Startup India Scheme

STARTUP INDIA SCHEME: DEFINITION, ELIGIBILITY & TAX EXEMPTION

The Startup India Scheme is an initiative of the Government of India in 2016. The primary objective of Startup India is the promotion of startups, the generation of employment, and wealth creation.

Startup India has initiated several programs for building a robust startup ecosystem and transforming India into a country of job creators instead of job seekers. These programs are managed by the Department for Industrial Policy and Promotion (DPIIT).

What are the benefits?

Under the Startup India Initiative, the companies which are registered under DPIIT are eligible to receive the following benefits:

Simplification and Handholding – Easier compliance, easier exit process for failed startups, legal support, fast-tracking of patent applications, and a website to reduce information asymmetry.
Funding & Incentives – Exemptions on Income Tax and Capital Gains Tax for eligible startups; a fund of funds to infuse more capital into the startup ecosystem and a credit guarantee scheme.
Incubation & Industry-Academia Partnerships – Creation of numerous incubators and innovation labs, events, competitions, and grants.

Startup India Scheme is one of the flagship initiatives of the Central Government of India. Under Startup India Scheme, several programs are rolled out with the following objectives –

  • To support entrepreneurs;
  • To build a robust startup ecosystem;
  • To transform India from a country of job seekers to a country of job creators; etc.

Eligibility criteria under the Startup India Scheme –

Eligibility criteria to be satisfied for availing benefits under Startup India Scheme are tabulated hereunder –

1. Type of company-
The Startup must be incorporated in any of the following forms-

  • Private Limited Company under the Companies Act, 2013;
  • Limited Liability Partnership under Limited Liability Partnership Act, 2008;
  • Partnership firm under Partnership Act, 1932.

2. Maximum cap of Annual Turnover-
The Startup should not have an annual turnover of more than INR 25 Crores.

3. Type of business-
The Startup should be engaged in developing some new product/ service. Additionally, the following conditions should also be satisfied –

  • The aim of the Startup should be to develop/ commercialize the new product/ service or significantly improve the existing product/ service which enables to add/ enhance value to customers or workflow;
  • The Startup must be majorly working towards the development; innovation; commercialization or deployment of the product/ service that is specifically driven by intellectual property or the latest technology;
  • The Startup should not be involved in developing a product/ service that doesn’t have the potential for commercialization or developing an undifferentiated product/ service which has NIL or limited incremental value for customers/ workflow.

4. Formation-
The Startup should not have been formed out of the splitting/ reconstruction of the business. Notably, any company formed out of splitting an organization into two or more businesses will not be eligible under Startup India Scheme.

5. Necessary approval and documents-

The Startup needs to have the following approval and documents – Approval from the inter-ministerial board of DIPP i.e. the Department of Industrial Policy and Promotion; Recommendation from –

1.     Incubator established in any post-graduation college;

2.     Incubator recognized by the Government of India;

3.     Incubator funded by the Government with regard to a scheme to promote innovation.

Letter of –

1.     At least 20% equity funding from an angel fund or an incubation fund or a private equity fund or an accelerator/ angel network;

2.     Funding from the Central Government/ State Government as part of any scheme of promoting innovation. The patent is filed as well as published in journals of the Indian Patent Office in a specific area of product/ service.

As per the Start-up India Action plan, the followings conditions must be fulfilled to be eligible as Start-up:

1. Up to 10 years from the date of incorporation/registration

2. Is a private limited company or registered as a partnership firm or a limited liability partnership.

3. Has an annual turnover not exceeding Rs. 100 crores for any of the financial years since incorporation/registration.

4. Is 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.

5. It is not formed by splitting up or reconstructing a business already in existence.

Tax exemptions allowed to Eligible Startups under Startup India Program

1. 3-year tax holiday in a block of seven years: Start-ups will be eligible for getting a 100% tax rebate on profit for a period of three years in a block of seven years.

