The ‘StartupIndia’ scheme was launched by the Indian government on 16 January 2016. This scheme comes under the ‘Make in India’ scheme. The aim was to encourage entrepreneurship in India. First, let’s take a quick look at ‘Make in India’ scheme.
On 25 September 2014, Prime Minister Narendra Modi launched the “Make in India” initiative. The aim of launching this initiative was to transform India into a global manufacturing hub with world-class infrastructure. And this was planned to be achieved by encouraging both multinational and domestic companies to manufacture their products within the country only.
In order to create a sustainable ecosystem for startups, the Indian government decided to launch StartupIndia scheme which would provide a support system for budding entrepreneurs.
India’s investment incentives are designed to channel investments to specific industries, promote the development of economically lagging regions and encourage exports of goods and services. In order to strengthen the make in India initiative, the government needs to provide tax incentives as well, so that businesses can thrive. Below are few key tax benefits for startups which have been introduced under the ‘StartupIndia’ scheme as a part of the ‘make in India’ campaign.
Minimum Alternate Tax (MAT) on SEZ profits
The Special Economic Zone (SEZ) units are exempted from paying the Minimum Alternate Tax. This tax exemption was provided to SEZ units under the SEZ act but was withdrawn later. It has been reinstated again as a part of benefits under make in India scheme.
Tax benefits under section 80-IA
Section 80-IA deduction of the Income Tax Act provides a deduction for industries which are involved in infrastructure development. The following section provides income deduction for businesses who deal in developing, operating and maintaining.
Tax holidays, depending on the industry and region
Startups and new enterprises are exempted from income tax for 3 years. In order to avail this benefit, they need to get a certificate issued from Inter-Ministerial Board (IIMB)
Freedom from Angel Investment Tax
The Indian Government no longer enforces the ‘Angel Investment Tax’. This tax was introduced in 2012. Under this, any angel investor won’t be taxed on the investment made by them. This was amended by section 56(2) (vii) (b) of the Income Tax Act.
One thing to remember is that only those startups which fulfill conditions of Department of Industrial Policy and Promotion (DIPP) are eligible for this kind of tax exemption.
Tax saving for investors
The Indian government has exempted investment of long term capital gains by an investor. Another exemption of capital gains has been provided by the Indian government after the sale of residential property or for the purchase of shares of a startup company.
Accelerated depreciation benefit
Additional depreciation is allowed while installing new machinery or setting up a new plant by the person/company who is engaged in the manufacturing of any product.
It is allowed in certain categories such as energy-saving, environmental protection, and pollution control equipment.
Indirect tax benefits for SEZ units
The benefit which comes under this is an exemption from customs duty on import of goods and raw materials
Raised eligibility for the presumptive tax scheme
The eligibility has been raised from 1 crore to 2 crores to enable the business owners to enjoy the benefits under the presumptive tax scheme
Additional tax benefits for startups under the ‘StartupIndia’ scheme
Tax exemptions have been provided on investments above Fair Market Value for investments made in Startups by investors
Companies can claim a deduction for expenses incurred in the 3 years immediately before the year in which the company started its operations
All in all, along with tax benefits mentioned above, the Indian government has also provided other non-tax incentives to startups under the ‘StartupIndia’ scheme which is an intermediary of ‘Make in India’ campaign. So, if you are looking to become an entrepreneur or you already are one then you must take advantage of these benefits. These are the kind of benefits which can help you unlock the true potential of your ideas. Let us all aim big and together make India an economic superpower.