Startup India Scheme – Eligibility, Tax exemptions & Types of Benefits

Last Updated at: May 26, 2020
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In her 4th tranche of the economic package, the FM announced on 17th May that India’s robust start-up eco-system would be linked to the atomic energy sector as well. Technology development centres would be established to foster synergy between tech entrepreneurs and research facilities.

Startup India Scheme - Eligibility, Tax exemptions & Types of Benefits
Prime Minister of India urged global CEOs and top American executives to leverage the ”Startup India” innovation platforms to formulate solutions for the entire world on challenging issues like nutrition and waste management.

 

Is your Company a Startup? Under the Startup India initiative, eligible companies can get recognised as Startups by DPIIT, to access a host of tax benefits, easier compliance, fast-tracking IPR process and much more. In this article, you will learn about eligibility and benefits under this scheme. 

To get Startup India recognition, your company much meet the following criteria to be recognised or considered eligible for DPIIT recognition. 

  1. Company Age – The period of existence and operations of the company should not be exceeding more than 10 years from the Date of Incorporation. 
  2. Types of Company – The company should be incorporated as a Private Limited Company, Partnership Firm or Limited Liability Company.
  3. Annual Turnover – Should have an annual turnover not more than Rs.100 Crore for any of the financial years since its Incorporation.  
  4. Original Entity – The entity should not be formed by splitting up or reconstructing an already existing business. 
  5. Innovative & Scalable – Should work towards the development of a product, process or service and/or should have high potential to scale up the creation of wealth and employment. 

Why a startup should get registered under Startup India Initiative?

DPIIT registered Startup business can avail huge benefits from this scheme. Till date, 26,685 startups got recognised reap the benefits such as self-certification, tax exemptions, funding, Fast-track IPR, Ease of winding up the company and much more. Let us see things one by one.

Self Certification

What is the objective of Self-certification?

To reduce the regulatory burden on Startups, thereby allowing them to focus on their core business and keep compliance managed at a low cost.

What are the benefits of self-certification? 

  • Startups shall be allowed to self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure.
  • In the case of labour laws, no inspections will be conducted for 5 years. Startups may be inspected only on receipt of a credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.
  • In the case of environment laws, startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases

What is the eligibility of self-certification? 

Startups that are within 5 years of incorporation. 

Register Your Startup Business

Startup Patent Application & IPR Application

What are the benefits for Startups on patent and other intellectual property applications? 

Fast-tracking of Startup India Patent Applications: Patent applications filed by startups shall be fast-tracked for the examination so that their value can be realised sooner.

A panel of facilitators to assist in the filing of IP applications: For effective implementation of the scheme, a panel of “facilitators” shall be empanelled by the Controller General of Patents, Designs and Trademarks (CGPDTM), who shall also regulate their conduct and functions. Facilitators will be responsible for providing general advisory on different intellectual property as well as information on protecting and promoting intellectual property in other countries.

Government to bear facilitation cost: Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.

Rebate on the filing of application: Startups shall be provided with an 80% rebate in filing of patents vis-a-vis other companies. This will help them pare costs in the crucial formative years

What is the eligibility criteria for Startups on patent and IP application?

The startup needs to be DPIIT recognised

Tax Exemption Under 80IAC

What are the tax exemption benefits available under this scheme?

Eligible startups can be exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation.

What is the eligibility condition for tax exemption?

  • The entity should be a DPIIT recognised startup
  • Only Private Limited Companies or Limited Liability Partnerships are eligible for tax exemption under Section 80IAC
  • The startup should have been incorporated after 1st April 2016.

Section 56 Exemption

Benefits: 

  • Exemption under Section 56(2)(VIIB) of Income Tax Act.
  • Investments into eligible startups by listed companies with a net worth of more than INR 100 Crore or turnover more than INR 250 Crore shall be exempt under Section 56 (2) VIIB of Income Tax Act.
  • Investments into eligible Startups by Accredited Investors, Non-Residents, AIFs (Category I), & listed companies with a net worth more than 100 crores or turnover more than INR 250 Crore, shall be exempt under Section 56(2)(VIIB) of Income Tax Act.
  • The shares received by eligible startups shall be exempt up to an aggregate limit of INR 25 Crore.

Eligibility:

  • Should be a private limited company.
  • Should be a DPIIT recognised startup. To get DPIIT recognition, click on “Get Recognised” below.
  • Not Investing in specified asset classes.
  • The startup should not be investing in immovable property, transport vehicles above INR 10 Lakh, Loans and advances, capital contribution to other entities, except in the ordinary course of business.

Easy Winding up of Company

Any recognised startup under this initiative, have an opportunity to wind up the business if they want. 

 This will encourage entrepreneurs to experiment with new and innovative ideas, without having to face complex and long-drawn exit processes where their capital becomes interminably stuck in the event of business failure.

Benefits: 

  1. As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, or those meeting certain income specified criteria* can be wound up within 90 days of applying for insolvency.
  2. An insolvency professional shall be appointed for the Startup, who shall thereafter be in charge of the company (the promoters and management shall no longer run the company) including liquidation of its assets and paying its creditors within six months of such appointment.
  3. Upon appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors following the distribution waterfall set out in the IBC. This process will respect the concept of limited liability.

