Tax Benefits Available for Startups Under Startup India Scheme

Published: November 24, 2025 | By BBR Fintax Team

The Startup India Scheme, launched by the Government of India, is designed to encourage innovation and support entrepreneurs. One of the major advantages of registering under this scheme is the wide range of tax benefits offered to startups. These incentives reduce the financial burden on new businesses, improve cash flow, and help in scaling faster.

Key Tax Exemptions & Incentives

🗓️ 1. Tax Holiday for 3 Years

Eligible startups can claim a 100% tax exemption for 3 consecutive years out of the first 10 years since incorporation.

Available under Section 80-IAC of the Income Tax Act.
The startup must be recognized by the DPIIT (Department for Promotion of Industry and Internal Trade).
Turnover should not exceed ₹100 crores in any financial year.

📌 Strategic Advantage: This allows startups to reinvest 100% of their profits back into the business (marketing, R&D, hiring) during the crucial initial growth phase.

💸 2. Exemption from Angel Tax

Startups receiving investments above the fair market value of shares are exempt from Angel Tax under Section 56(2)(viib).

Applicable only to DPIIT-recognized startups.
Investors include angel investors, venture capital funds, and incubators.

📌 Strategic Advantage: Encourages investment inflow without the worry of tax liability on the share premium received.

📈 3. Capital Gains Tax Exemption

Section 54EE: Exemption on long-term capital gains if invested in the Government-notified Fund of Funds.
Section 54GB: Exemption on capital gains from the sale of residential property if the amount is invested in equity shares of a recognized startup.

📌 Strategic Advantage: Motivates entrepreneurs to sell personal assets (like property) to fund their dream venture without losing money to tax.

📉 4. Carry Forward of Losses

Startups can carry forward losses even if there is a change in shareholding (which normally disqualifies other companies).

Available under Section 79 of the Income Tax Act.
Condition: Original shareholders must continue to hold shares, OR the startup remains a DPIIT-recognized entity.

📌 Strategic Advantage: Helps in reducing future tax liability when the company finally becomes profitable.

🧾 5. GST Benefits for Startups

While GST itself does not provide direct exemptions based solely on "startup" status, new businesses benefit from:

GST Refunds: Fast-track refunds on exports (Zero-rated supply).
Input Tax Credit (ITC): Claim credit on business purchases (laptops, rent, software).
Composition Scheme: For startups with turnover below ₹1.5 crore, allowing lower compliance and fixed low tax rates.

⚖️ 6. Other Indirect Benefits

Reduced Compliance: Self-certification allowed for certain labor and environment laws.
IPR Support: 80% rebate on patent filing fees and 50% on trademark filing.
Funding: Access to Government Fund of Funds for Startups (FFS).

Conclusion

The Startup India Scheme offers significant tax exemptions and financial relief that can make a big difference in the early stages of business. From 3-year tax holidays to angel tax relief, these benefits provide startups with the breathing space they need to grow.

🚀 Start Your Journey

If you are planning to launch your startup or need help with DPIIT recognition to claim these tax benefits, our expert consultancy team can guide you through the entire process.

Book a Free Startup Consultation