The term ‘start-up’ or “start-up company” means a private company incorporated under the Companies Act, 2013 (18 of 2013) or the Companies Act, 1956 (1 of 1956) and recognised as start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.”
As per the Notification of Department for Promotion of Industry and Internal Trade
Any entity will be considered to be a start-up only when:
- It is incorporated as a Private Limited company under the Companies Act, 2013, or
- it is registered as a Partnership Firm under the Partnership Act, or
- it is registered as a Limited Liability Partnership under the Limited Liability Partnership Act
Additionally, it should meet the following conditions:
- It should not have exceeded operations for over 10 years from its date of incorporation to be counted as a startup.
- Turnover of the entity for any of the financial years since incorporation/registration has not exceeded 100 crore Rupees.
- The startup should not have been formed by either splitting up or by reconstructing an already existing business.
- The company should have a scalable business model through which it aims to create wealth and employment and should work towards the development/ improvement of a product, process or service.
An entity shall cease to be a start up on completion of ten years from the date of incorporation/registration or in case its turnover for any previous year exceeds Rs. 100 Crore Rupees.
TAX EXEMPTIONS AVAILABLE FOR A STARTUP COMPANY
| Section | Exemption |
| Section 80-IAC | Exemption on profits: Startups can avail exemption from paying Income Tax for three consecutive years out of the first ten years since its incorporation if it manages to satisfy certain conditions.As per the provisions of this Section Eligible startup can claim up to 100% of profits and gains for 3 consecutive years in a block of 10 years provided the turnover of the company does not exceed 100 crores in any of the previous financial years. |
| Section 56 (2)(viib) | Angel tax benefit: Eligible startups can also avail income tax exemption for the issue of shares that exceed their face value.A start up will be eligible for this benefit if it fulfills the following conditions:
(i) it has been recognised by DPIIT (ii) aggregate amount of paid up share capital and share premium of start up after issue or proposed issue of share, if any, does not exceed Rs. 25 crores. |
| Section 54 EE | Exemptions for tax on Long term Capital Gains: An eligible company can claim exemption on long-term capital gains under if such amount or part thereof is invested in a fund notified by the central government within a period of 6 months from the date of transfer of assets. |
Disclaimer: [This article has been prepared on the basis of information available till date. But professionals are advised to study the laws and compliance thoroughly before carrying out the Start up Process].
