Start-up definition altered from 5 years to 7 years for tax benefits

Start-up definition altered from 5 years to 7 years for tax benefits

Posted by P. Charitha on May 26th 2017

According to a report first published in the Economic Times, the Govt of India has made an alteration, rather a minor change in the start-up definition which can benefit start-ups!
The start-up definition, which says that any business not older than seven years will now qualify for benefits under the Start-up India Action Plan. Previously entities up to five years from the date of incorporation were eligible for concessions.
The change was an effort to ensure ease of starting up new businesses to promote the start-up ecosystem and build a nation of job creators instead of job seekers.
 
Start-up definition
According to the revised definition , “an entity shall be considered as a start-up if its turnover is less than Rs 25 crore ( remains same)  and has not completed seven years from the date of its incorporation/registration”. 
However, in the case of startups in the biotechnology sector, the period shall be up to 10 years. It added that an entity shall cease to be a start-up on completion of seven years from the date of its incorporation/ registration or if its turnover for any previous year exceeds Rs 25 crore. An entity shall be considered as a start-up if it 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. 
 
Eligibility Criteria for a Start-up
  • To obtain tax benefits, a start-up should obtain a certificate of an eligible business from an inter- ministerial board of certification as constituted by the Department of Industrial Policy and Promotion (DIPP). 
  • Further, the notification said the process of recognition as a start-up would be through an online application made over the mobile app/portal set up by the DIPP. 
  • It said if the recognition would be obtained without uploading the relevant documents or on the basis of false information, the DIPP reserves the right to revoke the recognition certificate and certificate of an eligible business for tax benefits immediately without any prior notice or reason. 
  • The definition is important for budding enterprises to avail government-sponsored venture funding and tax and other benefits. 
  • The Commerce Ministry clarified that since the gestation period for start-ups to establish was taking a longer time they decided to tweak it from 5 years to 7 years from the date of its incorporation or registration. 
  • No letter of recommendation from an incubator/industry association shall be required for either recognition or tax benefits. 
The scope of definition has been broadened to include scalability of business model with potential of employment generation or wealth creation. 

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