This document provides an overview of the legal, compliance and tax benefits available to startups in India under the Startup India scheme. Some key points include: - Startups registered with DPIIT are eligible for self-certification of compliance under 6 labour laws and 3 environmental laws for 5 years. - Income tax exemptions are available to DPIIT-registered startups under Section 80-IAC for any 3 years in the first 10 years of operations. - Angel tax exemption under Section 56(2)(viib) is available for DPIIT-registered startups receiving share premium if total share capital and premium does not exceed Rs. 25 crore.

1. LEGAL, COMPLAINCE & TAX BENEFITS

2. CA Snehal Zanwar
 About Startup India Scheme:

3. Overview
• Launched on 16th Jan 2016.
• Laid the foundation of Self
reliant India.
• Intended to catalyst start-up
Culture & build a strong
ecosystem of Innovation &
Entrepreneurship
• Transforming India to
become a Job creator
instead of job seeker.

4. A STARTUP ECOSYSTEM OVERVIEW
NoofstartupsinIndia
61300
DPIITRegistration
50058+
JobsCreated
I Mn
MedianAgeofStartup
Founders
31
80IACoftheI.T
axAct
319+
3rd
Map for Illustrative purpose only
 3rd largest startup eco-system in the world
 3rd most active incubation/acceleration
program
Unicorns in
2021
13
DPIITand
www.startupindia.gov.in
Department for Promotion of
Industry and Internal T
rade
(DPIIT)

5. EQUATION OF A STARTUP
New
Business Innovation Technology Passion
Startup

6. AGE
ENTITY
TYPE
TURNOVER NATURE OF
INNOVATION
10 years from
date of
incorporation
Pvt. Ltd.
Company or
LLP or
Registered
Partnership
Firm
How to Define a startup?
Government of India Definition
Must not
exceed
INR 100 Cr.
in in any
fiscal year
Developing new or
improving existing
product/service
offering or if it is a
scalable business
model with a high
potential of
employment
generation or
wealth creation
Note: It should not be formed by splitting up or reconstruction of a
business already in existence.

7. Self Certification
Compliance of 3
Environmental & 6
Labour Laws on Self
Certification Basis
GOVT INITIATIVE FOR STARTUPS
T
ax Exemptions
Profit Exemptions &
Investment
Exemptions
Intellectual Property
Easy Application
Procedure for Trademark,
Copyright, Patent with
upto 80% Rebate in Filling
Easy Closure
Closure with 90 Days
under
Insolvency &
Bankruptcy Code
R
e
l
Relaxation in Public
Procurement Norms
No EMD,
Turnover/experience
req.

8. Relaxation in Public Procurement
Norms
Startups in the manufacturing sector from the criteria of
“prior experience/ turnover” without any compromise on
the stated quality standards or technical parameters.
Exemption on requirement of Prior Turnover,
Experience and EMD or bid security.
DPIIT recognised startups can get listed as Sellers on the
Government e-marketplace (GeM) i.e. GOIs largest e-
procurement portal
Recognised startups can also become preferred bidders
on CIPP portals which sees over 200,000 tenders every
year.

9. Intellectual Property Rights
Fast tracking of
Applications
• Fast tracked for
examination and
disposal
• Faster Process
Facilitators to assist
in IP applications
• Provide general
advisory services.
• To protect and
promote IPRs in
other countries.
• Bear entire fees for
trademark &
Patent.
• Bear only Statutory
fees
Rebate on filing of
application
• 80% rebate in
filing of patents
• 50% rebate in
filing of
Trademarks

10. Self Certification under Labour & Environmental
Laws
6 Labour Laws relaxation 3 Environment Laws relaxation
The Building and other Constructions
workers’ (Regulation of Employment &
Conditions of Service) Act,1996
The Water (Prevention & Control of
Pollution) Act, 1974
The inter-state Migrant Workmen
(Regulation of Employment &
Conditions of Service) Act,1979
The Water (Prevention & Control of
Pollution)Cess (Amendment) Act, 2003
The Payment of Gratuity Act, 1972 The Air (Prevention & Control of
Pollution) Act, 1981
The contract Labour (Regulation and
Abolition) Act, 1970
The Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952
The Employees’ State Insurance Act,
1948
Note: no inspections will be conducted for a period of 5 years.

