The Indian government has taken some important steps to encourage entrepreneurs for launching startup businesses in India. The Startup India scheme launched by the government has been hailed in commercial circles as a forward-looking step from the government which is highly expected to bring about a welcome change to the existing entrepreneurial scenario. This particular step is meant to ensure the economic growth of the country. The scheme includes tax exemptions that incentivizes people to build innovative businesses in India.
If you plan to launch your own startup, then you need to learn about the eligibility criteria and the rules associated with the Startup India scheme.
Eligibility for the Startup India scheme
Make sure that your business complies with the criteria described below for being eligible as a startup.
- The company or business entity still has not completed a total duration of 10 years starting from the date of registration or company incorporation.
- The venture has been registered as a limited liability partnership firm or a partnership firm or a private limited company.
- The annual turnover of the company has never exceeded the Rs. 100 crores mark in any year ever since the firm has been registered.
- The company should be dedicated to bringing in innovations, cultivating new products and technologies that ensure the development and betterment of the lifestyle of the user base. The processes and services that they would be for the benefit of all. For scalable businesses, the company should pave the way for optimum wealth creation and employment opportunities.
- The company should not be formed by reconstructing and/or splitting up a pre-existing venture.
Tax holiday for startup businesses in India
A tax holiday for 3 years within 7 years:
Originally meant for businesses that were registered between April 1st, 2016 and 31st March 2021, this scheme has now been extended to 31st of March 2022 under the Budget 2021. These startups can receive 100% tax exemption on the profits that they make in 3 years. The only condition that these businesses will have to follow is that they cannot exceed the annual turnover of Rs.25 crores within a financial year. A scheme like this can assist startups to manage their working capital requirements and expenses during the initial years and phases of their operations.
Tax exemptions carried out on investments made above fair market value
For all eligible startups, the Indian government has decided to eliminate taxes that might be applied on investments made above fair market value. These investments can be made by family members, angel investors, or funds that have not been registered and recognized as venture capital funds. Investments carried out by incubators are also included in this.
Taxes that are levied on the long-term capital gains are also exempted
Section 54 EE under Income Tax Act allows eligible startups to have their taxes exempted on long-term capital gains provided such gains or some part of them are invested in funds marked by Central Government within 6 months from such asset’s date of transfer.