Category: Compliance

What Angel Tax was

Under Section 56(2)(viib), when an unlisted company issued shares above fair market value, the excess premium could be taxed as “income from other sources”. For startups raising at a high valuation on the back of vision rather than current financials, this created painful tax notices.

The exemption that fixed it

DPIIT-recognised startups can claim exemption by filing the prescribed declaration, provided they meet conditions on aggregate paid-up capital and the type of investor.

Conditions to keep the exemption clean

• Be DPIIT-recognised and file the required declaration
• Keep aggregate paid-up share capital and premium within the notified ceiling
• Avoid prohibited uses of funds (e.g., loans/advances unrelated to business, certain asset purchases)

Angel Tax is far less scary today — but only if your recognition and declarations are in order before you raise.

Need help putting this into action? Book a free 15-minute call with a Vaishnav Catalyst specialist.

When GST registration is mandatory

• Turnover above ₹40 lakh for goods (₹20 lakh in special category states)
• Turnover above ₹20 lakh for services (₹10 lakh in special category states)
• Inter-state supply of goods, e-commerce sellers, and certain other cases regardless of turnover

Why many startups register voluntarily

Even below the threshold, registering lets you claim input tax credit on your expenses and lets B2B customers claim credit on your invoices — often essential to winning enterprise clients.

Documents you need

• PAN of business and promoters
• Proof of business registration
• Address proof of place of business
• Bank account details
• Aadhaar and photos of authorised signatory

After registration

You must file periodic returns (GSTR-1 and GSTR-3B) even if there is no activity in a month. Missing nil returns still attracts late fees.

Need help putting this into action? Book a free 15-minute call with a Vaishnav Catalyst specialist.

Why this matters

Even a zero-revenue company must meet Registrar of Companies (ROC) obligations. Missed filings attract daily penalties and can disqualify directors.

Key annual filings

• AOC-4: financial statements, filed after the AGM
• MGT-7 / MGT-7A: annual return
• DIR-3 KYC: annual KYC for every director
• ADT-1: auditor appointment
• DPT-3: return of deposits/loans, where applicable

Ongoing obligations

• Minimum number of board meetings each year
• Hold the AGM within the prescribed window
• Maintain statutory registers and minutes

Set calendar reminders a month before each due date. ROC penalties accrue per day and add up fast.

Need help putting this into action? Book a free 15-minute call with a Vaishnav Catalyst specialist.

Foreign money has its own rulebook

When you raise from non-resident investors, the transaction falls under FEMA and FDI policy. Getting the filings right keeps your cap table clean and avoids penalties later.

Key concepts

• Automatic route: most startup sectors allow 100% FDI without prior approval
• Approval route: some sensitive sectors need government approval
• Pricing guidelines: shares to non-residents must be issued at or above fair value
• FC-GPR: report the share allotment to the RBI within the prescribed time

Do the FC-GPR filing on time. A delayed report is a common, avoidable compliance headache during due diligence.

Need help putting this into action? Book a free 15-minute call with a Vaishnav Catalyst specialist.

What TDS is

On certain payments — salaries, professional fees, rent, contractor payments — you must deduct tax at source and deposit it with the government, then file returns. Many first-time founders miss this and face penalties.

Common TDS triggers

• Salaries to employees
• Professional / technical fees (Section 194J)
• Contractor payments (Section 194C)
• Rent above the threshold (Section 194I)

Stay compliant

• Deduct at the right rate when you pay or credit
• Deposit by the monthly due date
• File quarterly TDS returns
• Issue Form 16/16A to deductees

TDS penalties are about timing, not amount. Deposit on time and file quarterly — that alone avoids most trouble.

Need help putting this into action? Book a free 15-minute call with a Vaishnav Catalyst specialist.

Hiring brings new obligations

As your headcount grows, payroll-linked compliances activate. Missing them creates liabilities that surface during diligence.

The main ones

• EPF: generally applies once you cross the employee threshold
• ESI: applies for employees below a wage ceiling once threshold is crossed
• Professional Tax: state-level, varies by state, deducted from salaries

Stay on top of it

• Register when thresholds are crossed
• Deduct and deposit monthly
• File the periodic returns
• Keep clean payroll records

Need help putting this into action? Book a free 15-minute call with a Vaishnav Catalyst specialist.