ABOUT STARTUP INDIA REGISTRATION

Ministry of commerce and industry on 19th February 2019 came with the notification no G.S.R.127(E)(herein after known as DPIIT notification) which states the definition of Startup

1. An entity shall be considered as Startup for 10 years from the date of incorporation/registration

for

• Private Limited company
• LLP
• Registered Partnership firm

2. the turnover of the entities must not exceed Rs. 100 Crores in any of the financial year in these 10 years of incorporation/registration

“Turnover means the gross amount of revenue recognised in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year;”

3. The entity must be working towards

• Innovation
• Development or improvement of products or process or services
• Scalable business with high potential of employment generation or wealth creation
  • If any entities meets the above three requirement then the entity shall be considered as Startup and shall be entitled to avail all the legal and regulatory benefits and reliefs available to them under Startup India Schemes by the Central govt
  • Note: Offshoot of existing companies or enterprises which have come into existence due to split or reconstruction or a restructuring shall not be considered as Startup.
  • WHEN THE STATUS OF STARTUP SHALL CEASE?
    • Post completion of 10 years of incorporation/registration or
    • Post exceeding turnover of Rs.100 crores in any of the previous year
  • PROCEDURE FOR OBTAINING RECOGNITION AS STARTUP
    • Make online application to the DPIIT
    • Submit the required documents like
      • Certificate of incorporation/registration
      • A write up about the entity like nature of business, how it is working towards innovation, Development or improvement of products or process or services or its scalability in terms of employment generation or wealth creation.

OBTAINING CERTIFICATION UNDER SECTION 80IAC OF INCOME TAX AS STARTUP FOR TAX EXEMPTIONS.

Just recognition as startup will not suffice to get tax exemption and shall only be entitled to avail all the legal and regulatory benefits and reliefs available to them under Startup India Schemes by the Central govt. To get tax exemption as per clause 3 of DPIIT notification no GSR 127(E), the entity (only Private limited company and LLP) shall file form number 1 along with necessary documents to the Inter Ministerial Board of Certification to get certificate under 80IAC of the Income Tax Act

Under the Startup India Scheme, the government of India offers several tax benefits to recognized startups, including:

INCOME TAX EXEMPTION UNDER SECTION 80-IAC:

• Eligible startups can claim a 100% tax exemption on profits for three consecutive years out of their first ten years of incorporation.
• This benefit is available to startups incorporated as private limited companies or LLPs between April 1, 2016, and March 31, 2025.
• Startups must be engaged in innovation, development, or improvement of products, processes, or services, or operate a scalable business model with high potential for employment generation or wealth creation.

EXEMPTION FROM CAPITAL GAINS TAX:

• Under Section 54GB, startups can enjoy exemptions on long-term capital gains if the gains are reinvested in eligible equity shares of a recognized startup. This benefit is aimed at promoting investment in startups.

Exemption from Angel Tax:

• Investments received from resident and non-resident investors exceeding the fair market value are exempt from taxation under Section 56(2)(viib), often referred to as the "angel tax." This exemption applies to DPIIT-recognized startups to encourage funding

Tax Benefits for Employee Stock Options (ESOPs):

• Recognized startups can defer taxation on ESOPs. Employees can pay tax on the ESOPs within 48 months, reducing immediate financial burdens.

To claim tax exemptions under the Startup India Scheme, startups must fulfill specific conditions. Here's a summary of the key requirements and facts:

• DPIIT Recognition: The startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT).
• Paid-up Capital and Premium: The aggregate amount of paid-up share capital and share premium after any proposed share issuance must not exceed ?25 crore. However:
  • Investments from non-residents or venture capital companies/funds are excluded from this computation.
  • Restrictions exist on investing in certain asset classes, as outlined in the DPIIT notification dated February 19, 2019.
• Innovation and Scalability: The startup must work towards innovation, development, or improvement of products, processes, or services, or have a scalable business model with potential for employment generation or wealth creation.
• Tax Holiday: Eligible startups can claim a 100% tax rebate on profits for three consecutive years in a block of ten years, provided their turnover does not exceed ?25 crore in any financial year

The startup which fulfill the above conditions can submit declaration in form 2 to DPIIT which forward the same to CBDT for granting of exemption under section 56(2)(viiib) of the income tax act

KEY BENEFITS FOR STARTUPS UNDER STARTUP INDIA INITIATIVE

Income Tax Exemption
Startups are exempt from paying income tax on profits for three consecutive years within their first seven years, subject to eligibility.

Simplified Exit Policy
Startups can wind up operations within 90 days under the Insolvency and Bankruptcy Code, 2016.

Patent Fee Exemption
Startups enjoy an 80% rebate on patent filing fees and additional support for intellectual property protection.

Self-Certification of Compliance

• White Category startups can self-certify compliance under the Water Act, Water Cess Act, and Air Act, with minimal regulatory inspections.

Dedicated Startup Fund
The government has established a ?10,000 crore fund managed by SIDBI to support startups through equity funding.

Additional Benefits under Companies Act, 2013

• Exclusion from Cash Flow Statements
  Startups classified as Small Companies are not required to include cash flow statements in financial reports.
• Exemption from Deposit Provisions
  For five years from incorporation, startups are exempt from compliance with certain deposit-related provisions (Section 73, sub-section (2), clauses a-e).
• Simplified Annual Returns
  Annual returns can be signed by either a Company Secretary or a Director.
• Reduced Board Meetings
  Startups need to hold only two Board meetings in a financial year.