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Pvt Ltd Company Registration For Tax Exemption in Startup

  • February 22, 2022
  • Registrationwala
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What is Startup India?

Honorable Prime Minister Narendra Modi initiated a plan in January 2016 to grow startups in India. Several incentives, programs, and exemptions have been announced to raise startups in the country. The flagship Startup India aims to create a favorable ecosystem for entrepreneurship in the country.

Definition of Startup as per Startup India Action Plan released by DIPP

An entity registered or incorporated in India within not less than 5 years and holds an annual turnover not less than Rs 25 crores in any financial year while working towards development, deployment, innovation, or commercialization of new products, can be declared a startup. In addition, this entity must not have been formed from the reconstruction or splitting up of any pre-existing business.

The Department of Industrial Policy and Promotion (DIPP) is looking after startup registration. To become worthy of being called a startup and receive a nod from the Inter-Ministerial Board, the company with Pvt Ltd Company Registration should aim to develop and commercialize a new service or product. It may also improve the product or service or possibly add value for the final customers. Products, processes, and services that cannot be commercialized or differentiated and do not have incremental value are not considered under Startup India.

So to validate its eligibility, the startup must be supported by:

  • A recommendation about the innovative type of business being done in the startup as per a format is given by the DIPP by an incubator which is established in a PG college of India, or
  • Support from an incubator, with funding (about the project) from the GOI as per a specialized scheme meant to promote innovation among startups, or
  • Support from a recommendation (about the innovative type of business) as per format is given by DIPP, from an incubator which has been known under GOI, or
  • Funding received from an Angel Fund/Private Equity Fund/Angel Network/Accelerator registered with SEBI, which endorses innovative work in this business, or
  • Funding directly from GOI as part of a specific scheme that endorses innovation, or
  • A patent is given by the Indian Patent and Trademark Office in areas that are affiliated with the nature of business receiving a promotion.

Only when one of the above criteria is fulfilled does the company with Pvt Ltd Company Registration get listed under the Startup India Action Plan. As mentioned earlier in this article, the Inter-Ministerial Board by DIPP will validate the business's innovativeness to consider it eligible for tax exemption. However, the approval will not free the business from any liability accrued due to fraud or misinterpretation due to the submission of such an application. 

Once the tax exemption is approved, for the first 3 years of business, startups will have a 100% income tax rebate on all profits. The condition of this approval is that the annual turnover of the startup should not be more than INR 25 Crore. 

Also Read: Tips to Draft the Perfect MOA for Your Private Limited Company

Some more information about the DIPP

The DIPP consists of the following persons:

  • A representative from the Department of Science and Technology
  • Joint Secretary of the Department of Industrial policy and promotion
  • A representative from the Department of Biotechnology

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