KEY HIGHLIGHTS: “START UP” INDIA

Our Prime Minister, Shri Narendra Modi announced the Startup India Action Plan in India on 16^th January 2016. The Scheme is revolutionary scheme which has been started to help the people who wish to start their own Business which qualifies to be a start up.

To qualify in the category of start up, an entity must be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. For the same it should aim to develop and commercialize:

1. A new product or service or process, or
2. A significantly improved existing product or service or process that will create or add value for customers or workflow

Provided that the mere act of developing:

1. products or services or processes which do not have potential for commercialization, or
2. undifferentiated products or services or processes, or
3. products or services or processes with no or limited incremental value for customers or workflow

would not be covered under this definition.

ELIGIBILITY FOR “STARTUP”:-

1. Entity must be registered/incorporated as a Private Limited Company/ Limited Liability Partnership / Registered Partnership.

A proprietorship or a public limited company is not eligible as startup

2. Time elapsed since the date of incorporation / registration must not be more than 5 years

 

3. The annual turnover in any preceding financial year must not exceed Rs. 25 crore

1. Entity must not be formed by splitting up, or reconstruction, of a business already in existence.
2. Entity must be involved in the innovative product and services as explained above.

 

KEY HIGHLIGHTS UNDER COMPANIES ACT, 2013:

1. The Ministry of Corporate Affairs (MCA) has announced that funds received by a startup amounting to Rs 25 lakh or more by way of a convertible note, in a single tranche from a person, will not be treated as a ‘deposit’.

Compulsory conversion of these convertible notes either into equity or repaid within a period of five years.

2. Startups will no longer be required to inform the Registrar of Companies or create a Deposit Repayment Reserve in the book of accounts.

However, it must be noted that both these developments only apply to the startups that have been selected and backed by the DIPP.

3. Start-Up Companies may have foreign nationals as their Whole Time Director(s).
4. Start-Up Companies may issue Sweat Equity Shares not exceeding 50% of it’s paid up share capital upto five years from the date of incorporation.

http://www.mca.gov.in/Ministry/pdf/Rules_19072016.pdf

Start-Up Companies may issue shares under Employee Stock Option Scheme (ESOP)  to the employee, who is a promoter or Director or belong to Promoter Group and Director’s relative, upto five years from the date of incorporation.

http://www.mca.gov.in/Ministry/pdf/Rules_19072016.pdf

 

KEY HIGHLIGHTS UNDER TAXATION LAWS:

 

1. Central Board of Direct Taxes (‘CBDT’) has now extended the exemption to startups who receive consideration for issue of shares at a value higher than the face value of such shares.
2. The investors who finance small companies during their initial years of operations are popularly known as angel investors or seed investors. The term angel tax has been coined from this concept of angel investments.

Nonetheless, not all the startups are qualified for the aforesaid exemption. The notification categorically states that only startups which fulfill the conditions specified by the Department of Industrial Policy and Promotion (“DIPP”) as per a circular dated February 17, 2016 are eligible for the angel tax exemption

http://dipp.nic.in/English/Investor/startupindia/Definition_Startup_GazetteNotification.pdf

 

3. Ministry of Commerce And Industry by notification dated 22nd April, 2016 notified that Inter-Ministerial Board has been constituted for issuing certificate of eligibility to ‘startup’ for availing tax benefits under the Income Tax Act, 1961

http://startupindia.gov.in/upload/IMBGazette.pdf

 

KEY HIGHLIGHTS BY RESERVE BANK OF INDIA:

4. RBI vide its notification dated 23rd June, 2016 has prescribed the following:

• An Indian startup, having an overseas subsidiary, may open a foreign currency account with a bank outside India for the purpose of crediting to the account the foreign exchange earnings out of exports/sales made by the said startup or its overseas subsidiary.
• In addition, payments received in foreign exchange by an Indian startup arising out of sales/ export made by the startup or its overseas subsidiaries will be a permissible credit to the Exchange Earners Foreign Currency (EEFC) account maintained in India by the startup.

Link:-http://startupindia.gov.in/upload/RBI_notification.pdf

 

 

 

CONCLUSION:

In order to avail all the benefits illustrated above, certification from Inter-Ministerial Board (IMB) is required. For obtaining certification from the IMB, one is required to do the following:

• Fill out the Online Registration / Application Form on the Startup India website (http://startupindia.gov.in/registration.php)
• Submit a recommendation letter (with regard to innovative nature of business) issued by a recognized incubator or a prescribed agency along with all the other relevant documents and information.