To promote startups, Govt of India has taken various measures, a key one being registration under Start up India with DIPP (Department for Promotion of Industry and Internal Trade (https://dipp.gov.in/). The registration allows start-up entities to be eligible for various tax and other benefits stated below.
Which entities are eligible to register with DIPP?
• Pvt Ltd, LLPs (Limited Liability Partnerships) or Regd Partnership Firms
• Above entities having turnover / revenues less than Rs 100 crores for any of the financial years since incorporation
• Entities working towards innovation, development or improvement or of products or processes or services or if it’s a scalable business model with high potential of employment generation or wealth creation
What is the estimated time taken to get any start-up entity registered under DIPP?
Normally it takes a week, once all documents / information is submitted online.
What are the benefits of getting registered with DIPP?
Further Eligibility - Entities incorporated only after 1st April 2016
There are various tax and other benefits of getting registered with DIPP.
• Tax holiday of ANY 3 years period of the first 10 years – No income tax is payable on all the profit earned in those 3 years (Section 80IAC exemption).
• No Capital gain tax (popularly known as ‘Angel tax’), if investor exits form start-up and invests the gain in the fund as recognized by Govt.
• No inspection for first 3 years under labour law – In addition, environment law compliance is required only post - self certification.
• 80% Rebate in patent fee and fast track examination and processing of application for patents
• Manufacturing sector start-up are exempt from the criteria of prior ‘experience/ turnover’ without any relaxation in quality standards or technical parameters in public procurement (by government).
• Self Certification Compliance – This is a amazing step by the government, but Start-ups have to follow all the law regarding payment of gratuity, provident fund, contract labour regulations etc. The only difference is that no labour inspector will at your place for verification but after 3 years you may be penalized, if any default is found in compliance of all the matters.
How to avail Angel tax exemption u/s 56 (2) of the ITA (Income Tax Act)
Eligibility Criteria – Following conditions are to be fulfilled by a DIPP registered entity
• Aggregate amount of paid up capital and share premium after the proposed issue of share capital does not exceed Rs 25 crores.
• Investor / Proposed Investor has
o a) average returned income of 25 lacs or more for preceding 3 financial years or
o b) has net worth of Rs 2 crores or more as on the last date of preceding financial year
• Start-up entity has obtained a report from a merchant banker specifying the fair market value in accordance with rule 11UA of Income Tax Rules, 1962.
• Benefit available for 10 years