Tax, compliance and building a finance function that scales
This is the least interesting part of running a company and the most expensive to get wrong. It is also unusually unstable at the moment: India replaced its income-tax statute, its labour law and its goods and services tax structure within twelve months, and a good deal of published guidance, including some official pages, has not caught up.
Last checked 3 August 2026.
General information, not advice. Take professional advice before acting.
Why every number this year needs two labels
The Income-tax Act 2025 came into force on 1 April 2026 and replaced the Income-tax Act 1961, renumbering every section along the way. The two now run in parallel. The return you are filing at the moment, for the year ended 31 March 2026, is filed under the 1961 Act. The year you are currently trading in is governed by the 2025 Act, and those returns are due in 2027.
That means any rate, threshold or deadline you read this year is wrong for one of the two years unless it says which one it means. It is also why you will see two section numbers throughout this guide: the familiar one and its replacement.
Which corporate tax regime, and what it costs you to choose
The headline rates make this look like an easy decision. It is not, because the concessional rate cannot be combined with the startup deduction and cannot be reversed once elected.
| Regime | Base rate | Effective rate | What to know |
|---|---|---|---|
| Concessional (s.115BAA, now s.200) | 22% | About 25.17% | A flat 10% surcharge applies at every income level. No minimum alternate tax. The election is irrevocable and forfeits the startup deduction |
| Standard | 25% | 26.00% to 29.12% | The 25% rate applies where turnover in the specified prior year was ₹400 crore or less. Note the two-year lag: the test year is not the year you are taxed in |
| Standard | 30% | 31.20% to 34.94% | Above the turnover gate. Surcharge is 7% above ₹1 crore of total income and 12% above ₹10 crore, with marginal relief |
| New manufacturing (s.115BAB, now s.201) | 15% | About 17.16% | Closed to new entrants: manufacturing had to commence on or before 31 March 2024. Listed here only because rate charts still show it as available |
Two tests that founders merge, and should not. The 25% versus 30% gate is driven by turnover. Surcharge is driven by total income. A high-revenue, loss-making company can sit at 30% with no surcharge at all.
The year, on one page
This is the standing calendar for a private limited company. Dates that depend on your annual general meeting move with it.
| Obligation | When | Note |
|---|---|---|
| Board meetings | First within 30 days of incorporation, then four a year with no more than 120 days between two | A private company that is a startup, or a small or dormant company, may instead hold one meeting in each half of the calendar year with at least 90 days between them. That relaxation stops applying once you outgrow it |
| MSME-1 | 30 April and 31 October | Half-yearly, where payments to registered MSME suppliers are outstanding beyond 45 days |
| Advance tax | 15 June, 15 September, 15 December, 15 March | Cumulatively 15%, 45%, 75% and 100%. There is a tolerance on the first two instalments only |
| DPT-3 | 30 June | Required of every company with outstanding loans or borrowings as at 31 March, including a director’s loan, which is exempt from being a deposit but still has to be reported |
| DIR-3 KYC | 30 June, every third financial year | This changed. It is no longer annual and no longer 30 September. Directors who filed in 2025-26 are next due 30 June 2028 |
| Annual general meeting | Within six months of the year end; nine months for the first one | No more than 15 months may elapse between two. The Registrar can extend by three months, but not the first AGM |
| Tax audit report | One month before the return | For most companies this, not the return date, is the binding constraint |
| Transfer pricing accountant’s report | 31 October | One month before the 30 November return, not with it |
| Corporate income tax return | 31 October, or 30 November where transfer pricing applies | Check for a CBDT extension before relying on either date. Extensions were granted twice in the previous cycle |
| AOC-4 | Within 30 days of the AGM | Late filing attracts an uncapped ₹100 per day additional fee and a separate capped penalty. Advisers routinely quote only one of the two |
| MGT-7 or MGT-7A | Within 60 days of the AGM | MGT-7A is the abridged return for small companies and one person companies |
Goods and services tax: when you actually have to register
The threshold for a supplier of services is ₹20 lakh of aggregate turnover. For an exclusive supplier of goods it is ₹40 lakh in the states that adopted the higher limit and ₹20 lakh elsewhere, and both figures are halved in special category states. Aggregate turnover is measured across India at PAN level and includes exempt supplies and exports, not just the taxable turnover of one state.
Then there is a list of triggers that ignore the threshold entirely, and two of them catch startups long before revenue does.
Registration itself is faster than it used to be. Since 1 November 2025 low-risk applications are granted electronically within three working days, and there is an optional simplified scheme for applicants whose monthly output tax on business-to-business supplies will stay under ₹2.5 lakh. Read that limit carefully: it is a limit on tax, not turnover, and at 18% it corresponds to roughly ₹14 lakh of monthly business-to-business sales. It is also worth thinking twice about if you are growing quickly: exceeding the limit blocks your returns, and withdrawing from the scheme requires your returns to be up to date first.
Payroll: what the Labour Codes changed for startups
The four Labour Codes came into force on 21 November 2025 and repealed 29 central labour laws, including the statutes governing provident fund, employee state insurance and gratuity. Provident fund applies at 20 or more employees, insurance at 10 or more persons, and both count heads: interns, fixed-term staff and contract workers included. DPIIT recognition gives you no exemption from any of it.
