Tax Exemptions available for startups in India 2021

Last Updated On: Sept. 20, 2021, 11:08 p.m.
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TAX EXEMPTIONS AVAILABLE FOR STARTUPS IN INDIA

According to Section 2(40) of Companies act, 2013, startup means

(i) A private company registered under companies act, 2013 or any previous act

(ii) Recognized as startup in accordance with Department of Industrial Policy and promotions (DIPP). In order to accelerate spreading to startup movement in India, Government had announced an action plan known as the Startup India initiative that addresses all the aspects of startup ecosystems.

The key features of this action plan were

(i) Easy registration with lesser compliances

(ii) Tax Holidays for a period of 3 consecutive years out of the block 10 initial years

(iii) Exempted from previous experience/ turnover in getting government tenders

(iv) GOI has set up Rs. 10000 crores to provide funds to startup as venture capital

 

Eligibility for Startup India

As per the Startup India Action plan, the followings conditions must be fulfilled in order to be eligible as Startup :

  • Has not yet completed a period of ten years from the date of incorporation/registration.
  • Is a private limited company or registered as a partnership firm or a limited liability partnership.
  • Has an annual turnover not exceeding Rs. 100 crore for any of the financial years since incorporation/registration.
  • Is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
  • It is not formed by splitting up or reconstructing a business already in existence.

 

TAX EXEMPTIONS AVAILABLE FOR A STARTUP COMPANY

Exemptions from SECTION 8OIAC: Eligible startup can claim up to 100% of profits and gains for 3 consecutive years in a block of 10 years provided the turnover of the company does not exceed 100 crores in any of the previous financial year.

Exemptions for tax on Long term Capital Gains: An eligible company can claim exemption on long-term capital gains under section 54EE if such amount or part thereof is invested in a fund notified by central government within a period of 6 month from the date of transfer of assets.

Tax exemption on investments above fair market value: The government has exempted the tax invested above the fair market value in eligible startups. Such investments include investments made by resident angel investors, or incubators that are not registered as venture capital funds.

Tax exemption available to individuals or HUF of long term capital gains: Section 54GB allows the tax exemption on long-term capital gains on the sale of a residential property if such gains are invested to acquire 50% or more equity shares of the eligible startups, tax on long term capital will be exempt provided that such shares are held at least for 5 years from the date of its acquisition.

Set off of carry forward losses: The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares in which the loss was incurred continue to hold shares on the last day of the previous year in which loss has been carried forward.

 

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