Start-up India Program is an initiative by the Government of India which aims to encourage more and more people to come forward with start-ups, thereby helping to generate more employment in the country. Prime Minister Narendra Modi launched this program on the 16th of January 2016 in New Delhi with the vision of wealth and employment creation for the growth and progress of the country.
The Start-up India Program is devised in the larger interest of the country as it works towards generating large scale employment and empowering innovative ideas for new ventures. Hence, all entities desirable of gaining benefits under the program need to fulfil the eligibility criteria as mentioned below:
The applying company should either be a private limited company or a limited liability partnership company.
The program is looking for fresh entrants in the field and therefore, only new firms or companies or firms in existence for not more than 7 years and for biotechnology start-ups up to 10 years are eligible. The company should be having a turnover of not more than Rs.25 Crores to be considered for the Start-up India Program.
An approval from the Department of Industrial Policy and Promotion (DIPP) is mandatory in order to apply for the Start-up India Program. An Incubation Fund, Angel Fund or Private Equity Fund funding the applying firm is eligible for approval from the DIPP.
The company applying for the Start-up India Program should have already received a patron guarantee from the Indian Patent and Trademark Office.
A recommendation letter from an authorized incubator should be duly obtained before applying.
The financial year 2016-17 budget was the first time when tax incentives for start-up companies were considered and rules were laid down for them. With subsequent changes in the tax exemption rules in the following budget year of 2017-18, start-ups now enjoy many tax benefits under the Income Tax Act, 1961.
The most important point of consideration is that tax on start-ups is levied on the profits earned and not on the total sales, which in itself is a huge plus as they are to meet the initial operational costs of setting up the company. To calculate the profit or earning of the start-up the expenses incurred and the depreciation value is deducted from the total sales revenue earned. This enables to cover any cost in the form of reduction of value of assets and the cost of purchases and other expenses incurred. The amount thus derived comprises the total profit and is the amount on which tax can be levied.
Another very encouraging plan initiated by the government is the Presumptive Scheme of Taxation which is categorically applicable to individual proprietorship firms or HUFs. This scheme entitles the firm to calculate income on a percentage basis in either of the following two ways:
50% of the aggregate value of services provided
OR
8% value of the total sales done by the business.
Using the above mentioned ways, the income to be taxed can be calculated. The table given below helps to understand the tax levied on the various business entities:
| Business Entities | Tax Applicable |
|---|---|
| Proprietorship Firm | Income Tax levied as per the slabs specified |
| Partnership or Limited Liability Partnership Firms | 30% Tax on Income |
| Indian origin Company | 25% Tax on Income |
Business entities which have computed their Income under the Presumptive Scheme of Taxation, are entitled to file their Income Tax Returns using the respective ITR forms before the due date in order to complete the taxation process.
The Start-up India Program, as initiated by the Government in 2016, had the primary motive of encouraging new innovative ventures creating economic growth with increased job opportunities. In accordance with the same, certain tax exemptions have been an integral part of this program to make it appealing to upcoming entrepreneurs and businessmen.
All Start-up companies set up after the 1st of April 2016 are entitled to a 100% tax redemption under Section 80 IAC for a period of 3 consecutive years, limited to a maximum block within the first 7 years. This however, is subject to condition that the per annum profits of the company does not exceed Rs.25 Crores in one financial year. The objective of this redemption is to assist the start-ups cover their capital requirements.
Section 54 EE of the Income Tax Act entitles all eligible start-ups to an exemption of tax on long term capital gains or any part of it provided it is invested in a Government notified fund. Another important point of consideration is that this investment must be made within six months of the asset transfer, subject to a maximum of Rs. 50 Lakhs. The section further emphasizes that the invested amount should be intact for a minimum period of 3 years failing which the exempted amount shall be revoked.
As per the Income Tax Act, 1961, companies receiving considerations on issue of shares exceeding the Fair Market Value are taxable under Income from Other Sources. The Start-up India Program entitles start-ups to an exemption for any such excess consideration by venture capital funds. The same also applies to investments made by Incubators above Fair Market Value
Ans: The Start-up India Program is a completely online registration program which can be easily accessed through the online portal at www.startupindia.gov.in. The most vital document required is the Registration or the Incorporation Certificate of the entity. The application should clearly explain the innovation, development and improvisation prospects of the products or the services or the processes which it aims to bring about, along with how it generates more employment and wealth creation at the same time.
Ans: For a Start-up Entity, the online registration fees is Rs. 4,500 and for physical filing the charges are Rs. 5,000.
Ans: Any business entity which has surpassed a period of 10 years from the date of its registration or incorporation ceases to be termed a start-up. Also, if the turnover of the enterprise exceeds the set limit of Rs. 100 crore for any previous financial year, it can no more be considered as a start-up.
Ans: It is permissible to change your response in this regard at a later time also. The benefits thereafter can be availed once the Inter-Ministerial Board has evaluated and certified the updated application.
Ans: Having a PAN is not a pre-requisite for registration under the Start-up India Program. However, it is advisable to acquire a PAN for smooth and easy taxation purposes.
Ans: Yes, the Start-up India Program permits a foreign national to enter into a LLP registered under it.
