Eligibility for Startup India
As per the Startup India Action plan, the followings conditions must be fulfilled in order to be eligible as Startup :
- Has not yet completed a period of ten years from the date of incorporation/registration.
- Is a private limited company or registered as a partnership firm or a limited liability partnership.
- Has an annual turnover not exceeding Rs. 100 crores for any of the financial years since incorporation/registration.
- Is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
- It is not formed by splitting up or reconstructing a business already in existence.
Tax exemptions allowed to Eligible Startups under Startup India Program
Following tax exemptions have been allowed to eligible startups :
3 year tax holiday in a block of seven years
The Startup incorporated between April 1, 2016, till 31st March 2021 were eligible for this scheme. Budget 2021 has extended the eligibility to 31st March 2022. Such startups will be eligible for getting 100% tax rebate on profit for a period of three years in a block of seven years provided that annual turnover does not exceed Rs.25 crores in any financial year. This will help the startups to meet their working capital requirements during their initial years of operation.
Exemption from tax on Long Term Capital Gains
A new section 54 EE has been inserted in the Income Tax Act for the eligible startups to exempt their tax on a long-term capital gain if such a long-term capital gain or a part thereof is invested in a fund notified by the Central Government within a period of six months from the date of transfer of the asset.
The maximum amount that can be invested in the long-term specified asset is Rs 50 lakh. Such amount shall be remain invested in the specified fund for a period of 3 years. If withdrawn before 3 years, then the exemption will be revoked in the year in which money is withdrawn.
Tax exemption on investments above the fair market value
The government has exempted the tax being levied on investments above the fair market value in eligible startups. Such investments include investments made by resident angel investors, family or funds which are not registered as venture capital funds. Also, the investments made by incubators above fair market value is exempt.
Tax exemption to Individual/HUF on investment of long-term capital gain in equity shares of Eligible Startups u/s 54GB.
The existing provisions u/s 54GB allows the exemption from tax on long-term capital gains on the sale of a residential property if such gains are invested in the small or medium enterprises as defined under the Micro, Small and Medium Enterprises Act, 2006. But now this section has been amended to include exemption on capital gains invested in eligible start-ups also.
Thus, if an individual or HUF sells a residential property and invests the capital gains to subscribe the 50% or more equity shares of the eligible startups, then tax on long term capital will be exempt provided that such shares are not sold or transferred within 5 years from the date of its acquisition.
The startups shall also use the amount invested to purchase assets and should not transfer asset purchased within 5 years from the date of its purchase.
This exemption will boost the investment in eligible startups and will promote their growth and expansion.
11 Benefits Provided under Startup India :
Reduction in cost
The government also provides lists of facilitators of patents and trademarks. They will provide high-quality Intellectual Property Right Services including fast examination of patents at lower fees. The government will bear all facilitator fees and the startup will bear only the statutory fees. They will enjoy 80% reduction in the cost of filing patents.
Easy access to Funds
A 10,000 crore rupees fund is set-up by government to provide funds to the startups as venture capital. The government is also giving guarantee to the lenders to encourage banks and other financial institutions for providing venture capital.
Tax holiday for 3 Years
Startups will be exempted from income tax for 3 years provided they get a certification from Inter-Ministerial Board (IMB).
Apply for tenders
Startups can apply for government tenders. They are exempted from the “prior experience/turnover” criteria applicable for normal companies answering to government tenders.
R & D facilities
Seven new Research Parks will be set up to provide facilities to startups in the R&D sector
No time-consuming compliances
Various compliances have been simplified for startups to save time and money. Startups shall be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and 3 environment laws.
Tax saving for investors
People investing their capital gains in the venture funds setup by the government will get exemption from capital gains. This will help startups to attract more investors.
Choose your investor
After this plan, the startups will have an option to choose between the VCs, giving them the liberty to choose their investors.
In case of exit – A startup can close its business within 90 days from the date of application of winding up
Meet other entrepreneurs
The government has proposed to hold 2 startup fests annually both nationally and internationally to enable the various stakeholders of a startup to meet. This will provide huge networking opportunities.
Startups are being highly encouraged by the government. The benefits enjoyed by them are immense, which is why more people are setting up startups.