5 Tax Benefits Every Entrepreneur in
India Must Know About
Tax Benefits to Entrepreneurs
Entrepreneurs are budding up like spring flowers everywhere. Every day, there are more and more entrepreneurs and start - ups being formed as many feel the need to be their own boss or want to work to bring about a change on their own terms.
With the growing number of entrepreneurs, the number of the benefits for them is also increasing to provide more and more start - ups with better opportunities to grow and take the economy of India up with them. There are a lot of tax benefits that are offered by the government of India to help the small businesses that are just starting out to rise and commercialize well.
Start - Up India, launched in the year 2016, is an initiative by the Indian Government which wanted the start - ups to not face any restrictions by the state governments while building their businesses. There were quite a few changes regarding the taxation policies that were made in the Union Budget of the financial year 2016 - 17 under the Start - Up India Policy. These changes introduced a plethora of tax benefits, concessions and exemptions for start - up entrepreneurs.
Let’s see what tax benefits the entrepreneurs are getting!
• Tax exemption on Angel Investments
Under theIncome Tax Act, the section 56 (2) (vii) (b) suggests that stat ups need not pay taxes on angel investments. The act is ‘the abolition of tax on angel investments’ meaning that there shall be no tax borne by the entrepreneurs on the funds that have not been registered as venture capital. For this act to be applied, the start - up business by the entrepreneur has to be passed as qualified by the DIPP - Department of Industrial Policy and Promotion? It also has to be certified by the Inter Ministerial Board of Certification as eligible for the tax exemption.
• Capital Gains Tax exemption
A 20 % tax exemption on capital gains has been made by the government. The capital gains are the profits which are incurred though the sale of bonds, stocks, etc. which are all capital assets and the capital gains tax is the tax put on such profits. This tax exemption has allowed most of the Indian start - up companies to not route their investments through Mauritius which was done earlier to get the tax waived under the Double Tax Avoidance Treaty. These tax benefits are definitely a treat to the budding entrepreneurs.
• Funds for Funds (FOF)
The government has taken a lot of steps for the entrepreneurs to step up their game and the FOF - Funds for Funds is another one of them. A fund is set up with an initial corpus of INR 2500 crores and a total corpus of INR 10,000 crores over a period of 4 years to help the start - up companies by providing for them in their initial stage. LIC – Life Corporation of India is an investor in this fund set up and will be providing the aid for different sectors like health, manufacturing, etc. This is regulated by the SEBI – Securities Exchange Board of India. This would not be a direct investment but would be a FOF set up.
• Benefits for the SC & ST
Well, many people have been against reservations but at least it is helping in the expansion of the economy in India. The entrepreneurs of SC & ST caste have great support to benefit from. They will have benefits which will grow the start - up entrepreneurs of the caste. If you are a woman belonging to SC & ST caste, you can hugely benefit with the 500 crores that has been allotted specially for the upliftment of women.
• Tax - free 3 years
The government of India offered a whopping 100 % tax exemption on the profits earned for the first 3 year of their commercial business to entrepreneurs in India with start - ups that involve commercialization of products or services as well as the development and deployment of such services and products and which are based on technology or intellectual property. This great tax benefit and exemption was introduced in the Parliament at the Union Budget in the financial year of 2016 -17. This helps the entrepreneurs to be motivated and take up a business and expand it. But they do have to pay the MAT - Minimum Alternate Tax. This is probably the best tax benefits that the start - up entrepreneurs are getting.
• Provident Fund for employees
The start - ups get to enjoy the employee provident fund for the first three years of their business. This fund provides good security benefits for the employees as well as saves 12 % of the start - up business costs for the initial 3 years of the business.
If you are setting up a new business and are nervous, well, you should be but do not be scared to work to your full potential as the tax benefits given to you by the government of India will help you to rise and expand.