The Indian government has executed many tax benefits into operation to help the growth of startups and induce innovation within the country. The startups registered under DPIIT & have acquired a Startup India Registration Certificate can grow with such benefits, financially aiding and relieving early-stage companies, they can concentrate on development and growth. Some of the significant tax benefits offered to eligible start-ups in India are given below:
Three-Year Tax Holiday: Tax Exemption
Start-ups incorporated between April 1, 2016, to March 31, 2022, can file an application for a 100% tax rebate for three consecutive years out of the first ten years of incorporation on their profits.
The exemption has to be subject to certain conditions where the annual turnover of the business cannot exceed ₹ 25 crores.
This tax holiday serves as a lifeline for young startups during their first several years. The profit and, thereby growth is reinvested into the company rather than paid as tax.
80IAC: Profits or Gains
Three consecutive years of ten from when the incorporation took place, and those profits or gains can be deductible for 100 percent.
Such relief is offered to start-ups that have been incorporated between April 1, 2016, and April 1, 2023.
For such relief, the startup needs to acquire a certificate of eligible business from the Inter-Ministerial Board of Certification.
Relief from Angel Tax under Section 56(2)(viib)
Angel Tax is referred to as tax is a tax imposed on investments made above the fair market value. The investments that have been funded into Recognized startups by eligible investors are free from "Angel Tax."
Such exemption helps encourage funding by angel investors, venture capitalists, and other sources to further the interests of startup businesses.
The specified investments made on or after April 1, 2023, are covered.
Section 54GB. Exemption on Long-term Capital Gains
A person or a Hindu Undivided Family (HUF) who sells immovable property to claim exemption of long-term capital gains, if the sale proceeds are invested in eligible startups.
The exemption shall be available only where the investment is utilized for acquiring equity shares of a startup and such shares are held by the assessee for more than five years.
It encourages investment in start-ups by providing tax benefits to an individual.
Carry Forward Losses and Gains while Setting-off
In the initial years, the start-up can carry forward and set off its losses against the future profits for up to seven years.
This provision helps the start-up manage its finances and recover from early losses while creating a legitimate scope to sustain in the long run.
Employee Health Insurance
The health insurance expense relating to employees shall be deducted from the taxable earnings of the startup.
Health insurance coverage, as long as it is available to all employees at a uniform rate, is an incentive for startups to take care of their employees and to offer a competitive package of benefits.
Presumptive Tax Benefits
For eligible startups, presumptive taxation schemes are available, resulting in a reduction of tax compliance burden.
Under these schemes, the profits are assumed to be a certain percentage of turnover thereby eliminating the need for further accounting and auditing.
Long-Term Capital Gain Tax Benefits
Long-term investments (over 12 months), investment in eligible startups qualifies them for lower capital gain taxation.
Long-term investment in startups is promoted and motivation is provided to the investor also.
Exemption on Investment above the Fair Market Value
Some exceptions are available on investments above the fair market value on eligible startups.
Investments in scalable, high-growth potential and considerable startups are made.
It has to be formed as a private limited company or as an LLP.
Must be a startup that, again, has to satisfy the definition of being a Startup in Startup India, being innovative with less than ₹ 25 million in annual turnover and less than 5 years of existence.
Using tax benefits, Startups will be able to optimize their financial resources so that businesses will be able to grow fast and contribute to the dynamic market of India.
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