, Tax Framework for Start ups in India

One of the most promising schemes launched by the Government of India has undoubtedly been the Start-up India initiative; a definitive push which aims at steering entrepreneurship and innovation in India by providing tax benefits to start-up companies. With this scheme, eligible start-ups can avail themselves of a three-year tax holiday in their initial ten years of operation; thereby facilitating their growth and development without the burden of income tax.

This promising initiative was devised to provide the much needed boost to start-ups’ growth in the initial phase of their business. An important aspect to note is that the exemption would be for those eligible start-ups who are involved in the business that involves innovation and development with respect to products, processes, services, or a scalable business model that will have a high potential of employment generation or wealth creation.

Furthermore, the eligible start-up companies can carry forward their losses and set off against income of a year if they satisfy either of the following conditions. The first condition here is that at least 51 percent of beneficial shareholders in the year on incurrence of loss continue to hold shares in such start-up in the year of set-off. Oe the second condition would be that the same shareholders in the year of incurrence of loss continue to hold their shares in such start-up in the year of set-off, irrespective of their percent of holding. Further, only the losses which were incurred during the period of ten years beginning from the year in which such a company was incorporated can be used for set-off.

So, who are the eligible start-ups here? The answer would be the company or an LLP engaged in the business mentioned above and which fulfills the following conditions. Firstly, it should be incorporated on or after 1 April 2016 but before 1st of April 2025. Secondly, the total turnover of its business does not exceed INR 1 billion in any tax year(s) prior to which the deduction was claimed. And thirdly, it should hold a certificate of eligible business from the Inter- Ministerial Board of Certification as notified in the Official Gazette by the Central Government.