This will help the start-ups to meet their working capital requirements during their initial years of operation. A such deduction would be available upon filing an application with DPIIT provided that annual turnover does not exceed Rs.25 crores in any financial year.

2. Exemption from tax on Long-term capital gains u/s 54EE: A new section 54 EE has been inserted in the Income Tax Act for the eligible start-ups 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 the asset.

The maximum amount that can be invested in the long-term specified asset is Rs 50 lakh. Such amount shall be remained 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 the money is withdrawn.

3. Tax exemption on investments above the fair market value: Domestic companies are required to issue their shares at fair market value (FMV) determined on a net assets value basis or discounted cash flow basis determined by the merchant banker.

Any amount received by the company from residents in India in excess of FMV is liable to tax in the hands of the company (popularly known as ‘Angel tax’).

Upon filing the requisite declaration with DPIIT and subject to certain conditions, Eligible start-ups are exempted from Angel tax.

4. Tax exemption to Individual/HUF on investment of long-term capital gain in equity shares of Eligible Start-ups u/s 54GB: The existing provisions u/s 54GB allows the exemption from tax on long-term capital gains on the sale of a 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 gains invested in eligible start-ups 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 start-ups, then tax on long-term capital will be exempt provided that such shares are not sold or transferred within 5 years from the date of its acquisition.

The start-ups 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 start-ups and will promote their growth and expansion.

 

 

 

 

 

 

 

Don't forget to share this article :-

Stay Updated With Our Blogs!

Explore more of our blogs to have better clarity and understanding
of the latest corporate & business updates.

Why People Choose Our Services ?

Free Legal Advice

We provide free of cost consultation and legal advice to our clients.

Tech Driven Platform

All our services are online no need you to travel from your place to get our services.

Grow your business

Experts Team

We are a team of more than 15+ professionals with 11 years of experience.

Transparent pricing

There are no hidden & extra charges* other than the quote/invoice we provide.

100 % Client Satisfaction

We aim that all our customers are fully satisfied with our services.

On-Time Delivery

We value your time and we promise all our services are delivered on time.

Why Trust legal Suvidha?

People Who loved our services and what they feel.

In this Journey of the past 10+ years, we had gained the trust of many startups, businesses, and professionals in India and stand with a 4.9/5 rating in google reviews.

Rajesh Srivastava
Rajesh Srivastava
Startup CEO
Read More
Great services and expertise. Highly recommended, Quick work and provided good support for the entire process. Made things very easier for us and I got my first ever Trademark for my product in just no time. I recommend their services to all the Startups for a hassle-free registration and other services. Again Thank You So Much Team Legal Suvidha... Good work...
Vijaya
Vijaya
Employee
Read More
Excellent service and has been very timely in response. They are very patient too and guided us with the right steps even though we approached them with very few days left before the deadline. I highly recommend them to other startups who need legal advice and do all the paperwork at the year-end. And we would approach them for all our future requirements as well.
Krish Mundarath
Krish Mundarath
Businessman
Read More
We highly recommend them. Best in class services. Thank you for helping me through the process and for prompt replies. All the Best in your Endeavors. We highly recommend them. Best in class services. Thank you for helping me through the process and for prompt replies. All the Best in your Endeavors. I will surely consider them for future work.
Inamul Hashmi
Inamul Hashmi
Businessman
Read More
Legal Suvidha filed my GST, Income Tax Returns for my business Happy by their service. They are Excellent, cost effective, efficient, co-operative & Genuine service providers keep up the good work in the future. Thank you for shaping my business in the right direction. I would suggest others to take up their services they are better than other competitions present in the market.
Previous
Next

Our Partnerships & Collaborations

Contact us and grow your business

Legal Suvidha App

Now all Professional Services in a Single Click !

Now get all the services required for your business in a single app.

Subscribe to our newsletter & grow your business

Subscribe To Our Newsletter .

Sign up to receive email updates on new product announcements, special promotions, sales & more.