Everything about Govt's New Expanded Definition of 'Startup' and 'Angel Tax' Exemptions

In order to address issues faced by start-up ventures in India including angel tax woes, which led to protest by startups as well as investors in the country, government has widened the definition of startups that include increasing the time period for such ventures to be treated as startups, increasing the turnover criteria and also raising the tax exemption limit for investments made.

In a nutshell, below are the changes made for startups in India to feel breather -

An entity shall be considered a startup up to 10 years from its date of incorporation instead of the existing period of 7 years.

A company can be called as a 'Startup' even if its turnover for any of the financial years since its incorporation hasn’t exceeded ₹ 100 crore instead of the existing cap of ₹ 25 crore.

The considerations of shares received by eligible startups for shares issued or proposed to be issued by all investors shall be exempt up to an aggregate limit of ₹ 25 crore.

For being eligible for exemption under Section 56(2)(viib), a startup should not be investing in immovable property, transport vehicles above
₹ 10 Lakh, loans and advances, capital contribution to other entities and some other assets except in the ordinary course of its business.

A startup shall also be eligible for exemption under Section 56(2)(viib) if it is a private limited company recognised by the department for promotion of industry and internal trade (DPIIT) , formerly DIPP, and is not investing in specified asset classes.

Eligible startups only have to file a duly signed self-declaration by with DPIIT for availing exemption. DPIIT, formerly DIPP, shall transmit these declarations to Central Board of Direct Taxes (CBDT).

The valuation of shares is no more a criterion for exemption of investments into eligible startups under Section 56(2)(viib) of Income Tax Act. This means that now would be No requirement of making any application for exemption under this section and there will be no case-to-case examination of startups for exemption under Section 56(2)(viib) of Income Tax Act.

Introduced in 2012, Section 56(2)(viib) -- commonly referred as 'Angel Tax' -- of the Income Tax Act provides that the amount raised by a startup in excess of its fair market value would be deemed as income from other sources and would be taxed at 30 per cent.

Finally, DIPP Changes Definition for 'Start-ups' in India, Here's All You Need To Know

Department of Industrial Policy and Promotion (DIPP), under the Union Ministry for Commerce and Industry, has come out with a new notification on definition of start-ups. Notably, this is the second time DIPP has made changes in the definition of Startup. Earlier in May 2017, DIPP has made minor changes wherein an entity would be recognized as a startup up to seven years instead of the previous five years rule.

According to the fresh DIPP notification, "An entity shall be considered as a start-up up to a period of seven 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 Sction 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India".

In the case of start-ups in the biotechnology sector (including medical device), the period shall be up to ten years from the date of its incorporation/ registration. In March of last year, DIPP has moved a cabinet note and suggestion that the maximum age for classifying a biotechnology or a medical devices firm as a startup be raised to 8-10 years from the current five years.

The increase in the age of Biotechnology and Medical Devices companies to consider as startups is made on the very fact that the companies in these two sectors take long development process to mature.

The notification also said that the turnover of the entity for any of the financial years since incorporation/ registration should not exceed ₹25 crore.

The definition also said that the entity should be working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation. However, an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘start-up’.

Notably, last month DIPP has cancelled certifications of companies which have been earlier recognized as 'Start-ups' but misusing the Start-up India initiative as these are actually subsidiaries of existing Indian or foreign companies.

“An entity shall 'cease' to be a start-up on completion of seven years from the date of its incorporation/ registration or if its turnover for any previous year exceeds ₹ 25 crore. In respect of start-ups in the biotechnology sector, 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 ₹ 25 crore ,” it added.

Interestingly, according to above changes Flipkart, which was incorporated in 2007, now cease to be called as a startup -- technically speaking, going by the new definition of startup by DIPP.

A start-up shall make an online application over the mobile app or portal set up by the Department of Industrial Policy and Promotion for recognition, it added.

The notification also said that a start-up being a private limited company or a limited liability partnership incorporated on or after 1st day of April 2016 but before 1st day of April 2021, can claim 100% tax exemption on profits for three out of seven years, as per the prescribed norms.

The notification also provided tax relief for issue of shares by start-ups over the fair market value, with certain conditions.

For availing the tax relief for issue of shares over the fair market value, the aggregate amount of paid-up share capital and share premium of the start-up after the proposed issue of shares should not exceed ₹ 10 crore.

Further, the investor/ proposed investor, who proposed to subscribe to the issue of shares , should either have an average returned income of ₹ 25 lakh or more for the preceding three financial years or net worth of ₹2 crore or more as on the last date of the preceding financial year.

The start-up had to obtain a report from a merchant banker specifying the fair market value of shares in accordance with rules, it said.

The above news was first reported in The Hindu

Finally, DIPP Changes Definition for 'Start-ups' in India, Here's All You Need To Know

Department of Industrial Policy and Promotion (DIPP), under the Union Ministry for Commerce and Industry, has come out with a new notification on definition of start-ups. Notably, this is the second time DIPP has made changes in the definition of Startup. Earlier in May 2017, DIPP has made minor changes wherein an entity would be recognized as a startup up to seven years instead of the previous five years rule.

