Page 1 of 5
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 02
February 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 219
Tax Exemptions under Start-up Scheme
Ms. Harpreet kaur
Asst. Professor in Commerce Deptt. Khalsa College for Women, Sidhwan Khurd.
Email_id : harpreet7bumbra@gmail.com
ABSTRACT
This paper is focused on Tax Exemptions provided by Chapter III of Income Tax
Act 1961 and under start up scheme which Initiate entrepreneurs, and other assesses to run
Business activity or any project by reducing their tax burden through out the Life of Project or for
some Initial years to promote such economic activity. Under startup scheme Primary Level
Investments are fully exempted from Capital gain tax which motivates entrepreneurs (investors) to
invest in such project without any tax liability. Tax Exemption on Capital Gain is a long term
pending plea of Investors who till now routeing their money through Mauritius to avail Capital gain
tax exemption. Startup would not pay income tax for Initial three year. This policy would
revolutionize the pace with which startups would grow in the future.
Keywords: Exemptions, Startups, Entrepreneurs, revolutionize.
TAXATIONS SYSTEM IN INDIA
The taxation system in India is quite well structured. The Department of Revenue of the Finance
Ministry of the Government of India is responsible for the computation, levy as well as collection of
most the taxes in the country and authorised to make any changes in tax structure. Central board of
direct taxes is the governing body in India that govern taxation system. However, some of the taxes
are even levied solely by the Local State Bodies or the respective governments of the different
states in the nation. The Central Indian Government that is officially named as the "Union
Government" is responsible for the imposition of both direct taxes as well indirect taxes. Listed
below are some of the taxes that are levied by the Indian Government:[1]
Income Tax- levied on personal income of an assessee
Customs Duty- levied on import and export of goods
Central Excise-levied on manufacturing of dutiable goods
Service Tax- levied on services
Under the Income Tax Act, 1961 The Central Government levies direct taxes on the income of
individuals and business entities as well as Non business entities also. The taxation level depends on
the residential status of individuals. The thumb rule of residential status is that an individual
becomes resident in India if he or she physically stays in India for at least 182 days during the
previous year. If he or she becomes resident in India, then his total income i.e. income earned even
outside India is taxable in India.
Taxation slabs for Individuals for the financial year 2015-16:
Assesses are liable to pay tax on their income if they are falling in these category after taking
deductions under section 80. Tax slabs are divided in three category based on age of assesses.
Individuals who’s age is less than 60 year:
If total taxable income is below 2, 50,000 NIL
Taxable income fall between 2, 50,000-5, 00,000 10%
Page 2 of 5
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 02
February 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 220
Taxable income fall between 5, 00,000-10, 00,000 20%
Taxable income is more than 10, 00,000 30%
Individuals who’s age is 60 or more but less than 80 year:
If total taxable income is below 3, 00,000 NIL
Taxable income fall between 3, 00,000-5, 00,000 10%
Taxable income fall between 5, 00,000-10, 00,000 20%
Taxable income is more than 10, 00,000 30%
Individuals who’s age is 80 year or more:
If total taxable income is below 5, 00,000 NIL
Taxable income fall between 5, 00,000-10, 00,000 20%
Taxable income more than 10, 00,000 30%
Assessees are liable to pay tax on taxable income. Government of India not only charge tax but also
motivate the assessee to invest in particular business, area, or activity so as to promote the
infrastructure in under developed area or rural area. Generally, no one is interested to invest in rural
area or in that activity in which chances of profits are low. Government want overall development
this is why it give tax relaxation in initial years of business during which business stand up and
create its space in the market. Tax relaxation ,tax exemptions, deductions, reliefs and rebates are
some legal weapons through which tax burden can be reduced to some extant. In this way our
present government launch STARTUP SCHEME, which initiates entrepreneurship in India that
create jobs and will help in improving the economic conditions in India. [2]
TAX EXEMPTIONS
Tax exemption refers to a monetary
exemption which reduces taxable income. Tax
exempt status can provide complete relief
from taxes, reduced rates, or tax on only a
portion of items. Examples include exemption
of charitable organizations, SEZ from
property taxes and income taxes. Tax
exemption also refers to removal from
taxation of a particular item rather than a
deduction. Exempted income doesn’t included
in assesses taxable income.
