Tax Benefits and Exemptions for Startups and MSMEs

In India, both startup and MSMEs are eligible for certain tax benefits and exemptions to promote entrepreneurship and economic groups.

Startups  (incorporated as a private limited company or registered as a partnership firm or a limited liability partnership, having turnover less than 100cr in any of the previous financial years shall be considered as a startup up to 10 years from the date of incorporation) are newly established businesses, often founded by entrepreneurs aiming to address specific problems or capitalize on market opportunities. Startups are known for their agility, creativity and willingness to take risks.

TAX INCENTIVES FOR STARTUPs

• Startups can avail three-year tax holiday under Sec. 80IAC of the Income Tax Act 1961, provided they are recognized by DPIIT and are incorporated between 1^st April 2016 to 31^st March 2025.
• Startups recognized by DPIIT are exempted from angel tax(tax paid by startups on the excess amount received by way of investment when investments exceed its FMV)  provided they meet certain criteria.

MSMEs stand for Micro, Small and Medium enterprises. These are the businesses that fall within certain criteria regarding their size, investment in plant and machinery or equipment and annual turnover. MSMEs play a vital role in economic development and job creation.

TAX INCENTIVES FOR MSMEs

• MSMEs are eligible for concessional tax rates under section 115BA of the Income Tax Act 1961. Certain domestic companies, including MSMEs, are eligible for a reduced tax of 25% instead of the standard rate of 30% by fulfilling certain conditions.
• MSMEs can also opt for a tax rate of 22% under section 115BAA of the Income Tax Act 1961 by fulfilling certain conditions. This section allows domestic companies including MSMEs to calculate the total income without considering certain deductions. This section applies to those companies other than those covered under sec 115BA.
• MSMEs may be granted tax holidays during which they are exempt from paying taxes for a specified period, to encourage new business or to promote growth.
• MSMEs who are engaged in secondary steel production are now eligible to get an extension of customs duty exemption on steel scrap.

CONCLUSION

Tax exemptions and benefits are instrumental in supporting the growth, innovation and competitiveness of both MSMEs and startups. Leveraging tax benefits and exemptions is vital for the growth and success of startups and MSMEs in India. By utilising these incentives effectively, entrepreneurs can strengthen their financial positions.

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