Start-up – Eligibility, Registration, Advantages, Tax Relief

Start-up means an entity, incorporated or registered in India not prior to ten years, with annual turnover not exceeding INR 100 crore in any preceding financial year, working towards innovation, development, deployment or commercialisation of new products processes or services driven by technology or intellectual property.

Eligibility criteria for start-up companies:

• Must be a private limited companies/LLP/Partnership firms.
• Turnover should not exceed 100 crores.
• Should develop an innovative product which should add to the values of customers and should be commercial.
• Get an approval from DIPP that your business is innovative.

Steps to Register Business under Start-up India

Incorporate your business: Before registering with Start-up India, the organisation has to be registered as Private Limited Company or a Partnership firm or a Limited Liability Partnership by following all the requisite procedures.

Registration with Start-up India: Once business is incorporated; it can apply to register for Start-up India. Entire process is simple and online, you just need to do is log on to the Start-up India website and fill up the form with details of your business and upload certain documents.

Documents to be uploaded (in PDF format only):

1. Certificate of incorporation of your company/LLP (Registration Certificate in case of partnership).

2. A brief description of the innovative nature of your products/services.

3. Recommendation letter: A letter of recommendation must be submitted along with the registration form. Any of the below will be valid:

> recommendation (regarding innovative nature of business) from an Incubator established in a post-graduate college in India, in a format specified by the Department of Industrial Policy and Promotion; or

>  A letter of support by an incubator, which is funded (in relation to the project) by Government of India as part of any specified scheme

>  letter of funding of not less than 20% in equity, by Incubation Fund/Angel Fund/Private Equity Fund/ Accelerator/Angel Network, duly registered with SEBI that endorses innovative nature of the business or, 

>  A letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or

>  A patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of the business being promoted. 

• Details for Tax Benefits: Start-ups have been given certain tax benefits, to avail these benefits, they must be certified by the Inter-Ministerial Board (IMB). Start-ups recognised by DIPP, can now directly avail IPR related benefits without requiring any additional certification from IMB. 
• Self-certification: for satisfaction for eligibility conditions to get identify as Start-up as per Start-up India.  
• Recognition number: On applying you will immediately get a recognition number for your start-up. The certificate of recognition will be issued after the examination of all your documents.

Be careful while uploading the document, if it is found that the required document is not uploaded/wrong document uploaded or a document is forged you shall be liable to a fine of 50% of your paid-up capital of the start-up or Rs. 25000 whichever is lower.

Advantages for Business under Start-up India

• Income Tax Reliefs for Start-up and Investor in Start-up
• 80% reduction in patent registration fee and schemes to provide IPR protection to start-ups and new firms.
• Innovation hub under Atal Innovation Mission.
• Self-certification compliance and Encourage entrepreneurship.
• Modified and friendlier Bankruptcy Code to ensure 90-day exit window.
• Start-up India Hub: Start-up India hub was formed to resolve queries and provide handholding support to Start-ups. The hub handles queries from Start-ups through telephone, email and Twitter. To seek clarifications pertaining to Certificate of Recognition, Certificate of Eligibility to avail tax benefits, seeking information on incubators or funding, one can get in touch with the Start-up India Hub on Email ID: [email protected] Start-up India Hub has partnered with various organisations to onboard entrepreneurs and investors, as well as build knowledge modules. To ensure accessibility across various platforms, dedicated apps are also available on both Android and iOS.

Tax Relief to Start ups in India

• Section 80 IAC: To promote growth of Start-up and for working capital requirement, Start-up may apply for Tax exemption under section 80 IAC of the Income Tax Act, 1961. Post getting clearance for Tax exemption, the Start-up can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation provided turnover of business does not exceed Rs. 100 crores. Point to be noted is that Start-up should have been incorporated after 1st April, 2016.
• Section 54EE: tax on a long-term capital gain shall be exempted if such a long-term capital gain or a part thereof is invested in a fund notified by 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 lakhs. Such amount shall remain invested in the specified fund for a period of 3 years.
• Set off and carry forward of losses : The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares carrying voting power on the last day of the year in which the loss was incurred continue to hold shares on the last day of previous year in which such loss is to be carried forward. It has been provided that as long as all the original shareholders of the Company at the end of the financial year in which the loss was incurred continue to be shareholders of such shares in the financial year in which the loss is to be set off, the benefit of carry forward of loss would be available. The restriction of holding of 51% of voting rights to be remaining unchanged under section 79 has been relaxed in case of eligible start-ups.
• Section 54GB: The existing provisions under section 54GB allow the exemption from tax on long term capital gains on the sale of a residential property. 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 to 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 their acquisition. The start-ups should 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.
• Section 56(2)(vii) Tax exemption on investments above the fair market value: start-up shall be eligible for exemption if it fulfils following conditions:

> Aggregate amount of paid up share capital and share premium of the start-up after issue or proposed issue of share, if any, does not exceed 25 crore Rupees. (Provided that computing the aggregate amount paid up share capital, the amount of paid up share capital and share premium of 25 crore rupees in respect of shares issued to any NRI or Venture capital company won’t be included.

> It has been recognised by DPIIT 

>  The investor/ proposed investor shall have 

♦ Returned income of rupees fifty lakh or more for FY preceding the year of investment. 

