🧾 How to Run a Part-Time Business Legally With GST and TDS

Running a part-time business alongside a full-time job or studies is a great way to build additional income and financial independence. Whether you're freelancing, selling handmade crafts, offering consulting services, or managing an e-commerce store, staying compliant with Indian tax laws—especially GST (Goods and Services Tax) and TDS (Tax Deducted at Source)—is essential.

⚠️ Disclaimer: This article is for informational purposes only. Please consult a qualified Chartered Accountant (CA) for specific legal and tax advice.

🧠 Understanding the Basics

💼 What is a Part-Time Business?

A part-time business is any income-generating activity that you manage alongside your primary job or education. Common examples include:

• Selling products on marketplaces (Amazon, Flipkart, etc.)
• Freelance services like writing, designing, coding
• Online coaching or consulting
• Dropshipping or print-on-demand businesses
• Blogging and affiliate marketing
• Offering digital products or services

You might think, "It's just a side hustle." But if you're earning income from it, the government sees it as a business—and that means taxes and legal compliance.

🏛️ Choosing the Right Legal Structure

Before thinking about GST or TDS, determine how you want to structure your business legally.

👤 Sole Proprietorship

• Most common and easiest to start
• No formal registration needed
• Uses your personal PAN
• You’re personally liable for profits and losses

🧑‍🤝‍🧑 Partnership or LLP

• Suitable if you have a co-founder
• LLP provides limited liability
• Requires a formal agreement and registration
• Requires a separate PAN

🏢 Private Limited Company

• A more complex structure
• Separate legal identity
• Needs incorporation, board of directors, filings
• Ideal for scaling or attracting investors

💡 For a small or part-time business, a sole proprietorship is the easiest route.

📋 Understanding GST (Goods and Services Tax)

GST is a comprehensive indirect tax levied on the supply of goods and services. It has replaced various other taxes like VAT, service tax, excise duty, etc.

💡 When Do You Need to Register for GST?

You are required to register for GST if any of the following apply:

• Your annual turnover exceeds ₹20 lakhs (₹10 lakhs for NE and hill states)
• You supply goods or services across states
• You sell through e-commerce platforms
• You are a freelancer or service provider receiving foreign income (export of services)
• You want to claim input tax credit

📝 You can also opt for voluntary GST registration even if you're below the threshold, to claim input tax credit and gain credibility.

🛠️ How to Register for GST

To register for GST, follow these general steps:

1. Prepare your documents:

   • PAN card
   • Aadhaar card
   • Photograph
   • Address proof for business place
   • Bank account details
   • Business registration (if applicable)
2. Submit application on the GST portal
3. Receive your GSTIN (GST Identification Number) once your application is verified

🕒 It usually takes 3–7 working days for approval.

📈 Complying With GST After Registration

💳 Generating GST Invoices

Every taxable supply of goods or services must have a GST-compliant invoice. Each invoice should include:

• Your name, address, and GSTIN
• Invoice number and date
• Customer details
• Description of goods/services
• HSN or SAC codes
• Tax rate and amount (CGST, SGST, IGST)

💡 Use billing software to ensure accuracy and compliance.

📤 Filing GST Returns

Once registered, you're legally obligated to file monthly or quarterly GST returns.

Common returns include:

• GSTR-1 – Details of outward supplies (sales)
• GSTR-3B – Summary return for taxes paid
• GSTR-9 – Annual return (mandatory in some cases)

📅 Due Dates:

• GSTR-1: 11th of the following month
• GSTR-3B: 20th of the following month

🛑 Even if you have zero sales, you must file nil returns on time to avoid penalties.

🔁 Input Tax Credit (ITC)

One key benefit of GST registration is the ability to claim ITC—tax paid on purchases or expenses used for your business.

📌 Example:

• Output tax on sales: ₹10,000
• Input tax on expenses: ₹4,000
• Net GST payable: ₹6,000

Only businesses registered under GST can claim this benefit.

💸 What is TDS (Tax Deducted at Source)?

TDS is a system where the payer deducts a portion of the payment (tax) and deposits it with the government. It applies to certain types of payments like:

• Professional fees
• Contractor payments
• Rent
• Commissions
• Payments through e-commerce platforms

Even if you’re running a part-time business, TDS may apply either:

• When someone pays you
• Or when you pay someone else

🧾 When You’re Paid (Receiving TDS)

If you’re a freelancer or service provider, clients may deduct TDS before paying you. Common deductions:

• Section 194J: For professional services – 10%
• Section 194C: For contracts – 1% or 2%
• Section 194O: For e-commerce sellers – 1%

📥 Example:

• Client pays you ₹50,000
• Deducts 10% (₹5,000) as TDS
• You receive ₹45,000
• You can claim ₹5,000 as TDS credit when filing your income tax return

🧾 Check Form 26AS or AIS (Annual Information Statement) to track TDS deducted by others.

