Tax Exemptions and Relaxations available for startups

Introduction?

There are several incentives issued by the Government of India for startups and benefits are enhanced every year. Income tax is a tax that is levied on income, not on sales revenue. It sometimes gets difficult to track sales, expenses, and depreciation at the early stage of a startup. The government has introduced the presumptive schemes of taxation to simplify the computation of income.

Income: For professionals, it will be the 50% value of the service provided.

Income: For businesses, it will be the 8% total value of goods sold.

Individual proprietors, only Hindu Undivided Families, and partnership firms can use this scheme, but companies are not allowed to use the scheme.

Income tax on startups and its tax slab

Proprietorship/individual?:

• ?Partnership/ LLP firm: 30%
• Indian company:25%

Manner of tax computation?and ITR Form

• Income computed under the presumptive scheme: ITR 4
• Income computed as revenue/expenses/deduction:ITR 3/ITR5/ITR 6/ ITR

Tax Incentives for startup

There are 100% tax deductions available under section 80 IAC for eligible startups. Any eligible startups formed on or after 1st April 2016 and before 1st April 2019 can claim this deduction for any consecutive 3 years. If the total revenue does not exceed Rs. 100 crores in any year from the beginning of its incorporation, then this deduction will be applicable.?

Every eligible start-up that wants to claim the benefits shall maintain the following steps:-

• They need to maintain separate books of accounts for eligible business
• They need to get their account audited by a chartered accountant
• They need to furnish an audit report in form 10CCB, including ITR.

Definition of eligible startups to avail of this deduction

• The start-up is incorporated as a company or LLP.
• That startup was incorporated between 1st April 2016 and 1st April 2021.
• The start-up has not exceeded its annual turnover of rupees 100 crores.
• The start-up is certified by the inter-ministerial board of certification.
• The startup has not been formed by the reconstruction of a business that already exists.

Relaxation available for startup

• Startups need not be required to include their cash flow statements.
• Startups are exempted from holding quarterly board meetings every year. Meetings are allowed to be held in a calendar year.?
• Interested directors are to be counted as quorum as per MCA permission.
• First-track corporate insolvency processes are available for corporate debtors.
• The annual return will only calculate the aggregate remuneration drawn by the director.
• Auditors are allowed to inspect the books and accounts of the company. They can prepare their reports as per the Companies Act.

Exemptions under labour laws

Startups are allowed to clarify their compliance with nine labour laws. There shall not be any inspections conducted for three years in case of labour laws.

Tax Exemptions on Long term capital gains

According to newly inserted section 54 EE of the Income-tax Act, eligible startups are allowed to exempt their tax on long-term capital gains or part thereof if it is invested in a fund notified by the central government. These exemptions can be availed if it is within the period of six months from the date of transferring the asset. A maximum of 50 lakhs are allowed to invest in the long-term specified asset.?

Tax exemptions on investments above the fair market value

Investments that are above the fair market value are allowed on tax exemptions with the permission of the government. These Investments include resident angel investors, family, or funds that are not registered as venture capital funds.

Conclusion

Based on the aforementioned study, every startup founder should know about the relaxation of taxation laws and exemptions under labour laws before the inception of their entity. It would help them to run their business in an effective manner and also help them to protect from any unnecessary disputes arising from their business if any.