START UP COMPANY AND TAX BENEFITS AVAILABLE TO START UP

“Start-Up Company” means a private company incorporated under the Companies Act, 2013 or Companies Act, 1956 and recognized as such in accordance with notification number 16[G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and Internal Trade]:

G.S.R. 127(E) — This notification is being issued in supersession of the Gazette Notification No. G.S.R. 364(E) dated April 11, 2018 as modified vide Gazette Notification No. G.S.R. 34 (E) dated January 16, 2019.

Definitions

  1. In this notification,-
  • An entity shall be considered as a Startup:
    1. 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.
    2. Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.
    3. 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’.

Explanation

An entity shall cease to be a Startup on completion of ten years from the date of its incorporation/ registration or if its turnover for any previous year exceeds one hundred crore rupees.

  • “Act” means the Income-tax Act, 1961;
  • “Board” means the Inter-Ministerial Board of Certification comprising of the following members:
  1. Joint Secretary, Department of Promotion of Industry and Internal Trade, Convener
  2. Representative of Department of Biotechnology, Member
  3. Representative of Department of Science & Technology, Member
  • “CBDT” means Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963);
  • “limited liability partnership” shall have the meaning as assigned to it in clause (n) of subsection(1) of Section 2 of the Limited Liability Partnership Act, 2008;
  • “Partnership firm” means a firm registered under section 59 of the Partnership Act, 1932;
  • “Private limited company” shall have the meaning as assigned to it in clause (68) Section 2 of the Companies Act, 2013;
  • “Turnover” shall have the meaning as assigned to it in clause (91) Section 2 of the Companies Act, 2013;
  • All references to “Forms” in this notification shall be construed as references to the forms set out in Appendix-I hereto;
  • “DPIIT” means Department for Promotion of Industry and Internal Trade.

Recognition

  1. The process of recognition of an eligible entity as startup shall be as under: —
    • A Startup shall make an online application over the mobile app or portal set up by the DPIIT.
    • The application shall be accompanied by—
      • A copy of Certificate of Incorporation or Registration, as the case may be, and
      • 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.
    • The DPIIT may, after calling for such documents or information and making such enquiries, as it may deem fit, —
      • Recognize the eligible entity as Startup; or
      • Reject the application by providing reasons.

Certification for the purposes of section 80-IAC of the Act

  1. A Startup being a private limited company or limited liability partnership, which fulfills the conditions specified in sub-clause (i) and sub-clause (ii) of the Explanation to section 80-IAC of the Act, may, for obtaining a certificate for the purposes of section 80-IAC of the Act, make an application in Form-1 along with documents specified therein to the Board and the Board may, after calling for such documents or information and making such enquiries, as it may deem fit, —
    • Grant the certificate referred to in sub-clause (c) of clause (ii) of the Explanation to section 80- IAC of the Act; or
    • Reject the application by providing reasons.

Exemption for the purpose of clause (viib) of sub-section (2) of section 56 of the Act

  1. 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 fulfills the following conditions:
    • It has been recognized by DPIIT under para 2(iii)(a) or as per any earlier notification on the subject
    • 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:

Provided that in computing the aggregate amount of paid up share capital, the amount of paid up share capital and share premium of twenty five crore rupees in respect of shares issued to any of the following persons shall not be included─

  • A non-resident; or
  • A venture capital company or a venture capital fund;

Provided further that considerations received by such a startup for shares issued or proposed to be issued to a specified company shall also be exempt and shall not be included in computing the aggregate amount of paid up share capital and share premium of twenty five crore rupees.

  • It has not invested in any of the following assets,─
    • Building or land appurtenant thereto, being a residential house, other than that used by the Startup for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;
    • Land or building, or both, not being a residential house, other than that occupied by the Startup for its business or used by it for purposes of renting or held by it as stock-in trade, in the ordinary course of business;
    • Loans and advances, other than loans or advances extended in the ordinary course of business by the Startup where the lending of money is substantial part of its business;
    • Capital contribution made to any other entity;
    • Shares and securities;
    • A motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds ten lakh rupees, other than that held by the Startup for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business;
    • Jewelry other than that held by the Startup as stock-in-trade in the ordinary course of business;
    • Any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act.

