Tax Incentives
The Inter-Ministerial Board setup by Department of Industrial Policy and Promotion validates Startups for granting tax related benefits. The Board comprises of the following members:
- Additional Secretary, Department of Industrial Policy and Promotion, Convener
- Representative of Ministry of Corporate Affairs, Member
- Representative of Ministry of Electronics and Information Technology, Member
- Representative of Department of Biotechnology, Member
- Representative of Department of Science & Technology, Member
- Representative of Central Board of Direct Taxes, Member
- Representative of Reserve Bank of India, Member
- Representative of Securities and Exchange Board of India, Member
The board shall validate Startups for the following two exemptions:
1. Income Tax Exemption on profits under Section 80-IAC of Income Tax Act
A DIPP recognized Startup shall be eligible to apply to the Inter-Ministerial Board for full deduction on the profits and gains from business.
Provided the following conditions are fulfilled:
- A private limited company or a limited liability partnership,
- Incorporated on or after 1st April 2016 but before 1st April 2021, and
- Products or services or processes are undifferentiated, have potential for commercialization and have significant incremental value for customers or workflow
The deduction is for any three consecutive years out of seven years from the year of incorporation of startup.
2. Income Tax Exemption on investments above fair market value received under Section 56 of Income Tax Act
A DIPP recognized Startup being a private limited company shall be eligible to apply to the Inter-Ministerial Board for exemption from income tax on investments above fair market value made by angel investors.
Provided the following conditions are fulfilled:
- the aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of shares does not exceed ten crore rupees,
- the investor/proposed investor, who proposed to subscribe to the issue of shares of the Startup has, —
a. the average returned income of twenty-five lakh rupees or more for the preceding three financial years; or
b. the net worth of two crore rupees or more as on the last date of the preceding financial year, and
- the Startup has obtained a report from a merchant banker specifying the fair market value of shares.