According to the fresh DIPP notification, "An entity shall be considered as a start-up up to a period of seven 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 Sction 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India".

In the case of start-ups in the biotechnology sector (including medical device), the period shall be up to ten years from the date of its incorporation/ registration. In March of last year, DIPP has moved a cabinet note and suggestion that the maximum age for classifying a biotechnology or a medical devices firm as a startup be raised to 8-10 years from the current five years.

The increase in the age of Biotechnology and Medical Devices companies to consider as startups is made on the very fact that the companies in these two sectors take long development process to mature.

The notification also said that the turnover of the entity for any of the financial years since incorporation/ registration should not exceed ₹25 crore.

The definition also said that the entity should be working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation. However, an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘start-up’.

Notably, last month DIPP has cancelled certifications of companies which have been earlier recognized as 'Start-ups' but misusing the Start-up India initiative as these are actually subsidiaries of existing Indian or foreign companies.

“An entity shall 'cease' to be a start-up on completion of seven years from the date of its incorporation/ registration or if its turnover for any previous year exceeds ₹ 25 crore. In respect of start-ups in the biotechnology sector, 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 ₹ 25 crore ,” it added.

Interestingly, according to above changes Flipkart, which was incorporated in 2007, now cease to be called as a startup -- technically speaking, going by the new definition of startup by DIPP.

A start-up shall make an online application over the mobile app or portal set up by the Department of Industrial Policy and Promotion for recognition, it added.

The notification also said that a start-up being a private limited company or a limited liability partnership incorporated on or after 1st day of April 2016 but before 1st day of April 2021, can claim 100% tax exemption on profits for three out of seven years, as per the prescribed norms.

The notification also provided tax relief for issue of shares by start-ups over the fair market value, with certain conditions.

For availing the tax relief for issue of shares over the fair market value, the aggregate amount of paid-up share capital and share premium of the start-up after the proposed issue of shares should not exceed ₹ 10 crore.

Further, the investor/ proposed investor, who proposed to subscribe to the issue of shares , should either have an average returned income of ₹ 25 lakh or more for the preceding three financial years or net worth of ₹2 crore or more as on the last date of the preceding financial year.

The start-up had to obtain a report from a merchant banker specifying the fair market value of shares in accordance with rules, it said.

The above news was first reported in The Hindu

Government Defines 'Startup'

The term 'Startup' has become a buzz word today, but there are many who loosely use the term to define any and every type of new organisation. In order to make the definition of the word 'startup' more defined and clearer to the people, the department of industrial policy and promotion (DIPP) has recently issued a notification regarding the same.

The notification states that an organisation can only be considered as a startup for its initial period of five years (this is counted from its date of registration/incorporation) if its turnover for any of the financial years has not crossed the figure of Rs 25 crore and further, if if the organisation is focused towards development, innovation, deployment or commercialisation of new products, services or processes that are spearheaded by intellectual property or technology.

In order for a company to be recognised as a startup, it will have to apply for the same through a mobile app/portal of the DIPP. Since the app/portal is still under construction, the DIPP for the time being is making some alternate arrangements.

Moving forward, if a startup is looking to reap in on any of the tax benefits provided by the state, it will first have to apply and obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification (joint secretary, department of industrial policy and promotion, representative of department of science and technology, and representative of department of biotechnology).

After the certificate is obtained, they will have to file an application along with any one of the documents listed out in the notification issued by the DIPP. Further, they will also have to include a letter of recommendation from an approved incubation centre and a letter of funding of at least 20% by an angel fund, incubator, PE fund which is registered with SEBI.

So, if you think your new organisation completely suits the bill, it's time to apply for the startup tag right away.

Government Defines 'Startup'

The term 'Startup' has become a buzz word today, but there are many who loosely use the term to define any and every type of new organisation. In order to make the definition of the word 'startup' more defined and clearer to the people, the department of industrial policy and promotion (DIPP) has recently issued a notification regarding the same.

The notification states that an organisation can only be considered as a startup for its initial period of five years (this is counted from its date of registration/incorporation) if its turnover for any of the financial years has not crossed the figure of Rs 25 crore and further, if if the organisation is focused towards development, innovation, deployment or commercialisation of new products, services or processes that are spearheaded by intellectual property or technology.

In order for a company to be recognised as a startup, it will have to apply for the same through a mobile app/portal of the DIPP. Since the app/portal is still under construction, the DIPP for the time being is making some alternate arrangements.

Moving forward, if a startup is looking to reap in on any of the tax benefits provided by the state, it will first have to apply and obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification (joint secretary, department of industrial policy and promotion, representative of department of science and technology, and representative of department of biotechnology).

After the certificate is obtained, they will have to file an application along with any one of the documents listed out in the notification issued by the DIPP. Further, they will also have to include a letter of recommendation from an approved incubation centre and a letter of funding of at least 20% by an angel fund, incubator, PE fund which is registered with SEBI.

So, if you think your new organisation completely suits the bill, it's time to apply for the startup tag right away.