START-UP ELIGIBILITY AND BEFINITS UNDER THE COMPANIES ACT AND INCOME-TAX ACT

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 Following conditions are to be met for an entity to be considered as a start-up:

 

  1. Turnover of the entity shall not exceed one hundred crore rupees for any of the financial  years.
  2. The entity must be a private limited company or a partnership firm or an LLP.
  3. Ten years have not been completed since the date of incorporation or registration.
  4. The entity should be working towards innovation, development or improvement of its  business with a high potential of employment generation and wealth creation.

     

 

Relaxations under Companies Act, 2013:

As Start-up is initially a private company it can get all the exemptions available to Private Company under Companies Act, 2013. Besides above relaxations there are few other relaxations to specifically given to Start-ups under the Companies Act, 2013 which are as follows:

 

·    In case a start-up receives an amount of Rs. 25 lakh or more by way of a convertible note which is convertible into equity shares or repayable within a period of not exceeding five years from the date of issue, in a single tranche, from a person shall not be treated as a deposit.

·       A start-up need not comply with the provisions for acceptance of deposits given in clauses a to the of section 73 of the companies act for five years from the date of incorporation

·      A start-up may convene at least one meeting of the board of directors in each half of the calendar year with the gap between the two meetings of not less than 90 days is sufficient.

·      A promoter or a director or any person belonging to the group who holds more than ten percent of the outstanding equity shares of the company up to ten years from the date of incorporation or registration may be allotted with Employee Stock Options.

·      A private company which is a start-up is not required to follow the maximum limit in respect of deposits to be accepted from members for a period of five years from the date of its incorporation.

·     A start-up company may issue sweat equity shares not exceeding 50% of its paid-up capital up to 10 years from the date of its incorporation or registration which was earlier restricted to only 5 years.

 

 

 

Tax Exemptions under the Income Tax Act, 1961

·      Section 80 IAC

Start-ups which are incorporated after April 1, 2016, are eligible for getting a 100% tax rebate on profit for a period of three years from incorporation. The start-ups recognized under the Start-up India scheme whose turnover does not exceed Rs. 25 crores in any financial year up to 31 march 2021 can claim tax benefits in three out of the first seven years under this section.

·      Section 54EE

Long Term Capital Gains (LTCG) investment which may go up to Rs. 50 lakh, can be invested by the government’s special funds within a period of six months from the date of transfer of assets and exempt from tax on LTCG. The exemption is applicable for a period of three years.

 

 

·       Section 79

 If the start-up founder in continuity holds 51% of shareholding/voting power or 100% of original shareholder, then the start-up can carry forward its losses.

·      Section 56

If a start-up is recognized by DPIIT and the aggregate amount of paid-up share capital and share premium of the start-up does not exceed Rs. 25 crores the start-up can apply for Angel Tax Exemption post recognition.

·      Section 56(2)(viib)

A DPIIT recognized start-up is exempted from the tax on any consideration received for the issue of shares that exceeds the Fair Market Value of such Shares. The start-up has to file a declaration in form 2 to DPIIT regarding the same.

·     Section 115JB

The applicable rate of Minimum Alternate Tax (MAT) for start-ups is 18.5% along with the applicable surcharge and cess. In case a start-up fails to make any profit in the first 5 years, it has been exempted from Mat.

 

 


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