Startup India: Eligibility & Tax Exemptions

Revocations of GST Registration

An Ultimate Guide to Startup India Tax Exemption

The Indian government has taken significant initiatives to encourage entrepreneurs to create new firms in India. The government's Startup India plan has been welcomed in business circles as a forward-thinking action by the government that is likely to bring about a positive shift in the present entrepreneurial situation. This specific move is intended to safeguard the country's economic progress. The initiative contains startup India tax exemption that encourage entrepreneurs to start innovative enterprises in India.

If you intend to establish your firm, you must first understand the startup India qualifying requirements, tax exemption, and guidelines.

What Is The Startup India Campaign?

Startup India is a flagship project announced by the Government of India on 16th January 2016 to create a robust ecosystem for nurturing innovation and entrepreneurs in the country, hence driving economic growth and creating large-scale job opportunities. Through this effort, the government hopes to empower entrepreneurs to develop via innovation and design.

On 5th April 2016, the Standup India scheme was launched to facilitate bank loans from Scheduled Commercial Banks (SCBs) ranging from Rs.10 lakh to Rs.1 Crore to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) and one woman per bank branch for the establishment of a greenfield enterprise in the trading, services, or manufacturing sectors. At least 2.5 lakh debtors are likely to profit from the plan. Depending on the nature of its operations, any business will create jobs.

Eligibility for Startup India

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

  • It didn’t complete a ten-year term after incorporation/registration.
  • It is incorporated as a private limited company, a partnership business, or a limited liability partnership.
  • Has not had an annual turnover of more than Rs. 100 crores in any of the fiscal years since incorporation/registration.
  • Is working to innovate, create, or upgrade goods, processes, or services, or is it a scalable company model with a high potential for job creation or wealth creation?
  • It is not founded by dividing or rebuilding an existing firm.

Tax Exemptions in Indian Union Budget 2016 under Startup India Campaign

The Union Budget 2016 highlighted some significant startup tax exemption for entrepreneurs in India. The exemptions are provided as part of the Startup India initiative. Take a look at the highlights of the 2016 budget, which focuses on growing the country's startup sector.

  • A startup cluster to assist entrepreneurs from Scheduled Caste [SC] and Scheduled Tribes [ST] backgrounds. Under the Startup India programme, women entrepreneurs can get up to INR 500 crore.
  • Changes to the Companies Act of 2013 to create a stronger startup environment and to make registrations easier.
  • Online courses to educate the public about entrepreneurship and encourage them to engage freely.

The government intends to create a better environment for new firms and entrepreneurship by providing tax advantages to Startup India. The three-year startup tax exemption has sparked some excitement, and Indian entrepreneurs should not be concerned about the downturn and should feel free to take risks in the market. The government will give all types of assistance and support to startups that meet the above-mentioned eligibility requirements.

Tax Exemptions On Startup India Program

The following startup India tax exemption have been made available to qualifying startups:

Three-year tax exemption in seven years

This initiative was open to startups formed between 1st April 2016 and 31st March, 2021. Budget 2021 has also extended the eligibility until 31st March 2022. Such startups would be entitled to a 100% tax credit on profits for three years in a row, provided that their annual turnover does not exceed Rs.25 crores in any fiscal year. This will help companies satisfy their working capital requirements throughout their early years of operation.

Exemption from tax on Long-term capital gains

A new section 54 EE of the Income Tax Act has been established to allow qualifying startups to avoid paying tax on long-term capital gains provided the gain, or a portion of it, is invested in a Central Government-notified fund within six months after the asset's transfer.

The maximum amount that can be invested in the selected long-term asset is Rs 50 lakh. This sum of money must be invested for three years in the chosen fund. If money is removed before three years, the tax exemption for startup is cancelled in the year the money is withdrawn.

Exemption from taxation on investments valued beyond their fair market value

The government has eliminated the tax on qualified startup investments that exceed the fair market value. Local angel investors, family members, and funds that are not acknowledged as venture capital funds are examples of such investments. Furthermore, incubator investments that exceed fair market value are barred.

Tax Exemption Under Section 54GB

Individuals and HUFs are excused from paying long-term capital gains if they sell a residential property and utilise the proceeds to invest in SMEs or acquire 50% or more of qualified startups, according to Section 54GB of the Income Tax Act. However, the tax exemption startup will be applicable only if the shares are not sold within five years of purchase. Startups must also use the funds invested to buy assets and not sell or transfer them within five years after purchase.

Set-off of Carry Forward Losses Allowed

According to Section 79 of the Income Tax Act, a company can carry forward its losses if the following conditions are met: the shareholders who had voting power in the year when the loss was incurred are in possession of their shares on 31st March of the year in which the loss is to be carried forward, and the loss was incurred over seven years.

If you are a startup owner attempting to figure out your taxes, consult with a CPA to receive the best financial guidance for your company and on tax exemption under startup India.


The startup industry in India is rapidly increasing as a result of continued government support. Everyone, especially the younger generation, has been further pushed by startup registration perks to follow their entrepreneurial interests and establish new businesses. Understanding the benefits of establishing a business, on the other hand, is critical in these cases.

This is where our specialists at Manoj Kumar D & Associates come in to meet all of your company's needs. Our professionals can provide high-quality services to assure your complete happiness.

We can assist you in obtaining business India Registration swiftly by giving professional advice and guaranteeing a seamless and efficient registration for your business.

Frequently Asked Questions

Who is eligible for startup India initiative?

Individuals applying for this plan must be at least 18 years old. A corporation must be a partnership or a private limited company to be eligible for this startup tax exemption scheme. A firm must not have an annual revenue of more than Rs. 25 crore to be eligible for this plan.

Who is eligible for startup?

The Startup India plan is open to entities formed as a Private Limited Company, Partnership Firm, or Limited Liability Partnership.

What is the benefit of a startup scheme?

The purpose of Startup India is to develop and innovate goods and services while also creating jobs in India. The advantages of the Startup India Scheme include job simplification, financial assistance, government tenders, and networking possibilities. It also offers several benefits to startups, including simplified compliance processes, startup company tax exemption, access to funding, opportunities for public procurement, intellectual property protection, and a dedicated hub for government interaction.

Are startups tax-free?

Startup India provides tax benefits and incentives to qualifying startups, which may include income tax exemptions, capital gains tax exemptions, tax advantages for investors, interest payment deductions, and lower royalties tax rates. These advantages are subject to particular circumstances and criteria, and companies must achieve qualifying requirements, such as DPIIT recognition, to make use of them.

What is the tax exemption limit for 2023?

The following changes have been announced under the new tax system for the fiscal year 2023-24, which begins on 1st April, 2023: The basic exemption level has been increased from Rs 2.5 lakh to Rs 3 lakh under the new income regime, and the new tax regime has become the default choice for taxpayers.