Sunday, 6 May 2018

Alteration to the definition of a Startup - a relief for the Biotech Sector

The Department of Industrial Policy and Promotion (DIPP), under aegis of the Union Ministry for Commerce and Industry, has recently brought up a revised definition of start-ups.
The new definition according to DIPP notification shall now recite as :
An entity shall be considered as a start-up up to a period of seven 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”.
In reference to the biotechnology sector including medical device, the period shall be up to ten years from the date of its incorporation/ registration. The sudden increase has been made on the very fact that the companies in these two sectors take longer development process to mature.
Further, the notification revealed that the turnover of any entity for any of the financial years since the incorporation should not exceed INR 250,000,000 and that the entity should be 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.
An entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘start-up’.
Going forward, a start-up being a private limited company or a limited liability partnership incorporated on or after 1st day of April 2016, but before 1st day of April 2021, can claim 100% tax exemption on profits for three out of seven years, as per the prescribed norms. There is also a provision of tax relief for issue of shares by start-ups over the fair market value, with certain conditions. However, for availing the tax relief for issue of shares over the fair market value, the aggregate amount of paid-up share capital and share premium of the start-up should not exceed 10 crore.
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