Tax Exemption

It's always a good idea to start a new business. The Indian government offers many benefits for startups to succeed. From the big idea of this program, there are various Tax Exemption benefits, which make a big difference in the first years of company incorporation.

What is Startup India Tax Exemption?

Startup India Tax Exemption is a government benefit that allows eligible startups to claim 100% income tax exemption for 3 consecutive years out of their first 10 years of incorporation. To qualify, your startup must be DPIIT-recognized, incorporated as a private limited company or LLP, and have a turnover under ₹100 crore. This exemption, under Section 80-IAC, helps reduce early-stage financial pressure so startups can reinvest profits and grow faster. You can apply through the Income Tax portal once DPIIT recognition is granted. It’s a crucial relief that supports innovation and entrepreneurship across India’s growing startup ecosystem.

Eligibility Criteria For Tax Exemption

To claim the 3-year tax exemption under the Startup India scheme, your startup must meet these conditions:

• DPIIT Recognition – You must be officially recognized as a startup by the Department for Promotion of Industry and Internal Trade (DPIIT).
• Type of Company – Your startup should be a Private Limited Company or an LLP.
• Age of Startup – It must be less than 10 years old from the date of incorporation.
• Annual Turnover – Should not exceed ₹100 crore in any financial year.
• Original Business – Your startup should not be formed by splitting or restructuring an existing business.

What is Section 80-IAC?

Section 80C of the Income Tax Act is one of the most popular tax-saving sections used by business owners and salaried individuals in India. It allows you to deduct up to ₹1.5 lakh per financial year from your total taxable income which helps reduce your overall tax liability.

Under the 80C section of Income Tax Act, you can claim deductions for investments and expenses like:

• Life insurance premiums
• ELSS mutual funds
• PPF (Public Provident Fund)
• EPF (Employee Provident Fund)
• Tax-saving FDs
• Children’s tuition fees
• Principal repayment on home loan
  
  This section is especially useful for founders and business owners looking to manage both business finances and personal tax savings smartly.

Benefits of Tax Exemption for Startups & MSMEs?

The Startup India Tax Exemption initiative by the government is working for entrepreneurship and innovation. It is the most beneficial opportunity. It provides eligible startups with tax exemption on their profits for three consecutive years within their first ten years of incorporation. 

That means you can keep more of your earnings and put them back into your business growth.
This initiative forms the core of Startup India, which is aimed at creating an energetic startup system in India. It is designed to promote innovation, job creation, and economic growth.

The tax exemption for startups provides several key advantages: 

• Financial Security: Low tax liabilities bring about more financial security, letting the startups commit more resources for growth and expansion. 
• Greater Attractiveness to Investors: Tax Exemption will attract investors for startups, to afford the required funding. 
• Idea-focused start-up: Less taxes give enough resources of investing in the process of Research and Development. which results in innovative products or services being manufactured. 
• Ease to Operate Business: Ease on taxes would ensure that there are available funds that are meant for expenditure relating to the operating of business. Thus, advertisements and recruitment or establishing infrastructure can take place. 

Call us today at StartupFlora to understand how the process can helpful for your business.

FAQ

Q1: What is the Startup India Tax Exemption?
A: A 100% tax holiday on profits for 3 years, available to eligible DPIIT-recognized startups under Section 80-IAC.

Q2: How can the Startup India Tax Exemption benefit my startup?
A: The tax exemption can significantly reduce your startup's tax burden, allowing you to reinvest savings into your business. Benefits include a three-year tax holiday, exemptions on capital gains, and tax exemptions on investments above fair market value.

Q3: Who is eligible for the Startup India Tax Exemption?
A:
Eligibility criteria include:

• Your startup must be a private limited company, a registered partnership firm, or a limited liability partnership.
• The entity should not be older than 10 years from the date of incorporation.
• The annual turnover should not exceed INR 100 crores.
• The startup should be working towards innovation, development, or improvement of products or services.

Q4: Are there any specific requirements for my startup to qualify?
A: Your startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) and should contribute to innovation or improvement of products, processes, or services.

Q5: What are the tax benefits available under the Startup India scheme?
A:
The primary benefits of tax exemption included:

• A three-year tax holiday on profits for startups recognized by DPIIT.
• Exemption on capital gains.
• Exemption on investments above fair market value.

Q6: How long is the tax exemption valid?
A: The tax exemption is valid for three consecutive years out of the first ten years from the date of incorporation of the startup.

Q7: Are there any limitations or conditions on the tax benefits?
A: The tax benefits are subject to the condition that the startup must be DPIIT recognized and must not be formed by splitting up or reconstructing an already existing business.