Tax exemptions come in many forms, but one
thing they all have in common is they either
reduce or entirely eliminate your obligation to
pay tax. Most taxpayers are entitled to an
exemption on their tax return that reduces
your tax bill in the same way a deduction
does. Federal and state governments
frequently exempt organizations from income
tax entirely when it serves the public, such as
with charities and religious organizations.
Personal exemptions if you are not claimed as
a dependent on another taxpayer's return, then
you can claim one personal tax exemption.
This is a fixed amount that generally increases
each year. The exemption reduces your
taxable income just like a deduction does, but
has fewer restrictions to claiming it.
Generally, the organizations claiming
exemptions are those that don't operate for
profit rather provide valuable services to the
community such as a charity. If an
organization receives tax-exempt status it's
not required to pay federal income tax, but
must maintain accurate records to keep its
status. Donations made by an assessee to
these organizations usually entitle an assessee
to claim a charitable contribution deduction.
State and local exemptions are also available
for assesses that provide tax exemptions to
businesses to stimulate the local economy.
For example, a business may be exempt from
paying local property taxes if it moves its
Page 3 of 5
Journal for Studies in Management and Planning
Available at
http://edupediapublications.org/journals/index.php/JSMaP/
ISSN: 2395-0463
Volume 04 Issue 02
February 2018
Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 221
operations to a particular geographic area.
Exemptions help to motivate the
entrepreneurs to start business or provide any
particular service or goods to society which
otherwise is not profitable for them.[3]
ABOUT STARTUP SCHEME
Indian startups aims is to promote
entrepreneurship, construct entrepreneurial
competences at scale and strengthen early
phase support for startups by gathering
together key stakeholders of the network
including startup incubators / accelerators,
angel investors, venture capitalists, startup
support groups, mentors and technology
corporations. This program is intended to
equip entrepreneurs to establish well run,
technically advanced and profitable
companies in India.
Indian Start-ups is a networking group for
Indians across the world to help venture new
start-ups, nurture existing start-ups, encourage
entrepreneurship, provide incubation
facilities, co-working space, seed funding,
crowd funding, investor connections, co- founders, mentors, advisers. Also provide
wherever possible free website, legal, patent,
accounting, marketing and other essential
services needed for start-ups.[4]
Under start up there will be exemption
on capital gains.
No inspection for 3 years of start-up
businesses in respect of labour,
environment law compliance post self- certification
Income tax exemption to startup for
first three year
There will be credit guarantee fund for
startups
There will be an 80 per cent rebate in
patent costs.
STARTUP FUNDING SOURCES
Private investors
Incubators
Accelerators
Venture capitalists
Seed capital
ELIGIBILITY FOR STARTUP
SCHEME
The Startup India Action Plan defines
“Startup” as an entity, incorporated or
registered in India not prior to five years, with
an annual turnover not exceeding Rs.25 crores
in any preceding financial year, working
towards innovation, development, deployment
or commercialization of new products,
processes or services driven by technology or
intellectual property. Turnover is defined u/s
2(91) of Companies Act 2013 “The aggregate
value of the realisation of amount made from
the sale, supply or distribution of goods or on
account of services rendered or both, by the
company during the financial year”.
EXCEPTIONS:
Provided that such entity is not formed
by splitting up, or reconstruction, of a
business already in existence.
Provided also that an entity shall cease
to be a Startup if its turnover for the
previous financial years has exceeded
25 crore or it has completed 5 years
from the date of incorporation/
registration.
Provided further that a Startup shall be
eligible for tax benefits only after it
has obtained certification from the
Inter-Ministerial Board, setup for such
purpose.
Besides, above
exceptions a company or a firm that is
not registered in India is not covered
by startup scheme. This means only
private limited companies, limited
liability partnership and registered
partnership are eligible for this
