Can my Start Up get Tax Exemption?

Anju Nambiar — Sat, 17 Apr 2021 10:30:09 +0000

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.

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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.

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Union Budget 2021: Fund Allocation for Small Businesses and Startups

Shalmoli Sarkar — Wed, 03 Feb 2021 08:35:02 +0000

Lack of funding, low cash reserves, layoffs, pay cuts, and shutting down operations would be the best terms to describe the year 2020 for small businesses and startups. As India aspires to be a $5 Trillion economy by 2025, its growth trajectory largely depends on how we extend support to startups and small businesses. The MSME and startups need monetary priming for running businesses as they are suffering from massive liquidity, supply crunch, shortage of labour, and non-payment of dues.

Below is the budget allocation for MSME and startups proposed by Finance Minister Nirmala Sitharaman:

Fund Allocation

The Union Budget has allocated Rs 15700 crores to the MSME sector which is double the fund allocated in the previous budget.

To mitigate the stress endured by the startups and MSMEs in the lockdown, the government has announced Rs 3 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS) under Aatmanirbhar Bharat Abhiyan Package. The scheme was valid till October that was extended by Nov 2020, which now has been extended till 21 March 2021.

This year’s budget has given relief to the startups and MSMEs with the relaxation of norms for setting up a business and enabling the ease of doing business.

Incentivizing the OPC

Startups that are run by a single individual known as OPCs (One Person Company) have been granted to do business without any restrictions on paid-up capital and turnover. The new norms have also allowed the conversion of an OPC into any other private company at any time since earlier the conversion to private or the public could happen if only the paid-up share capital surpassed Rs 50 lakhs or its average turnover reached Rs 2 crores. The residency limit for an Indian citizen to set up an OPC has been reduced to 120 days from 182 days, also allowing NRIs to incorporate OPCs in India. It will incentivize investments from NRIs in startups in India.

Extending the Tax Holiday

To boost startup investments, the Government has exempted all the startups from paying taxes along with capital gain exemption till the next financial year i.e., 31st March 2022.

Boosting digital payments

As UPI transactions have witnessed a rise in the pandemic, the Union budget has allocated ₹1,500 crores for a scheme to incentivize digital payments, which will provide financial incentives to startups and MSMEs to promote digital modes of payment.

With the new budget, hope this year’s budget brings a wave of positivity and recovery to the MSME and startup businesses in India.

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