Startup India is a flagship action initiated by the Central Government of India, to immunize young companies that are started by one more entrepreneurs together who provide goods or services whichever they believe there is high demand. Startup India project mobilizes innovation and entrepreneurship aiming at promoting banking finances for startups, simplifying the setup process, and granting various tax exemptions and incentives.

Startup India aims at promoting innovation and entrepreneurship which in turn would encourage sustainable economic growth and provide large-scale employment opportunities.

A tax is a type of levy imposed on an individual by the Government of India. During the 2016-2017 Union Budget of India, the taxation policies for Startups had taken an enormous change. This change was imposed to catalyze entrepreneurship in  India under the supervision of the “Startup India Policy”.

Tax consultant in Chennai are here to give insights into the tax benefits for startups in India.

An eligible Startup who wishes to receive tax incentives would be required to do the following:

            1.         Maintain separate books of accounts

            2.         Have their accounts audited by a Chartered Account

            3.         Along with ITR furnish audit report in Form 10CCB.

ELIGIBILITY FOR STARTUP RECOGNITION:

  • Any company that is registered or incorporated in India for less than seven years and for biotechnology incorporated for 10 years are eligible to register under Startup India.
  • Companies that wish to register under Startup India must not exceed annual turnover of 100 crores in any of the preceding financial years.
  • Company that works towards innovation, development and commercialization of new products and services.
  • Company that is not formed by splitting or reconstructing a business that is already in existence. Must obtain a certificate from the Inter-Ministerial Board setup for such a purpose.
  • It must be assimilated as a private limited company, registered partnership firm or a limited liability partnership.

TAX EXEMPTIONS FOR ELIGIBLE STARTUPS IN INDIA

  1. Tax holiday for 3 years in a block of seven years

            After getting recognized as a startup an entity may apply for Tax exemption under Section 80 IAC of the Income Tax Act. After getting clearance for tax exemption a Startup can enjoy tax holiday for consecutive 3 financial years its incorporation being below 10 years.

  1. Exemption from paying tax on long term capital gains

            54EE, a new Section has been included to the  Income Tax Act. As per this law, Startups avail a benefit of exemption from paying long term capital gains. It will be applicable only if the invested amount is a part of the fund indicated by the Central Government provided the investment is made within a period of 6 months from the date of actual transfer of asset.

According to this rule, a company can invest a maximum of 50 lakhs INR in the long term specified asset. The money has to be invested minimum at least for 3 years. If the investor withdraws the amount before the tenure, the tax will have to be borne by the investor.

  1. Exemptions for investments above the fair market value

            For eligible Startups, the government has spared the tax being levied on investments above the fair market value. Investments made by resident angel visitors, family or funds are not registered as capital venture funds. Investments made by incubators above the fair market value are also exempted from the tax.

  1. Deferring tax to individuals / HUF on long term capital gains from equity shares

                        This benefit is set to be enjoyed by the shareholders who make investment in startups that are found to be eligible. Tax exemption is allowed from any long term capital gains arising from a residential property to an individual or Hindu Undivided Family.

BENEFITS TO STARTUP ENTREPRENEURS:

Simplified process:

 The Government of India has set up a mobile app and a website to ease up the process of registering as a Startup. Anyone who intends to  register up as a Startup can fill out certain forms required in the portal . It is entirely an online process.

Cost reduction:

The Government of India provides a list of facilitators of trademarks and patents. They offer high quality Intellectual Property Right Services at lower costs. The cost includes examining patents. The facilitator fees will be borne by the Government while the statutory fees will be looked at by the Startup. They will have a benefit of 80% cost reduction in filing patents.

Access to funds:

A 10,000 crores fund is allocated to provide to startups as equity capital by the Government. The Government also gives guarantees to lenders to encourage banks and other financial institutions to provide funds as working capital.

Access to tenders:

Startups can compete for Government tenders without considering the prior experience and turnover that is basically applicable for other normal companies.

Choosing investor options:

Startups are given the rights to choose their investors providing the option to choose between venture capitals.

Networking opportunities:

Government has allocated 2 fests annually national and international wide which enables various entrepreneurs to meet up, paving an opportunity for networking.

Exit made simple:

In case of winding up, a company can exit within 90 days from the date of application of closing.