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

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 Holiday Section 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 losses Set 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 Act Investment 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 Exemption Angel 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 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.