Oct 05 ,2021 /
Complinova Team /

What is Startup India Recognition Scheme
- Startup India is a flagship initiative of the Government of India, intended to catalyze startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India
- These programs are managed by a dedicated Startup India Team, which reports to the Department for Industrial Policy and Promotion (DPIIT), Ministry of Commerce & Industry, Government of India
- Government has issued a landmark notification no: G.S.R. 127(E) dated 19 Feb 2019 which enables recognition of a Startup by DPIIT. The notification also defines a Startup, eligibility criteria and tax exemption related details
- The process of application, eligibility and key benefits are mentioned in the subsequent slides
Eligibility
- Should be a Private Limited Company (including OPC) or Limited Liability Partnership (LLP) or Partnership Firm (Other form of business entity not allowed to apply for Startup recognition)
- Turnover/Sales for any of the financial years since incorporation/registration has not exceeded INR 100 Crore
- Working towards innovation, development or improvement of products or processes or services (supporting documents, explanation needed)
- Scalable business model with a high potential of employment generation or wealth creation (supporting documents, explanation needed)
- Entity not formed by splitting up or reconstruction of a business already in existence (special provisions exist for M&A/Conversion cases)
- Entity neither a subsidiary nor a holding company of another Indian or foreign entity
- Shareholding by Indian promoters in the entity is at least 51%
- Recognition is available only up to ten years from the date of its incorporation/registration
Process
Step -1
- Register at Startup India website and apply for the Startup Recognition (along with supporting explanations and documents)
- DPIIT reviews the application and seek additional information or approves the application (2-5 working days)
Step -2
- Apply for exemption under Section 56(2)(viib) of the Income Tax Act, 1961 (online @Startup India website). This exemption relates to non-taxability of deemed income of a company which is excess of issue price of shares over its fair market value (also called as “Angel Tax”). Limit of Paid-up capital and share premium amount up to Rs. 25 Crore
- A declaration required that the fund shall not be invested into real estates, loans, securities, jewellery etc. for a period of 7 years
Step -3
- Apply for Income Tax exemption under section 80-IAC of the Income Tax Act, 1961 (online @Startup India website). Relates to full income tax exemption for a 3 consecutive financial years (assessee can choose any block of 3 years) out of first 10 years since incorporation
- In addition of financials, tax returns, a detailed pitch deck and video link to be provided
Benefits
Government Schemes
There are several Government Schemes for the eligible Startups
State / UT Government Schemes
Several State / UT Governments have announced their own schemes for the eligible Startups
Fund of Funds for Start-ups (FFS)
(1) Managed by SIDBI with approved corpus of Rs 10,000 crore for contribution to various Alternative Investment Funds (AIFs) registered with SEBI
(2) AIFs in turn will provide funding to eligible Startups. Further details available in the (link)
Self Certification under Labour Laws (link)
(1) Startups shall be allowed to be self-certify compliance for 6 Labour Laws (PF, ESI, CLRA, Gratuity, ISMWA, BOCWA) and 3 Environmental Laws (Water PCPA, PCPA Cess, Air PCPA) through a simple online procedure
(2) No inspections will be conducted for a period of 5 years from incorporation
3 Years Income Tax Exemptions u/s 80-IAC
(1) Available to both Private Cos and LLPs (not available to Partnership Firms)
(2) You can choose any block of 3 continuous years out of 10 years beginning from the date of incorporation
(3) Compulsory Audit and report in specific format is required to be submitted before the due date
Set-off carry forward losses and capital gains allowed in case of a change in Shareholding pattern
(1) Carryforward of losses, in respect of eligible Startups, are allowed if all the shareholders of such company 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 carried forward
(2) The restriction, u/s 79 of the IT Act, of holding of 51% of voting rights to be remaining unchanged has been relaxed in case of eligible Startups
