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INTRODUCTION

A Recognized startup from the inter-ministerial board is treated as an eligible business for tax exemption. Their business must involve in innovation, creation, development and deployment of new products, services or processes. With the intent to make available a competitive platform and help them in development, an eligible startup shall be allowed a deduction of taxes and other various benefits so that they can convert the business idea into fruitful business.


DESCRIPTION

India is developing and has just become the third leading startup supportive economy. It is creating step by step and will soon become the most exposed tech startup center on the planet. To support and sustain new businesses in india, the administration has declared a few projects through which they can profit benefits, one of them being the startup india program. The fundamental point of this activity is to make a situation that helps new businesses in the nation and pushes for the advancement of business people. Here’s a glance at the tax benefits these new companies can make and how they can utilize these projects to fuel their development.


Exemption under section 80IAC for startups

Section 80-IAC provides tax incentives of amount of profit that is 100 percent. It helps to start the development and provide a viable podium to startups in India.

DPIIT stands for Department for Promotion of Industry and Internal Trade

DPIIT setup the inter-ministerial board whose work is to validate the startup for allowing tax related benefits. The board shall validate them for tax exemption on profits as per the section 80-IAC of income tax act. A DPIIT authority provides recognition to startup that makes them eligible to apply to the inter-ministerial board for complete tax deduction on the profits and gains rises from business. Start-up must be engaged in innovation, creation or improvement of products or services or accessible business model with a great potential of employment generation or wealth formation.


Eligibility

The entity must be newly incorporated after 01 April 2016, in the form of private limited company or a limited liability partnership. Any entity which is shaped from the practice of reconstruction then it’s not allowed here to get benefit. Turnover of the entity must not exceed 25 crore annually in the preceding year related to the assessment year for which deduction is claimed under section 80-IAC. Entity must be recognised with DPIIT.

Deduction amount

Allowed deduction as per section 80 IAC of the income tax act would be 100% for 3 years income out of 7 years from the year of is registration. The intention to provide exemption is just to support small startup. A startup has to accomplish all the conditions for claiming the deduction as specified in section 80-IAC. These turnover limits for claiming deduction is not determined by DPIIT notification but section 80-IAC of income tax act mandates the provision of turnover limit.

Exemption under section 56 for startups (Angel Tax)

With the intent to give more relief to new startups, indian government has decided to relax the eligibility criteria for startup and respite the norms of angel tax by increasing the turnover limit from 25 crore. This helps them to grow and make stable in economy. An entity will be considered as startup if its turnover has not more than 100 crore instead of 25 crore in any of the financial year since incorporation. Ministry of government is taking all these steps just to promote and strengthen the startup ecosystem in economy as startup plays a very significant role in GDP as well.


Deduction amount

When a startup receives any consideration upto Rs 25 crore by all the investors for the issue of shares then if these startups are recognised by DPIIT then their consideration will be exempt under section 56(2)(viib) of the income tax act. For getting exemption, eligible startups are required to file a declaration form by with DPIIT and further it will be transmit to CBDT.


Eligibility

Entity must be private limited company and recognised by DPIIT. For getting DPIIT registration one can visit the startup india portal. If the turnover of the entity for any financial year is upto the amount of 100cr then it would be treated as startup. Cumulative amount of paid up share capital and share premium after the proposed issue must not exceed 25 crore rupee in case of startup. For being eligible for exemption under Section 56(2)(viib), a startup is not required to make investment in any immovable property, capital contribution to other entities or investment amounted to more than 10 lakh rupee in any transport vehicles, make loans and advances, and in some other assets except in the regular sequence. This investment can be done in normal course of business.

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  • What are the conditions to be satisfied to claim exemption under section 80IAC by startup?

    Entity named as company or a limited liability partnership must be engaged in eligible business. Eligible business stands to business that is indulge in process of invention, innovation and development of goods and services that helps to create the employment and wealth in economy.

    These entity must be formed on or after March 31, 2016 and maximum business turnover would be 25 crore annually in the previous year relevant to the assessment year for which deduction is claimed under section 80-IAC.

    Entity must grasp a certificate from the inter-ministerial board of certification of eligible business.

  • What are the documents required for getting tax exemption registration under 80IAC?

    Firstly, entity is required to register on startup india portal. After getting the registration certificate, apply for DPIIT recognition. These all services can be availed from the startup india portal that is apportioned by government for the emerging startup. Now access the application form of section 80IAC and submit it with the help of below mentioned documents that is required by the entity,

    Memorandum of association for private limited or LLP deed

    Board resolution

    Last 3 financial year’s annual accounts of the startup

    Last 3 year’s income tax returns that belongs to startup

  • If startup fulfills any of the condition then it’s eligible for 100% deduction of profit from eligible business?

    If startup fulfills the condition then 100% of the profits and gains derived from eligible business are deductible for 3 consecutive assessment years. Assessee has an option to claim this deduction in any of 3 consecutive assessment years.

  • What are the benefits available to eligible startup under section 56?

    When startup become eligible for getting exemption under section 56 then various other benefits he can avail like,

    Generally eligible startups shall be exempt for the consideration of shares received upto limit of twenty five crore rupee.

    Exemption as specified in section 56(2)(viib) upto specified limit.

    If investments into an eligible startup made by listed entities whose a net worth of more than 100 crore rupee or turnover of more than Rs 250 crore then amount of consideration beyond the Rs 25 crore limit shall be exempt.

    If eligible startups receive any investments from accredited investors, AIFs (Category I), non-residents and listed companies with a net worth more than 100 crores or turnover more than Rs 250 crore into eligible startups then entity is qualified for getting exemption under section 56(2)(viib) beyond the 25 crore.

  • What conditions make the startup eligible for the section 56 exemption?

    There are various conditions that needs to be fulfill for section 56

    First one need to register the entity in form of private limited company as per the Companies act 2013 and that must be DPIIT recognised.

    For DPIIT recognition, one can visit the startup india portal

    Entity must not invest the amount in specified asset class.

    Along with above, it’s not allowed to make investment in any immovable property, transport vehicles above the amount of 10 lakh. They can do so in regular dealing of business.

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