Tax Exemptions, Eligibility and Incentives for Startups in India

The Prime Minister of India, Shri Narendra Modi announced some visionary goals to enhance the Startup ecosystem in the country. Promoting the Startup ideology, the PM brought up the Startup India initiative. The initiative is proposed to fulfil the needs of struggling entrepreneurs and encourage them to work in a more feasible manner. Notedly, the Budget 2016 also had a different section for the tax benefits and exemptions for new startups. The Government aims to boost the economy with the help of technology and consumer-oriented startups.

The Government has also issued an action plan that lists around 19 points that could help the startups grow at a faster rate. The action points comply with the easy launch of mobile app and website, self-certification, startup India community, low-cost patent examination, proper funding support, fast exits, etc. The Startup India action plan term “Startup” as an individual entity which has to be registered with the Government of India (not prior to 5 years) and the annual turnover should not exceed 100 crores in any financial year. It shall be working in the field of development and making products for the welfare of society with the help of innovation and technology.

Tax Exemptions for the Startups, Effective from 2017-18

Following Tax exemptions for the startups have been introduced that will be effective from 2017-18. The proposed incentives and exemptions are:

• Under Section 80-IAC, the Startup incorporated after April 1 2016 is eligible for getting Profits generated by eligible businesses for the first 10 years of incorporation are eligible for a 100% tax deduction. Also, the annual turnover must not exceed Rs. 100 crores in any financial year in which the deduction is claimed.
• The startups have to pay a Minimum Alternate Tax [MAT] at 18.5% along with the applicable surcharge and cess. The FM has assured to provide MAT exemptions for the first 5 years in case the startup fails to make any profit
• Exemptions claim against capital gains. Long-term capital gains (LTCG) u/s 54EE will be invested in the Government’s special funds. The investment may go up to INR 50 Lakh and to be invested within 6 months from the date of transfer of assert and the exemptions will be applied for three years

Eligibility Conditions for Startups in India

There are certain eligibility conditions for the Indian startups that will ensure their best collaboration with the Government of India. To be considered as eligible, the startup should be:

• Funded by a business incubator which is funded by the GOI and works on any Government project
• Recommended and Certified with the help of a proper format provided by SIPP (Startups Intellectual Property Protection)
• Funded by investors that are registered with SEBI. some prominent investors are Angel networks, Private equity funds, Incubation fund
• Funded by GOI for the promotion of any innovative technology
• Patent granted via Indian Patent and Trademark from the respective regional office
• A spitted or reconstructed business shall not be considered a startup company

Recommended: GST Benefits for Startups in India

Tax Exemptions in Indian Union Budget 2016 under Startup India Campaign

The Union Budget 2016 highlighted some major tax exemptions for startups in India. The exemptions come under the Startup India campaign. Take a glance at the budget 2016 highlights that focus on boosting the startup ecosystem in the country.

• Startup hub to support entrepreneurs coming under Scheduled Caste [SC] and Scheduled Tribe [ST] categories. Women entrepreneurs to get up to INR 500 crore under the Startup India program
• Amendment in the Companies Act, 2013 to ensure a better startup ecosystem and tackle the registrations in a hassle-free manner
• Online courses for educating the masses for Entrepreneurship education and encourage people to participate willingly

With such tax exemptions for Startup India, the Government aims to produce a better environment for new businesses and entrepreneurship. The tax relaxation for three years has brought up certain enthusiasm and the Indian entrepreneurs need not worry about the downfall and should feel free to take the risk in the market. The Government will provide all kinds of support and aid to the Startups that lie under the above-mentioned eligibility criteria.