Startup Income tax Benefits

1. Tax exemption u/s 80iac-Exclusive deduction of Income of Startup   

A. Benefits:

1. Tax Holiday for 3 consecutive financial years out of its first ten years since incorporation
2. Refer to the following notification for more details: 

B. Eligibility

1. The entity should be a recognized Startup
2. Only private limited or Limited Liability partnership is eligible for Tax exemption under Section 80IAC
3. The Startup should have been incorporated after 1st April 201

2. Tax Exemption u/s 56-Exemption on Tax for Receiving funding more than Fair Value

A. Benefits

1. Exemption under Section 56(2)(VIIB) of Income Tax Act
2. Investments into eligible startups by listed companies with a net worth more than INR 100 Crore or turnover more than INR 250 Crore shall be exempt under Section 56 (2) VIIB of Income Tax Act
3. Investments into eligible Startups by Accredited Investors, Non-Residents, AIFs (Category I), & listed companies with a net worth more than 100 crores or turnover more than INR 250 Crore, shall be exempt under Section 56(2)(VIIB) of Income Tax Act
4.  Consideration of shares received by eligible startups shall be exempt upto an aggregate limit of INR 25 Crore

 Note Point no. 4 :-

Whatever money you raise, will be exempt till total Share capital plus share premium touches INR 25 crore. This means that the total amount of capital issued, should be below INR 25 crore.

This means an exempt startup will not have to pay any angel tax for upto 25 crore of capital raised. This can be in multiple tranches. A startup can raise 10 crore and then 5 crore and then 6 crore and all of it would be free from angel tax.

However if a startup already has paid up share capital of 20 crore, even if a startup raises 8 crore, it shall not be eligible for the exemption.

In order to calculate the above mentioned INR 25 Crore, the amount of money received from the following will not be included

Category 1 AIF : AIF stands for Alternative Investment Fund. Currently only category one AIFs are exempt from this calculation. All funds that invest in startups are in category one

Venture Funds: All venture capital funds are exempt from this calculation

Non-Residents: Any money coming from outside India is exempt from this calculation. This include Foreign Venture Funds, Non-Residents, International bodies

Listed company: that has a networth of 100 crore Or turnover of 250 crore for the previous year. Also, the shares of this company should be frequently traded^[1]

^[1] At least 10% of the total shares should have changed ownership

Examples :-

1. A startup with 30 crore paid up capital where 10 crore is from a Category 1 AIF would be eligible.
2. A startup with 30 crore paid up capital where 10 crore is from a Category 1 AIF and a Listed company, it would be eligible.
3. A startup receiving any amount of funding from a foreign national would be exempt.
4. A startup receiving money from an Indian venture fund would also be exempt.