Why Startup Companies

Why go for a STARTUP COMPANY? Why the upcoming generations are pursuing the idea of a Startup? What sets startups and corporations apart?

  • You have flexible work hours: “77 percent of millennials say that flexible work hours are a key to productivity in the workplace” – Forbes
  • The flat hierarchy is arguably the most attractive trait for millennials. : You are treated as an equal rather than a coffee runner and your ideas are not run through several levels of management.
  • You are underpaid and overvalued But for the hungry entrepreneur, money is not an issue. : Even if you aren’t paid for the job that you’re doing (and you’ll most likely be doing the job of three people), your role grows at a rate that is unseen in your average corporation. “64 percent of Millennials would rather make $40,000 a year at a job they love than $100,000 a year at a job they think is boring.” – INC
  • Some Interesting Facts
  • India has the 3rd largest startup ecosystem in the world.
  • Bangalore is one of the world’s five fastest-growing startup cities.
  • Facebook in partnership with Startup India disbursed cash grants of $50,000 each to the top 5 selected startups.
  • Department of Animal Husbandry and Dairying has conducted a grand challenge in association with Startup India to award top startups in 5 categories 10 lakhs INR.
  • Small Industries Development Bank of India has launched a scheme to assist existing Small and Medium Businesses in need of capital for growth.

So are you an entrepreneur? Or do you plan to start your own business? 

Let’s dig into this :

  • What is a StartUp?

A startup is engaged in innovation, development, or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation.

In simpler terms – Any unique/innovative idea which can get DIPP recognition is eligible for being a StartUp.

  • What is the Department of Industrial Policy & Promotion (DIPP)?

The Department of Industrial Policy & Promotion (DIPP) is responsible for the formulation and implementation of promotional and developmental measures for the growth of the industrial sector, keeping in view the national priorities and socio-economic objectives.

DIPP on MyGov empowers people to connect with the Department and contribute to various issues including discussion on policy matters.

  • How can a person get a DIPP recognition?

  • What are the BENEFITS of getting a DIPP recognition?
  • Tax Benefits :

 

80 IAC Tax exemption:

A DIPP recognized Startup shall be eligible to apply to the Inter-Ministerial Board for a full deduction on the profits and gains from business.

Post getting 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. a. The entity should be a recognized Startup.
  2. b. Only Private limited or a Limited Liability Partnership is eligible for tax exemption under Section 80IAC.
  3. c. The Startup should have been incorporated after 1st April 2016 but before 1st April 2021.

 

Amendment in Section 79 of the Income Tax Act:

The Union Budget 2019-20 proposed to enable startups to carry forward their losses on the satisfaction of any one of the two conditions:

a. Continuity of 51% shareholding/voting power

b. Continuity of 100% of original shareholders

 

Tax Exemption under Section 56 of the Income Tax Act (Angel Tax):

Post getting recognition a Startup may apply for Angel Tax Exemption.

Eligibility Criteria for Tax Exemption under Section 56(2)(vii b) of the Income Tax Act:

  1. a. The entity should be a DPIIT recognized Startup.
  2. b. The aggregate amount of paid-up share capital and share premium of the Startup after the proposed issue of a share, if any, does not exceed INR 25 Crore.

 

Tax Exemption on Investment Above Fair Market Value:

In case of a startup:

  • has inter-ministerial board certificate and
  • receives consideration from the issue of shares exceeding the face value of such shares

then the consideration upto Rs. 10 crores received from such shares exceeding the fair market value of such shares is exempted from tax.

  • SPECIAL PROVISIONS For StartUp :
  • Amendment in Companies (Share Capital and Debentures) Rules, 2014:

The Ministry of Corporate Affairs issued a notification on 16th August 2019 increasing the period in which ESOPs could be granted to promoters and directors (holding more than 10% equity) of Startups, from 5 years to 10 years from the date of incorporation and thereby aligned the provisions of the Companies (Share Capital and Debentures) Rules with the provisions referred to in the DPIIT notification dated 19th Feb 2019.

The notification also escalated the limit on shares with Differential Voting Rights in the Company from 26% of the total post-issue paid-up equity capital of the Company to 74% of the total voting power. Further, the condition for the company to have a consistent track record of distributable profits for the last three years for the issue of DVR shares has been removed.

    • Tax Rates :

 

Startup Company engaged in manufacturing or production, set up, or registered on or after 01.03.2016.

