Lok Sabha Question No. 2871 (UNSTARRED), answered on 2022-03-21
Subject: Tax Exemptions to Startups
Ministry: FINANCE
Asked by: L.S. Tejasvi Surya, Locket Chatterjee

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE

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## LOK SABHA UNSTARRED QUESTION NO. 2871

## ANSWERED ON 21 ST  MARCH, 2022

## 'Tax Exemptions to Startups'

## 2871 SHRI L.S. TEJASVI SURYA MS. LOCKET CHATTERJEE:

-Will the Minister of FINANCE be pleased to state: -

- (a) the  number  of  startups  who  possess  an  Inter-Ministerial  Board  (IMB)  certification,  statewise;
- (b) the current status of exemptions provided to the startups, categorically about the angel tax along with the time by which the startups will be liable to the tax on long-time capital gains;
- (c) whether IMB certification is a prerequisite to avoid angel tax and if so, the details thereof along with the number of startups who have benefited from the government's tax sops since 2014, year-wise;
- (d) whether the Government will look into altering the criteria to the advantage of the startups considering the low percentage of startups possessing IMB certification and if so, the details thereof;
- (e) whether the possession of an IMB certificate is also a prerequisite to avail tax holiday on profits  made  for  three  consecutive  years  out  of  ten  years  of  incorporation  and  if  so,  the number of startups expected to benefit therefrom; and
- (f)  whether the government will look into making the process of IMB certificate smoother for startups and if so, the details thereof?

## ANSWER

## MINISTER OF STATE IN THE MINISTER OF FINANCE

## (SHRI PANKAJ CHOUDHARY)

## Answer (a)

As  on  28 th February  2022,  a  total  number  of  412  DPIIT  recognised  startups  have  been granted Inter-Ministerial Board (IMB) Certification for the purposes of section 80-IAC of the Income-tax Act, 1961 . State-wise details of the same has been tabled below -

## Answer (b)

1. Under Explanation to sub-section (4) of Section 80-IAC of the Income-tax Act, 1961, "eligible  start-up"  means  a  company  or  a  limited  liability  partnership  engaged  in  eligible business which fulfils the following conditions:-
2. (a)  it  is  incorporated  on  or  after  the  1 st day  of  April,  2016  but  before  the  1 st day  of  April, 2022, which is proposed to be extended to 1 st April, 2023 by the Finance Bill, 2022
3. (b)  the  total  turnover  of  its  business  does  not  exceed  one  hundred  crore  rupees  in  the previous year relevant to the assessment year for which deduction under sub-section (1) is claimed; and

| States            |   No. of Startups granted Certification for the purposes of section 80-IAC of the Income-tax Act, 1961 |
|-------------------|--------------------------------------------------------------------------------------------------------|
| Maharashtra       |                                                                                                     99 |
| Karnataka         |                                                                                                     65 |
| Delhi             |                                                                                                     57 |
| Gujarat           |                                                                                                     32 |
| Tamil Nadu        |                                                                                                     29 |
| Haryana           |                                                                                                     23 |
| Telangana         |                                                                                                     23 |
| Uttar Pradesh     |                                                                                                     20 |
| Kerala            |                                                                                                     18 |
| Rajasthan         |                                                                                                     10 |
| West Bengal       |                                                                                                      9 |
| Madhya Pradesh    |                                                                                                      9 |
| Odisha            |                                                                                                      4 |
| Chandigarh        |                                                                                                      3 |
| Goa               |                                                                                                      2 |
| Punjab            |                                                                                                      2 |
| Uttarakhand       |                                                                                                      2 |
| Jammu and Kashmir |                                                                                                      1 |
| Andhra Pradesh    |                                                                                                      1 |
| Manipur           |                                                                                                      1 |
| Chhattisgarh      |                                                                                                      1 |
| Himachal Pradesh  |                                                                                                      1 |
| Total             |                                                                                                    412 |

(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;

Eligible start-ups are provided tax deduction of an amount equal to one hundred per cent of the profits and gains derived from eligible business under Section 80-IAC of the Income-tax Act, 1961 for three consecutive years out of ten years from the year in which the eligible start-up is incorporated.

2. Clause (viib) of sub-section (2) of section 56 of the Income-tax Act, 1961 provides that where a company, not being a company in which the public are substantially interested, receives,  in  any  previous  year,  from  any  person  being  a  resident,  any  consideration  for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares will be chargeable to income-tax under the head "Income from other sources".

A Startup shall be eligible for notification under clause (ii) of the proviso to clause (viib) of sub-section  (2)  of  section  56  of  the  Income-tax  Act,  1961  and  consequently,  avail  the benefits of non-application of the provisions of that clause, if it fulfils the conditions under para 4 of the DPIIT Notification No. G.S.R. 127(E) dated 19.02.2019.

## Answer (c)

IMB  Certificate  of  Eligible  Business  is  not  a  pre-requisite  to  avail  the  benefits  of  nonapplication of the provisions of clause (viib) of sub-section (2) of section 56 of the Incometax Act, 1961 (the Act).

A Startup shall be eligible for notification under clause (ii) of the proviso to clause (viib) of sub-section  (2)  of  section  56  of  the  Income-tax  Act,  1961  and  consequently,  avail  the benefits of non-application of the provisions of that clause, if it fulfils the conditions under para 4 of the DPIIT Notification No. G.S.R. 127(E) dated 19.02.2019.

-  Number of Startups in which intimation regarding receipt of declaration in Form 2 is issued,  to  avail  the  benefits  of  non-application  of  the  provisions  of  clause  (viib)  of sub-section (2) of section 56 of the Act -
-  Number of Startups  which  have  been granted  IMB  Certification  for  the  purposes  of Section 80-IAC of the Act -

| Year        |   Number of beneficiary Startups |
|-------------|----------------------------------|
| 2019        |                             1867 |
| 2020        |                             1577 |
| 2021        |                             1651 |
| 2022        |                              381 |
| Grand Total |                             5476 |

| Year        |   Number of beneficiary Startups |
|-------------|----------------------------------|
| 2016        |                                7 |
| 2017        |                               69 |
| 2018        |                               18 |
| 2019        |                              162 |
| 2020        |                               83 |
| 2021        |                               70 |
| 2022        |                                3 |
| Grand Total |                              412 |

## Answer (d)

No.

Under  Explanation  to  sub-section  (4)  of  Section  80-IAC  of  the  Income-tax  Act,  1961, "eligible  start-up"  means  a  company  or  a  limited  liability  partnership  engaged  in  eligible business which fulfils the following conditions: -

- (a)  it  is  incorporated  on  or  after  the  1 st day  of  April,  2016  but  before  the  1 st day  of  April, 2022, which is proposed to be extended to 1 st April, 2023 by the Finance Bill, 2022; and
- (b)  the  total  turnover  of  its  business  does  not  exceed  one  hundred  crore  rupees  in  the previous year relevant to the assessment year for which deduction under the said section is claimed; and
- (c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.

There  is  no  such  proposal  in  altering  the  criteria  of  start-ups  under  the  Income-tax  Act, 1961.

## Answer (e)

Yes, IMB Certification of Eligible Business is a pre-requisite to avail tax deduction on profits and gains derived from eligible business under Section 80-IAC of the Income-tax Act, 1961 for three consecutive years out of ten years from the year in which the eligible start-up is incorporated.

## Answer (f)

No, there is no such proposal.