Startups- Recognition & Benefits

By Neeraj Bhagat, Founder at Neeraj Bhagat & Co Chartered Accounts

Following Mr. Narendra Modi’s directions, the Government of India came up with an initiative called Startup India Scheme aiming towards employment generation and wealth creation in the economy. The main objectives of Startup India are to upturn the employment rate and to innovate products and services in India. Numerous benefits are being offered to entrepreneurs establishing startups so it can help the Indian economy to promote growth. As per the Department for Promotion of Industry and Internal Trade (DPIIT), an entity shall be considered as a startup only up to a period of 10 years from the date of its incorporation subject to the fulfillment of the following conditions:

· Company Form & Age: It should be incorporated as a private limited company, partnership firm or an LLP and shall be eligible up to 10 years from the date of incorporation

· Company Turnover: Turnover for any of the financial years since incorporation should not exceed Rs. 100 crores

· Company Type & Eligible Business: It should be a new entity, i.e., not formed by

I. splitting up or reconstruction of an existing business,

II. by transfer to a new business of machinery or plant previously used for any purpose.

What are the benefits of Startup India Scheme?

The benefits of Startup India Scheme are numerous and vital while talking about the growth of entrepreneurship culture in India: –

· Self-certification of 6 labor laws and 3 environmental laws

· Easier public procurement norms

· Easy winding-up process (within 90 days)

· Tax exemptions under Income Tax Act

· 80% rebate in patent cost/ IPR protection

Income Tax benefits

Exceptional steps have been taken by the government to encourage the startups by introducing multiple tax exemptions such as: –

· reduced tax rates

· relief from angel tax

· tax holiday under section 80-IAC for three years etc.

· 80% rebate on patent fees which will be borne by the DPIIT,

1. Relief from Angel Tax u/s 56(2) (vii b)

Angel tax is a term used to refer to the income tax payable on share capital raised by unlisted companies via issue of shares to an Indian resident where the share price is seen in excess of the fair market value of the shares sold.

Section 56(2) (vii b) of the Income Tax Act was introduced in the Finance Act, 2012 under the Measures to Prevent Generation and Circulation of Unaccounted Money.

Following conditions to be considered by Startups for exemption from levy of angel tax (vide Notification GSR-127E, dt.19 Feb 2019 by DPIIT):

a) Start-up should be registered with DPIIT (‘eligible startup’ not required); and

b) It’s the aggregate amount of paid-up share capital and share premium after issue or proposed issue of shares, shall not exceed Rs. 25 crores.

Corporate Tax Holiday under sec 80-IAC

Under section 80-IAC, a deduction is available up to 100% profits to an ‘eligible startup’ for any 3 consecutive years out of 10 years from 01 April 2021 from the date of its incorporation.

The following conditions have to be fulfilled by a recognized startup, to be considered as an “Eligible Startup” for claiming this deduction:

· It should only be a company or LLP (not a partnership firm) and incorporated on or after April 1, 2016 but before April 1, 2021.

· Its turnover does not exceed Rs. 25 crore (Rs. 100 Crore from 01 April 2021) in any Financial Year for which deduction is claimed.

· It holds a certificate of eligible business from the Inter-Ministerial Board of Certification (IMB) (by filing Form 1).