A startup gets funding from a seed or angel investor in exchange for equity.The valuation at the time is usually based on an idea, with very little else to support it. A startup can be two people working out of a garage, or nowadays,out of home or coffee shops; no assets, very little money. Long on potential,short on navy blue suits.
Tax Exemptions for the Startups, Effective from 2017-18
Following Tax exemptions for the startups have been introduced that will be effective from 2017-18. The proposed incentives and exemptions are:
- Under Section 80-IAC, the Startup incorporated after April 1, 2016 is eligible for getting 100% tax rebate on profit for a period of three years. Also, the annual turnover must not exceed Rs. 25 crores in any financial year upto 31 March 2021
- The startups have to pay Minimum Alternate Tax at 18.5% along with the applicable surcharge and cess. The FM has assured to provide MAT exemptions for the first 5 years in case the startup fails to make any profit
- Exemptions have been made against capital gains. Long term capital gains (LTCG) will be invested by the Government’s special funds.The investment may go up to INR 50 Lakh and the exemptions will be applied for three years
- If the individual holds 50% equity then the company may utilize the invested amount for buying assets before the due date of filing the return
- The domestic companies who hold turnover less than INR 5 Crore in the FY 2014-15 will be liable for 29% tax along with surcharge and other cess. It will be covered under the chapter VI-A
- The Finance Minister has also proposed different taxes for the new domestic manufacturing companies that have been setup on or after 1st March, 2016. Such companies will be taxed at 25% plus with cess and surcharge. The tax is proposed on the conditions if the company do not claim any incentives under profit or investment
Tax Exemptions in Indian Union Budget 2016 under Startup India Campaign
The Union Budget 2016 highlighted some major tax exemptions for the startups in India. The exemptions come under the startup India campaign. Take a glance on the budget 2016 highlights that focuses on boosting the startup ecosystem in the country.
- Startup hub to support entrepreneurs coming under Scheduled Caste [SC] and Scheduled Tribe [ST] categories. Women entrepreneurs to get up to INR 500 crore under the startup India program
- Amendment in the Companies Act, 2013 to ensure better startup ecosystem and tackle the registrations in a hassle-free manner
- Online courses for educating the masses for Entrepreneurship education and encourage people to participate willingly
The exemption of Tax for specified startups is a step forwards in implementation of Startup India programme initiated by the Government of India.