Startups that qualify can get tax breaks through the Startup India Action Plan. Some of these are tax breaks on profits for up to seven years, tax breaks on stock gains, and tax breaks for spending on research and development. These benefits can help new businesses keep more of their gains, put them toward growth and development, and pay less in taxes overall.
Tax incentives for startups in India are helpful for Indian companies because they offer many supports, such as tax breaks, to help them grow and be successful. Besides, Startups can lower their total tax load and keep more of their income to invest in growth and development.
New startup tax incentives in India are among the government’s most important projects. Besides, the goal is to create a strong environment for fostering creativity and new businesses in the country, which will lead to long-term economic growth and many jobs. Through this program, the government wants to give Startups the tools they need to grow through design and innovation.
The Indian government is releasing this Action Plan that covers every part of the Startup environment in order to reach the goals of the program. Besides, the government thinks that this Action Plan will help the Startup movement grow faster:
- From the tech and digital sectors to many others, such as farming, industry, the social sector, healthcare, education, and more, and
- There are currently tier 1 cities, tier 2 cities, tier 3 cities, and even semi-urban and country places.
The new Startup tax incentives in India are broken up into the following sections:
- Simplification and Handholding.
- Help with funding and incentives.
- Partnerships and incubators between businesses and universities.
Eligibility for the Startup India
To be able to register with Tax incentives for startups India, a business or organization must meet specific requirements. Here is a complete list of the criteria to be eligible for the Startup-up India Scheme:
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- Age – The applicant must be an Indian native and be at least 18 years old.
- Age of the Firm – The date the company was founded shouldn’t be more than ten years ago.
- Nature of the Business: The business should be constituted as a Partnership Firm, Private Limited Company, or Limited Liability Partnership.
- Annual Sales – It must not have crossed more than Rs.100 crores in sales each year since incorporation.
- First Entity – The Company or Entity should have been created from scratch by the founders, not by breaking up or rebuilding an existing business.
Innovative and Scalable
The company should have a plan for making or improving a product, process, or service. The company should have a business model that can grow and has a lot of potential to make money and hire people. Under the Tax Incentives for Startups India strategy, companies that are working on creating a new product or service can get help. These are the standards they must meet:
- Startups must work to create, launch, or sell products or services based on the latest technology or intellectual property.
- Businesses should try to improve their current products or develop new ones that will make customers’ lives easier.
- Startups should only be about making and selling a one-of-a-kind product that helps customers or makes work easier.
What Is the Tax Incentives Under the Startup India Action Plan?
Sources say that the upcoming Union Budget 2025–26 will change the Income Tax Act, making it easier for people to file their taxes. In February 2025, this will start a new age of simple taxes in India.
The Indian government has stated that Tax incentives to startups in India will not have to pay certain taxes. This is to support the Startup India program and the Make in India program. Here are the different permits that startups can get:
A Three-Year Tax Break
This benefit can be used by any startup that was filed or formed between April 1, 2016, and March 31, 2022. Startups like these can get 3 years of tax breaks on their profits, spread out over 7 years. However, it cannot generate more than 25 crores in sales within a financial year. Secondly, one of the most difficult challenges when starting a business is a lack of funds. Starting a business is smooth if one gets three tax breaks consecutively.
Tax Break under Section 54GB
Section 54GB Income Tax Act clearly states that no long-term capital gains tax will be charged to the person or business. This is only achievable when a person or business sells private property and invests the amount in small and medium enterprises. Or if they buy 50% or more shares in qualified startups. Besides, the exemption will only apply if the shares remain unsold for 5 years after purchase. Also, Tax incentives to startups in India must buy assets with the money they have raised and not sell or give away those assets before 5 years have passed since they were purchased.
No Tax on Long-Term Capital Gains
Under a new section 54EE, the government made long-term capital gains not subject to tax. This part says that all qualified startups can get a tax break on their long-term capital gains. As long as they put the money in a fund chosen by the central government within 6 months of the date the money was transferred. The most significant amount that can be put into the fund is 50 lakhs. Besides, it should be there for three years.
Tax Break for Investments above FMV
Startups do not face a tax on capital that exceeds its fair market value. Angel investors, schools, funds, and individuals not classified as venture capital (VC) funds actively invest in these opportunities. Angel investors who pay more than the company’s worth do not face taxes on their expenditures. Besides, this gives new businesses more money to run their businesses.
Read More : All You Need to Know About Drug Licenses in India
Conclusion
The government of India has created the Startup India Action Plan. It is to help and encourage the growth of new businesses in the country. Besides, the Tax incentives for startups in India help startups get off the ground in a number of ways. It helps by giving them access to funds, guidance, networking events, and legal support. Tax breaks are a vital part of the Startup India Action Plan that helps new businesses.
The Startup India Action Plan offers tax breaks to help businesses grow. CaptainBiz, a GST billing software, maximizes these benefits by making it easier to file taxes. Improve your company’s financial efficiency and compliance with CaptainBiz.
FAQs
When it comes to income tax, what does the Startup India plan do for you?
A startup can use section 80 IAC of the Income Tax Act to ask for a tax exemption. Once the startup gets permission not to pay taxes, it can enjoy a tax break for three consecutive years. It can be during the first ten years after the foundation of the company.
What are the tax incentives?
A tax break is a lowering of taxes that encourages people or businesses to do things that are good for the economy.
What is the Startup India Scheme?
The Action Plan is a significant project that aims to create a robust environment for supporting creativity. It will also support new businesses in the country, promote long-term economic growth, and create many jobs.
Who can use the Startup India scheme?
The applicant should be at least 18 years of age. A company need to decide to become either a partnership or private limited business to avail of this scheme.
Who can’t sign up for the Startup India scheme?
A sole proprietorship or a public limited business is not a startup. However, a one-person business can be called a startup because it is a private limited company.
