Annual Tax Return Compliance in India: Mistakes That Can Cost Startups and New Businesses

Setting up a business in India or expanding into one of the world’s fastest-growing economies is an exciting opportunity. With a young consumer base, improving infrastructure, and government incentives, India offers immense growth potential. However, one thing that remains non-negotiable for both domestic startups and foreign entities is annual income tax return (ITR) compliance.

As we move through FY 2025-26, the tax landscape has shifted in subtle yet essential ways, especially following the latest updates in Budget 2025-26. For founders, CFOs, and market entry strategists, these changes are not just procedural. They can have a direct impact on funding, operational readiness, and investor confidence.

Let’s unpack what startups and India-bound businesses need to know about tax filing in India 2025, the ITR mistakes to avoid, and how the new budget stacks up against last year’s for entrepreneurs.

Why ITR Compliance Matters for Startups and Entry-Stage Businesses

Filing your ITR correctly isn’t just about avoiding penalties; it’s also about ensuring accurate tax records. It:
● reflects financial maturity in front of VCs and investors,
● enables loss carry-forward and refund eligibility,
● prevents regulatory friction during due diligence, funding, or M&A, and
● signals operational readiness when entering partnerships or joint ventures.
For early-stage businesses, getting these basics wrong can derail momentum. And for companies entering India, it sets the tone with Indian regulators.

Common ITR Mistakes to Avoid (Especially for Startups)

Even with lean teams and capable finance advisors, startups often make these missteps:
1. Wrong ITR Form Selection
The ITR form update 2024–25 has added new sections around capital gains, presumptive taxation, and income disclosures. Filing the wrong form—say ITR-1 instead of ITR-4—could invalidate your return or delay refund processing.
2. Skipping Foreign Investment Disclosure
Startups with international founders, holding companies, or foreign investment structures are required to disclose their foreign assets under Indian rules. Failing to do so can lead to penalties of up to ₹10 lakh under the Black Money Act.
3. TDS–AIS Mismatch
Most startup revenues involve vendor payments or interest income. A mismatch between your actual income and what’s recorded in Form 26AS or AIS (Annual Information Statement) could flag your ITR for scrutiny.
4. Poor Classification of Income
Startups often generate revenue from diverse sources, including equity deals, tech services, grants, and even cryptocurrency. Misclassifying them (e.g., showing capital gains as business income) may attract audits or even penalties.
5. Delayed Filing or Verification
Even though the deadline for FY 2024–25 has been extended to 15 September 2025 (for non-audit cases), many startups delay filing and then miss the 30-day e-verification window, resulting in invalidation of their returns.

Budget FY25 vs Budget FY26: A Startup-Centric Comparison
Here’s how the last two budgets stack up from a startup and India-entry perspective:

Latest Tax Filing Rules for FY 2024–25 (AY 2025–26)

● ITR Due Date (Non-Audit Cases): Extended to 15 September 2025
● Self-Assessment Tax: Still payable by 31 July 2025 to avoid interest under Section 234A
● Presumptive Tax Filing: Continue using ITR-4 if eligible—thresholds retained
● e-Verification Deadline: 30 days from filing to complete Aadhaar OTP or DSC verification

Filing your ITR the right way in 2025 isn’t just about avoiding fines—it’s about sending a message to regulators, investors, and partners that you’re serious, structured, and ready to grow. With Budget 2025-26 leaning more toward growth-stage accountability than early-stage relief, startups must embrace financial discipline as a strategic advantage.

Whether you’re entering India for the first time or scaling a fast-growing venture, make your tax compliance part of your growth strategy and not just a year-end scramble.

Want support in structuring your India entry or managing cross-border tax compliance? Walmond Consultancy LLP specialises in guiding businesses through market entry, regulatory navigation, and long-term compliance. Contact our team for personalised support.