Department for Promotion of Industry and Internal Trade, MINISTRY OF COMMERCE AND INDUSTRY has issued a notification of Feburary 19,2019 stating the revised definition of Startups and its taxation norms.
1. What is a Start up?
- A Business concern, incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India
- working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation
- with an annual turnover not exceeding Rs. 100 crore for any of the financial years since incorporation/registration
- not have been formed by splitting up or reconstruction of a business already in existence
2. What is the tax benefit?
- a deduction of an amount equal to 100% of the profits and gains derived from that business is available from the total income of the assessee for three consecutive assessment years u/s 80-IAC of the Income Tax Act, 1961.
3. What to do to become an Eligible Startup?
i. Make an online application through mobile app. or portal set up by DPIIT (Department for Promotion of Industryl and Internal Trade)
ii. The enclosures of the application are as follows:
- Copy of Incorporation/Registration Certificate
- A Write-up describing the business nature and highlighting how it is innovative and contributes for employment generation or wealth creation.
iii. After scrutiny of the documents, DPIIT may either approve or reject the application.
4. Requirement for claiming deduction u/s 80 – IAC
A Startup which fulfills the conditions specified in sub-clause (i) and sub-clause (ii) of the Explanation to section 80-IAC of
the Act, i.e.:
"i) ”eligible business" means a business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;
ii) "eligible start-up" means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:
a. it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;
b. the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and
c. it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government. “
may make an application in Form-1 for obtaining a certificate for claiming deduction u/s80-IAC.
# Model of Form-1 is provided in the Annexure.
- The Board may grant the certificate or reject the application after making enquires based on the enclosures.
5. Whether the provisions of sec 56 (2)(viib) of Income Tax Act applicable?
A startup would get exemption from the provisions of sec 56 (2)(viib) of Income Tax Act if it fulfils the following conditions:
- Recognized by DPIIT
- Its aggregate paid up share capital and share premium doesn’t exceed Rs.25 crores
For computing this aggregate paid up share capital and share premium, the following shall not be included
- Shares issued to a non-resident
- Shares issued to a Venture capital company or Venture capital fund
- Considerations received for shares issued or proposed to be issued to a specified company
Start up shall not invest in any of the assets specified in sub clauses (a) to (h) for the period of seven years from the end of the latest financial year in which shares are issued at premium.
# Model of Form-2 - application for claiming exemption u/s 56 (2)(viib) is provided in the Annexure.
APPENDIX
Form-1
Application for certificate for the purposes of section 80-IAC of the Income tax Act, 1961
1. Name of the Startup - ..........
2. Date of incorporation/ registration of Startup - ...........
3. Incorporation No./ registration No...........
4. . Address and business location- ..............
5. Nature of business.......
6. Contact details of Startup (Phone No. and Email)- .....
7. Permanent Account No - ..............
8. Existing/ proposed activities - ..............
(Enclose copy of Memorandum of Association, LLP/partnership Deed, Board Resolution etc.)
Declaration
I/ We hereby certify that the above information furnished by me is true and no relevant information has been concealed.
For (Name of the Startup)
(Name of the authorized signatory) Designation
Place: _______
Date: _______
This form shall be accompanied by the following documents (if applicable)-
1. Annual Accounts of the startup for the last three financial years
2. Copies of income-tax returns for the last three financial years.
Form-2
Application for approval for the purposes of section 56(2)(viib) of the Income-tax Act, 1961
1. Name of the Startup - ..........
2. Date of incorporation/ registration of Startup - ............
3. Incorporation No./ registration No...........
4. Address and business location- ..............
5. Nature of business.......
6. Contact details of Startup (Phone No. and Email)- .....
7. Permanent Account No. - ..............
8. Startup Recognition number allotted by DIPP - .............
9. Existing/ proposed activities - ..............
(Enclose copy of Memorandum of Association, LLP/partnership Deed, Board Resolution etc.)
10. Details of certificate granted under section 80-IAC of Income-tax Act,1961 , if any............
11. Details of share capital as on the date of application-
(i) Amount of share capital...
(ii) Amount of share premium..
(iii) Type of shares....
(iv) Number of shares.........
(v) Face value.....................
(vi) Issue price..................
12. Details of proposed issue of shares
(i) Type of shares.....
(ii) Number of shares.........
(iii) Face value.....................
(iv) Premium per share....
(v) Issue price..................
(vi) Proposed date of issue of shares........
13. Details of the investor-
(i) Name of the investor(s)- .....................
(ii) Address - ..........................
(iii) Contact Details (Phone No. and Email) - .....
(iv) Permanent Account No - ....................
(v) Nature of business- .......................
(Enclose copy of Memorandum of Association, LLP/Partnership Deed, Board Resolution etc., if applicable)
(vi) Residential status.....................
(vii) Amount of investment proposed ............
(viii) Average Returned income of the investor in the last three financial years-
(ix) Net-worth of the investor on the last date of the preceding financial year
14. Fair market value of shares as per the report of a merchant banker........................
Declaration
I/We hereby certify that the above information furnished by me is true and no relevant information has been concealed.
For (Name of the Startup)
(Name of the authorized signatory) Designation
Place: _______
Date: _______
This form shall be accompanied by the following documents -
a. the annual accounts of the startup from the date of its incorporation;
b. name, PAN and address of the existing shareholders along with their shareholding and the amount at which shares are issued to them;
c. copy of income-tax returns of the investor for the last three financial years;
d. copy of balance sheet of the investor as on the last day of the preceding financial year; and e. merchant banker’s report.
Source: www.startupindia.gov.in
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