Dear Friends
Startup is a small or medium organisation of recent origin , generally deals in
information technology industry. A startup business generally started by
young, energetic and enthusiastic individuals ,who have innovative ideas, new
products ,new business lines , new way of doing same things. These young
entrepreneurs is starting their own business concern with their own finances
and further seek investment from other investors in their innovative ideas. A
startup is a temporary business model which has potential to exponential
growth.
Startup India campaign was formally launched by Prime Minister Shri
Narendra Modi on January 16, 2016. The initiative aims at fostering
entrepreneurship and promoting innovation by creating an ecosystem that is
conducive to growth of Startups. Since the launch of Startup India initiative, a
total of 44,766 Startups have been recognized by DPIIT as on 14th March 2021.

DEFINITION OF STARTUP.
Department for Promotion of Industry and Internal Trade (DPIIT) considers an
entity as a startup only upto a period of 10 years from the date of its
incorporation subject to the fulfillment of following conditions:

1. It should be incorporated as a private limited company, partnership firm or
   an LLP.
2. Turnover for any of the financial years since incorporation should not exceed
   Rs. 100 crores.
3. It should be working towards innovation, development or improvement of
   product or process or services or business model of the entity is scalable with
   high potential of employment generation or wealth creation.
4. It should not be formed by splitting up or reconstruction of an existing
   business.
   REGISTRATION WITH DPIIT. The benefits available to startups aren’t automatic. These benefits are provided only to DPIIT recognised startups for claiming exemptions under various provisions of Income Tax Act,1961 and other applicable laws you have to register your startup with DPIIT. On submission of required documents and forms ,the DPIIT will provide you Certificate of Registration and along with COR you have to apply with the Income tax department for claiming exemption . The Income Tax Department will register your startup. On submission of some specified documents, you will be eligible for exemption after registration with Income Tax Department.
5. BENEFITS UNDER INCOME TAX ACT Government has been taking various steps to exceedingly encourage the startups by introducing multiple tax exemptions such as relief from angel tax, reduced tax rates, 80% rebate on patent fees which will be borne by the DPIIT, tax holiday under section 80-IAC for three years etc. Once your startup is recognized by DPIIT, you may avail the following benefits under Income Tax Act.

Exemption from levy of angel tax under section 56(2)(viib) is available subject
to the following conditions:

1. Start-up should be registered with DPIIT; and
2. Its aggregate amount of paid-up share capital and share premium after
   issue or proposed issue of shares, does not exceed Rs. 25 crore. While
   calculating this threshold limit, issue of shares to following persons shall not
   be included:
   o A non-resident person;
   o Venture capital company;
   o Venture capital fund
   o Category-I AIF and Category-II AIF; and
   o Listed company whose net worth exceeds Rs. 100 crore or
   turnover exceeds Rs. 250 crore for the financial year preceding the
   year in which shares are issued.
3. It does not invest in any of the following assets for a period of 7 years from
   the end of the latest financial year in which the shares are issued at premium:
   o Land or building, being a residential house, other than that used
   for the purposes of renting or held as stock-in-trade in the
   ordinary course of business
   o Land or building, not being a residential house, other than that
   occupied by start-up for its business or renting purposes or held
   as stock-in-trade in the ordinary course of business
   o Loans and advances, if start-up is not engaged in ordinary
   business of lending of money
   o Capital contributions to any other entity
   o Shares and securities
   o Motor vehicle, aircraft, yacht or any other mode of transport, if
   the cost of such an asset exceeds Rs. 10 lakhs other than that held
   by the Start-up for the purpose of plying, hiring, leasing or as
   stock-in-trade in ordinary course of business
   o Jewellery held otherwise than as stock-in-trade
   o Archaeological collections, drawings, paintings, sculptures, any
   work of art or bullion.
   In case of failure to comply with these conditions, the consideration received from issue of shares, as exceeding the fair market value of such shares, shall be deemed to be income of the company chargeable to tax for the previous year in which such failure takes place. EXAMPLE: Suppose, XYZ Pvt. Ltd., is a startup company have issued shares of face value of Rs. 10/- per share and fair value of Rs. 50/- pr share at Rs. 70/-per share to Mr. A an investor. Now in this case provisions of Section 56(2)(viib) comes into play and in normal course Rs.( 70-50)=Rs. 20/- per share will be taxable in the hand of XYZ Private Limited. Due to exemption for startup the above difference of Rs. 20/- will not be taxable as income from other sources, subject to fulfilment of above mentioned conditions.

NOTE: it is advisable to startup’s to claim benefits of this provisions after a period of 4(four) years and from the year ,in which it is earning profits. Suppose XYZ Pvt. Ltd., has incurred loss after its incorporation , the same will be carried forward and setoff against profits of later years. You have to claim this benefits from that year in which you have gain.

6. RELAXED PROVISIONS FOR SET OFF AND CARRY FORWARD OF LOSSES
Section 79 deals with the provisions for set off and carry forward of losses in
case of companies. Finance (No. 2) Act, 2019 has relaxed the conditions for
carry forward and set off of losses in case of the eligible start-ups.
It has been provided that loss incurred, by the closely held eligible startup, shall
be allowed to be carried forward and set off against the income of the previous
year on satisfaction of either of the two conditions specified above, i.e.
continuity of 51% shareholding or continuity of 100% of original shareholders.
NOTE: for setoff of carry forward loss in case of a private limited company ,it
is necessary that shareholders holding 51% or more shares will be the same at
the end previous year and at the beginning of financial year in which loss to be
setoff. Now in case of startup companies the criteria of 51% shareholding has
been changed and if all shareholders at the end of financial year are the same
as at thee beginning of financial year then they are allowed to setoff loss
during current financial year, even though their shareholding are less than 51%
of the previous financial year.

7. EXEMPTION UNDER SECTION 54GB:
This exemption is allowed to the shareholders who make investment in eligible
startup. This exemption is available to an Individual an or HUF in respect of any
long term capital gains arising from transfer of a residential property. Such
exemption is available if the amount of net consideration is invested, before
the due date of furnishing of return of income, in equity shares of a company
after satisfaction of the satisfied conditions:

NOTE: this exemption is available only for Individuals or HUF. If an Individual
or HUF has long term capital gain on sale of residential property, then the
Capital Gain amount will be invested in the share of a startup for claiming
capital gain tax exemption. Provided that invested amount should not be
withdrawn before a period of five years from the date of investment.

CONCLUSION: the startup campaigners has been launched to encourage
young and enthusiastic entrepreneurs ,who have innovative ideas in their
minds and strong will to fulfill their dreams and provide employment to many
people. These startup’s are different from a simple business concern and have
potential to become a big business organisation.. the investors generally
attracted towards these startup’s and invested their money after evaluating
startup’s growth potentials. The government has also provides various types
of exemptions under various taxation as well as other laws for the growth of
these startup’s. It is advisable to startup’s enjoy benefits of these exemptions
fully for their growth.

DISCLAIMER; the above writ-up is only for information and knowledge of the
readers. The article has been prepared on the basis of information and details
available at the time of preparation of the same. It is advisable to the readers
to take professional advise.