A “start-up company” refers to a private company incorporated under the Companies Act, 2013, or Companies Act, 1956, or registered partnership firm or Limited Liability Company and recognized by the Department for Promotion of Industry and Internal Trade on following criteria: –

  • Tenure of up to 10 years from its incorporation date.
  • Turnover for any financial year should not exceed Rs. 100 Crores.
  • The startup should be involved in innovation, development, or improvement of products, processes, or services, or have a scalable business model with high potential for employment generation or wealth creation.

Shareholding by Indian promoters in the startup should be at least 51%

However, following entities will not be considered as startups:

  1. entities formed by splitting up or reconstructing an existing business,
  2. Holding/Subsidiary Companies
  3. Any entity formed by Joint Venture will not be recognized.
  4. Entities incorporated outside India will be ineligible for recognition.

Incorporating additional entities having similar address with same production line/services and at least one common director/ designated partner/partner will not be recognized as startup.

As soon as you cross the above thresholds, the recognition will be derecognised.

 

TAX EXEMPTION FOR STARTUPS U/S 80 IAC OF INCOME TAX ACT 1961


Section 80IAC of the Income Tax Act, 1961, provides that the eligible startups can avail tax holiday for 3 consecutive financial years out of its first 10 years since incorporation.

 

  • ELIGIBILITY

Eligible start-up means a company or a limited liability partnership (“LLP”) or registered partnership firm recognized as startup and which fulfils the following conditions:-

  • it is incorporated on or after the 1st day of April 2016 but before the 1st day of April 2024.
  • the total turnover does not exceed Rs.100 Crores in the previous year relevant to the assessment year for which deduction is claimed; and
  • it holds a certificate of eligible business from the Inter-Ministerial Board of Certification.
  • The entity is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

 

  • PROCESS:

(i) To avail of Tax exemption under section 80 IAC of the Income Tax Act, the startup should register on the “Start-up India portal and can make an application for exemption along with the following documents:-

  1. MOA (if company) or LLP Deed (if LLP)
  2. Board Resolution (if any)
  3. CA certified balance sheet and Profit and Loss statements of immediately preceding 3 financial years,
  4. Income Tax Returns of immediately preceding 3 financial years,
  5. Link to a video pitchof the startup
  6. Pitch Deck in PDF format

(ii) To avail of Angel tax exemption declaration had to be given by a startup that the company will not invest for 7 years from the FY in which shares are issued at premium in any of the assets specified in para 4(iii) of the notification number dated 19th February 2019 issued by Department for Promotion of Industry and Internal Trade, Ministry of commerce and industry.

Paid up capital and share premium should not exceed Rs 25 Crores.

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