Startup India Tax Benefits: What Founders Need to Know
It is really exciting to start a business, but it has some challenges as well. One of the biggest worries for new founders is taxes. In order to help entrepreneurs, the government has started an initiative that is called the Startup India initiative. This program is solely designed for startups to help them offer tax benefits so that they can grow faster without heavy financial pressure. However, these taxes include tax holidays, exemptions, and easier compliance rules as well. And, if you have just started your startup, then it is really important for you to understand these tax benefits. This can save your money, reduce stress, and even help you to focus on your company. In this blog, we are going to discuss the main benefits of Startup India , eligibility rules, important points, and many other important points. So, make sure to keep following this post till the end.
What is the Startup India program?
The government of India started a program called Startup India in which focuses on helping new businesses (startups) to grow and succeed. The main goal of this program is to make India the hub of innovation and entrepreneurship. By launching this program, the government wants to encourage young entrepreneurs to turn their ideas into successful businesses, then create jobs and boost the economy. Not only this, but the program provides resources, mentorship, and opportunities to help startups overcome challenges and grow.
Benefits of Startup India program
One of the biggest challenges for a founder is to manage the cash flow. While taxes often eat the small profits you make in the early years of your business. The Startup India Scheme is designed to fix this by offering them "tax holidays" exemptions. This helps the startups to keep their hard-earned money and reinvest it into their own company for hiring, research, and expansion as well. Whether you are in the process of starting a business or building a tech app or a new physical product,
once you understand these benefits of startup India Registration, you can save your company crores of rupees. This is why we have come up with this guide, and you can see the benefits below:
Tax holiday
This is one of the biggest benefits of this program, as it offers 100% tax exemption on the profits for any 3 consecutive years within the first 10 years of operation. It helps to reinvest profit into growth.
Angel tax exemption
By the year , on , the government introduced the Angel Tax under this program. This is actually the "Angel Tax" (Section 56(2)(viib)) permanently abolished. This simply means that you can raise funding at a high valuation without worrying about the government taxing the "extra" money as income.
Capital gains exemption
If you are going to sell a residential property to invest the money into your startup, then you can avail an exemption from paying taxes on the profit from that sale.
Carry forward of losses
Normally, losses can be carried forward if the same shareholders continue. Those startups that are facing losses, their loss can be carried forward even if shareholding changes. This helps to raise funds and dilute equity.
ESOP tax benefits
New rules make ESOP taxation easier for employees and founders. This program encourages startups to attract and retain talent.
Eligibility for startup India tax benefits
This program was launched in and has become a massive support system for entrepreneurs. By the year , India has become
third-largest startup ecosystem in the world. However, recently the government has launched even more powerful tax benefits, which help new businesses to survive and grow. Not every business is considered a startup by the government. In order to get the tax benefits, your startup should meet these points:
- Type of entity: the business must be registered as Private limited company or Limited liability partnership (LLP). This program is not for sole proprietorships.
- Age of company: the other main point is the age of the company. Your business must not be older than 10 years from its date of incorporation.
- Annual turnover: in order to join this program, your business must not have exceeded a revenue of ₹100 crores in any previous financial year.
- Innovation focused: it is important that your business works on something new, such as improving a product or service, or even has a scalable model that creates jobs and wealth opportunities.
- New business: if you have a business that you have created by splitting up or restructuring an old business, then you cannot join this program.
How to claim the benefits?
There are two main steps to get benefits from this program:
DPIIT recognition:
the first step involves you getting registered with the Startup India Portal, as it helps you to get recognized by the department of promotion and internal trade (DPIIT). The process takes 2-5 days.
IMB approval for Tax holidays:
you have to file a separate application to the inter-ministerial board (IMB) to avail the 3-year tax holiday (Section 80-IAC). The IMB department does the work to review your business model and ensure that it is truly innovative.
Compliance Simplifications
The startup India program has simplified the compliance requirements for startups, which makes it easier to do business in India. Here are some of the benefits.
- Reduced paperwork:
- startups have the freedom to submit the compliance report and other documents online, which makes it easier to manage and reduces paperwork.
- Self-certification:
- startups have the power to self-certify compliance with certain laws, which reduces the need for inspections and approvals.
- Single window clearance:
- you can find different government services and approvals under one portal.
- Tax benefits:
- startups have tax exemptions and deductions, which reduce their tax burden.
- Labour law compliance:
- startups have an exemption from certain labour laws for 3-5 years, which makes it easier to manage employees.
- Easy exit:
- startups have the option to wind up their business easily, which reduces the cost of closure and complexity at the same time.
These simplifications are designed to reduce the regulatory burden on startups, which allows them to focus on growth and innovation.
Recent updates on Startup India program
Recently the government has added some of the updates for the benefit of these startups. Here are the updates:
- The government has extended the tax holiday for startups incorporated before .
- The other update is about buyback taxation rules as they are adjusted to reduce the burden on employees.
- Those founders who hold more than 10% of the stake have to face higher taxes on buybacks.
With new updates, the government aims to make taxation simpler and fairer.
These are some of the important updates that might help you.
Points you should keep in mind as a founder
Below are some of the points that you need to keep in mind if you are the founder of the startup:
- Always make sure to register your startup with DPIIT as this helps to claim the benefits.
- Make sure to keep proper records and compliance documents ready.
- It is also important that you consider consulting a tax advisor, as they can help you get maximum advantage.
- Plan fundraising with tax exemptions in mind.
Conclusion
Startup India is such a powerful program, which supports entrepreneurs having tax benefits and easier rules. For founders, these benefits give them power to grow without stressing over taxes. This scheme covers everything from tax holidays to angel taxation that are crucial for startups. But it is also important that you stay updated with the latest updates, rules, and budget as well. If you plan smartly and register with DPIIT, you can save money and focus on building a successful business. In simple terms, Startup India tax benefits are not just limited to saving taxes, but they are about giving startups the chance to dream big and achieve more.
FAQs
1- What is the startup India program?
Ans- the startup India is an initiative launched by the government to encourage innovation and entrepreneurship in India. The program was launched in and offers policy support, fast-tracked patent support, and government procurement support.
2- What is the startup India fund of funds 2.0?
Ans- the fund of funds 2.0 is a ₹10,000 crore government-backed capital mobilization scheme that invests in SEBI registered Alternative Investment Funds (AIFs).
3- What are the benefits of registering under startup India?
Ans- those startups that register with this scheme can avail themselves of benefits such as tax exemption and self-certification for labour and environmental laws. Not only this, but they will also get the benefit of things like fast-tracked patent support and government procurement support.
4- What are the eligibility criteria for startup India?
Ans- in order to apply for startup India, your business must be listed as Pvt Ltd or LLP, the business's age must not exceed 10 years, must not have generated 100,000 crores of rupees in any past revenue years of incorporation, etc.
5- How can I apply for funding under startup India?
Ans- if you want to register your startup under startup India scheme, then you must get registered through startup India official portal, submit the required documents, and then apply for relevant government schemes like startup India seed fund scheme and other funding schemes.