If you are starting a business in India, GST affects almost every part of it: when you must register, what you charge your customers, how much tax credit you can claim, and even how your business looks to a bank or investor. The seven points below cover what Startup Founder most often get wrong, so you can avoid late fees, blocked credit and notices from the first year itself.
Getting GST right also helps when you apply for funding. At Sharda Associates, our Chartered Accountants (CA) prepare CA-certified project reports for startups, and GST is built into the numbers. We estimate your project cost with GST and the credit you can claim, show the tax in your sales projections, and plan working capital for the months when credit is unused. This makes the report realistic, which is what a bank officer checks first.
With a project report from a CA, you get one set of figures that lines up with your GST returns, your books and your loan application. That means fewer queries from the lender, a clearer repayment picture (including DSCR) and less rework later. If you plan to raise a loan or invite investors, speak to a CA before you finalise your numbers, not after.
1. Know When Registration Is Required
GST registration depends on turnover and the type of supply, not on how big the idea is.
- Services: registration is required once annual turnover crosses ₹20 lakh (₹10 lakh in special category states).
- Goods: the limit is ₹40 lakh in most states (₹20 lakh in some).
- Compulsory at any turnover: interstate supply of goods, most e-commerce selling, and some other cases.
- Voluntary registration: allowed below the limit and useful if your customers are businesses that want ITC.
Check the current limits for your state before deciding.
2. Charge the Right Rate and Issue the Right Invoice for Startup Founder
Every taxable sale needs a proper tax invoice with your GSTIN, the HSN or SAC code, the rate and the tax amount. Most IT and consulting services are taxed at 18%, but rates differ by product, so confirm yours. A wrong rate means a credit note or debit note later, with interest if tax was short-paid.
3. Understand Input Tax Credit (ITC)
ITC lets you deduct the GST you paid on business purchases from the GST you collect on sales.
- Claim ITC only when the supplier’s invoice appears in your GSTR-2B.
- Do not claim ITC on blocked items such as personal expenses.
- Keep invoices and payment proofs for every claim.
- Unused credit is carried forward, which matters when you buy equipment before you earn.
4. File Returns on Time, Even With No Sales
| Return | What it is | How often |
| GSTR-1 | Details of sales | Monthly, or quarterly under QRMP |
| GSTR-3B | Summary return and tax payment | Monthly, or quarterly with monthly payment under QRMP |
| GSTR-9 | Annual return | Yearly, where applicable |
Late filing attracts a daily late fee and interest at 18% a year on unpaid tax. Nil returns are generally required too. Check current due dates on the GST portal.
5. Handle Exports and Foreign Payments Correctly
- Exporting services: can be zero-rated if conditions are met, and you should file an LUT every financial year to export without paying IGST.
- Paying foreign vendors for cloud, software or advertising: GST is payable under reverse charge, and you can usually claim it back as ITC.
- Foreign exchange receipt: keep bank realisation proofs, because refunds and zero-rating depend on them.
6. Watch Out for Advances, Equity and Free Services
- Advance for services: GST is payable when you receive it, so issue a receipt voucher.
- Equity funding: issue of shares is not a supply, so no GST applies.
- Free trials and gifts: a free service with no consideration is generally not taxed, but supplies to related persons can be.
- Founders on salary: employee salary is outside GST, but fees to a director who is not an employee can attract reverse charge.
7. Keep GST, Books and Funding Papers Consistent
Banks and investors compare GST returns, financial statements and tax filings. A turnover gap you cannot explain delays funding or reduces your valuation. Reconcile sales across GSTR-1, GSTR-3B, your books and the income tax return every quarter, and keep the working in one file.
Quick Founder Checklist
- GSTIN obtained when the limit or rule requires it
- Correct HSN or SAC and rates in billing software
- GSTR-2B matched before ITC is claimed
- Returns filed on time, every period
- LUT is valid if you export
- Reverse charge paid on foreign purchases
- Quarterly reconciliation of GST with books
Conclusion
GST rewards founders who build a simple routine: register at the right time, invoice correctly, claim only eligible ITC, file every return and reconcile quarterly. These seven points cover most of what goes wrong in the first two years.
Start with the checklist above and fix gaps early. For GST registration and compliance, tax audit and CA-certified project reports for bank loans and investors, call Sharda Associates on +91-8989977769.
Questions Founders Ask
Q1. When should a startup register for GST?
When turnover crosses the limit, or earlier if you sell inter-state goods, sell through e-commerce or want to claim ITC.
Q2. Is GST charged on funding received from investors?
No. The issue of shares is not a supply of goods or services.
Q3. Can I claim ITC on laptops and software?
Yes, if used for business and the conditions of Section 16 are met.
Q4. What is an LUT?
A Letter of Undertaking that lets exporters supply without paying IGST, filed each financial year.
Q5. Do I have to pay GST on foreign software subscriptions?
Yes, under reverse charge, and you can usually claim it as ITC.
Q6. What happens if I miss a return?
A late fee and interest apply, and repeated delay can lead to a notice.
Q7. Does GST affect my project report?
Yes. Project cost, ITC, sales and working capital are all affected, and a CA reflects them correctly.
Q8. Do I need a CA from day one?
It is not mandatory, but starting with one saves you from structure, registration and invoicing mistakes.