Startups in India to now get tax benefits if they raise funding up to Rs. 10 crore

In some positive news for aspiring entrepreneurs, the Government of India is now enabling startups and entrepreneurs to apply for a tax concession when the total investment amount does not exceed Rs 10 crore. This amount includes funding by angel investors as well.

According to a notification issued by the Ministry of Commerce and Industry, the investors should either have an average income of Rs 25 lakh or above, for the preceding three financial years or their networth should be Rs 2 crore to avail of tax benefits for their startups.

The notification stated,

"For the purposes of Section 56 of the Act, there is no restriction on class of investors and eligible startups can receive investment from any person against issue of share capital."

Opposing Section 56 of the Income Tax Act, a number of startups have raised their concerns on taxation towards angel funds. Around 18 startups had received notices from the IT department previously. To address this concern, the new amendments have been rolled out.

The notification further said, "With the introduction of amendments through this notification, startups are likely to have an easy access to funding which in turn will ensure ease in starting of new businesses, promoting startup ecosystem, encouraging entrepreneurship, leading to more job creation."

To access these concessions, startups will have to reach out an eight-member inter-ministerial certification board. Apart from that, the turnover of the entity for any financial year since registration should not exceed Rs. 25 crore.

Another notification by the government talked about the definition of startups, which says that an entity shall be considered as a startup up to a period of seven years from the date of registration in India. If the startup is in the biotechnology sector, the period shall extend to ten years.