Definition of Startup
Definition of Startup
To bring uniformity in the identified enterprises, the Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry, Government of India has come out with a definition for an entity to be considered as a Startup. Recently, DPIIT has issued the Notification for Startup India Definition and the current article briefs the same.
Definition of Startup
Any company that falls into the below list of categories will be called “Startup” and eligible to be recognized by the DPIIT to avail the benefits from the Government of India.
- Age of the Company: The Date of Incorporation/registration should not exceed 10 years
- Type of Company: The Company should be 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.
- Annual Turnover – Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded Rs.100 crore rupees.
- Innovative & Scalable – Entity should be working towards innovation, development, or improvement of products or processes or services or a scalable business model with a high potential for employment generation or wealth creation.
- An entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.
- 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 Rs.25 crore rupees.
Process of Recognition as a Startup
The process of recognition of an eligible entity as a startup shall be as under
A Startup shall make an online application over the mobile app or portal set up by the Department for Promotion of Industry and Internal Trade
The application shall be accompanied by the following documents:
- A copy of the Certificate of Incorporation or Registration
- 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 recognize the eligible entity as Startup or reject the application by providing reasons.
Certification for section 80-IAC of the Income Tax Act
A Startup being a private limited company or limited liability partnership, which fulfills the conditions specified in section 80-IAC of the Income-tax Act needs to make an application in Form-1 along with documents to CBDT for obtaining a Tax exemption certificate. After calling for such documents and making inquiries, as it may deem fit, CBDT will grant the certificate or reject the application by providing reasons.
Exemption under section 56 of the Income Tax Act
A Startup shall be eligible under clause (ii) of the proviso to clause (vii) of sub-section (2) of section 56 of the Income Tax Act and consequent exemption from the provisions of that clause if it fulfills the following conditions:
- The startup has been recognized by DPIIT
- The aggregate amount of paid-up share capital and share premium of the startup after issue or proposed issue of a share, if any, does not exceed twenty-five crore rupee
Computing the Aggregate Amount of paid-up Share Capital
For computing the aggregate amount of paid-up share capital, the amount of paid-up share capital and share premium of Rs.25 Crores in respect of shares issued to any of the following persons shall not be included:
- A non-resident
- A venture capital company or a venture capital fund
Considerations received by such startup 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
The startup should not invest in any of the following assets:
- The building or land appurtenant, being a residential house, other than that used by the Startup to rent 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 a substantial part of its business
- The 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 to ply, hire, 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 like a 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.
Note: 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 a premium