Last updated: February 17th, 2020 12:40 PM

Tax Benefit for Startups - Assessment Year 2018-19

The Startup eco-system in India has rapidly developed over the last decade in India, powered by a strong Government push and fast-growing internet penetration. In a bid to boost Entrepreneurship in India, the Government has announced various tax benefits for startups in India. In this article, we look at some of the major tax benefits provided by the Government for Startups in India.

Tax Holiday for Startups

Under the Startup India, Standup India Initiative, the Government has announced a three-year income tax holiday for eligible startups. Only Startups that satisfy the following criteria will be eligible for a three-year tax holiday:

1. The Startup falls under the category of "eligible business". Eligible business means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.
2. The Startup falls under the category of "eligible startup". An eligible startup is:
   • A startup that was incorporated as a company or LLP.
   • Startup incorporated on or after 1st April 2016 and before 1st April 2019.
   • Total turnover is not over Rs.25 crores between 1st April 2016 and 31st March 2021.
   • Holds a Startup Certificate from the Inter-Ministerial Board of Certification.

Section 115BA

As per section 115BA, new startup companies that satisfy certain criteria need to pay income tax only at the rate of 25% for the assessment year beginning on or after the 1st day of April 2017. Section 115BA is applicable for companies that satisfy the below criteria :

• The company is a domestic company.
• The company is engaged solely in the business of manufacture or production of article or thing and is not engaged in any other business.
• The company has been set up and registered on or after 1st day of March 2016.
• The company while computing its total income has not claimed any benefit under Section 10AA (Tax Holiday for Special Economy Zone), benefit of accelerated depreciation, benefit of additional depreciation, investment allowance, expenditure on scientific research and any deduction in respect of certain income under Part-C of Chapter-VI-A other than the provisions of Section 80JJAA.
• The option is furnished in the prescribed manner before the due date of furnishing of income.

Companies that are not eligible under Section 115BA would have to pay income tax at the rate of 29% if turnover is less than Rs.5 crores. If turnover is more than Rs.5 crores, then an income tax rate of 30% would be applicable.

Section 80JJAA

Under Section 80JJAA, startups and existing businesses that are generating new employment can claim an income tax deduction of thirty per cent of additional wages paid to new employees hired for a period of three years, whose total emoluments are less than Rs.25000 per month. Further, in the first year of a new business, 30% of all salary paid or payable to the employees employed during the previous year will be allowed as deduction. This amendment will take effect from 1st April 2017 and will accordingly apply in relation to the assessment year 2017-18 and subsequent assessment years.