Following tax exemptions have been allowed to eligible startups:
3 year tax holiday in a block of Ten years (Section 80-IAC)
The Startup incorporated between April 1, 2016, till 31st March 2022 (In Budget 2020 it was proposed to increase date to 31st March 2023) was eligible for this scheme. Such startups will be eligible for 100% tax rebate on profit for a period of consecutive 3 years in a block of 10 years provided that annual turnover does not exceed Rs.25 crores in any financial year.
Exemption from tax on Long Term Capital Gains (Section 54EE)
A new section 54 EE has been inserted in the Income Tax Act for the eligible startups to exempt their tax on a long-term capital gain if such a long-term capital gain or a part thereof is invested in a fund notified by the Central Government within a period of six months from the date of transfer of the asset. That maximum 50 Lakhs can be invested in the long-term specified asset is. Such amount shall be remain invested in the specified fund for a period of 3 years. The exemption will be revoked if amount invested is withdrawn before the completion of 3 years from invested in the year in which money is withdrawn.
Tax exemption on investments above the fair market value (Section 56(2)(viib))
Amount/ Investments received above the Fair Market value of investment to eligible startups from Venture capitalists also includes residential Investors, family or funds even incubators is EXEMPT.
Tax exemption to Individual/HUF on investment of long-term capital gain (LTCG) in equity shares of Eligible Startups (Section 54GB)
Thus, if an individual or HUF sells a residential property and invests the capital gains to subscribe the 50% or more equity shares of the eligible startups, then tax on long term capital will be exempt provided that such shares are not sold or transferred within 5 years from the date of its acquisition. The startups shall also use the amount invested to purchase assets and should not transfer asset purchased within 5 years from the date of its purchase.
Set off of carry forward losses and capital gains allowed in case of a change in Shareholding pattern
The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares carrying voting power on the last day of the year in which the loss was incurred continue to hold shares on the last day of the previous year in which such loss is to be carried forward. The restriction of holding of 51 per cent of voting rights to be remaining unchanged u/s 79 has been relaxed in the case of eligible startups.