A developing country such as India thrives on startups. The Indian government supports entrepreneurship and innovation by providing some tax advantages through the Startup India program. All these tax exemptions greatly ease the financial burden on novice entrepreneurs and provide substantial motivation to expand their businesses. This blog will focus on examining the prominent tax benefits that the Indian Startups environment has to offer, the eligibility requirements and how Kanakkupillai can benefit in streamlining the process.
Understanding the Start-up India Initiative
The Government of India initiated the Startup India scheme to introduce the culture of startups, deliver job opportunities and promote innovation. The known startups will have an option of enjoying several privileges, including income tax, ability to get a patent quicker, self-certification and funding.
Eligibility to Avail Tax Benefits for Startups in India
A business needs to claim tax advantages under Start-up India:
- A limited liability partnership, a private limited company or a registered partnership firm
- less than 10 years after being incorporated
- A gross turnover of up to INR 100 crore in one financial year
- Engaging in innovation, development or improvement of the produced services or processes and the products
- Having a business model that is scalable and that could be used to generate employment, or drive wealth creation
- It was neither established by division nor by reassembly of an existing enterprise
Major Tax Benefits Offered to Startups in India
1. Three-Year Income Tax Exemption
Indian-based startups are allowed to claim a tax exemption on profits of 100 per cent patronage between the three preceding financial years in the initial decade following incorporation. Such a lucrative advantage enables startups to invest their cash flows in business expansion instead of taxation. This is by way of an exemption under the Income Tax Act (Section 80-IAC). Startups should get recognition from DPIIT in order to enjoy this advantage.
2. Exemption from Angel Tax
Under Section 56(2) (viib) of the Income Tax Act, startups receiving investments at a premium are exempted from angel tax. This exclusion is useful in making the process of raising funds easy among early-stage start-ups. Start-up recognized by DPIIT would not be subject to tax on capital they obtain by the resident investors at the condition of meeting certain conditions.
3. Exemption of Long-Term Capital Gains Tax
Section 54EE is also useful in granting startups an exemption on long-term capital gains. When capital gain is invested in the fund specified by the government and is held for at least three years, the gain is tax-exempted up to INR 50 lakh. This clause invites profits to be re-invested into deserving startups or the funds that have been notified to the government.
4. Section 54GB Tax Exemption
Section 54GB tax exemption can be applied by startups on capital gains and can be claimed by individual or HUF investors in a case where they sell a residential property and invest the same in the equity of a startup. It allows individual investors to save taxes and provides them with the ability to support Indian startups. The startup is supposed to use the investment to acquire new assets.
5. Carry Forward of Losses
Indian startups have permission to transfer previous losses and deduct them against their income even in the event of a change of shareholding pattern, so long as all shareholders maintain their stake and the startup is compliant with DPIIT. This is flexible and favours startups in the process of restructuring or during equity raising.
6. Tax Deduction on Patent Filing
In the startup program, the patent application fees are rebated up to 80 percent in startups. This monetary assistance is used to assist in inspiring invention and safeguarding intellectual property economically. The cost of registering trademarks, designs and patents undergoes massive subsidy.
7. Self-Certification under Labour and Environmental Laws
Despite it not being a direct tax benefit, startups recognised by the DPIIT can self-certify their adherence to six labour laws and three environmental laws within up to 10 years. This lowers the cost of regulation and enhances effective business.
8. Tax Exemption Scheme under Fund of Funds Scheme
To help startups, the Government of India has established a Fund of Funds that will have a corpus of INR 10,000 crore. Though the startups do not directly get funds, the fund managed by the SIDBI invests in the Venture Capital funds registered with SEBI, which invest in the eligible startups. The angel tax provisions do not tax the amount of investments taken in.
9. Startup India Seed Fund Scheme
This plan is a source of financing the development of products, launching into the market, and proof of concept. This is not a tax exemption but a grant; in any case, the money received under this scheme is not considered as income which is to be taxed.
How Kanakkupillai helps you get Tax Benefits on your Start-up
Kanakkupillai is the most popular online-based platform that assists entrepreneurs with the startup registration, DPIIT recognition and entitles them to all the tax benefits that Indian legislation offers. Comprising a team of expert CA, CS and legal experts, Kanakkupillai guarantees headache-free startup registration, compliances and tax advisory services.
Whether you’re looking for income tax exemption, help with compliance, or support for fundraising, Kanakkupillai offers end-to-end solutions to help your startup succeed.
Conclusion
In India, tax benefits on startups are one of the best incentives to make India faster to innovate, less worried about money and a lot more entrepreneurs can be embraced. These are incentives that come in the form of income tax exemption, angel tax benefit, and capital gains benefit, which allow startups to grow big and contribute to the Indian economy at a rapid rate. If you’re thinking about registering your startup or want to know whether you qualify for tax benefits, getting expert help from trusted platforms like Kanakkupillai can really simplify the process and help you make the most of it.
