As per the Section 2(40) of Companies act, 2013, startup means
- A private company which is registered under company act, 2013 or any previous act
- Recognized as startup in accordance with DIPP (Department of Industrial Policy and promotions).
In order to accelerate prevalence to startup movement in India, Government had announced an action plan known as the Startup India initiative that covers all the aspects of startup ecosystems. The main features of this action plan were
- Easy registration with less compliances
- Tax Holidays for a period of three consecutive years out of the block 10 initial years
- Exempted from previous experience or previous turnover in getting government tenders
- Government of India has set up INR 10000 cr. to provide funds to startup as VC (venture capital)
What Are the Eligibility for Startups?
- Is registered as private Ltd. company, partnership or limited liability partnership.
- If the annual turnover of the company doesn’t exceeds INR 100 cr. in any of the preceding FY.
- Company has not completed a period of ten years from their incorporation.
- Company is working towards research and development, innovation, development, or improvement of product or services.
What Are the Tax Exemptions Available For a Startup Company?
Exemptions from Section 8OIAC: Startup firms who are eligible can claim up to 100% of profits & gains for three consecutive years in a block of 10 years provided the turnover of the company does not exceed 100 cr. in any of the previous FY.
Exemptions of tax on Long term Capital Gains: startup who is eligible can claim exemption on long-term capital gains u/s 54EE if such amount or part thereof is invested in a fund notified by central govt. within a period of six month from the date of transfer of assets.
Tax Exemption on Investments above FMV (Fair Market Value): The govt. has exempted the tax invested above the FMV (fair market value) in eligible startups. Such investments include investments made by resident angel investors, or incubators that are not registered as venture capital (VC) funds.
Tax Exemption Available To Individuals Or Hindu Undivided Family (HUF) Of Long Term Capital Gains: Section 54GB allows the tax exemption on long-term capital gains on the sale of a residential property if such gains are invested to acquire fifty percent or more equity shares of the eligible startups, tax on long term capital will be exempt provided that such shares are held at least for five years from the date of their acquisition.
Set Off Of Carry Forward Losses: The carry forward of losses is allowed if your startup is eligible for this, if all the shareholders of your startup company who held shares in which the loss was occurred continue to hold shares on the last day of the previous year in which loss has been carried forward.