      1. Base tax rate – 25% after availing tax benefits, MAT @15%.
      2. Base tax rate – 22% without availing tax benefits, MAT NA.

 

Startup Companies, other than the above, have two options:

      1. Base tax rate – 22% without availing tax benefits, MAT NA.
      2. Base tax rate – 25% after availing tax benefits, MAT @15%.

 

Startup manufacturing firm incorporated after 01.10.2019 and beginning operations before 31.03.2023.

      1. Base tax rate – 15% to those not availing tax benefits. MAT NA.
      2. Base tax rate – 25% after availing tax benefits, MAT @15%.

 

      • BENEFITS offered by MAHARASHTRA Govt. :

To reap the benefits being provided by the Government of Maharashtra, startups must fulfill the eligibility criteria and should register with the State.

An entity will be considered as a startup:

      • If it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in Maharashtra; and
      • Up to seven years from the date of its incorporation/ registration; however, in the case of Start-ups in the biotechnology and/or social sector, the period shall be up to ten years from the date of its incorporation/registration
      • If it is turnover for any of the financial years since incorporation/ registration has not exceeded Rs.25 Cr; and
      • If it is working towards innovation, development, or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.

Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence. Provided also that an entity shall cease to be a startup if its turnover in any of the previous financial years has exceeded Rs.25Cr or it has completed 7 years (10 years for biotechnology and/or social sectors startups) from the date of incorporation/registration.

BENEFITS:

      • TAX HOLIDAY:

Startups may be reimbursed in lieu of the State Goods and Services Tax (SGST) paid by them, whenever system credit for the same is not available to the customers of these startups.

      • STAMP DUTY & REGISTRATION FEES:

For recognized incubators or startups that wish to rent space/property, 100% of stamp duty and registration fee may be compensated for the first three years and 50% for the second tranche of three years. Aggregation of business spaces provided by private places through a common platform may also be attempted.

      • QUALITY TESTING ASSISTANCE:

The State may take up 80% of quality testing costs incurred by startups at BIS-accredited facilities. This would help startups reduce costs in their formative years. This may be done through the aggregation of such facility providers and bringing in scales of the economy by making a government agency a nodal agency for the same.

      • PATENT FILING ASSISTANCE:

Startups are often founded by young entrepreneurs having very limited or no prior knowledge about various formalities surrounding Intellectual Property Rights (IPR). To sustain in a competitive world, they must protect their IP. To mitigate the limited manpower and resources at a startup’s disposal, the State will assist — both financial and technical — in the filing of Patents, Trademarks, and Designs. Startups shall be provided with an 80% rebate in patent filing costs up to t2 Lakh for Indian patents and up to Z10 Lakh for international patents. Compensation will be provided in three stages: during Filing, Prosecution, and Award

      • FAQS :

1. Can a foreign Company register under StartUp India Hub?

Any entity having at least one registered office in India is welcome to register on the hub as location preferences, for the time being, are only created for Indian states. However, the government is working on international relations and will soon be able to enable registration for stakeholders from the global ecosystem.

2. Can a foreigner enter into partnership under the LLP Act and get that LLP registered with Startup India?

Yes, a foreign national can enter into partnership under the LLP Act and get that LLP registered on our website. It can even get recognized by the DIPP.

3. What is the time-frame for obtaining a certificate of recognition as a ‘Startup’ in case an entity already exists?

The certificate of recognition is issued typically within 2 working days upon successful submission of the application

4. If a startup has applied for DIPP-recognition and the application gets rejected or marked incomplete due to missing documents or insufficient information, should the startup edit the existing application or submit a new one?

If the application for recognition has been marked incomplete, the startup needs to follow the given steps:

 

1)     Log in with their startup credentials on www.startupindia.gov.in

2)     Select ‘Recognition and Tax Exemption’ button on the right panel

3)     Select the ‘Edit Application’ button and proceed with completing your application

 

If the application has been marked ‘Incomplete’ thrice, the application is rejected.

 

Rejected applications cannot be edited, and a new application can be submitted after three months from the date of communication of the rejection email.

5. For how long would recognition as a “Startup” be valid?

An entity shall cease to be a Startup on completion of ten years from the date of its incorporation/ registration or if its turnover for any previous year exceeds one hundred crore rupees.

6. What documents would qualify as a supporting document to the application to register as a “Startup”?

      • The application shall be accompanied by
        • a copy of Certificate of Incorporation or Registration, as the case may be, and
        • a write-up about the nature of business highlighting how it is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.

 

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