11. Self Certification under Labour &
Environmental Laws (Continued)….
Verified only on written & credible complain and
approved by atleast one senior officer.
In order to avail this concession, startup should be in
the white Board category.
Random checks are carried out for these white board
Industries
.Applicable to non- polluting, such as Biscuit trays &
Cotton from rolled PVC sheet (using automatic
vacuum forming machines) and woolen hosiers
making (Dry process only without any dying/washing
operation)

12.  Startup mentor is person who help you establish your startup in the very
initial days.
 As a startup founder one may have many things to figure out depending
upon what kind of business it is.
 Founders are not equally skilled in all aspects.
 So, they seek for person who have done the same before or experience
doing the same.

13. Incubator
A startup incubator is a
collaborative program
designed to help
new startups succeed.
The sole purpose of
a startup incubator is to
help entrepreneurs grow
their business.

14. TYPES OF INCUBATORS?
There are basically five types of Incubators:
1. Academic Institution
2. Non-Profit Development Corporation
3. For Profit Property development ventures
4. Venture Capital Firms
5. A combination of above.

16. Acceleration
Acceleration is a time-bound process of fostered development of startups.
An accelerator is a venture company (working with high risks) that invests resources in
companies at an early stage of their development in exchange for an equity stake in
these companies.

17. REGULATORY & TAX
BENEFITS AVAILABLE TO
STARTUPS…

18. UNDERSTANDING DPIIT RECOGNITION CRITERIA
 The G
overnment of India under its flagship
programme "Startup India" introduced the
concept of an "Eligible Startup".
 G
ovt also laid down the criteria for
recognition as an "Eligible Startup" (see
image)
 "Eligible Startups" entitled to benefits
announced by government under various
programmes, schemes and regulations.
 Types of entities can apply for "Eligible
Startup" ?
1. P
rivate Limited Company or
2. Limited Liability P
artnership
(LLP) or
3. AR
egistered P
artnership Firm
 Startup can get recognition through an
online application on
www.startupindia.gov.in
Not older that
10 years from
the
date of
incorporation /
registration
Turnover1 of the
startup for any of
the financial years
since incorporation /
registration not
exceeded INR100
crore
Startup working
towards
 Innovation or
 development or
improvement of
products/proces
ses/ services or
 a scalable
business model in
terms of
employment
generation and
wealth creation
A startup ceases to be an Eligible Startup if does not fulfill the
above the criteria or the startup is an entity formed by splitting
up or reconstruction of a business already in existence.
DPIIT Startup India Recognition
Recognition as an "Eligible Startup"
01.
1"Turnover" shall have the meaning as assigned to it in
clause (91) Section 2 of the Companies Act, 2013
Incorporation
Criteria
Turnover
Criteria
Innovation,
Employment &
Wealth Generation

19. Visit Website:
http://www.startupindia.gov.in
Create an account on
the website
Fill the application form and
attach Certificate of
Incorporation and other
supporting documents req.
r
Once basic enquiry are
completed with satisfactory results
approval of application is done
Issue of Certificate of Recognition
• Application for TAX EXEMPTIONS needs are required to be made separately.
• Application for ANGEL TAX EXEMPTION u/s 56 to be made in FORM 2 separately.
1
2
3 4
5
DPIIT STARTUP RECONGNITION

