The government of India has launched ‘Startup india’ initiative on 2016 to build strong entrepreneurship. As a part of this initiative, the department of industrial policy and promotion (DIPP) has issued notification to avail income tax exemption.
Section 80IAC specifies that you no need to pay income tax on your profits for 3 years out of 7 years.
Further Inter-Ministerial Board (IMB) constituted to consider the application of Startups for claiming Income tax exemption.
There are 3 person who can apply for exemption
- Private Limited Company
- Partnership Firm (Registered under the partnership act)
- Limited liabilities partnership firm (LLP)
An entity shall be considered as a Startup:
- Upto a period of seven years from the date of incorporation/registration. In the case of Startups in the biotechnology sector, the period shall be upto ten years from the date of its incorporation/ registration.
- Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded Rs. 25 crore
iii. Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.
Process of Recognition
The process of recognition of an eligible entity as startup shall be as under: —
(i) A Startup shall make an online application over the mobile app or portal set up by the Department of Industrial Policy and Promotion.
(ii) The application shall be accompanied by—
(a) a copy of Certificate of Incorporation or Registration, as the case may be, and
(b) a write-up about the nature of business highlighting how it is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.
(iii) The Department of Industrial Policy and Promotion may, after calling for such documents or information and making such enquires, as it may deem fit, —
(a) recognise the eligible entity as Startup; or
(b) reject the application by providing reasons.
First you need to apply for Recognition of as startups to ‘DIPP’. Once you get recognized, they would issue an ‘’Certificate of Recognition’’ which means you can apply to second authority (i.e. IMB) for Tax exemption.
Application for income tax exemption U/s 80IAC shall be made in Form-1 containing you particulars and form shall be accompanied by Balance Sheets and Income tax returns.
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