GST and TDS Mistakes Indian Startups and SMEs Make (and How to Avoid Them)
GST and TDS are where most Indian startups and SMEs pick up avoidable interest, late fees, lost input tax credit and notices. The usual causes aren't complex tax questions. They are missed due dates, input tax credit claimed without checking GSTR-2B, TDS not deducted on rent or professional fees, reverse charge forgotten, and books that don't match the returns. Each of these is preventable with a simple monthly compliance calendar, a reconciliation routine and clear ownership. Clean GST and TDS records also matter beyond tax: lenders and investors compare your GST returns with your financials, and gaps slow down loans and due diligence.
Founders tend to treat GST and TDS as the accountant's job until a notice arrives or a lender asks why GST turnover doesn't match the audited accounts. By then, fixing it costs far more than getting it right month by month. This guide covers the most common mistakes, what they cost, and a simple routine to avoid them.
This article is general guidance, not tax advice. Rules, rates, thresholds and due dates change, and India's new Income-tax Act, 2025 took effect from 1 April 2026 with renumbered sections. Always confirm the current position with your tax adviser.
The monthly compliance calendar
Most mistakes start with a missed date. These are the common monthly deadlines for a regular GST and TDS filer:
| Due date (following month) | What's due | Notes |
|---|---|---|
| 7th | TDS deposit for the previous month | March deductions generally have a later deadline of 30 April |
| 11th | GSTR-1 (outward supplies), monthly filers | Quarterly filers under the QRMP scheme follow a different schedule |
| 15th | PF and ESI contributions | Not GST or TDS, but usually paid in the same cycle |
| 20th | GSTR-3B and GST payment, monthly filers | QRMP filers pay monthly and file GSTR-3B quarterly, with dates based on their state |
| Quarterly | TDS returns and TDS certificates to deductees | File returns on time so deductees can see the credit |
| 15 Jun, 15 Sep, 15 Dec, 15 Mar | Advance tax instalments | Applies when tax liability crosses the threshold |
The most common GST mistakes
1. Claiming input tax credit without checking GSTR-2B
Input tax credit (ITC) is generally available only when the supplier has reported the invoice and it appears in your GSTR-2B, among other conditions. Claiming ITC on invoices that suppliers haven't filed leads to mismatches, notices and reversals with interest. Reconcile your purchase register with GSTR-2B every month before filing GSTR-3B, and chase suppliers who haven't uploaded invoices.
2. Missing the time limit for ITC
ITC for a financial year has to be claimed within a time limit, generally by 30 November of the following year or the date of filing the annual return, whichever is earlier. Credits found after that are usually lost. Monthly reconciliation prevents this.
3. Not paying suppliers within 180 days
If you don't pay a supplier the invoice value, including GST, within 180 days of the invoice date, the ITC you claimed generally has to be reversed, with interest. It can be reclaimed when you pay. Startups with stretched creditors often miss this.
4. Forgetting reverse charge
Under reverse charge (RCM), you, the recipient, pay GST instead of the supplier on certain services, such as legal services from an advocate, goods transport agency services and services imported from abroad (for example, overseas software subscriptions). Many businesses miss RCM on these, which creates liabilities, interest and audit observations.
5. Skipping e-invoicing or e-way bills when required
Businesses above the notified aggregate turnover threshold (currently ₹5 Cr) must generate e-invoices for B2B supplies. Invoices that should have been e-invoiced but weren't can cause problems for your customers' ITC as well as yours. E-way bills are needed for movement of goods above the notified value.
6. Turnover in GST returns not matching the books
Differences between GSTR-1, GSTR-3B and your financial statements are among the first things a GST officer, auditor or lender notices. Reconcile all three every month and explain differences, such as advances or credit notes, in writing.
7. Wrong place of supply or wrong GST type
Charging CGST and SGST when IGST applies, or the other way round, means paying tax under the wrong head and claiming a refund later. This is common with services provided to customers in other states, and in multi-state operations.
8. Ignoring GST notices
Notices on the GST portal have response deadlines. Not checking the portal, or replying late, can turn a simple query into a demand order. Assign someone to check the portal and the registered email every week.
The most common TDS mistakes
1. Not deducting TDS on common payments
TDS applies to many routine payments: contractor and job work, professional and technical fees, commission, rent, and, above certain limits, purchases of goods for larger buyers. Founders often miss TDS on rent, consultants, freelance designers and developers, and payments to related parties.
2. Wrong rate or wrong section
Paying contractors at the professional-fees rate, or the other way round, or ignoring the higher rate for deductees without a valid PAN, leads to short deduction demands. Keep a vendor master that records the vendor's PAN, the nature of the payment and the TDS rate.
3. Late deposit of TDS
Deducting TDS but depositing it late attracts interest for each month of delay. Deposit by the 7th, and treat TDS as money held in trust, not working capital.
4. Late or incorrect TDS returns
Late quarterly returns attract a late fee for each day of delay, and errors in PAN or challan details mean your vendors can't see their credit. That leads to disputes and correction work.
