What Are The Benefits that can b Fetched from Income-tax Act, 1961 for Start-ups?

What Are The Benefits that can b Fetched from Income-tax Act, 1961 for Start-ups?

Category : Income Tax Law

With more than 84012 start-ups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT). As of 30 November 2022, India has emerged as the third biggest start-up ecosystem in the world. The Indian government aims to create a robust ecosystem for fostering entrepreneurs and innovation in the nation. This will promote sustainable economic growth and provide numerous job possibilities.


A qualifying start-up may take advantage of several tax exemptions and perks provided by the GOI. Let's first define what an eligible Startup is. Because all present and future tax implications will ultimately be based on these criteria.


The following are the benefits available to start-ups under Income-tax Act, 1961:


There Is No Tax On Shares Issued To Domestic Investors At A Premium To Their FMV.

According to Section 56 (2) (VIIb), if a tightly owned corporation issues unquoted shares at a premium above the FMV. The excess of the premium over the share's FMV is taxed as additional income to the firm.


On the other hand, whether a startup has been acknowledged by DPIIT and the total amount of its paid-up share capital. Share premium following the issuance or intended issuance of shares.


Set-off of Losses from Earlier Years

The following prerequisite must be satisfied to carry forward losses and set off against prior-year income. The same person who beneficially owns at least 51% of the shares on the final day of the financial year. The loss incurred retains 51% of the voting power of the firm. As of the last day of the preceding year in which the loss is sought to be set off.

The loss from any year (before the previous year) may be carried forward. In the event of an Eligible Startup even if the aforementioned criteria are not met.


Section 54 GB Exemption

According to Section 54GB, any capital gain made by an individual or HUF from the sale of a long-term capital asset. That is, a residential property shall be exempt in proportion to the net consideration price.


That was used to purchase equity shares of a startup company that meets the requirements before the deadline. It is for filing the return of income under Section 139. (1). And such a startup firm used this money to buy new assets. Which is within a year of the assessee's subscription date for equity shares.


Delay In Paying Taxes On Esops

ESOPs are a crucial tool used by businesses. To draw in and keep talent while enabling employees to take part in the company's expansion. ESOPs are currently subject to two phases of taxation in the hands of the employees.

First, the difference between the FMV on the exercise date and the exercise price is taxed as a perquisite. A portion of the pay, at the time of exercise. Second, the difference between the sale price and the FMV on the day of exercise. It is taxed as capital gains at the time of sale.

These were benefits available to Start-ups under Income-tax Act, 1961.


Company Bio

Prakash K Prakash is a leading Chartered Accountancy Firm in India, focusing on providing services and delivering value to its clients. They offer incredibly competent, technological, and efficient services. They put the best of their efforts in acknowledging their clients about the benefits available to start-ups under Income Tax Act,1961.

20 Jan, 2023


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