ITR Filing for Founders & Startups: What You Must Know

ITR filing for startups and founders can feel overwhelming. Missed deadlines risk penalties, audits, and lost investor trust.

But timely filing not only keeps you compliant, it unlocks tax benefits, strengthens funding credibility, and builds investor trust.

This guide makes it simple; know what, when, and how to file your ITR.

Why ITR Filing is Crucial for Founders & Startups

ITR filing goes beyond ticking a legal box, it’s about protecting your startup’s financial integrity. The Income Tax Department of India mandates timely compliance for all individuals and entities, including startups.

Investors and lenders often review ITRs during due diligence to assess financial discipline and credibility. A clean filing history can boost investor confidence and smoothen funding approvals.

On the other hand, delayed or missed filings can lead to late fees, audit notices, and even jeopardize funding opportunities, especially in sensitive sectors like SaaS and fintech.

Timely and accurate ITR filing protects your startup’s reputation, avoids unnecessary penalties, and strengthens your financial standing in the market.

Heads-up: ITR Filing Due Date Extended For non-audit cases, the ITR filing cut-off for FY 2024–25 (AY 2025–26) is 15 September 2025.

ITR Filing Applicability: Who Needs to File

For Founders

If your income exceeds the basic exemption limit, you are required to file an Income Tax Return (ITR). This includes earnings from salary, business profits, freelance projects, capital gains, or investments.

Click here to know the full exemption limit for AY 2025-26

Even if your startup hasn’t generated revenue yet, personal income from other sources still makes filing mandatory. Early compliance sets a strong financial track record that can benefit you during funding rounds or loan applications.

For Startups

Regardless of size or revenue stage, all registered business entities, whether it is a Private Limited Company, LLPs, or Partnerships, must file ITR annually.

This obligation applies even in your first year or during periods of zero revenue. The law recognises no exceptions for “work in progress” ventures, and consistent filing builds credibility with tax authorities, banks, and investors.

Types of ITR Forms Relevant to Founders & Startups

Choosing the correct ITR form is pivotal for accurate filing and avoiding notices. According to the Income Tax Department’s official downloads page, here’s how they align with various startup and founder scenarios:

ITR-1 (SAHAJ)

For resident individuals with income up to ₹50 lakh from salary, one house property, other sources (like interest), and long-term capital gains under ₹1.25 lakh. Source: Income Tax India.

Not applicable to most startup founders.

ITR-2

For individuals and HUFs without business or professional income.

Founders must avoid this if they derive income from their startup.

ITR-3

Tailored for individuals and HUFs earning income from business or profession, common among startup founders.

ITR-4 (SUGAM)

Simplified form for individuals, HUFs, and firms (excluding LLPs) with income up to ₹50 lakh, computed under presumptive schemes; Sections 44AD, 44ADA, or 44AE.

Great for smaller startups using presumptive taxation.

ITR-5

For entities other than individuals, HUFs, companies, or those filing ITR-7—typically for LLPs, AOPs, partnership firms, trusts, etc.

Suitable for LLP-based startups or partnerships.

ITR-6

For companies (excluding those exempt under Section 11), including private limited startups.

ITR-7

For persons (including companies) required to file returns under Sections 139(4A), 139(4B), 139(4C), or 139(4D), typically trusts or political parties.

Not typically relevant for most startups.

ITR-U (Updated Return)

Allows filing updated returns within 48 months from the end of the relevant assessment year, ideal for correcting missed declarations

Startup-Specific Tax Benefits and Deductions

India’s tax regime offers significant incentives to help startups grow faster and retain more capital in their early years.

Tax Holiday under Section 80-IAC

Eligible startups can claim a 100% profit exemption for any three consecutive years within the first ten years of incorporation. To qualify, your business must:

• Be DPIIT-recognized.
• Meet prescribed turnover and activity conditions under the Income Tax Act.

Exemption from Capital Gains Tax (Section 54GB)

Eligible startups can claim capital gains tax exemption on investments in specified assets, encouraging reinvestment into the business.

Angel Tax Exemption (Section 56(2)(VIIB))

Investments from accredited investors, non-residents, Category I AIFs, and listed companies with net worth over ₹100 Cr or turnover above ₹250 Cr are exempt from angel tax under Section 56(2)(VIIB), up to ₹25 Cr.

These startup India benefits can substantially reduce your tax outflow, freeing funds for R&D, hiring, or scaling operations.

Recent Approvals

As of May 2025, 187 startups have received approval under the revised Section 80-IAC framework. This signals a growing government focus on fostering innovation-driven entrepreneurship. Source: PIB

For founders, leveraging this incentive isn’t just about tax savings—it’s a strategic move to accelerate growth during the most critical years of your startup journey.

Step-by-Step ITR Filing Process for Founders & Startups (How to File ITR for Startups)

1) Create your account

• Register on the Income Tax Department India e-filing portal.
• Link PAN–Aadhaar. Update your profile and contact details.

2) Prep your papers (ITR Filing Documents for Startups)

• Collect P&L, Balance Sheet, bank statements, GST returns.
• Add Form 26AS, AIS/TIS, TDS/TCS, payroll, and cap-gains reports.

3) Reconcile first

• Match books with Form 26AS and AIS/TIS.
• Fix PAN errors, TDS gaps, and GST mismatches before filing.

4) Pick the right form (ITR Forms for Startups)

• Founders with business income: ITR-3 Form.
• Presumptive scheme: ITR-4 Form (44AD/44ADA/44AE).
• LLPs/Partnerships: ITR-5 Form. Companies: ITR-6 Form.

5) Choose your method

• Use online filing on the portal.
• Or download the utility if you prefer offline prep.

