Tax Benefits & Exemptions Under Startup India Plan

The Startup India campaign has been one of the most remarkable developments which India has seen recently. The Union Government has ensured that blooming buds in the nation are given a chance to prove themselves and strengthen the Indian economy. With an allocated fund of INR 10000 crore, the initiative will allow thousands of Indians to show their skill in the realm of innovation and research. Given a consideration for the provisions of development, Startup India has been planned in such a manner that the interest of the entrepreneurs is preserved and the burden of taxes has been lifted on the start-ups for the initial years.


It has been announced by Finance Minister Nirmala Sitharaman that the tax benefits for this segment have been extended. It appears that so far, the startups that were formed between April 1, 2016, and March 31, 2021, have been eligible to take part in this tax benefit scheme. However, now that the budget for 2022 has been passed, there is an additional year of eligibility for startups, as the finance minister has extended the deadline for applications to March 31, 2023.

Tax Benefits of Startup India Program

Here are some of the tax benefits which are available:

1) Tax Exemption for the first 3 years

The pressure of tax on any startup can unsettle its long-term plans. This is why Startup India has been exempted 100%  from paying taxes in the first three years. The new business is free from the obligation of paying taxes and can continue with its developments.

As long as the annual turnover does not exceed Rs.25 crores. By doing so, startups will be able to meet their working capital requirements during the first few years of operation.

Issues such as financial bridging, diversified investments, etc., will no longer be a problem for the entrepreneurs as the tax burden has been lifted. Once the business completes its 4th year of operation, the same then needs to pay taxes are other operating businesses.

Startup India Program: Registration, Eligibility, Benefits

2) Capital Gain Tax Exemption

For startups that are eligible to receive a tax exemption on the long-term capital gain of their company, a new section 54 EE has been inserted into the Income Tax Act for the purpose of allowing them to do so, provided that such a long-term capital gain or part thereof is invested in a fund notified by the Central Government within a period of six months following the transfer of the asset.

Conditions to Get Exemption of Capital Gains

  • A maximum of Rs 50 lakh can be invested in the long-term specified asset.
  • For a period of three years, such amounts shall be invested in the specified fund.
  • A withdrawal before 3 years will result in the exemption being revoked in the year of withdrawal.

Another associated problem with startups is capital gain. Prior to Startup India, most of the startups failed miserably because of the range of taxes. Capital gains was one of the biggest problems and now it has been waived off under the Startup India campaign.  The new manufacturing concerns would now be freed from the concern for acquiring new assets for business. The initiative offers a chance for the new businesses to arrange the required resources to get the best output.

3) Exemption on investments made above Fair Market Value

New enterprises may also plan to acquire shares of another business with a view to making some dynamic investment channels. This is where the problem of making investments comes in. Additionally, the provisions of Income Tax also haunt the new investments. The new campaign has allowed businesses to avail of a tax exemption on the amount which has been made above the fair market value. Investments made by venture capital funds are also exempted for the Startups.

6 Features of Startup India Campaign – You Must Know!

To sum up, one can regard the Startup India campaign to be a boon for budding entrepreneurs. The facility has not only opened up a new door for the new generation but has also assured them of complete support from the Government. On average, there are thousands of new startups every single day, but unfortunately, there are only a few who make it to the inception stage. Additionally, fear of failure also becomes a point of consideration. This is why the campaign also offers an option to make an early existence within 90 days from the start of the project. The future of India’s innovation, research and development look promising with such positive developments.

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