♦  Net worth exceeding rupees two crore or the amount of investment made/proposed to be made in the start-up whichever higher, as on the last date of financial year preceding the year of investment

> It has not invested in any of the following asset: 

♦  Building or land appurtenant thereto, being a residential house, other than that used by the start-up for the purpose of renting or held by it as stock-in – trade, in the ordinary course of business 

♦  Land or building, or both, not being a residential house, other than that occupied by the Start-up for its business or used by it for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business, 

♦  Loan and advances, other than loans and advances extended in the ordinary course of business by the start-up where lending money is the substantial part of its business 

♦  Capital contribution made to any other entity 

♦  Shares and securities 

♦   A motor vehicle, air craft, yacht or any other modes of transport, the actual cost of which exceeds ten lakh rupees, other than held by the start-up for the purpose of plying, hiring, leasing or as stock in trade.

♦   Jewellery other than that held by the start-up as a stock-in- trade in the ordinary course business

Provided the Start-up shall not invest in any of the above assets specified in for the premium period of seven years from the end of the latest financial year in which shares are issued at premium.

The application for approval under this para shall be made in form 2 to DIPP and shall be accompanied by the document.

The application of the recognised start-up shall be transmitted by DIPP to CBDT with the necessary document

Then CBDT, within a period of 45 days from the date of receipt of application from DIPP may grant approval to the start-up for the purpose of sub-section 56 of the Act or decline the approval.

Benefits in Intellectual Property Rights to Start Ups

The scheme for Start-up Intellectual Property Protection (SIPP) shall facilitate filing of Patents, Trademarks and Designs by innovative Start-ups. Various measures being taken in this regard:

• Panel of facilitators to assist in filing of IP applications, facilitators will be responsible  for  providing  general  advisory  on  different  IPRs  as  also information on protecting and promoting IPRs in other countries. They shall also provide assistance in filing and disposal of the IP applications, including appearing on behalf of Start-ups at hearings and contesting opposition, if any, by other parties, till final disposal of the IPR application.
• Under this scheme, the Government shall bear entire fees of the facilitators for any number of patents, trademarks or designs that a Start-up may file, and Start-ups shall bear the cost of only the statutory fees payable.
•  Also, it fast tracks the process of filing the patents and further grants a rebate of 80% in filing patents. This rebate will be provided on the total value of the patent fees and shall be provided once the patent is filed.

Funding for Start-up Business

Indian start-ups such as Flipkart, Olacabs, Snapdeal, Hike, Shopclues, Freecharge, Inmobi etc. receive various rounds of follow-on financing as well either from their existing investors or from any new investor. These various rounds of funding also help these firms to hire more talent into the company. This helps the company to grow strategically and also add some more experienced people in the firm.

Under the Start-Up India Action Plan, the Prime Minister has also announced Rs. 10,000 crore fund for new enterprises. Government has already launched PMMY, the MUDRA Bank, a new institution for development &refinancing activities relating to micro units with a refinance fund of ` 2000 crore. The Government is planning to set up a credit guarantee fund to provide funding facilities to start-ups in the country, it has a corpus of ` 2,000 crore and will be managed by the DIPP.

SoftBank, Japan’s telecom and technology conglomerate, is one of the biggest investors in the Indian start-up ecosystem. SoftBank CEO Masayoshi Son said that his company would be investing $10 billion in India by 2022. It has already invested close to $8 billion till date. Google has been investing heavily in the Indian start-up ecosystem over the last 3 years and has brought highly successful global programs to India like the Launchpad program for early stage start-ups and Launchpad accelerator program for mature start-ups. Oracle has launched The Oracle Start-up Cloud Accelerator Program, which was incubated in April 2016, Oracle has successfully scheduled 4 batches for Start-up entrepreneurs.

Foreign Direct Investment in Start-ups

FDI policy 2017 has allowed start-ups to raise 100% funds from SEBI (Securities and Exchange Board of India) registered Foreign Venture Capital Investors (hereinafter referred to as “FVCI”) under the automatic route. Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA Regulation. If a start-up is organised as a partnership firm or an LLP, the investment can be made in the capital or through any profit-sharing arrangement. In addition, start-ups can issue convertible notes to person resident outside India subject to fulfilment of certain conditions.

Exit Strategy

The Insolvency and Bankruptcy Code has provisions for the fast track and / or voluntary closure of businesses. In terms of the IBB, Start-ups with simple debt structures or those meeting such criteria as may be specified may be wound up within period of 90 days from making of an application for winding up on a fast track basis. In such instances, an insolvency resolution professional shall be appointed for the Start-up, who shall be in charge of the company (the promoters and management shall no longer run the company) for liquidating its assets and paying its creditors within six months of such appointment. On appointment of the insolvency resolution professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBB. This process will respect the concept of limited liability.

Government Initiative

The Ministry of Human Resource Development and the Department of Science and Technology have agreed to partner in an initiative to set up over 75 start-up support hubs in the National Institutes of Technology, the Indian Institutes of Information Technology, the Indian Institutes of Science Education and Research and National Institutes of Pharmaceutical Education and Research. Reserve Bank of India takes steps to help improve the ease of doing business in the country and contribute to an ecosystem that is conducive for the growth of start-up businesses.

Journey So far

Government has received 1,97,967 applications for registration under Start-up India, of which 17360 got recognised as Start-up Business. However only 182 of recognised start-ups have been funded by Government fund as per data available till 31st March 2019, and only 88 start-ups recognised for to get tax benefits till August 2018. Reference  https://www.startupindia.gov.in/

Conclusion

Hence, taking into consideration all the above developments, it can be concluded that indigenous start-ups will not only make the lives of the people easier through their affordable and convenient services but will also act as a major booster for the development and the progress initiatives like tax relief, IPR protection, Start-up India Hub etc. Start-up India scheme has enough potential to make Indian Youth Job Creator from Job Seeker!!

Honest differences are often a healthy sign of progress – Mahatma Gandhi.

Regards

CA Pankaj Agarwal (from assist of ___________)

In case of any further queries author can be contacted at [email protected]