Any company registered as a start-up is eligible to avail of all kinds of tax benefits. Keeping a record of the taxes and the following procedure is time-consuming. So, before a start-up owner proceeds to file taxes, it is important to know the tax exemptions they can avail of.
Latest Updates: Tax Benefits 2023
Nirmala Sitharaman, the finance minister of India, in the 2022 budget considers startup companies a vital aspect of the Indian economy. Henceforth, she has extended the benefits for the startups that function from April 1, 2016, to March 31, 2023. Previously the benefits were for the startups incorporated from April 1, 2016, to March 31, 2021. If a startup operates for ten years, it would be able to receive 100% Startup Tax Benefits on its profits for the first three years as long as its annual turnover does not exceed ₹25 crores in any given accounting period year.
Home Turned Office Benefits
It is fine if one who is planning to start a business from scratch registers their residential address as an office address. This can avail them of an exemption from property taxes and utility bills.
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Health Insurance For Employees
While applying for health insurance, there can be a deduction that could be available under Section 80G. Contributions to specific emergency relief and charity groups are deductible under Section 80G of the Income Tax Act. However, Section 80G does not permit deductions for all donations. All contributions to specified funds are eligible for a deduction. Every taxpayer may claim this deduction, including people, businesses, and firms.
Benefits of Keeping All Bills
If one keeps all the bills, invoices and any form of financial receipts, they can avail of tax reductions and exemptions. This is proof for all the investors that the start-up is functional.
Presumptive Tax Deduction
According to the Income Tax Department, “To give relief to small taxpayers from the tedious job of maintenance of books of account and from getting the accounts audited, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, section 44ADA and section 44AE. In this part, you can gain knowledge about various provisions of the presumptive taxation scheme of section 44AD, section 44ADA, and section 44AE. Meaning of presumptive taxation scheme As per the Income-tax Act, a person engaged in business or profession is required to maintain regular books of account, and further, he has to get his accounts audited. To give relief to small taxpayers from this tedious work, the Income-tax Act has framed the presumptive taxation scheme under sections 44AD, 44ADA, and 44AE. A person adopting the presumptive taxation scheme can declare income at a prescribed rate and, in turn, is relieved from the tedious job of maintenance of books of account and also from getting the accounts audited.”
Points to Remember on Startup Tax Benefits
According to the official website, certain points summarise the article. Given below is an excerpt from the official website to learn more about the Startup tax benefits that are available for any start-up:
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The board shall validate startups for the Income Tax Exemption on profits under Section 80-IAC of the Income Tax Act: A DIPP-recognized Startup shall be eligible to apply to the Inter-Ministerial Board for a full deduction on the profits and gains from business. Provided the following conditions are fulfilled:
Start-up is engaged in the innovation, development, or improvement of products or processes or services, or a scalable business model with a high potential for employment generation or wealth creation. To apply for Income Tax Exemption on investments above fair market value received under Section 56 of the Income Tax Act: A Startup shall be eligible for notification under clause (ii) of the proviso to clause (viib) of sub-section (2) of section 56 of the Act and consequent exemption from the provisions of that clause if it fulfills the following conditions:
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20% Tax Exemption On Capital Gain
Startups in India can breathe a sigh of relief with the government’s 20% tax exemption on capital gains. This means that when a startup sells its shares or assets, a portion of the profit is shielded from income tax. This tax benefit is designed to encourage investment and growth in the startup ecosystem.
No Tax On ‘Angel Investment’
Early-stage startups often struggle to secure funding due to their lack of a proven track record. This is where angel investors step in, providing crucial capital in exchange for equity. Recognising the importance of fostering innovation, the Indian government offers a significant incentive: angel investments are completely tax-free. This policy encourages high-net-worth individuals to support promising startups without worrying about additional tax burdens, creating a more conducive environment for entrepreneurship.
Carry Forward Losses
Startups recognised by the government can enjoy a significant tax advantage. If your business incurs losses during its first ten years, you can carry those losses forward for a full decade and offset them against future profits. This extended period gives startups more time to build a solid foundation and achieve profitability without the immediate pressure of paying taxes.
Section 54GB
Looking to sell your home and invest in the future? Section 54GB offers a unique opportunity. By channelling your home sale proceeds into eligible startups, you can potentially avoid paying capital gains tax. To qualify, you must own at least 25% of the startup and the company must use the funds to purchase new assets within a specific timeframe. It’s a win-win: support innovation while reducing your tax bill.
Conclusion
Starting a business alone requires a lot of time, thinking, and resources. But start-ups with great ideas are flourishing quickly, contributing greatly to the Indian Economy. However, there are also numerous legal loopholes one might not be aware of. Also, as discussed above, there are numerous benefits as well! To know more about Startup tax benefits available, and other legal services, contact Vakilsearch – the legal is now simple.
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