The rates themselves are unchanged. Provident fund is 12% from the employee and 12% from the employer on eligible wages, with the employer share split between the pension and provident components, against a standard wage ceiling of ₹25,000 a month from 17 September 2026, notified as S.O. 5109(E) (it was ₹15,000 until then), unless you have opted for higher wages. Insurance is 3.25% from the employer and 0.75% from the employee. The scheme amendments and the operational circular that carry the new ceiling into payroll had not been located as at 23 September 2026, so confirm them before running a payroll on the new figure. What changes your cost is not the rates, it is the wage definition above.
One more, in the opposite direction from what was intended. Companies that moved staff onto fixed-term contracts to reduce obligations have created a gratuity liability rather than avoided one: a fixed-term employee now accrues gratuity from one year of service, with no five-year qualifying period. The five-year rule still applies to permanent employees.
Transfer pricing applies to companies far smaller than you think
There is no monetary threshold for international transactions. A single cross-border payment to a related party brings the full obligation. The ₹20 crore figure you may have seen applies only to specified domestic transactions and has nothing to do with cross-border dealings.
The related-party test is mechanical rather than a question of control. A foreign investor holding 26% or more creates the relationship without a board seat. So can a foreign lender whose loan exceeds 51% of your book value of assets, which a bridge-financed company with a small balance sheet crosses more easily than it expects. If you have a foreign holding company, a foreign subsidiary, or a founder-owned entity abroad supplying services, you are in scope from year one.
One filing is missed more often than any other. The Master File has two parts, and while Part B has substantial thresholds, Part A applies to every constituent entity of an international group with a presence in India, with no revenue threshold at all. A seed-stage Indian subsidiary of a small foreign parent, a two-entity group with negligible revenue, still has a Part A obligation. Every threshold-based summary online buries this behind the larger number.
The withholding traps that catch startups
Withholding is mechanical and mostly uncontroversial. Three things about it catch early-stage companies repeatedly.
- Professional versus technical services. These are deducted at different rates under the same provision, and a company paying a development agency or an IT support vendor frequently applies one where the other belongs. The distinction is litigated, so it is worth settling in the contract rather than in the ledger.
- Rent is now tested monthly, not annually. A co-working desk or a small office crosses the threshold from the first month in a way that the old annual test did not.
- Manpower supply is now expressly within scope. From 1 April 2026, payments to staffing agencies, contract engineering firms and outsourced field teams attract contractor-rate withholding. Many companies treated these as outside it. If you use a manpower vendor, your deduction needed to change in April.
One reassurance and one warning. The rates and the monetary limits did not change. The 2025 Act renumbered and consolidated the withholding provisions; it did not rewrite the tariff. What did change is every section reference in your payroll system, your accounting software and your vendor masters, which must move to the new section and table codes from 1 April 2026. That is a configuration exercise with a deadline, and it is the part that gets missed. This page carries no rate table on purpose: rate charts published online go stale quietly, and at least one otherwise-reputable chart still shows thresholds that were superseded on 1 April 2025. Use your adviser’s current schedule, not a chart.
ESG reporting: what you are actually required to do
If you are an unlisted early-stage company, the honest answer is nothing. India’s sustainability reporting framework applies to the top 1,000 listed entities by market capitalisation. The value-chain disclosure that could in principle reach you as a supplier is voluntary, sits on your listed customer rather than on you, and can be satisfied by covering their largest partners only.
That is the legal position, and it is not the whole picture. You will be asked anyway: by an investor whose own fund has commitments to its limited partners, by a listed customer’s procurement team, by a European buyer, by a lender. The right response is to answer the specific counterparty asking, in their format. The wrong response, and one we see, is to build a full reporting function against a framework that does not apply to you, at real cost and with no regulatory driver behind it.
Corporate social responsibility is a different obligation and worth knowing about for a reason founders find counter-intuitive: its three tests are alternatives, not cumulative: net worth of ₹500 crore, turnover of ₹1,000 crore, or net profit of ₹5 crore in the immediately preceding financial year. A company that raises a large round can cross that on securities premium alone while still being loss-making. The spending obligation is a percentage of profits and so is nil, but the policy and the disclosure obligations are not. Where the amount required to be spent is below the prescribed limit, the board may discharge the committee’s functions itself rather than constituting a separate committee.
What to run in-house, and when
Most startups do not need a chief financial officer before Series B, and most cannot afford the one they would want. What they do need, well before that, is books that close on time, a board pack with numbers a director can act on, payroll that does not generate a liability, and someone whose job it is to watch the calendar.
That is what an outsourced finance function is for: bookkeeping on your systems, monthly management information in the format your investors expect, budgets and forecasts you can defend, payroll and its statutory remittances, and virtual chief financial officer oversight sitting above it. The test for bringing it in-house is not headcount or revenue. It is whether the finance work has become specific enough to your business that a generalist cannot do it well.
Scope is set engagement by engagement rather than sold as a fixed package, because what a company needs at seed and what it needs approaching Series A are not the same thing.
You should not be the person watching the calendar.
Tell us what your finance function looks like today and we will tell you what is missing before someone else finds it.
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This page is general information, not professional advice. Indian tax, exchange control and company law positions change frequently, and how any of them applies depends on your specific facts. Take professional advice before acting on anything on this page. We are happy to be that adviser, but do not act on a web page, ours or anyone else’s, without one.