Tax Benefits Available For Startups

Tax Benefits Available For Startups

All tax benefits are available to the startups only if they come under the criteria of an ‘Eligible Startup’.

So let’s try to understand the conditions to be met to qualify as an ‘Eligible Startup’.

Eligibility Criteria for Startup Recognition:

  • The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.
  • Turnover should be less than INR 100 Crores in any of the previous financial years since incorporation.
  • An entity shall be considered as a startup up to 10 years from the date of its incorporation.
  •  
  • The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth.
  • An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Startup”

[pt_view id=”baa39696xe”]

Tax benefits allowed to Eligible Startups :

80 IAC Tax exemption

An Eligible startup (incorporated between 1 April 2016 to 31 March 2022) can avail a deduction of 100% of profits for a block of 3 years in the first 7 years of its incorporation. Such deduction would be available upon filing an application with DPIIT provided that that annual turnover does not exceed Rs.25 crores in any financial year.

Waiver from ‘Angel tax’ 

Domestic companies are required to issue their shares at fair market value (FMV) determined on a net assets value basis or discounted cash flow basis determined by the merchant banker. Any amount received by the company from residents in India in excess of FMV is liable to tax in the hands of the company (popularly known as ‘Angel tax’). Upon filing the requisite declaration with DPIIT and subject to certain conditions, Eligible startups are exempted from Angel tax.

Tax exemption to Individual/HUF on investment of long-term capital gain in equity shares of Eligible Startups u/s 54GB. 

The startups shall also use the amount invested to purchase assets and should not transfer assets purchased within 5 years from the date of its purchase.

1. Thus, if an individual or HUF sells a residential property and invests the capital gains to subscribe the 50% or more equity shares of the eligible startups, then tax on long term capital will be exempt provided that such shares are not sold or transferred within 5 years from the date of its acquisition.

2. The existing provisions u/s 54GB allows the exemption from tax on long-term capital gains on the sale of a residential property if such gains are invested in the small or medium enterprises as defined under the Micro, Small and Medium Enterprises Act, 2006. But now this section has been amended to include exemption on capital gains invested in eligible start-ups also.

What is e-RUPI and how it works?

Exemption from tax on Long-term capital gains

A new section 54 EE has been inserted in the Income Tax Act for the eligible startups to exempt their tax on a long-term capital gain if such a long-term capital gain or a part thereof is invested in a fund notified by the Central Government within a period of six months from the date of transfer of the asset.

The maximum amount that can be invested in the long-term specified asset is Rs 50 lakh. Such amount shall be remain invested in the specified fund for a period of 3 years. If withdrawn before 3 years, then the exemption will be revoked in the year in which money is withdrawn.

Other benefits available for Startups :

  • Simple process for registration of startup
  • Self-certification of compliance under Environment and Labour laws.
  • Easy access to funds through Alternate Investment Funds.
  • Easy winding up of Company within 90 days under Insolvency & Bankruptcy Code,2016.
Recent Posts

E-way Bill blocking for non-payers will resume from August 15

E-way Bill blocking for non-payers will resume from August 15

For taxpayers who have not filed two or more outbound supply returns by June 15, the government will begin banning e-way bill creation.

The Goods and Services Tax Network published a bit of advice to that effect on Thursday, notifying taxpayers and recommending them to file pending returns to avoid e-way bill blocking.

“After August 15, 2021, the system will check the status of returns filed in Form GSTR-3B or statements filed in Form GST CMP-08, and restrict the generation of EWB in the case of non-filing of two or more returns in Form GSTR-3B for the months up to June 2021, and non-filing of two or more statements in Form GST CMP-08 for the quarters up to April to June 2021,” according to the statement.

[pt_view id=”c8bb8e9z6d”]

Due to the epidemic, the ability to restrict the generation of e-way bills was temporarily disabled. If a GSTR-3B return has not been filed for two consecutive quarters, Rule 138E gives the authority to limit EWB generation.

If outbound supplies returns by regular taxpayers and those under the composition scheme are not filed within the next 10 days, the blocking of e-way bill generation will be a hindrance to company operations, according to experts.

GSTN has raised a red signal for all non-filers of GST returns, and their activities would come to a standstill on August 16 due to the blockage of e-way bill generation.

“Blocking e-way bill creation will have a direct impact on non-compliant enterprises and may have a spillover effect on large businesses,” said Rajat Mohan, senior partner at AMRG Associates.

SECTION 206AB- SPECIAL PROVISION FOR DEDUCTION OF TAX AT SOURCE FOR NON-FILERS OF INCOME-TAX RETURN 

“As company operations return to normal, industry players should file their tax returns in a timely manner, or their e-way bill generation would be prohibited, limiting movement of their goods,” said Abhishek Jain, tax partner at EY.

Latest Updated News

Today’s Updates:

1. Domestic companies are not permitted to give loans to directors etc. directly and indirectly under section 185 of the Companies Act 2013.
Read more: http://femainindia.com/Image/Concept%20-2.11.pdf

2. ITAT directs CBDT to take steps to avoid unnecessary litigation. Case Name: ITO Vs Shri Partap Singh Solanki (ITAT Delhi) Appeal Number: ITA No. 7139/Del./2017. Date of Judgement/Order: 24/02/2021.

CBIC highlighted that detailed procedures are provided for the processing of Department limitations. However, such procedures are not being followed seriously and therefore, delayed departmental appeals/petitions are filed before the Hon’ble Courts. Thus, all Chief Commissioners/Director Generals were directed to adhere following procedure.

[pt_view id=”c8bb8e9z6d”]


3. GSTN has enabled a new feature to select ONE Core Business Activity on GST Portal. This will ease compliance. You are requested to accept this core business carefully based on the basic company documents, including Memorandum of association/ Partnership deed etc. and current Turnover of the business

GST collections for July at Rs 1,16,393 crore, improving the govt’s income collection.

4. MCA enables Aadhar authentication for GSTIN on Company Incorporation. Companies (Incorporation) Third Amendment Rules, 2021.
NOTIFICATION. Dated: 05th March 2021