Lok Sabha Question No. 3690 (UNSTARRED), answered on 2019-12-11
Subject: Tax Exemptions to Startups
Ministry: COMMERCE AND INDUSTRY
Asked by: Ramcharan Bohra

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE

## LOK SABHA

UNSTARRED QUESTION NO. 3690.

TO BE ANSWERED ON WEDNESDAY, THE 11 TH  DECEMBER, 2019.

## TAX EXEMPTIONS TO STARTUPS

## 3690.  SHRI RAMCHARAN BOHRA:

Will the Minister of COMMERCE AND INDUSTRY be pleased to state:

वाणिज्य

## एवं उद्योग मंत्री

- (a) whether  the  Government  has  set  any  target  to  give  exemption  in  tax  to startups  to  provide  more  employment  opportunities  to  the  youth  of  the country;
- (b) if so, the details of the startup schemes;
- (c) whether the Government has allocated any fund/budget for the startup;
- (d) if so, the amount of the fund be allocated;
- (e) the State/UT-wise details thereof; and
- (f) the State/UT-wise details of employment under this scheme?

## ANSWER वाणिज ् य एवं उद्योग मंत्री ( श्री पीयूष गोयल ) THE MINISTER OF COMMERCE & INDUSTRY

## (SHRI  PIYUSH GOYAL)

- (a)  &  (b): Yes  Sir,  Under  Startup  India  Initiative  recognized  startups  have  been exempted  under  several  sections  of  IT  Act.    Details  are  enclosed  at Annexure-I.
- (c) to (e): The Fund of Funds for Startups (FFS) was approved by the Cabinet and established by DPIIT in June 2016 with a corpus of Rs 10,000 crore to provide  a  much  needed  boost  to  the  Indian  startup  ecosystem  and enable  access  to  domestic  capital.  The  objectives  of  Fund  of  Funds include  accelerating  innovation  driven  entrepreneurship  and  business creation, mobilizing larger equity-like resources for startups. The Fund of Funds does not directly invest in start-ups but provides capital to SEBIregistered Alternate Investment Funds (AIFs),

known  as  daughter  funds,  who  in  turn  invest  money  in  growing  Indian startups  through  equity  and  equity-linked  instruments.  SIDBI  has  been given  the  mandate  of  managing  this  Fund  through  selection  of  suitable daughter funds and overseeing the disbursal of committed capital.

As on 21 st November, 2019, SIDBI has committed Rs 3123.20 Cr. to 47 SEBI registered Alternative Investment Funds (AIFs). These funds have raised a corpus fund of Rs. 25,728 Crore. Rs. 695.94 Crore have been drawn  from  the  Fund  of  Funds  for  start-ups.    Rs.  2,669.83  Crore  have been invested into 279 startups.  There is no provision for State/UT-wise distribution of funds under FFS.

- (f): 2,85,890 jobs are reported by 23,657 DPIIT recognized start-ups, as on 4 th December 2019.  The breakup of the number of start-ups with number of employees State/UT-wise is attached at Annexure-II.

## ANNEXURE-I

## ANNEXURE REFERRED TO IN REPLY TO PARTS (a) & (b) OF THE LOK SABHA UNSTARRED QUESTION NO. 3690 FOR ANSWER ON 11.12.2019.

## 1. Income Tax Exemption on profits under Section 80-IAC of Income Tax (IT) Act.

The  Inter-Ministerial  Board  of  Certification  is  a  Board  set  up  by  Department  for Promotion  of  Industry  and  Internal  Trade  (DPIIT)  which  validates  Startups  for granting tax related benefits. 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 seven years from the year of incorporation of start-up.

Till date, 38 Inter-Ministerial Board meetings have taken place and 247 startups have been granted exemption under Section 80IAC of the IT Act

## 2. Tax Exemption on Investments above Fair Market Value.

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

With  regard  to  declarations  received from  entities,  furnished  in  Form  2,  intimation regarding receipt of Declaration in Form 2 has been mailed in the cases of 1,729 entities as on 4 th of December 2019

## 3. Introduction of Section 54EE in the Income Tax Act, 1961.

Exemption  from  tax  on  long-term  capital  gain  if  such  long-term  capital  gain  is invested in a fund notified by Central Government. The maximum amount that can be invested is Rs. 50 lakh

## 4. Amendment in Section 54GB of the Income-tax Act

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 relaxed to 25%
- b)  The  period  of  extension  of  capital  gains  arising  from  for  sale  of  residential property for investment in start-ups has been extended up to 31 st March 2021.
5. Amendment in Section 79 of Income Tax Act.

Startups can carry forward their losses on satisfaction of any one of the following two conditions:

- a)  Continuity of 51% shareholding/voting power or
- b)  Continuity of 100% of original shareholders

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## ANNEXURE-II

## ANNEXURE REFERRED TO IN REPLY TO PART (f) OF THE LOK SABHA UNSTARRED QUESTION NO. 3690 FOR ANSWER ON 11.12.2019.

| State/UT                    |   Number of Startups |   Number of Employees (Self- Reported) |
|-----------------------------|----------------------|----------------------------------------|
| Maharashtra                 |                 4443 |                                  52847 |
| Karnataka                   |                 3444 |                                  46462 |
| Delhi                       |                 3001 |                                  34489 |
| Uttar Pradesh               |                 1926 |                                  20193 |
| Haryana                     |                 1335 |                                  19446 |
| Telangana                   |                 1320 |                                  18725 |
| Gujarat                     |                 1238 |                                  18087 |
| Tamil Nadu                  |                 1207 |                                  15506 |
| Kerala                      |                 1072 |                                   9776 |
| West Bengal                 |                  710 |                                   7647 |
| Rajasthan                   |                  680 |                                   8368 |
| Madhya Pradesh              |                  679 |                                   7467 |
| Odisha                      |                  423 |                                   5005 |
| Andhra Pradesh              |                  396 |                                   4325 |
| Bihar                       |                  334 |                                   3228 |
| Chhattisgarh                |                  310 |                                   2838 |
| Jharkhand                   |                  198 |                                   1330 |
| Uttarakhand                 |                  194 |                                   1814 |
| Punjab                      |                  177 |                                   2100 |
| Assam                       |                  155 |                                   1910 |
| Jammu and Kashmir           |                   99 |                                    935 |
| Goa                         |                   93 |                                    796 |
| Chandigarh                  |                   80 |                                    876 |
| Himachal Pradesh            |                   50 |                                    626 |
| Pondicherry                 |                   26 |                                    298 |
| Manipur                     |                   15 |                                    124 |
| Andaman and Nicobar Islands |                   10 |                                     64 |
| Tripura                     |                   10 |                                    303 |
| Meghalaya                   |                    8 |                                     41 |
| Nagaland                    |                    7 |                                     41 |
| Dadra and Nagar Haveli      |                    5 |                                    134 |
| Arunachal Pradesh           |                    4 |                                     22 |
| Mizoram                     |                    3 |                                     50 |
| Sikkim                      |                    3 |                                     12 |
| Daman and Diu               |                    2 |                                      5 |

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