The COVID 19 pandemic persists to be a health and human crisis, but the impact on business organisations is sagacious. Amidst this crisis, the major focus of Government is on promotion of start-ups as they are much more flexible, easier to run and demand much lesser compliances which is a boon during COVID 19. Also, the start-ups can turn out to be a major task force for e.g. in delivering essential items, tracking movement, logistics etc.
This article emphasizes on the criteria to be met for being a start-up and the eligible exemptions and incentives:
Secondly the consideration received by start-ups for shares issued or proposed to be issued to specified company (A company whose shares are traded within SEBI and whose net worth on last date of financial year preceding the year in which shares are issued is more than 100 crores or turnover is more than 250 crores) shall also be exempt and shall not be included in paid up share capital and share premium of 25 crores.
To be Noted Start-ups should not have invested in prohibited assets as given in the notification by DPIIT dated February 2019 to avail the exemption under section 56.
Section 79 clause (a) of Income tax act provides that no loss incurred in any year before the previous years shall be carried forward and set off against income of previous years unless on the last day of the previous year the shares of the company carrying not less than 51% of the voting power were beneficially held by persons who beneficially held the shares of the company of not less than 51% of voting power on the last day of year or years in which loss was occurred. For facilitating business of start-ups.
However start-ups were given flexibility through clause (b) of section 79 whereby eligible start-ups can carry forward and set off losses if all the shareholders of the company who held shares carrying voting power on the last day of the year or years in which loss was incurred continue to hold those shares on the last day of such previous year and such losses have been incurred during the seven years beginning from the year in which it is incorporated.
The start-ups have to satisfy ANY of the two clauses mentioned above.
Section 54 GB of income tax Act allows exemption from tax on long term capital asset being residential property on investment of proceeds of such a transfer in subscribing equity shares if a start-up
The condition of minimum holding in start-up is relaxed to 25%.
CONCLUSION: It seems that start-ups can bridge the gap of where Indian economy stands now and where it has been targeted to reach by 2024. However, the Red-Tapism needs to be checked in the system and the government should ensure that DTIIP recognises start-ups so that they can avail the incentives and benefits. Inter-ministerial approvals should be made quickly. Everyone in the start-up ecosystem should adopt a proactive approach to make it successful.