Guidebook for startups: Income tax benefits, other incentives for eligible ones

2021-01-30 06:04:46

NEW DELHI: A startup, as generally understood, is a venture floated by entrepreneurs, often young and relatively inexperienced, with innovative ideas which could be transformed into a significant business opportunity.
The Prime Minister announced the “Startup India campaign” in 2016 to provide a nurturing ecosystem for innovation, technology and entrepreneurship. The Department for Promotion of Industry and Internal Trade (DPIIT) formulated the startup scheme.
Criteria for being an eligible startup:
* An entity which is less than 10 years old since its incorporation/ registration in India;
* The turnover of the entity has not crossed Rs 100 crore in any previous years;
* Entity is working towards innovation, development or improvement of products or processes or services with a potential of employment generation or wealth creation; and
* Entity is formed without splitting up, or reconstruction, of a business already in existence.
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Preferred form of entity
A startup may be established in the form of a sole proprietorship, partnership firm, limited liability partnership (‘LLP’) or a company. However, for qualifying to be an ‘Eligible startup’, it needs to be incorporated as a private limited company (under Companies Act, 2013), an LLP (under LLP Act, 2008) or a partnership firm.
Key registrations required
* PAN and TAN – PAN is the unique number allotted by the income tax authorities. TAN is required for undertaking TDS related compliances;
* GST registration is required where turnover from business/ profession exceeds the prescribed limit of Rs 40 Lakh for business engaged in supply of goods and Rs 20 Lakh for business engaged in supply of services;

* Profession tax registration – Eligible startup would be required to obtain profession tax registrations;
* Shop and Establishment License is required for the place of work of business;
* Patent registration, if any could be obtained to protect the patent generated by the entity;
* Industry specific regulatory approvals are needed for certain industries (example, telecom and broadcasting) before commencement of business;
* Import Export Code (IEC) is required where the entity is involved in import or exports of goods/services.

Other key benefits/incentives available
* Simple process for registration of startup
* Easy access to funds through Alternate Investment Funds and eligible to raise ECBs under relaxed norms
* Fast track patent application with up to 80% rebate in filling patents
* Self-certification of compliance under 3 Environmental laws & 6 Labour Laws
* Exemption from requirement of earnest money deposit, prior turnover and experience requirements in government tenders
* Easy winding up of Company within 90 days under Insolvency & Bankruptcy Code, 2016
The “Start-up India campaign” has been quite successful in furthering the potential of budding entrepreneurs and investor groups in India. The Government must extend the sunset date (1 April 2021) for availing deduction of profits available to Eligible start-ups by another five years, and ease compliances, to help them achieve their full potential.
– By Sheetal Shah, associate partner, EY India
(Views expressed are personal. Prachi C Kulkarni, senior tax professional with EY has also contributed to this article.)

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