A Brief Presentation of STARTUP-March 2019

Definition of Startup

As per the Department for Promotion of Industry and Internal Trade (DPIIT) Notification dated 19th February 2019 an entity shall be considered as a Startup in the below instances:

-Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.

-Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.

-Entity 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 an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.

Explanation-

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.

Procedure to be followed

A Startup shall make an online application over the mobile app or portal set up by the DPIIT.

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.

Decision by DPIIT will follow.

The DPIIT may, after calling for such documents or information and making such enquires, as it may deem fit, —

-recognise the eligible entity as Startup; or

-reject the application by providing reasons.

Certification under the Income Tax Act

Certification for the purposes of section 80-IAC of the Act

A Startup being a private limited company or limited liability partnership, which fulfils the conditions specified in sub-clause (i) and sub-clause (ii) of the Explanation to section 80-IAC of the Act, may, for obtaining a certificate for the purposes of section 80-IAC of the Act, make an application in Form-1 along with documents specified therein to the Board and the Board may, after calling for such documents or information and making such enquires, as it may deem fit, —

grant the certificate referred to in sub-clause (c) of clause (ii) of the Explanation to section 80-

IAC of the Act; or

reject the application by providing reasons.

Exemptions under the Income Tax Act

A Startup shall be eligible for notification under clause (ii) of the proviso to clause (viib) of sub-section (2) of section 56 of the Income Tax Act and consequent exemption from the provisions of that clause, if it fulfils the following conditions:

-it has been recognised by DPIIT under para 2(iii)(a) or as per any earlier notification on the subject

-aggregate amount of paid up share capital and share premium of the startup after issue or proposed issue of share, if any, does not exceed, twenty five crore rupees:

Provided that in computing the aggregate amount of paid up share capital, the amount of paid up share capital and share premium of twenty five crore rupees in respect of shares issued to any of the following persons shall not be included

a non-resident; or

a venture capital company or a venture capital fund

Startup should not invest in restricted assets

-Building or land appurtenant thereto, being a residential house, other than that used by the Startup for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;

-Land or building, or both, not being a residential house, other than that occupied by the Startup for its business or used by it for purposes of renting or held by it as stock-in trade, in the ordinary course of business;

-Loans and advances, other than loans or advances extended in the ordinary course of business by the Startup where the lending of money is substantial part of its business;

-Capital contribution made to any other entity;

-Shares and securities;

-A motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds ten lakh rupees, other than that held by the Startup for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business;

-Jewelry other than that held by the Startup as stock-in-trade in the ordinary course of business;

-Any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act.

–Provided the Startup shall not invest in any of the assets specified in sub-clauses (a) to (h) for the period of seven years from the end of the latest financial year in which shares are issued at premium;