Eligibility for Startup India:
To qualify as an ‘Eligible Startup’ under the Startup India program, a startup must meet the following conditions:
- Tenure: The startup must not have completed ten years from the date of its incorporation or registration.
- Entity Type: It should be registered as a private limited company, a partnership firm, or a limited liability partnership (LLP).
- Annual Turnover: The annual turnover of the startup should not exceed Rs. 100 crore for any financial year since its incorporation or registration.
- Innovation and Scalability: The startup must be working towards innovation, development, or improvement of products, processes, or services. Additionally, it should have a scalable business model with high potential for employment generation or wealth creation.
- Origination: The startup should not have been formed by splitting up or reconstructing a business already in existence.
Tax Exemptions for Eligible Startups:
Eligible startups under the Startup India program can avail themselves of several tax exemptions to support their growth and development:
- Three-Year Tax Holiday: Startups incorporated between April 1, 2016, and March 31, 2022, are eligible for a three-year tax holiday within a block of seven years. This entails a 100% tax rebate on profits, provided the annual turnover does not exceed Rs. 25 crores in any financial year. This tax holiday aims to alleviate the financial burden on startups during their initial years of operation, facilitating their growth trajectory.
- Exemption from Tax on Long-Term Capital Gains: Eligible startups can enjoy tax exemption on long-term capital gains if invested in specified funds notified by the Central Government within six months from the date of asset transfer. This exemption encourages investment in startups and fosters capital formation, contributing to their expansion and development.
- Tax Exemption on Investments Above Fair Market Value: The government has exempted tax on investments made above the fair market value in eligible startups. This includes investments by resident angel investors, family members, or funds not registered as venture capital funds. Additionally, investments made by incubators above fair market value are also exempt. This exemption aims to incentivize investment in startups and fuel their growth.
- Tax Exemption on Long-Term Capital Gains Invested in Equity Shares of Eligible Startups: The amended provisions under section 54GB allow individuals or Hindu Undivided Families (HUFs) to avail tax exemption on long-term capital gains from the sale of residential property if invested in eligible startups. This exemption encourages investment in startups and provides startups with access to capital for expansion and development.
- Set-off of Carry Forward Losses and Capital Gains: Eligible startups can carry forward losses if all shareholders holding voting power on the last day of the year continue to hold shares on the last day of the previous year. Additionally, the restriction of holding 51% of voting rights unchanged under section 79 has been relaxed for eligible startups. This provision supports startups in managing their finances and encourages investment in innovative ventures.
Conclusion:
The tax exemptions and incentives provided under the Startup India program play a crucial role in fostering a conducive environment for startups to thrive and innovate. By supporting startups through financial incentives and tax exemptions, the government aims to promote entrepreneurship, spur economic growth, and position India as a global hub for innovation. As startups continue to drive technological advancements and create employment opportunities, initiatives like Startup India serve as catalysts for realizing India’s entrepreneurial potential and shaping a brighter future for generations to come.
