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Startup India: Income Tax Exemptions Available For Startups

In this article we will take a closer look at the various tax exemptions under the startup india scheme and the eligibility criteria to avail its benefits


To give impetus to entrepreneurship and increase participation in the development of the country, the STARTUP INDIA campaign was launched in India in 2016. This campaign has enabled many budding entrepreneurs around the country to live their long aspired dreams. After all, being your own boss is a thing anyone would ask for. The main idea behind this innovative step taken up by the government was to promote bank financing for startups, simplify the process and grant various helpful tax exemptions to make the journey less complicated for beginners.

Since the announcement of this plan until now, several rounds of discussions have been held by the Department of Industry and Internal Trade (DPIIT) with the entrepreneurs to scrutinize their issues. Tax exemptions have always been an issue with the starters as the inflow of money into their new ventures is very indefinite. When the Start-Up India program was launched, it was aimed at providing tax benefits to them for a period of five years. But the rules were eased as the investors were complaining that investing in many companies may not be very profitable during this phase. 

What Is The Eligibility For Startup India?

  • Any company that has been incorporated for less than 10  years will be considered as a startup. The annual turnover of the company in a financial year should not be more than 100 crore rupees.
  • The aim of setting up the company should be towards development, innovation or commercialization of new products and services driven by technology or intellectual property. 
  • The company should be registered as a limited liability company, registered partnership or a private limited company.
  • It should be a totally new venture and not an existing one trying to reconstruct itself or creating a new business after a split up.

What Are The Tax Exemptions Available?

Given below are the Startup India Tax Exemption

Tax Holiday Of 3 Years

Any company that has been incorporated after April 2016 is eligible for getting 100 % tax rebates on their earnings until a period of three years in a block of seven years, given that the annual turnover of the companies should not be more than 25 crores in any of the preceding financial years. This will benefit them in setting up their firms and meeting their expenditures.

Capital Gains Tax Exemption

Section 54 EE added to the Income-tax act states that that the startups are exempt from long term capital profits, provided that the capital gains are a part of the fund notified by the Central Government within a period of 6 months from the date of the transfer of the asset.  The maximum amount that can be invested here is Rs. 50 lakhs and this amount has to be invested for a minimum period of 3 years. If the investor withdraws the amount before the completion of 3 years, the amount will be taxable.

Investments Above Fair Market Price

There are exemptions on the investments above the fair market value in the startups. These investments include the investments made by angel investors, family members or incubators or any fund which are not included in the capital funds. 

Benefits To Individual Or HUF On Long-Term Gains From Equity Shares

A provision in the Income-tax act defined under the Section 54 B stated that there will be tax exemptions on any long term gains on the sale of a property but only if the profit is reinvested into enterprises. However, there has been an amendment in this provision which states that if an individual or a Hindu Undivided Family is willing to sell their property and reinvests the profit to subscribe to a minimum of 50 % or more of an existing startup, then they are exempted from tax.  This exemption is available only if the shares are not resold or transferred to anyone within 5 years. In case of transfer of the purchased asset, the tax will be applicable.

Carrying forward of losses incurred 

The income tax provisions allow the protection of accreted losses of Startups incurred in the initial 7 years of its operation, as long as all the shareholders in the years of losses continue to hold their positions. 


India has been growing rapidly and has already become the third largest Startup supporting economy. There is a need for more people to join this campaign and set forth the opportunities ahead. These tax exemptions are an added advantage to uplift the morale of the whizz-kids and the speculators, thus paving the way for further expansions and innovations. If you have any other doubts of queries with regards to any legal or regulatory matter, get in touch with us and we will ensure that your concerns are resolved by our team of qualified experts.

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