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.

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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:

  1. Starting up a new business requires compliances with various labour and environment laws, which are difficult to follow, time consuming and costly to implement. Therefore simplifications are made, such as in the case of labour laws, no inspection will be conducted for a period of first 3 years and in case of environment laws, random checks would be carried out.
  2. Young Indians today have many ideas and entrepreneurship skills. However the startups do not reach their full potential due to limited guidance. For this purpose Government of India will come up with the “Startup India Hub“, which will help by providing information related to technology, Finances, Management, etc. to Startups.
  3. For the purpose of “Startup”, the Government of India shall introduce Mobile App which will provide status of registration, filing for compliances and obtaining information on various clearances, applying for various schemes under startups, etc.
  4. Entities in “Startup” will be facilitated with patents of business, logos, etc. at lower prices and the time required for the procedures shall also be minimized.
  5. Entities to “Startup” in the manufacturing sector, “prior experience” or “prior turnover” conditions shall not be applicable. But they have to demonstrate their capability to execute the project. In the Govt., tendering it will be eligible to apply with certain conditions.
  6. Entities “Starting up” the business, if fails to succeed, then in case of such business failure, there is Faster Exit i.e. easy process for the wind up of business, without facing a long and complex exit process.
  7. In order to provide support to “Startup”, Government will set up fund of Rs. 10,000 crores.

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:

  1. “Startup India” means the Institutions or Businesses which have been incorporated or registered since past 5 years and
  2. Whose annual turnover has not exceeded Rs. 25 crores in any financial year
  3. Such Institutions or Businesses should be working towards Innovation, Technology, Trading in New products or Businesses or processes.
  4. Provided that such entity is not formed by reconstructing, reconstituting or splitting up of the existing business.
  5. To participate in this scheme and for tax benefits such entities would have to obtain certification from the Inter-Ministerial board, setup for such
  6. In this scheme, Partnership Firms, Private Limited Companies and Limited Liability Partnership are eligible for participation.

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!”

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One response to “What’s Up of Tax in, “Start Up””

  1. srs says:

    “Start Up India”.

    Subject: Deadline for Registration ?.

    Whether the entity must be already registered or incorporated or it can be registered or incorporated ‘now’? If yes, whether it must be registered or incorporated before the 1st April 2016 only or can be registered or incorporated after that too ? If yes, till what further deadline it can be registered or incorporated ? In how many and what size of startup units the funds of fund will be divided or no such limit is there ?

    will any one advise

    Also I am looking at partially funding India operations with Indian investors and provide ROI in terms of exit of both the parent and Indian subsidiary.

    I can provide investment pitch identifying the business and opportunities. Even if the meeting leads to partnerships, that would be great.

    My India cell: 9663850903. We can also connect via Whatsapp.and more detailed thru e- mail

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