📝 Income Tax Filing Guide for Startups & SMEs

Tax Filing Requirements by Entity Type

Private Limited Company: File ITR-6 annually, regardless of profit/loss. Due date: October 31 (November 30 if audit required). Must pay advance tax if liability exceeds ₹10,000.

LLP: File ITR-5 annually. Due date: July 31 (October 31 if audit required). Partners file individual returns showing LLP income share.

Partnership Firm: File ITR-5. Due date: July 31 (October 31 if audit required). Partners must file separately.

Proprietorship: File ITR-3 (for business income). Due date: July 31 (October 31 if audit required under section 44AB).

Applicable Tax Rates (FY 2025-26)

Domestic Companies: 25% (for companies with turnover up to ₹400 Cr) or 30% (turnover above ₹400 Cr). Add surcharge and 4% health & education cess.

Startups (Section 115BAC): Opt for 22% flat rate (plus surcharge + cess) but forego most deductions. Good for profitable startups with minimal deductions.

LLP/Partnership: 30% flat rate plus surcharge and cess. No slab rates like individuals.

Proprietorship: Individual slab rates apply (₹0-3L: NIL, ₹3-7L: 5%, ₹7-10L: 10%, ₹10-12L: 15%, ₹12-15L: 20%, >₹15L: 30%).

Deductions & Exemptions for Startups

• Section 80IAC: 100% profit exemption for 3 consecutive years (out of 10 years) for DPIIT-recognized startups
• Section 35(2AB): 150% deduction on R&D expenditure (now phased out, check current provisions)
• Section 80JJAA: 30% deduction on additional employee cost for new hires
• Depreciation: Accelerated depreciation on computers (40%), plant & machinery (15-40%)
• Business expenses: Rent, salaries, marketing, professional fees (must be wholly & exclusively for business)
• Interest on business loans: Fully deductible
• MAT Credit: Carry forward for 15 years if paying Minimum Alternate Tax

Advance Tax Payment Schedule

Mandatory if tax liability exceeds ₹10,000. Pay in 4 installments:

• June 15: 15% of total tax
• September 15: 45% of total tax (cumulative)
• December 15: 75% of total tax (cumulative)
• March 15: 100% of total tax

Interest penalty: 1% per month for delay under Section 234B and 234C. Calculate advance tax based on estimated income for the year.

Filing Process & Forms

Step 1: Finalize books of accounts and prepare financial statements (P&L, Balance Sheet).

Step 2: Get tax audit done if turnover exceeds ₹10 Cr (or ₹1 Cr for professionals). Form 3CA/3CB and 3CD required.

Step 3: Compute total income and tax liability. Prepare tax computation sheet.

Step 4: Login to income tax portal, select appropriate ITR form (ITR-6 for companies, ITR-5 for LLP).

Step 5: Upload JSON file or fill online. Verify all pre-filled data (TDS, advance tax payments).

Step 6: E-verify using Aadhaar OTP, net banking, or send signed ITR-V to CPC Bangalore within 30 days.

Common Errors to Avoid

• Missing the filing deadline (heavy penalties and interest)
• Not claiming all eligible deductions (paying more tax than required)
• Errors in advance tax calculation (interest penalties)
• Not reconciling TDS credits (missing refunds)
• Incorrect ITR form selection (return treated as defective)
• Not getting tax audit when required (penalties + scrutiny)
• Claiming personal expenses as business expenses (red flag for scrutiny)
• Not maintaining proper documentation for expenses claimed