INTRODUCTION:
Under this article, the Mumbai CA explains what is a start-up, the process of being recognised as a start-up, benefits of being recognised as a start-up which includes income tax deduction under section 80 IAC, the exemption under section 56 of income tax ( Angle Tax Exemption), intellectual property rights (IPR) benefits relaxations under public procurement norms self-certification under labour environmental lows, faster exit for start-up and fund of fund start-ups.
What Is Start-Up?
A start-up or start-up is a company or project initiated by an entrepreneur to seek, effectively develop, and validate a scalable business model. While entrepreneurship refers to all new businesses like the best website development company in Navi Mumbai, including self-employment and businesses that never intend to grow big or become registered, start-ups refer to new businesses that intend to grow large beyond the solo founder. Start-ups face high uncertainty and have high rates of failure, but a minority of them do go on to be successful and influential.
PROCESS OF RECOGNITION OF START-UP BUSINESS:
The process of recognition of an eligible entity is stated below:
- An application is to be made to DPIIT via a mobile application or online portal.
2. Following documents/information are required:
- A copy of the certificate of incorporation/registration certificate.
- Director or partners details
- A writeup stating the nature and highlighting its works towards innovations, development or improvement (typically, a pitch deck/website link/video etc.
3. After receiving the application, the DPIIT may call for documents or information as it may deem fit-
- Recognised the entity as a start-up.
- Reject the application by giving a specific reason
WHAT ARE THE BENEFITS OF A RECOGNITION START-UP?
- INCOME TAX EXEMPTIONS:
- Recognition Under Section 80 IAC – Enjoy Tax Holidays For 3 Years:
Once you are recognized as a start-up, you can apply for tax exemption under Section 80 IAC of the Income Tax Act, after being cleared for the tax exemption, you can avail tax holiday for three consecutive years, out of the first 10 years from the date of incorporation.
Who Was Eligible to Get Exemption Under Section 80 IAC:
- 1. entity recognised as a start-up.
- 2. only a private limited company or the limited liability of a partnership was eligible to get an exemption.
- 3. the start-up is incorporated after 1st April 2016 and before 1st April 2021.
B) Avail Exemption Under Section 56 Of the Income Tax Act (Angel Tax Exemption):
Once you get recognized as a start-up, you can apply for an angel tax exemption. The eligibility criteria for claiming the deduction are:
- The entity should be a DPIIT-recognized start-up
- The aggregate amount of paid-up share capital and share premium does not exceed INR 25 crores after the issue of shares.
II) INTELECTUAL PROPERTY RIGHTS:
For promoting awareness and adoption of IPRs by start-ups and helping them in protecting the IPRs, registration under DPIIT provides access to high-quality Intellectual Property Services and resources.
The following are the broad benefits:
- Rebate on application fees: Start-ups get a rebate of 80% in the filing of patents, thus reducing the cost to Rs 1600 from the normal cost of Rs 8000. Similarly, there is a 50% rebate in Trademark applications for companies recognized as a start-up, thus they can file a trademark application at half price i.e. Rs 5000
2. Fast tracking of Start-up patent applications.
3. Panel of facilitators to assist in IP applications: Central Government bears the entire fees of the facilitators for any number of patents, trademarks or designs, and Startups only bear the cost of the statuary fees payable.
III) RELAXATION UNDER PUBLIC PROCUREMENT NORMS
The Government of India has authorized all its departments, ministries, and public sector undertakings to relax all the norms under public procurement. The start-ups can claim exemption over:
1. Prior turnovers.
2. Prior experience.
3. Earnest money deposit.
IV) FUND OF FUND FOR STARTUPS:
The Ministry of Corporate Affairs has notified Startups as ‘fast track firms’ enabling them to wind up operations within 90 days whereas 180 days for other companies. An insolvency professional shall be appointed for the Startup, who shall be in charge of the Ministry of Corporate Affairs enabling the startup to wind up the company for liquidating its assets and paying its creditors within 6 months of filing an application in this regard.
V) FASTER EXIT FOR STARTUPS:
The Ministry of Corporate Affairs has notified Startups as ‘fast track firms’ enabling them to wind up operations within 90 days whereas 180 days for other companies. An insolvency professional shall be appointed for the Startup, who shall be in charge of the Ministry of Corporate Affairs enabling the startup to wind up the company for liquidating its assets and paying its creditors within 6 months of filing an application in this regard.
IV. SELF-CERTIFICATION UNDER LABOUR AND ENVIRONMENTAL LAWS:
The government has planned on reducing the regulatory burden on Startups by allowing them to focus on their core business & keep compliance costs low.
1. Startups are allowed to self-certify their compliance under 6 Labour and 3 Environment laws for a period of 3 to 5 years from the date of incorporation.
2. In respect of 3 Environment laws, units operating under 36 white category industries do not require clearance under 3 Environment-related Acts for 3 years.
