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Tax-Exemption Under Section 80IAC

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Overview

An acknowledged startup from the inter-ministerial board is considered as an entitled venture to be given tax relaxation. Their business needs to be associated with creativity, development, and utilization of fresh products, services, and methodologies. To turn the platform into a competitive one and assist the same in development process, a startup with eligibility must be allowed to reduce taxes and different kinds of advantages, enabling them to turn the business idea into a productive one.

Overall Description

India is in progressive mode and recently git placed in third position among startup encouraging economies. It is showing consistent development and is up for being the largest startup hub over the globe. For supporting and enriching new ventures in the nation, various projects have been announced by the government, enabling them to make profits. Startup India program is one such program. Basic aspect of this step is to create an environment that can be favorable for the new business groups in India and encouraging the business groups. Discussed here are the taxation advantages that the companies can garner, and the way the same can be leveraged for greater development.

Relaxation as per section 56 for start-ups; in other words, the angel tax

Aiming to provide greater relaxation to fresh start-ups, government of India has decided to give relaxation in eligibility criteria for start-ups and relief the rules of angel tax upon increasing the limit of turnover from 25 crores. This facilitates their growth and economically established. Any venture is considered a startup when the turnover doesn’t get over 100 crores, rather than 25 crores in any of the financial timelines ever since established. Government is taking measures to endorse and enrich the startup platforms, considering that they play a major role in strengthening GDP.

Eligibility

It is essential for the entity to be a Pvt Ltd company, and must be acknowledged by DPIIT. For obtaining DPIIT registration, it is essential to go through startup India portal. When the turnover of the same, even for one financial year, is anywhere around 100 crores, then it is considered a startup. Collective sum of delivered shared capital amount and premium post stipulated issue should not cross 25 crores for the startup. To be exempted under Section 56(2)(viib), it is not essential for the start-ups to invest anything on static properties, gross payment to other companies or investments of more than 10 lakh INR on any vehicle for communication, having loans, and in some other properties other than regular cases. Such investments are possible with regular business cases.

Deduction amount

Upon receiving any consideration of an amount of around 25 crores, a startup from investors for issuing the shares, then once start-ups are acknowledged by DPIIT, then their consideration is going to be relaxed as per section 56(2)(viib) of the IT act. For exempting, start-ups with eligibility are essential for filing declaration form through DPIIT, and then the same is transmitted to CBDT.

Exempting the start-ups as per section 80IAC

Tax benefits are provided under section 80-IAC of a hundred percent profit amount. It can help initiate development process and provide a reliable platform for start-ups in the nation.

DPIIT is the abbreviated term for Department for Promotion of Industry and Internal Trade

DPIIT establishes the inter-ministerial level board that is meant for acknowledging the startup for letting tax concerning advantages. The board will authenticate them for tax relaxation on profits by 80-IAC of IT act. A DPIIT authority offers acknowledgment to a startup that turns them eligible for applying for an inter-ministerial board for entire reduction of tax on profits generated from business. Start-up should involve creativity, development, and enhancement of products and services or significant business ideas with employment creation ability.

Amount of reduction

Reduction is allowed as of section 80 IAC of the IT act of 100 percent for 3 years of income of the 7 years from the registration period. The purpose of exempting is simply to assist the newbie start-ups. Start-ups need to fulfill entire norms for demanding the reduction, as mentioned under 80-IAC section. These limits of turnover for demanding the reduction are not specified by the DPIIT notification, though 80-IAC section of IT acts officially orders stipulating turnover amount.

Eligibility

The entity needs to be established post 1st April 2016 as a Pvt Ltd company or as an LLP. Any venture that is molded from the redevelopment exercise at that moment is not permitted to get the advantage. It should be ensured that the turnover amount doesn’t get excess of 25 crores per annum in previous year compared to the review period for which reduction is charged as per 80-IAC. It should be acknowledged as DPIIT.

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