StartUpIndia Scheme: Definition, Tax Benefits and Incentives

 

Startup India campaign is based on an action plan aimed at promoting bank financing for start-up ventures to boost entrepreneurship and encourage start-ups with jobs creation. The campaign was first announced by Prime Minister Narendra Modi in his 15 August 2015 address from the Red Fort.

Definition As per DIPP:

Startup means an entity, incorporated or registered in India:

  • Not prior to seven years, however for Biotechnology Startups not prior to ten years,
  • With annual turnover not exceeding INR 25 crore in any preceding financial year, and
  • Working towards 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

Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence. Provided also that an entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 7 years and for biotechnology startups 10 years from the date of incorporation/ registration. Provided further that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.

 

Tax Benefit & Incentives:

  • 3-year tax holiday in a block of seven years: Under Section 80-IAC, the Startup incorporated after April 1, 2016 is eligible for getting 100% tax rebate on profit for a period of three years. Also, the annual turnover must not exceed Rs. 25 crores in any financial year up to 31 March 2021
  • Exemption from tax on Long-term capital gains: Apart from Minimum Alternate Tax (MAT), Startups are also exempt from paying the capital gains tax that is currently pegged at 20% for other businesses.
  • Tax exemption on investments above the fair market value: The government has exempted the tax being levied on investments above the fair market value in eligible start-ups. Such investments include investments made by resident angel investors, family or funds which are not registered as venture capital funds.
  • Set off of carry forward losses and capital gains allowed in case of a change in Shareholding pattern: The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares carrying voting power on the last day of the year in which the loss was incurred continue to hold shares on the last day of previous year in which such loss is to be carry forward.
  • Tax exemption to Individual/HUF on investment of long-term capital gain in equity shares of Eligible Start-ups u/s 54GB: The existing provisions u/s 54GB allows the exemption from tax on long-term capital gains on the sale of a residential property if such gains are invested in the small or medium enterprises as defined under the Micro, Small and Medium Enterprises Act, 2006. Now same section has been amended to include exemption on capital gains invested in eligible start-ups also.

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(This article is authored by Dhananjay Dubey exclusively for publication at StartUp Movers. No content of this article can be published elsewhere without prior permission of StartUp Movers.The entire contents of this article are solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. It doesn’t constitute professional advice or a formal recommendation.)

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