What is Startup?
A startup can be interpreted as a newly established business started by one or a group of individuals. What differentiates it from other new companies is that a startup offers a new product or service that is not being provided elsewhere in the same way. The keyword is innovation. The business either develops a new product/ service or redevelops a current product/service into something better.
Department for Promotion of Industry and Internal Trade (DPIIT) considers an entity as a startup for ten years from incorporation date subject to the fulfilment of the following conditions:
1. The Company should be incorporated as a Private Limited Company, LLP or Partnership firm.
2. The Company is eligible for the various benefits of a Startup up to ten years from the date of incorporation.
3. The Company's turnover should not exceed One hundred crores for any financial years since incorporation.
4. The eligible Company should work on innovation, development, or improvement of products or services. The Company's business model should be scalable with a high potential for wealth creation or employment generation.
5. It should be a new entity, i.e., not formed by splitting up or reconstruction of an existing business or by transfer to a new company previously used for any purpose.
The objective of the Scheme
The intention behind this Startup is to promote growth and to help the Indian economy to help to develop and innovate products and services, and at the same to create employment and wealth generation in the country.
Startup Registration Process
An application for the online startup registration can be made to DPIIT to be recognized as a duly recognized Startup. The applicant can be file the application online from the website https://www.startupindia.gov.in/ or the mobile app. The following documents are required for registration:
1. Certificate of incorporation of the Company.
2. Details of the Directors.
3. Proof of concept like website link/pitch deck/Startup video (in case of a validation/ early traction/scaling stage startup).
4. PAN Number.
5. Patent and trademark details (Optional)
6. Write-up on the nature of business highlights incorporating how an entity is working towards development, innovation or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation. This forms the very basis of rejection or approval of the application and must be detailed.
7. Additional documents providing website link, Startup pitchdeck, details of patents, etc., shall also be attached to support the application.
8. Information on any award received by the entity.
9. Document proof of funding received by the entity, if any.
Benefits of Startup India Scheme
There are various benefits given to the Company who have registered themselves under the Startup Scheme. Following benefits are being given to entrepreneurs establishing startups:
1. 80% rebate in patent cost/ IPR protection.
2. Self-certification of six labour laws and three environmental laws through a simple online procedure. Only those startups eligible for this benefit, those who have recognized themselves under DPIIT within five years of incorporation.
3. Tax exemptions under Income Tax Act.
4. Easy winding-up process (within 90 days).
5. Easier public procurement norms.
Recognition and Benefits for Startups include Tax Benefits also. Once the Startup is recognized and registered by DPIIT, one may avail of the following benefits under Income Tax Act:
A) Corporate Tax Holiday under sec 80-IAC
The deduction under section 80-IAC is available to an 'eligible startup' up to 100% profits out of 10 years from 01 April 2021 for any three consecutive years from the date of incorporation.
The following conditions have to be fulfilled to be considered as an "Eligible Startup" for claiming this deduction:
i) It should only be a company or LLP. A partnership firm is not eligible for such exemption.
ii) It is incorporated on or after April 1, 2016, but before April 1, 2021.
iii) Its turnover does not exceed Rs. 25 crores and 100 Crore from 01 April 2021 in any Financial Year since incorporation for which deduction is claimed.
iv) It holds a certificate of eligible business from the Inter-Ministerial Board of Certification (IMB) (by filing Form 1).
B) Relief from Angel Tax u/s 56(2) (vii b)
Eligible startups have to file a duly signed self-declaration only with DPIIT for availing exemption. DPIIT shall transmit these declarations to the Central Board of Direct Taxes (CBDT). The eligibility for availing tax exemption under Section 56:-
* It should have been recognized as a DPIIT.
* It should be a private limited company.
* It has not invested in specified asset classes.
* The Startup should not have invested in immovable property, transport vehicles above Rupees ten Lakh, capital contribution to other entities, Loans and advances, except in the ordinary course of business.