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A startup in India is usually a freshly started business established by one or a group of individuals. Now, what’s the difference between a startup and other businesses? Every business starts someday. Well, a startup comes up with a unique product that doest existed before. Or you may say, it comes up with innovative ideas. The base of every startup in India is to innovate and modernize. You can say an industry that indulges itself in renovating/ developing a new product is known as a startup.

In brief

The startup India is a campaign that came back in 2016. Honorable Prime Minister Narendra Modi Ji initiated this campaign to boost the Entrepreneurship in India. This campaign has several motives. It includes facilitating bank finance for the startups, simplifying the process of registration, and offers tax support to the newly nurtured startups. But all the advantages are granted to the startups only if they satisfy the below criteria.

Tax exemptions as per the startup India campaign

Tax exemption under section 56 of the IT Act

Any unlisted company raises its funds using shares, and the share price is more than the FMV of the share sold. After getting their startup registration done, all the entities can apply for the angel tax exemption. So, they can sell their share capitals. But the share capital must surpass INR 25 crore after the share issue. And the entity should also be recognized by a department of industry promotion and trade.

Tax exemption under section 80 IAC

This exemption states that any startup may apply for tax exemption only after being incorporated by DPIIT. The DPIIT incorporation certificate allows all the startups to avail tax exemption for three consecutive financial years within its initial ten years. But a startup is only eligible for this kind of exemption only when incorporated as a private limited company or an LLP after 1st April 2016. And they must also have a certificate that distinguishes them as a startup.

Eligibility to get recognized as a startup

1. Any enterprise in India will only be considered as a startup in its initial ten years. That is the first ten years from its date of registration.

2. If any entity wants to be recognized as a startup, it must be a newly formed entity. In cases of splitting up from an existing one, it would no more consider as a startup.

3. The turnover of the entity must be below INR one hundred crores from its date of registration.

4. The entity must work on the purpose of innovating, modernizing, or renovating an existing product. It also must have a high-manageable of employee generation.

5. It will be considered ten years if it integrates as a private limited company, LLP, or a partnership firm.

The process included being recognized as a startup

Below is the procedure to be recognized as a startup.

1. If you want to be recognized as a startup, you must apply for it online. For an online certificate, you have to visit the portal for startup recognition.

2. The application must be provided with copies of the incorporation certificate of business. Further, it should also include the nature of the business that makes it unique. The description must focus on the innovation of the product that will boost the country’s economy.

3. Once the entity receives all its details and documents, the authority will recognize it as a startup. And it can enjoy all the benefits.

Applying for tax exemptions after being recognized by the DIPP

If any startup wants to apply for the tax exemption after being recognized, they must follow the below procedure:

1. Visit the Startup India portal to sign up and create your credentials.

2. Once you visit the portal, you have to apply for startup recognition. This is a pre-requisite for the next tax holiday request. After the validation, the entity will obtain a certificate of recognition.

3. Now the entities are eligible to get the tax benefits once they are approved by the IMB.

4. Further, the applicant will also be examined for uniqueness, innovation, and scalability. It would be done via a specialized agency that shall put up the cases in the next meeting. But before this, if you have some clarifications to be done, you can communicate it via email. Every startup gets three chances of resubmission.

5. Once the IMB approves an entity, it will offer a certificate of eligibility.

6. After getting the eligibility, the entities can provide all the certificates along with DPIIT number to claim the tax exemption.

Mandatory documents required to be recognized as a startup in India

If you want to get recognizes as a startup, you must provide the following documents.

1. A photocopy of the Memorandum of association/ LLP agreement of the entity

2. Copy of incorporation certificate/ LLP registration certificate of the entity

3. A copy of pan card

4. Brief details describing the uniqueness of the products and services

5. IT returns of the last three financial years

6. Brief description of directors and representatives of the entity, it includes their email ID, contact details, etc

7. Annual audited account of the startup of the last three years

8. Mobile app Link/any video that relates to the product of the entity

9. URL of the website of the entity

10. Trademark, patent, or any other IPR filing number and the logo of the entity

Rewards for getting recognized as a startup under startup India program

Exempted from long term tax for capital gains

The section 54 EE of the IT Act offers an exemption on the taxes on a long term capital gain. If any such long-term capital gains are obtained/ phase invested in a fund by an entity, this is notified by central government within six months of date from the transfer of assets. The maximum amount that an entity can invest in any such asset is IN 50 lakh. And an entity recognized as a startup can invest in such targeted funds for three years. And if the entity withdraws capital before term, then all the exemption shall no more be provided in the year in which money is withdrawn.

If the investment is made above the fair market value

In this exemption, the authority exempts the taxes levied on the investments above fair market value. If any recognized startup invests in fair market value, it must be a domestic angel investor. And it should also not be registered as a venture capital fund. Further, if any incubators invest, it would also be exempted, but above the fair market price.

Three years of tax exemption in a seven years block

All the startups that are incorporated after 1st April 2016 are eligible to enjoy a 100% tax rebate on their profit for three years of a total of seven years. But they should also ensure that their annual turnover doesn’t surpass INR 25 crore in any financial year.


All the startups that are incorporated after 1st April 2016 are eligible to enjoy a 100% tax rebate on their profit for three years of a total of seven years. But they should also ensure that their annual turnover doesn’t surpass INR 25 crore in any financial year.

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