 

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Startup India Scheme – Eligibility, Tax exemptions & Types of Benefits

991
Prime Minister of India urged global CEOs and top American executives to leverage the ”Startup India” innovation platforms to formulate solutions for the entire world on challenging issues like nutrition and waste management.

 

Is your Company a Startup? Under the Startup India initiative, eligible companies can get recognised as Startups by DPIIT, to access a host of tax benefits, easier compliance, fast-tracking IPR process and much more. In this article, you will learn about eligibility and benefits under this scheme. 

To get Startup India recognition, your company much meet the following criteria to be recognised or considered eligible for DPIIT recognition. 

  1. Company Age – The period of existence and operations of the company should not be exceeding more than 10 years from the Date of Incorporation. 
  2. Types of Company – The company should be incorporated as a Private Limited Company, Partnership Firm or Limited Liability Company.
  3. Annual Turnover – Should have an annual turnover not more than Rs.100 Crore for any of the financial years since its Incorporation.  
  4. Original Entity – The entity should not be formed by splitting up or reconstructing an already existing business. 
  5. Innovative & Scalable – Should work towards the development of a product, process or service and/or should have high potential to scale up the creation of wealth and employment. 

Why a startup should get registered under Startup India Initiative?

DPIIT registered Startup business can avail huge benefits from this scheme. Till date, 26,685 startups got recognised reap the benefits such as self-certification, tax exemptions, funding, Fast-track IPR, Ease of winding up the company and much more. Let us see things one by one.

Self Certification

What is the objective of Self-certification?

To reduce the regulatory burden on Startups, thereby allowing them to focus on their core business and keep compliance managed at a low cost.

What are the benefits of self-certification? 

  • Startups shall be allowed to self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure.
  • In the case of labour laws, no inspections will be conducted for 5 years. Startups may be inspected only on receipt of a credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.
  • In the case of environment laws, startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases

What is the eligibility of self-certification? 

Startups that are within 5 years of incorporation. 

Register Your Startup Business

Startup Patent Application & IPR Application

What are the benefits for Startups on patent and other intellectual property applications? 

Fast-tracking of Startup India Patent Applications: Patent applications filed by startups shall be fast-tracked for the examination so that their value can be realised sooner.

A panel of facilitators to assist in the filing of IP applications: For effective implementation of the scheme, a panel of “facilitators” shall be empanelled by the Controller General of Patents, Designs and Trademarks (CGPDTM), who shall also regulate their conduct and functions. Facilitators will be responsible for providing general advisory on different intellectual property as well as information on protecting and promoting intellectual property in other countries.

Government to bear facilitation cost: Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.

Rebate on the filing of application: Startups shall be provided with an 80% rebate in filing of patents vis-a-vis other companies. This will help them pare costs in the crucial formative years

What is the eligibility criteria for Startups on patent and IP application?

The startup needs to be DPIIT recognised

Tax Exemption Under 80IAC

What are the tax exemption benefits available under this scheme?

Eligible startups can be exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation.

What is the eligibility condition for tax exemption?

  • The entity should be a DPIIT recognised startup
  • Only Private Limited Companies or Limited Liability Partnerships are eligible for tax exemption under Section 80IAC
  • The startup should have been incorporated after 1st April 2016.

Section 56 Exemption

Benefits: 

  • Exemption under Section 56(2)(VIIB) of Income Tax Act.
  • Investments into eligible startups by listed companies with a net worth of more than INR 100 Crore or turnover more than INR 250 Crore shall be exempt under Section 56 (2) VIIB of Income Tax Act.
  • Investments into eligible Startups by Accredited Investors, Non-Residents, AIFs (Category I), & listed companies with a net worth more than 100 crores or turnover more than INR 250 Crore, shall be exempt under Section 56(2)(VIIB) of Income Tax Act.
  • The shares received by eligible startups shall be exempt up to an aggregate limit of INR 25 Crore.

Eligibility:

  • Should be a private limited company.
  • Should be a DPIIT recognised startup. To get DPIIT recognition, click on “Get Recognised” below.
  • Not Investing in specified asset classes.
  • The startup should not be investing in immovable property, transport vehicles above INR 10 Lakh, Loans and advances, capital contribution to other entities, except in the ordinary course of business.

Easy Winding up of Company

Any recognised startup under this initiative, have an opportunity to wind up the business if they want. 

 This will encourage entrepreneurs to experiment with new and innovative ideas, without having to face complex and long-drawn exit processes where their capital becomes interminably stuck in the event of business failure.

Benefits: 

  1. As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, or those meeting certain income specified criteria* can be wound up within 90 days of applying for insolvency.
  2. An insolvency professional shall be appointed for the Startup, who shall thereafter be in charge of the company (the promoters and management shall no longer run the company) including liquidation of its assets and paying its creditors within six months of such appointment.
  3. Upon appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors following the distribution waterfall set out in the IBC. This process will respect the concept of limited liability.

 

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