“Explore the requirements for DPIIT startup recognition, including eligibility criteria, registration process, and benefits like 80IAC Tax Exemption and relief from Angel Tax under Section 56 of the Income Tax Act.”
Eligibility Criteria for being Startup as DPIIT:-
1. Incorporated as private company, partnership firm and LLP,
2. Turnover of the entities should be less than 100 crs. in previous Financial Years
3. Entity shall be considered startup only for 10 years from date of incorporation
4. Startup needs to be working for innovation and improvement of the of existing products, services, and processes and have potential to generate employment and create wealth
5. An entity formed by splitting up of existing business shall not be considered a startup as DPIIT.
– Startup Registration through website nsws.gov.in Certificate of Startup shall be generated after startup recognition of the startup after verification by DPIIT
– (After getting your DPIIT Certificate, Startups can Apply for 80 IAC Tax Exemption and Exemption under Section 56 of the Income Tax Act (Angel Tax)
Exemption under Sec:-
80IAC Tax Exemption:-
Post getting recognition a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.
Eligibility Criteria for applying to Income Tax exemption (80IAC):
- The entity should be a recognized Startup
- Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
- The Startup should have been incorporated after 1st April, 2016
Exemption under Sec:-56 of Income Tax Act Angel Tax:- As more and more new-age tech startups started raising VC funding, they came under the IT department scrutiny. These funding deals often saw investors paying a premium above the face value or the fair market value of securities, and therefore were taxed as income for the startup. The Angel Tax is being levied on startups at 30.9% on net investments in excess of the fair market value. And many startups were retrospectively assessed for this tax, years after their fundraising.
Naturally, this raised a lot of concerns in the ecosystem, since most did not have the cash at hand to pay this tax bill and therefore risked being prosecuted.
Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:
- The entity should be a DPIIT recognized Startup
- Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.
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