🧾 When You’re Paying (Deducting TDS)

If your business turnover exceeds ₹1 crore (or ₹50 lakh for professionals), you may be required to deduct TDS on certain payments you make.

TDS must be deducted if you pay:

• Freelancers
• Contractors
• Rent above a certain limit
• Professionals like designers, accountants, etc.

🪪 TAN (Tax Deduction Account Number)

To deduct TDS, you need to obtain a TAN.

Once you have a TAN:

1. Deduct TDS at applicable rates
2. Deposit it to the government using Challan 281
3. File quarterly TDS returns (Form 26Q, etc.)
4. Issue Form 16A to the payee as proof of deduction

💡 This may not apply to very small part-time businesses, but it’s good to know for future scalability.

🧾 Business PAN, Bank Account & MSME (Udyam) Registration

To operate professionally, even a part-time business should formalize these basic aspects:

🧾 PAN (Permanent Account Number)

• If you’re a sole proprietor, your personal PAN is sufficient
• For other structures (LLP, Pvt Ltd), a separate PAN is required

🏦 Current Account

Open a current bank account in your business name:

• Professional image
• Easier for accounting and audit
• Mandatory for payment gateways and marketplaces

📑 Documents Needed:

• PAN
• Aadhaar
• GST certificate (if available)
• Address proof
• Business registration (if applicable)

🧵 MSME (Udyam) Registration

Registering as a Micro, Small, or Medium Enterprise (MSME) offers:

• Easier access to loans
• Interest subsidies
• Participation in government tenders
• Tax and compliance benefits

💡 It’s free and helps even small businesses build credibility.

💰 Income Tax on Part-Time Business Income

All income earned from your side business must be declared when filing income tax.

📋 Tax Category

Income from your business is treated as “Profits and Gains from Business or Profession” and is added to your total income.

You can:

• Maintain detailed books of accounts and file using ITR-3
• OR opt for presumptive taxation using ITR-4

📉 Presumptive Taxation Scheme (Section 44ADA/44AE)

This is ideal for freelancers, consultants, or small service providers.

Under Section 44ADA:

• You declare 50% of gross receipts as your profit
• No need to maintain books of accounts
• Turnover must be below ₹50 lakhs

📥 Example:

• You earn ₹20 lakhs from freelancing
• Declare ₹10 lakhs (50%) as profit
• Tax is calculated on ₹10 lakhs

📚 Maintaining Proper Records

Even for a small business, keeping accurate records helps in filing taxes and avoiding penalties.

🗂️ Keep Records of:

• Sales invoices
• Purchase bills
• Bank statements
• GST returns
• TDS certificates (Form 16A)
• Income and expense logs

💡 Tools like Excel, Google Sheets, or accounting software (Tally, Zoho Books) can help.

📉 Penalties for Non-Compliance

📌 Ignoring GST or TDS compliance can be expensive:

• Late GST filing: ₹50 per day (₹20/day for nil returns)
• Late TDS filing: ₹200/day plus interest
• Incorrect GST claims: Penalties + prosecution in severe cases
• Non-filing of income tax: ₹5,000 to ₹10,000 penalty

✅ Even if your business is not yet profitable, file your returns on time.

🧠 Pro Tips for Managing Your Part-Time Business Legally

🔹 Keep business and personal finances separate
🔹 Set calendar reminders for GST, TDS, and IT filings
🔹 Use digital tools to automate invoicing and record-keeping
🔹 Hire a CA for quarterly or annual guidance
🔹 Stay updated with tax changes applicable to small businesses
🔹 File nil returns when there's no income

🧭 Final Thoughts

Running a part-time business can be exciting and financially rewarding, but legal compliance is crucial for long-term success. Understanding and managing GST and TDS responsibilities ensures your business runs smoothly without legal hurdles.

Even if you're just starting out, treating your side business like a real business helps you grow professionally, build credibility, and potentially scale it into a full-time venture.

So take the necessary steps—register, file, and maintain your records—and you’ll be well on your way to becoming a legally compliant entrepreneur.

Created & Posted by Aashima Verma

Accounts Executive at TAXAJ

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

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