GST Compliance in India: What Startups and Foreign Companies Must Know

Why GST is the First Test of Doing Business in India

In the fiscal year 2024–25, India’s gross GST collections soared to a record ₹22.08 lakh crore, registering a 9.4 % year-on-year growth, signalling the resilience of the tax regime even amid structural reforms. For foreign firms and startups entering India today, mastering GST compliance is not just a legal necessity — it is a strategic imperative. Overlooking nuances can lead to hefty penalties, cash-flow shocks, or stalled operations. In this blog, we walk you through exactly what you must know — from thresholds and registrations to the newly rationalised slabs of 2025 — to stay ahead in India’s evolving tax landscape.

GST 2025: From Complex Slabs to Simplified Growth Path

In September 2025, the GST Council approved a landmark rationalisation – phasing out the 12 % and 28 % slabs, and introducing a two-tier structure of 5 % and 18 %, with a special 40 % slab reserved for luxury/sin goods. The changes take effect from 22 September 2025. The intent: simplify, reduce classification disputes, and sharpen revenue collection through higher elasticity. Indeed, with the structural reform in place, economists expect consumption to be stimulated and compliance to improve. India’s gross collections in FY 2024–25 already stood at ₹22.08 lakh crore.

Thresholds That Still Matter

Threshold limits for GST registration remain unchanged. Businesses in non-special states must register once turnover crosses ₹40 lakh (goods) or ₹20 lakh (services). In special category states, the limits drop to ₹20 lakh (goods) and ₹10 lakh (services) respectively. Startups providing services online, or making interstate supplies, must register even if turnover is below thresholds.

Why Startups & Foreign Firms Should Care

Transparent pricing = better investor confidence.
Reduced disputes = lower legal costs.
Simpler ITC rules = healthier cash flow.
First movers gain a smoother compliance advantage.

From Incorporation to Invoicing: The GST Playbook for Startups & Foreign Firms

Choosing the Right Entry Model

Foreign entrepreneurs typically enter India via a Wholly Owned Subsidiary (WOS), Joint Venture (JV), Branch Office, or Liaison Office. Only entities engaged in business activity must register under GST. The structure you choose affects not only RBI/FEMA compliance but also your indirect tax exposure.

Registration, Invoicing & Time of Supply

GST Registration: File online via GST portal (TRN → documents → GSTIN).
Time of Supply: Critical in 2025 reform year. If you receive advance before 22 Sept but invoice later, old slab applies; otherwise, new rates prevail.
Invoicing Systems: Align ERP and contracts to split pre- and post-reform supplies.

Input Tax Credit, Reversals & Refunds

Foreign firms must manage ITC tightly. Credits linked to exempt supplies must be reversed. Refunds are not allowed simply due to slab rationalisation; only genuine inverted duty structures qualify.

Case in Point – SaaS Startup Success

A US-based SaaS company set up in Bengaluru pre-emptively structured client contracts into two phases (before and after reform). This avoided rate disputes, safeguarded ITC, and won investor trust. For them, compliance became a competitive differentiator, not a burden.

The Compliance Compass: Navigating Today and Preparing for Tomorrow

Building a GST Implementation Strategy

Audit systems for dual slab logic.
Tag inputs/outputs for faster credit reversals.
Plan cash flow buffers for refund delays.
Train teams on slab rules and time-of-supply logic.

Challenges to Watch Out For

Classification ambiguity → adopt conservative stance, maintain strong documentation.
Refund lags → file RFD-01 promptly with audit trails.
Locked GSTR-3B (from July 2025) → errors cannot be corrected, accuracy vital.
Cross-border complexities → imports of services now taxed under revised IGST slabs.

Looking Ahead

With GSTAT hearings beginning December 2025, dispute resolution is expected to be faster and digital-first. Early adopters who align to reforms now will navigate India’s compliance ecosystem with fewer disruptions.

Guide Section – Startup-Friendly GST Toolkit 2025

Why Compliance Today Equals Growth Tomorrow

GST is not just a filing exercise — it’s the first stress test of your India operations. With reforms reshaping tax slabs and filing rules in 2025, proactive compliance helps startups and foreign firms build investor trust, protect cash flow, and reduce litigation risks.