Budget 2016: Incentives for Start-ups

Last Updated at: September 28, 2019
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The present government’s aims to boost the Indian economy through the start-up ecosystem. To this end, in 2016, it introduced a string of tax incentives for budding entrepreneurs and businesses. Since few start-up owners are aware of these benefits, we explain some of them in this short article.

The Union Government has several options to boost the Indian economy. The one it seems to be betting on pretty heavily, given its relative size, is the start-up ecosystem. Since the beginning of its tenure, the Union Government has come on strong on the potential for start-ups to propel India into the big leagues. And in 2016, a string of tax incentives have been announced. Here’s what a start-up can now expect:

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Complete Deduction: A complete deduction of profits and gains is available to all start-ups in three of their first five years, so long as the business is involved in developing new products or services, driven by new technology or intellectual property. This is available to companies incorporated before April 1, 2019. This amendment will take effect from 1st April, 2017.

Fund of Funds: The Modi Government, in its Start-up India Action Plan, has announced a Fund of Funds, which will raise a total of Rs. 10,000 crore across four years to finance start-ups.

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Section 54EE: The Finance Bill, 2016 proposes to insert Section 54EE into Income Tax Act. This relates to a stop on payment of capital gains on investment in units of specified funds. Therefore, if a start-up invests in units of certain funds notified by the Central Government, there will be no payment of capital gains. This will take effect on April 1, 2017 and will apply to following assessment years.

To put it concisely, a start-up can get a full deduction of profits and gains in three of their first five years. Additionally, under the Start-up India Action Plan, the Fund of Funds initiative ensures finding funding will be more accessible. Lastly, Section 54EE of the Income Tax Act allows no payment of capital gains!

Frequently Asked Questions

How much should I earn to submit a tax return?

If your total income for the year doesn’t exceed certain thresholds, then you need not have to file a federal tax return. The amount of income before filing the tax depends on the type of income, age and filing status. Learn More about Income Tax filing

What is the minimum basic salary for PF deduction?

12% of the salary is deducted for PF from the employee or the worker by the employer on the monthly wages or on minimum 15,000 per month. More info on ESI registration

Do I need a license to sell homemade food in India?

Yes, FSSAI license is needed for any type of food business, whether it is large scale or small scale according to Food Safety and Security act. More information on FSSAI


Who needs ISO 9001 certification?

The ISO certification is designed to help the companies at various levels which includes improving leadership, focusing on customer requirements, finding ways to improve the business. More on ISO Certification


Is TDS on property refundable?

Under the 1% TDS rule for property sales, the buyer should deduct 1% TDS irrespective of the seller’s loss or profit provided the sale exceeds Rs. 50 lakh. Details on TDS Return Filing


When can I use the TM symbol?

There is no legal significance in using TM or SM, but it is wise to do so. Using TM or SM notifies the public of the claim in the branding rights. Details on Trademark Registration

Who can avail MSME loan?

To apply for a MSME loan, you must be a self-employed professional, self-employed non-professional or an entity such as a partnership, private limited limited, liability partnership or a closely held limited company. Learn more about SSI/ MSME Registration

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