Startups redefined; tax conditions amended: Govt.

The Department for Promotion of Industry and Internal Trade (“DPIIT”) through its notification no. G.S.R. 127(E) dated February 19, 2019 (“Notification”) has expanded the definition of startups and has relaxed conditions for claiming exemption under section 56(2)(viib) of the Income tax Act, 1961 (Act) for start-ups. This notification has been issued in supersession of the earlier notifications dated April 11, 2018 and January 16, 2019.

The key amendments are as under: –

  1. An entity shall be considered as a Startup:

i) Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.
ii. Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.
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’.

2. A Startup shall be eligible for notification under clause (ii) of the proviso to clause (viib) of sub-section (2) of section 56 of the Act and consequent exemption from the provisions of that clause, if it fulfils the following conditions:

(i) it has been recognised by DPIIT under para 2(iii)(a) or as per any earlier notification on the subject

(ii) aggregate amount of paid up share capital and share premium of the startup after issue or proposed issue of share, if any, does not exceed, twenty five crore rupees.

The notification can be accessed at

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