Tax Exemption to a start up company -Sec. 80 IAC
Startup
Who is eligible to enroll under the DPIIT Start Up Scheme
- Incorporated as a Private Limited Company, a Registered Partnership Firm or a Limited Liability Partnership
- Period of existence and operations should not be exceeding 10 years from the Date of Incorporation
- Entity should not have been formed by splitting up or reconstructing an already existing business
- Should have an annual turnover not exceeding Rs. 100 crore for any of the financial years since its Incorporation
- Should work towards the development or improvement of a product, process or service and/or have scalable business model with high potential for creation of wealth & employment
Income Tax Benefits to Start-Up India
- Deduction of 100% profit earned for three consecutive years out of 10 years beginning from the year in which the eligible start-up is incorporated u/s 80IAC of the Income Tax Act
- Exemption from the application of sec 56(2)(viib) of the Income Tax Act i.e. any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares
Section 80-IAC in details
(1) Any profits and gains derived from eligible business be allowed in computing the total income of the assessee, a deduction of an amount equal to one hundred percent of the profits and gains derived from such business for three consecutive assessment years.
(2) The above specified deduction can be claimed by the assessee for any three consecutive assessment years out of ten years beginning from the year in which the eligible start-up is incorporated.
Conditions for claiming the exemption u/s 80IAC:
(i) The company or LLP is not formed by splitting up, or the reconstruction, of a business already in existence:
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Exception:
If any machinery or plant was used outside India by any person other than the assessee that shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—
(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;
(b) such machinery or plant is imported into India;
(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.
Note:
Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty percent of the total value of the machinery or plant used in the business, then the condition specified in respect of new plant and machinery therein shall be deemed to have been complied with.
Key Point
Reconstructed businesses cannot claim 80IAC exemption, unless they fall under section 33B of the Income Tax Act, which allows a reconstructed industrial undertaking, previously active, but thereafter discontinued due damage or destruction caused by natural calamities, riots / civil disturbances, accidental fire / explosion, or an act of the enemy, to claim 80IAC exemption, provided it was re-established within 3 years of such discontinuation.
Startups can avail 80IAC exemption if formed by the transfer of machinery, previously being used outside India, but not by the concerned startup. Moreover, prior to its installation outside India, it must have never been in use in India, imported into India and no deduction on its depreciation has ever been allowed in India.
Documents required for registration u/s 80IAC
Name, address, and nature of business of the startup
Date of Incorporation Number and CIN / LLPIN
Permanent Account Number (PAN) of the startup
DIPP Number of the Startup after its recognition by the DPIIT
Contact Information of the Startup (E-mail ID and Contact Number)
Copy of the Memorandum of Association of the company, or LLP Deed of the LLP or Registered Partnership Agreement
Copy of the Board Resolution, in case of a company, if any
Copies of the startup’s Balance Sheet and Profit & Loss Statement of the last 3 financial years, certified by a practising Chartered Accountant
Copies of Income Tax Returns of the last 3 financial years mandatory, if it was incorporated before 1st April, 2018
Copy of Certificate obtained under section 56 of the Income Tax Act (Eligibility under this section)
Video link and copy of pitch deck required according to the stage in which the startup is (ideation / validation / early traction / scaling)
Pitch desk
Pitch Desk
The pitch deck should include the following:
1. Detailed Information about the product and/or service offered by the startup
2. Brief about how is your startup innovative and/or scalable (Uniqueness/USP of the startup that differentiates from its competitors in the market)
3. Director details
a. their educational qualification,
b. professional experience
c. formal role in the startup/current designation (if any)
4. Shareholding pattern as on the date of filling this application
5. Directors and Shareholders’ citizenship details
6. Team details – current role, education, and professional experience
7. Details about adherence to the specific government approvals required by the startups such as FSSAI registration, guidelines set by Bureau of Indian Standards Revenue model i.e.
