According to Section 2(40) of the Companies act, 2013, startup means

(i) A private company registered under companies act, 2013 or any previous act

(ii) Recognized as startup in accordance with Department of Industrial Policy and promotions (DIPP).

(i) Easy registration with lesser compliances

(ii) Tax Holidays for three consecutive years out of the block ten initial years

(iii) Exempted from previous experience/ turnover in getting government tenders

(iv) GOI has set up Rs. 10000 crores to provide funds to startup as venture capital 

Eligibility for Startups

1. Is registered as a private limited company, partnership or LLP
2. If the annual turnover of the company does not exceeds Rs. 100 crores in any of the preceding financial years
3. Has not completed ten years from its incorporation
4. Is working towards innovation, development, or improvement of product or services or process
   

Tax Exemptions Available for a Startup Company

1. Exemptions from SECTION 8OIAC: Eligible startups can claim up to 100% of profits and gains for three consecutive years in a block of 10 years provided the company's turnover does not exceed 100 crores in any of the previous financial years.
   

1. Exemptions for tax on Long term Capital Gains: To make things easier for startups, a brand new section known as Section 54EE has been added to the Income Tax Act. Under this section, startups are exempt from long-term capital gains tax. However, this is only applicable if the capital gains that have been invested in are a part of the fund notified by the Central Government within a total period of 6 months from the date of the actual transfer of the asset. Additionally, under this rule, a company's maximum capital to invest in the specified long-term asset is Rs 50 lakhs. The amount then has to be invested in the fund for at least three years. If the investor ends up withdrawing the amount before the three years are up, the amount becomes taxable. 
   

1. Tax exemption on investments above fair market value: If an eligible startup makes an investment, the government will exempt the tax on the investment above the fair market value. This includes a range of different investments, such as funding secured by resident angel investors and funds that are not registered as venture capital ones. Additionally, investments that are made by incubators above the fair market value are also exempt under this plan.
   

1. Tax exemption available to individuals or HUF of long term capital gains: There is already an existing provision known as Section 54GB. There are tax exemptions on long-term capital gains on property sale only if these gains are further invested into enterprises. These enterprises must be small or medium, as defined under the Micro, Small and Medium Enterprises Act of 2006. This provision has now been amended to include eligible startups in the mix. As a result, if an individual or a HUF decides to sell their property and then invests the money they get from the sale to subscribe to a minimum of 50% or more of an existing startup, they are exempted from tax on these long-term capital gains. However, this is only applicable if the shares are not sold within five years or even transferred to someone else. Additionally, the startups have to use the amount that has been invested in purchasing assets. They should not transfer the purchased asset to someone else for at least five years. The advantage of these tax incentives and exemptions is that they will boost the general investments made in startups, promoting their expansion and growth.

1. Set off of carry forward losses: The carry forward of losses in respect of eligible startups is allowed if all the shareholders of such company who held shares in which the loss was incurred continue to hold shares on the last day of the previous year in which loss has been carried forward.