Startups is the new buzzword in India. With a lot of enthusiastic people coming together, with new and innovative ideas, to take our country one step ahead, with technology or to simply solve an existing problem which has been lingering for too long among the masses, startups are helping grow India.
With growth of startups industry in India it is important to understand the income tax for startups scenario as well.
Startup Tax India
Income tax is always imposed on the income that is earned. It is not levied on the sales revenue. Income or total profit earned during the financial year is total value of goods sold or service provided minus any expense incurred in selling these goods or providing service and reduction in the value of assets with the passage of time, till the goods are sold.
Income tax for startups is rather simplified by the Government of India. Presumptive Scheme of Taxation has been introduced by the Government for an individual to disclose the income as:
- Income for business is eight percent of total value of goods sold
- Income for individuals/ professional is fifty percent of the total value of services provided.
This scheme is not applicable to companies.
Income Tax For Startups
After calculating the Income as mentioned above, it is important to calculate the Tax Liability.
Income tax is imposed on the income as mentioned below:
- For proprietorship or individual business entity the income tax is levied as per the income tax slab rates.
- For partnership or LLB firms the income tax levied is 30 percent of the income.
- For Indian companies the Income Tax for Startups is 25 percent of the income.
Income tax return is filed by the 31st of July or 30th or September each year. To file the ITR or Income Tax Return the following formats are used:
- ITR 4 form is used if the income is computed under taxation that is presumptive.
- ITR 3 / ITR 6 / ITR 5 / ITR 7 form is used if the income is computed as (revenue - expense - deprivation).
Tax Incentives For Startups In India
In 2016, the government of India announced a one hundred percent tax deduction for authorized startups under section 80-IAC from payment of income tax for startups.
Eligible startups which are formed on or after 1st of April, 2016 until the 1st of April 2019 are exempted from paying 100% income tax for any 3 consecutive years. This is one of the major benefits of startups in India for Income tax for startups. Eligibility for startup India is however a very important point to consider here.
In addition to the above benefits of startups in India mentioned above, the eligible startup has the right to choose the 3 consecutive years of 100% tax exemption from the first 7 years of its business start. Startup tax India has a very strong and positive point to consider.
All eligible startups have to maintain the following documents:
- Separate account books are supposed to be maintained or eligible business.
- The startup accounts are to be audited by Charted Accountants.
- An audit report is supposed to be furnished in the form 10CCB along with an income tax return.
Eligibility For Startup India
The benefits of startups in India for 100% tax exemption are only for the eligible startups. The conditions of eligibility for startup India include:
- Income Tax for Startups will be exempted if the startup is incorporated as a company or LLB.
- The company must have been integrated between the 1st of April 2016 to 1st of April 2021.
- The turnover of the company’s business must not exceed a total amount of Rs. 25 crores.
- The Inter-Ministerial Board of Certification must certify the company for startup eligibility. This certification includes that the company does business which involves development, innovation, deployment, new product development or commercialization of new products, and processes or services driven by technology or intellectual property.
- The company should be new. It should not be formed by splitting an already existing company or by reconstructing a business which is already in existence.
Having said all this, we also know that there are many disadvantages of startup in India. With a large population and the risk of being able to run a business successfully or not always on the mind, it gets difficult to start your own company.
With the help of multiple government initiatives, startups in India are touching newer heights every year, every day of the year.