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Govt. expands the definition of “Start-ups” & lists eligibility criteria to get tax relief

Updates

Govt. expands the definition of Start ups, the entities whose date of incorporation is upto a period of 10 years can come under the ambit of start-ups. In addition, an entity will continue to be recognised as a Start-ups, if its turnover for any of the financial years since incorporation and registration has not exceeded Rs. 100 crore.

Further, Govt. states that Start-ups will be eligible for exemption under Section 56 (2) (viib) of Income Tax Act and list the eligibility criteria for exemption.

In cases where the start up is a private limited company recognized by DPIIT then the consideration received by eligible Start-ups for shares issued or proposed to be issued shall be exempt up to an aggregate limit of Rs. 25 crore.

In addition, consideration received by eligible Start-ups for shares issued or proposed to be issued to a listed company having a net worth of Rs.100 crore or turnover of at least Rs. 250 crore will also be exempted.

Thereafter, Govt. lists down the following classes of person where  aggregate limit of Rs. 25 crore will excluded while consideration will be received by eligible Start-ups :-

(i) Non-Residents

(ii) Alternative Investment Funds- Category-I registered with SEBI

(iii) Listed company having a net worth of Rs.100 Crores or turnover of at least Rs. 250 crore provided that its shares are frequently traded as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Govt. further clarifies that any start-up investing in any of the following assets will not be eligible for exemption under Section 56 (2) (viib) of Income Tax Act :-

(i) building or land appurtenant thereto, being a residential house, other than that used by the Start-ups for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;

(ii) land or building, or both, not being a residential house, other than that occupied by the Start-ups 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;

(iii) loans and advances, other than loans or advances extended in the ordinary course of business by the Start-ups where the lending of money is substantial part of its business; (iv) capital contribution made to any other entity;

(v) shares and securities;

(vi) 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 Start-ups for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business;

(vii) jewellary other than that held by the Start-ups as stock-in-trade in the ordinary course of business;

(viii) 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.

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