Startup India offers a range of tax breaks for eligible startups, such as a 3-year tax holiday and exemptions on long-term capital gains. Dive deep into the criteria and the most asked questions surrounding the scheme.
Updates:
- Extension of Tax Benefits for Startups:
During a recent budget speech, Finance Minister Nirmala Sitharaman shared updates for India’s startups. The date for new startups to get tax benefits has been moved from 31st March 2023 to 31st March 2024. This gives them an extra year of tax advantages. Additionally, startups can now carry forward their losses for up to 10 years, offering them more financial support during tough times.
- Google’s Collaboration with Startup India:
Google is teaming up with Startup India to create a virtual Startup School, focusing on helping startups outside big cities. This project aims to provide all startups, even in remote areas, with the knowledge and tools they need, leveraging Google’s vast digital reach. The second session of this Startup School starts on July 11, 2023. Startups, especially from smaller towns, are urged to join and benefit from it.
Eligibility for Startup India:
To be eligible for the Startup India initiative, businesses must be recognised as a startup by the Department for Promotion of Industry and Internal Trade (DPIIT).
Applicant’s Age:
- Must be an Indian citizen.
- Minimum age: 18 years.
Firm’s Age:
The date of Incorporation shouldn’t be older than ten years.
Company Type:
Must be a Partnership Firm, Private Limited Company, or Limited Liability Partnership (LLP).
Turnover:
Annual turnover must not exceed 100 crores in any financial year since its inception.
Original Entity:
- Should be originally formed by the promoters.
- Not established by splitting or restructuring an existing business.
Innovation & Scalability:
- Should have plans for product, process, or service development/improvement.
- Business model should be scalable with the potential for wealth & employment creation.
Product/Service Specifics:
- Work on technology-driven or IP-based products/services.
- Aim to enhance or develop unique products for customer value or workflow.
Registration & Approvals:
- Obtain approval from the Department for Promotion of Industry and Internal Trade (DPIIT).
- Recommendation from an incubator affiliated with a post-graduation college or recognised by the Central Government.
- A patent related to the product/service should be filed & published in the Indian Patent Office journals.
- Startups offering funding/equity services need registration with SEBI.
- Have a funding letter from a state/central government scheme promoting innovation.
Partnership Share:
- In partnership startups, 51% shares should be owned by a woman or individuals from Scheduled Caste or Scheduled Tribe categories.
- No defaults on credit payments.
Tax Exemptions Allowed to Eligible Startups under Startup India Programme:
3-Year Tax Holiday:
Under Section 80 IAC of the 1961 Income Tax Act, startups recognised by the Department of Industry Policy & Promotion can claim tax breaks for three straight years. This was announced in the 2023 budget on February 1st, 2023.
Exemption from Tax on Long-Term Capital Gains:
If a startup reinvests its long-term capital gains into specified assets or funds, they can claim an exemption, promoting reinvestment in the business.
Tax Exemption on Investments above Fair Market Value:
Normally, if a company receives any consideration for shares that exceeds the Fair Market Value (FMV) of such shares, the excess consideration is taxable. However, for DPIIT recognised startups, this rule is relaxed.
Tax Exemption to Individual/HUF on Investment of Long-Term Capital Gain in Equity Shares of Eligible Startups u/s 54GB:
This provision promotes the investment of capital gains into the equity shares of eligible startups by individuals and Hindu Undivided Families (HUFs).
Set off of Carry Forward Losses and Capital Gains:
Even if there’s a change in the shareholding pattern of the startup, as long as the original promoters continue to hold a stake, carry forward losses and capital gains can still be set off.
FAQ:
1. What are the tax exemptions for startups?
Startups can enjoy tax breaks like a 3-year tax holiday, exemption from tax on long-term capital gains, and several others as discussed above.
2. How many years are startups exempt for?
Startups can enjoy a tax holiday for three consecutive years within a block of seven years from their inception.
3. What is the GST exemption limit for startups?
Companies earning less than 40 lakhs annually don't need GST registration. This aids startup growth by eliminating the need for GST return filings.
4. Who is eligible for Startup India?
Businesses that are recognised as startups by the DPIIT are eligible for the Startup India initiative. More details are given in the blog, above.
5. What is 80IAC exempted startups?
Section 80IAC provides specific tax exemptions to eligible startups based on their gross total income. Startups need to apply for this exemption, and it's granted after a detailed examination.
Conclusion
We are pleased to have provided you with sufficient information to allow you to make an informed decision about the product. Please contact our team if you require further assistance, or leave your comments below if you require further assistance. We would greatly appreciate any suggestions or feedback you have for us, and we would be delighted to hear from you if you have any to share with us.
Also, Read:
