Informative

Startups enjoy a number of income tax exemptions and benefits. Below is a list of 6 such benefits every startup must know.

Under Startup India Initiative, the recognized startups or investments in such startups have been exempted under several sections of IT Act. Below is a list of 6 such benefits under Income Tax act, every startup must know. (There are several other benefits under MSMEs, other than income tax benefits, you can read them in a separate post on this link: 6 Important Benefits Every MSME Must Know ! )

1. Profits exempted from Income Tax:

A DPIIT recognized Startup is eligible to apply to the Inter-Ministerial Board for full deduction on the profits and gains from business (exemption under Section 80IAC of the Income Tax Act) provided the following conditions are fulfilled.
The entity should be

• a private limited company or a limited liability partnership,
• incorporated on or after 1st April 2016 but before 1st April 2021, and
• products or services or processes are undifferentiated, have potential for commercialization and have significant incremental value for customers or workflow

The deduction is for any three consecutive years out of ten years from the year of incorporation of start-up. (Turnover up to INR 100 crores)

2. Income Tax Exemption on Investments:

DPIIT Recognized Startups are exempt from tax under Section 56(2)(viib) of the Income Tax Act, when such a startup receives any consideration (investment) for issue of shares which exceeds the Fair Market Value of such shares.

The startup has to file a duly signed declaration in Form 2 to DPIIT {as per notification G.S.R. 127 (E)} to claim the exemption from the provisions of Section 56(2)(viib) of the Income Tax Act.

3. Capital gain exemption on property sale:

Amendment in Section 54GB of the Income-tax Act provides exemption from tax on capital gains arising out of sale of residential house or a residential plot of land if the amount of net consideration is invested in prescribed stake of equity shares of eligible Startup for utilizing the same for purchase of specified asset.

a. The condition of minimum holding of 50% of share capital or voting rights in the start-up is relaxed to 25%.
b. The period of extension of capital gains arising from sale of residential property for investment in start-ups has been extended up to 31^st March 2021.

4. Carry forward of Losses:

Startups can carry forward their losses on satisfaction of any one of the following two conditions, as per amendment in Section 79 of Income Tax Act:

1. Continuity of 51% shareholding/voting power or
2. Continuity of 100% of original shareholders

5. ESOPs Tax deferrals to startup employees:

ESOPs of startup employees will not be liable to tax immediately on exercise of the option by such employees. The tax on such ESOPs are deferred until happening of one of the below three cases:

• Five years after exercising the option.
• The year in which they sell shares.
• The year when the employee leaves the company

6. Capital Gain Tax Exemption if invested in fund of startups:

Exemption from tax on long-term capital gain can be availed if such long-term capital gain is invested in a fund notified by Central Government. The maximum amount that can be invested is INR 50 lakhs as per section 54EE in the Income Tax Act, 1961.

Post by: Mangesh Mandlik,
About the Author: Mangesh is a tax enthusiast and leads Finance and Tax Team in Datapalm India.

Startups should be aware of the benefits available for MSMEs in India here.

Important tips for an efficient WFH:

1. These are NOT Holidays:

Remember, these are not holidays, these are regular working days with the benefits like lunch with family and savings of commutation time to office.

2. Suitable Place to Sit:

Decide a suitable place in your house where you can work for long hours and have long calls without disturbances.

3. Use chair and desk:

Preferably use a chair and a desk to work, instead of a sofa or bed with laptop on your lap.

4. Inform family members clearly:

Inform all your family members clearly , though at home, during office hours, you are not available at their will. Their complete support is a must to make your #WFH productive.

5. Communicate with your colleagues and managers frequently:

Communicate with your colleagues and managers frequently and keep them updated about the progress of work at regular intervals.

6. Strictly adhere call timings:

Strictly adhere to the timings of periodic update calls, as planned by your employer during the day. Most companies monitor WFH through logins, online meetings and calls at regular intervals.

7. Keep break timings same:

It is advisable to keep the timings of all the breaks intact as they were at your office place.

8. Internet Backups to be available:

Make sure to have alternate internet arrangement, in case if the primary internet fails. (Mobile data etc).

9. No movies, fixed social media breaks:

STRICTLY avoid watching movies and other social media temptations (FB ,Whatsapp, etc) in office hours. Most effective way to handle this is to decide periodic “Social media breaks” after say every 2 or 3 hours for very few minutes. Check your social media during these small breaks only.  Many employers have blocked most of the social media websites on their machines, for those who haven’t blocked these, a due care from employees will serve the purpose.

10. Combined responsibility:

Making WFH successful is the combined responsibility of all of us. WFH is a preventive measure in the interest of employees and to support the efforts to restrict spreading the COVID 19.

