Start-Up- A brief note

START- UP

A note by CS Divya Panchal, Associates CS.

A startup 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, including self-employment and businesses that never intend to become registered, Startup refer to the new businesses that intend to grow large beyond the solo founder. Startup faces high uncertainty and has high rates of failure, but a minority of them do go on to be successful and influential.

An entity shall be considered as a Start-up:

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

iii. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scale-able business model with a high potential of employment generation or wealth creation.

Explanation:

• An entity shall cease to be a Start-up 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.
• An entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Start-up’.

Why Start-ups?

• Start-ups are “optimal” vehicles to validate and bring new innovations to the markets. Especially more disruptive innovations.
• Start-ups encapsulate all but only relevant things for what’s needed to build new innovations with minimum “wasted resources” combined with maximum drive & motivation.
• Start-ups create most of new jobs; attract international talent and foreign direct investments.

Typically, lean start-up focuses on a few lean principles:

• Find a problem worth solving, then define a solution
• Engage early adopters for market validation
• Continually test with smaller, faster iterations
• Build a function, measure customer response, and verify/refute the idea
• Evidence-based decisions on when to “pivot” by changing your plan’s course
• Maximize the efforts for speed, learning, and focus

Recognition a Start-up

A Start-up shall make an online application over the mobile app or portal set up by the DPIIT at https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-page.html

The application shall be accompanied by—(a) a copy of Certificate of Incorporation or Registration, as the case may be, and (b) 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.

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

(a) Recognise the eligible entity as Start-up

(b) Reject the application by providing reasons.

Start-up India: 80 IAC Tax exemption:

Post getting recognition a Start-up may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Start-up can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.

Eligibility Criteria for applying to Income Tax exemption (80IAC):

1. The entity should be a recognized Start-up
2. Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
3. The Start-up should have been incorporated after 1st April, 2016

Start-up India: Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)

Post getting recognition a Start-up may apply for Angel Tax Exemption.

Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:

1. The entity should be a DPIIT recognized Start-up
2. Aggregate amount of paid up share capital and share premium of the Start-up after the proposed issue of share, if any, does not exceed INR 25 Crore.

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) a non-resident; or (b) a venture capital company or a venture capital fund;

 

Provided further that considerations received by such start-up for shares issued or proposed to be issued to a specified company shall also be exempt and shall not be included in computing the aggregate amount of paid up share capital and share premium of twenty five crore rupees.

 

1. It has not invested in any of the following assets,─

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

(b) Land or building, or both, not being a residential house, other than that occupied by the Start-up 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;

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

(d) Capital contribution made to any other entity;

(e) Shares and securities;

(f) 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 Start-up for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business;

(g) Jewellery other than that held by the Start-up as stock-in-trade in the ordinary course of business;

(h) 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 Income Tax Act 1961.

Provided the Start-up 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;

Important FAQ^s:

1. What is Start-up India Hub?

Start-up India Hub is a one-stop platform for all stakeholders in the Start-up ecosystem to interact amongst each other, exchange knowledge and form successful partnerships in a highly dynamic environment.

2. How can I register a profile on the Hub?

 

Registering a profile on the hub is a fairly simple process.

On clicking the “Register” tab on the top right hand corner of the page (https://www.startupindia.gov.in/) which you will be directed to our “mygov” platform for authentication where you will be asked to fill details such as your name, email address, mobile no. etc. This will give you a one-time password for verification as well as a link to set a new password.

Sign in using the login credentials you created in step 1. This will direct you to the Hub where you can select and create the profile of a stakeholder which best defines your role.

 

3. Would a One Person Company (OPC) be eligible to avail benefits under the Start-up India initiative?

Yes, One Person Companies are eligible to avail benefits under the Start-up India initiative.

4. Can a foreigner enter into partnership under the LLP Act and get that LLP registered with Start-up India?

Yes, a foreign national can enter into partnership under the LLP Act and get that LLP registered on start-up website. It can even get recognised by the DIPP.

5. Can I provide two mobile numbers in the registration form?

Only one mobile number and one landline number of the authorized representative of the entity can be provided at the time of registration. The portal and the mobile app would be sending an OTP on the mobile number provided by the user to complete the authentication and registration process.

6. What are the documents required by Start-ups to get recognized under the Start-up India initiative?

You will need to upload the incorporation/registration certificate and explain how your start-up is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.

7. What is the time-frame for obtaining certificate of recognition as a ‘Start-up’ in case an entity already exists?

The certificate of recognition is issued typically within 2 working days upon successful submission of the application.

8. If my start up gets recognised, would I obtain a certificate for it? If yes, would I be able to download the certificate?

Yes, if your start up gets recognised, you would be able to download a system generated verifiable certificate of recognition.

9. If a start up has applied for DIPP-recognition and the application gets rejected or marked incomplete due to missing documents or insufficient information, should the start up edit the existing application or submit a new one?

If the application for recognition has been marked incomplete, the start-up needs to follow the given steps:

1. Log in with their start-up credentials on www.startupindia.gov.in
2. Select ‘Recognition and Tax Exemption’ button on the right panel

• Select the ‘Edit Application’ button and proceed with completing your application

If the application has been marked ‘Incomplete’ thrice, the application is rejected. Rejected applications cannot be edited, and a new application can be submitted after three months from the date of communication of the rejection email.

10. My entity does not have a PAN. Would I be allowed to register it as a ‘Start-up’ on the Start-up India portal?

Yes, an entity without a PAN can be registered as a Start-up on our website. However, it is advised that a valid PAN of the entity is provided at the time of registration.

11. Can a foreign entity register under Start-up India hub?

Any entity having at least one registered office in India is welcome to register on the hub as location preferences, for the time being are only created for Indian states. However, we are working on international relations and will soon be able to enable registration for stakeholders from the global ecosystem.

12. How do we connect to enablers after creating a profile?

The system is build to connect you to your relevant stakeholders based on your industry and preferred stage. Under the profile of every enabler there will be an option to “connect/apply”. Upon clicking, a request will be sent to the respective profile for acceptance. Once accepted, you will able to see the enabler as a new connection.

Please note that you can connect with up to 3 users per week.

13. What is the constitution of the Inter-Ministerial Board in DIPP?

The Inter-Ministerial Board setup by Department of Industrial Policy and Promotion validates Start-ups for granting tax related benefits. The Board comprises of the following members:

• Joint Secretary, Department for Promotion of Industry and Internal Trade, Convener
• Representative of Department of Biotechnology, Member
• Representative of Department of Science & Technology, Member

14. How would the Inter-Ministerial Board review the applications received for the purpose of tax exemption?

The Board shall review the supporting document(s) provided to ascertain if the entity qualifies as an eligible business for availing tax.

15. What is the timeframe for obtaining certification of Inter-Ministerial Board for availing tax exemption post successful application?

The Inter- Ministerial Board meeting typical takes place once a month. The cases in the meeting are processed in a serial order. The communication regarding the decision is sent to the registered email address of the Start-up.

 

“Ideas are cheap. Execution is everything. It’s all about the people,’ I only invest when I think I have found the right team for the right business.” – Chris Sacca

DISCLAIMER: Views expressed are that of the authors based on the provisions of various acts, various schemes and guidelines frames as on the date of compilation by author for general informational use of the reader and should not be basis for action. For any actions expert opinion must be sought separately, neither the author nor the company shall be liable for any actions/omissions/opinions framed by the user basis this article in any circumstances.