Unlock your start-up’s growth potential by maximizing tax savings. Discover the diverse tax exemptions available for start-ups in India and learn how to leverage them to fuel your business’s success.
India’s new generation is paving the way for a fresh perspective. They are not afraid to take risks and bet on themselves as entrepreneurs. This won’t just jog economic growth but also create numerous jobs and social change in our society in favour of more businesses.
To encourage more start-ups the government has launched many schemes like the Atal Innovation Mission, Multiplier Grants Scheme, and the Start-up India program. The latter offers a range of benefits to facilitate the growth of innovative businesses, one of them being the provision of tax incentives, which provide substantial financial relief to start-ups.
Section 80-IAC of the Income Tax Act offers a great tax benefit to start-ups in India. Under this provision, eligible start-ups get to enjoy a 3-year consecutive tax holiday within the first 7 years of incorporation.
Another significant tax exemption provided to start-ups is the exemption from tax on investments above fair market value. Entrepreneurs can take advantage of this when a start-up receives any consideration for the issue of shares that exceed their fair market value.
Start-ups must file a duly signed declaration in Form 2 to DPIIT. Once the declaration is received, DPIIT will issue an intimation to the start-up confirming the receipt of the declaration.
Start-ups can also avail of the capital gains exemptions under the following sections-
Section 54EE lets eligible start-ups be exempt from tax on long-term capital gains if such gains are invested in a fund notified by the Central Government within six months from the date of transfer of the asset. The maximum amount that can be invested is ₹ 50 lakhs and the investment must be held for three years.
Section 54GB provides an exemption from tax on capital gains arising from the sale of a residential house or a residential plot of land if the amount of net consideration is invested in a prescribed stake of equity shares of an eligible start-up. The condition of minimum holding of 50% of share capital or voting rights in the start-up has been relaxed to 25%.
Under Section 79 of the Income Tax Act, start-ups can carry forward their losses if certain criteria are met. One such condition is that all shareholders holding shares carrying voting power on the last day of the loss-making year must maintain their shareholding on the last day of the previous year in which the loss is to be carried forward.
But, for eligible start-ups, the restriction of holding 51% of voting rights has been relaxed. This spells good news for start-ups as they can carry forward their losses even if their ownership structure changes slightly.
Angel Tax is a provision that imposes a tax on the issue of shares at a price exceeding the fair market value. However, eligible start-ups can enjoy a crucial financial advantage by being exempt from this tax.
Relaxation on the GST (Goods and Services Tax) laws is another strategy employed by the government to encourage start-ups. Start-ups with an annual turnover below ₹ 40 lakhs are exempt from GST registration. This exemption can minimize the administrative load of start-ups and help them focus on their core business activities.
The Indian government has been quite active in introducing various tax exemptions to support the growth of start-ups in our country. It’s great to see that the government is aiding in building businesses by providing financial relief to budding entrepreneurs. Speaking of relief to entrepreneurs, you may want to download the JJ Tax App! The app features a Start-Up section that offers guidance on registration, projections, fundraising, budgeting, and more! You can seek expert guidance right on your phone and find the whole process to be a cakewalk.
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