CA Umesh Sharma
Arjuna (Fictional Character): Krishna, Government of India has come up with the scheme of “Startup India” on the eve of Republic Day. On the Republic day as we see the parade and various “Presentations” on Rajpath, likewise what will be different in the presentation of “Startup India” scheme in a Tax parade?
Krishna (Fictional Character): Arjuna, in this era of technology and innovations, there are necessary to changes to the economics of India. For this purpose the “Startup India” plan has been built up and launched by the Government of India. The Government of India has launched this scheme keeping in view the overall economic development and for generating large scale employment opportunities for the youth. The Government wants to accelerate the startup movement from digital/technology sector to agriculture, manufacturing, social, education, healthcare, etc. and in large cities as well as small cities, urban and rural areas. Listen Arjuna, currently only a plan which is being proposed. The detailed rules and Regulations are likely to be announced in the Financial Budget 2016.
Arjuna: Krishna, What are the important Features of this “Startup India “ Scheme ?
Krishna: Arjuna, the scheme has been drawn in such a way that it will ease the difficulties faced in starting up, running up and closing up a new business. The important features of this plan are as follows:
Arjuna: Krishna, in this “Startup India” plan who can participate?
Krishna: Arjuna, the Government of India has put up the following criteria in case of this scheme for eligibility:
Arjun: Krishna, What Tax benefits are available to entities participating in this scheme?
Krishna: Arjuna, listen carefully,
1. New Entities need to make Capital investment in the Initial years of the business. For this purpose, Government of India has exempted the “Startups” from income Tax for a period of 3 years. Exemption is available for Companies subject to Non-Distribution of Dividend.
For Example: If in the First Year the profit earned by the Company is Rs.10 lakhs, than tax payable @ 30% i.e Rs 3 lakhs will be exempted.
2. To startup any Business the most important thing is Capital. To startup it is difficult to obtain Capital Investment. Therefore, Government has initiated “Startup Fund”, and further they will invest it in the Venture Capital Fund, thus entities starting up Business shall be provided with funds. If the taxpayer having Long term Capital Gains and the proceeds are invested in “Startup Fund” then he will be exempted from Tax Liability.
For example: If someone has sold his house and earned Long Term Capital Gain of Rs.50 lakhs and invested the same in “Startup fund”, then he shall be exempted from Tax Liability on such Capital Gain.
3. According to the Income Tax Rules, if a Company receives consideration for issue of shares for more than the Fair Market Value of the shares, such excess consideration is taxable in the hands of the recipient under the head Income from Other Sources. In case of “Startups” Company shares, Fair Market Value of shares is lower than the value at which Capital Investment is made, and this results into tax being levied under Sec 57(2)(viib). The provisions of this taxation shall be relieved for the “Startups”.
For example: If FMV of share is Rs.10 and it is sold for Rs.12, than tax will be payable on Rs. 2. Similarly if FMV of shares is Rs.10 and it is sold for Rs. 8 than tax will be payable by the Recipient on Rs.2. “Startups” will be relieved from the provisions of above taxation.
Arjun: Krishna, Government of India has launched such an easy scheme, what will taxpayers learn from this plan?
Krishna: Yes Arjuna, the Government of India has launched this scheme for the benefit of youngsters and people interested in starting up the business but due to various difficulties cannot startup the same. If they start planning for the same from now only, they can take benefits of this plan to the fullest. It is a truth that, even the Government has agreed to the issue that businessmen face a lot of difficulties to follow the laws. Let’s see what changes and difficulties are faced till the “Startup” plan is launched. If youths of India are successful in Start Up, the Indian economy will “Pick UP” thus Make in India will also Boost Up… Wish you all a “Happy Republic day!”