Demystifying Startup India Scheme

What is a Startup?

Startup means an entity, incorporated or registered in India:

·         Upto a period of seven years from the date of incorporation/registration or upto ten years in case of Startups in Biotechnology sector

·         As a private limited company or registered as a partnership firm or a limited liability partnership

·         With an annual turnover not exceeding Rs.25 crore for any of the financial years since incorporation/registration

·         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

Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.

           An entity shall cease to be a Startup:

·         On completion of seven years from the date of its incorporation/registration, ten years in case of Startups in Biotechnology sector, or

·         If its turnover for any previous year exceeds Rs. 25 crore

Incentives under Startup India Scheme

Under this plan the new startups in India can avail of regulatory and tax benefits, capital gains tax exemption, as well as access to government funding if they fulfill certain criteria.

Other benefits include reduction in patent registration fees by 80 percent and trademarks filing fees by 50 percent as well as free legal assistance; simpler entry and exit norms; protection of intellectual property rights (IPR); and facilities to promote entrepreneurship among women and SC/ST communities.

Tax Exemptions under Startup India Scheme

3 year tax holiday in a block of seven years: Income Tax exemption for three years in a block of seven years, if they are incorporated between April 1, 2016 and March 31, 2019.

Tax exemption to Individual/HUF on investment of long-term capital gain in equity shares of Eligible Startups u/s 54GB: Exemption from tax on capital gains arising out of sale of residential house or a residential plot of land if the amount of net consideration is invested in equity shares of an eligible startup for utilizing the same for purchase of specified asset (Section 54 GB of the Income-tax Act, 1961).

Exemptions on investments above fair market value, introduced on June 14, 2016 for investments made in startups.

Exemption from tax on Long-term capital gains: Eligible startups are exempt from 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 Central Government within a period of six months from the date of transfer of the asset.

Note: To avail these tax benefits, the entity must obtain a certificate from the Inter-Ministerial Board of Certification. Which can be applied here (Click Here).