20. Process for DPIIT Registration
1.Is your offering a product/service
2.Is your product Innovative/an Improvement of an existing
process
3.Is your offering resulting in Employment
Generation/Wealth Creation
4.Pleasesubmit abrief note supporting the options chosen
abovefor innovation/improvement - 250 words max.
5.Mobile Number and e-mail IDof ALLdirectors
6.Certificate of Incorporation of the Company
7.Please mention any awards/recognition received by the
entity (If applicable ú100 words max.
8.What is the problem the Startup is solving ?(100 words
max.)
9.How does your Startup propose to solve this problem ?
(100 words max.)
10.What is the uniqueness of your solution ?(100 words
max.)
11.How does your Startup generate revenue ?(100 words
max.)
12.Updated Pitch Deck
13.Videos (if any)
14. Any kind of socializing content, such as pictures, etc.
Summary of Information required for Registration
Requirements in application for Eligible Startup

21. Process for DPIIT Registration
Point No 5 : Information Required Point No 6 Startup Activities

22. Regulatory Benefits to Eligible Startups
01
COMP
ANIESACT
Exemption from
Cash Flow
Statement
Board Meetings
per year
Acceptance of
Deposits from
Members
02
FO
REIG
N
EXCHANG
E
MANAG
EMENT
ACT
Issuing
Optionally
Convertible Note
Relaxed External
Commercial
Borrowing Guidelines
(ECB)
Relaxation on
opening of Foreign
Bank Account
03
LABOUR&
ENVIRONMENT
LAWS
self-certify
compliance for 9
Labour Laws
https://shramsuvidh
a.g
ov.in/startUp.action#
04
IBC, SEBI
and
RBI
FastT
rack Process
under IBCCode.
Wind up in 90 Days
Shares with
Different Voting
Rights Permitted
Can solicit investment
from SEBI Registered -
Angel Funds (Cat 1)
01
COMPANIES
ACT
(contd.)
Sweat Equity
and ESOPs
Convertible
Notes
Certification of
MGT7 By
Practicing CS
Self-certify for
Environment Laws

23. Regulatory Benefits to Eligible Startups (contd.)
06
Public
Procurement
Norms
07
Income T
ax
08
Dedicated
Startup C
ells
INTELLECTUAL
P
R
O
PE
R
TYRIG
HTS
05
Fast T
rackingof
Startup Patent
Application
Govt to bear
facilitation cost
for patents,
trademarks or
designs
Rebate on filing
of application
for Patents (80%
rebate)
Opportunity to list
product on
Governmente-
Marketplace (GeM)
EMD Exemption
while filing
government tenders
Exemption from
Prior
Experience/Turn
over
Angel T
ax
Exemption,
ESOPT
ax
Deferment
Section 80
IAC
Deduction
Capital G
ains, Set
Off and Carry
Forward of Losses
RBI :
helpstartup@rbi.
org.in
IncomeT
ax
startupcell.cbdt@g
ov.in.

24. Income Tax Relaxations for Eligible Startups
1 2 3 4 5
ESOPT
A
X DEFERRMENT ANG
ELT
AX CA
PIT
ALG
A
INST
A
X SO/ CF OF L
OSS
ES 80-IAC : IMB
 T
ax on exercise
of ESOP’s
deferred by 5
years or Sale of
Shares or
Employee Exit
(i.e. leaving the
company)
whichever
earlier
Start-Ups in India: Tax & Regulatory insight into the Journey from set-up to exit
 100%T
ax
deduction
 Any 3
consecutive
years out of
10 years
 No T
ax
under
section
56(2)(viib)
 No Scrutiny
on Valuation
 Exemption
available for
Capital gains
arising out of
Residential
Property, if sale
amount invested
in 80IACStartup
(Section 54GB)
 Capital Gains
Exemption for
Investing in
Units of Funds
(Section 54EE)
 Carry Forward Loss
even if there is
change in 51%
Shareholding,
provided all
shareholders as on
year of losses
continue to be
shareholder in current
year (i.e. year of set-
off)
 Available
for 80IAC
Recognise
d Startups
 Available for
80IAC
Recognized
Startups

25. Inter-Ministerial Board Recognition
02
01
03
Memorandum of
Association, Board
Resoluion, if any
Previous three years
financials and Income T
ax
R
eturn
Pitch Deck explaining the
business activities
undertaken by the business
Video Link explaining the
product/service the
startup is engaged into
05
Documents Required for Form 1 (80 IAC)
Any other additional
documents required by
IMB
04
The Balance Sheet and the Profit and
Loss Statement must be CA Certified.
If your startup is incorporated on 1st
April 2018 or later, Income Tax Returns
(ITR) is not mandatory. For startups
incorporated earlier, ITR is mandatory.

