The article explains What is a startup, Process of recognition of a startup, Benefits of recognition as a startup which includes Income tax deduction under Section 80 IAC, an exemption under section 56 of Income Tax Act (Angel Tax Exemption), Intellectual Property Right (IPR) benefits, Relaxation under public procurement norms, Self-certification under labour and environmental laws, Faster exit for startups and Fund of fund for startups.
What is a startup?
A startup would be an entity which is recognized under the Startup India scheme by DPIIT
An entity can be recognized as a startup if it fulfills all the conditions mentioned below:
1. It should be incorporated as a Private limited, partnership firm or a LLP
2. The entity’s age should be less than 10 years
3. Turnover has not exceeded Rs. 100 crores since the incorporation of the business.
4. The entity should be working towards innovation, development or improvement of products or processes or services or it should have a scalable business model with a high potential of employment generation or wealth creation.
Note: any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘Startup
Process of recognition of a startup
The process of recognition of an eligible entity is stated below:
1. An application is to be made to DPIIT via mobile application or online portal.
2. Following documents/information would be required:
- A copy of the certificate of incorporation/registration certificate
- Director/partner details
- A writeup stating the nature of business and highlighting its work towards innovation, development or improvement. (typically, a pitch deck/website link/video etc.)
3. After receiving the application, the DPIIT may call for documents or information as it may deem fit-
- Recognize the entity as the startup.
- Reject the application by giving specific reasons.
What are the benefits of recognition as a startup?
I. Income tax exemptions
A. Recognition under Section 80 IAC- enjoy tax holiday for 3 years
Once you are recognized as a startup, you can apply for tax exemption under Section 80 IAC of the Income Tax Act, after being cleared for the tax exemption, you can avail tax holiday for three consecutive years, out of the first 10 years from the date of incorporation.
Eligibility criteria to apply for Section 80 IAC exemption:
1. The entity is recognized as a startup.
2. Only a private limited company or a limited liability partnership is eligible for tax exemption.
3. The startup is incorporated on or after 1st April 2016 and before 1st April 2021
B. Avail exemption under section 56 of Income Tax Act (Angel Tax Exemption)
Once you get recognized as a startup, you can apply for angel tax exemption. The eligibility criteria for claiming the deduction is:
1. The entity should be a DPIIT recognized startup.
2. The aggregate amount of paid-up share capital and share premium does not exceed INR 25 crores after the issue of shares.
II. Intellectual Property Right (IPR) benefits
For promoting awareness and adoption of IPRs by startups and helping them in protecting the IPRs, registration under DPIIT provides access to high-quality Intellectual Property Services and resources.
Following are the broad benefits:
- Rebate on application fees: Startups get a rebate of 80% in filing of patents, thus reducing the cost to Rs 1600 from normal cost of Rs 8000. Similarly, there is a 50% rebate in Trademark application for companies recognized as a startup, thus they can file a trademark application in half price i.e. Rs 5000.
- Fast tracking of Startup patent applications
- Panel of facilitators to assist in IP applications: Central Government bears the entire fees of the facilitators for any number of patents, trademark or designs, and Startups only bear the cost of the statuary fees payable.
III. Relaxation under public procurement norms
The Government of India has authorized all its departments, ministries, and public sector undertakings to relax all the norms under public procurement. The startups can claim exemption over:
1. Prior turnovers
2. Prior experience
3. Earnest money deposit
IV. Self-certification under labour and environmental laws
The government has planned on reducing the regulatory burden on Startups by allowing them to focus on their core business & keep compliance costs low.
1. Startups are allowed to self-certify their compliance under 6 Labour and 3 Environment laws for a period of 3 to 5 years from the date of incorporation.
2. In respect of 3 Environment laws, units operating under 36 white category industries do not require clearance under 3 Environment-related Acts for 3 years.
V. Faster exit for startups
The Ministry of Corporate Affairs has notified Startups as ‘fast track firms’ enabling them to wind up operations within 90 days whereas 180 days for other companies. An insolvency professional shall be appointed for the Startup, who shall be in charge of the Ministry of Corporate Affairs enabling the startups to wind up the company for liquidating its assets and paying its creditors within 6 months of filing an application in this regard.
VI. Fund of fund for startups
To provide equity funding support for the development and growth of innovation-driven enterprises, the Government has set aside a corpus fund of INR 10,000 crores managed by SIDBI. The Fund is in the nature of Fund of Funds, which means that the Government participates in the capital of SEBI registered Venture Funds, who invest twice the amount in Startups.
Disclaimer: The above post is only for the purpose of academic discussion and should not be construed as any legal opinion in any matter whatsoever.
(The author is a CA in practice at Delhi and can be contacted at: E-mail: firstname.lastname@example.org, Mobile: +91-9811741451)