6) Fill income schedules

• Report salary, business/professional income, and other heads.
• Capture interest, dividends, cap-gains, and any foreign income.

7) Claim deductions smartly

• Add 80C/80D and startup perks like Section 80-IAC Deduction for Startups.
• Record depreciation and eligible R&D spends.

8) Set-off and carry forward

• Adjust current-year losses.
• Carry forward past losses as per Section 79 rules.

9) Compute tax

• Apply slab rates and surcharge/cess where due.
• Credit TDS/TCS and advance tax paid.

10) Pay balance tax

• Use e-Pay Tax on the portal.
• Generate challan, pay via net banking or UPI.

11) Attach audits if required

• Under 44AB or Companies Act, upload 3CA/3CB and 3CD.
• Ensure UDIN where applicable.

12) Validate and submit

• Run pre-validation checks and error scans.
• Confirm all disclosures and submit the return.

13) e-Verify within 30 days

• Use Aadhaar OTP, net banking, Demat, or EVC.
• No courier needed if e-verified on time.

14) Enable fast refunds

• Pre-validate your bank account for refunds.
• Keep it primary and active.

15) Save your proof

• Download ITR-V and the filed acknowledgement.
• Store challans, workings, and proofs safely.

ITR Filing for Startups with No Revenue or Losses

Zero revenue doesn’t mean zero compliance. Even loss-making startups are legally required to file their Income Tax Return.

Accurate filing in loss years is not just about avoiding penalties, it also:

• Preserves Loss Carry-Forward Benefits under the Income Tax Act, helping offset future profits.
• Builds a Strong Compliance Track Record, which is crucial when seeking investors or funding.
• Supports Audit Readiness by maintaining transparent financial records.

In short, filing on time, even with nil profits, signals professionalism, financial discipline, and investor readiness.

Common ITR Filing Mistakes Founders Must Avoid

Even seasoned entrepreneurs can slip up during ITR season. Avoid these pitfalls to stay compliant and investor-ready:

• Using the Wrong ITR Form: Filing ITR-1 when your startup income requires ITR-3 or ITR-4 can lead to rejection.
• Overlooking Secondary Income: Side income, capital gains, or freelance earnings must be declared.
• Ignoring Form 26AS Mismatches: Discrepancies between reported income and Form 26AS can trigger scrutiny.
• Missing Eligible Deductions: Benefits like Section 80-IAC for eligible startups often go unclaimed.
• Filing After the Deadline: Late filing invites penalties and impacts your compliance record.

A proactive review of these areas can save you from unnecessary notices, penalties, and compliance headaches.

Penalties & Consequences of Late or Incorrect ITR Filing

Delays and inaccuracies in ITR filing can have serious consequences:

• Penalty Under Section 234F: Late filing can cost up to ₹5,000; underreporting may attract a penalty of 50% of the tax due.
• Prosecution Risk: Willful non-filing, even after notices, can lead to imprisonment of 3 months to 2 years (up to 7 years for higher dues), plus fines.
• Interest on Outstanding Tax: Charged under Section 234A at 1% per month until taxes are paid.
• Loss of Carry-Forward Benefits: Most losses (except house property losses) can’t be carried forward if the return is late.
• Delayed Refunds: Filing after the due date postpones any tax refund due.
• Increased Risk of Tax Notices or Audits: Errors or delays invite additional scrutiny.
• Erosion of Investor Confidence: Compliance gaps can damage your credibility.

Timely, accurate filing is more than a compliance checkbox; it’s a safeguard for your startup’s reputation and financial health.

Conclusion

Think of ITR filing as your startup’s annual health check-up. Skip it, and small issues today could turn into expensive emergencies tomorrow.

Do it right, and you’re not just compliant, you’re sending a clear signal to investors, partners, and the tax department that your house is in order.

So, stay sharp, stay compliant and let the experts handle the number crunching while you focus on building the next big thing.

Startup Movers to Your ITR Rescue!

At Startup Movers, we make ITR filing for startups simple, accurate, and stress-free. From choosing the right ITR form to claiming benefits like Section 80-IAC, we handle it all.

Our experts ensure you stay compliant, avoid penalties, and maximize tax savings, so you can focus on scaling your business, not juggling tax deadlines.

FAQs on Startup Burn Rate and Cash Runaway

Q. Is ITR filing mandatory for startups?

Yes, even if you’re loss-making or have zero revenue, you must file to comply with Income Tax Department India rules.

Q. Which ITR form should a startup founder use?

It depends on your business structure and income type:

• ITR-3 → For individuals or HUFs with income from a proprietary business or profession.
• ITR-4 (Sugam) → For those under the presumptive taxation scheme (Sections 44AD, 44ADA, 44AE).
• ITR-5 → For partnerships, LLPs, and certain other entities.
• ITR-6 → For companies not claiming exemption under Section 11.
  Choosing the wrong form can lead to rejection or compliance issues, so confirm before filing.

Q. How can a startup claim the Section 80-IAC deduction?

Section 80-IAC offers 100% tax exemption on profits for three consecutive years (out of the first 10 years since incorporation) for eligible startups.
Steps:

1. Get DPIIT recognition as an eligible startup.
2. Apply to the Inter-Ministerial Board (IMB) for certification.
3. Once approved, claim the deduction while filing your ITR.
   Note: You must be incorporated as a Private Limited Company or LLP and meet turnover limits (≤ ₹100 crore).

Q.Can I correct a filed return?

Yes. If you’ve filed incorrectly, you can:

• Revise your return within the allowed timeline for the same assessment year.
• File an Updated Return (ITR-U) for AY 2021–22 and AY 2022–23 to fix errors or omissions.
  Be mindful, ITR-U may involve paying additional tax, interest, and late fees.