What is Startup India?

Startup India is a program launched by the Government of India in 2016. The main objective of the program is to promote innovation and startups in the country. This will lead to sustainable economic growth and employment generation. Under this initiative, start-ups can get financial support, simplified regulations and tax exemptions.

Eligibility for Startup India

To be eligible for the Startup India program, enterprises must meet the following criteria:

1. Date of Incorporation: The startup should not be older than 10 years from the date of incorporation.
2. Business Structure: The startup should have been incorporated as a private limited company, partnership firm or limited liability partnership.
3. Annual Turnover: The annual turnover of the startup should be under INR 100 crores.
4. The company shouldn’t be formed by dividing or restructuring an existing business.
5. Innovation and Scalability: The start-up should work on products/services/processes that are innovative, development-oriented or improvement-driven. It should aim at solving a problem in society. The business model should be scalable with potential for significant employment generation and wealth creation.

Tax Exemptions Available for Startups under Startup India

The following are the tax benefits and exemptions available for startups registered under the Startup India scheme:

1. Three-Year Tax Holiday: Eligible startups can take advantage of a three-year tax exemption for any of the first ten financial years following their incorporation. This exemption is available under Section 80-IAC of the Income Tax Act. The aim is to help startups reinvest their profits in growth and development.

2. Exemption from Long-Term Capital Gains: Startups are exempt from long-term capital gains if the gains are invested in a government-recognised fund of funds. This encourages investors to re-invest their gains in startup ventures.

3. Tax Exemption Under Section 54GB: Under Section 54GB of the Income Tax Act, capital gains arising from the transfer of a residential property are exempt from tax, if the net sale consideration is invested in equity shares of an eligible startup. The taxpayer should be an individual or HUF. This exemption helps in the flow of investment into startups.

4. Tax Exemption on Investments Above Fair Market Value: For startups registered under the Startup India program, there is no need to pay taxes on investments that are above the fair market value. This exemption enables these new ventures to raise money without facing the imposition of extra taxes.

5. Carry Forward of Losses and Capital Gains: Eligible startups are allowed to carry forward their losses and capital gains provided that their original promoters hold a substantial proportion of their shares. This provision also helps startups set off future profits against past losses thereby reducing their tax liabilities.