START-UP INDIA SCHEME

The Government of India had promulgated The Start-up India Scheme in the year 2016 with the aim to develop an ecosystem to nurture the innovation and bring development across the nation. The reason behind promulgation of this scheme is to shift the vision of the youth of our nation from job seekers to job providers. The youth of the nation, when given various benefits to start their own entrepreneurship, will focus more on innovation which in turn will generate more employment opportunities for others and hence more revenue to the economy.  

 

ELIGIBILITY FOR REGISTRATION UNDER START-UP SCHEME

In order to be eligible under the start-up scheme, one needs to fulfill the following eligibility requirements for registration under start-up scheme: 

1.    Which has not yet completed 10 years since the date of its incorporation. 

2.    Is a Private Limited Company/ A Partnership Firm/ Limited Liability Partnership. 

3.    Which has not exceeded turnover of Rs. 100 Crores in any of the financial years since its incorporation/ registration. 

4.    Is working towards innovation, development or improvement of the products or services which are already in existence or to develop a new product or services with high potential of employment generation or wealth creation. 

5.    It is not formed by splitting up or reconstruction of the existing business. Thus, the entity must be a newly formed/ incorporated entity. 

Further, it is important to note that entity which is formed by splitting up or reconstruction will not be considered as start-up. Thereafter, an entity will not be considered as a startup upon triggering of any of the following events:

·     On completion of 10 years since its incorporation/ registration

·     On hitting a turnover of Rs. 100 crores in any of the financial years since its registration / incorporation. 

 

BENEFITS OF REGISTERING UNDER STARTUP INDIA SCHEME

1.    SIMPLE PROCESS: The Government of India has simplified the registration process under startup India scheme. One can register his entity using website of Startup India which is accessible 24/7 and in every corner of the country. Anyone desirous to gets his entity recognized under startup India Scheme has to upload certain documents for getting his entity registered. 

 

2.    REDUCTION IN COST: The government has also focused on providing various facilities in the areas of Intellectual Property Rights. The registered company gets the privilege of getting 80% cost reduction in registering its patents and further gets 50% for registration of trademarks. The GOI shall provide the facilitators themselves and shall pay the facilitator fees. The Startup is required to pay the statutory fees only. 

 

3.    EASY AVAILABILITY OF FUNDS: The GOI is taking great initiative to provide guarantees to various lenders (financial institutions and banks) on behalf of startups’, for providing venture capital. The Government has also provided a fund of Rs. 10,000 crores to provide funding facility to the startups. 

4.  ELIGIBILITY FOR TENDERS: Startup companies enjoys the privilege to apply for government tenders without fulfilling the “prior experience/ turnover criteria”. Thus, startups can straight away apply for government tenders. 

 

5.    EASY COMPLIANCES: Compliances of startup have been simplified as they are allowed to submit self-certified documents under 9 labor laws and 3 environmental laws. This in turn saves time and money. 

 

6.   ADVANTAGE FOR INVESTOR TOO: People are open to invest their capital gains in the equity capital of the startup companies. Such investors will enjoy tax benefit of investing their capital which will attract more investors and hence more funds at the disposal of the startups. 

 

7.    OPTION TO CHOOSE INVESTOR: The startups are at liberty to choose the most profitable investor among various available investors. 

 

8.   EASY EXIT: The startups can easily exit from the business within 90 days from the date of application of winding up. 

 

9.    MEETING OTHER ENTREPRENEURS: Networking is of prime importance for a startup to establish its business in the market. In order to boost networking, the GOI has proposed to arrange 2 startup fests annually both nationally and internationally to enable the stakeholders to meet and explore the available opportunities. 

 

 

TAX EXEMPTIONS AVAILABLE TO STARTUPS

1.    3 YEARS TAX EXEMPTIONS OUT OF FIRST 7 YEARS: The startups incorporated between 1^st April, 2016 till 31^st March 2021 (now extended till 31^st March, 2022 in the budget 2021) were eligible for this scheme. Such startups will be eligible for getting 100% tax rebate on profits for a period of 3 years out of 7 years provided that the turnover shall not exceed Rs. 25 Crores in any of the financial years. This tax rebate will help startups to meet their working capital requirements during the initial years of its operations. 

 

2.    EXEMPTION FROM TAX ON LONG TERM CAPITAL GAINS: A new section 54EE has been inserted in the Income Tax Act for the eligible startups to exempt their tax on a long-term capital gain if such a long-term capital gain or a part thereof is invested in a fund notified by the central government within a period of six months from the date of transfer of asset. The maximum amount that can be invested in the long-term specified asset is Rs. 50 Lakhs. Such amount shall remain invested in the specified fund for a period of 3 years. If withdrawn before 3 years, then the exemption will be revoked in the year in which money is withdrawn. 

 

3.  TAX EXEMPTION ON INVESTMENTS ABOVE THE FAIR MARKET VALUE: The government has exempted the tax being levied on investments above the fair market value in eligible startups. Such investments include investments by angel investors, family or funds which are not registered as venture capital funds. Also, the investments made by the incubators above the fair market value is exempt. 

 

4.  TAX EXEMPTION TO INDIVIDUALS/ HUF ON INVESTMENT OF LONG-TERM CAPITAL GAIN IN EQUITY SHARES OF ELIGIBLE STARTUPS U/S 54 GB: The existing provisions u/s 54 GB allows the exemption from tax on long-term capital gains on the sale of residential property if such gains are invested in the small or medium enterprises as defined under the Micro, Small and Medium Enterprises Act, 2006. But now this section has been amended to include exemption on capital gain invested in eligible startups also. 

Thus, if an individual or HUF 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 provided that such shares are not sold or transferred within 5 years from the date of acquisition. 

The startup shall also use the amount invested to purchase assets and should not transfer assets purchased within 5 years from the date of its purchase. This exemption will boost the investment in eligible startups and will promote their growth and expansion. 

 

5.    SET OFF OF CARRY FORWARD LOSSES AND CAPITAL GAINS ALLOWED 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 the previous year in which such loss is to be carried forward. The restriction of holding of 51% of voting rights to be remaining unchanged u/s 79 has been relaxed in the case of eligible startups. 

 

DOCUMENTS REQUIRED FOR REGISTRATION UNDER STARTUP SCHEME

·     Certificate of Incorporation of Company/ Registration certificate of LLP

·     PAN of Company/ LLP

·     Company details viz. industry, sector, category, registered office address etc.

·     Director/ Partners details (Name, Photo, Gender, Mobile No, Email ID, Full Address)

·     Details of Authorized Representative (Name, Designation, Mobile No, Email ID)

·     A brief idea about the business and products/ service and notes on innovation. 

·     Revenue model and uniqueness of the innovation

·     Website/ pitch deck/ video/ patent (Any one)