26. INCOME TAX EXEMPTION (U/S 80- IAC)
DPIIT
Recognize
d Startup
Incorporated
after 1st April,
2016 but
before 1st
April 2022
Turnover
does not
exceed
Rs. 100
Crore
Approval
from Inter
Ministerial
Board (IMB)
Exemption
- For any 3
Consecutive
Assessment year out
of 10 initial years.
- Deduction Period at the
Option
of the Startup.
Pvt. Ltd.
Company
or LLP
Only

27. ANGEL TAX EXEMPTION U / S 56(2)(viib)
Meaning – Angel Tax
Consideration which is
- Received in the form of Premium (Value Exceeding Face
Value or Fair Value)
- By Privately held companies
- Towards issue of shares
Criteria
- Recognized as Startup by DPIIT
- Private Limited Company
- Aggregate Amount of Share Capital and Premium not to exceed Rs. 25
Crore.
- No Investment in Certain Class of Assets (Explained in Next Slide)

28. ANGEL TAX EXEMPTION( U / S 56(2)(viib))
Calculation of Paid up Share Capital & Premium
Amount Not to be included while calculating Paid up Share Capital & Share
Premium
- Amount Invested by A Non Resident
- Amount Invested by A Venture Capital Company or Venture capital fund or AIFs
- A Company whose
- shares are frequently traded in Stock Exchange
-Net Worth on the last day of FY preceding the year in which shares are issued
exceeds Rs. 100 Crore
-Turnover in the FY preceding the year in which shares are issued exceeds Rs.
250 Crore

29. ANGEL TAX EXEMPTION( U / S 56(2)(viib))
Restriction on Investment in Following Class of Assets
- Land & Building, being a Residential House
- Land & Building, not being a Residential House for investment
- Loans & Advances, Shares & Securities, other than in normal course of
business
- Capital Contribution in any other entity
- Transport vehicles above INR 10 lakhs
- Jewellery, other than in normal course of business
Startup shall not invest in the mentioned
assets for seven years from the end of the
latest financial year in which shares are
issued at premium

30. How to calculate Angel Tax
If the entity fulfills all the conditions as required under section, it can claim
exemption.
Face value Fair Market
Value
Issue
price
No.of
shares
purchased
Amount on which tax is levied
10 50 60 1000 10000(1000*(60-50)) to be
assessed as Income from other
sources
1000 2000 5000 1 lakh
shares
30 Cr.
(5000-2000)*1 lakh shares

31. Calculation of paid up share capital and premium
Shareholder from
whom amount
received
Share Capital
INR
Share premium
INR
Total
consideration
INR
Whether to be
counted for INR
25 Cr. Limit
Promotors 3Cr. 6Cr. 9Cr. Yes
Friends of
Promotors
1Cr. 2Cr. 3Cr. Yes
NRIs 1 Cr. 2Cr. 3Cr. No
Alternate
Investment Funds
Category I
2Cr. 24Cr. 26Cr. No
Listed companies
whose shares are
frequently traded
and having net
worth of Rs. 100 cr
2 Cr. 24 Cr. 26 Cr. No
Venture capital
funds
1 Cr. 12 Cr. 13 Cr. No
Total 10 cr. 70 Cr. 80 Cr.

