or by deducting it at incorrect rates. Both situations can result in notices from the tax department, disallowance of expenses, and potential penalties. As the financial year comes to a close, take some time to verify your TDS compliance. All eligible payments have had TDS deducted at appropriate rates.

• TDS for February 2025 has been deposited by March 7, 2025
• You're prepared to deposit TDS for March 2025 by April 7, 2025
• Your TDS certificates to vendors and employees are ready to be issued

TDS compliance isn't just about regulatory requirements—it directly impacts your relationship with vendors and employees who rely on timely and accurate TDS certificates to claim credit in their tax returns.

Special Income Tax Benefits for Recognized Startups

If your startup is recognised by the Department for Promotion of Industry and Internal Trade (DPIIT), you may be eligible for special tax benefits hat should factor into your year-end planning. Under Section 80IAC, DPIIT-recognized startups can claim a 100% tax deduction on profits for any three consecutive years out of their first ten years of operation. The key conditions are that you must be incorporated between April 1, 2016, and April 1, 2030 (Extended by five years by the 2025 union budget), your turnover shouldn't exceed ₹100 crores in any previous year, and you need a certificate of eligible business from the Inter-Ministerial Board.

As you approach the year-end, carefully consider whether FY 2024-25 should be one of your three years for claiming this deduction based on your profit projections for this year and upcoming years. Additionally, DPIIT-recognized startups can get an exemption from the so-called "angel tax" under Section 56(2)(viib). This is particularly important if you've raised or plan to raise funding at a premium valuation before March 31, 2030; without the proper exemption certificate, you might face unexpected tax liability on the investment amount that exceeds your startup's fair market value.

I've seen startups rush to secure these exemptions at the last minute, often facing delays that push their funding rounds into the next financial year. Start the process well in advance if you're planning to raise funds near the year-end.

Tax Audit Preparation: Know If You Need One

For certain businesses, a tax audit under Section 44AB of the Income Tax Act is mandatory. Understanding whether your startup falls under the tax audit requirement is crucial for planning your post-year-end compliance activities. For FY 2024-25, your business requires a tax audit if:

• Your business turnover exceeds ₹ one crore (₹10 crore if cash transactions are less than 5% of total receipts)
• Your professional receipts exceed ₹50 lakhs.

While the tax audit itself happens after the financial year ends, gathering and organising the necessary documentation should begin before March 31, 2025. I worked with a fintech startup last year that used its first tax audit as an opportunity to overhaul its financial tracking systems. What started as a compliance requirement ended up significantly improving their financial visibility and decision-making.

Conclusion

As we approach March 31, 2025, we view income tax compliance as an essential part of building a sustainable business. The time and resources you invest now will help you avoid penalties, optimise your tax position, and enhance credibility with stakeholders. Remember, compliance is a journey. The systems you establish today will shape your startup's financial practices. By managing your income tax obligations proactively, you lay a strong foundation for growth and financial health.

Author Bio

Editorial Team | in

Setindiabiz Editorial Team is a multidisciplinary collective of Chartered Accountants, Company Secretaries, and Advocates offering authoritative insights on India’s regulatory and business landscape. With decades of experience in compliance, taxation, and advisory, they empower entrepreneurs and enterprises to make informed decisions.