Startup India campaign was started by Hon’ble Prime Minister, Shri Narendra Modi in 2016 for encouraging entrepreneurship in India. The objective was to reduce the regulatory burden on Startups, thereby allowing them to focus on their core business and keep compliance costs low. It was also to promote the bank financing to startups and granting various tax exemptions and other benefits to startups.
The government has also provided conditions/ guidelines for ‘eligible startups” as under:
In order to be eligible as startup, the followings conditions must be fulfilled:
- It is applicable only for 3 types of entity i.e Private Limited Company, Registered Partnership firms and Limited Liability Partnerships. Therefore, not applicable in case of sole proprietorship firms, Public Limited Companies and NGOs.
- The entity should be registered or incorporated for less than 7 years from date of incorporation. In case of Biotechnology startups, entity should be registered or incorporated upto 10 years from date of incorporation.
- Annual Turnover of company shall not exceed Rs 25 crores in any of the preceding financial years.
- The objective of the company should be towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
- The company should not have been formed by splitting up or reconstruction of a business already in existence.
- It must obtain certification from the Inter-Ministerial Board setup for such a purpose.
What are the benefits for registering as Startups?
Benefits for registering as Startups are as under:
- Self-certification under labor laws and environmental laws- Startups shall be allowed to be self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure.
- No inspection by officers for period of 5 years in case of labor laws. Startups may be inspected only on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.
- Startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) in the case of environment laws, would be able to self-certify compliance and only random checks would be carried out in such cases.
- Refund/ rebate of fees paid at time of patent registration and Trademark application.
What are the Tax exemptions allowed to Eligible Startups under Startup India Program
- Tax holiday for 3 years in a block of 7 years period
Startups have an option to avail 100% tax holiday for any 3 years during block of 7 years. This is applicable for startups incorporated between 1st April 2016 to 31st March 2022. However, annual turnover does not exceed Rs 25 crores in any financial year.This will help the startups to meet their working capital requirements during their initial years of operation.
- Exemption from Angel Tax
The government has removed the angel tax in case of startups. It means that startups are not required to pay any taxes on investment value above fair market value.
- Exemption from tax on Long-term capital gains:
In case eligible startups invests its long term capital gain or part thereof in a fund notified by Central Government within a period of six months from the date of transfer of the asset, their capital gain tax shall be exempt as per newly introduced section 54EE of the Income Tax Act. Maximum Rs 50 lac can be invested. Further, such amount cannot be withdrawn before end of 3 years. If withdrawn before 3 years, then exemption will be revoked in the year in which money is withdrawn.
- Set off of carry forward losses and capital gains even in case of a change in Shareholding pattern.
The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares carrying voting power on the last day of the year in which the loss was incurred continue to hold shares on the last day of previous year in which such loss is to be carry forward. The restriction of holding of 51 per cent of voting rights to be remaining unchanged u/s 79 has been relaxed in case of eligible startups.
- Tax exemption on investment of long-term capital gain in equity shares of Eligible Startups u/s 54GB.
This Tax exemption is available only to Individual and HUF who sells a residential property and invests the capital gains to subscribe the 50% or more equity shares of the eligible startups, then tax on long term capital will be exempted. One condition is that such shares are not sold or transferred within 5 years from the date of its acquisition. The startups shall also use the amount invested to purchase assets and should not transfer asset purchased within 5 years from the date of its purchase.
We at Ezybiz India helps startups in entire registration procedure and in post registration tax and regulatory compliance.
What are the steps involved in registration of startup with Startup India
Register your business in India
First of all, register your business as either Private Limited Company or LLP or registered Partnership firm and take PAN, TAN, GST no. etc
Register your company with Startup India
You need to login into Startup India website and create your profile. After creating profile, apply for
for various acceleration, incubator/mentorship programs and other challenges on the website along with getting access to resources like Learning and Development Program, Government Schemes etc
Apply for DPIIT Recognition
After creating profile on website, apply for DPIIT recognition i.e Department for Promotion of Industry and Internal Trade (DPIIT). This recognition helps startups to avail Income tax exemption for 3 consecutive years and tax exemption on investment above fair market value, access to intellectual property services, self-certification under labor and environmental laws, easy winding up of company, becomes eligible for getting fund of funds etc
The ‘Recognition Application Detail’ page opens. On this page click on ‘View Details’ under the Registration Details section. Fill up the ‘Startup Recognition Form’ and click on ‘Submit’.
Step 5: Submit Documents for Registration
- Copy of certificate of incorporation
- Details of the Directors
- Proof of concept like pitch deck/website link/video (in case of a validation/ early traction/scaling stage startup)
- Patent and trademark details (Optional)
- PAN Number
Step 6: Certificate of Recognition
Finally, you will receive a recognition number for your startup. In case there is any mistake in uploading documents or forged documents are uploaded, you shall be liable to a fine of 50% of your paid-up capital of the startup with a minimum fine of Rs. 25,000.