Recognition and benefits for Startups including Tax benefits

Introduction of Startup India

Startup India is an initiative which helps the new entrepreneurs to establish the business.

People can start their business easily because of ease in formation, seed finance, space to startup, human resources/ talent acquisition, etc.

It focuses on establishing many Startup incubators in various universities like IIT Kharagpur, IISc Bangalore, etc. It majorly focuses on self- certification and patents.

Tax benefits for start-ups

• 100% exemption for First Three Years:
  • While announcing the Union Budget 2016-17 in Parliament, Finance Minister Arun Jaitley said that eligible startups should be provided 100% deduction of profit and gains for business involving innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.
  • It is also declared in Parliament that in the first three years 100% exemption is provided except MAT and is calculated on book profit
• Abolition of Angel Investment Tax:
  • Abolition of Angel Investment Tax means angel investors i.e., family and friends  and domestic funds not registered as VC funds, which one raises from venture capital firms to set up for the very purpose of backing such ventures, will not be taxed on these investments.
• Setting up of a ‘Funds of Funds’ for start-ups:
  • Government established ‘Funds of Funds’ to help start-ups in their initial stage by providing them financial help.
  • This fund will not invested directly in start-ups but directed through SEBI registered venture funds.
• Exemptions in Capital Gains Tax:
  • Capital gain tax is the tax charged on profit from sale of capital assets such as stocks, bonds, etc.
  • Generally 20% of capital gain is charged on capital assets however government recently made provision for an exemption of 20% capital gain tax.

Other benefits for start-ups

• Simplicity:
  • In start-ups fancy or attractive ideas will not work to increase in production. The best way to expand the business is to keep everything simple.
• Fast processing:
  • This is the one of the main advantage of startup companies that they are ready to take risks as compare to bigger organisations and implement their ideas and strategies quickly and because of this reason they succeed faster as compared to bigger organisations.
• Hyper- collaboration:
  • In start-ups, it is easy to collaborate with companies at multinational level.
  • This will increase the amount of profit and opportunities to establish their brand name on a bigger platform.

What is a Startup company?

• It must an entity registered/ incorporated as a Private Limited Company under the Companies Act 2013 or Registered Partnership firm under the Indian Partnership Act 1932, or Limited Liability Partnership under the Limited Liability Partnership Act, 2008.
• Startups must focus on commercialisation, development , deployment or innovation of new products.
• Annual turnover must not exceed Rs. 25 crore in any preceding financial year.
• The startup must not be formed by splitting up, or reconstruction, of a business already in existence.
• Startup has obtained the certificate from Inter- Ministerial Board, set up by DIPP to validate the innovative nature of the business.