A Start-up in India is defined as a Private Limited Company, Partnership Firm, or a Limited Liability Partnership (LLP) that is working towards innovation, development, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property.
Criteria to be classified as Start up:
Period of existence and operations should not be exceeding 10 years from the Date of Incorporation
Should have an annual turnover not exceeding Rs. 100 crore for any of the financial years since its Incorporation
Entity should not have been formed by splitting up or reconstructing an already existing business
Should work towards development or improvement of a product, process or service and/or have scalable business model with high potential for creation of wealth & employment
Registration Process:
Register your business entity (Private Limited Company, LLP, etc.).
Obtain a Certificate of Incorporation (COI).
Register for a Unique Identification Number (UIN) at the Startup India portal.
Apply for recognition as a startup and submit the required documents (like a recommendation letter, brief about the innovative nature of the business, etc.) to the Department for Promotion of Industry and Internal Trade (DPIIT) through the Startup India portal.
Benefits of Startup Registration:
Eligibility for various government schemes, tax benefits, and exemptions.
Access to funding, subsidies, and other support programs.
Eligibility to claim deduction under Section 80IAC of Income Tax Act, 1961.
Section 80IAC of Income Tax Act, 1961:
Overview:
Section 80IAC is a provision under the Income Tax Act, 1961, specifically introduced to provide tax benefits to eligible startups.
Benefits under Section 80IAC:
Startups approved by the Inter-Ministerial Board are eligible for a deduction of 100% of the profits and gains derived from eligible business for a consecutive period of 3 out of 10 assessment years beginning from the year in which the eligible startup is incorporated.
Eligibility Criteria:
Registered as a company or LLP.
Incorporated between April 1, 2016, and March 31, 2024.
Involved in innovation, development, deployment, or commercialization of new products, processes, or services driven by technology or intellectual property.
Certified by the Inter-Ministerial Board.
Example:
ABC Private Limited was incorporated on 27th May, 2023. It has registered itself as Start-up on DPIIT Portal.
Following are the Profits and Losses of the company for 10 years from Date of Incorporation:
Year | Profit / (Loss) | Year | Profit / (Loss) |
2023-24 | (2 Lakhs) | 2028-29 | 5 Lakhs |
2024-25 | (6.5 Lakhs) | 2029-30 | 12 Lakhs |
2025-26 | (2.5 Lakhs) | 2030-31 | 25 Lakhs |
2026-27 | 2 Lakhs | 2031-32 | 55 Lakhs |
2027-28 | 7 Lakhs | 2032-33 | 67 Lakhs |
In the example given above, company can avail the exemption for 80IAC for 3 consecutive years out of initial 10 years from the date of Incorporation.
So, complete use of the provision should be made for ultimate benefit.
In starting 3 years company has incurred losses of Rs. 11 Lakhs (2 Lakhs + 6.5 Lakhs + 2.5 lakhs). So, there not beneficial to claim 80IAC deduction for these years.
In next 3 years company has earned consolidated Profit of Rs. 14 Lakhs (2 Lakhs + 7 Lakhs + 5 Lakhs). But these Profits will be set-off with the losses incurred in previous years. Therefore, it is not beneficial to claim the deduction for these years also.
In the last 3 years i.e., from 2030-2033, company has earned consolidated Profit of 147 Lakhs (25 Lakhs + 55 Lakhs + 67 Lakhs). So, it is most beneficial to claim the deduction of 100% of Profits for these 3 years.
Document requirements:
Pitch Deck of the Business
PAN
Basic details of Directors
Certificate of Incorporation, MOA
Logo and Website Address (optional)
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