To boost entrepreneurship in India in the year 2016 Prime Minister Narendra Modi introduced the startup campaign. This was done to encourage young entrepreneurs introduce more startups and increase wealth and employment in the country. to The primary aim of this idea was to:

• Promote financing from banks for the startups
• Simplify the process of incorporation of startup
• To grant various other tax exemptions as well as provide several other benefits to the startups.

A startup to get all the benefits, as well as exemptions, need to fulfill all the criteria of an eligible startup. The exemptions to startups are available if the business fulfills all the required criteria.

Eligibility for Exemption to Startups

Exemption to startup is available if a business fulfills the following criteria:

1. From the date of incorporation has not yet completed a span of 10 years.
2. The startup is a Partnership firm/LLP/ Private Limited Company.
3. Since incorporation or registration, the annual turnover of the company has not exceeded Rs. 100 crore.
4. The firm has a scalable model of business. It works for the development, innovation or towards the improvement of services and products.
5. It should not be created by reconstructing or splitting any business that already existed.

Exemptions to Startups on Matters Related to Tax

Tax benefits as an exemption to startups have been explained below:

1. Tax Holiday for Consecutive of 3 Years

An eligible startup can choose any three years from the date of its registration or incorporation to avail of tax exemption.

1. Tax Exemption to Startups on Capital Gains

Exemption on long term capital gains for the amount of up to 5 million is provided for the purpose of boosting the startup ecosystem in India.

1. In case of Change in Ownership Carry Forward the Substantial Change

Protection of the unabsorbed tax losses of the startups that are usually incurred at the beginning of seven years of its operations will be carried forward and also set off.

1. No Angel Tax

As per Section 56(2)(viib) of the Income Tax Act, 1961, the startups will be excluded from the angel or premium taxation. If a startup issues its shares to any angel investor considering the funds received from the investors at a price that will exceed the market value of the shares of the startup.

Conclusion

The exemptions to startups as per the Companies Act provided relief to many young entrepreneurs. It provided a relaxing environment to the entrepreneurs otherwise even a small error made in non-compliance with the Act will lead to big penalties and punishment in the future. 

The primary reason for the exemption to startups is that the company is usually set up by taking funds from investors and outsiders. There is no expected cash flow to receive back the investments. Hence, with the help of exemption to startups, various compliance's have been simplified for private limited companies.

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