Unlock Tax Benefit: Startup India & Tax Exemptions

The Startup India initiative has become the biggest driving force behind entrepreneurship development in India. It fosters an inspiration inducing innovation ambience further supporting a nurturing ecosystem for the sustenance of start-ups. Among the several facilities available to eligible start-ups, tax exemptions are at the top of the list of benefits that might leave almost negligible marks on the financial well-being of the start-up.

Why Tax Exemptions Matter  

Most startups are financially constrained in the first couple of years. Tax exemptions will amount to some form of relief they get for reinvesting their earnings in such key areas as R&D, marketing, and talent acquisition that would give way to faster growth and lead to increased chances of success. 

Startup India: Haven for Entrepreneurs

One of the integrated initiatives that nurture the startup ecosystem is the startup India scheme. The benefits include:

• Streamlining registration of the startup in India through single window portals.

• Recognition through DPIIT: DPIIT Registration by the Department for Promotion of Industry and Internal Trade to avail benefits/incentives offered under the Department.

• Registration at Startup India: Sign up your startup under the scheme so as to be eligible for many benefits, such as tax exemption.

• Online tax exemption: Enjoy tax exemptions for a set number of years to reduce the burden of tax and give way to free capital for further investment.

• Tax exemption under Startup India: Find tax holidays and other tax relief exclusively specifically designed for eligible start-ups.

Tax Benefits under Startup India

Some of the key tax benefits offered to eligible start-ups are as follows:-

• Income Tax Exemption : 100% income tax holiday on profits during three consecutive years out of ten years since incorporation

• Angel Tax Exemption: Deduction against angel tax under section 56(2)(viib) of the Income Tax Act, 1961, for investment by approved investors.

• Capital Gains Exemption: Exemption from long-term capital gains for investment in the following specified funds

• Tax Savings on Investments: Taxes can be waived for investments to eligible startups.

Eligibility Conditions for the Exemption of Tax  

Eligibility conditions for availing tax exemption through the Startup India are: 

• Have been incorporated as a private limited company, registered partnership firm, or a limited liability partnership. 

• Be recognized by DPIIT. 

• Have an annual turnover not exceeding ₹ 100 crore in any of the financial years since incorporation. 

• Must be engaged in activity aimed towards innovation, development or enhancement of products, processes or services 

• Should not be formed by virtue of splitting or reconstructing existing business. 

Application Online for Exemption from Tax 

The online claims process is not complicated for tax exemption. All the required documentation and eligibility criteria need to be provided through the portal of Startup India for filing. 

• The Startup India initiative has become a boon for entrepreneurs with support from a whole ecosystem, along with other benefits. 

• Tax exemption would be one of the most prominent advantages that a startup can have, allowing it to re-invest its earnings at a faster growth rate. 

As per the mandates, a DPIIT registration and a startup registration qualify to obtain the tax exemptions. Income tax holiday, angel tax exemption, and capital gains exemption fall under the tax exemption under the Startup India scheme. One can apply for tax exemption online through the portal of Startup India. 

Understanding the available tax benefits under the Startup India scheme and fulfilling eligibility criteria will not only decrease the tax burden on startups but also fuel them for their growth trajectory.