The Indian startup industry has been growing at a tremendous rate in recent times, mainly because of the favorable policies and schemes provided by the Indian government for startup businesses in India. The Startup India scheme is one such initiative taken by the Indian government to promote innovation, entrepreneurship, and employment in the country. However, there is still confusion in the minds of entrepreneurs about the tax benefits under the Startup India scheme.
In the following sections of the article, we will learn about the tax benefits under the Startup India scheme.
What is the Startup India Scheme?
The Startup India scheme is one of the flagship schemes launched by the Government of India in relation to startups. The Startup India scheme provides tax exemption, compliance relaxation, funding support, and patent facilitation.
In order to enjoy the Startup India scheme benefits, the startup has to be recognized by the Department of Promotion of Industry and Internal Trade (DPIIT) and obtain a Startup India certificate.
Apply for your Startup India Certificate today and unlock tax benefits, funding support, and growth opportunities. Get DPIIT recognition easily with expert assistance and start building your startup successfully.
Eligibility Criteria for DPIIT Recognition
To avail the tax benefits, the startup has to fulfill the eligibility criteria. A startup must be established as a private limited company, LLP, or partnership firm. It has to be less than 10 years old from the date of incorporation. Additionally, the annual turnover has to be less than ₹100 crore in any financial year.
The startup must also be engaged in the development or improvement of products or services. Businesses created by splitting or reconstructing existing businesses are not eligible. These eligibility criteria must be met for the benefits of startup recognition by DPIIT to be availed.
How to Get a Startup India Certificate
The first step towards enjoying tax benefits is to obtain a Startup India certificate. This process can be easily completed online. To obtain a Startup India certificate, a startup has to register on the Startup India portal and fill out the application form. The startup then has to attach documents such as incorporation certificates, business description, and information on innovation.
Once a Startup India certificate is verified and approved by DPIIT, a startup gets recognized. This allows a startup to enjoy many benefits under the Startup India scheme.
You can make use of platforms such as Esstartup to make the process easier and smoother for you, so that there are no errors in your application.
Tax Benefits Available Under Startup India
Income Tax Exemption for 3 Years
One of the greatest advantages of the Startup India initiative is the 100% income tax exemption on the profits earned by startups for three consecutive financial years out of the first ten years of their incorporation, which is granted by the government. This benefit is provided under Section 80-IAC of the Income Tax Act.
Startups need to get the certification from the Inter-Ministerial Board (IMB) in order to get this benefit.
Exemption on Angel Tax
Startups require investments from angel investors, which amounts to tax under Section 56(2)(viib). DPIIT recognizes the startup, and it becomes eligible for exemption from the ‘angel tax.’
This implies that investments made at a value higher than the fair market value will not attract tax. This is one of the biggest advantages of being a startup and being recognized by DPIIT.
Capital Gains Tax Exemption
Startups can also avail themselves of exemptions from capital gains if they meet specific criteria. The investors can claim exemption from taxes if they reinvest capital gains in funds or startups.
Further, founders can claim exemptions if they reinvest capital gains in specific assets. This is an excellent facility for investment in startups and is beneficial for the Startup India scheme.
Carry Forward of Losses
In general, companies need to maintain continuity in terms of shareholdings to avail themselves of the facility to carry forward losses. However, there is relaxation for startups in this regard.
Despite any change in shareholdings, startups can continue to carry forward losses for up to 7 years if 51% of voting rights are held by the original shareholders. This is an excellent facility for startups as part of the Startup India initiative.
Step-by-Step Process to Avail Tax Benefits
Startups need to adopt a step-by-step process to avail themselves of tax benefits. First, the business must check its eligibility for recognition by DPIIT. Subsequently, the startup needs to apply for the Startup India Certificate through its official portal.
After obtaining recognition from DPIIT, it is imperative for the startup to apply for various tax exemptions, such as Section 80-IAC, through the income tax portal. Proper documentation is required to avoid the rejection of applications for tax exemptions. The services of experts such as Estartup can be sought to avail tax benefits.
Common Mistakes to Avoid
Startups often fail to enjoy tax reliefs due to common mistakes. One of the common mistakes is improper documentation while registering with DPIIT. Another mistake is related to the eligibility requirements, which sometimes causes applications to be rejected.
Startups sometimes fail to submit their applications on time to the Inter-Ministerial Board for tax reliefs. Lack of financial documentation is another mistake.
Being aware of these common mistakes will enable startups to maximize the benefits of registering as a startup with DPIIT.
Why Tax Benefits Matter for Startups?
Tax benefits can have a significant impact on the runway of the startups. This is because tax benefits can provide startups with the necessary resources to focus on product development, marketing, and hiring.
The benefits of the Startup India initiative can provide startups with a high degree of competitiveness in the market. This is because the initiative is aimed at encouraging innovation while reducing risks for entrepreneurs.
Conclusion
The Startup India initiative is an important tool for startups that want to reduce their tax burdens while maximizing their growth potential. This is because the income tax exemptions, angel tax reliefs, capital gains tax reliefs, and other tax incentives can have a significant impact on the growth of startups.
If you want to avoid delays in accessing the tax reliefs, consider partnering with Estartup, a reliable platform for startups.
FAQs
1. What is the Startup India certificate?
The Startup India certificate is the official recognition issued by DPIIT, which confirms the eligibility of your startup for the Startup India scheme.
2. Who is eligible for tax benefits under Startup India?
Startups recognized by DPIIT and that are less than 10 years old and have a turnover of less than Rs 100 crore are eligible for the benefits of registration as a startup with DPIIT.
3. How much tax exemption is available for startups?
Under the Startup India initiative, a 100% income tax exemption is provided for any three consecutive years within the first ten years of business.
4. Is DPIIT recognition mandatory for tax exemption?
Yes, tax exemption is not granted to startups without DPIIT recognition and a Startup India certificate.
5. Can I apply for Startup India on my own?
Yes, an application can be made independently, but the use of eStartup for the same is recommended.
Moreover, if you want any other guidance relating to the Startup India Certificate, please feel free to talk to our business advisors at 8881069069
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