All Benefits to Start-ups Under Income Tax Act.

A startup is a newly business setup that is small in nature and initiated by single or a group of individuals. Startup presents a new product or service that is not in present at some other place in the same manner- this is the factor which makes the startup different from other businesses

According to income tax rules, a startup can be a company or LLP engaged in a business which involves innovation, development, commercialisation of new products, processes or services run by technology or intellectual property. The paid-up capital should not exceed ₹10 crore for startup.

Benefits to Startups:-

Startup India- 80 IAC Tax exemption: –

Startup may get Tax exemption under section- 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive FY (financial years) out of its first 10 years since incorporation.

Eligibility Criteria for applying:

The entity should be a recognized Startup Only Private limited or a LLP is eligible.

The Startup should have been incorporated after 1st April 2016

Startup India- Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)

Post getting clearance for Tax exemption, the Startup can avail Angel Tax Exemption. 

Eligibility Criteria for applying:

The entity should be a DPIIT (Department for Promotion of Industry and Internal Trade) recognized Startup

After the proposed issue of share, Aggregate amount of paid up share capital and share premium, if any, does not exceed ₹ 25 Crore.

The amendment of Section 56(2) (vii) (b) of the Income Tax Act has also provide entrepreneurs the right to issue shares at a higher rate than the value noted in the books assisting them raise funds with more comfort and ease.

First three years

Startups are eligible to 100% exemption of tax except the Minimum Alternate Tax (MAT), which will follow the 18.5% of the profit as stated in the books, on earnings for the first three years.

To get this benefit, the startup must be registered under the Department of Industrial Policy and Promotion (DIPP). It must also be one that pushes for innovation & development of new products and services related to intellectual property. This benefit helps startups as the cost of setting up is a hefty financial burden on entrepreneurs. Getting away without having to pay tax for 3 years will also help them for balancing their expenditure and break even sooner, leading to higher profits later.

Capital Gain Tax

Capital gains comes when the Companies raise capital through sharing stock and the profits earned by engaging in such dealings and thus are eligible to be taxed. Statrups gain benefits from this because Startups receive an exemption of 20% of their capital gains.

Other Provisions

Apart from such tax benefits, the government has introduced several provisions that helps and supports entrepreneurs in the country. Some of these are as follows.

Funds up to INR 500 crores have been set aside to help support entrepreneurs who belong to the ST and SC sector and to help Women Entrepreneurs.

Lowering of Long-term capital gains from 3 to 2 years

Presumptive tax schemes for companies whose turnover falls below INR 2 crores while these schemes were earlier available to businesses whose turnover fell below INR 1 crores.

Employee PF provision for the first three years.

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