Tax Exemptions for Startups in India Under ‘Startup India Program’

The Indian government has proclaimed the Startup India Program to encourage the aspiring entrepreneurs start their entrepreneurial journey. To boost the startups, Indian government has simplified the process of startup incorporation, promoting bank financing, offer tax exemptions and many other benefits. Here is a list of all the proposed Tax exemptions that Startups eligible under Startup India Campaign can get benefit from.


Tax Exemption for 3 Years in a Block of Seven Years

All the Startups which are eligible for ‘Startup India Program’ are eligible to avail 100% tax rebate on the profit they have earned. In a block of seven years, Startups can get tax rebate for a period of three years provided the annual turnover does not exceed Rs. 25 crores in any financial year. The 100% Tax rebate will help the startups to afford capital requirements during their initial years of operation.

Tax Exemption on Long-term Capital Gains

According to the section 54 EE of Income Tax Act, the eligible startups can exempt their tax on long-term gains by investing the capital gain in a fund notified by the Central government. However, Startups has to invest the capital gain within a period of 6 months from the date of the asset transfer for a period of 3 years to save tax. If withdrawn before 3 years, then the tax exemption will be revoked. The maximum limit for the investment in the fund is Rs. 50 lakhs.

Tax Exemption on Investments Above the Startup Fair Market Value

Investments Startup receives from the family, friends or any resident angel investors who are not registered as venture capitalists are exempted from being taxed. The investment should be more than the fair market value of the Startup to get eligible for tax exemption.

Tax Exemption for Individuals and HUF

Central government has modified the existing provisions u/s 54GB, which allows the individual or HUF to gain tax benefits on long-term capital gains earned by investing in small or medium enterprises under the Micro, Small and Medium Enterprises Act, 2006. The long-term capital gain may be the money earned by selling residential property or others. The modified law states that the money earned by an individual or HUF from long-term capital gains is exempted from tax, if invested to subscribe 50% or more equity stake in eligible Startups. However, the startup has to use the investment for purchasing assets.

The above mentioned Tax exemptions under ‘Startup India Program’ will let the aspiring entrepreneurs fulfill their dream of establishing startup. Hope the Central Government will launch many such programs to help startups achieve success.