 If not managed well, WFH days will turn out to be more stressful than the normal working days. You will end up neither enjoying your family time nor getting the most out of the working hours spent. 

All the best.

Below are 6 important benefits (incentives) available for MSME Registered entities which you must know.

1. Recoveries from Clients (Delayed Payment Monitoring System):

Your clients/customers are bound to pay you within 45 days if you are registered under MSME. 7000+ cases have been Disposed or Mutually Settled by Government under this scheme involving an amount of over Rs.1,100 Crore. visit https://samadhaan.msme.gov.in/MyMsme/MSEFC/MSEFC_Welcome.aspx for further details.

You must be registered under MSME at the time of raising such invoice, MSME registration number must be mentioned on the invoice, are a couple of pre-requisites among others to avail this protection. Process is online. As per the Companies Act, private and public companies have to specifically report the details of their MSME registered vendors and whether they paid these vendors within the prescribed period.

2. Collateral Free Loans upto Rs. 2 Crores (Rs.20 Mn):

MSEs can avail loans from financial institutions without collaterals/third party guarantees. As per the government website, a whooping 4.36 Lac number of guarantees amounting to over Rs.30,000 crores are issued in 2019 alone, under this scheme. Both “New” as well as “Existing” MSEs from any sector (Services / Manufacturing) are eligible for this scheme.

So what are you waiting for?  Visit government website https://www.cgtmse.in/FAQs.aspx for details of this scheme.

3. Concession in electricity bill:

There are concessions on Electricity bills for MSME registered entities. Electricity Duty is exempt from the electricity bills of the MSME registered entities. So enjoy the bill reduction merely by registering as MSME and following a quick small process. 

4. 1% Interest Rate Reduction on Overdrafts:

If you are MSME registered company, you are eligible for 1% reduction in Interest rate on Overdrafts as per the RBI circular RBI/FIDD/2016-17/37 Master Direction FIDD.MSME & NFS.3/06.02.31/2016-17.

If you have not availed the same till date, go to your bank and get this done.

5. ISO Certification Reimbursement:

Government of India reimburses the expenses incurred on getting ISO Certification for MSME registered units. Visit https://www.startupindia.gov.in/content/sih/en/government-schemes/reimbursement_iso_standards.html for further Details. (there are ceilings applicable on maximum amount reimbursable 75% upto Rs. 75,000)

6. Reimbursement of expenses on Participating Trade Fair Events:

MSMEs are eligible to get a reimbursement from the Government for Participating in various Domestic and International Trade Fairs. (as per Guidelines issued on 20 Nov 2019 by Development Commissioner, MSMED, Government of India). Reimbursements include rents, registration fees, travel and other costs for participating in such events.  

Some other benefits:

There are many other benefits proposed by the government for MSMEs.  

Rs. 50,000 Crore Equity Infusion: 

Government is planning to infuse equity in MSMEs. A fund is set aside for the same by the Government of India. Detailed guidelines on the same are expected soon.

Technology Up-gradation Scheme: 

Government gives a Subsidy of certain percentage of Capital investments in MSMEs. Currently Under Hold, revised scheme will be issued soon.. http://www.dcmsme.gov.in/schemes/Credit_link_Scheme.htm

Patent (IPR) Scheme: 

Subsidy is available for getting the IP Registration for MSME. https://www.startupindia.gov.in/content/sih/en/government-schemes/international-patent-protection-sip-eit.html

How to Obtain MSME Registration?

This is a one time registration. MSME Registration can be obtained online on your own OR you can take help of consultants for getting your entity registered under MSME. The cost of consultants generally ranges between Rs.5,000/- to Rs.10,000/- in India.  For further details and help contact http://datapalmtech.com/contact/

Are you eligible to be registered as MSME?

Any entity Proprietorship, Partnership, LLP, Private Co., Public Co., etc in the busines of providing Services or Manufacturing activity, meeting the below limits are eligible to be registered as MSME:

Particulars	Micro	Small	Medium
Investment in Plant and Machinery	upto Rs. 1 Crore (10 Mn)	upto Rs. 10 Cr (100 Mn)	upto Rs. 50 Cr (5k Mn)
Turnover	upto Rs 5 Cr (50 Mn)	upto Rs. 50 Cr (50 Mn)	upto Rs. 250 Cr (2.5k Mn)

Can I get help to be registered as MSME?

Yes. Please write on [email protected] or call +91 90216 48544

DISCLAIMER:

The information contained herein is generic in nature and is meant for awareness purposes only. Nothing here is to be construed as an advice . Readers are advised to exercise discretion and should seek independent professional advice prior to making any decision in relation to any product. The Author is not liable for any decision arising out of the use of this information.