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DPIIT issued a Notification today to revise definition of startups and for startups to get exemptions on investments u/s 56(2)(viib) of Income Tax Act. An entity to be Startup now upto 10 years from date of incorporation if its turnover has not exceeded Rs 100 Crore in a year.
Under the new notification, an entity to be a Startup now upto 10 years from its date of incorporation/registration instead of the existing 7 years and if its turnover has not exceeded Rs 100 Crore instead of existing INR 25 Crore in a year.
Investments made or to be made by all investors including family and friends into startups shall be exempt up to a limit of Rs 25 crore.
Investments into Startups by listed companies with a net worth of Rs 100 crores or turnover of Rs 250 Crore whose shares are frequently traded shall also be exempt under Section 56(2)(viib) of Income Tax Act beyond the limit of Rs 25 crore.
Investments into Startups by Non-Residents, Alternate Investment Funds- Category I or eligible listed companies will not be counted towards the exemption limit of Rs 25 crore.
A Startup shall be eligible for exemption under Section 56(2)(viib) of Income Tax Act if it is a private limited company recognized by DPIIT and is not investing in assets specified in the notification.
For being eligible for exemption under Section 56(2)(viib), a Startup should not be investing in immovable property, transport vehicles above Rs10 Lakh, loans & advances, capital contribution to other entities and some other assets, except in the ordinary course of its business.
Startups only have to file a self-declaration with DPIIT regarding not investing in specified assets for exemption. DPIIT shall transmit these declarations to CBDT which will make necessary entries in their systems so that such startups are not picked up for scrutiny.
There is no requirement now of making any application and there will be no case-to-case examination of Startups for exemption under Section 56(2) (viib) of Income Tax Act.
The valuation of shares is no more a criterion for exemption of investments specified in the latest notification into eligible Startups under Section 56(2) (viib) of Income Tax Act.
