Here's what startups might miss out on if not registered with DPIIT

Startups

Among the slew of policy measures announced by Finance Minister Nirmala Sitharaman on August 23 to boost the slowing economy, exemption from 'angel tax' for startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT) was a much welcome one.

Under the Startup India initiative launched by the Modi government in January 2016, eligible companies can avail this and a host of other tax benefits. All they need to do is be recognised as startups under the initiative by the DPIIT.

As per a Forbes report, around 24,000 of the 50,000 startups in India are registered with the DPIIT. They raised a record $10.5 billion in 2018. A Business Standard report pegged the number of jobs created under the Startup India initiative at 560,000 since launch.

However, angel tax has long been a bane for startups that have struggled to thrive in the ecosystem, especially the younger ones trying to gain a foothold in the market. Introduced in 2012 under section 56(2) of India’s Income Tax Act, angel tax was originally aimed at tackling money laundering. However, over time, it became infamous among the startup community as a tax tool targeting them.

Angel tax basically refers to income tax levied on the capital raised by unlisted companies through share issue via off-market transactions. Angel tax was levied when privately-held companies raised funds at a rate higher than their "fair valuation". The tax thus ended up dissuading potential investors by making the process cumbersome for them.

The latest move by the government has therefore been cheered by founders of such companies, raising hopes for more such steps in the future to promote the startup ecosystem.

As per the revised definition, an entity is considered a startup up to 10 years from the date of its registration with the department concerned. Previously, the definition provided for a period of seven years and was extended earlier this year.

The turnover limit for such entities to come under the definition was also raised. Currently, these newly-established businesses must have a turnover of under Rs 100 crore for any of the financial years during the specified 10-year period in order to qualify as startups, as opposed to the earlier limit of Rs 25 crores.

Registering your company as a startup under Startup India is a simple process- all you need to do is follow these steps.

To begin with, register as a private limited company, a partnership firm or a limited liability partnership. Next, register it as a startup through a simple process that can be completed online by heading to the Startup India website. Fill out the details of your business and upload necessary documents- a letter of recommendation or support, the company registration certificate and a brief description of the business.

Sign up for the tax benefits you would like to avail; that's where you can seek the angel tax exemption too. Thereafter, a self-certification of various heads mentioned earlier is required, following which you will be provided with a recognition number for your startup.