The Start-Up India initiative launched by the Indian government on January 16, 2016 provides eligibility for Indian start-ups to get tax exemptions. The recent Union Budget 2021 also had good news about exemption for start-ups.
To enroll for eligibility, your start-up must meet all the criteria under the Start-up India action plan.
Getting exemption is a two-step process. First, you need to qualify as a ‘start-up’ under the Start-up India program.
Is my start-up qualified to get tax exemption?
If your start-up was incorporated as a private limited company, registered partnership firm, or LLP company within the last 7 years and has an annual turnover of less than 25 crores, you are eligible for exemption.
What are the benefits under tax exemption for my recognised start-up?
As an eligible start-up under the Start-Up India Act, if your company was established between April 1, 2016 and March 31, 2022, you can meet your working capital requirements during the formative years with a 3-year tax holiday. You can avail this holiday once every seven years if your annual turnover is still below INR 25 Cr.
As an eligible start-up under the Start-Up India Act, if your company was established between April 1 2016 and 31st March 2022, you can meet your working capital requirements during the formative years with a 3-year tax holiday.
Validation for Start-ups
Your start-up needs to be validated by the Inter-ministerial board under the Department of Industrial Policy and Promotion.
Start-ups seeking validation from the Inter-Ministerial Board must be a DIPP recognized start-up.
What is DPIIT Recognition?
The Department of Industrial Policy & Promotion (DIPP) was renamed as the Department for Promotion of Industry and Internal Trade (DPIIT) in 2019. DPIIT Recognition opens the door to tax benefits for start-ups under Section 80IAC of the Income Tax Act.
To obtain DPIIT Recognition, you need to first register on Start-Up India’s website. After registering, you need to apply for DPIIT Recognition, followed by application for the Section 80 IAC exemption.
You will need to submit necessary documents pertaining to your start-up during the registration and application process.
How your start-up can enjoy tax exemptions
Both the Government of India and the Union Budget 2021 announced by the Finance Minister recently have been clear on ensuring that start-ups can enjoy specific tax exemptions.
In a bid to strengthen entrepreneurship in India, several tax benefit grants were rolled out. If your start-up is working towards technological innovations, you are a worthy contender for tax exemptions.
What’s in it for me?
Apart from the 3-year tax holiday for start-ups, your start-up can also enjoy a number of other benefits like Exemption on Long-term gains, Exemption above fair market value, exemption on investments of long-term gains in equity shares and carry forward of losses and capital gains.
When the Budget was announced, the tax holiday was a year less than what it is now. But the Finance Minister extended the exemptions for start-ups by another year until March 31, 2022 during the Union Budget announcement.
One Person Companies (OPC) will also receive their fair share of incentives. It is clear that innovative start-ups are being given support by the Government to grow unhindered without tax liabilities.
If you are a start-up seeking tax exemption, you can visit the government websites, especially Start-Up India, and carefully follow the eligibility criteria, registration procedures to enroll for tax exemption benefits.