5. Losing the expense deduction
If you don't deduct or deposit TDS on certain payments to residents, part of that expense can be disallowed when computing your taxable income, which increases your tax bill.
6. Not issuing TDS certificates
Vendors and employees need TDS certificates to claim their credit. Issue them on time from the official portal.
Mistakes and fixes at a glance
| Mistake | What it can cost | Fix |
|---|---|---|
| ITC claimed without GSTR-2B check | Reversal, interest, notices | Monthly purchase vs GSTR-2B reconciliation |
| ITC claimed after the time limit | Credit lost | Monthly reconciliation and year-end review |
| Suppliers unpaid beyond 180 days | ITC reversal with interest | Track creditor ageing against the 180-day rule |
| Reverse charge missed | Tax, interest, audit observations | RCM checklist for legal, transport and imported services |
| Books, GSTR-1 and GSTR-3B don't match | Notices, lender questions | Three-way monthly reconciliation |
| TDS not deducted or wrong rate | Demand, interest, expense disallowance | Vendor master with PAN, payment type and rate |
| TDS deposited late | Interest for each month of delay | Deposit by the 7th, on a calendar |
| TDS returns late or wrong | Daily late fee, vendor disputes | Quarterly return checklist and challan matching |
| Portal notices unanswered | Demand orders | Weekly portal and email check |
A simple monthly compliance routine
- Week 1: deposit TDS for the previous month; close purchase and sales registers.
- Week 2: reconcile purchases with GSTR-2B; follow up suppliers with missing invoices; file GSTR-1.
- Week 3: check RCM liabilities; reconcile GSTR-1, GSTR-3B and books; file GSTR-3B and pay GST.
- Every week: check the GST and income tax portals for notices.
- Quarterly: file TDS returns, issue certificates, and review the vendor master.
- Monthly MIS: add a compliance status table so the founder and board see it. See how to set up a monthly MIS report.
Put GST and TDS outflows into your 13-week cash flow forecast, so these large, fixed payments never surprise you.
Why it matters for loans and fundraising
When you apply for a bank or NBFC loan or working capital limits, lenders compare your GST returns with your bank credits and financials. Investors do the same in due diligence. Unexplained gaps, pending notices or unpaid TDS can delay a deal or reduce what you can raise. Clean compliance is part of being finance-ready.
Your GST and TDS checklist
- Compliance calendar with owners for every due date
- Monthly purchase register vs GSTR-2B reconciliation
- Monthly books vs GSTR-1 vs GSTR-3B reconciliation
- RCM checklist for legal, transport and imported services
- E-invoicing and e-way bills in place if applicable
- Creditor ageing checked against the 180-day ITC rule
- Vendor master with PAN, payment type and TDS rate
- TDS deposited by the 7th every month
- Quarterly TDS returns filed and certificates issued on time
- Weekly check of GST and income tax portals for notices
- Compliance status included in the monthly MIS
How ImpactCFO helps
ImpactCFO founder Sudhir Singal (XLRI, CFA Level 2) brings over 20 years in finance, has raised over ₹1,000 Cr of debt for a microfinance lender, and has led finance at SuperPe, Happy Fintech and Sarala Microfinance. As your Virtual CFO, we work alongside your accountants to set up the compliance calendar, reconciliations and MIS reporting that keep GST and TDS clean, so your books are ready for lenders, investors and audits.
FAQs
What happens if I file GSTR-3B late?
You generally pay a late fee for each day of delay and interest on the tax paid late. Late filing can also hold up your customers' and your own input tax credit, and repeated delays can lead to further action on your registration.
Can I claim ITC if my supplier hasn't filed their return?
Generally no. ITC is linked to the invoice appearing in your GSTR-2B, along with other conditions. Follow up with the supplier, and claim the credit once it appears, within the time limit.
Is TDS applicable on payments to freelancers and consultants?
Often yes, once payments cross the threshold for that type of payment. The rate depends on whether the payment is for professional services, technical services or a contract. Check each vendor's PAN and the nature of the work.
What is reverse charge under GST?
It's a mechanism where the recipient of certain goods or services pays GST instead of the supplier. Common cases for businesses include legal services from advocates, goods transport agency services and imported services.
Does GST compliance affect my ability to get a loan?
Yes. Lenders check GST returns to confirm turnover, and compare them with bank statements and financials. Mismatches, late filings or pending notices often lead to questions or delays.
Who should own GST and TDS compliance in a startup?
Your accountant or CA firm usually does the filings, but someone senior in finance should own the calendar, reconciliations and review. A Virtual CFO can provide that oversight without a full-time hire.
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Book a free 30-minute strategy callRelated: How to Set Up a Monthly MIS Report for Your Startup or SME in India · How to Build a 13-Week Cash Flow Forecast for Your Startup or SME in India · How to Prepare Your Startup or SME for a Bank or NBFC Loan in India