income tax exemptions for startups

Income Tax Exemptions on Startups in India – Government Policy

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Union Budget 2017 revised the taxation policy for Startups drastically with a lot of positive changes in terms of Income Tax exemptions. Here are the concessions that all Startups will receive according to the newly revised government policies. So, if you are a Startup owner make sure to put this knowledge to full use.

No Taxes For The Initial Three Years

The Union Budget 2017 brought forth a huge and profitable change for all Startups. As per the documented budget, a company which has been declared eligible as a Startup by the Government will be completely exempted from paying taxes on their profits for the first three years. This exemption has given all new Startups the boost they need. The exemption aims at multiple goals:

  • Promoting innovation and development of Startups.
  • Releasing better products in the market and commercializing them.
  • A increase in the number of modern technology products being available.

Thus all Startups are exempted from paying Income Tax for first three years except a Minimum Alternate Tax (MAT). The MAT which has to be paid by all companies is calculated in accordance to the book profits ( Profits from a transaction or risen stock value). MAT value is approximately 18.5% of the book profits. This system has been well appreciated by all Startup owners as they have now got both platform and time to expand their business.

Exemption From Taxes on “Angel Investment”

An “Angel Investor” is a like the seed funder for a Startup. They are the ones who provide the necessary capital to establish the Startup in the first place. The investment may or not be made in exchange for equity shares or stocks. According to the revised rules for Startups, all transactions with Angel Investors will be tax-free. But there is a matter of formality in this case. Only the Startups who are authorized as eligible by the Inter-Ministerial board of Certification under the criterions set by Department of Industrial Policy and Promotion will be exempted from the “Angel Investment Tax”.

Taxes Levied On Capital Gains Has Been Minimised

In addition to the other tax exemptions, it is also a profitable venture for Startups in 2017 with the exemption set on Capital Gains. According to the Union Budget, 2017 the government has stated that there will be a 20% exemption on Capital Gains Tax. Capital Gains for a company is the source of income that comes through the selling off assets like shares, business bonds, and stocks. Previously these were taxable in a similar manner to the regular income taxes. Thus it was a long-standing demand by all new Startups to decrease the tax amount in order to maximize their profits. Previously the investors who earned their profits through capital gains of Indian Startups, ha to route the investment channel through Mauritius in order to get waived taxes. Now that a large percentage of the tax has been exempted, the investment channel will go through India meaning it is a win-win situation for both the government and the Startups.

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