32. Annexure II- Angel Tax Exemption
Declaration by aStartup for exemption under Section 56(2)(viib) of the Income
T
ax Act, 1961
<Onthe letterhead of the Eligible Startup>
I, Son/ Daughter of having PermanentAccount
Number (PAN) in my capacity as of (Company
Name) having DPIIT recognition number and Permanent Account Number (PAN)
hereby certify and declare that the said company has not invested and
shall not invest for a period of seven years from the end of the latest financial
year in which shares are issued at premium by the said company in any of the
assets specified in para 4(iii) of the notification number dated issued
by Department for Promotion of Industry and Internal Trade, Ministry of
Commerce & Industry.
I understand that failure to comply with the above declaration will result in
revocation of exemption with retrospective effect.
Place: Date:
Signature*:
Name: Designation:
*This declaration is to be signed by a person who is authorised to verify the return
of income under section 140 of the Income T
ax Act.
Start-Ups in India: Tax & Regulatory insight into the Journey from set-up
to exit

33. TAX EXEMPTION ( U / S 54GB)
 Who Can Invest ? – Individual or HUF
 Which Capital Gain ? – Long Term Capital Gain from Residential Property(
a house or plant of land) if transfer takes place during April1, 2012 and
March 31, 2017(in case of an investment in eligible start-up, the residential
property can be transferred upto March 31, 2022)
 When to Invest ? – Before the due date of Furnishing ITR of the relevant
financial year in which you have earned Capital Gain
 Where to Invest ? – In specified Startup Companies

34. TAX EXEMPTION (U/S 54GB)
 Which are Specified Startup Company ? –
1. Manufacturing Company incorporated in India ( where
investment in P&M is more than Rs.25 lakh but not more than
Rs. 10cr.) or an eligible startup.
2. Incorporated in the year in which capital gain arose or before
the date of filing ITR as specified in Point 3.
3. More than 50% Capital or Voting Rights should be owned by
the Assessee who has earned Long Term Capital Gain.
4. Company Should be classified as Startup Company or MSME.
5. Assets should be acquired within 1 year from the date of
Investment.
6. Assets acquired through this invested capital gain Locked in for
5 Years ( for computer and computer software its 3 years)

35. TAX EXEMPTION (U/S 54GB) continued
 Quantum of Exemption available ? –
1. If Net Consideration is less than or equals to Capital
Gain –
Entire Capital Gain Would be Exempt
2. If Net Consideration is more than or equals to
Capital Gain –
Investment * Capital Gain / Net Consideration
 What is Net Consideration ? – Consideration as
reduced by expenditure incurred exclusively in
connection with such transfer.

36. Tax Efficacy of different Startup Entity
forms
Partnership firm LLP Private Limited
Company
Tax Holiday under
section 80IAC
Not available Available to an
eligible startup
having IMB
certification. But
AMT provisions
applicable
Available to an
eligible startup
having IMB
certification. But
MAT provisions
applicable
54GB Benefit of
capital gains
exemption
Not available Not available Available
Angel tax Not applicable Not applicable Available
Section 68- to
explain the source
of the source of
funds raised
Not applicable Not applicable Applicable
Tax rate 30% 30% 25%

37. ESOP – A Smart option for Startups
Benefits of ESOPS for startups-
•Retainership Instrument
•Ownership feeling for employees
•Option in lieu of salary

38. ESOPs are taxed at 2 instances –
Budget 2020 amendment – From the FY 2020-21, an employee receiving
ESOPs from an eligible start-up need not pay tax in the year of exercising the
option. The TDS on the ‘perquisite’ stands deferred to earlier of the following
events:
Expiry of five years from the year of allotment of ESOPs
Date of sale of the ESOPs by the employee
First Instance Second Instance
At the time of exercise – as a
perquisite
At the time of sale by the
employee – as a capital gain
The difference between the FMV (on
exercise date) and exercise price is
taxed as perquisite.
The difference between the sale
price and FMV on the exercise date is
taxed as capital gains.

