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Karneeti Part 114
What's Up in Start Up

Arjuna (Fictional Character): Krishna, Government of India has come up with the scheme of “Startup India” on the occasion of Repulic Day. On the Republic day as we see parade on Rajpath, likewise what is in the zanki of “Startup India” in parade?

Krishna (Fictional Character): Arjuna, in this era technology and innovations are necessary to change the economic conditions of India. For this purpose the “Startup India” plan has been built up and launched by the Government of India. The Government of India has launched this scheme keeping in view the overall economic development and for generating large scale employment opportunities. Government wants to accelerate start up movement from digital/technology sector to agriculture, manufacturing, social, education, healthcare, etc. and in large cities as well as small cities, urban and rural areas. This is only the plan which has been proposed. The detailed rules and Regulations are likely to be announced in the Financial Budget 2016.

Arjuna: Krishna, What are the important Features of this plan?

Krishna: Arjuna, the plan has been drawn in such a way that it will ease the difficulties faced in starting up a new business. The important features of this plan are as follows:

1. Starting up a new business requires compliances with various labour and environment laws, which are difficult to follow, time consuming and costly to implement. Therefore, simplifications are made, in case of labour laws, no inspection will be conducted for a period of first 3 years and in case of environment laws, random checks would be carried out.

2. Young Indians today have many ideas and entrepreneurship skills. However the startups do not reach their full potential due to limited guidance. For this purpose Government of India will come up with the “Startup India Hub“, which will help by providing information related to technology, Finances, Management, etc. to Start ups.

3. For the purpose of “Startup”, Government of India shall introduce Mobile App which will provide status of registration, filing for compliances and obtaining information on various clearances, applying for various schemes under startups, etc.

4. Entities in “Startup” will be facilitated with patents of business, logos, etc. at lower prices and the time required for the procedures shall also be minimized.

5. Entities to “Startup” in the manufacturing sector, “prior experience” or “prior turnover” conditions shall not be applicable. But they have to demonstrate their capability to execute the project.

6. Entities “Starting up” the business, if fails to succeed, then in case of such business failure, there is Faster Exit i.e. easy process for the wind up of business, without facing a long and complex exit process.

7. In order to provide support to “Startup”, Government will set up fund of Rs. 10,000 crores.

Arjuna: Krishna, in this “Startup India” plan who all can participate?

Krishna: Arjuna, the Government of India has put up the following points in case of this scheme:

1. “Startup India” means the Institutions or Businesses which has been incorporated or registered since past 5 years and

2. Whose annual turnover has not exceeded Rs. 25 crores in any financial year.

3. Such Institutions or Businesses should be working towards Innovation, Technology, Trading in New products or Businesses or processes.

4. Provided that such entity is not formed by reconstructing, reconstituting or splitting up of the existing business.

5. To participate in this scheme and for tax benefits such entities would have to obtain certification from the Inter-Ministerial board, setup for such purpose.

6. In this scheme, Partnership Firms, Private Limited Companies and Limited Liability Partnership are eligible for participation.

Arjun: Krishna, What tax benefits are available to entities participating in this scheme?

Krishna: Arjuna,

1. New Entities need to make Capital investment in the Initial years of the business. For this purpose, Government of India has exempted the “Startups” from income Tax for a period of 3 years. Exemption is available for Companies subject to Non-Distribution of Dividend.

For Example: If in the First Year the profit earned by the Company is Rs.10 lakhs, than tax payable @ 30% i.e Rs 3 lakhs will be exempted.

2. To startup any Business the most important thing is Capital. To startup it is difficult to obtain Capital Investment. Therefore, Government has initiated “Startup Fund”, because of which entities starting up Business shall be provided with funds and further they will invest it in the Venture Capital Fund. If the taxpayer having Capital Gains and the proceeds are invested in “Startup Fund” then he will be exempted from Tax Liability.

For example: If someone has sold his house and earned Capital Gain of Rs.50 lakhs and invested the same in “Startup fund”, then he shall be exempted from Tax Liability on such Capital Gain.

3. According to the Income Tax Rules, if a Company receives consideration for issue of shares for more than the Fair Market Value of the shares, such excess consideration is taxable in the hands of the recipient under the head Income from Other Sources. In case of “Startups” Company shares, Fair Market Value of shares is lower than the value at which Capital Investment is made, and this results into tax being levied under Sec 57(2)(viib). The provisions of this taxation shall be reliefed for the “Startups”.

For example: If FMV of share is Rs.10 and it is sold for Rs.12, than tax will be payable on Rs. 2. Similarly if FMV of shares is Rs.10 and it is sold for Rs. 8 than tax will be payable by the Recipient on Rs.2. “Startups” will be relieved from the provisions of above taxation.

Arjun: Krishna, Government of India has launched such a beautiful scheme, what will taxpayers learn from this plan?

Krishna: Yes Arjuna, Government of India has launched this scheme for the benefit of youngsters and people interested in starting up the business but due to various difficulties cannot startup the same. If they start planning for the same from now only, they can take benefits of this plan to the fullest. Even Government has agreed to the point that entities face lot of difficulties to follow the laws. Let’s see what changes and difficulties are faced till the “Startup” plan is launched. Wish you all a “Happy Republic day”.


Published by

CA Umesh Sharma
Category Income Tax   Report

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