The Government of India has undertaken an initiative named as Startup India in order to facilitate innovations and simplification of processes. The Government of India is providing various incentives and Tax benefits to startups.
Eligibility Criteria for Startup Recognition:
An entity shall be considered as a Startup upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a
- Private Limited Company
- Limited Liability Partnership
- Registered Partnership Firms
Basis of Recognition:
The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth.
It should be registered under DPIIT(Department of Industrial Policy and Promotion).
Note: An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Startup”
An entity shall cease to be a Startup on completion of ten years from the date of its incorporation/ registration or if its turnover for any previous year exceeds one hundred crore rupees.
Incentives:
1. Government procurement;
2. Fastrack Patent granted(Rebate upto 80% of government fees of patent application as well as Trademark application);
3. Funding (Government has granted INR 10,000 Crore for Statrtup India);
4. Compliance regime-Self certification for 9 labour and 3 environment laws;
5. Startups receive 20% exemption on capital gains;
6. Access to government organised Market Fests.
Benefits available to Recognized Startup
80 IAC Tax exemption:
A recognized Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. After getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first 10 years since incorporation.
Alongwith above mentioned eligibility criteria, the Startup should have been incorporated after 1st April, 2016 to avail these benefits.
Section 56 of the Income Tax Act (Angel Tax):
A recognized Startup may apply for Angel Tax Exemption:
Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:
a. The entity should be a DPIIT recognized Startup
b. Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.
Explanation:
What is Angel Taxation?
The Central Government of India notified in its official Gazette that the provisions of Section 56 of Act shall no apply to Startups. It means that consideration received by a company for issue of shares that exceeds the face value of shares shall not be taxed;
A Startup shall be eligible to avail benefits under angel taxation under section 56 of the Income TaxAct,1961 if it fulfils the following conditions:
Aggregate amount of paid up share capital and share premium of the startup after issue or proposed issue of share, if any, does not exceed, twenty five crore rupees:
Provided that in computing the aggregate amount of paid up share capital, the amount of paid up share capital and share premium of twenty five crore rupees in respect of shares issued to any of the following persons shall not be included─
(a) a non-resident; or
(b) a venture capital company or a venture capital fund;
Provided further that considerations received by such startup for shares issued or proposed to be issued to a specified company shall also be exempt and shall not be included in computing the aggregate amount of paid up share capital and share premium of twenty five crore rupees.
iii) It has not invested in any of the following assets,─
- (a) building or land appurtenant thereto, being a residential house, other than that used by the Startup for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business; (b) land or building, or both, not being a residential house, other than that occupied by the Startup for its business or used by it for purposes of renting or held by it as stock-in trade, in the ordinary course of business;
- (c) loans and advances, other than loans or advances extended in the ordinary course of business by the Startup where the lending of money is substantial part of its business;
- (d) capital contribution made to any other entity;
- (e) shares and securities;
- (f) a motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds ten lakh rupees, other than that held by the Startup for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business;
- (g) jewellary other than that held by the Startup as stock-in-trade in the ordinary course of business;
- (h) any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act. Provided the Startup shall not invest in any of the assets specified in sub-clauses (a) to (h) for the period of seven years from the end of the latest financial year in which shares are issued at premium; Explanation.─ For the purposes of this paragraph,-
- (i) “specified company” means a company whose shares are frequently traded within the meaning of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and whose net worth on the last date of financial year preceding the year in which shares are issued exceeds one hundred crore rupees or turnover for the financial year preceding the year in which shares are issued exceeds two hundred fifty crore rupees.
Documents required:
The process of recognition of an eligible entity as startup shall be as under: — (i) A Startup shall make an online application over the mobile app or portal set up by the DPIIT. (ii) The application shall be accompanied by— (a) a copy of Certificate of Incorporation or Registration, as the case may be, and (b) a write-up about the nature of business highlighting how it is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation. (iii) The DPIIT may, after calling for such documents or information and making such enquires, as it may deem fit, — (a) recognise the eligible entity as Startup; or (b) reject the application by providing reasons. Certification for the purposes of section 80-IAC of the Act
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