Starting up your own business is not the easiest thing to do. The potential for failure is high. The last thing you need, right after all the difficult decisions about what to sell and how much to charge, is piles of paperwork. Who knows where to start?Jobsrose
It’s time for Startup India. Launched about three months ago, this ambitious government programme has already made it easier for startups to register themselves as enterprises (and thereby take advantage of tax exemptions) and also get paid quicker (via e-payments). It is hoped that such initiatives will attract more startup ideas and help build a new entrepreneurial ecosystem in the country, which can then be leveraged to generate growth and higher standards of living.
Eligibility for Startup India :
1. Any private sector company or individual can apply under the Startup India initiative. This initiative is not applicable to public sector companies, public financial institutions and public charitable institutions.
2. An applicant can only register in one of the four categories under which the programme will be implemented:
Category 1 : A startup that is not more than two years old. An applicant can apply for tax exemption on 80 per cent of its first year’s profit, 75 percent of its remaining profits and 100 per cent of its third year’s profit.
Category 2: A startup that is less than three years old and with a track record in at least five different sectors. An applicant can apply for 100 per cent tax exemption on their first year’s profits, 87.5 percent on the second year, 70 percent on the third and 62.5 per cent on the fourth year.
Category 3 : A startup that employs fewer than 40 people and has a turnover of less than Rs. 25 crore in any financial year. An applicant can apply for 100 per cent tax exemption on its profits.
Category 4 : Startups in which at least one founder is a woman, or has a disability, or belongs to an economically weak background (a person earning less than Rs. 10 lakh per annum). This category applies only to the first three years of operation and will provide for 50 per cent tax exemption on the first year’s profit, followed by 25 per cent on the remaining profits of that year and 35 per cent in each of the subsequent two years.
Tax Exemptions :
1. The profit earned by startups in the first three years of their operation will be exempt from income tax.
2. Tax exemptions are applicable on a sliding scale and only for the first three years of operating . The exemption reduces to 75 per cent for the second year and to 50 per cent for the third year. Thereafter, full tax will have to be paid on profits earned by startups.
3. The exemption applies only to profits generated by a startup from its core business activities, that is, those listed in its application under Startup India . For example, if a startup acquires aquaculture equipment and generates profit from selling fish and other products derived from them, this will constitute profit from core business activity.
Contrast this with the startup that manufactures air-conditioners and which, in order to bring in more business, decides to manufacture refrigerators. Profits earned by the latter startup from selling refrigerators will not be entitled to tax exemption.
4. The exemption only applies to companies or startups registered under Startup India . In other words, if a company is trading as a proprietorship or partnership and then subsequently converts into a company and starts operating under Startup India , it will not be entitled to any tax exemptions.
1. Exemption from capital gains tax : If a startup is sold within three years of its formation, the gain made will not attract capital gains tax. Capital gains tax has been defined as the profit that exceeds the value meant at the time of inception.
2. A reduction in stamp duty from 2 per cent to 0.25 per cent for all documents related to registration, incorporation and issuance of shares . This exemption applies only to companies registered under Startup India .
3. Stamp duty has also been exempted for all offer documents issued by startups in connection with their initial public offer (IPO) for a period of five years after their incorporation .
4. An exemption from sales tax on services rendered by the startups (and their employees) to customers within the Rs. 10 lakh limit. This exemption applies only to those service providers engaged in providing professional and commercial services as defined in the Information Technology Act, 2000, as amended. See here for a full list of service categories exempted under Startup India .
5. A reduction in stamp duty from 2 per cent to 0.25 per cent for all documents related to registration, dissolution and conversion of a startup into a limited liability company or private limited company . This exemption applies only to those startups incorporated under Startup India .