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What are the Tax Benefits for Startups?


Startups foster the culture of innovation and growth in the sector that they operate in and also form an important driver and determinant of the economic growth of the country in which it operates. A startup innovates to invent new technology whether it is hardware or software, generates new and high-paying jobs, and improves the socio-economic status of individuals in society by offering products or services that improve the lifestyle of their customers.


Recognizing these factors, in 2016, the Government of India under the leadership of Prime Minister Narendra Modi initiated the ‘Startup India’ campaign intending to establish policies that enable the ease of doing business along with other incentives for eligible startups.


What is an eligible Startup under Startup India Program?


Under Startup India Action plan, an. ‘Eligible Startup’ means –


1. Is registered as a Private Limited Company or a Limited Liability Partnership (LLP).

2. Has not completed a period of 10 Years from the date of incorporation (for companies) or date of registration (for LLPs).

3. The annual turnover has not exceeded INR 100 Crore in any year since inception.

4. Is engaged in innovation, development, or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

5. It is not formed by splitting up or reconstructing an existing business.


If your company satisfies all of the above conditions, then it is eligible to be registered on the Startup India Platform under Department for Promotion of Industry and Internal Trade (DPIIT). There are currently 61,310 startups registered to date.


The platform provides a host of other benefits like a network of incubators/ accelerators, mentors, and investors along with access to 20+ partnered services like Zoho Software Suite, Amazon Web Services, and PayU among others.


What are the Tax Benefits available to Startups?


1. Tax Holiday:


According to Section 80 IAC of Income Tax Act, 1961, an eligible startup registered under DPIIT can claim 100% Tax Exemption on business income for any period of 3 consecutive years out of 10 years beginning from the year of incorporation/ registration.


Conditions:

a. The startup should be incorporated/ registered on or after 1st April 2016 and before 31st March 2022.

b. Turnover does not exceed INR 100 Crores in the year preceding the year of claiming the deduction.


2. Deferred Payment of Tax on ESOPs:


Unlike regular provisions relating to tax on ESOPs of Income Tax Act, eligible startups satisfying the conditions mentioned in 80 IAC can take the benefit of deferred payment of tax on ESOPs in the following manner –


The startup shall be liable for deduction or payment of tax within 14 days from the earliest of the following events:

a. From the expiry of 48 months from the end of the Assessment Year in which shares are allotted under ESOP Scheme;

b. From the date on which the person ceases to be the employee of the organization;

c. From the date of sale of shares allotted under ESOP by the employee.


3. Set-off & Carry Forward of Losses:


Unlike other companies, An eligible startup can set off the losses from business provided at least 51% of shareholding remains with the same persons who held such shares in the year of incurring a loss.


4. Exemption from Angel Tax:


An eligible startup registered under DPIIT is exempt from tax under section 56(2)(viib) of the Income Tax Act which provides for tax on the consideration received by a private company that exceeds the fair market value of such shares. This exemption is available when such a startup receives funds from an entity like venture capital, non-resident person, or other specified persons as may be specified.


Get in touch now to register your startup now with DPIIT in an easy, simple, & fast manner with Elevator Pitch and claim all the amazing benefits!


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