Funding your dreams: Startup Registration Tax Benefits

The Government of India launched the Startup India campaign in 2016 with the aim of increasing entrepreneurship in the country. As part of this initiative, the government has introduced many incentives and tax exemptions for startups in India. This article covers the various Startup Registration Tax Benefits available in India.

What is a Startup?

A startup is a new business formed with the goal of selling a single product or service that the founders believe is in demand. To receive taxation and other government benefits, a startup must meet the following conditions:

  • The company should not have existed for more than 10 years. Simply put, the company must be less than 10 years old from the date of incorporation/registration. 
  • The company must be registered as a limited company, limited partnership or partnership to receive initial support.
  • Annual turnover for the year after its establishment should not exceed INR 100 crores.
  • The startup must be committed to the work of developing and updating products and services. 
  • The company cannot be created through restructuring or dividing an existing company.

What are the Startup Registration Tax Benefits?

Tax exemptions for Startups

Indian government has announced various tax exemptions for startups in India to promote the Startup India program and the Make in India program.

Startups are given various exemptions such as:

  • 3 year Tax holiday
    • Startup registered or incorporated between April 1, 2016, and 31st March 2022 is eligible to claim this benefit. Such startups can get a 100% tax exemption on their profit for 3 years in a block of 7 years. However, the total turnover of the company in the financial year cannot exceed 25 million. Cash shortage is one of the most difficult aspects of running a startup. A tax holiday for three consecutive years helps startups set up their companies without major problems.
  • Long-term capital gains exemption
    • The government has introduced a new exemption from long-term capital gains under section 54EE. This section states that all eligible startup companies can claim long-term capital gains tax exemption if the profits are invested in a fund designated by the government within six months of the transition date. The maximum amount of the investment is limited to 50,000,000 euros and it must be kept in the fund for 3 years. If the money is withdrawn before 3 years have passed, the exemption will be cancelled.
  • Exception for investments exceeding FMV
    • The tax on investments exceeding the fair market value is exempt from the startup tax. These investments include investments from angel investors, investments from incubators, and investments from funds and individuals that are not registered as venture capital funds. Simply put, investments made by angel investors paying more than the fair value of the company are tax-free. It helps startups get more money to run their operations.
  • Exemption under section 54GB
    • According to Section 54GB of the Income Tax Act, if an individual/HUF sells a residential property and uses the proceeds to invest in SMEs or buy at least 50% stake in eligible start-ups, he is exempted from paying long-term capital gains. However, the exemption is possible only if the shares are not sold within 5 years from the date of acquisition. Startups must also use the invested funds to purchase assets and may not sell or transfer assets within five years of purchase.
  • Start-up of allowable carry-forward losses
    • According to Section 79 of the Income Tax Act, a company can carry forward its losses if shareholders who had voting rights in the year of the loss will own shares on March 31 of the year of this transfer and the loss occurred within 7 years of the incorporation of the company.


In conclusion, the Startup India campaign, initiated by the Government of India in 2016, has significantly bolstered entrepreneurship by providing various tax benefits and exemptions to qualifying startups. These incentives, including a three-year tax holiday, exemptions for long-term capital gains, and allowances for carry-forward losses, contribute to a conducive environment for startups to thrive and innovate. The Startup Registration tax benefits not only foster financial growth but also encourage the development of new businesses, fueling India’s entrepreneurial landscape.


1. What are the tax incentives for a startup in India?

The following are the tax incentives that every startup company in India gets.
 1) Tax holiday for startups in India for three years
2) They get 20% exemption on capital gains
3) Taxes imposed by the government on turnover
4) Employees Provident Fund (EPF) is paid by the government
5) Presumptive government tax
6) Government tax exemption for startups in India on investments in excess of fair market value
7) Alleviation of state loss advances and network

2. What are the benefits of tax exemption for a startup in India?

Benefits of Startup India Tax Exemption are:
• Use the income tax exemption for three consecutive financial years during the first ten years after joining.
• Claim tax exemption on long-term capital gains and investments in excess of fair value. 
• Compensation of carried forward losses and capital gains when the ownership structure changes.
• Register on the Startup India portal and claim exemption under Section 80 IAC of the Income Tax Act.

3. What are the benefits of initial India registration?

The Government of India launched the Startup India initiative to create an enabling ecosystem for the growth of startups in India. The initiative aims to encourage startups to achieve growth through innovation and technology. To promote growth and help the Indian economy, many benefits are given to entrepreneurs creating startups. 

Here are some of the benefits of registering with Startup India.
• Easy registration process
• Cost reduction
• Easy access to funds
• Tax exemption for 3 years
• Apply for tenders

 4. Why are companies registered under Startup India Scheme tax free?

Startup India registered companies are eligible for various tax exemptions and incentives.

The following conditions must be met to be eligible for tax exemption:
• has not yet completed ten years from the date of incorporation/registration. 
• Is a limited company or registered as a partnership or limited partnership. 
• Annual turnover of the company does not exceed INR 100 million in any financial year after incorporation/registration. 
• Pursues innovation, development or improvement of products or processes or services, or is a scalable business model with high potential for job or wealth creation. 
• It is not formed by breaking up or restructuring an already existing company.

Under the Startup India program, startups get the following tax exemptions:
• 3-year tax exemption in a seven-year block
• Exemption of long-term capital gains
• Exemption of investments in excess of fair market value

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