Provided the Startup shall not invest in any of the assets specified in sub-clauses (a) to (h) for the period of seven years from the end of the latest financial year in which shares are issued at premium;

Explanation.─ For the purposes of this paragraph,-

(i)“Specified Company” means a company whose shares are frequently traded within the meaning of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and whose net worth on the last date of financial year preceding the year in which shares are issued exceeds one hundred crore rupees or turnover for the financial year preceding the year in which shares are issued exceeds  two hundred
fifty crore rupees.

(ii) The expressions “venture capital company” and “venture capital  fund” shall have the same meanings as                 respectively assigned to them in the explanation to clause (viib) of sub Section( 2) of Section 56 of the Act.

Declaration

  1. A startup fulfilling conditions mentioned in para 4 (i) and para 4 (ii) shall file duly signed declaration in Form 2 to DIPP that it fulfills the conditions mentioned in para 4. On receipt of such declaration, the DPIIT shall forward the same to the CBDT.

Scope

  1. Notification referred in para 4 shall apply irrespective of the dates on which shares are issued by the Start up from the date of its incorporation, except for the shares issued in respect of which an addition under section 56(2) (viib) of the Act has been made in an assessment order made under the Act before the date of issue of the notification.
  2. Notification referred to in para 4 shall be applicable only in respect of applicability of the provisions of section 56(2)(viib) of the Act to the Startup and shall not grant any exemption in respect of applicability of other provisions of the Act.

Revocation

  1. (1)  In case it is found that any certificate referred to para 3 has been obtained on the basis of false information, the Board reserves the right to revoke such certificate or approval.

(2) Where the certificate or approval has been revoked under sub-para (1), such certificate or approval shall be            deemed never to have been issued or granted by the Board.

  1. In case the Startup which has furnished declaration in Form-2 invests in any of the assets specified in para 4(iii) before the end of seven years from the end of the latest financial year in which the shares are issued at premium, the exemption provided under section 56(2)(viib) of the Act shall be revoked with retrospective effect.

Key Takeaways

A start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model. While entrepreneurship refers to all new businesses, including self-employment and businesses that never intend to become registered, startups refer to new businesses that intend to grow large beyond the solo founder. At the beginning, startups face high uncertainty and have high rates of failure, but a minority of them do go on to be successful and influential. In this situation the Government appreciates start-ups by giving them deductions in Tax. It reduces the start-ups tax burden at the initial stage of the business.

About the Author: This article is contributed by CA Rajeev GuptaPartner – SIGMAC & Co, Chartered AccountantsLocation- Delhi NCR and Gurgaon.

In case of any query please feel free to contact us at: rajeev@sigmac.co.in

For more information and updates, you can contact CA Rajeev Gupta or visit our website https://www.sigmac.co.in/my-blog/.  

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Disclaimer: This content has been prepared for general guidance of the reader on the matters of interest only. It should not be treated as professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information or provisions of the law contained in this article. Author and/ or SIGMAC & Co., Chartered Accountants, its members, employees and agents accept no liability, and disclaim all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this article or for any decision based on it.

How to apply PAN/TAN of a Foreign Company

PAN OF A FOREIGN COMPANY

1. What is PAN

In general speaking, PAN stands for Permanent Account Number which the Indian Revenue Department (Income Tax Department) allot to a Taxpayer / Company whose Income is Taxable in India. However, this is not the only condition. PAN number works in India as a Tax Identification Number.

For a comprehensive list of events for which a PAN number is required, you can refer to Rule 114B by following the below link: https://incometaxindia.gov.in/pages/rules/income-tax-rules-1962.aspx

2 . Documents be submitted by Foreign Company along with the PAN application

Below is the list of documents required for applying for PAN number by a Foreign Company in India:

  1. Copy of Certificate of Incorporation,
  2. Copy of Memorandum and Articles of Association,
  3. Copy of 3 month’s bank statements,
  4. Board Resolution favoring the person signing the application.

