Startup India Registration

Eligibility for Startup India Registration

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To be considered an eligible startup under the Startup India Action Plan, the following criteria must be met:

• The company must have been incorporated/registered for less than ten years.
• It must be a private limited company, partnership firm, or limited liability partnership.
• It must have an annual revenue of less than 100 crore rupees in any of the financial years since its incorporation/registration.
• It must be engaged in innovation, development, or improvement of products, processes, or services, or have a scalable business model with high potential for job creation and wealth generation.
• It cannot be formed by splitting up or restructuring an existing business.
  

Tax benefits for qualifying startups

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1. A three-year tax holiday for up to seven years (Section 80IAC Tax Exemption):

Startups incorporated between April 1, 2016, and March 31, 2022 are eligible for this program. These startups can claim a 100% tax deduction for three years within a seven-year block, as long as their annual profit does not exceed Rs 25 crores in any financial year. This will help new businesses meet their operating expenses during their first years of operation.

2. Exemptions from long-term capital gains

A new section 54 EE has been added to the Income Tax Act, 1961, so that eligible startups can claim a tax deduction on long-term capital gains if that gain or part of it is invested in a fund announced by the Central Government within six months from the date of transfer of the assets. The maximum amount that can be invested in a designated long-term asset is Rs 50 lakh. If the investment is withdrawn before three years, the exemption will be cancelled in the year in which the money is withdrawn.

3. Exemptions from investments in excess of fair market value (Section 56 of the Income Tax Act, 1961)

The government has waived the tax on investments in excess of fair market value for eligible startups. Such investments include investments made by local angel investors, family, or funds that are not registered as venture capital funds. Also, investments made by incubators above fair market value are also exempt.

4. Exemptions for Individuals/HUF on long-term capital investments in shares of equity of eligible startups

Existing provisions under Section 54GB allow for tax exemptions on long-term capital gains from the sale of real estate if such gains are invested in small or medium enterprises as defined under the Micro, Small, and Medium Enterprise Act, 2006. Therefore, if a person or HUF sells a residential property and invests the proceeds to acquire 50% or more of the qualifying shares, then the long-term capital gains tax will be waived, as long as those shares are not sold or transferred within five years from the date of acquisition. The startups will also use the invested amount to purchase assets and should not transfer the purchased asset within five years from the date of purchase. This exemption will encourage investment in the right ventures and will enhance their growth and expansion.

5. Suspension of further losses and capital gains allowed in the event of a change in shareholding pattern

For eligible startups, further losses are allowed if all shareholders of that company who held shares having voting powers on the last day of the year in which the losses occurred continue to hold shares on the last day of the preceding year when such losses will be continued further. In the case of an eligible startup, the 51% hold withholding of voting rights to stand unaltered under Section 79 has been exempt.

Documents required for Startup India Registration

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Documentation required for Startup India Registration are as follows:

• Incorporation/Registration Certificate of your startup
• Proof of funding, if any
• Authorisation letter of the authorised representative of the company, LLP or partnership firm
• Proof of concept like pitch deck/website link/video (in case of a validation/ early traction/scaling stage startup)
• Patent and trademark details, if any
• List of awards or certificates of recognition, if any
• PAN Number

Benefits of Startup India Registration

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The Startup India scheme, launched by the government of India, provides several benefits for startups that register under the program. These benefits include:

1. Tax benefits: Startups can claim a 100% tax deduction for three years within a seven-year block, as long as their annual profit does not exceed Rs 25 crores in any financial year. Additionally, there are exemptions from long-term capital gains and investments in excess of fair market value, among others.
2. Patent filing fee waivers: Startups can apply for a waiver of up to 80% of the patent filing fee.
3. Simplified procedures: The registration and compliance process for startups has been simplified, making it easier for them to start and operate their business. Closure/Winding up will be a quicker process – Just in 90 days!
4. Access to funding: Startups have access to government-funded venture capital funds, as well as other funding options.
5. Incubation and mentorship support: Startups can benefit from mentorship and incubation support from recognized incubators and research institutes.
6. Credit guarantee scheme: Startups can benefit from a credit guarantee scheme for loans up to Rs. 50 lakhs.
7. Government procurement support: Startups can participate in government procurement with a relaxed criterion of turnover and experience.
8. Recognition: Startups that are recognized under the Startup India scheme can use the recognition certificate as a marketing tool to attract customers, investors, and partners.

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