Indian Startups: Eligibility, Tax Exemptions and Incentives

by Rajiv S. Content Writer

In 2016, Prime Minister Narendra Modi launched the Startup India campaign to promote entrepreneurship in India. The action plan aimed to promote bank financing for startups, simplify the startup incorporation process, and provide various tax exemptions and other benefits to startups.

However, all benefits and exemptions are available to startups only if they meet the criteria for an 'Eligible Startup.'
So, first, let's go over the requirements for becoming an "Eligible Startup."

Eligibility for Startup India

According to the Startup India Action Plan, the following conditions must be met in order to be considered a startup:

Has not yet completed a ten-year period since incorporation/registration.
Is it a private limited company, a partnership firm, or a limited liability partnership?
For any fiscal year since incorporation/registration, the annual turnover has not exceeded Rs. 100 crores.
Is it working to innovate, develop, or improve products, processes, or services, or is it a scalable business model with a high potential for job creation or wealth creation?
It is not formed by dividing or reconstructing an existing business.

Tax Exemptions for such Eligible Startups

Initially, startups founded between April 1, 2016, and March 31, 2021, were eligible to apply for the tax exemption scheme. However, the eligible period was extended until March 31, 2022, in the Union Budget 2021-22.

According to this scheme, you can get a 100% tax break on your profit for three years in a row if your annual turnover does not exceed Rs.25 crores per year.

11 Benefits Provided under Startup India

Here are all the startup tax exemptions provided by the Indian government.

Simple procedure
The Indian government has launched a mobile app and a website to facilitate startup registration. Anyone interested in launching a business can fill out a simple form on the website and upload the required documents. The entire procedure is conducted entirely online.

Cost-cutting measures
The government also provides a list of patent and trademark facilitators. They will offer high-quality Intellectual Property Rights Services, such as faster patent examination and lower fees. The government will cover all facilitator fees, while the startup will only be responsible for the statutory fees. They will save 80% on the cost of filing patents.

Simple access to funds
The government has established a fund of 10,000 crore rupees to provide venture capital to startups. The government is also providing lenders with guarantees in order to encourage banks and other financial institutions to provide venture capital.

Three-year tax break
Startups will be exempt from income tax for three years if they obtain Inter-Ministerial Board certification (IMB).

Submit a tender.
Startups can compete for government contracts. They are exempt from the "prior experience/turnover" criteria that apply to regular businesses responding to government tenders.

Research and development facilities
Seven new Research Parks will be established to provide facilities to R&D startups.

There are no time-consuming compliances.
Various regulations have been simplified to save startups time and money. Startups will be able to self-certify compliance with 9 labor and 3 environmental laws (via the Startup mobile app).

Investors can save money on taxes.
People who invest their capital gains in government-created venture funds will be exempt from capital gains taxes. This will assist startups in attracting additional investors.

Select your investor
Following this plan, startups will be able to choose between VCs, giving them the freedom to select their investors.

Simple exit
In the event of an exit, a startup can close its doors within 90 days of filing for winding up.

Meet other business owners.
The government has proposed holding two startup fests each year, both nationally and internationally, to bring together the various stakeholders of a startup. This will provide numerous opportunities for networking.

The government is very supportive of startups. They reap enormous benefits, which is why more people are establishing startups.