All these documents should be issued in the country where the applicant is located, duly attested by “Apostille” (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by the Indian embassy or High Commission or Consulate in the country where the applicant is located or authorized officials of overseas branches of Scheduled Banks registered in India; 

Can a Company hold more than one PAN?​

A Company cannot hold more than one PAN. If a PAN is allotted to a person, then he cannot apply for obtaining another PAN. A penalty of Rs. 10,000/- is liable to be imposed under Section 272B​ of the Income-tax Act, 1961 for having more than one PAN.

If a person has been allotted more than one PAN then he should immediately surrender the additional PAN card(s).

What is the penalty for not complying with the provisions relating to PAN?

Section 272B provides for a penalty in case of default by the taxpayer in complying with the provisions relating to PAN, i.e., not obtaining PAN, even though he is liable to obtain PAN or knowingly quoting incorrect PAN in any prescribed document in which PAN is to be quoted or intimating incorrect PAN to the person deducing tax or person collecting tax. The penalty under section 272B  is Rs. 10,000.

TAN OF A FOREIGN COMPANY

1. What is the TAN number?

Tax Deduction Account Number or Tax Collection Account Number is a 10-digit alpha-numeric number issued by the Income-tax Department. TAN is to be obtained by all persons who are responsible for deducting tax at source (TDS) or who are required to collect tax at source (TCS). It serves the purpose of Withholding Tax Account numbers in India.

2. Who must apply for TAN?

All those persons who are required to deduct tax at source or collect tax at source are required to apply for and obtain TAN.

Why to apply for a TAN?

The provisions of section 203A of the Income-tax Act require all persons who deduct or collect tax at source to apply for the allotment of a TAN. The section also makes it mandatory for TAN to be quoted in all TDS/TCS returns, all TDS/TCS payment challans, and all TDS/TCS certificates to be issued. Failure to apply for TAN or comply with any of the other provisions of the section attracts a penalty of Rs. 10,000/-.

Why is it necessary to have TAN?

TAN is required to be quoted in all TDS/TCS returns, all TDS/TCS payment challans, and all TDS/TCS certificates to be issued. TDS/TCS returns will not be received if TAN is not quoted and challans for TDS/TCS payments will not be accepted by banks. Failure to apply for TAN or not quoting the same in the specified documents attracts a penalty of Rs. 10,000/-

What are the documents that need to accompany the TAN application?

Below is the list of documents required for applying TAN number by a Foreign Company in India:

  1. Copy of Certificate of Incorporation,
  2. Copy of Memorandum and Articles of Association,
  3. Copy of 3 month’s bank statements,
  4. Board Resolution favoring the person signing the application.

All these documents should be issued in the country where the applicant is located, duly attested by “Apostille” (in respect of countries which are signatories to the Hague Apostille Convention of 1961) or by the Indian embassy or High Commission or Consulate in the country where the applicant is located or authorized officials of overseas branches of Scheduled Banks registered in India; 

In case a duplicate TAN has been allotted, Which TAN should be used?

In case duplicate TANs have been allotted, the TAN which has been used regularly should be used. The rest of the TANs should be surrendered for cancellation using the “Form for Changes or Correction in TAN” which can be downloaded from the website of NSDL (http://tin.nsdl.com).

About the Author: This article is contributed by CA Rajeev GuptaPartner – SIGMAC & Co, Chartered AccountantsLocation- Delhi NCR and Gurgaon.

In case of any query please feel free to contact us at: rajeev@sigmac.co.in

For more information and updates, you can contact CA Rajeev Gupta or visit our website https://www.sigmac.co.in/my-blog/.

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Disclaimer: This content has been prepared for the general guidance of the reader on matters of interest only. It should not be treated as professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information or provisions of the law contained in this article. Author and/ or SIGMAC & Co., Chartered Accountants, its members, employees, and agents accept no liability and disclaim all responsibility for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this article or for any decision based on it.