Startup Tax Exemption

Startup Tax Exemption In India
(Price Start at $ 240 /-)

Startup culture in India has grown multi-fold making India a hub for innovation with entrepreneurs coming from each part of the country. The increased momentum of startups is a result of access to technology and ease of raising capital. The government policies concerning startups have also been a moving factor in making India an attractive market for investors and entrepreneurs.

It is pertinent to understand that a startup is nothing but a new business formed or a company that is at the initial stage of business. Startups are primarily based on the founder’s belief to introduce a unique product or a service in a relevant market. Generally, startups function at high cost and low capital investment. Indian economy has witnessed various successful startups and these startups play a vital role in creating employment and attracting foreign investments. As a result, various incentives like tax exemptions and initiatives such as Startup India, Digital India and Make in India are taken by the government to promote and encourage startups.

Eligibility conditions for startups

The Department of Promotion of Industry and Internal Trade (for short “DPIIT”) undertakes initiatives and operations for startup growth in India. DPIIT provides for conditions to become an eligible startup to claim various benefits and exemptions. The conditions are as follows:

  • Incorporated after 1st April, 2016 and is yet to complete ten years from incorporation.
  • A private limited company or a partnership or a limited liability partnership.
  • Annual turnover remains below Rs. 100 crores.
  • Working towards innovation and employment generation or wealth creation.
  • Is not formed by corporate restructuring (demerger) of an existing business.

Tax exemptions given to startups

Following tax exemptions have been provided by the government specifically for the startups to grow in India:

  1. 3 years Tax HolidaySection 80 IAC of the Income Tax Act (for short “IT Act”) provides for three financial year tax holidays out of ten years since inception for eligible startups. Tax holiday in simpler terms means a provision to deduct 100% of the profits earned in three financial years. However, the startup is required to fulfill the above-discussed eligibility criteria and become an eligible startup.
  2. Long-term Capital Gains Exemption Section 54EE of the IT Act is introduced to provide long-term capital gain (for short “LTCG”) tax exemption benefits up to Rs. 50 lacs for startups. Tax on LTCG is levied on the sale of assets based on their holding period, for example, equity-based assets levy LTCG, if sold after 1 year of purchase.
  3. Set off and carry forward lossesSet off and Carry forward losses are made flexible under Section 79 of the IT Act for startups to reduce their tax burden. Section 79 provides for set off and carry forward of losses subject to the condition that 51 percent of shareholders holding beneficial voting power remain the same as at the beginning and end of the year in which the loss was incurred. However, this condition has been relaxed for eligible startups.
  4. Exemption under 54GB of the IT ActInvestment in eligible startups by individuals/ HUF has also been exempted. This works as a healthy promotion for the startups as Individuals/ HUFs are provided with an option to save their tax on LTCG on account of the sale of a residential property by investing their LTCG in eligible startups.
  5. Angel Tax ExemptionAngel tax exemption is provided under Section 56(2)(viib) of the IT Act. Most of the startups are funded by Angels or Venture Capital. Tax is levied on the consideration received by a closely held company in excess of the fair market value of its shares. However, to woo more such funding in startups, the government came up with an exception for Angels or Venture Capitals under Section 56(2)(viib) of the IT Act.

Some other ancillary benefits also enjoyed by the eligible startups in India are as following:

  1. Access to Equity Fund of Funds of INR 10,000 core is provided by the government to support the growth of support.
  2. Fast track exit for startups startups with simple debt structures can be wound up within 90 days of applying insolvency vis a vis 180 days for other companies.
  3. Startups have the authority to self-certify for compliance purposes under certain Environment & Labour Laws.
  4. Special IPR Protection and Patent Application are provided for the startups.
  5. The provision of fast-track patent applications with 80% rebate in filing patents is also provided to the startups.

Documents required to get tax exemption?

While applying for tax exemptions at the “Start-up India Portal” for the inter-ministerial board of certification, the following documents are required to be accompanied by the form:

  • MOA or LLP Agreement
  • Incorporation/ Registration Certificate
  • Board Resolution
  • Last FY ITR and Balance Sheet
  • Shareholding pattern of the entity
  • Details of funding
  • Details regarding Patents and Trademarks
  • PAN Number of the startup
  • Startup video
  • Pitch deck in PDF format

Procedure to apply for startup exemption in india?

A business entity post-incorporation needs to be recognized as a startup by the DPIIT to get the benefits of various exemptions. It is pertinent to note that before applying for startup exemption, the eligibility conditions for an entity to be recognized as a startup needs to be fulfilled. Upon successful fulfillment of eligibility conditions, the entity is required to make an online application, which is the ‘Startup Recognition Form’ as set up by DPIIT. The online application requires various details such as office address, director’s information, activities performed, and self-certification. The following documents are required along with the application:

  • Incorporation/ Registration Certificate
  • Nature of business along with its scalability in terms of employment generation or wealth creation in the form of a write-up.

Further, the startup is required to apply at Startup India portal post receiving the DPIIT’s startup recognition certificate.

How can we help you with startup tax exemption?

Seeking expert guidance is essential when navigating the complicated landscape of startup tax exemptions in India. Our highly trained staff specializes in mentoring companies through the complex process of DPIIT accreditation, ensuring eligibility requirements have been met, relevant documentation is correctly produced and additional applications are approved at the Startup India Portal. We simplify the application process for numerous tax exemptions, such as the three-year tax vacation, long-term capital gains exemption, and loss set-off, and provide business owners with a thorough grasp of compliance requirements.


Conclusion

India is witnessing a flourishing startup ecosystem, which is driving both economic expansion and innovation. There has been a boom in the startup ecosystem because of the different ideas that entrepreneurs from all across the country are bringing to the table, together with technological developments and more convenient access to funding. The government is also working towards providing a level playing field for startups and most importantly the time for them to thrive in the market by tax exemptions and programs like Make in India, Digital India, and Startup India. However, it is crucial to obtain expert guidance while negotiating the complexities of startup tax exemptions so that entrepreneurs can confidently and effectively concentrate on their primary goal.

Most common question about our services

How to get a business entity incorporated?

Registration application is required to be filed with the Registrar of Companies (ROC) of your region along with the required documents and applicable fees.


What are the conditions to avail deduction under Section 80 IAC of the IT Act?

An entity is required to be an eligible startup as recognized by DPIIT and Form 10CCB is required to be filled by a Chartered Accountant one month before the due date of filing.


What is a Startup Video?

A Startup video is a short animated video that spreads a business idea very fast. It is a simple way that combines attractive images, language, and animations to entice viewers. Further, video guidelines are issued by “Startup India”.


What is a Pitch Deck?

A pitch deck is a presentation that pitches business ideas to a vast audience generally investors. It is required to be well organized and is needed to be submitted in PDF format.


Our Registration Services
  • Start Up India Registration
  • Angel Tax Excemption (Section 56, IT Act)
  • Start-up tax excemption (Sec 80-IAC)
  • Legal Entity Identifier Registration
  • MSME/UDHYOG Aadhar Registration
  • IEC Registration
  • ESI&PF Registration
  • ISO Registration (Non-Audit)
  • ISBN Registration
  • GST Registration
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