GST has been live in India since July 2017. Yet nearly every week, we see startups receiving demand notices, paying avoidable penalties, and scrambling to reconcile mismatched returns — for errors that were entirely preventable.
The problem isn’t ignorance. Most founders know GST exists. The problem is the details — registration timing, return sequencing, ITC eligibility, reverse charge, and place of supply — each of which has its own rules, deadlines, and traps.
This article covers the 5 most common GST mistakes we see at Fimaco® when onboarding new startup clients, and more importantly, exactly what to do to fix them.
Mistake 1: Missing the ₹20 Lakh Registration Threshold
What happens: GST registration is mandatory once your aggregate turnover crosses ₹20 lakh in a financial year (₹10 lakh for businesses in Northeastern and special category states). Many founders either don’t track this carefully, or assume the clock resets annually. It doesn’t.
The moment you cross ₹20 lakh in cumulative revenue — across all your income sources, not just primary sales — you must register for GST within 30 days.
The consequence: If you crossed the threshold but didn’t register, GST authorities can demand tax on all revenue earned after the threshold date, plus 18% interest per annum and a penalty of 10% of the unpaid tax (minimum ₹10,000).
The fix:
- Set a revenue tracker alert at ₹15 lakh so you register early
- If you sell interstate or through e-commerce (Amazon, Flipkart, Swiggy etc.), registration is mandatory regardless of turnover — no exemption applies
- B2B service providers should register early regardless, since your clients will want to claim ITC on your invoices
Fimaco Tip: If you’ve already crossed the threshold unregistered, a voluntary late registration is always better than waiting to be caught. Penalties are lower for voluntary disclosure.
Mistake 2: Filing GSTR-1 Without Filing GSTR-3B (Or Vice Versa)
What happens: GSTR-1 reports your outward supply details (what you sold). GSTR-3B is your summary return where you actually pay the tax. Many startups file one but not the other — either because their accountant handles only one, or they think filing GSTR-1 is sufficient.
It isn’t. Both are mandatory, and the figures must match.
The consequence: A mismatch between your GSTR-1 (what you declared as supplies) and your GSTR-3B (what you paid tax on) triggers an automated system flag. The GST department issues a GSTR-2B reconciliation failure notice. This can freeze your ITC claims and escalate to a scrutiny assessment.
The fix:
- Create a monthly compliance calendar with both deadlines: GSTR-1 is due by the 11th, GSTR-3B by the 20th (for monthly filers)
- Use accounting software (Tally, Zoho Books, or Fimaco’s platform) that auto-populates GSTR-3B from your GSTR-1 data
- Reconcile GSTR-2B (auto-generated by GST portal from your suppliers’ GSTR-1s) against your purchase register every month before filing GSTR-3B
Mistake 3: Not Claiming Input Tax Credit on Eligible Purchases
What happens: Input Tax Credit (ITC) is the mechanism that prevents cascading taxation — you pay GST on your sales but get credit for the GST you already paid on your purchases. Most startups either don’t claim ITC at all, or claim it incorrectly.
The consequence: Unclaimed ITC is real money lost. A startup with ₹50 lakh in annual B2B purchases at 18% GST is leaving ₹9 lakh on the table every year if they don’t claim ITC.
Common ITC errors:
- Claiming ITC on personal expenses (not allowed)
- Claiming ITC when the supplier hasn’t filed their GSTR-1 (your claim will be rejected in GSTR-2B)
- Missing the ITC deadline — you must claim ITC before the due date of the GSTR-3B for November of the following financial year, or before filing the annual return (GSTR-9), whichever is earlier
- Not claiming ITC on capital goods like computers, machinery, furniture (18% GST on these is fully claimable)
The fix:
- Maintain a purchase register with GSTIN of all vendors
- Check GSTR-2B on the 14th of every month — only claim ITC that appears there
- Track capital goods separately and claim ITC in the month of purchase
Mistake 4: Getting the Place of Supply Wrong on Service Invoices
What happens: For service businesses — software companies, consultancies, agencies — Place of Supply (PoS) determines whether you charge CGST+SGST (same state) or IGST (interstate). Getting this wrong means you’ve collected the wrong tax and remitted it to the wrong government.
The consequence: Suppose you’re based in Delhi and provide services to a client in Mumbai. You charged CGST+SGST (Delhi) instead of IGST. Your client cannot claim ITC (because they need IGST for inter-state). The Maharashtra and Delhi governments both have a problem. You now face demands, penalties, and the painful process of reverse-adjusting the wrong tax paid.
Common PoS errors for services:
- Business-to-business services: PoS is the location of the recipient’s business (their registered GSTIN state)
- B2C services: generally the location of the service provider
- Digital services to unregistered persons: special rules apply
The fix:
- For every invoice, confirm: is the client GST registered? What state is their GSTIN? That determines CGST/SGST vs IGST
- Build this as a mandatory field in your invoicing software — never leave it to manual judgement
- For SaaS products with pan-India B2C customers, consult a CA for the right PoS treatment
Mistake 5: Ignoring Reverse Charge Mechanism (RCM)
What happens: Under Reverse Charge Mechanism, the recipient (you) pays GST instead of the supplier. This applies in specific scenarios that many startups don’t know about:
- Payments to unregistered vendors exceeding ₹5,000 per day (though this threshold has evolved — always verify current rules)
- Legal and advocate services received by a business
- Import of services (e.g., paying AWS, Google Cloud, Stripe, or any foreign SaaS)
- GTA (goods transport) services
- Director’s remuneration (in certain structures)
The consequence: If you’re paying AWS ₹3 lakh/month and haven’t been paying 18% IGST under RCM on that import of service, you have a significant GST liability that has been accumulating with interest.
The fix:
- List all your foreign vendor payments (cloud, software, freelancers abroad) — every single one is likely an “import of service” subject to 18% IGST under RCM
- Pay RCM liability in cash (it cannot be offset against ITC balance) in GSTR-3B Table 3.1(d)
- The good news: RCM paid is eligible for ITC in the same period (if you’re eligible), so it’s largely cash-flow neutral — but you must declare it
A Quick Compliance Checklist
Before you close this article, run through this in the next 10 minutes:
- Has your turnover crossed ₹20 lakh? Are you GST registered?
- Are both GSTR-1 and GSTR-3B filed for the last 3 months?
- Have you checked GSTR-2B this month and matched it to your purchases?
- Are you paying GST on AWS/Google/Stripe/foreign SaaS under RCM?
- Are your service invoices showing the correct Place of Supply?
If you answered “I’m not sure” to any of these — that’s exactly where Fimaco comes in.
How Fimaco Can Help
Our GST compliance service covers:
- Monthly GSTR-1 & GSTR-3B filing with reconciliation
- ITC optimisation — we audit your purchase register and recover missed credits
- RCM compliance for all foreign vendor payments
- GST notice handling — we respond on your behalf
- Annual GSTR-9 & 9C reconciliation and filing
Packages start at ₹15,000/year for India compliance. View Pricing →
Conclusion
GST compliance isn’t optional — but it also doesn’t have to be stressful. The five mistakes above account for over 80% of the notices and penalties we see startups receive. Fix these, and you’ve eliminated most of your GST risk.
If you’d like a free compliance health check — 15 minutes with one of our CA team members to review your current GST setup — book here.