(3) Available for losses incurred only up to first 7 years from incorporation
External Commercial Borrowings (ECB)
(1) RBI, vide circular RBI/2016-17/103 A.P. (DIR Series) Circular No. 13, is permitting Startups to access loans under ECB framework with a few conditions. Startups can also raise funds in the forms of loans or non-convertible, optionally convertible or partially convertible preference shares under this framework. Provisions on leverage ratio and ECB liability to Equity ratio will not be applicable to the eligible Startups
Startup India Seed Fund Scheme (SISFS)
(1) Incorporated not more than 2 years ago at the time of application
(2) Up to Rs. 20 Lakhs as grant for validation of Proof of Concept, or prototype development, or product trials
(3) Up to Rs. 50 Lakhs of investment for market entry, commercialization, or scaling up through convertible debentures or debt or debt-linked instruments
Exemption from long term capital gain from residential house / land
(1) Available to Individual and HUF (assessee)
(2) Exemption is available if the assessee invests the property sale amount into equity shares of eligible Startups (shareholding to be more than 25%)
(3) The Startup shall utilize the amount in buying new assets (plant, machinery, computer, software) within one year from the date of share subscription
Deferment of tax payment liability / TDS at the time of ESOP/Sweat Equity Allotment
(Section 156(2) of the Income Tax Act, 1961)
(1) For ESOP/Sweat Equity, income tax is payable at the time of share allotment/exercise on the gain which is FMV less amount payable
(2)For a Startup, the tax shall be payable within 14 days of following - whichever is the earliest:
(2.1)expiry of 5 years from the end of the financial year in which shares allotted
(2.2)date of sale of ESOP/Sweat equity shares
(2.3)date of resignation or ceasing to be the employee of the employer
Relaxation under the Companies Act, 2013 (Notification No: G.S.R.. 583(E) dated 13 Jun 2017)
(1) Section 2(40): Cashflow statement is not required along with the audited financial statements
(2) Section 73 (Prohibition on acceptances of Deposits): To avail loans (deposits) without any limit from its members up to 5 years from the date of incorporation
(3) Section 92 (Annual Return): In case of startups, the annual return can be signed by the director of the company in case the firm does not have a company secretary
(4) Rule 12 of SCDR Rules: Promoters and Directors with >10 shareholding can also be allotted shares under ESOP
(5) Rule 8(4) of SCDR Rules: Startups may issue sweat equity shares up to 50% (against 25% for non-startups) of its paid-up capital – within 10 years from the date of its incorporation
(6) Section 173 (Board Meetings): Startups is exempt from holding quarterly board meetings every year. Startups to hold two board meetings in a calendar year, that is, once in six months. The gap between two consecutive board meetings must be at least 90 days.
Exemption from “Angel Tax” u/s 56(2)(viib)
(1) Available to Private Limited Cos. (PLC)
(2) In case a PLC issues shares to any resident for a value which exceeds the fair market value, such excess amount is taxable
(3) A Startup PLC is exempted from this tax provided certain conditions are fulfilled (e.g. the funds shall not be used into real estates, loans, advances, securities, jewellery, paintings, motor car exceeding Rs 10 lakh etc. for a period of 7 years from the end of the financial year in which shares are issued at premium)
(4) Exemption up to an aggregate limit of INR 25 Crore (large listed cos, certain venture funds with Net worth > INR 100 Cr or Turnover > INR 250 Cr are exempt from this limit)
Fast-tracking and rebate in Patent and Trademark filings
(1) 80% rebate in filing of patents, 50% rebate in filing of trademark
(2)Free access to Patent and Trademark filing facilitators (link) (link) (link)
Easier Government Procurement Norms
(1) Opportunity to list your product on Government e-Marketplace
(2)Opportunity to list your product on Government e-Marketplace
(3)Opportunity to list your product on Government e-Marketplace
Easy Winding up / Exit
As per Section 55 the Insolvency and Bankruptcy Code, 2016 read with Notification No. S.O.1911(E) dated 14 Jun 2017, startups can be wound up within 90 days of filing an application for insolvency (as against normal timeline of 180 days)