Image Source: Legal Window
The government's second phase of Startup India 2.0 taxation initiatives will propel the start-up wave in Tier-2 towns and beyond, lowering hurdles and opening new channels for fresh capital for thousands of fresh start-ups. The Union Budget 2025-26 announced a series of ambitious initiatives to free cash flows, bring in investors, and propel local innovation in Bharat.
Key Points
Incorporation Window Extended: The 100% tax deduction on profit under Section 80-IAC also gets extended to startups incorporated up to April 1, 2030, a three-year extension that will help metro and Tier-2 city entrepreneurs.
Angel Tax Eliminated: Complete abolition of the Angel Tax (Section 56(2)(viib))—both local and overseas investors—means that startups are able to raise funds at high valuations without having to bear punitive tax costs, regardless of their city of origin.
5-Year Corporate Tax Relief: New companies have the option of a 15% corporate tax rate for the first five years, keeping low expenses and high margins, particularly for local companies.
Capital Gains Incentives: Relief from tax on capital gains reinvested in qualifying start-ups until March 31, 2026, and the qualifying period for reinvesting property-based gains in start-ups reduced to two years from three, to stimulate private capital investments into early-stage businesses.
Deferred ESOP Taxation: Qualified startup workers receive deferred taxation on their ESOPs, encouraging talent recruitment to fast-growing teams in small towns.
AI & R&D Boost: AI, cloud, and automation startups qualify for 100% R&D expenditure deduction, opening the doors to deep tech innovation much beyond metropolitan corridors.
Streamlined Approvals: A digital-first application process and 120-day cap on regulatory board review guarantee faster DPIIT recognition and tax exemption approvals.
Capacity Building & Outreach: The Startup India 2.0 ecosystem is doubling down on regional handholding, awareness drives, and capacity-building for founders of non-metro India—taking valuable government resources and mentorship to the doorstep of its founders like never before.
These wider shifts are expected to democratize India's startup ecosystem, introduce new capital to Bharat's heartland, and empower local entrepreneurs to innovate without fear, grow with confidence, and generate jobs across the country.
Source: PIB, Startup India, ApkiReturn, Treelife, UJA, Filing Buddy, e-StartupIndia, Union Budget 2025-26.
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