Tax benefits for startups in India:

Income tax Benefits

  1. Tax Holiday: Startups in India can avail themselves of a tax holiday for 3 consecutive financial years out of their first 10 years since incorporation. This exemption is available for eligible startups, provided they are recognized by the Department for Promotion of Industry and Internal Trade (DPIIT). Startups need to get themselves registered with DPIIT to avail these benefits.
  2. Capital Gains Exemption: To encourage investment in startups, the government provides exemptions on long-term capital gains if the gains are reinvested in specified funds or eligible startups. This exemption aims to stimulate investment in startups and foster growth within the ecosystem.
  3. Angel Tax Exemption: To alleviate the burden of the so-called “angel tax” on startups, the government has introduced measures to exempt eligible startups from paying tax on the funds raised from angel investors that exceed the fair market value of the startup’s shares.
  4. Deductions under Section 80-IAC: Startups fulfilling specific criteria can claim a deduction of 100% of their profits for three consecutive assessment years out of their initial five years of incorporation. This provision encourages entrepreneurship and supports the growth of startups.
  5. Reduced Corporate Tax Rates: The government has introduced reduced corporate tax rates for newly incorporated domestic companies which is as below:
    • Newly incorporated Manufacturing Company: 15% plus surcharge plus cess
    • Any Company opting new regime of tax: 22% plus surcharge plus cess
    • Any Company opting old regime
      • turnover less than Rs.400 crores : 25% plus surcharge plus cess
      • turnover more than Rs.400 crores : 30% plus surcharge plus cess
    • Surcharge rates:
      • Taxable income Rs. 1 crores to Rs. 10 crores – 7%
      • Taxable income above Rs. 10 crores – 12%
      • Under New regime – Flat 10%
  6. R&D Tax Benefits: Startups engaged in research and development activities can benefit from tax deductions under Section 35(2AB) of the Income Tax Act. This provision encourages innovation and technological advancements within startups.

GST Benefits

  1. GST (Goods and Services Tax) Relief: Startups with a turnover below the threshold limit are exempt from GST. This relief aims to ease the compliance burden for startups in their initial phases. Threshold limits for GST exemption is as below:
    • Companies engaged in supplying services : Rs. 20 Lakhs
    • Companies engaged in supplying goods : Rs. 40 Lakhs

It’s important to note that these benefits and exemptions do come with certain eligibility criteria and compliance requirements. The Startups who wishes to avail these tax benefits need to adhere to the stipulated regulations and criteria set forth by the government.

We being the best startup consultants in Chandigarh Tricity region, offer best quality services to the startups to effectively manage their compliances and avail the tax benefits to Startups as offered by the government. Kindly contact us for any assistance or query in relation to your business.

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