Startup India initiative provides benefits to startups that meet the following conditions:
- Must be a private limited company, partnership firm, or LLP.
- Should not be more than 10 years old from the date of incorporation.
- Annual turnover must not exceed Rs. 100 crore.
- Should focus on innovation, development, or scalability with employment generation potential.
- Should not be formed by splitting or restructuring an existing business.
Tax Benefits for Eligible Startups:
- 3-Year Tax Holiday: Startups can enjoy a 100% tax exemption on profits for three out of seven years, provided their turnover remains under Rs. 25 crores.
- Exemption from Long-term Capital Gains Tax: Investments in government-notified funds within six months of asset transfer qualify for tax exemption.
- Tax Exemption on Investments Above Fair Market Value: Resident angel investors and certain funds are exempt from tax on investments exceeding fair market value.
- Capital Gains Exemption for Individuals/HUFs: Individuals selling residential property and investing the capital gains in eligible startups receive tax exemption if they hold 50% or more equity for five years.
- Set-off of Carry Forward Losses: Startups can carry forward losses even with changes in shareholding, as long as original shareholders retain their voting power.
Conclusion
Choosing the right business structure depends on liability tolerance, tax implications, ownership preferences, and funding needs. Consulting a business advisor or Chartered Accountant can help ensure the best choice for long-term success. Moreover, startups meeting Startup India eligibility criteria can benefit from substantial tax exemptions, fostering growth and innovation.