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A startup is a young company started by an entrepreneur to bring a unique product or service to the market and is usually financed by an individual or a group of individuals.

According to the notification G.S.R. 127(E) dated 19th February, 2019, issued by the DPIIT, Ministry of Commerce & Industry an entity shall be considered as a Start-up:

• Upto to ten years from the date of registration/incorporation as a Private limited company/ Partnership firm/ Limited Liability firm.

• The turnover since inception for any financial year has not exceeded Rs 100 Crores. 

• The entity is working towards improvement. Development and innovation of the products and/ or services it's supplying or if it is a scalable business, the growth potential is immense. 

Any business that is a result of split up or reconstruction of an already existing business doesn’t count as a startup. So, to reap the benefits for DPIIT recognised startups, your business should comply with the above criterions. Getting your startup DPIIT recognised is an extensive task. Hiring a project management consultancy firm to get your startup registered will ease out the burden. 

But first, let’s know what are the six benefits for DPIIT recognised startups. Through the Startup India initiative, the government has ensured a supportive environment for the entrepreneurial ecosystem which will assist in employment generation and creating more jobs. 

Exemption under Section 56(2)(vii)(b) of the Income Tax Act, 1961

• Under the Income Tax 1961, any consideration for issue of shares, received by a company, which exceeds the fair market value of the share is taxable in the hands of the recipient of such shares as income from other sources. 

• How can a startup benefit from such an exemption? Well, the answer is pretty simple, Discounted cash flow method!

• This exemption is useful in the angel/VC round when angel investors invest into your startup at the excess of fair market share value. Discounted cash flow method is simply your startup raising additional investment. For e.g., your startup raises 50 crores in lieu of one lakh shares valued at Rs. 5000 per share. Assuming fair market value at Rs. 2000 per share the startup ideally should receive Rs. 20 crores but on a discounted cash flow method, the startup will receive additional Rs. 30 crores.

• Therefore, post exemption the company doesn't have to pay any taxes. 

Exemption under Section 80-IAC

• The second benefit for DPIIT recognised startups is that a registered startup can opt for exemption from paying income tax for three consecutive years out of the first ten years of its incorporation.

• It’s a very useful benefit as it allows for reinvestment into the startup in these consecutive years of higher profit earnings. This helps in expansion of business and diversification.

• But, there’s a condition that the total turnover of the startup for the relevant assessment year in which exemption has to be considered must not exceed Rs. 25 crores. 

Exemption under Section 54(GB)

• Under section 54(GB) any long term capital gains from the sale of a residential property of an individual is taxable. Now the exemption gives the buffer in respect that such long term capital gains,if invested in a registered startup, aren't taxed. 

• But there are two conditions to be fulfilled in order to benefit from such exemption. First, the assessee must have 50 percent or more voting rights (the union budget has suggested to pull it down to 25 percent) after the investment. Secondly, the startup must utilise such capital gains into purchasing of assets and not transfer the asset  before five years of purchase. 

• This exemption facilitates the investors if he has a significant presence in the startup otherwise it makes no sense. Also, initially there is a vacuum for funds in the process of establishing proof of consolidation of the business idea. Hence, this exemption provides a cushion to the founder and/or friends and family of the founder who want to leverage their residential property and fund the startup.

Self-certification under labour and employment laws

• Any private limited company is bound by labour and environmental law. These companies have to get their company inspected and obtain the required certifications. 

• Under this exemption the benefit for DPIIT recognised startups is immense. Any DPIIT registered startup can get self certified under six labour laws and three environmental laws. This can be carried out anytime till five years of incorporation. There is a specific format for self certification you must follow in order for application.

• The exemption is on the following  six labour laws :

• The Building and Other Construction Workers’ (Regulation and Employment and Conditions of Service Act, 1996);

• The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1996;

• The Payment of Gratuity Act, 1972;

• The Contract Labour (Regulation and Abolition) Act, 1970;

• The Employees Provident Funds and Miscellaneous Act, 1952; and

• The Employees State Insurance Act, 1948

• And the following environmental laws :

• The Water (Prevention & Control of Pollution) Act, 1974;

• The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003; and

• The Air Act(Prevention & Control of Pollution), 1981

Registration of Intellectual Property

• Did you know that it costs Rs. 9000 in one class for application of trademark registry in India? Also, for patent registration the cost ranges between Rs. 8000  to Rs. 11,000. 

• For getting your business DPIIT registered the cost boils down to Rs.1800 approximately. Another benefit is that you can also file for an eight percent rebate of patent fees as a provision under benefit for DPIIT recognised startup. 

Relaxation in public procurement norms

• A DPIIT recognised startup can avail government bidding with fewer eligibility requirements.What does that mean?

• At present, only companies dealing in computers, office supplies and automobiles can bid for contract calling but with fewer eligibility requirements. 

• Public procurement is the process by which the public and state-owned enterprises purchase goods and services from the private sector. Public sector contracts are usually assisted by high eligibility requirements and therefore, only established entities can participate in the bidding procedure. 

• To allow for other players to enter the market and make the market an even place, this exemption has been introduced. Now the eligibility criterion of prior turnover and/or demonstration of experience and security cover for projects have been exempted according to the goods and services. 

Are you planning on getting your business DPIIT registered and reaping the benefits for DPIIT recognised startups? If yes, you might want to consider having an expert project management consultancy firm to assist you with the various tasks at hand. Registration of a startup is a technical task and hence an expert will ensure you the precision required. 

Not only do the experts have knowledge, their prior experience goes a long way to provide your business a concrete outline. With over two decades of experience, we at Kamtech have the most efficient experts to help you get your business registered with the Department for Promotion of Industry and Internal Trade (DPIIT).