The Startup India Trilogy | DPIIT Recognition | 80-IAC | Angel Tax |
A startup is a company or project initiated by an entrepreneur to seek, effectively develop, and validate a scalable business model.
While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, Startup refer to the new businesses that intend to grow large beyond the solo founder. Startup faces high uncertainty and has high rates of failure, but a minority of them do go on to be successful and influential.
Startup Recognition with Department for Promotion of Industry and Internal Trade (DPIIT)
Eligibility Criteria:
- The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.
- Turnover should not exceed more than INR 100 Crores in any of the previous financial years since its incorporation.
- An entity shall be considered as a startup up to 10 years from the date of its incorporation.
- The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth.
- Entity should not have been formed by splitting up or reconstructing an already existing business
Benefits:
- Exemption from levy of angel tax under section 56(2)(viib)
- Deductions under section 80-IAC
- Liberalized regime of section 79 to carry forward and set-off the losses
- Exemption under section 54GB to the shareholder for making investment in a startup
- Access to the dedicated cell created by the CBDT
Application Process:
One needs to register on www.startupindia.gov.in using basic details such as email id and mobile number and create an account. Once the account is created, application for startup can be initiated. Below are the following details required for documentation:
- Certificate of incorporation or registration as the case maybe and email id of the entity
- Copy of PAN card of the entity.
- Name, Mobile Number and Email id of Authorised Signatory.
- Details of any awards/recognition received by the entity and the proof of the same.
- Following questions needs to be answered for form:
- Brief note supporting innovative features of products/services.
- What is the problem the startup is solving?
- How does your startup propose to solve the problem?
- What is the uniqueness of the solution?
- How does the startup generate revenue?
- Current No. of Employees (including founders)?
- Is the startup creating a scalable business model for high potential of employment generation or wealth generation?
- If any of the following recommendation letters are available, it would help in getting the registration easily.
- Any patent filed and published in patent journals available online or offline;
- Recommendation letter from Incubators which are established in post-graduation colleges in India;
- Support letter from any one of the Startups which is funded through Central or State Government authorities or any incubator which is duly recognized by the Government of India.
- Letter of funding in an equity which should not be less than 20% by angel or incubation fund;
- Letter of recommendation (regarding innovative nature of business), from an Incubator, recognized by the Government of India in DIPP specified format.
- Letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation
Note: Documents needs to upload in a PDF format only
Income Tax Exemption under Section 80-IAC
The recognised Startup can avail 100% tax holiday for 3 consecutive financial years out of its first ten years since incorporation.
Eligibility Criteria:
- The entity should be a recognized Startup under DPIIT
- Only Private limited or a Limited Liability Partnership (LLP) is eligible for Tax exemption under Section 80IAC
- The Startup should have been incorporated after 1st April, 2016
- Annual business turnover does not exceed Rs. 100 Cr. in the previous year relevant to the AY for which deduction is claimed.
- Should be original entity and not through restructuring
- Not formed by the transfer to a new business of machinery or plant previously used
Application Process:
One needs to fill all the requisite details along with the documentation as required inn https://www.startupindia.gov.in/content/sih/en/form80iac.html:
- Memorandum of association (for Pvt Ltd) or LLP Deed (for LLP)
- Board Resolution (if any)
- Annual Accounts & Income Tax returns of the startup for the last three financial years.
Toolkit for Financial Statements- Updated financial statements (Balance Sheet, Profit & Loss statement, Income Tax Returns) for the past three years or from the year of incorporation
Note –
- The Balance Sheet and the Profit and Loss Statement must be CA Certified
- If your startup was incorporated on 1st April 2018 or later, Income Tax Returns (ITR) is not mandatory. For startups incorporated earlier, ITR is mandatory
- Startup Video Link. The video should be of a maximum of 2 minutes and should cover the following aspects:
- Brief about what your startup does or is planning to do.
- Showcase the working of the prototype/proof-of-concept developed by you.
- Market traction that your product/service has generated till now, if your product/service has already been launched in the market.
- Note: Please upload the Video on a third-party video hosting platform such as Youtube. In case you are uploading on Google Drive please make sure that it is NOT access restricted.
- Pitch deck. Maximum 5 slides and should be in PPT or PDF format only. Your pitch deck must have the following:
- Information about the product/service offering of your startup
- Brief about how is your startup innovative and/or scalable
- Number of people employed by your startup and funding raised, if any
- Credentials of Founders/Management
- Screenshots/images of your product/website and website link, if any
Angel Tax - Income Tax Exemption under Section 56(2)(viib)
The recognised Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.
Eligibility Criteria:
- The entity should be a recognized Startup under DPIIT
- Aggregate amount of paid up share capital and share premium of the startup after the proposed issue of shares does not exceed Rs. 25 crores
- The investor/ proposed investor, who proposed to subscribe to the issue of shares of the startup has:
- Average returned income of Rs. 25 Lakhs or more for the preceding 3 financial years; or
- Net worth of Rs. 2 crores or more as on the last date of the preceding financial year
- Investments by listed companies with a net worth of Rs 100 crore or turnover of Rs 250 crore into an eligible startup, beyond the Rs 25 crore limit
(Exclusion of Non-resident & Venture Capital Company or Venture Capital Fund)
- It does not invest in any of the following assets for a period of 7 years from the end of the latest financial year in which the shares are issued at premium:
- Land or building, being a residential house, other than that used for the purposes of renting or held as stock-in-trade in the ordinary course of business
- Land or building, not being a residential house, other than that occupied by start-up for its business or renting purposes or held as stock-in-trade in the ordinary course of business
- Loans and advances, if start-up is not engaged in ordinary business of lending of money
- Capital contributions to any other entity
- Shares and securities
- Motor vehicle, aircraft, yacht or any other mode of transport, if the cost of such an asset exceeds Rs. 10 lakhs other than that held by the Start-up for the purpose of plying, hiring, leasing or as stock-in-trade in ordinary course of business
- Jewellery held otherwise than as stock-in-trade
- Archaeological collections, drawings, paintings, sculptures, any work of art or bullion
Startup has obtained a report from a merchant banker specifying the fair market value of shares in accordance with Rule 11UA of the Income-tax Rules, 1962.
Application Process:
Fill basic details in the form on https://www.startupindia.gov.in/content/sih/en/Form-56.html along with declaration as required by DPIIT. (Format available in the link)
