The startup India action plan term “Startup” as an individual entity which has to be registered with the Government of India (not prior to 5 years) and the annual turnover should not exceed 25 crores in any financial year. It shall be working in the field of development and making products for the welfare of society with the help of innovation and technology.
Eligibility Conditions for Startups in India
There are certain eligibility conditions for the Indian startups that will ensure their best collaboration with the Government of India. To be considered as eligible, the startup should be:
- Funded by a business incubator which is funded by the GOI and works on any Government project
- Recommended and Certified with the help of a proper format provided by SIPP (Startups Intellectual Property Protection)
- Funded by investors that are registered with SEBI. some prominent investors are Angel network, Private equity fund, Incubation fund
- Funded by GOI for promotion on any innovative technology
- Patent granted via Indian Patent and Trademark from the respective regional office
- A spitted or reconstructed business shall not be considered as a startup company
- Proprietorship firm or a PSU doesn’t come under startup criteria
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 [MAT] 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
Abolition of 'Angel Investment Tax'
As a form of further relief, the government has also done away with the ‘Angel Investment Tax,’ introduced in 2012.
Under this, angel investors, i.e., family and friends and domestic funds not registered as VC funds, which one raises from venture capital firms set up for the very purpose of backing such ventures, will not be taxed on these investments. They have the liberty to issue shares to investors at rates higher than fair value without any taxation hassles. This was brought into being by amending Section 56(2)(vii)(b) of the Income-Tax Act. However, there are some restrictive terms here. Only startups which fulfill the conditions specified by the Department of Industrial Policy and Promotion (DIPP) are eligible for this startup tax exemption . In order to avail this concession, a startup will have to attain a certificate stating its eligibility from the ‘inter-ministerial board of certification.’
Setting up of a ‘Fund of Funds’ for Startups
In order to help startups in their initial stage by providing them with the necessary financial boost, the government has decided to set up a fund with an initial corpus of Rs. 2,500 crore and a total corpus of Rs. 10,000 crore over a four year period. The fund will come under ‘Fund of Funds (FoF)’ which won’t invest directly in startups but will be directed through SEBI registered venture funds, as the action plan suggests.
A board of professionals from diverse areas will be set up to manage this fund. Life Insurance Corporation of India will be an investor in this fund which will support a whole range of sectors like manufacturing, agriculture, health, etc.
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
With such tax exemptions for the Startup India, the Government aims to produce a better environment for new businesses and entrepreneurship. The tax relaxation for three years have brought up certain enthusiasm and the Indian entrepreneurs need not to worry about the downfall and should feel free to take risk in the market. The Government will provide all kind of support and aid to the Startups that lie under the above mentioned eligibility criteria.
These policies under the “StartupIndia” scheme of the government as proposed in the Union Budget 2016-2017 seem to be made with the purpose of providing impetus to all budding ventures. It is also a subsidiary of the ‘MakeInIndia’ scheme as it aims to create more jobs within the country so that the youth doesn’t have to look to other countries for employment. This startup tax policy and other provisions are sure to go a long way in providing new startups the boost they need.