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Start-Up Incentives and Exemptions

Start-Up- Incentives and Exemptions

The Start-Up India initiative kick-started in the year 2016 to extend a helping hand for budding entrepreneurs in India. The entire framework of Start-Up India is based on providing Startup incentives and exemptions to Start-Ups with respect to financing, taxation, credit availability, etc. The Government of India has also introduced a ‘Get Recognised’ scheme under the Department for Promotion of Industry and Internal Trade (DPIIT) to enable Start-Ups to get recognised for claiming several of the above mentioned benefits.

In order to encourage Start-up eco-system and innovations in India, several Government incentives for startups have been floated under the Start-Up India Initiative.

What are the tax incentives for startups and exemptions in India?

Tax holidays

Tax incentives for Startups- Any Start-Up incorporated after April 01, 2016 is eligible for getting tax refund in entirety for a period of three years. In order to avail this tax holiday, the entity should not exceed an annual turnover of INR 25 lakhs in any financial year. This relief enables the Start-Ups to meet their working capital requirements in their initial years of establishment.

Long term capital gains tax exempted

A Start-Up is also exempted from log term capital gains if such capital gains or a part of it is invested in such funds as are notified by the government of India. The said investment has to be made within 6 months of the transfer of asset. Also, the maximum investment allowed is INR 50 lakh. In view of the above, it is pertinent to mention that the investment of capital gains has to be strategized diligently so that eligibility for the above relief can be claimed.

Tax exempted on investments made above fair market value

If Start-Ups receive investments from angel investors, venture capitalists, or even from family, which are above fair market value become eligible for tax exemptions. Additionally, in cases where investment above fair market has been made by the incubators, the same is also exempted from tax applicability.

Rebate in IPR filings

Recognized Start-Ups are entitled to reduced trademark and Patent filing fees in India. Recognised Start-Ups get upto 80% rebate in filing of patents  and get upto 50% rebate in trademark filings. Also, Start-Ups which are recognised under the Start-Up India programme can also be eligible for fast track processing of the IPR applications.

Easy winding up of the company

If things don’t work out for the newly established Start-Up, it can also go under the process of liquidation and the company can be wound under 90 days following procedure of law established under the Insolvency and Bankruptcy Code, 2016.

Labour law and environment law compliances

Upon getting duly recognised, Start-Ups shall be allowed to be self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure. For labour laws, the Start-Ups will not be inspected for a period of 5 years. The inspection will only be carried out on receipt of credible and verifiable complaint of violation, filed in writing and approved by required inspecting officer or competent authority.

Budget 2020 on Start-Up

In order to uplift the Start-Up ecosystem, the government has introduced a set of reliefs and business start-up incentives to ease the burden of taxation on the employees. One of the said relief is of deferred tax payment on ESOPs (Employee Stock Ownership Plan) for employees, by five years or till they leave the company or when they sell their shares, whichever is earliest.

The Budget has further proposed to extend the eligibility period for claim of deduction from the existing 7 to 10 years as it is quite regular for a Start-Up to not have adequate profit to avail this deduction during its initial years.

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To know more about Startups in India, read:

Startup in India

Startup Funding in India

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