Navigating Tax exemption for Startup

1. Navigating Tax exemption for Startup: Tax Break Handbook This blog covers the topics related to eligibility criteria and benefits of the scheme helping entrepreneurs understand tax benefits. The Startup India Scheme, created by the Indian government, aims to offer assistance to startups within the nation. Qualifying businesses avail themselves of various incentives including Tax exemption for Startup through this program. Introduction to the Startup India Scheme The Indian government has launched the Startup India Scheme, a flagship initiative aimed at promoting the growth of startups in the country. Numerous Startups have benefitted from the Startup India Scheme since 2016. One of the main benefits of this system is the income tax exemption for startups. This exemption allows eligible startups to reinvest more capital into their companies. The program also aims to create an enabling environment for startups to grow and provide incentives, infrastructure, and resources to support their growth. Thanks to this program, many startups have been able to establish themselves and expand their business in India. Program Benefits The Startup India program offers many benefits to Indian startups. One of the biggest benefits is that startups are exempt from income tax for the first three years of their existence. This exemption allows startups to focus on growing their business without worrying about paying initial taxes. Additionally, the program also provides capital gains tax exemptions for startups that reinvest their capital gains into government-registered funds. This encourages startups to leverage profits to grow their businesses rather than diverting funds elsewhere. The program also provides incentives for startups to participate in government procurement programs. This means startups can benefit from government contracts that can significantly expand their business. Overall, the benefits of the Startup India Scheme help startups overcome the challenges faced in the first few years. By introducing tax exemption in 2023, the program played an important role in promoting entrepreneurship and innovation in the country.

2. Startup India Scheme: Tax exemptions for Startup The Startup India Scheme offers various tax exemptions for eligible startups. The main tax advantage is that a startup company is exempt from income tax for three consecutive years. This means that eligible startups do not have to pay income tax on their profits for the first three years of their incorporation. Additionally, investments in eligible startups are exempt from capital gains tax. This encourages investors to support startups by exempting them from paying taxes on capital gains. This incentive attracts more investment and makes it easier for startups to grow. Furthermore, the Finance Act 2021 has extended the income tax exemption period for eligible startups from three years to four years. This change will give startups more time to establish themselves and focus on growth before incurring tax liability. •Age The startup must not be older than 10 years from the date of registration. •Registration Startups must register as a Private Limited, Limited Liability Partnership (LLP) or partnership firm. •Turnover In the last financial year, the startup must have achieved an annual turnover of less than INR 10 billion. •Innovation Startups should focus on innovation development, deployment or commercialization of new products, processes, or services that leverage technology or intellectual property. •Certification The Inter-Ministerial Board (IMB) established by the Department of Industrial Policy and Promotion (DIPP) must certify the startup.

3. Additionally, the startup must help to create jobs and contribute to economic growth. The benefits offered by Startup India Scheme can be availed after meeting the eligibility criteria. The Startup must first register with the Department for Promotion of Industry and Internal Trade (DPIIT) through the Startup India website to access the benefits of the scheme. The startup can apply for various benefits including tax exemptions, patent filing, and funding support by using the Startup India portal, after being registered. A panel of experts will evaluate the application and, if approved, the startup company will receive a certificate of recognition as a “startup” and can benefit from the program. A startup company eligible for tax exemption can apply for tax exemption for 3 consecutive years from its establishment for 7 years. This exemption applies to startups set up as private limited companies or limited liability partnerships (LLPs) that have a turnover of less than INR 10 billion during any of the seven years after their incorporation. Additionally, startups are exempted from paying income tax on investments made by venture capital funds and angel investors, but this only applies to investments in eligible startups recognized under the Startup India program. To take advantage of these benefits, startups must comply with various rules and regulations, including maintaining proper accounting records and filing income tax returns on time. Conclusion The Startup India program creates a favourable environment for startups in India and offers significant tax breaks that ease the financial burden on startups. The program provides eligible startups with three years of income tax exemption, allowing them to focus their resources on growth and innovation. These tax incentives enable startups to grow and contribute to the country’s economic development. By supporting Startup India, the government has fostered a thriving ecosystem in India.