Tax Benefits For Startups In India

Having your own business have been a dream which people have always been passionate about. Glancing at the history, if we look into the flashback of successful businesses, it is imperative to find that soul of every successful magnet is a young startup backed up with strong entrepreneurial dreams.

As Startups require huge bunch of money to be invested for fueling its early business, they are seen facing difficulties at its very beginning phase of entrepreneurial goals. These are nearly outweighing the startup India benefits, visions and goals.  Rising India however has tried to take a step towards easing the difficulties of new startups through various Startup India tax benefits.

Startup India advantages and benefits-

Angel tax Exemption

As per the said section if a company, not being a company in which public are substantially interested issue shares at premium exceeding the fair value of shares, then such excess shall be taxed – this is also known as angel tax.
Special exemption for startup tax
However, after considering various issues which startups are facing, now startups are being exempted from the said provision on fulfillment of specified conditions.
Conditions for exemption of Angel tax

  1. Entity should be 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. (80IAC)
  2. Paid-up share capital + share premium (after proposed issue) <= Rs.10 Crore.
  3. The proposed investor, who subscribes to the issue, should either have
    1.  Average returned income >= Rs.25 Lakh for preceding 3 financial years or
    2.  Net worth >= Rs. 2 Crore (last date of the preceding financial year).
  4.  Fair Market valuation to be done as per report of Merchant banker.

The notification for exemption is provided in the following link.

Startup India Assistance

Startup Deduction

Applicable Assessee –

  1. Assessee, (company or LLP) carrying Eligible business of innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation;
  2. Incorporated after 1st of April 2016 but before 1st of April 2021
  3. Holds certificate of eligible business from Inter-Ministerial Board of Certification.

Amount of Deduction – 100% of profits from eligible business
Duration for availing deduction – Any 3 consecutive years in the 1st seven years of Incorporation.

Condition for Deduction

  1. Audit of accounts by a practicing CA.
  2. Total turnover <= 25 crore (previous year for which deduction is claimed.)
  3. Plant and Machinery should be new

Exceptions
• Imported Plant
• 20% of value of Plant and machinery can be old

Procedure for claiming Exemption for 80IAC:

  • Application in Form-1 to the Inter ministerial board of certification
  • Information and Documents – the Board may seek for information, call for documents and make enquiries.
  • Acceptance and Rejection, after calling for such documents or information and making such enquires, as it may deem fit, it can either accept or reject application.
  • Revocation of certification- In case certificate has been obtained on the basis of false information,

Click here if you wish to get your Startup recognized under the Startup India Program.

Startup India tax benefits, Tax Benefits For Startups

FAQs on Angel tax

Issue of shares at excess value over and above fair value is taxed as income from other sources u/s 56, as it is affecting new startups, this provision is coined as Angel tax.

Prior to the notification for exemption, Angel tax was levied on all closely held companies, now there is specific exemption of Specified Startups from application of said provision.

An entity will be considered as startup

  • For first 7 years (for biotechnology sector – 10 years)
  • If it is Private limited company, registered partnership firm or LLP
  • Turnover <= Rs. 25 crore

Issue of shares at excess value over and above fair value is taxed as income from other sources, as a result of which the portion of funds which is required to be invested in business is been kept aside for paying taxes, this came as a heavy burden on startups.Generally new startups are being affected as their valuation based on projections do not really match actual causing difference from fair value and thus attracts the eyeballs of income tax authorities.

Online application over portal of Department of Industrial Policy and Promotion along with following documents–

  • copy of Certificate of Incorporation
  • a write-up about the nature of business highlighting how it is working towards its objects as specified.

No.