The entrepreneurial spirit in India is flourishing like never before. With innovation and ambition at its core, the government has launched initiatives to empower new entrepreneurs. A key initiative is the Startup India Scheme. It, along with the 80IAC tax exemption, aims to support and incentivize startups in their growth.

What is the Startup India Scheme?

Launched in January 2016, the Startup India Scheme is a key initiative of the Indian government. It aims to boost entrepreneurship and create a strong ecosystem for innovation and growth. It seeks to empower startups by providing them with financial support, mentorship, and simplified regulatory frameworks.

The scheme focuses on three key areas:

• Simplification and Handholding: Easing regulatory compliances and fast-tracking patent registrations.
• Funding and Incentives: Providing financial aid and tax benefits.
• Industry-Academia Partnerships: Encouraging innovation through collaboration.

Eligibility Criteria for the Startup India Scheme

To qualify under the Startup India Scheme, a business must meet the following criteria:

• Incorporation Timeline: The entity must be registered as a private limited company, partnership firm, or limited liability partnership (LLP) within the last 10 years.
• Annual Turnover: The turnover of the business should not exceed ₹100 crore in any financial year since incorporation.
• Innovation at its Core: The business should focus on innovation, development, or improvement of products, processes, or services. It should also have the potential to generate employment or create wealth.
• Non-restructuring Clause: The entity must not be formed by splitting up or reconstructing an existing business.

Once these conditions are met, startups can register on the Startup India portal. They will then enjoy many benefits.

What is Section 80IAC Tax Exemption?

Tax benefits play a pivotal role in supporting startups during their formative years. Recognizing this, the government introduced Section 80IAC of the Income Tax Act, which offers eligible startups a 100% tax exemption on profits and gains derived from their eligible business for 3 consecutive financial years within the first 10 years of incorporation.

This exemption is aimed at reducing the financial burden on startups and allowing them to reinvest their earnings into business expansion and innovation.

Benefits of Section 80-IAC

The benefits of Section 80-IAC of the Income Tax Act, 1961, are listed as follows:

• 100% Deduction on Profits and Gains: Section 80-IAC of the Income Tax Act, 1961, allows eligible startups to deduct 100% of the profits and gains derived from their qualified business for three consecutive assessment years.
• No Advance Tax Required: Since the total tax liability becomes nil under this provision, eligible startups are exempt from paying advance tax.
• Reduction in Taxable Income: The deductions available under Section 80-IAC help startups mitigate the tax burden commonly faced during their initial stages. This reduction in taxable income eases financial pressures, allowing startups to utilize their resources more efficiently.
• Simplified Application Process: Claiming deductions under Section 80-IAC is straightforward. Startups can easily file their applications online without any government fees. The easy access and simple compliance process encourage more startups to seek this tax exemption.

Documents Required for Section 80-IAC

To apply for the Section 80-IAC tax exemption, startups need to prepare and submit the following documents:

DPIIT Recognition Certificate: Proof of recognition as an eligible startup by the Department for Promotion of Industry and Internal Trade (DPIIT).

Certificate of Incorporation or LLP Deed:

• Private Limited Company: Memorandum of Association (MoA).
• Limited Liability Partnership (LLP): LLP Deed.

Board Resolution: If applicable, a certified copy of any board resolutions related to the tax exemption application.

Annual Financial Statements:

• Certified Balance Sheet.
• Profit & Loss Account: These should cover the past three financial years or all years since incorporation.

Income Tax Returns: Filed returns for the past three years or since incorporation.

Startup Video Presentation: A link to a video pitch effectively communicating your startup’s mission, products, and potential.

Pitch Deck: A comprehensive presentation in PDF format detailing your business model, market analysis, competitive advantage, and financial projections.

Additional Clarifications: Any further information or documents requested during the application review process.

Ensure all documents are accurate, up-to-date, and certified as required to facilitate a smooth application process.

How to Apply for 80IAC Tax Exemption?

• DPIIT Recognition: Start by registering your startup on the DPIIT portal and obtaining the required certificate.
• Filing an Application: Submit an online application on the Income Tax Department’s website, complete with supporting documents like the certificate of incorporation, a detailed business plan, and proof of innovation.
• Await Approval: Upon submission, your application will be reviewed, and if approved, your startup will be eligible for the exemption.

The Startup India Scheme and 80IAC tax exemption are vital for new entrepreneurs in India. They lower financial and regulatory hurdles. This gives startups the resources and freedom to innovate, grow, and make a lasting impact.