Startup Registration With DPIIT, Section 80IAC & other tax exemption

In this Editorial the author shall elaborate the procedures for registration of an entity under ‘Startup India’, an initiative by the Government of India launched in January 2016. Through this scheme, the government is looking forward to driving sustainable economic development and enhance employment opportunities in India.  The Procedure to register Startup is simple and online. Following are the eligibility criteria and steps to register under Startup India scheme and under certain tax exemptions

Eligibility Criteria for Startup Recognition with DPIIT:

1. The Startup should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.

2. Turnover should be less than INR 100 Crores in any of the previous financial years.

3. An entity shall be considered as a startup up to 10 years from the date of its incorporation.

4. The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth.

Note: An entity formed by splitting up or reconstruction of an existing business shall not be considered a “Startup”

Procedure for registration of entity as startup with DPIIT:

One needs to register on www.startupindia.gov.in using basic details such as email id and mobile number and create an account. Once the account is created, application for startup can be initiated. For the same we need following details:

1. Certificate of incorporation or registration as the case maybe and email id of the entity

2. Copy of PAN card of the entity.

3. Name, Mobile Number and Email id of Authorised Signatory.

4. Details of any awards/recognition received by the entity and the proof of the same.

5. Following questions needs to be answered for startup recognition form:

i. Brief note supporting innovative features of products/services.

ii. What is the problem the startup is solving?

iii. How does your startup propose to solve the problem?

iv. What is the uniqueness of the solution?

v. How does the startup generate revenue?

vi. Current No. of Employees (including founders)?

vii. Is the startup creating a scalable business model for high potential of employment generation or wealth generation?

6. If any of the following recommendation letters are available, it would help in getting the registration easily.

i. Any patent filed and published in patent journals available online or offline;

ii. Recommendation letter from Incubators which are established in post-graduation colleges in India;

iii. Support letter from any one of the Startups which is funded through Central or State Government authorities or any incubator which is duly recognized by the Government of India;

iv. Letter of funding in an equity which should not be less than 20% by angel or incubation fund;

v. Letter of recommendation (regarding innovative nature of business), from an Incubator, recognized by the Government of India in DIPP specified format.

vi. Letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation

Note: Documents needs to upload in a PDF format only 

Income Tax exemption under Section 80IAC : 

Post getting recognition, a Startup may apply for Tax exemption under Section 80IAC of the Income Tax Act, 1961. 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):

1. The entity should be a recognized Startup

2. Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC

3. The Startup should have been incorporated after 1st April, 2016

Requirement for Section 80IAC:

1. Memorandum of association (for Pvt Ltd) or LLP Deed (for LLP)

2. Board Resolution (if any)

3. Annual Accounts & Income Tax returns of the startup for the last three financial years.

Toolkit for Financial Statements- Updated financial statements (Balance Sheet, Profit & Loss statement, Income Tax Returns) for the past three years or from the year of incorporation

Note –

• The Balance Sheet and the Profit and Loss Statement must be CA Certified
• If your startup was incorporated on 1st April 2018 or later, Income Tax Returns (ITR) is not mandatory. For startups incorporated earlier, ITR is mandatory

4. Startup Video Link. The video should be of a maximum of 2 minutes and should cover the following aspects:

• Brief about what your startup does or is planning to do.
• Showcase the working of the prototype/proof-of-concept developed by you.
• Market traction that your product/service has generated till now, if your product/service has already been launched in the market.

Note: Please upload the Video on a third-party video hosting platform such as Youtube. In case you are uploading on Google Drive please make sure that it is NOT access restricted.

5. Pitch deck. Maximum 5 slides and should be in PPT or PDF format only. Your pitch deck must have the following:

• Information about the product/service offering of your startup
• Brief about how is your startup innovative and/or scalable
• Number of people employed by your startup and funding raised, if any
• Credentials of Founders/Management
• Screenshots/images of your product/website and website link, if any

Link to fill Form 80IAC: https://www.startupindia.gov.in/content/sih/en/form80iac.html

Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:

1. The entity should be a DPIIT recognized Startup

2. 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.

Procedure for Tax exemption under section 56:   

Fill basic details in the form on https://www.startupindia.gov.in/content/sih/en/Form-56.html along with declaration as required by DPIIT. (Format available in the link)

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. In no event shall the author of the article shall be liable for any result arising out of or in connection with the use of the information.