39. Example – ESOP
At the time
of
Units Date Exerci
se
price
FM
V of
shar
e
Tax impact Rate of
tax
Tax to be
paid
Grant 100 1-4-2020 100 120 Nil
Vesting 100 1-4-2022 100 150 Nil
Exercise 100 1-8-2022 100 170 Nil
Sale of
shares
20 1-12-2022 250 =30%*20*(170-100)=2100+cess
Taxable amount = FMV on
Exercise date (1st July 2014)
less Exercise Price
Income
tax slab
rate
Under
income
from salary
20 1-12-2022 250 =30%*20*(250-170)=480+cess
Taxable amount = Sale Price on
date of sale less FMV on
exercise date
Income
tax slab
rate
Under
capital
gains (
short term
capital
gain)
Remaining
shares
80 2027-28 =30%*80*(170-
100)=1689+CESS
Income
tax slab
rate
Under
income
from salary

40. CAN STARTUP COMPANIES ISSUE SWEAT
EQUITY SHARES?
•Yes, Startup companies can issue sweat equity shares to its directors
or employees.
•Applicable Rules?
Section 54 of the Companies Act 2013 read with the companies
(Share Capital and Debentures) Rule, 2014.
•Who are covered under the sweat equity scheme?
Sweat equity shares can be issued by a company at discount or for
consideration other than cash to:
•Directors : whether a whole time director or not of the company /
subsidiary company/ Holding company
•Permanent employee –(inside or outside India) of the
company/subsidiary company/Holding company incorporated in India
or outside India.

41. Limits as per Rule 8
For companies
registered
under startup
In a year shall not exceed
higher of
a) 15% of existing PESC or
b) Issue price of 5 Cr.
Overall limit shall
not exceed 50% of
PESC at any time.
For other
companies
In a year shall not exceed
higher of
a) 15% of existing PESC
or
b) Issue price of 5 Cr.
Overall limit shall not
exceed 25% of
PESC at any time.

42. Case study – Sweat Equity Shares
A company X Pvt. Ltd. Which is having a paid-up equity share capital of Rupees
7 cr. ( 70 lakh share @ 10 each).
Let’s check maximum limit of sweat equity share that X Pvt.ltd. Can issue.
higher of For a
particular year
Restricted to in
aggregate
Limit of issue of
Sweat Equity shares
15% of PESC 7 Cr.
=10.5 Cr.
50% of PESC
5 Cr. 50% of 7 cr. i.e. 3.5 Cr. 3.5 Cr.

43. Carry forward of losses despite substantial
change in ownership
 Carry forward is allowed as long as at least 51% of voting power in
the year of incurrence of loss continue to be the same in the year of
carry forward, this condition not applicable in case of company being
an eligible startup.
 The only condition for carry forwards is that all the shareholders in
the year of loss shall be holding the shares in the company in the year
of carry forward and such loss has been incurred during the period of
seven years beginning from the year in which such company is
incorporated.

44. OTHER BENEFITS OF STARTUPS
T
enders
• Can apply for government tenders
• Exempted from the “prior experience/turnover” criteria
• Exemption from EMD
Research
• Seven new research parks will be set up to provide facilities to
startups in the R&D sector
Funding
• Have an option to choose between the VCs
• liberty to choose their investors
• Exemption to investors if invested in VCs setup by Government
Linking
• Proposed to hold 2 startup fests annually both nationally and internationally
• Enable the various stakeholders of a startup to meet
• Huge networking opportunities.

45. OTHER BENEFITS OF STARTUPS
CONT’D………
ECB
• Can borrow upto $3m or equivalent per FY either in rupees or any
convertible foreign currency or combination for a minimum average
maturity period of three years.
FVCI
Investment
• Foreign venure capital investors are now allowed to invest in startups
irrespective of any sector without RBI’s approval.
Unlisted NCB
& SD
Instruments
• SEBI (Foreign Portfolio Investors) Regulations, 2014 have been
amended to permit FPIs to invest in unlisted Non-Convertible debentures
and securitised debt instruments.

46. CHALLENGES OF A STARTUP
Fierce Competition
Unrealistic Expectations
Hiring Suitable Candidates
Partnership Decision Making
Financial Management
Cyber Security
Winning Trust of Customers